Introduction to Life Insurance
Content
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Introduction to Life Insurance
AN OVERVIEW
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Introduction to Life Insurance
Objective of this presentation
• To provide a brief knowledge of :– Life Insurance Industry – Meeting Needs of individuals and business – Introduction to Risk & Insurance – Underwriting – Pricing Life Insurance – Term Life Insurance – Permanent Life Insurance – Group Life & Annuities – Supplementary Benefits – Policy Beneficiaries – Life Insurance Policy Provisions – Policy Proceeds ( Claims, Dividends etc.)
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Introduction to Life Insurance
Chapters
Life Insurance Industry Meeting Needs of individuals and business Introduction to Risk & Insurance Underwriting Pricing Life Insurance Term Life Insurance Permanent Life Insurance Group Life & Annuities Supplementary Benefits Policy Beneficiaries Life Insurance Policy Provisions Policy Proceeds ( Claims, Dividends etc.)
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Introduction to Life Insurance
Life Insurance Industry
• Insurance Companies as Business Organizations
– Each business organization is structured in one of three ways :• Sole Proprietorship – The Owner reaps all profits, & – Personally Responsible for all the debts of the business • Partnership – The Partners reaps all profits & are responsible – Partnership dissolves if the partner dies • Corporation – A legal entity, separate and distinct from the people who own it – Continues beyond the death of any or all of it owners
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Introduction to Life Insurance
Life Insurance Industry
Laws in America and Canada require Insurance Companies to operate as Corporation only.
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Introduction to Life Insurance
Life Insurance Industry
• Type of Insurance Company Organisation
– Stock Insurance Companies • Stock holders are the owner • Operating profits are distributed as dividend – Mutual Insurance Companies • Owned by the policyowners • Operating profits are distributed as policy dividend Mutualization & Demutualization • Occurs when a stock insurer converts to a mutual insurer and vice a versa.
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Introduction to Life Insurance
Life Insurance Industry
• Type of Insurance Company Organisation ( Cont..)
– Fraternity Benefit Societies • • • • Society shares a common ethnic, religious, or vocational background Insurance benefits to its members must have a representative form of government Operate thru a lodge system, where lodge members own insurance
– Banks
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Introduction to Life Insurance
Life Insurance Industry
• Organizational Operations
– Home Office or head office – Regional Office – Field Office or branch office or agency office
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Introduction to Life Insurance
Next Chapter
Life Insurance Industry Meeting Needs of individuals and business Introduction to Risk & Insurance Underwriting Pricing Life Insurance Term Life Insurance Permanent Life Insurance Group Life & Annuities Supplementary Benefits Policy Beneficiaries Life Insurance Policy Provisions Policy Proceeds ( Claims, Dividends etc.)
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Introduction to Life Insurance
Meeting Needs of Individual and Business
• Personal Needs met by Life Insurance Products • Business Needs met by Life Insurance Products • Life Insurance as an Employee Benefit
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Introduction to Life Insurance
Meeting Needs of Individual and Business
• Personal needs met by Life Insurance Companies
Estate Plan
Final Expenses and Estate Planning
Dependents’ Support
Education Retirement Costs Income
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Introduction to Life Insurance
Meeting Needs of Individual and Business
• Business needs met by Life Insurance Products
– A business generally purchase life Insurance products to ensure that the business continues in the event of the death of • • • • an owner a partner a shareholder, or, a key person
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Introduction to Life Insurance
Meeting Needs of Individual and Business
• Buy Sell Agreement
– In United States, if an individual dies, all the assets and liabilities become part of his/her estate. – An executor or administrator is assigned to settle the deceased’s estate – The administrator then distributes the remaining property to the deceased person’s heirs. – Many a times, the administrator may have to sell the assets for a price much less than if they could be sold in a more leisurely manner.
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Introduction to Life Insurance
Meeting Needs of Individual and Business
• Buy Sell Agreement ( Cont.)
– A buy-sell agreement is an agreement in which • one party agrees to purchase the financial interest that a second party has in a business following the second party’s death, and • the second party agrees to direct his estate to sell his interest in the business to the purchasing party. – Available for any closely held business • Sole Proprietorship Buy-sell Agreement • Partnership Buy-sell Agreement • Closely held corporation Buy-sell Agreement
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Introduction to Life Insurance
Meeting Needs of Individual and Business
• Sole Proprietorship Buy-sell Agreement
– Employee purchase an Insurance policy on the life of proprietor – Employee owns the policy, pays the premium and is the named beneficiary.
EMPLOYE E
Pays the cost of an insurance policy on the life of the proprietor
SOLE PROPRIETOR
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Introduction to Life Insurance
Meeting Needs of Individual and Business
• Partnership & Corporation Buy-sell Agreement
1. Cross-Purchase Method
PARTNER B PARTNER A PARTNER C
2. Entity Method
BUSINESS
Each partner purchases a life insurance policy on the life of each other partner
The partnership purchases a life insurance policy of the life of each partner
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Introduction to Life Insurance
Meeting Needs of Individual and Business
• Key Person Life Insurance
BUSINESS
Purchases, owns, and is the beneficiary of a life insurance policy on the life of
A person whose death would cause financial loss to the business
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Introduction to Life Insurance
Meeting Needs of Individual and Business
•Life Insurance as an Employee Benefit
– Split Dollar Life Insurance Plan • The employer and employee share the cost of an insurance policy on the life of the employee. • Employee is given the right to name the policy beneficiary – Deferred Compensation Plan
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Introduction to Life Insurance
Next Chapter
Life Insurance Industry Meeting Needs of individuals and business Introduction to Risk & Insurance Underwriting Pricing Life Insurance Term Life Insurance Permanent Life Insurance Group Life & Annuities Supplementary Benefits Policy Beneficiaries Life Insurance Policy Provisions Policy Proceeds ( Claims, Dividends etc.)
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Introduction to Life Insurance
Introduction to Risk & Insurance
• The Concept of Risk
– Speculative Risk :- Gain, Loss or no-loss – Pure Risk :- Loss or no-loss The purpose of Insurance is to Compensate for financial loss and not to provide an opportunity for financial gain.
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Introduction to Life Insurance
Introduction to Risk & Insurance
• Risk Management
• Avoiding Risk - Refrain from doing something
– No air travel
• Controlling Risk - Taking preventive actions
– Install Smoke detectors
• Accepting Risk - Ready to face the implications • Transferring Risk - Transfer the risk to other parties
– Property Damage Risk – Liability Risk – Personal Risk
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Introduction to Life Insurance
Introduction to Risk & Insurance
• Characteristics of Insurable Risks
– The Loss must occur by chance. – The loss must be definite, in terms of time and amount. – The loss must be significant. – The loss rate must be predictable.
• The law of large number ( Refer next slide )
– The loss must not be catastrophic to the insurer.
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Introduction to Life Insurance
Introduction to Risk & Insurance
• The Law of Large Number
The more times we observe an event ...
The more likely it is that our observed results will approximate the “true” probability that the event will occur
COIN TOSSED 1,000 TIMES
HEADS 50%
TAILS 50%
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Introduction to Life Insurance
Introduction to Risk & Insurance
• Concept of Insurable Interest
If the policyowner
Is likely to benefit if the insured continues to live AND Is likely to suffer loss or detriment if the insured dies then
The policyowner has an insurable interest in the insured
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Introduction to Life Insurance
Introduction to Risk & Insurance
• Insurable Interest & Beneficiaries
– Most insurance companies require that the beneficiary have an insurable interest in the life of the insured when a policy is issued
Must have an insurable interest in
BENEFICIARY INSURED
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Introduction to Life Insurance
Introduction to Risk & Insurance
• Insurable Interest & Family Members
– Certain family relationships are deemed by law to create insurable interest
Spouse/Spouse
Parent/Child
Brother/Sister
Grandparent/ Grandchild
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Introduction to Life Insurance
Introduction to Risk & Insurance
• Demonstrating Insurable Interest
Before policy is issued:
After policy is in force:
Life Policy
INSURANCE AGENT
Insurable interest must be present
Insurable interest is not relevant
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Introduction to Life Insurance
Next Chapter
Life Insurance Industry Meeting Needs of individuals and business Introduction to Risk & Insurance Underwriting Pricing Life Insurance Term Life Insurance Permanent Life Insurance Group Life & Annuities Supplementary Benefits Policy Beneficiaries Life Insurance Policy Provisions Policy Proceeds ( Claims, Dividends etc.)
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Introduction to Life Insurance
Definition
•What
– Underwriting or selection of risks, is an insurance function that is responsible for assessing and classifying the degree of risk a proposed insured represents.
•Why
– To be financially healthy and able to pay contractual benefits, every insurer must have a way of measuring the level of risk each proposed insured presents so it can charge a premium rate that is adequate to pay policy benefits.
•Who
– An insurer’s employee who evaluates risks, accepts or declines applications and determine the appropriate premium, is known as Underwriter.
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Introduction to Life Insurance
Antiselection
• An important concept which forces people to seek insurance
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Introduction to Life Insurance
Organisation of Underwriting
• Chief Underwriter
– The highest ranking underwriter in an insurance company
• Medical Underwriting Director
– In-charge of medical experts who provide medical information and guidance
• Underwriting Executives and Supervisors
– Each of whom is responsible for one of more individual or group insurance products
• Underwriters
– Technically qualified professionals who assess the risks
• Agents also known as field underwriters
– Gather initial information and screen applicants
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Introduction to Life Insurance
Underwriting Objective
• Effective underwriting ensures that the insurance policies are :-
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Introduction to Life Insurance
Individual Life Insurance Underwriting
• Risk Classes
– Preferred Class – Standard Class – Substandard Class also called Special or Impaired risk – Declined Class
LIKELIHOOD OF LOSS
Less than Average
PREFERRED CLASS
Averag e
STANDARD CLASS
SUBSTANDARD CLASS
Greater than Average
Too Great Uninsurabl to be Insured e
DECLINED CLASS
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Introduction to Life Insurance
Individual Life Insurance Underwriting
• Risk Assessment Factors
– Medical Risk Factors – Personal Risk Factors – Financial Risk Factors
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Introduction to Life Insurance
Individual Life Insurance Underwriting
• Medical Risk Factors
– Build - Person’s body shape including height and weight – Personal Medical History – Family Medical History - Hereditary disease
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Introduction to Life Insurance
Individual Life Insurance Underwriting
• Personal Risk Factors
– Occupation - Mining industry – Tobacco Use – Alcohol and substance Abuse - Abuse of alcohol or drug – Moral Hazard - Attempt to conceal or misrepresent information – Avocation and hobbies - Skydiving, hang gliding, racing etc. – Aviation activities - Pilots – International Residence - obtaining accurate information can be difficult – Driving History - Drivers with risky driving habits – Military Status - Insurance only when they are not in military operations.
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Introduction to Life Insurance
Individual Life Insurance Underwriting
• Financial Risk Factors
– Insurable Interest • The proposed beneficiary has an insurable interest in the proposed insured’s life • Insurable interest is required only at the time of policy issue, but not after the policy is in force.
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Introduction to Life Insurance
Group Life Insurance Underwriting
• Risk Assessment Factors
– Proposed Coverage
• • • Eligibility Requirements - Only full time permanent employees Benefit Levels - Affordable for employer and reasonable for employees Administration Method - Willingness and ability of a group policyholder to support the administration of the plan Mode of Commission payment - Agent’s commission be spread out over a number of years.
•
– Reason for the group’s existence - Usually for employees, not for groups formed solely for the purpose of group life insurance
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Introduction to Life Insurance
Group Life Insurance Underwriting
• Risk Assessment Factors ( Cont..)
– Size of the group - Larger groups preferred – Nature of the group’s business - Potentials hazards and economics prospects of the industry in which the group operates – Geographic Location of the Group - regions can differ in natural disasters, quality of living and economic conditions, availability of health care. – Stability of the group - steady flow of younger members – Age and Sex distribution of Group Members - group of younger and female members preferred
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Introduction to Life Insurance
Group Life Insurance Underwriting
• Risk Assessment Factors ( Cont..)
– Level of Participation - minimum participation requirement helps prevent Antiselection ( Contributory Plan). – Classes of Employees - Classification by occupation, salary, length of service etc. – Expected Persistency - Policy for longer duration is preferred – Prior Experience - Group insurance information for past 3 years, is analyzed.
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Introduction to Life Insurance
Group Life Insurance Underwriting
• Factors considered in Renewal business
– Claim Experience - If the claims were less than expected, the renewal premium may go down and vice a versa. – Level of Participation - For contributory plans, the level of employee participation must meet the required minimum.
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Introduction to Life Insurance
Regulatory Requirements and Underwriting
•Unfair Discrimination
– Underwriting decision cannot be based on insured’s sex, race, marital status, national origin, or religion. – Only unfair discrimination is prohibited.
• Consumer Privacy
– Fair Credit Reporting Act ( FCRA) - Applicant be notified that
• a consumer report will be used. • Nature and scope of the investigation • if any adverse decision is taken based on that information
– NAIC Model Privacy Act
• Establishes standards for the collection, use and disclosure of information gathered
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Introduction to Life Insurance
The Underwriting Process
Application Received Underwriter Reviews application Need additional info Obtain & review additional info Send application with substandard rating to policy issue Policy issue sends Policy to Agent Agent offers policy to applicant Standard Risk Insurable at sub-std risk
Approve Application Application sent to policy issue Policy issue sends Policy to Agent or Policyonwner
Decline Application
Policy in force
Applicant accepts rated policy
No Policy in force
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Introduction to Life Insurance
Gathering Additional Information
• Additional Medical Information • Additional Personal Information • Additional Financial Information
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Introduction to Life Insurance
Gathering Additional Information
•Additional Medical Information
– Attending Physician’s Statement ( APS ) • Report by a physician who has treated or currently treating the proposed insured. – Specialized Medical Questionnaire • A specialized medical questionnaire is requested from the proposed insured’s attending physician – MIB Report • MIB members may request information to find out whether proposed insured has any significant impairments or other risk, not disclosed by him. – Laboratory Tests • May also order such tests if they are deemed necessary to make a sound underwriting decision.
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Introduction to Life Insurance
Gathering Additional Information
•Additional Personal Information
– Motor Vehicle Record • Person’s driving history including traffic violations, arrests and convictions for driving related incidents. – Inspection Report • Information collected from a consumer reporting agency, which can be on insured’s personal life, occupation, hobbies, health and financial status. – Personal Questionnaires • A specialized personal questionnaire is requested from the proposed insured
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Introduction to Life Insurance
Gathering Additional Information
• Additional Financial Information
– Inspection Report • Information collected from a consumer reporting agency, which can be on insured’s financial status including investments, income, assets and liabilities. – Credit Report • Credit History from Credit Reporting agency
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Introduction to Life Insurance
Making an Underwriting Decision
• Approve the Coverage as applied for • Rate the Application
– By modifying the coverage or charging a higher premium
• Decline the Application
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Introduction to Life Insurance
Next Chapter
Life Insurance Industry Meeting Needs of individuals and business Introduction to Risk & Insurance Underwriting Pricing Life Insurance Term Life Insurance Permanent Life Insurance Group Life & Annuities Supplementary Benefits Policy Beneficiaries Life Insurance Policy Provisions Policy Proceeds ( Claims, Dividends etc.)
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Introduction to Life Insurance
Pricing Life Insurance
•Methods of Funding Life Insurance
– Mutual Benefit Method - Post-death assessment
– Problems in collecting money – size of group become smaller – each members’ cost increases each year
– Assessment Method - Annual assessment
– Anticipated death claims and administrative expenses
– Legal Reserve System
– Death benefit should be specified – Money should be collected in advance – Premium should be related to the risk
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Introduction to Life Insurance
Pricing Life Insurance
• Premium Rate Calculations
– Factors to be considered :• Rate of Mortality • Investment earnings • Expenses ( also known as loading )
Premium = Cost of Insurance + Expenses - Investment Earnings
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Introduction to Life Insurance
Pricing Life Insurance
• The 1980 Commissioners Standard Ordinary (CSO) Mortality Table Male
AGE 0 1 45 46 98 99 Number Living 10,000,000 9,958,200 9,210,289 9,168,382 31,450 10,757 Number Dying 41,800 10,655 41,907 45,108 20,693 10,757 Mortality Rate per 1000 4.18 1.07 4.55 4.92 657.98 1,000.00 AGE 0 1 45 46 98 99
Female
Number Living 10,000,000 9,971,100 9,409,244 9,375,747 89,200 30,698 Number Dying 28,900 8,675 33,497 35628 58,502 30,698 Mortality Rate per 1000 2.89 0.87 3.56 3.80 655.85 1,000.00
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Introduction to Life Insurance
Pricing Life Insurance
• Level Premium Pricing System
– It allows the purchaser to pay the same premium amount each year the policy is in force. This pricing system is widely used for whole life, term life covering more than one year and endowment insurance
Level Premium System
$1,500
Premium Amount
$1,000 $500 1 5
Years Policy is in Force
10
15
20
25
30
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Introduction to Life Insurance
Pricing Life Insurance
• Policy Dividend
– Participating Policy also known as Par Policy
• the policyowner shares the divisible surplus of Insurance company.
– Non-participating Policy also known as Non-par Policy
• the policyowner does not share in the insurer’s surplus.
Insurer’s Divisible Surplus
Policy Dividend
Policy Dividend
POLICY OWNER
POLICY OWNER
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Pricing Life Insurance
• Life Insurance Reserve
– Policy Reserve - To pay due policy benefits
• Net amount at risk = Face Value - Policy Reserve
– Contingency Reserve - For unusual conditions that may occur
NET AMOUNT AT RISK
POLICY RESERVE
POLICY FACE AMOUNT
POLICY RESERVE
NET AMOUNT AT RISK
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Introduction to Life Insurance
Next Chapter
Life Insurance Industry Meeting Needs of individuals and business Introduction to Risk & Insurance Underwriting Pricing Life Insurance Term Life Insurance Permanent Life Insurance Group Life & Annuities Supplementary Benefits Policy Beneficiaries Life Insurance Policy Provisions Policy Proceeds ( Claims, Dividends etc.)
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Introduction to Life Insurance
Type of Insurance
• TERM LIFE INSURANCE • PERMANENT LIFE INSURANCE • ENDOWMENT
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Introduction to Life Insurance
Term Life Insurance
• Characteristics of Term Life Insurance Product
– Coverage for a specified period of time – The policy benefits are payable only if, • the insured dies during the specified period, and • the policy is in force when the insured dies.
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Introduction to Life Insurance
Term Life Insurance
•Plans of Term Life Insurance Coverage
– Level Term Life Insurance – Decreasing Term Life Insurance • Mortgage Redemption Insurance • Credit Life Insurance • Family Income Insurance – Increasing Term Life Insurance
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Introduction to Life Insurance
Term Life Insurance
• Renewable Term Life Insurance
Renewal Provision
Allows policyowner to renew the policy at the end of the term of coverage, without providing evidence of insurability
Yearly Renewable Term (YRT) Insurance
(1)
One-Year Term Life Insurance Policy Life Insurance Policy
(2)
Term Insurance Rider
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Introduction to Life Insurance
Term Life Insurance
• Convertible Term Life Insurance
Conversion Privilege
Term Life Insurance Policy Permanent Life Insurance Policy
• No evidence of insurability required
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Introduction to Life Insurance
Term Life Insurance
• Type of Conversion
Attained Age Conversion
Original Age Conversion
Age of insured when policy was purchased
Age of insured when policy was converted
Age of insured when policy was purchased
Age of insured when policy was converted
Renewal premium is based on this age
Renewal premium is based on this age
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Introduction to Life Insurance
Next Chapter
Life Insurance Industry Meeting Needs of individuals and business Introduction to Risk & Insurance Underwriting Pricing Life Insurance Term Life Insurance Permanent Life Insurance Group Life & Annuities Supplementary Benefits Policy Beneficiaries Life Insurance Policy Provisions Policy Proceeds ( Claims, Dividends etc.)
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Introduction to Life Insurance
Permanent Life Insurance
• Two Primary Distinct Characteristics
• Permanent life insurance products offer lifetime coverage • Permanent life insurance products provide insurance coverage and contain a saving element i.e. It builds a cash value.
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Introduction to Life Insurance
Permanent Life Insurance
• Traditional Whole Life Insurance
Policy Purchased at Age 45
$150,000
Death Benefit
$100,000 $75,000 45 50 60 70 80 90 100 or death
Insured’s Age
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Introduction to Life Insurance
Traditional Whole Life Insurance
• Classification of Whole Life Policies
ContinuousPremium Policies
Premiums payable until the insured’s death, cash value at the end of 3rd year
Date of policy purchase Insured’s death
Limited Payment Policies
Premiums payable until stated period expires, cash value at the end of 1st year
Date of policy purchase End of specified period
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Traditional Whole Life Insurance
• Classification of Whole Life Policies (Cont.)
– Single Premium Policy
Single premium payment
Results in large cash value immediately available
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Introduction to Life Insurance
Traditional Whole Life Insurance
• Other type of Whole Life Policies :– Modified Whole Life Insurance - Modified Premium or Modified Coverage – Joint Whole Life Insurance as first-to-die life insurance – Last Survivor Life Insurance as second-to-die life insurance – Family Policies coverage on the insured’s spouse and children – Monthly Debit Ordinary Policy Monthly premium & small face amount – Pre-Need Funeral Insurance Funeral homes as policy beneficiary
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Introduction to Life Insurance
Permanent Life Insurance
• A Newer Generation of Permanent Products
– Universal Life Insurance
Flexible Premiums
LARGER SMALLER
Flexible Face Amounts
MORE
Unbundled Pricing Factors
1. Mortality Charges 2. Interest 3. Expenses
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$100,000 Life Insurance Policy
LESS
Introduction to Life Insurance
Universal Life Insurance
• Unbundled Pricing Factors
Mortality Charges
Stated maximum amount May be less if mortality experience is favorable
Interest
May be higher if economic conditions warrant Stated minimum interest rate
Expenses
Each expense charge is listed in policy
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Introduction to Life Insurance
Universal Life Insurance
• Flexible Face Amount
Option A Plan
Death benefit
Life Policy
Policy face amount
Option B Plan
Death benefit
Life Policy
Policy face amount Cash Value
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Universal Life Insurance
• Flexible Premiums - Policyowner determines how much to pay
INITIAL AND RENEWAL PREMIUMS
Minimum amount Policyowner
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Universal Life Insurance
• How a universal life policy operates
Pre miu ms
s tere In
t
ly nth Mo
es arg Ch
CASH VALUE
Oth loa er ch ns, arg with es, dra wa ls
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Introduction to Life Insurance
Universal Life Insurance
• Regulation of Universal Life Policies A certain percentage of the policy’s face amount
Section 7702 Corridor Surrender Charges Periodic Reports
<
CASH VALUE
If policy includes surrender charges, regulators may require use of two separate terms to describe (1) cash value and (2) cash surrender value Insurers send each policyowner an annual, semiannual, or quarterly report giving the policy’s current values and benefits
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Introduction to Life Insurance
Permanent Life Insurance
•Other Advanced whole Life Products
– Adjustable Life Insurance – Indeterminate Premium Life Insurance - A maximum guaranteed premium rate and a lower premium rate – Interest-Sensitive Whole Life Insurance - Apart from flexible premium cash value can also be greater than the guaranteed – Variable Life Insurance - Separate Investment Account – Variable Universal Life Insurance - Combination of variable and universal life insurance
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Introduction to Life Insurance
Endowment Life Insurance
• Endowment insurance provides a specified benefit amount whether the insured lives to the end of the term of coverage or dies during that term. • The maturity date is reached either
– at the end of the stated term, or – when the insured reaches a specified age.
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Introduction to Life Insurance
Next Chapter
Life Insurance Industry Meeting Needs of individuals and business Introduction to Risk & Insurance Underwriting Pricing Life Insurance Term Life Insurance Permanent Life Insurance Group Life & Annuities Supplementary Benefits Policy Beneficiaries Life Insurance Policy Provisions Policy Proceeds ( Claims, Dividends etc.)
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Introduction to Life Insurance
Group Life Insurance
• Group Insurance Contract
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Introduction to Life Insurance
Group Life Insurance
• Type of Group Insurance Plan
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Introduction to Life Insurance
Group Life Insurance
•Group Insurance Underwriting
– Group Insurance differs significantly from individual insurance in the area of underwriting. – Group Insurance underwriting generally focuses on the characteristics of the group and does not usually require individuals to provide the evidence of insurability. – Objective is similar to determine whether the group presents an average risk. – Group underwriter also seeks to prevent antiselection and to ensure that the administrative costs are as low as possible.
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Introduction to Life Insurance
Group Insurance Underwriting
• Group Underwriting Considerations
– Reason for the group’s existence : The group must have been formed for a reason other than to obtain insurance. The eligible groups are
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Introduction to Life Insurance
Group Insurance Underwriting
• Group Underwriting Considerations
– Reason for the group’s existence : The eligible groups (Cont.)
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Introduction to Life Insurance
Group Insurance Underwriting
• Group Underwriting Considerations
– Size of the group
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Introduction to Life Insurance
Group Insurance Underwriting
• Group Underwriting Considerations
– Flow of new members into the group
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Introduction to Life Insurance
Group Insurance Underwriting
• Group Underwriting Considerations
– Stability of the Group
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Introduction to Life Insurance
Group Insurance Underwriting
• Group Underwriting Considerations
– Activities of the Group
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Introduction to Life Insurance
Group Life Insurance
• Eligibility Requirements
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Introduction to Life Insurance
Group Insurance Premium
• The insurer
– establishes group premium rates on a case-by-case basis – determines the cost of providing coverage – determines the cost of plan administration – recalculates a group’s rate every year
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Introduction to Life Insurance
Group Insurance Premium
• Premium Rates
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Introduction to Life Insurance
Group Life Insurance
• Termination Provision
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Introduction to Life Insurance
Annuity
• Definition
– The term Annuity means a contract under which one party - the insurer promises to make a series of periodic payments in exchange for a premium or a series of premiums. – Does not cover life insurance
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Introduction to Life Insurance
Classification of Annuities
• How Annuities are purchased
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Introduction to Life Insurance
Classification of Annuities
• When benefit payments begin
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Introduction to Life Insurance
Classification of Annuities
• When benefit payments end
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Introduction to Life Insurance
Classification of Annuities
• How Annuity values are guaranteed or variable
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Introduction to Life Insurance
Annuity
• Annuity Contract Provisions
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Introduction to Life Insurance
Next Chapter
Life Insurance Industry Meeting Needs of individuals and business Introduction to Risk & Insurance Underwriting Pricing Life Insurance Term Life Insurance Permanent Life Insurance Group Life & Annuities Supplementary Benefits Policy Beneficiaries Life Insurance Policy Provisions Policy Proceeds ( Claims, Dividends etc.)
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Introduction to Life Insurance
Supplementary Disability Benefits
• Waiver of premium for disability benefit
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Introduction to Life Insurance
Supplementary Disability Benefits
• Waiver of premium for PAYOR benefit
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Introduction to Life Insurance
Supplementary Disability Benefits
• Disability Income Benefit
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Introduction to Life Insurance
Accident Benefits
• Accidental Death Benefit
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Introduction to Life Insurance
Accident Benefits
• Dismember Benefit
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Introduction to Life Insurance
Accelerated Death Benefits
• Terminal Illness Benefit
– A partial death benefit payment made to a policyowner if the insured has a terminal illness and 12 months or less to live
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Introduction to Life Insurance
Accelerated Death Benefits
• Dread Disease Benefit
– A partial death benefit payment made to a policyowner if the insured suffers from one of several specified diseases such as : • Life-threatening Cancer • Aids • Coronary bypass surgery etc.
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Introduction to Life Insurance
Accelerated Death Benefits
• Long Term Care Benefit
– A monthly benefit paid to a policyowner if the insured requires constant care for a medical condition and is unable to perform several activities of daily living
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Introduction to Life Insurance
Other Benefits
• Benefits for additional Insureds
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Introduction to Life Insurance
Next Chapter
Life Insurance Industry Meeting Needs of individuals and business Introduction to Risk & Insurance Underwriting Pricing Life Insurance Term Life Insurance Permanent Life Insurance Group Life & Annuities Supplementary Benefits Policy Beneficiaries Life Insurance Policy Provisions Policy Proceeds ( Claims, Dividends etc.)
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Introduction to Life Insurance
Life Insurance Policy Beneficiaries
• Who can be a beneficiary
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Introduction to Life Insurance
Life Insurance Policy Beneficiaries
• Types of Beneficiaries
– Primary Beneficiary • He/She is the party designated to receive the policy proceeds following the death of the insured. • If more than one primary beneficiary, the policyowners indicates how the same is to be distributed. • If no instructions from policyowner, the proceeds are divided evenly among the primary beneficiaries. • In order to receive policy proceeds, the primary beneficiary must survive the insured.
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Introduction to Life Insurance
Life Insurance Policy Beneficiaries
• Types of Beneficiaries
– Contingent Beneficiary • He/she will receive the policy proceeds if all primary beneficiaries should die before the insured. • The policy owner can name any number of contingent beneficiaries and may decide how the proceeds are to be divided among the contingent beneficiaries.
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Introduction to Life Insurance
Life Insurance Policy Beneficiaries
• Types of Beneficiaries
– No Surviving Beneficiary • If no beneficiary has been named or none of the named beneficiaries is living when the insured dies, then the policy proceeds are paid to the policy owner, if the policy owner is living. • If the policy owner is deceased, then the proceeds are paid to the policy owner’s estate.
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Introduction to Life Insurance
Life Insurance Policy Beneficiaries
• General rule for common disaster
– If the insured and the beneficiary die at the same time or under circumstances that make it impossible to determine which of them died first, then policy proceeds are payable as if the insured survived the beneficiary. • Example : Mohan and his wife, Radha died in an airplane crash and the evidence did not show which of them died first. Mohan owned an insurance policy in which Radha was the primary beneficiary and Mohan’s mother was the contingent beneficiary, Radha also owned an insurance policy in which Mohan was the primary beneficiary and Radha’s father was the contingent beneficiary. Although Radha’s father survived her, Mohan’s mother died several years before the crash.
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Introduction to Life Insurance
Life Insurance Policy Beneficiaries
• Analysis of the case study
– Mohan’s Policy : The insured, Mohan, is deemed to have survived the primary beneficiary, Radha. Thus, the policy proceeds are payable to the contingent beneficiary, if she survived the insured. Because Mohan’s mother predeceased him, the policy proceeds are payable to Mohan’s estate. – Radha’s Policy : The insured, Radha, is deemed to have survived the primary beneficiary, Mohan. Thus, the policy proceeds are payable to the contingent beneficiary, if he survived the insured. Because Radha’s father survived her, the policy proceeds are payable to him.
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Introduction to Life Insurance
Life Insurance Policy Beneficiaries
• Right of Revocation
– Revocable Beneficiary • A beneficiary designation is said to be revocable if the policy owner has the unrestricted right to change the beneficiary during the life of the insured. – Irrevocable Beneficiary • If the policy owner has the right to change the beneficiary only after obtaining the beneficiary’s consent, then the designation is said to be irrevocable.
CSC India
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Introduction to Life Insurance
Next Chapter
Life Insurance Industry Meeting Needs of individuals and business Introduction to Risk & Insurance Underwriting Pricing Life Insurance Term Life Insurance Permanent Life Insurance Group Life & Annuities Supplementary Benefits Policy Beneficiaries Life Insurance Policy Provisions Policy Proceeds ( Claims, Dividends etc.)
CSC India
116
Introduction to Life Insurance
Life Insurance Policy Provisions
• Standard Policy Provisions
– Free-look Provisions : Allows policy owner to examine the policy
CSC India
117
Introduction to Life Insurance
Life Insurance Policy Provisions
• Standard Policy Provisions
– Entire Contract Provisions • This provision defines the documents that constitute the contract between the insurance company and the owner of the insurance policy. • This provision prevents oral statements from affecting the terms of the policy and prevents controversies from developing regarding the terms of the contractual agreement.
CSC India
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Introduction to Life Insurance
Life Insurance Policy Provisions
• Standard Policy Provisions
– Incontestability Provisions : usually 2 years for material misrepresentation
CSC India
119
Introduction to Life Insurance
Life Insurance Policy Provisions
• Standard Policy Provisions
– Grace Period Provision - Specifies the length of time within which a renewal premium may be paid without penalty, usually 30 days
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120
Introduction to Life Insurance
Life Insurance Policy Provisions
• Standard Policy Provisions
– Policy Loans : Grants a policy owner the right to borrow money from the insurer
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Introduction to Life Insurance
Life Insurance Policy Provisions
• Standard Policy Provisions
– Policy Withdrawals : In universal life insurance policies, permits the policy owner to withdraw funds
CSC India
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Introduction to Life Insurance
Life Insurance Policy Provisions
• Standard Policy Provisions
– Re-instatement Provisions : Describes conditions that the policy owner must meet to reinstate a lapsed policy
CSC India
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Introduction to Life Insurance
Life Insurance Policy Provisions
• Standard Policy Provisions
– Mis-statement of age or sex provision : Describes how the insurer will adjust the policy benefit if the insurer’s age or sex is incorrectly stated
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Introduction to Life Insurance
Life Insurance Policy Provisions
• Non-forfeiture Benefits :
– Available to a policy owner whose policy lapses but still contains a cash value
CSC India
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Introduction to Life Insurance
Life Insurance Policy Provisions
• Non-forfeiture Benefits
– Cash Surrender Value
CSC India
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Introduction to Life Insurance
Life Insurance Policy Provisions
• Non-forfeiture Benefits
– Reduced Paid-up Insurance
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Introduction to Life Insurance
Life Insurance Policy Provisions
• Non-forfeiture Benefits
– Extended Term Insurance
CSC India
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Introduction to Life Insurance
Life Insurance Policy Provisions
• Non-forfeiture Benefits
– Automatic Non-forfeiture Benefit : Become effective automatically when the insured has not paid a renewal premium by the end of the grace period and has not elected another non-forfeiture option
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Introduction to Life Insurance
Life Insurance Policy Provisions
• Life Insurance Policy Exclusions
– Suicide Exclusion Clause
– War Exclusion Clause – Aviation Exclusion Clause
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Introduction to Life Insurance
Next Chapter
Life Insurance Industry Meeting Needs of individuals and business Introduction to Risk & Insurance Underwriting Pricing Life Insurance Term Life Insurance Permanent Life Insurance Group Life & Annuities Supplementary Benefits Policy Beneficiaries Life Insurance Policy Provisions Policy Proceeds ( Claims, Dividends etc.)
CSC India
131
Introduction to Life Insurance
Life Insurance Policy Proceeds
• Policy Dividend Options
– Methods of receiving policy dividends
CSC India
132
Introduction to Life Insurance
Life Insurance Policy Proceeds
• Policy Dividend Options
– Cash Dividend
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Introduction to Life Insurance
Life Insurance Policy Proceeds
• Policy Dividend Options
– Premium Reduction
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Introduction to Life Insurance
Life Insurance Policy Proceeds
• Policy Dividend Options
– Accumulation at Interest
CSC India
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Introduction to Life Insurance
Life Insurance Policy Proceeds
• Policy Dividend Options
– Paid up Additional Insurance
CSC India
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Introduction to Life Insurance
Life Insurance Policy Proceeds
• Policy Dividend Options
– Additional Term Insurance : also called the fifth dividend option
CSC India
137
Introduction to Life Insurance
Life Insurance Policy Proceeds
• Processing Life Insurance Claims
– Claimant must provide two documents
CSC India
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Introduction to Life Insurance
Life Insurance Policy Proceeds
• Claim Examination Process
CSC India
139
Introduction to Life Insurance
Life Insurance Policy Proceeds
• Claim Examination Process
– Status of Policy • The policy must be in force when the insured died. • For example, a term life insurance policy may have reached the end of its term and expired. • The claim examiner must verify that the policy did not terminate for any other reason before the insured’s death.
CSC India
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Introduction to Life Insurance
Life Insurance Policy Proceeds
• Claim Examination Process
– Identification of the Insured : The claim examiner confirms that the person who died was the person insured by the policy
CSC India
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Introduction to Life Insurance
Life Insurance Policy Proceeds
• Claim Examination Process
– Verification of the loss • In order to verify that the insured has died, the claim examiner must examine the proof of loss document provided to him. • In most cases, the death certificate or other proof of loss document submitted by the claimant provides all of the information the claim examiner needs to verify
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Introduction to Life Insurance
Life Insurance Policy Proceeds
• Claim Examination Process
– Verification of Policy Coverage • The insurance policy is reviewed to determine what type of coverage it provides. • The policy exclusions must be considered e.g. Suicide exclusion.
CSC India
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Introduction to Life Insurance
Life Insurance Policy Proceeds
• Claim Examination Process
– Identifying the proper payee
Primary Beneficiary named ? Living ?
Approval to pay claim
Pay Primary Beneficiary
Proceeds payable to Policy owner if living; Otherwise to Policy owner’s Estate
Contingent Beneficiary named ? Living ?
Second Contingent Beneficiary named ?
Pay Contingent Beneficiary
Living ?
Other Contingent Beneficiary named ?
Pay Second Contingent Beneficiary
CSC India
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Introduction to Life Insurance
Life Insurance Policy Proceeds
• Claim Examination Process
– Determining the amount of death benefits
CSC India
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Introduction to Life Insurance
Life Insurance Policy Proceeds
• Payment of Policy Proceeds
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Thank You for your participation
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1
Introduction to Life Insurance
AN OVERVIEW
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Introduction to Life Insurance
Objective of this presentation
• To provide a brief knowledge of :– Life Insurance Industry – Meeting Needs of individuals and business – Introduction to Risk & Insurance – Underwriting – Pricing Life Insurance – Term Life Insurance – Permanent Life Insurance – Group Life & Annuities – Supplementary Benefits – Policy Beneficiaries – Life Insurance Policy Provisions – Policy Proceeds ( Claims, Dividends etc.)
CSC India
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Introduction to Life Insurance
Chapters
Life Insurance Industry Meeting Needs of individuals and business Introduction to Risk & Insurance Underwriting Pricing Life Insurance Term Life Insurance Permanent Life Insurance Group Life & Annuities Supplementary Benefits Policy Beneficiaries Life Insurance Policy Provisions Policy Proceeds ( Claims, Dividends etc.)
CSC India
4
Introduction to Life Insurance
Life Insurance Industry
• Insurance Companies as Business Organizations
– Each business organization is structured in one of three ways :• Sole Proprietorship – The Owner reaps all profits, & – Personally Responsible for all the debts of the business • Partnership – The Partners reaps all profits & are responsible – Partnership dissolves if the partner dies • Corporation – A legal entity, separate and distinct from the people who own it – Continues beyond the death of any or all of it owners
CSC India
5
Introduction to Life Insurance
Life Insurance Industry
Laws in America and Canada require Insurance Companies to operate as Corporation only.
CSC India
6
Introduction to Life Insurance
Life Insurance Industry
• Type of Insurance Company Organisation
– Stock Insurance Companies • Stock holders are the owner • Operating profits are distributed as dividend – Mutual Insurance Companies • Owned by the policyowners • Operating profits are distributed as policy dividend Mutualization & Demutualization • Occurs when a stock insurer converts to a mutual insurer and vice a versa.
CSC India
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Introduction to Life Insurance
Life Insurance Industry
• Type of Insurance Company Organisation ( Cont..)
– Fraternity Benefit Societies • • • • Society shares a common ethnic, religious, or vocational background Insurance benefits to its members must have a representative form of government Operate thru a lodge system, where lodge members own insurance
– Banks
CSC India
8
Introduction to Life Insurance
Life Insurance Industry
• Organizational Operations
– Home Office or head office – Regional Office – Field Office or branch office or agency office
CSC India
9
Introduction to Life Insurance
Next Chapter
Life Insurance Industry Meeting Needs of individuals and business Introduction to Risk & Insurance Underwriting Pricing Life Insurance Term Life Insurance Permanent Life Insurance Group Life & Annuities Supplementary Benefits Policy Beneficiaries Life Insurance Policy Provisions Policy Proceeds ( Claims, Dividends etc.)
CSC India
10
Introduction to Life Insurance
Meeting Needs of Individual and Business
• Personal Needs met by Life Insurance Products • Business Needs met by Life Insurance Products • Life Insurance as an Employee Benefit
CSC India
11
Introduction to Life Insurance
Meeting Needs of Individual and Business
• Personal needs met by Life Insurance Companies
Estate Plan
Final Expenses and Estate Planning
Dependents’ Support
Education Retirement Costs Income
CSC India 12
Introduction to Life Insurance
Meeting Needs of Individual and Business
• Business needs met by Life Insurance Products
– A business generally purchase life Insurance products to ensure that the business continues in the event of the death of • • • • an owner a partner a shareholder, or, a key person
CSC India
13
Introduction to Life Insurance
Meeting Needs of Individual and Business
• Buy Sell Agreement
– In United States, if an individual dies, all the assets and liabilities become part of his/her estate. – An executor or administrator is assigned to settle the deceased’s estate – The administrator then distributes the remaining property to the deceased person’s heirs. – Many a times, the administrator may have to sell the assets for a price much less than if they could be sold in a more leisurely manner.
CSC India
14
Introduction to Life Insurance
Meeting Needs of Individual and Business
• Buy Sell Agreement ( Cont.)
– A buy-sell agreement is an agreement in which • one party agrees to purchase the financial interest that a second party has in a business following the second party’s death, and • the second party agrees to direct his estate to sell his interest in the business to the purchasing party. – Available for any closely held business • Sole Proprietorship Buy-sell Agreement • Partnership Buy-sell Agreement • Closely held corporation Buy-sell Agreement
CSC India
15
Introduction to Life Insurance
Meeting Needs of Individual and Business
• Sole Proprietorship Buy-sell Agreement
– Employee purchase an Insurance policy on the life of proprietor – Employee owns the policy, pays the premium and is the named beneficiary.
EMPLOYE E
Pays the cost of an insurance policy on the life of the proprietor
SOLE PROPRIETOR
CSC India 16
Introduction to Life Insurance
Meeting Needs of Individual and Business
• Partnership & Corporation Buy-sell Agreement
1. Cross-Purchase Method
PARTNER B PARTNER A PARTNER C
2. Entity Method
BUSINESS
Each partner purchases a life insurance policy on the life of each other partner
The partnership purchases a life insurance policy of the life of each partner
CSC India 17
Introduction to Life Insurance
Meeting Needs of Individual and Business
• Key Person Life Insurance
BUSINESS
Purchases, owns, and is the beneficiary of a life insurance policy on the life of
A person whose death would cause financial loss to the business
CSC India 18
Introduction to Life Insurance
Meeting Needs of Individual and Business
•Life Insurance as an Employee Benefit
– Split Dollar Life Insurance Plan • The employer and employee share the cost of an insurance policy on the life of the employee. • Employee is given the right to name the policy beneficiary – Deferred Compensation Plan
CSC India
19
Introduction to Life Insurance
Next Chapter
Life Insurance Industry Meeting Needs of individuals and business Introduction to Risk & Insurance Underwriting Pricing Life Insurance Term Life Insurance Permanent Life Insurance Group Life & Annuities Supplementary Benefits Policy Beneficiaries Life Insurance Policy Provisions Policy Proceeds ( Claims, Dividends etc.)
CSC India
20
Introduction to Life Insurance
Introduction to Risk & Insurance
• The Concept of Risk
– Speculative Risk :- Gain, Loss or no-loss – Pure Risk :- Loss or no-loss The purpose of Insurance is to Compensate for financial loss and not to provide an opportunity for financial gain.
CSC India
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Introduction to Life Insurance
Introduction to Risk & Insurance
• Risk Management
• Avoiding Risk - Refrain from doing something
– No air travel
• Controlling Risk - Taking preventive actions
– Install Smoke detectors
• Accepting Risk - Ready to face the implications • Transferring Risk - Transfer the risk to other parties
– Property Damage Risk – Liability Risk – Personal Risk
CSC India
22
Introduction to Life Insurance
Introduction to Risk & Insurance
• Characteristics of Insurable Risks
– The Loss must occur by chance. – The loss must be definite, in terms of time and amount. – The loss must be significant. – The loss rate must be predictable.
• The law of large number ( Refer next slide )
– The loss must not be catastrophic to the insurer.
CSC India
23
Introduction to Life Insurance
Introduction to Risk & Insurance
• The Law of Large Number
The more times we observe an event ...
The more likely it is that our observed results will approximate the “true” probability that the event will occur
COIN TOSSED 1,000 TIMES
HEADS 50%
TAILS 50%
CSC India 24
Introduction to Life Insurance
Introduction to Risk & Insurance
• Concept of Insurable Interest
If the policyowner
Is likely to benefit if the insured continues to live AND Is likely to suffer loss or detriment if the insured dies then
The policyowner has an insurable interest in the insured
CSC India
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Introduction to Life Insurance
Introduction to Risk & Insurance
• Insurable Interest & Beneficiaries
– Most insurance companies require that the beneficiary have an insurable interest in the life of the insured when a policy is issued
Must have an insurable interest in
BENEFICIARY INSURED
CSC India
26
Introduction to Life Insurance
Introduction to Risk & Insurance
• Insurable Interest & Family Members
– Certain family relationships are deemed by law to create insurable interest
Spouse/Spouse
Parent/Child
Brother/Sister
Grandparent/ Grandchild
CSC India
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Introduction to Life Insurance
Introduction to Risk & Insurance
• Demonstrating Insurable Interest
Before policy is issued:
After policy is in force:
Life Policy
INSURANCE AGENT
Insurable interest must be present
Insurable interest is not relevant
CSC India 28
Introduction to Life Insurance
Next Chapter
Life Insurance Industry Meeting Needs of individuals and business Introduction to Risk & Insurance Underwriting Pricing Life Insurance Term Life Insurance Permanent Life Insurance Group Life & Annuities Supplementary Benefits Policy Beneficiaries Life Insurance Policy Provisions Policy Proceeds ( Claims, Dividends etc.)
CSC India
29
Introduction to Life Insurance
Definition
•What
– Underwriting or selection of risks, is an insurance function that is responsible for assessing and classifying the degree of risk a proposed insured represents.
•Why
– To be financially healthy and able to pay contractual benefits, every insurer must have a way of measuring the level of risk each proposed insured presents so it can charge a premium rate that is adequate to pay policy benefits.
•Who
– An insurer’s employee who evaluates risks, accepts or declines applications and determine the appropriate premium, is known as Underwriter.
CSC India
30
Introduction to Life Insurance
Antiselection
• An important concept which forces people to seek insurance
CSC India
31
Introduction to Life Insurance
Organisation of Underwriting
• Chief Underwriter
– The highest ranking underwriter in an insurance company
• Medical Underwriting Director
– In-charge of medical experts who provide medical information and guidance
• Underwriting Executives and Supervisors
– Each of whom is responsible for one of more individual or group insurance products
• Underwriters
– Technically qualified professionals who assess the risks
• Agents also known as field underwriters
– Gather initial information and screen applicants
CSC India
32
Introduction to Life Insurance
Underwriting Objective
• Effective underwriting ensures that the insurance policies are :-
CSC India
33
Introduction to Life Insurance
Individual Life Insurance Underwriting
• Risk Classes
– Preferred Class – Standard Class – Substandard Class also called Special or Impaired risk – Declined Class
LIKELIHOOD OF LOSS
Less than Average
PREFERRED CLASS
Averag e
STANDARD CLASS
SUBSTANDARD CLASS
Greater than Average
Too Great Uninsurabl to be Insured e
DECLINED CLASS
CSC India 34
Introduction to Life Insurance
Individual Life Insurance Underwriting
• Risk Assessment Factors
– Medical Risk Factors – Personal Risk Factors – Financial Risk Factors
CSC India
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Introduction to Life Insurance
Individual Life Insurance Underwriting
• Medical Risk Factors
– Build - Person’s body shape including height and weight – Personal Medical History – Family Medical History - Hereditary disease
CSC India
36
Introduction to Life Insurance
Individual Life Insurance Underwriting
• Personal Risk Factors
– Occupation - Mining industry – Tobacco Use – Alcohol and substance Abuse - Abuse of alcohol or drug – Moral Hazard - Attempt to conceal or misrepresent information – Avocation and hobbies - Skydiving, hang gliding, racing etc. – Aviation activities - Pilots – International Residence - obtaining accurate information can be difficult – Driving History - Drivers with risky driving habits – Military Status - Insurance only when they are not in military operations.
CSC India
37
Introduction to Life Insurance
Individual Life Insurance Underwriting
• Financial Risk Factors
– Insurable Interest • The proposed beneficiary has an insurable interest in the proposed insured’s life • Insurable interest is required only at the time of policy issue, but not after the policy is in force.
CSC India
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Introduction to Life Insurance
Group Life Insurance Underwriting
• Risk Assessment Factors
– Proposed Coverage
• • • Eligibility Requirements - Only full time permanent employees Benefit Levels - Affordable for employer and reasonable for employees Administration Method - Willingness and ability of a group policyholder to support the administration of the plan Mode of Commission payment - Agent’s commission be spread out over a number of years.
•
– Reason for the group’s existence - Usually for employees, not for groups formed solely for the purpose of group life insurance
CSC India
39
Introduction to Life Insurance
Group Life Insurance Underwriting
• Risk Assessment Factors ( Cont..)
– Size of the group - Larger groups preferred – Nature of the group’s business - Potentials hazards and economics prospects of the industry in which the group operates – Geographic Location of the Group - regions can differ in natural disasters, quality of living and economic conditions, availability of health care. – Stability of the group - steady flow of younger members – Age and Sex distribution of Group Members - group of younger and female members preferred
CSC India
40
Introduction to Life Insurance
Group Life Insurance Underwriting
• Risk Assessment Factors ( Cont..)
– Level of Participation - minimum participation requirement helps prevent Antiselection ( Contributory Plan). – Classes of Employees - Classification by occupation, salary, length of service etc. – Expected Persistency - Policy for longer duration is preferred – Prior Experience - Group insurance information for past 3 years, is analyzed.
CSC India
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Introduction to Life Insurance
Group Life Insurance Underwriting
• Factors considered in Renewal business
– Claim Experience - If the claims were less than expected, the renewal premium may go down and vice a versa. – Level of Participation - For contributory plans, the level of employee participation must meet the required minimum.
CSC India
42
Introduction to Life Insurance
Regulatory Requirements and Underwriting
•Unfair Discrimination
– Underwriting decision cannot be based on insured’s sex, race, marital status, national origin, or religion. – Only unfair discrimination is prohibited.
• Consumer Privacy
– Fair Credit Reporting Act ( FCRA) - Applicant be notified that
• a consumer report will be used. • Nature and scope of the investigation • if any adverse decision is taken based on that information
– NAIC Model Privacy Act
• Establishes standards for the collection, use and disclosure of information gathered
CSC India
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Introduction to Life Insurance
The Underwriting Process
Application Received Underwriter Reviews application Need additional info Obtain & review additional info Send application with substandard rating to policy issue Policy issue sends Policy to Agent Agent offers policy to applicant Standard Risk Insurable at sub-std risk
Approve Application Application sent to policy issue Policy issue sends Policy to Agent or Policyonwner
Decline Application
Policy in force
Applicant accepts rated policy
No Policy in force
CSC India 44
Introduction to Life Insurance
Gathering Additional Information
• Additional Medical Information • Additional Personal Information • Additional Financial Information
CSC India
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Introduction to Life Insurance
Gathering Additional Information
•Additional Medical Information
– Attending Physician’s Statement ( APS ) • Report by a physician who has treated or currently treating the proposed insured. – Specialized Medical Questionnaire • A specialized medical questionnaire is requested from the proposed insured’s attending physician – MIB Report • MIB members may request information to find out whether proposed insured has any significant impairments or other risk, not disclosed by him. – Laboratory Tests • May also order such tests if they are deemed necessary to make a sound underwriting decision.
CSC India
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Introduction to Life Insurance
Gathering Additional Information
•Additional Personal Information
– Motor Vehicle Record • Person’s driving history including traffic violations, arrests and convictions for driving related incidents. – Inspection Report • Information collected from a consumer reporting agency, which can be on insured’s personal life, occupation, hobbies, health and financial status. – Personal Questionnaires • A specialized personal questionnaire is requested from the proposed insured
CSC India
47
Introduction to Life Insurance
Gathering Additional Information
• Additional Financial Information
– Inspection Report • Information collected from a consumer reporting agency, which can be on insured’s financial status including investments, income, assets and liabilities. – Credit Report • Credit History from Credit Reporting agency
CSC India
48
Introduction to Life Insurance
Making an Underwriting Decision
• Approve the Coverage as applied for • Rate the Application
– By modifying the coverage or charging a higher premium
• Decline the Application
CSC India
49
Introduction to Life Insurance
Next Chapter
Life Insurance Industry Meeting Needs of individuals and business Introduction to Risk & Insurance Underwriting Pricing Life Insurance Term Life Insurance Permanent Life Insurance Group Life & Annuities Supplementary Benefits Policy Beneficiaries Life Insurance Policy Provisions Policy Proceeds ( Claims, Dividends etc.)
CSC India
50
Introduction to Life Insurance
Pricing Life Insurance
•Methods of Funding Life Insurance
– Mutual Benefit Method - Post-death assessment
– Problems in collecting money – size of group become smaller – each members’ cost increases each year
– Assessment Method - Annual assessment
– Anticipated death claims and administrative expenses
– Legal Reserve System
– Death benefit should be specified – Money should be collected in advance – Premium should be related to the risk
CSC India
51
Introduction to Life Insurance
Pricing Life Insurance
• Premium Rate Calculations
– Factors to be considered :• Rate of Mortality • Investment earnings • Expenses ( also known as loading )
Premium = Cost of Insurance + Expenses - Investment Earnings
CSC India
52
Introduction to Life Insurance
Pricing Life Insurance
• The 1980 Commissioners Standard Ordinary (CSO) Mortality Table Male
AGE 0 1 45 46 98 99 Number Living 10,000,000 9,958,200 9,210,289 9,168,382 31,450 10,757 Number Dying 41,800 10,655 41,907 45,108 20,693 10,757 Mortality Rate per 1000 4.18 1.07 4.55 4.92 657.98 1,000.00 AGE 0 1 45 46 98 99
Female
Number Living 10,000,000 9,971,100 9,409,244 9,375,747 89,200 30,698 Number Dying 28,900 8,675 33,497 35628 58,502 30,698 Mortality Rate per 1000 2.89 0.87 3.56 3.80 655.85 1,000.00
CSC India
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Introduction to Life Insurance
Pricing Life Insurance
• Level Premium Pricing System
– It allows the purchaser to pay the same premium amount each year the policy is in force. This pricing system is widely used for whole life, term life covering more than one year and endowment insurance
Level Premium System
$1,500
Premium Amount
$1,000 $500 1 5
Years Policy is in Force
10
15
20
25
30
CSC India 54
Introduction to Life Insurance
Pricing Life Insurance
• Policy Dividend
– Participating Policy also known as Par Policy
• the policyowner shares the divisible surplus of Insurance company.
– Non-participating Policy also known as Non-par Policy
• the policyowner does not share in the insurer’s surplus.
Insurer’s Divisible Surplus
Policy Dividend
Policy Dividend
POLICY OWNER
POLICY OWNER
CSC India 55
Introduction to Life Insurance
Pricing Life Insurance
• Life Insurance Reserve
– Policy Reserve - To pay due policy benefits
• Net amount at risk = Face Value - Policy Reserve
– Contingency Reserve - For unusual conditions that may occur
NET AMOUNT AT RISK
POLICY RESERVE
POLICY FACE AMOUNT
POLICY RESERVE
NET AMOUNT AT RISK
CSC India 56
Introduction to Life Insurance
Next Chapter
Life Insurance Industry Meeting Needs of individuals and business Introduction to Risk & Insurance Underwriting Pricing Life Insurance Term Life Insurance Permanent Life Insurance Group Life & Annuities Supplementary Benefits Policy Beneficiaries Life Insurance Policy Provisions Policy Proceeds ( Claims, Dividends etc.)
CSC India
57
Introduction to Life Insurance
Type of Insurance
• TERM LIFE INSURANCE • PERMANENT LIFE INSURANCE • ENDOWMENT
CSC India
58
Introduction to Life Insurance
Term Life Insurance
• Characteristics of Term Life Insurance Product
– Coverage for a specified period of time – The policy benefits are payable only if, • the insured dies during the specified period, and • the policy is in force when the insured dies.
CSC India
59
Introduction to Life Insurance
Term Life Insurance
•Plans of Term Life Insurance Coverage
– Level Term Life Insurance – Decreasing Term Life Insurance • Mortgage Redemption Insurance • Credit Life Insurance • Family Income Insurance – Increasing Term Life Insurance
CSC India
60
Introduction to Life Insurance
Term Life Insurance
• Renewable Term Life Insurance
Renewal Provision
Allows policyowner to renew the policy at the end of the term of coverage, without providing evidence of insurability
Yearly Renewable Term (YRT) Insurance
(1)
One-Year Term Life Insurance Policy Life Insurance Policy
(2)
Term Insurance Rider
CSC India
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Introduction to Life Insurance
Term Life Insurance
• Convertible Term Life Insurance
Conversion Privilege
Term Life Insurance Policy Permanent Life Insurance Policy
• No evidence of insurability required
CSC India 62
Introduction to Life Insurance
Term Life Insurance
• Type of Conversion
Attained Age Conversion
Original Age Conversion
Age of insured when policy was purchased
Age of insured when policy was converted
Age of insured when policy was purchased
Age of insured when policy was converted
Renewal premium is based on this age
Renewal premium is based on this age
CSC India 63
Introduction to Life Insurance
Next Chapter
Life Insurance Industry Meeting Needs of individuals and business Introduction to Risk & Insurance Underwriting Pricing Life Insurance Term Life Insurance Permanent Life Insurance Group Life & Annuities Supplementary Benefits Policy Beneficiaries Life Insurance Policy Provisions Policy Proceeds ( Claims, Dividends etc.)
CSC India
64
Introduction to Life Insurance
Permanent Life Insurance
• Two Primary Distinct Characteristics
• Permanent life insurance products offer lifetime coverage • Permanent life insurance products provide insurance coverage and contain a saving element i.e. It builds a cash value.
CSC India
65
Introduction to Life Insurance
Permanent Life Insurance
• Traditional Whole Life Insurance
Policy Purchased at Age 45
$150,000
Death Benefit
$100,000 $75,000 45 50 60 70 80 90 100 or death
Insured’s Age
CSC India
66
Introduction to Life Insurance
Traditional Whole Life Insurance
• Classification of Whole Life Policies
ContinuousPremium Policies
Premiums payable until the insured’s death, cash value at the end of 3rd year
Date of policy purchase Insured’s death
Limited Payment Policies
Premiums payable until stated period expires, cash value at the end of 1st year
Date of policy purchase End of specified period
CSC India 67
Introduction to Life Insurance
Traditional Whole Life Insurance
• Classification of Whole Life Policies (Cont.)
– Single Premium Policy
Single premium payment
Results in large cash value immediately available
CSC India 68
Introduction to Life Insurance
Traditional Whole Life Insurance
• Other type of Whole Life Policies :– Modified Whole Life Insurance - Modified Premium or Modified Coverage – Joint Whole Life Insurance as first-to-die life insurance – Last Survivor Life Insurance as second-to-die life insurance – Family Policies coverage on the insured’s spouse and children – Monthly Debit Ordinary Policy Monthly premium & small face amount – Pre-Need Funeral Insurance Funeral homes as policy beneficiary
CSC India
69
Introduction to Life Insurance
Permanent Life Insurance
• A Newer Generation of Permanent Products
– Universal Life Insurance
Flexible Premiums
LARGER SMALLER
Flexible Face Amounts
MORE
Unbundled Pricing Factors
1. Mortality Charges 2. Interest 3. Expenses
CSC India 70
$100,000 Life Insurance Policy
LESS
Introduction to Life Insurance
Universal Life Insurance
• Unbundled Pricing Factors
Mortality Charges
Stated maximum amount May be less if mortality experience is favorable
Interest
May be higher if economic conditions warrant Stated minimum interest rate
Expenses
Each expense charge is listed in policy
CSC India
71
Introduction to Life Insurance
Universal Life Insurance
• Flexible Face Amount
Option A Plan
Death benefit
Life Policy
Policy face amount
Option B Plan
Death benefit
Life Policy
Policy face amount Cash Value
CSC India 72
Introduction to Life Insurance
Universal Life Insurance
• Flexible Premiums - Policyowner determines how much to pay
INITIAL AND RENEWAL PREMIUMS
Minimum amount Policyowner
CSC India 73
Introduction to Life Insurance
Universal Life Insurance
• How a universal life policy operates
Pre miu ms
s tere In
t
ly nth Mo
es arg Ch
CASH VALUE
Oth loa er ch ns, arg with es, dra wa ls
CSC India
74
Introduction to Life Insurance
Universal Life Insurance
• Regulation of Universal Life Policies A certain percentage of the policy’s face amount
Section 7702 Corridor Surrender Charges Periodic Reports
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CASH VALUE
If policy includes surrender charges, regulators may require use of two separate terms to describe (1) cash value and (2) cash surrender value Insurers send each policyowner an annual, semiannual, or quarterly report giving the policy’s current values and benefits
CSC India 75
Introduction to Life Insurance
Permanent Life Insurance
•Other Advanced whole Life Products
– Adjustable Life Insurance – Indeterminate Premium Life Insurance - A maximum guaranteed premium rate and a lower premium rate – Interest-Sensitive Whole Life Insurance - Apart from flexible premium cash value can also be greater than the guaranteed – Variable Life Insurance - Separate Investment Account – Variable Universal Life Insurance - Combination of variable and universal life insurance
CSC India
76
Introduction to Life Insurance
Endowment Life Insurance
• Endowment insurance provides a specified benefit amount whether the insured lives to the end of the term of coverage or dies during that term. • The maturity date is reached either
– at the end of the stated term, or – when the insured reaches a specified age.
CSC India
77
Introduction to Life Insurance
Next Chapter
Life Insurance Industry Meeting Needs of individuals and business Introduction to Risk & Insurance Underwriting Pricing Life Insurance Term Life Insurance Permanent Life Insurance Group Life & Annuities Supplementary Benefits Policy Beneficiaries Life Insurance Policy Provisions Policy Proceeds ( Claims, Dividends etc.)
CSC India
78
Introduction to Life Insurance
Group Life Insurance
• Group Insurance Contract
CSC India
79
Introduction to Life Insurance
Group Life Insurance
• Type of Group Insurance Plan
CSC India
80
Introduction to Life Insurance
Group Life Insurance
•Group Insurance Underwriting
– Group Insurance differs significantly from individual insurance in the area of underwriting. – Group Insurance underwriting generally focuses on the characteristics of the group and does not usually require individuals to provide the evidence of insurability. – Objective is similar to determine whether the group presents an average risk. – Group underwriter also seeks to prevent antiselection and to ensure that the administrative costs are as low as possible.
CSC India
81
Introduction to Life Insurance
Group Insurance Underwriting
• Group Underwriting Considerations
– Reason for the group’s existence : The group must have been formed for a reason other than to obtain insurance. The eligible groups are
CSC India
82
Introduction to Life Insurance
Group Insurance Underwriting
• Group Underwriting Considerations
– Reason for the group’s existence : The eligible groups (Cont.)
CSC India
83
Introduction to Life Insurance
Group Insurance Underwriting
• Group Underwriting Considerations
– Size of the group
CSC India
84
Introduction to Life Insurance
Group Insurance Underwriting
• Group Underwriting Considerations
– Flow of new members into the group
CSC India
85
Introduction to Life Insurance
Group Insurance Underwriting
• Group Underwriting Considerations
– Stability of the Group
CSC India
86
Introduction to Life Insurance
Group Insurance Underwriting
• Group Underwriting Considerations
– Activities of the Group
CSC India
87
Introduction to Life Insurance
Group Life Insurance
• Eligibility Requirements
CSC India
88
Introduction to Life Insurance
Group Insurance Premium
• The insurer
– establishes group premium rates on a case-by-case basis – determines the cost of providing coverage – determines the cost of plan administration – recalculates a group’s rate every year
CSC India
89
Introduction to Life Insurance
Group Insurance Premium
• Premium Rates
CSC India
90
Introduction to Life Insurance
Group Life Insurance
• Termination Provision
CSC India
91
Introduction to Life Insurance
Annuity
• Definition
– The term Annuity means a contract under which one party - the insurer promises to make a series of periodic payments in exchange for a premium or a series of premiums. – Does not cover life insurance
CSC India
92
Introduction to Life Insurance
Classification of Annuities
• How Annuities are purchased
CSC India
93
Introduction to Life Insurance
Classification of Annuities
• When benefit payments begin
CSC India
94
Introduction to Life Insurance
Classification of Annuities
• When benefit payments end
CSC India
95
Introduction to Life Insurance
Classification of Annuities
• How Annuity values are guaranteed or variable
CSC India
96
Introduction to Life Insurance
Annuity
• Annuity Contract Provisions
CSC India
97
Introduction to Life Insurance
Next Chapter
Life Insurance Industry Meeting Needs of individuals and business Introduction to Risk & Insurance Underwriting Pricing Life Insurance Term Life Insurance Permanent Life Insurance Group Life & Annuities Supplementary Benefits Policy Beneficiaries Life Insurance Policy Provisions Policy Proceeds ( Claims, Dividends etc.)
CSC India
98
Introduction to Life Insurance
Supplementary Disability Benefits
• Waiver of premium for disability benefit
CSC India
99
Introduction to Life Insurance
Supplementary Disability Benefits
• Waiver of premium for PAYOR benefit
CSC India
100
Introduction to Life Insurance
Supplementary Disability Benefits
• Disability Income Benefit
CSC India
101
Introduction to Life Insurance
Accident Benefits
• Accidental Death Benefit
CSC India
102
Introduction to Life Insurance
Accident Benefits
• Dismember Benefit
CSC India
103
Introduction to Life Insurance
Accelerated Death Benefits
• Terminal Illness Benefit
– A partial death benefit payment made to a policyowner if the insured has a terminal illness and 12 months or less to live
CSC India
104
Introduction to Life Insurance
Accelerated Death Benefits
• Dread Disease Benefit
– A partial death benefit payment made to a policyowner if the insured suffers from one of several specified diseases such as : • Life-threatening Cancer • Aids • Coronary bypass surgery etc.
CSC India
105
Introduction to Life Insurance
Accelerated Death Benefits
• Long Term Care Benefit
– A monthly benefit paid to a policyowner if the insured requires constant care for a medical condition and is unable to perform several activities of daily living
CSC India
106
Introduction to Life Insurance
Other Benefits
• Benefits for additional Insureds
CSC India
107
Introduction to Life Insurance
Next Chapter
Life Insurance Industry Meeting Needs of individuals and business Introduction to Risk & Insurance Underwriting Pricing Life Insurance Term Life Insurance Permanent Life Insurance Group Life & Annuities Supplementary Benefits Policy Beneficiaries Life Insurance Policy Provisions Policy Proceeds ( Claims, Dividends etc.)
CSC India
108
Introduction to Life Insurance
Life Insurance Policy Beneficiaries
• Who can be a beneficiary
CSC India
109
Introduction to Life Insurance
Life Insurance Policy Beneficiaries
• Types of Beneficiaries
– Primary Beneficiary • He/She is the party designated to receive the policy proceeds following the death of the insured. • If more than one primary beneficiary, the policyowners indicates how the same is to be distributed. • If no instructions from policyowner, the proceeds are divided evenly among the primary beneficiaries. • In order to receive policy proceeds, the primary beneficiary must survive the insured.
CSC India
110
Introduction to Life Insurance
Life Insurance Policy Beneficiaries
• Types of Beneficiaries
– Contingent Beneficiary • He/she will receive the policy proceeds if all primary beneficiaries should die before the insured. • The policy owner can name any number of contingent beneficiaries and may decide how the proceeds are to be divided among the contingent beneficiaries.
CSC India
111
Introduction to Life Insurance
Life Insurance Policy Beneficiaries
• Types of Beneficiaries
– No Surviving Beneficiary • If no beneficiary has been named or none of the named beneficiaries is living when the insured dies, then the policy proceeds are paid to the policy owner, if the policy owner is living. • If the policy owner is deceased, then the proceeds are paid to the policy owner’s estate.
CSC India
112
Introduction to Life Insurance
Life Insurance Policy Beneficiaries
• General rule for common disaster
– If the insured and the beneficiary die at the same time or under circumstances that make it impossible to determine which of them died first, then policy proceeds are payable as if the insured survived the beneficiary. • Example : Mohan and his wife, Radha died in an airplane crash and the evidence did not show which of them died first. Mohan owned an insurance policy in which Radha was the primary beneficiary and Mohan’s mother was the contingent beneficiary, Radha also owned an insurance policy in which Mohan was the primary beneficiary and Radha’s father was the contingent beneficiary. Although Radha’s father survived her, Mohan’s mother died several years before the crash.
CSC India
113
Introduction to Life Insurance
Life Insurance Policy Beneficiaries
• Analysis of the case study
– Mohan’s Policy : The insured, Mohan, is deemed to have survived the primary beneficiary, Radha. Thus, the policy proceeds are payable to the contingent beneficiary, if she survived the insured. Because Mohan’s mother predeceased him, the policy proceeds are payable to Mohan’s estate. – Radha’s Policy : The insured, Radha, is deemed to have survived the primary beneficiary, Mohan. Thus, the policy proceeds are payable to the contingent beneficiary, if he survived the insured. Because Radha’s father survived her, the policy proceeds are payable to him.
CSC India
114
Introduction to Life Insurance
Life Insurance Policy Beneficiaries
• Right of Revocation
– Revocable Beneficiary • A beneficiary designation is said to be revocable if the policy owner has the unrestricted right to change the beneficiary during the life of the insured. – Irrevocable Beneficiary • If the policy owner has the right to change the beneficiary only after obtaining the beneficiary’s consent, then the designation is said to be irrevocable.
CSC India
115
Introduction to Life Insurance
Next Chapter
Life Insurance Industry Meeting Needs of individuals and business Introduction to Risk & Insurance Underwriting Pricing Life Insurance Term Life Insurance Permanent Life Insurance Group Life & Annuities Supplementary Benefits Policy Beneficiaries Life Insurance Policy Provisions Policy Proceeds ( Claims, Dividends etc.)
CSC India
116
Introduction to Life Insurance
Life Insurance Policy Provisions
• Standard Policy Provisions
– Free-look Provisions : Allows policy owner to examine the policy
CSC India
117
Introduction to Life Insurance
Life Insurance Policy Provisions
• Standard Policy Provisions
– Entire Contract Provisions • This provision defines the documents that constitute the contract between the insurance company and the owner of the insurance policy. • This provision prevents oral statements from affecting the terms of the policy and prevents controversies from developing regarding the terms of the contractual agreement.
CSC India
118
Introduction to Life Insurance
Life Insurance Policy Provisions
• Standard Policy Provisions
– Incontestability Provisions : usually 2 years for material misrepresentation
CSC India
119
Introduction to Life Insurance
Life Insurance Policy Provisions
• Standard Policy Provisions
– Grace Period Provision - Specifies the length of time within which a renewal premium may be paid without penalty, usually 30 days
CSC India
120
Introduction to Life Insurance
Life Insurance Policy Provisions
• Standard Policy Provisions
– Policy Loans : Grants a policy owner the right to borrow money from the insurer
CSC India
121
Introduction to Life Insurance
Life Insurance Policy Provisions
• Standard Policy Provisions
– Policy Withdrawals : In universal life insurance policies, permits the policy owner to withdraw funds
CSC India
122
Introduction to Life Insurance
Life Insurance Policy Provisions
• Standard Policy Provisions
– Re-instatement Provisions : Describes conditions that the policy owner must meet to reinstate a lapsed policy
CSC India
123
Introduction to Life Insurance
Life Insurance Policy Provisions
• Standard Policy Provisions
– Mis-statement of age or sex provision : Describes how the insurer will adjust the policy benefit if the insurer’s age or sex is incorrectly stated
CSC India
124
Introduction to Life Insurance
Life Insurance Policy Provisions
• Non-forfeiture Benefits :
– Available to a policy owner whose policy lapses but still contains a cash value
CSC India
125
Introduction to Life Insurance
Life Insurance Policy Provisions
• Non-forfeiture Benefits
– Cash Surrender Value
CSC India
126
Introduction to Life Insurance
Life Insurance Policy Provisions
• Non-forfeiture Benefits
– Reduced Paid-up Insurance
CSC India
127
Introduction to Life Insurance
Life Insurance Policy Provisions
• Non-forfeiture Benefits
– Extended Term Insurance
CSC India
128
Introduction to Life Insurance
Life Insurance Policy Provisions
• Non-forfeiture Benefits
– Automatic Non-forfeiture Benefit : Become effective automatically when the insured has not paid a renewal premium by the end of the grace period and has not elected another non-forfeiture option
CSC India
129
Introduction to Life Insurance
Life Insurance Policy Provisions
• Life Insurance Policy Exclusions
– Suicide Exclusion Clause
– War Exclusion Clause – Aviation Exclusion Clause
CSC India
130
Introduction to Life Insurance
Next Chapter
Life Insurance Industry Meeting Needs of individuals and business Introduction to Risk & Insurance Underwriting Pricing Life Insurance Term Life Insurance Permanent Life Insurance Group Life & Annuities Supplementary Benefits Policy Beneficiaries Life Insurance Policy Provisions Policy Proceeds ( Claims, Dividends etc.)
CSC India
131
Introduction to Life Insurance
Life Insurance Policy Proceeds
• Policy Dividend Options
– Methods of receiving policy dividends
CSC India
132
Introduction to Life Insurance
Life Insurance Policy Proceeds
• Policy Dividend Options
– Cash Dividend
CSC India
133
Introduction to Life Insurance
Life Insurance Policy Proceeds
• Policy Dividend Options
– Premium Reduction
CSC India
134
Introduction to Life Insurance
Life Insurance Policy Proceeds
• Policy Dividend Options
– Accumulation at Interest
CSC India
135
Introduction to Life Insurance
Life Insurance Policy Proceeds
• Policy Dividend Options
– Paid up Additional Insurance
CSC India
136
Introduction to Life Insurance
Life Insurance Policy Proceeds
• Policy Dividend Options
– Additional Term Insurance : also called the fifth dividend option
CSC India
137
Introduction to Life Insurance
Life Insurance Policy Proceeds
• Processing Life Insurance Claims
– Claimant must provide two documents
CSC India
138
Introduction to Life Insurance
Life Insurance Policy Proceeds
• Claim Examination Process
CSC India
139
Introduction to Life Insurance
Life Insurance Policy Proceeds
• Claim Examination Process
– Status of Policy • The policy must be in force when the insured died. • For example, a term life insurance policy may have reached the end of its term and expired. • The claim examiner must verify that the policy did not terminate for any other reason before the insured’s death.
CSC India
140
Introduction to Life Insurance
Life Insurance Policy Proceeds
• Claim Examination Process
– Identification of the Insured : The claim examiner confirms that the person who died was the person insured by the policy
CSC India
141
Introduction to Life Insurance
Life Insurance Policy Proceeds
• Claim Examination Process
– Verification of the loss • In order to verify that the insured has died, the claim examiner must examine the proof of loss document provided to him. • In most cases, the death certificate or other proof of loss document submitted by the claimant provides all of the information the claim examiner needs to verify
CSC India
142
Introduction to Life Insurance
Life Insurance Policy Proceeds
• Claim Examination Process
– Verification of Policy Coverage • The insurance policy is reviewed to determine what type of coverage it provides. • The policy exclusions must be considered e.g. Suicide exclusion.
CSC India
143
Introduction to Life Insurance
Life Insurance Policy Proceeds
• Claim Examination Process
– Identifying the proper payee
Primary Beneficiary named ? Living ?
Approval to pay claim
Pay Primary Beneficiary
Proceeds payable to Policy owner if living; Otherwise to Policy owner’s Estate
Contingent Beneficiary named ? Living ?
Second Contingent Beneficiary named ?
Pay Contingent Beneficiary
Living ?
Other Contingent Beneficiary named ?
Pay Second Contingent Beneficiary
CSC India
144
Introduction to Life Insurance
Life Insurance Policy Proceeds
• Claim Examination Process
– Determining the amount of death benefits
CSC India
145
Introduction to Life Insurance
Life Insurance Policy Proceeds
• Payment of Policy Proceeds
CSC India
146
Thank You for your participation
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