Transcript for:
Insurance Vocabulary & Concepts

I know how tough it is to study and how frustrating can be and confusing to study the vocabulary words for Your Life Insurance exam in this video I am going to be breaking down every single vocabulary word that you will need to know for Your Life Insurance exam so let's get right into it so I can help you clarify these terms and get you to passing your exam on the first try so the Actuarial Department this is the team in charge of determining insurance policy rates calculating reserves reserves is how much money the insurance company has in reserve right it's like their piggy bank and determining dividend payout so Dividends are um essentially profits that the insurance company makes that they pay out to their policy owners if thought I broke my can't can't break this my gavar if you can see it I don't know but anyways so the actuar department they are the math wizards of policy pricing that's the way that I learned it so math wizards of policy pricing if you want to write that down they essentially figure out how much policies are going to cost so they and they calculate rates so an example is before launching a new life insurance policy the Actuarial Department calculates the policy rates based on life expectancy and Health Data so they also determine the reserves needed to pay future claims and estimate potential dividends for policy holders so they ensure that the policy is priced correctly financially secure so Actuarial actuaries that's what they're called the people who are part of the Actuarial department they are hired by the insurance carriers to calculate rates and figure out what they should charge for the policies and what someone should have to pay for their policy depending on the risk that they pose to the insurance company so these they are the math wizards of policy pricing next alien insurer in the context of the United States so here an alien insurer is a company that operates in the US but has its main office in legal base in another country so there's a few types of insurers is going to be alien foreign domestic I'm going through these in ABC order here um based on each chapter in the course that I've created part of my four core Insurance Mastery framework so example a life insurance company based in Germany decides to offer policies in the United States although it operates in the US its main office in legal base remain in Germany in this case the company is considered an alien insurer in the US because it's headquartered in another country while conducting business in the American market so they have a foreign home but they're they have a local business so an alien insurer is a company that operates in the US but has its main office in another country a foreign insurer is a company that has its main office and we'll get to this in a minute but it has its main office in the United States but it's conducting business in another state so a foreign insurer would be like the main office is in Texas but they are conducting business in Massachusetts and then a domestic insurer would be aan that's conducting business in Massachusetts and has its home office in Massachusetts so domestic home office and business conducted in the same State Foreign different state home office than where the the state where the business is conducted and then alien insurer has the home office in a different country but they're conducting business in the United States next admitted insurer so an admitted or authorized insurer is a company that's been officially licensed they've been given a certificate of authority by a state's insurance department permitting them to sell insurance within that state so what I like to say is state approved ready to move so they're state approved they're ready to move meaning they can sell insurance they can move policies so an admitted insure is state approved ready to move an example a life insurance company wants to sell policies in California to do so legally they apply and re for and receive a certificate of authority from California's department of insurance with this certification the company's recognized as an admitted insurer in California meaning they authorized to conduct Insurance business within the state so they have been admitted to the club to sell insurance broker a broker works independently representing their own interests in those of their client or customer so a broker client is the the what I how I memorized broker was client first company last so broker is client first company last so Brokers represent the clients first and then they look for the interest of the company so a broker really what they do is they try to look to see which company is going to offer the best pricing to their customers and really the best program for that customer specific need because they work with a bunch of different carriers and they work independently so a person is looking for the best life insurance policy to fit their needs they hire a broker who works independently representing the client's interest rather than any specific insurance company the broker researches various policies from different insurance companies and helps the client choose the best option ensuring that the coverage meets the client's requirements so this can be challenging though because sometimes when you get into the business there are brokers who have access to certain companies but then there are some companies that don't hire Brokers that have their own products that are really really good so you know it's it's subject to debate because the cheapest policy is not always the best I want you guys to understand this getting into the business the cheapest policy is not always the best policy for your customer you may ask Justin why is that well it's because not every company's created equal right so if I can save $20 a month on a policy but their customer service is terrible can't get in touch with anybody anytime I call they Bill me on the wrong date they make all types of mistakes then is it really worth saving money so these are things that when you sell when you get into selling you want to keep in you want to take into consideration and also too you know the less someone pays the less money you make so sometimes you have to find a balance between you making money and you getting the client a good policy because at the end of the day you can only serve your customers if you're in business and if you don't make enough money you're not you're not in business right so there's a balance there that's my personal opinion having made millions of dollars selling insurance and having I have thousands of happy clients so captive insur is an insurance company that are formed and owned by a parent organization with the purpose of ensuring the risks of the parent company okay so example a large Manufacturing Company faces significant risks due to potential accidents and Equipment damage to to manage these risks more effectively the company creates its own insurance subsidiary which is solely responsible for covering the company's losses this insurance subsidiary is known as a captive insurer because it was established and is owned by the parent company specifically to ensure its own risks okay so a captive insur is a company that was created just to handle the insurance risks of the company that created it so parent owned risks at home so what I want you to think of is captive insurer is parent owned risks at home so think of like captive insurer almost being like a home right so your parents own it and it covers the risks the risks that happen at home right so it's created by a company to ensure its own risks certificate of authority so we covered this just a little bit ago when we were talking about uh authorized or admitted insurers but a certificate of authority is a formal license provided by a state's insurance department that allows an insurance company to operate legally in that state example before a life insurance company can start selling policies in Texas it must obtain a certificate Authority from the Texas Department of Insurance this license legally authorizes the company to conduct Insurance business within the state ensuring that the company meets all regulatory requirements and can operate as an admitted insurer under vocabulary word in Texas so for certificate of authority I look at it as a license to sell it's official permission to sell insurance in a state certificate of authority is an official permission to sell insurance in the state claims department this is the department responsible for handling the processing investigation and payment of insurance claims so they prose they process they investigate and they pay the Fate I know it's corny but um yeah process investigate and pay the Fate so they handle insurance claims from start to finish the claims department so when a policy holder files a claim for ins for a life insurance payout the claims department steps in to handle the process they begin by reviewing the claim details investigating to verify the validity of the claim and ensuring that all required documentation is provided once everything is order the department processes the claim and arranges for the payment to be made to the beneficiaries ensuring that the policy holders obligations are met according to the terms of the insurance policy so the claims department essentially someone submits a claim and they just make sure that the claim is valid and that it can be paid and they figure out you know where to pay it and everything else so um if this is helping you then please click the link in the description of the video for a copy of my free study guide and also email me if you're interested in working with me uh selling Insurance divisible Surplus divisible Surplus so this term refers to the portion of an insurance company's earnings that's distributed to policy owners as dividends after the company allocates funds for reserves operational costs and other business needs so example at the end of the year a life insurance company reviews its financial performance and determines that it has earned more than expected after setting aside the necessary funds for reserves covering operating expenses and meeting other business obligations the remaining amount is considered the divisible Surplus this Surplus is then distributed to policy owners as dividends providing them with a share of the company's excess earnings so divisible Surplus is essentially a company's earnings distributed to policy holders as dividends so it's essentially like after they put money aside for extra savings after they cover their operational costs claims other business needs everything else the divisible Surplus is how much money is left over that they can spread amongst the policy owners to give back as a dividend now not every company pays dividends to its policy owners so these are mutual insurance carriers which we'll learn in a bit here Mutual Life insurance carriers pay dividends to their policy holders okay so these are earnings shared after care that's way I looked at divisible Surplus that's how I memorize it earnings shared after care so it's the earnings they share after caring for the other parts of the business so after everything in the business is handled these are the earnings okay domestic insurer so we are uh moving through here we're on page two of it and then we get a whole this is going to be a long series guys so but this is everything you'll need to know for at least the general content in your insurance exam so domestic insur is an insurance company that operates in the state where its main home office is located and where it is authorized to do business okay example a life insurance company based in New York with its principal office located in New York York operates primarily within New York because its main office is in New York and it's authorized to conduct Insurance business there the company is considered a domestic insur in that state so domestic insur is home site home they operate in the state where it's based okay domestic home domestic has to do with home so that's how I I I reme I remembered it for the insurance exam domestic has to do with home and it's an insurance company that conducts business where its home state is foreign insurer this is an insurance company that conducts business in a state other than the one where its principal office or legal base is situated example a life insurance company has its principal office in Florida but also sells policies in Georgia since the company's based in Florida but conducts Insurance business in Georgia it's considered a foreign insur in Georgia so I know a lot of times we think foreign as people from another country but you need to think like someone is an alien from another country right think about like I don't mean to bring it to politics but people are you know legal or illegal aliens right it's like a big thing now so alien think of in that context right okay someone's from another country if an insurance company is in another country but they can't sell insurance in the US that's an illegal alien insurance company right just kind of think of it that way I hate to bring it there to politics and you know this isn't to sh any opinions or anything on it at all and I I you know whatever people want to think or believe that's totally cool but this is just to help pass for the exam okay so foreign insurers you think that foreign would be in another country but foreign is really another state if if it's a if principal office is in one state so foreign I really look at it as like their next door if your neighbor if your neighbor state has is selling Insurance in your state than they are a foreign insurer fraternal benefit Society so fraternal benefit Society is a nonprofit organization that offers insurance coverage exclusively exclusively to its members within a fraternal or benevolent framework okay and benevolent just so I can clarify that definition for you it's well-meaning and kindly it's serving a charitable rather than a profit making purpose so benevolent if you're going through any of your course material guys and you see big words it's because they it's you want to look up the definitions but sometimes they just have to make them wory okay a non fraternal ay uh sorry next fraternal benefit Society so the way I remembered it was members Unite for insurance might members unite for insurance might so it's a society where the members unite for insurance might it's a nonprofit offering Insurance to its members next industrial insurer okay A specialized segment of the insurance industry that issues policies with small face amounts and collects premiums on a weekly basis they are known as home service or debit insures these are not a big thing anymore but they'll typically offer life insurance so right here company offers life insurance policies with small face amounts such as $1,000 or $5,000 and collects premiums from policy holders on a weekly basis these policies are designed to be affordable and accessible often sold directly to individuals in their homes by agents this company operates as an industrial insur ALS Al known as a home service or debit insur catering to clients who prefer manageable frequent payments for smaller insurance coverage so these were mainly designed to cover people's funerals and burials so small policies weekly collections so that's how I remembered it small policies weekly collections so they would sell small policies and collect money every week okay so insurance is the process of managing Risk by pooling re resources or accumulating funds to cover potential losses okay so insurance is Simply the sharing of risk very simple definition it's when you pull resources to cover potential losses not in when someone buys insurance it's because they can't afford to assume the risk if something happens right people get life insurance because they say hey my family can't afford for me to Die Tomorrow People get health insurance because they say hey if I get injured or really sick I can't afford to go to the hospital someone buys car insurance because they say heyy if I get in a car crash I can't afford to fix that car and pay that person's hospital bills so insurance is when people pull their wrist together so that the claims can be covered okay so a group of individuals each pays a small amount into a shared fund every month this is just breaking it down super General a group of individuals pays a small amount into a shared fund every month if one member experiences a significant loss such as damage to their property or a health emergency the fund is used to cover the costs this system represents Insurance where risk is transferred from individuals to the group by pooling funds ensuring that no one person Bears the full burden of a large unexpected expense okay so sharing the load when risks explode that's what uh that's what I that's one way that I would remember is it's the it's the sharing of risk but sharing the load when risks explode okay so the insur the individual or entity that receives insurance coverage under the policy so it's the person who the insurance is for example John purchases a life insurance policy to provide Financial Security to his family in this scenario JN is the insured as he is the customer receiving protection under the insurance policy something happens to him the insurance company will pay the benefits to his designated beneficiaries okay so it's the covered person the insured is the covered person the insurer is the company that provides the insurance coverage so when John bought that policy the company that issued the policy um and agrees to pay out the benefits in the event of his death is the insurer this company is responsible for providing the insurance coverage and managing the risks associated with the policy so Lloyds of lendon this is not an insurance company but it's a marketplace where individuals and companies come together to underwrite Unique or unusual Insurance risks so Lloyds of London um is essentially it's a it's a marketplace where unusual risks are underwritten so it's in Marketplace for rare risk that's the way I looked at it Marketplace for rare risk um it's pretty unique so once you kind of understand what it is it's hard to not remember it but it's example a movie production company wants to ensure its lead actor against the risk of injury during filming a unique and highrisk scenario instead of going to a traditional insurance company they approach Lloyds of London which is not an insurer but a marketplace where individual Underwriters and companies come together to underwrite unusual or complex Insurance risks the underwriters at LS agree to cover the ACT Insurance pulling their resources to manage this specific and uncommon risk so an example like Adele I think her voice is insured a lot of artists like super famous artists will get their voices insured so part of the reason sometimes you might see some big musicians like cancel shows um it's because if their voice is strained and they get checked up on by a doctor then Lloyds of lendon could say hey look if this doctor says you can't per you shouldn't perform and you do and you hurt your voice we're not covering you so I think like this could be a total rumor uh but I think some actors get like body parts covered too if they you know need it covered for whatever reason so Lloyds of lendon I think will do that too so they cover like rare risks associated with stuff like that you know maybe um just a just an idea I don't know if this one is is really something covered by Lloyd's but thinking like a surgeon might get his hand insured right because if something happens to his hand he can't can't work okay okay um multi-line insurer allinone every courage Under the Sun so multi-line insurer allinone every coverage under the sun they offer a variety of insurance products so this is an insurance company or independent agent that offers a wide range of insurance products allowing businesses or individuals to address all their coverage needs in one place for example they might cover home life auto long-term care and health insurance so a multi-line insurer is like a One-Stop shop for you to go to get all your insurance now a family wants to simplify their insurance coverage by having all their policies with one companies they can they contact a multi-line insurer that offers a variety of insurance products including their Auto home life and health insurance by choosing this insurer the family can manage all their insurance needs in one place benefiting from the convenience and potentially qualifying for discounts for bundling multiple policies together so a multi-line insurance company is like a One-Stop shop they sell all the types of insurance that you want so you can go there and get all the insurance and not have to worry about going anywhere else okay next Mutual insurance company so these companies are owned by policy holders rather than stockholders they have no Capital stock meaning the company does not issue stock shares to the public or to private investors they typically issue participating policies meaning policy holders may receive dividends so they don't have any stock so a mutual insurance company okay policy holders own it and divid a policy holders own dividends known that's how I remember it so the policy holders own the mutual insurance company so it's owned by the policy holders in a stock company the company is owned by stockholders okay so these typically issue participating policies because a stock company has to worry about paying profits to its stockholders right in Wall Street but a mutual insurance company can pay its profits to its owning members so so you might say why would someone go stock then versus Mutual well in general this isn't always the case but in general and this is not sales advice this is just what I've seen in general Mutual insurance companies charge more for their premiums for a certain amount of coverage than stock companies so um if there's someone who's you know in certain situations uh in in Mutual insurance companies can sometimes be harder to qualify for and they'll charge more so if someone had you know so there's there's that's just what I what I've noticed example Sarah purchases a life insurance policy from a mutual insurance company unlike stock companies this company's owned by its policy holders including Sarah because it's a mutual company Sarah may receive dividends if the company performs well performs well excuse me which can be used to reduce her premiums or increase her policy's value she may also be able to participate in the election of members of the board of directors as a policy holder she effectively shares in the ownership and profits of the company so when someone has a mutual insurance company if that's what their policy is with then they essentially own part of the company um actually for this video I'm just going to go over the vocabulary words and then the notes I'll go through in another video um but it's the the notes are kind of just like the vocabulary words talked about in a different way because all of these vocab words are covered in the actual courses too so adhesion okay we're going to talk about a contract of adhesion this is a contract created by one party typically the insurance company with no opportunity for negotiation by the applicant okay the applicant must accept the terms as they are on a take it or leave it basis so adhesion is a take it or leave it you can adhere to the rule or you can't it's just a it's a one-sided thing okay so adhesion take it or leave it example when Michael applies for a life insurance policy all with adhesion there's no negotiation the terms are set by the insurance company so when Michael applies for a life insurance policy he's presented with a pre-drafted contract by the insurance company he cannot negotiate the terms or make any changes he must either accept the policy as it is or decline it this is an example of a contract of adhesion where the terms are set by the insurer and the applicant aderes to take them on a take it or leave it basis so pretty straightforward adhesion take it or leave it these are the rule these are the this is the deal do you want it or not so an agent an agent represents both both themselves and the insurer during the application process remember a broker represents themselves in the client during the application process so an agent we'll get that in a second but when Susan meets with a life insurance agent to apply for a policy the agent represents both the insurance company and themselves as a licensed professional while the agent provides information and guidance on behalf of the insurer they also act within their own capacity ensuring that Susan's needs are met and that the application processes handled correctly from both the companies and their own professional perspective so in this sense of the word they're saying that an agent um has a limited amount of products that they sell and they'll sell for essentially one company and just represent that company so they can be an agent for a company okay now alator an alator contract involves a potential imbalance in value exchanged between the parties okay so in alator it's unequal exchanged based on chance so this an uneven value exchange depending on an event so um we'll look at the example and I'll go into a little bit more but Jon purchases a life insurance policy and pays regular premiums if Jon passed away shortly after the policy's issued the insurer will pay out a large death benefit to his beneficiaries even though Jon only paid a few premiums this is an example of aliat contract where the exchange of value may be unequal and depends on the occurrence of an uncertain event like John's death so alator you want to remember as an unequal exchange of value okay unequal exchange of value so obviously like John's premium is going to be a lot lower than the death benefit that his beneficiary will receive when he dies so there's the potential for a massively unequal exchange of value John can make one payment and then that entire large death benefit pays out so alator is unequal exchange of value apparent Authority apparent Authority refers to the situation where it appears that the insurer has given the agent authority to perform certain tasks even if those tasks are not explicitly stated based on the relationship between the agent and the insurer so as an example Sarah who's an insurance agent helps a client to make changes in their life insurance policy even though the insurer has not explicitly granted her authority to make such adjustments because Sarah regularly represents the company and interacts with clients the client reasonably believes that she has the authority to make these changes so this belief is based on a parent Authority where the insurer's relationship with the agent gives the appearance that the agent has the power to perform certain tasks even if they aren't specifically authorized so a parent Authority is like well you are an insurance agent so it's it's the parent Authority is that you can do things like help me change my policy okay broker a broker represents both themselves and the client during the application process Mark who's looking for the best life insurance policy for his needs or looks is looking for the best life insurance policy for his needs so he works with a broker who's not tied to any particular insurance company so by this sense of the word previously agent is tied to a particular insurance company they represent themselves and Mark or the insured throughout the process the broker researches various options across multiple insurers to find the best policy for Mark ensuring that his treatments or his interests are the priority I'm going to back up to apparent Authority here I was always kind of confused on these like Authority so just do your best to learn it um apparent Authority is it looks like power even without the tower I guess the way you want to look at it so the appears to have the authority even if it's not explicitly given all right remember guys check out the description of the video for copy of my free study guide and uh my email okay so competent party is one who has the capacity to understand the contract they're entering into all parties must be legally competent which means they should be of legal age mentally fit and not impaired by drugs or alcohol so part of a legal contract means that the people involved must be a competent party so they have to be of age which varies from state to state usually it's like 18 I think Florida you can be 15 for life insurance every State's different so you know just look what put up look up what it is in your state um they have to be mentally fit meaning they can't have like mental conditions that would prevent them from being able to make a smart decision and then they can't be impaired by drugs or alcohol so they can't be under the influence of drugs so Jane here in the example a 35-year-old professional applies for life insurance policy since she is of legal age mentally sound and not under the influence of any substances she's considered a competent party this means she is fully capable of understanding the terms of the insurance contract and legally agreeing to them making the contract valid and enforceable concealment occurs when an applicant fails to disclose a material fact that they know when applying for insurance so concealment I mean it's pretty straightforward you're trying to conceal a fact right so consument and insurance is when you are trying to withhold information that might impact underwriting so we'll give an example here Tom fails to disclose that he was diagnosed with a heart condition a year ago even though he's aware that this information is relevant to the insurer's decision the submission is considered concealment as Tom as Tom knowingly withheld the material fact that could affect the insurers risk assessment and the terms of the policy if it's discovered this concealment could lead to the denial of his claim or cancellation of the policy altogether so concealment in some states is uh legal as well conditional so a conditional policy is one in which the insurer's obligation to pay benefits is dependent upon the occurrence of a specific event that the contract covers example Maria purchases a life insurance policy and the insurer promises to pay the death benefit to her beneficiary iies however this promise is conditional the insurer will only pay if Maria passes away while the policy is active for the policy to remain active Maria must continue paying her premiums on time and comply with any other terms of the policy if she fails to meet these conditions such as missing payments the insurer may not be obligated to pay the death benefit so this is where the insur the insurance company is obligated to pay benefits only under a specific situation or sit or events okay so it's on the they will pay on the condition that something happens okay consideration consideration is the part of an insurance contract that specifies the details regarding the initial and renewal premiums including the timing and frequency of future payments so um the consideration is the essentially the application that the insurance that the app the application the insurance the insurance client sorry brain fart here the application that the proposed insured is giving plus the information on their premium so how much is the premium and how frequent are the payments so way to think of consideration is that here is my application and my payments will you consider me for insurance okay so the proposed insured is asking for them the insurance company to consider him for insurance insur with his application and his proposal to pay premiums so example when John purchases a life insurance policy he agrees to pay an initial premium of $100 followed by monthly renewal premiums of $50 this agreement to make these payments is the consideration on John's part usually the initial premium is the same as the monthly in return the insurance company promises to provide coverage and pay a death benefit to its beneficiaries if the terms of the policy are met the premiums and payment frequency form the basis of the consideration so the premiums and the payment frequency applicant the applicants offered a completed application in the initial premium as consideration to the insurer in return for insurance coverage so that's the completed application and the initial premium is the consideration so Sarah is an applicant for a life insurance policy she submits a completed application along with the initial pre prum payment as the applicant Sarah is the person seeking insurance coverage and her information will be reviewed by the insurer to determine if she qualifies for the policy okay A stopple a stopple is a legal principle that prevents a party from going back on their previous actions can't go back it prevents them from going back on previous actions statements or conduct if such Behavior LED another party to rely on it and take action accordingly so an example if an insurance company through its actions or Communications leads a policy holder to believe they are covered for a certain claim and the policy holder acts based on that belief the insurer cannot later deny coverage for that claim due to their the insurance company's previous conduct okay so this pres prevents someone from referring reversing their actions if another party relied on them Express Authority this is the authority explicitly given to an agent clearly outlined in the agency contract example David an insurance agent has a contract with an insurance company that specifically outlines his duties including the authority to collect premiums and issue temporary insurance binders this is known as Express Authority as it's explicitly granted to David by the insurer and written in contract clearly defining what tasks he's authorized to perform on behalf of the company so it says David is allowed to collect premiums on behalf of the company so Express Authority is something that's explicitly given or authorized to the insurance agent in their contract with the carrier fiduciary fiduciary this is the obligation of an insurance producer to manage collected premiums responsibly and to provide clients with sound financial advice a fiduciary holds a position of trust concerning the management of their clients and the insurance funds so an example so a fiduciary means you have a financial responsibility to act in the best interest of your clients okay so an example an insurance agent Emma collects premiums from her clients and ensures that these premiums are promptly submitted to the insurance company she's also responsible for giving her client sound financial advice regarding their insurance needs in this role Emma acts as a fiduciary meaning she's in a position of trust both with the insurer and her clients and must manage their funds and provide advice with care and integrity so fiduciary is trusted with money okay Express Authority here we have written permission that's written permission okay all right fraud lying for gain this is when you give false information to cheat the insurance company this is the intentional Act of providing false information or making deceptive statements to receive compensation from an insurance company example Tom Poor Tom Poor Tom Tom intentionally lies on his life insurance application claiming he's never smoked even though he is a regular smoker he does this to receive a lower premium this act is considered fraud because Tom deliberately provided false information to deceive the insurance company with the intent to gain financial advantage through lower Insurance costs if discovered this could result in the denial of his claim or cancellation of the policy so fraud is when you lie to gain implied Authority this is the authority that is not explicitly stated in the contract but is assumed to be necessary for the agent to perform their duties so this is unspoken permission these are the powers needed to do their job even if they're not written down so Sarah's agency contract does not specifically state that she can schedule medical exams for clients applying for life insurance but it is considered part of is considered part of her role as an agent to facilitate the application process this is an example of implied Authority where even though the task isn't explicitly in her explicitly written in her contract it's understood as necessary for her to carry out her routine responsibilities as an insurance agent so I'm going to look up so I can find this here A different way to to because I want to make sure you guys understand the difference between apparent and uh implied Authority okay so apparent Authority is when a third party believes the partner is authorized to takes action implied Authority is when partner does acts necessary to do something he has authority to do but is not specifically stated yeah implied is like the partnership in fact did imp imply that he had the authority to do this thing like it was implied as part of his job that he could enter he could do something but a parent is like he doesn't actually have authority to do it it's about what a third party thinks a third party perceives him as apparently having Authority okay so implied is something that they do apparent is something that someone perceives that they can do okay so it's apparent that the agent can help me change my policy the agent actually can't always help someone change their policy but you'd think that you know a client would obviously a lot of times the agent can't the the insurance carrier has to do it but the insured would assume it's apparent that the agent could do it I get calls all the time and ask people to make changes there people asking to make changes okay so it's implied Authority that Sarah can call to make these medical exams for clients that's not a huge part of the exam but you know it is something that you want to all right Indemnity contract this is a type of contract that aims to restore the insured to their financial position prior to a loss so a life insurance policy typically functions as an Indemnity contract when it includes a return of Premium writer in this case if the policy holder outlives a policy term the insurance company provides the return of premiums paid over the term restoring the policy holders financial position to where it was before they enter the contract but life insurance policies are typically valued contracts which is a specific value they're not normally Indemnity contracts which we will uh learn about in just a little bit but that Rider brings it to an Indemnity contract State okay insurable interest insurable interest refers to the economic emotional and financial consequences that arise if a person suffers a particular loss a person has an insurable interest in a loss if they would benefit financially or otherwise by avoiding that loss so insurable interest means that someone is uh there's a they're going to suffer a loss economically emotionally or financially if some if someone suffers a loss so like you there has to be insurable interest in a legitimate reason to get a life insurance policy on someone you can't just go get a life insurance policy on anybody you want example here Mary purchases a life insurance policy on her spouse as she would face significant financial hardship if her spouse were to pass away because Mary relies on her spouse's income and emotional support she has an insurable interest in her spouse's life this means that she stands to lose more if her spouse passes away so she benefits more from their continued well-being now I don't want you to think that you can have emotional interest in insurable interest in someone who's like famous just because you like them like if you'd be sad if your favorite actor died that doesn't mean you can get life insurance on them because they're you know they're not really providing some support daytoday that the insurance company would think you would have trouble living without I mean some people might be extreme fans but that's uh life insurance companies don't really roll that way okay so an insurance policy is a written agreement in which one party promises to compensate another for losses arising from unforeseen events okay so an insurance policy one part compensates another for losses arising from unforeseen events so example a life insurance policy states that the insurance company will pay a death benefit to the policy holder's designated beneficiary upon the policy holder's death in return the policy holder agrees to pay regular premiums to maintain the coverage ensuring financial protection for their loved ones okay so the agreement is that if someone dies the insurance company will pay out the money as long as the client has made their premium payments okay legal purpose so this is a requirement in an insurance contract that the contract must be for a lawful purpose and not contradict contradict public policy so you can't take it out for an illegal reason so example an an individual cannot take out a life insurance policy on a stranger without their consent or a valid insurable interest as this would violate the legal purpose requirement the policy must serve a lawful purpose such as providing financial protection for a family member or business partner to be enforceable so you can't get um a life insurance policy out on something for something that's illegal or without someone's consent or like you know if if um you can't use it to cover anything illegal like it has to have a legal purpose I I hope that I mean that's pretty self-explanatory I think okay so material misrepresentation so these are Big lies that in in that affects decisions so a material misrepresentation is a misleading statement made by an applicant that may impact the insurer's judgment on whether to take on the risk so when applying for life insurance Robert claims he's never been diagnosed with a chronic illness even though he has a history of heart disease this is a material misrepresentation because the false statement significantly affects the insurer's decision-making process if the insurer had known the truth they may have declined the policy or charged a higher premium this misrepresentation can lead to the policy being voided or claims being denied if discovered because this is sort of like a fraudulent thing right so essentially you can't lie a material misrepresentation is a is a lie on an application okay parole evidence rule the parole evidence rule stipulates that one parties once parties have put their agreement in writing any previous verbal statements are included in that written document in a written contract cannot be altered or amended by Oral evidence so is saying that like once everything's in writing that's it that's what it is John and the insurance company so only what's written in the contract counts in a parole evidence rule so only what's evident in the written evidence in the contract counts not verbal promises so John and the insurance company agree on the terms of his life insurance policy and everything's documented in the written contract later John claims that during their initial conversation the agent promised an additional benefit not included in the policy however under the parole evidence rule John cannot use this oral statement to modify or add to the terms of the written contract only what's clearly stated in the written agreement is legally binding so parole evidence rule what's written ends up being the rule parole evidence rule what's written ends up being the rule policy writer or endorsement we're going to get into a lot of these later on but a policy writer endorsement is an amendment to an insurance policy polic that modifies the original terms which could add or remove coverage or adjust other policy features so it's like an adjustment it's a feature it's a manipulation example a life insurance policy holder adds a waiver of premium Rider which ensures that if they become disabled and cannot work the insurance company will wave their premiums while keeping the policy in force so a policy writer or endorsement is an addition to a policy that could act it could add but it could also subtract okay so for instance say someone applies for a life insurance benefit but they take on risky activities the insurance carrier May um and and they and the say the insured wants to add the accidental death benefit Rider which would double the benefit if they pass away on accident then the insurance company may may um provide an endorsement saying they will not qualify for the accidental death benefit Rider because of how risky their activities are man it is lightning and thunder and out like crazy I hope uh hope I don't get hit okay reasonable expectations the concept that the insured should receive coverage that a sensible and judicious person would expect from the policy so this is just saying like the okay so for instance it's it's what's fair to expect so you should get the coverage that a normal person would expect to get example a policy holder purchases a term life insurance policy and names their spouse as the beneficiary the policy holder passes away unexpectedly during the policy's term although the policy contains complex language regarding exclusions under the principle of reasonable expectations the beneficiary expects and is entitled to the death benefit because a reasonable person would assume the policy covers death during the active term of the policy so the reasonable expectation for life insurance is hey if someone dies while they have the policy the pay out the the death benefit will pay out okay representations representations are statements made that are believed to be correct and truthful to the best of their knowledge statements made by the applicant so example when applying for a life insurance policy the applicant states on the application that they do not smoke based on their belief and understanding that they have not smoked in the past 5 years the statement is a representation if later discovered that the applicant had smoked within the past year it could affect the validity of the policy but only if the M misrepresentation is deemed material to the RIS so for instance like if someone's like hey I didn't smoke I haven't smoked in the last five years and they they literally forgot and then somehow it came up that they did smoke um then that would be you know that that's a representation is something we believe to be true to the best of our knowledge and belief so it's like um I don't think I have cancer but something could happen you do I guess the smoking one there's a bad example but could be like hey I don't believe I have cancer but I very well I could but I don't know I I believe I don't right now so that's a representation whereas a warranty which we'll get into in a second but that's a statement that's guaranteed to be true like I am Justin vagan that's a warranty I'm guaranteeing that to be true subreg is the insurer's right to seek reimbursement from a third party responsible for causing a loss to the insured example subreg is generally or generally does not apply to life insurance it's more common in health or property insurance where the insurer pays for losses and then seeks reimbursement from the third party respons responsible for the damage or injury for instance if a health insurer pays a medical bills after an accident caused by another driver the insurer may use subreg to recover those costs from the at fault party's auto insurance so subreg is when the insurance party cha insurance company chases down a third party for a loss like I don't know about Property and Casualty Insurance that much yet but say someone is um say someone goes and burns down a building so like oh I want to burn my neighbor's house down I wouldn't do that obviously but say someone did house burns down and then the insurance company finds out that the neighbor lit the fire the insurance company might pay the claim but they might go after the person who lit the fire because it's that person's fault okay unilateral contract this contract so there's unilateral a alator and contract of adhesion remember contract of adhesion is on a take it or leave it basis you must adhere fully or nothing at all alator is unequal exchange of value alator is unequal exchange okay and then a unilateral contract refers to agreements in which only one party the insurer is obligated to to um pay pay the claim okay so in unilateral Al contract the life insurance company is uh so a life insurance policy is unilateral contract where the where only the insurance company's legally obligated to pay a death benefit to the beneficiary upon the insurance death providing the premiums have been paid so the policy holder is not legally required to pay their premiums but if they stop the insurance company is no longer bound to provide coverage so life insurance is unilateral because a unilateral only one right so you see uni one so it's a onesided contract where the only person legally bound to pay is the insurance company utmost good faith so this has to do with the belief that both the policy holder and the insurer need to know all material facts in relevant information and are thus obligated to disclose this information to each other ensuring that neither party withholds important details that could affect the agreement so this is honesty from from both sides this is where both the insurer and the insured must tell the whole truth example when applying for life insurance the policy holder discloses all relevant medical history such as pre-existing conditions or surgeries to the insurer in return the insurer provides accurate details about the policy's terms including any exclusions or limitations both parties rely on utmost good faith to ensure that the contract is based on complete and truthful information so next we're going into valued contract remember we had valued in Indemnity so this is valued contract which a type of insurance contract that pays a specified amount regardless of the actual loss a life insurance policy pays the face value of the policy upon the death of the insured regardless of any other Financial factors so life insurance is typically a valued contract because it pays a flat amount no matter what an Indemnity contract only pays a specific amount to restore the insured to their to how they were before the loss so like if someone crashes a car they don't get a flat amount every time right the amount that they're reimbursed is just intended to restore them to where they were before the loss of the vehicle or whatever had to be fixed voidable contract is a contract that can be legally voided by one of the parties under certain conditions acceptable to the court so this is something that can be canceled it can be ended by one party under certain conditions like fraud so life insurance policy may be considered avoidable contract if the policy holders found to have misrepresented their health status during the application for instance if they claimed to be a non-smoker but they were a smoker the insurance May Company may actually void the contract and deny the death benefit due to this material misrepresentation waiver the voluntary relinquishment of a known right or legal claim so this is when you give up a right all right so the insurance company would give up a right like collecting premiums after a disability so remember we talked about the waiver of premium this is when the insurer will give up their right or legal claim to premiums if the insured is disabled so life insurance company May issue a waiver of premium Rider which allows the policy holder to stop making premium payments if they become disabled by offering this Rider the insurer waves its right to collect future premiums while keeping the policy in forc and last we have warranty a warranty is a statement provided by the applicant guaranteed to be completely accurate it's incorporated into the contract and if proven false it may result in the contract being voided so this is guaranteed truth and it's a statement that must be absolutely true for the contract to be valid so in a business key person life insurance policy the company might warrant that the insured key person does not engage in any Hazard activity like skydiving or Mount climbing if this warranty is proven false the insurer could void the policy because the specific activity significantly impacts the risk okay so on to the next set of vocabulary words if you find this information valuable please please please reach out to me for uh or click the link in the video for a copy of my study guide and you can also email me at jve tjbe docomo okay so adverse selection this refers to the likelihood of individuals with higher risk profiles being more more inclined to purchase or maintain insurance coverage which can be detrimental to the insurance company effective underwriting practices help mitigate this issue so adverse selection is the idea that um really it's based on the idea that the people who want Insurance the most are the ones who are at the highest risk of having to file a claim right like younger people with no health issues are not as likely to want life insurance or health insurance as people who are are older or people who do have health issues right because there's a higher chance of them using the claim so they understand the risk so adverse selection is with high-risk Shoppers so it's when high-risk individuals are more likely to get insurance so the insurance charges more or screens carefully example a 62-year-old smoker with a history of heart disease applies for life insurance knowing his health increases the chances of needing coverage right the insurer recognizing this charges a higher premium after reviewing his medical record to offset the potential cost so it's why insurance companies want everybody to get insurance whether you are healthy or not you know they want they want highrisk and low they want lowrisk individuals to balance out the high-risk and if you are highrisk then they're going to charge more money so I'm raising my desk here so you may see me woohoo look at it if you can see I don't know I might not put the video in this video but anyways age change so age change so there's a there's two ways to measure uh age in life insurance one is the age nearest and the other is age last okay so we're going to talk about age change here this is age nearest the specific date midway between an individual's birthdays when their age is considered to move to the next higher age some companies calculate this based on nearest birthday While others use the last birthday so if it's age nearest then what that means is like a 7mon year old baby is closer to being Oney old than Zer years old right so once someone passes that halfway point they're considered a year older in the insurance company that's using age nearest but if the huge age last then that baby who's 7 months old would would be considered zero still so example an applicant turns 45 in June and the insurance insurance company uses the nearest birthday method since his next birthday is closer than his last in December his age for underwriting purposes changes to 46 in July even though he's technically still 45 so it turns 45 in June in in July um hold on since his next birthday is closer than his last in December his age for underwriting purposes yeah okay so in December his age would turn to 46 right CU he's more than halfway through being age 45 if he turned 45 in June some point in December he would turn he turn at 46 even though he's still technically 45 right so this usually results in a higher premium based on the new age so the applicant is the individual who submits an insurance application we went through this but this is a little bit different spin so this is the individual who applies for insurance okay they fill up and submit an insurance application to the insurance company generally the applicant is the person to be insured though this is not always true excuse me come on over cold here example Sarah completes an application for a life insurance policy on behalf of her elderly father although she is the applicant her father is the one being insured Sarah provides all the necessary information and signs the documents to submit the application to the insurance company if Sarah were to apply for her own life Insurance she would be the applicant and the insured next is application okay the application is a document containing essential information provided by an individual when applying for Life Health or disability coverage this information is crucial for the insurance company's underwriter to decide if the applicant meets the company's criteria for coverage the applicant becomes part of the insurance contract so when someone applies for a policy they fill out an application detail that's pretty straightforward attending physician statement or APS okay attending physician statement is a document requested when an application or medical examiner's report uncovers past or current conditions or circumstances requiring further clarification so the applicant has to authorize the release of their medical information due to patent patient confidentiality allowing the physician to share details with the insurance company's underwriter so what can happen the insured can apply something can come up and now they want the physician to give a statement on it so the insurance company can make sure that um it's a risk that they're willing to accept essentially so example John during the process of his life insurance application his medical exam reveals a history of high blood pressure the insurer requests an attending physician statement from John's doctor to get more details about his treatment and current condition JN signs a release form allowing his physician to provide the necessary medical information to the insurance company's underwriter for further evaluation next we have backdating backdating refers to the practice of assigning an effective date to a policy that's earlier than the actual application date this technique is used to reduce the applicant AG on paper thereby securing a lower premium state regulations typically restrict backdating to a maximum of 6 months backdating is prohibited for variable contracts due to the inherent investment risks so back dating is when you change the policy start date to get a lower premium so we'll talk about the example here and then I can clarify it more if I need to so if a 30-year-old appli for life insurance but wants to benefit from lower premiums a tip applicable to a 29-year-old they might request to backdate the policy to when they were still 29 as long as it's within 6 months of the application date so essentially you know if I turned 30 yesterday I mean then in and I was 29 the day before on a life insurance application I might want to backdate it from when I was 29 because the premiums will be lower for a 29y old than a 30-year-old okie dokie binding receipt or unconditional receipt a binding receipt is when Insurance start right away when the application and first payment are received so this is an unconditional receipt this is the type of acknowledgement given by an insurance company when an application is completed and the initial premium is paid so this receipt ensures that the insurance coverage becomes effective immediately on the date of the receipt and remains active for a specified period or until the insurer makes a decision on the application example when a person submits an application for insurance and pays the first premium they may receive a binding receipt ensuring their coverage starts right away and continues unless the insurer denies their application it's a binding receipt buyer's guide a buyer's guide is essentially a guide for shopping for insurance okay it's a booklet that explains the different types of insurance to help you choose which one to get okay a buyer's guide is a brochure that outlines and Compares different types of life or health insurance producers are required to provide this guide to potential customers when soliciting Insurance enabling consumers to make well-informed decisions about their finan their insurance purchases example when an insurance agent meets with a potential client to discuss life insurance options they provide a buyer guide that explains the various policies helping the client understand their choices before making a decision um yeah so that's a buyer guy it's just like a little booklet that the insurance companies are required to give people so that they can do their own due diligence okay conditional receipt a conditional receipt is a document that an agent signs and gives to the prospective policy owner at the time of completing a new insurance application the terms for issuing this receipt vary by company but it generally involves collecting an initial premium in offering limited coverage under specific conditions until the policy is formally issued if there's no valid conditional receipt coverage does not begin until the policy is issued delivered and accepted and the initial premium is paid so this is like it's like temporary coverage starts only if certain conditions are met like a medical exam or something like that so we'll look at the example Sarah applies for life insurance and pays the first a premium the agent provides her with to conditional receipt which states that if Sarah passes passes the medical exam and meets the insurers underwriting requirements coverage will be retroactive to the day of the receipt however if Sarah does not meet the requirements the policy will not be issued and the premium will be refunded okay so this is saying um if Sarah passed the medical exam and meets the insurers requirements coverage will be REO retroactive to the date of the receipt of the payment okay Consumer Report or investigative consumer report a consumer report also known as an investigative Consumer Report is an in-depth background check that may involve interviews with an applicant's colleagues friends and neighbors to assess their character reputation and Lifestyle Insurance companies can perform these reports to gather information about an applicant provided it does not infringe him on privacy a credit report is a common example example here David applies for high value life insurance policy in the insurer requests a consumer report to assess his financial stability and lifestyle this includes reviewing his credit report and public records to evaluate his risk profile the information helps the insurer determine the appropriate premium and whether to approve the policy so it's just checking out like what's this person life like life look like this is usually more common on like a you know High much higher face amount policies that's where like a consumer report would probably come into play for life insurance credit report a credit report provides a summary of uh so a consumer report real quick is um essentially a background check on your lifestyle finances and habits to help assess risk credit report is a financial history check which is a summary of your credit score debts and financial responsibility so credit report provides a summary of an insurance applicant's financial credit history including their credit score debt levels repayment history and perceived creditworthiness so like what's their credit score right this report is prepared by an independent organization that reviews the applicant's financial standing credit reports are usually sourced from one of the three primary credit bureaus Experian Equifax or TransUnion when Sarah applies for life insurance the insurer requests her credit card or credit report sorry from Experian this report provides a summary of her credit score debt levels and repayment history helping the insurer evaluate her financial responsibility and a assess the risk involved in offering her a policy okay these words by the way have to do with underwriting okay declined risk so decline risk refers to a person whose insurance application has been denied by the insurer so example an applicant has severe health issues that fall outside of the insur accept acceptable risk parameters their application may be categorized as declined risk and sub subsequently declined so that's when they they reject an application just because the person's too high risk disclosure form a disclosure form is a standardized document mandated by various state regulatory bodies to be provided to every policy holder when an existing insurance policy is being replaced with a new one so um Most states have a disclosure form that you need to give your client when you are replacing a policy so most States have so if you're if you're if someone has a policy and they're canceling it or you know lowering the benefit to get another one or using the values to buy another policy um then you they have to have a form what this does it essentially like it helps them know what they're doing and understand that that may not always be in their best interest I mean we'd hope that it would be always for the for you know that the agent would be doing the right thing but it's just so that the client's aware of what's going on it not isn't always in the best interest to replace a life insurance policy like you know if someone cancels one policy to get another one and the other one's more expensive and doesn't have any different features then it might not be an ethical replacement right so example John decides to replace his current life insurance policy with a new one that offers better benefits his insurance agent provides him with a disclosure form as required by state regulations explaining the differences between two policies and any potential drawbacks of the replacement this ensures that JN is fully informed before making the switch okay oh evidence of insurability evidence of insurability hold on I hit a button here okay this is proof of Health when medical records or exams prove that you qualify for insurance so that's The quick summary but here evidence of insurability is documentation or a statement regarding an individual's health history and current health status that verifies their qualification for insurance coverage example Emily applies for life insurance policy the insurance company asks for evidence of insurability like do you have is it evident that you can be insured right she provides her medical records and completes a medical exam to verify ify her current health status this information helps the insurer determine whether she qualifies for the coverage and what her premium rates will be Fair Credit Reporting Act the Fair Credit Reporting Act enacted in 1970 is a federal law that allows insurers to obtain additional information about individuals applying for insurance coverage this legislation authorizes insurers to conduct Consumer Reports on applicants and prospective Insurance the insurance applicant must be notified of the purpose of the report if the insurance is denied based on the report the insurer must provide the name and address of the reporting agency so the applicant can request a copy of the report example Michael applies for life insurance and the insurer informs him that they will in obtain a consumer report as allowed under the Fair Credit Reporting Act the report will provide details about his credit history and financial responsibility if Michael is denied coverage based on the findings in the report the insurer is required to give him the name and contact information of the reporting agency so he can request a copy and review the findings so this is a law for credit checks and it allows your insurance companies to check your credit with your knowledge and give you access to the report field underwriter so a field underwriter refers to the agent or producer responsible for completing the insurance application on behalf of the applicant they call a field underwriter because the insurance agent is essentially the front line of underwriting for the insurance company right you have to speak with the client or go to the client's house or meet with the client and then you see right there hey is this person right it's it's a check as well on how the health questions are answered and how the questions on the application are answered because you know someone can be like no I don't smoke but their house smells like cigarettes and they live by themselves and there's astrays everywhere it's like okay well you know you probably smoke I've had that happened before so um next when someone applies for insurance to field underr gathers all necessary information fills out the application and submits it to the insurance company for review free look period the free look period is a mandated time frame typically at least 10 days during which a policy holder can review a life insurance policy after delivery and return it for a full refund if they are not satisfied example after receiving the new insurance policy the policy holder has 10 days to review the terms and if they choose to return the policy within this period they'll receive a full refund of their premiums so a Freel look period is essentially just a um you know it's essentially just a time that the person can get a refund on their policy if they if they don't want to keep it so it's like hey you have this for however much time you you buy your policy and then you have a certain amount of time to cancel for a refund okay got to post on post this here okay so inspection report an inspection report is a document that provides general information about an insurance applicant's reputation Health lifestyle and cial status compiled by a firm specializing in these investigations so essentially it's a detailed lifestyle review that includes details about your health lifestyle finances stuff like that when applying like I was saying before this is similar to um Consumer Reports when applying for a high value policy leases andure request an inspection report to gather details about her lifestyle and financial stability a third party investigation firm interviews some of Lisa's acquaintances and reviews her public records to compile a report of her reputation health and overall financial status this report helps the ensure assess her insur insurability and set appropriate terms for the policy so insurable interest uh we went over this before but this is where you must benefit from someone staying alive to insure them okay so insurable interest is the financial or emotional stake one party has in the life of another justifying the purchase of life insurance policy I mean we already went through this but it's on this chapter too cuz it cover it's important again so essentially insurable interest Financial stake you have to benefit from someone staying alive in order to um ensure them medical information Bureau the MIB is also known as is an organization that compiles medical data on applicants life and health insurance on behalf of its member insurance companies during John's life insurance application the insurer checks his records with the medical information Bureau MIB the MIB provides data from previous insurance applications revealing J's history of high blood pressure this information helps the insurer verify the details JN provided and assess the risk and offering him coverage so the MIB it's a it's a group of insurance companies it's like insurance companies belong to the MIB they're members and they help each other so they're like hey if John applied for insurance with one company a few years ago and he said that he had a certain health condition like high blood pressure they want to let the other insurance companies know what's going on um that way he can't try to cheat the system right so policy summary a policy summary is a concise document oh with uh real quick with the mibb it's kind of like if someone has a this used to happen to me um before I got into insurance so the like a a lot of banks if you owe bank money so you're overdrafted a certain amount you can't open an account at another bank just like sometimes when you you start if if you start selling Insurance um sometimes if you if you have chargebacks which is essentially client cancels and you owe the company that paid you the money back if your chargebacks re reach a certain amount then they will let other insurance companies know if you go to get insurance with them and and and or get appointed to sell insurance with them and they won't let them do it so they'll be like hey this guy owes his money you know don't Deb with him cuz he just racks up debt so that's kind of what it's just companies watching each other's backs policy summary it's a concise document outlining the key terms of an insurance policy including coverage restrictions conditions and premiums these summaries are commonly provided for long-term care insurance life insurance and annuities to help consumers understand their policy basic details so when Maria receives her life insurance policy it comes with a policy summary that outlines the key details this includes her coverage amount premium payments and any exclusions or limitations such as conditions that may not be covered policy summary helps Maria quickly understand the main points of our policy without reading the full contract so a policy summary is essentially a snapshot of coverage it's a short documented summarizing short document summarizing key details of the policy like premiums coverage Riders exclusion stuff like that Preferred Risk so this is when you're a low risk and you get low premiums the person whose life is covered excuse EXC me this is applicants with great health which is not me right now I'm sick and habits who get lower premiums Preferred Risk refers to an applicant who's considered to have lower than average risk of filing a claim due to their Superior physical condition lifestyle occupation and other favorable characteristics compared to others in the same age group okay a non-smoker who exercises regularly and has no chronic illnesses might be classified as a Preferred Risk resulting in lower insurance premiums proposed insured the proposed insured is the individual whose life is being considered for insurance coverage so this is the person whose life is covered by the insurance while often the same as the applicant it's not always the case so I'll give you an example sometimes a parent can apply for a life insurance policy on the child the child is the insured while the parent is the applicant so the parent could own the policy and pay it but the child can be the insured you're going to learn there's an owner the person who owns the policy and has the rights to it there's the payer the person who pays the premium and then there's the insured the person whose life is insured usually the one person is all three the owner the payer and the insured but sometimes someone else can be one of the other parties or company even rated well you can't ensure the life of a company but a company could own it rated policy rating up so rated policy was essentially um when it's a higher cost for higher risk so it's a policy with higher premiums due to increased health or lifestyle risks so a rated policy involves an additional charge to the standard premium due to the insured being considered a higher than average risk the higher risk assessment can be due to factors such as poor health or a hazardous occupation example if an applicant has a history of heart disease they may receive a rated policy meaning they'll pay higher premiums to account for the increased risk okay so if it's a rated policy means that applicants a risk they got to pay more replacement replacement involves a producer uh legally encouraging a prospective client to cancel or Surrender an existing life or health insurance policy in order to buy a new one so this is when you switch policies it's canceling an old policy to buy a new one requires proper do documentation so this activity requires the producer to provide a notice regarding replac to the consumer and inform the insurer about the replacement example here when an agent recommends that a client switch their current life insurance policy to a new one with better terms they must provide a notice of replacement and notify the new insurer of the change some states require you not notify the old insur of the change too so we went over representations statements you believe to be true okay um most statement most States laws dictate that statements made by the applicant are regarded as representations rather than warranties so in life insurance they're mainly representations so representations required to be reasonably accurate according to the applicant's understanding a representation is deemed fraudulent if it pertains to a significant factor in assessing risk and was made with intentional deceit example when applying for life insurance David States on his oh we already went that risk classification so this refers to the underwriting category that their uh applicants assigned to based on their likelihood of dying or getting sick so um example here but it's really like preferred standard and substandard and then decline so Preferred Risk the what the what the uh the exams want you to know usually is there's a Preferred Risk super healthy standard risk is average health substandard is below average and then decline is to health to where we're not accepting the risk after reviewing Mary's life insurance application medical exam the insurer places her in the Preferred Risk classification due to her excellent health and non-smoking status this qualification this classification qualifies her for lower premiums because she's considered less likely to experience illness or death so this is groups based on risk next is special class special conditions with a higher risk a special class refers to an applicant who doesn't qualify for standard policy but may obtain coverage with an added Rider that excludes payments for losses related to certain pre-existing health conditions okay these applicants might have to pay more money higher premiums or accept a different type of policy than originally applied for John applies for life insurance but is classified as a special class applicant due to his diabetes although he cannot qualify for a standard policy the insurer offers him coverage with a rider that excludes any claims related to his diabetes and requires him to Bay a higher premium to account for the increased risk this allows JN to get coverage however there are certain limitations by the way guys um on some of these pre-licensed courses like I try on the one that I'm this is this is material straight out of my pre-licensed course so um you're going to see that some of the stuff's wordy um it has to be that way to satisfy state requirements for the length of the exam so that's why we I try to give examples and summarize it and also provide some maybe more a little more simple explanations here too because some states you know you have to have an uh course be a certain time length so could they want you to have it take 20 hours or 30 hours or whatever it varies state to state but that's why sometimes these coures are a little wordy is because it just they they have to make them that way or else they won't satisfy the time requirement so that's why I add videos and a bunch of other stuff too but um anyways standard risk um this is so as I just went over I was going over this is the average risk so standard risk describes an individual who meets the average risk criteria according to an insurance company's underwriting standards making them insure at regular insurable at regular premium rates um CL candidates classified as high risk or low risk may be eligible for higher or lower rates depending on how much they differ from the standard risk categor example after undergoing the required medical exam in review of his lifestyle Paul is classified as a standard Risk by his life insurance company this means he's considered an average risk based on the insurer's underwriting guidelines and qualifies for regular premium rates without without any additional charges or discounts so a standard risk is average health and lifestyle substandard or impaired risk this applies to an applicant whose physical health Falls below the typical minimum requirements for standard coverage this can result from poor health or risky activities leading to either a declined application or a policy with increased premiums so an applicant in excellent Health may still be considered substandard due to engaging in hazardous Hobbies like scuba diving or uh skydiving diving in the sea or the sky an applicant who frequently participates in extreme sports might be classified as a substandard risk and face higher premiums despite being good health so a substandard risk is essentially or higher risk it's going to cost you more money that's it underwriter an underwriter is the risk assessor we went over this before but it's the person responsible for assessing evaluating and categorizing the level of risk associated with the potential insured to decide whether the coverage should be offered in at What premium rate so this is the person who evaluates your application and determines your coverage in rates example in underwriter reviews an applicants medical records and lifestyle habits to decide if they qualify for life insurance and to set the appropriate premium underwriting we went through this this is where they figure out what you qualify for they look at different sources um here they look at your medical exam results credit report check your driving history depends on what you qualify for but um yeah so this is warranties again we're coming again a lot of this material overlaps so that's why some of these definitions are twice in most States laws indicate that statements made by the applicant on an on a life insurance application are treated as representations rather than warranty so a warranty must be completely accurate true in every detail unlike representations a breach of warranty can void an insurance policy regardless of the materiality of the breach or its impact on the loss example this is for a business insurance policy a company warrants that a fire suppression system will be installed in operational at all times in their Factory this warranty is a critical condition of the policy if a fire occurs and it's discovered that the system was not installed or functional the insurer can void the policy even if the malfunction didn't directly cause the fire the breach of warranty allows the insurer to deny the claim based on the company's failure to fulfill the exact terms of the policy so warranty is a guaranteed truth most of the time in life insurance there it's going to be a representation but a warranty is a statement in a policy that must be completely true for the contract to be valid like I said my my belief for a warranty for life insurance policy would be that the person applying who claims the person you know saying who I am that's guaranteed to be true because if it's not then avoids the policy all right so here we are going to cover the types of life insurance policies and then get into some policy writers and all that good stuff so as I'm going through this what I'm going to be doing also is I'm going to be uh using a whiteboard to help give you some illustrations and explain the different types of life insurance a little better that might help you out rather than just words and I'll do that with whatever I need to moving forward um if you find this information valuable please please click check out the description in the video for a free study guide and also in the pin comments for a free study guide and any other products that we might offer and opportunities that I have available and if you'd be interested in potentially working with me just shoot me an email at jve tj.com so you can apply to be an insurance agent with me so this is from uh actual pre-licensed course that I built out so I'm going to be going through these definitions and like I said illustrating them so Industrial life insurance it's not that popular anymore you're probably not going to actually have to sell this it might not even be on your exam but this type of life insurance provides small face amounts typically $1,000 or $2,000 premiums are collected by debit agents and are due on a weekly basis industrial Life policies were primarily designed to cover final expenses example a worker purchase an addition an industrial life insurance policy with a face amount of $2,000 to ensure that their f expenses are covered the policy holder pays a small weekly premium which is collected by a debit agent who visits their home so life insurance agents used to also be debit agents what this means is that they used to go um home to home and collect the premiums from the insurance they had a debit Ledger or debit log or something like that they used to go um and collect the premiums from the insured in the form of a check or cash people didn't always pay bills with AC a lot of people used to have to mail in checks there was no electronic payment so um people used to pay their bill for industrial life insurance weekly or monthly this isn't common anymore $1,000 to $2,000 of life insurance is so small but this is a type of life insurance and it may be on your insurance exam it's also kind of cool to understand the history of life insurance as well so now there's a different type of insurance for industrial life insurance it's called final expense life insurance and uh it's a type of it's a type of whole life policy typ typically they're nonparticipating Whole Life policies that are simplified issue meaning there's no underwrite there's no medical underwriting so it's just a series of health questions people answer it's kind of like you may he a colonial pen right stuff like that but that's sold by um you know regular insurance agents it's a big big industry right now so that's basically industrial life insurance um what what it was it's not popular anymore you may not even see it on your exam but it's still something that's good to know in case you do ordinary life insurance so ordinary life insurance is offered by commercial insurers so private insurance companies and is not based on weekly premiums it includes various forms of individual life insurance such as term life and whole life we're going to learn about term and whole life moving through this year so ordinary example here uh simple 35-year-old individual purchases an ordinary whole life or ordinary life insurance policy from a commercial insurance company commercial insurance companies are private companies okay so private companies are commercial insurance companies meaning they're not owned by the government they choose a whole life insurance option which provides permanent coverage with fixed premiums and a savings component unlike industrial life insurance they pay premiums monthly rather than weekly and the policy remains in effect their entire life as long as premiums are paid sometimes people will pay whole life or term life insurance policies annually sometimes it's a lumpsum payment the most common form of payment though is monthly payments because mostly people pay their bills month to month okay next type we're going to get into term and whole life and all the other types in more detail group life insurance there's a whole chapter on group life insurance there's a whole document in um definition section on group Life we'll get there in a little bit group life insurance covers members of a defined group such as employees of a company members of an association or union workers the coverage is provided under a single Master contract with underwriting based on the group as a whole rather than on individual members a key benefit of group life insurance is that it typically does not require proof of insurability so group life insurance we'll get into this in more detail but group life insurance basically is formed for the whole group of people so or a whole group of people so like if someone if they work somewhere or you know something like that um the whole group is covered the group cannot be formed just for the purpose of getting insurance though right because that would be adverse election You' have all the sick people who want it so in group life insurance it's with employers and um things like that and the whole group typically is guaranteed insurability meaning everybody in the group uh not only should participate or can but has to for most of the for some of the group Life policies example a large corporation offers group life insurance to its employees as part of their benefits package each employee is automatically covered under the company's Master policy policy without needing to provide any medical information or proof of insurability the insurance covers all eligible employees equally and the company is responsible for the premiums this allows employees to receive life insurance coverage without going through individual underwriting so what I'm going to do here I'm just going to bring this over here and I'm going to just give you an example so say we have the group Master policy let's make this line a little fatter here if we can uh color well I don't know why it's can't let's see here we go wait okay so here we have the group life policy okay we're going to put GL group life policy and this covers everybody in the U all the employees so we have employee one and then another employee yay I love working here Yahoo I get free insurance now we have Billy Bob Billy Bob insured that's his name here this is Billy Bob insured he looks like an ant but Billy Bob insured is chilling except the only thing is he comes to work and he's like yo I want some insurance too and the employer says well this is a uh plan that everybody get so you got no choice bro so the employer grabs Billy's neck grabs Billy by the neck and whips him into the life insurance policy now all of a sudden Billy's here and he's happy yay I have life insurance because I'm with the with the company thing is though Billy does not own this life insurance policy the owner of the policy is the company okay so the company is the owner of this policy look at my drawing skills with my mouse I'm pretty pretty impressed if I could spell that I wish I had an apple pen and iPad but I'm not that fancy so the company owns this and this is called the master policy MP Master policy this is the master policy for group life insurance while Billy works for the company Billy Bob andur Billy Bob insured is now under the policy Billy Bob insured on one day decides you know what I'm sick of this company I'm out so now Billy Bob andur is no longer part of the group life policy one thing Billy Bob andur can do though is he can leave and keep his coverage so every state has a different law in place about different regulations in place about converting your group life to a whole life a lot of States it's 30 days so a lot of states they have 30 days to convert their group life insurance into a permanent whole life policy however most people usually don't do it so we have conversion right we're going to learn about insurance conversion here so a lot of times they don't convert it because it's so expensive the only time it really makes sense to convert usually is if someone's very unhealthy so that's basically how group life insurance works here so we're going to put group life here GL well it's already right there but whatever so that's basically how group Life Works one one type of group group life um I forget the exact name of it I'm like super sick the um we we'll be it'll be later on in this video and I'll I'll refer to that illustration again okay so bringing this back over here and we're back here so next we have term life insurance we actually have two sections for term life insurance definition that's how important it is um I didn't mean to do that twice but it's okay so term life insurance provide the maximum coverage for a spe for a specific period of time the term the policy ends at a predetermined date the termination date and no benefits are paid if the insured survives the term term insurance is a cost effective effective option which makes it appealing for larger policies larger face amounts right term insurance is typically the most affordable type of Pure Life Insurance due to its temporary nature and lack of cash value it is consider consistently more affordable than a whole life policy with an equivalent face value so typically for a person of the same age in same Health rating a term insurance is going to be significantly cheaper for the same amount of insurance a Term Policy is going to be cheaper for the same amount of insurance than a whole life policy because the term is only effective for a specific period of time there's no cash value any of that stuff so term is temporary there's a very very low chance that the insurance company is going to have to pay pay out the claim if someone gets approved for a term life policy there's like a 98% chance they're going to outlive the policy or something like that or more than that probably those companies are very very good at predicting if the person's going to outlive the term a whole life policy there's a 100% guaranteed chance the company's going to have to pay the claim at some point right they either because they have it for their whole life or until age 100 which we'll get into in a minute here but the person's either going to die or they're going to reach age 100 so at some point the company's going to have to pay a claim so that's why part of the reason why a whole life policy is more expensive than a term term off there's P pure death protection meaning the death benefit is only paid if the insured dies during the policy period and I'm going to get into an illustration here in a second but a 40-year-old individual purchases a 20-year term life insurance policy with a face value of $50,000 the policy provides the greatest amount of coverage at a low cost because it has no cash value and only pays out if the policy holder passes away dur during the 20-year term since the policy is designed purely for death protection and will terminate after 20 years it's significantly cheaper than a comparable hoight policy with the same phe value term life provides the maximum amount of coverage for a specified time making it suitable for temporary protection it's valid only a specific time frame due to its termination date it's more affordable compared to other life insurance policies Mak it it attractive for larger policies a most affordable option to perm life insurance yeah okay cool another example here another type of term is level term so this is level premium term features a level face amount and level premiums through the policy period premiums are typically higher than those for annual renewable term insurance because they remain fixed for the entire term premiums will increase upon renewal this is all going to make sense in a second here so it's designed to cover specific needs set for a set period of time at the lowest possible premium like all term insurance level term policies expire at the end of the policy period level term offers a consistent low premium in return for coverage over a predetermined time period so let me break out my thing here this will help you understand term a little better so we're going to have um the grid for a term so we're going to have oh hold on that was sloppy I hit my notepad so we got this is the grid for term we're going to have money over no money over time so if um the red represents the premium so we got the premium is the level I know that's not perfectly straight but just imagine it is right the premium is the same and they say it's a 20year level term at year 20 the term is no longer in force and then we got the death benefit was here this much and then at year 20 the death benefit is no longer in force so term is a term in terminate so this is a termination date and there is no cash value in a term which means there's also no dividends so no cash value on a term okay now this is a 20-year level term right here where the premium is the same it's a level premium so when you see level term just means level uh the premiums are always level on a Term Policy okay the premiums never change there is a annual renewable term which would be something like this where say the premium Starts Here for a year and then and then oh whoa the premium is a certain amount for a year and then it increases and then the next year it's a little more and then the next year it's a little more and next year a little more yada yada yada okay that's how the premium would increase for an annual renewable term that stands for art okay now this is isn't exactly the best uh example to show the premium relationship between a level term and an annual renewable term because it would most likely be something like this for the level in annual renewable term comparison right it' be like they're going to they're going to pay more upfront on a level premium term to pay more later I mean to pay less later like less than the cost right because an annual renewable term is a one-year Term Policy so they have life insurance just for one year so we'll show you that here um uh annual renewable term insurance provides coverage with a level face amount that renew is on an annual basis so the policy renews every year so what happens is at first the policy is cheaper for a year and then at one year later it goes up a little more and then another year later goes up a little more and another year later goes up a little bit more whereas the level term someone says yeah I want I just level give me an average of the premiums give me a level premium the premiums averaged out over the entire 20-year term so whereas the annual renewable starts cheaper and then it just goes up a little bit every year okay and then decreasing term refers to the death benefit okay so on a decreasing Term Policy it would be the death benefit would decrease so a decreasing Term Policy the death benefit would decrease over time it's usually to cover something like a mortgage right because a mortgage is going to increase I mean decrease over time the amount that's owed on the house so the premium for the decreasing term is probably going to be lower than the premium for the the level term right because the the the um death benefit is level it's the same for a level Term Policy the death benefit is decreasing for a decreasing Term Policy okay so when we're talking about level term and decreasing term we're not talk the level in decreasing ter words they're not talking about the premiums the premiums are always level they're always going to be the same level or the same amount on a ter policy what's decreasing or remaining level in those policies is uh separately is the the face amount the death benefit okay okay decreasing term we're going to that next so offers a face amount that decreases over time while premiums remain constant primarily used for more morage or debt protection where the outstanding balance decreases over time until they're fully paid a decreasing Term Policy is a type of life insurance where the death benefit gradually reduces over time based on a set schedule and is designed for a specific term example Mark takes out a 15-year decreasing term life insurance policy to protect his 15-year mortgage okay 15-year term life he has a 15-year mortgage each year as Mark pays down his mortgage the face amount of the policy decreases is to match the remaining balance the premiums however remain level throughout the policy's term if Mark passes away during the policy period the death benefit will cover the outstanding Mortgage Balance once the mortgage is fully paid off the policy expires okay we're going to um look up here I didn't go over this example so Sarah for this is a level term Sarah 40-year-old wants life insurance coverage for the next 20 years until she retires she chooses a 20-year level term life insurance Poli policy with a face value of $250,000 the policy has a fixed premium That Remains the Same throughout the 20-year period this allows Sarah to pay consistent affordable premium while ensuring that her beneficiaries are protected if she passes away during her working years if Sarah outlives the policy it will expire at the end of 20 years and no death benefit will be paid so 20-year level term just says a consistent death benefit throughout the entire term um credit life insurance this is the same this is a decreasing term life insurance policy where the policy term matches the loan period and the face value decreases alongside the loan balance the purpose is to cover the life of a debtor a debtor is someone who has a loan who has a debt right ensuring that the loan is paid off if the debtor passes away before fully repaying it it's only possible to purchase a credit policy in an amount that equals or is less than the outstanding debt or loan so if you're getting a credit life insurance policy it can't be have a higher death benefit or face value than the loan itself here David takes out a $30,000 7-year auto loan and purchases 7-year decreasing term life insurance policy with an initial face value of $30,000 throughout the term his premiums remain level but the face value of the policy decreases each year in line with his declining loan balance if David were to pass away before the loans fully repaid the insurance policy would cover the remaining loan balance once the loan is paid off at the end of the S years the insurance policy will expire as it was was designed specifically to cover the autol loone okay um hey I hope this is helping you guys you know I know this exam can be pretty stressful and I know can feel like you got the weight of the world on your shoulders but I promise you you can do this 100% I know that you can pass your exam I know that you can make it happen and this is an extremely rewarding lucrative career so just stick with it push through all the frustration and like anxi anxiety that you may be feeling and just stay focused and I promise promise you you can pass this exam you can get your license and you can start a lucrative career in the insurance industry um next we're going to go to increasing term insurance so increasing term insurance it's like this is very unpopular it's probably not even going to be on your exam but provides a death benefit that increases over time okay um it's not even really worth covering it right here but it's the opposite of decreasing right so if we have a decreasing where the death benefit decreases over time on an increasing the death benefit will increase over time okay all right convertible term insurance so convertible term has to do with the it's a feature of a Term Policy it's not like decreasing an annual renewal able and level it's not like a it's not like a type it's more of like a feature it's an option on a Term Policy more likely so convertible term insurance policy it's a provision includes a provision that permits policy holders to change their term insurance into permanent coverage which this whole life without needing to provide proof of insurability term insurance allows for temporary coverage that can be later that can later be switched to permanent insurance without needing to provide proof of insurance oh um yeah so you can you have you have temporary policy that can be turned permanent so it's ideal for individuals who initially want lower premiums but later seek permanent coverage as their financial situation approves so someone will get a Term Policy and it's because it's cheaper upfront than whole life right Term Policy will in general be cheaper upfront than whole life for the same face amount and then over time they can convert it so give you an example of where that might happen say um you know some dad he really really wants to be there for his family and provide coverage to them so that if he dies his income can be replaced so say he's the bread winner and he's like okay well if I die I want my family to have a certain amount of money at least for the next 20 years so he gets say he gets a 30-year term policy after 20 years of having that policy say maybe all his kids have moved out and they have jobs of their own and they're leading successful lives and he's like well you know maybe I don't need as much insurance as I have on the term anymore and I'm looking to convert into something that would be a little bit more permanent like a whole life policy to leave an estate to my family leave a guaranteed estate cuz he's he's like I'm say at 20 years pass by he's still pretty healthy chances are he's going to outlive the term policy and he'll lose coverage and he doesn't want that to happen so he wants to convert it to a whole life policy or a portion of it so he can take a piece of it or the whole thing convert it to a whole life policy if he converts the whole thing it's going to be significantly more expensive say it's a $100,000 policy that's a term life it's going to be way more expensive for $100,000 whole life but he can convert the whole amount or a portion so say he's like well I want to convert you know $330,000 into the whole life or whatever the case is he could do that he could convert it so um for instance if you purchase getting back here if you purchase a term insurance policy while you're young to benefit from lower premiums in good health but wish to convert it to a permanent coverage later for final expense benefits when your financial situation improves a convertible term life policy be ideal a group term life policy conversion privilege enables an individual to transition we just talked about this to transition from the group term temporary coverage to an individual permanent plan says plan should be planned without needing to provide insurability when deciding whether to convert term insurance based on the insurance attained age or original age the most crucial cral factor is to consider its Premium cost the primary element affecting life insurance premiums is the insured current or attained age for example a $30,000 policy for a healthy 10-year-old will be significantly cheaper than a same policy for a six-year-old right when converting to a Term Policy when converting a Term Policy sorry whether individual or group your insurability is guaranteed but the premium will be calculated based on your current age rather than the age when you first obtained the policy convertible term insurance allows you to switch to permanent coverage without needing to prove insurability but expect to pay higher premiums example Jake buys a convertible term life insurance policy with 20 years coverage at 45 he decides to convert it to whole life policy for permanent coverage he doesn't need to provide proof of insurability but his premiums increase based on his attained age of 45 at the time of conversion so when you do convert your premiums are based on that age so let's see if we can illustrate this here um I don't even know without redrawing everything I mean so this is what we're going to do we're going to erase some of this stuff we're going just going to say say they got a level term going to get rid of this annual renewable term stuff here okay and so say we're this too okay so say they got a um 20-year level term okay and the premium is right here okay now what happens is um they can convert a portion or you know the whole thing but say they want to um convert a portion of this at year 15 essentially here what they can do is start is convert that into a whole life policy now if the premium was say you know this much or that much for the term policy the same premium might be like that much you know without putting any values on it that much for the whole life so the premium will increase significantly for the whole life policy okay so here when it converts well it's a bad example say they convert it here right so it'll be right here where they convert and then it's going to be whole life and it'll start increasing in cash value too and then you know that that part wouldn't exist on the term so it would just go up to here um if they wanted to keep the that would be that could be done but maybe they would just want to lower the face mount of the policy so if I kept the premium the same they would not convert as much they' convert a smaller piece all right okay um my computer's just making some noises let me check on something here okay cool renewable term insurance renewable term insurance guarantees the right to renew the policy after the initial term expires without requiring proof of insurance ability all term insurance policies have a final termination date after which renewal is no longer possible so this guarantees your ability to renew the policy after the initial term expires so essentially this one here where we're looking at the 20-year term okay say say we're looking at a 20-year term okay so say we're just looking at 20year term when when it when it ter Ates there in a renewable term you could actually renew this policy and extend it for for more time you know you could extend it for more time the premium will go up though the new premium would be based on the new age the attained age so the premium the new premium will be based on the age when at the client's at when the policy renews Sarah buys a 15-year term life insurance policy renewable term life insurance policy probably or sorry after the initial 15 year period ends she chooses to renew the policy without providing proof of insurability although her premiums increased with each renewal due to her age she can continue renewing the policy until she reaches the maximum age Allowed by the insurer at which point the policy will no longer be renewable annual renewable term provides coverage with a level face amount that renews on an annual basis so we covered that before right where it's a level face amount so the face amount never changes but every year the premium in increases as the policy renews because it renews every year okay policy is guaranteed renewable each year without providing evidence of insurability meaning you don't have to apply for it again or submit anything to underwriting to be approved for it so example Tom purchases an annual renewable term life insurance policy with a face value of $100,000 each year the policy automatically renews without requiring Tom to prove insurability Tom can continue renewing the premium renewing the policy each year until he gets too old as long as he pays the premiums so saying year 1 it's 30 bucks a month year two it's $32 a month year three it's 35 bucks a month year four is 39 bucks a month so it's just going to keep increasing like that over time whereas say it's a 20year level term it'll be like you know 52 bucks a month for the whole term something like that okay term Rider so we'll be getting into Riders uh in the next section but a a type of life insurance that extends coverage to children under the policy of the parent so there are couple different types of term riters essentially a term Rider is when someone gets a PO a life insurance policy and they add additional coverage for either themselves or someone else with a riter so if it's a whole life policy they're going to add a a term life writer for themselves and they can add it for someone else too some some term policies offer term life writers as well for other members of the family so a type of life insurance that extends coverage to children under the policy of a parent so there's different applications for a term writer family plan policies often provide permanent coverage for the family head permanent coverage is a whole life while the spouse and children are covered through term writers so it's like saying okay so say the dad gets a whole life policy and then he can add his wife and children on as term writers okay term writers are always structured as level term policies this option is more affordable than having separate policies for each family member for instance the main policy May cover the father while the spouse and children are attached as term writers this allows the entire family to be covered under a single policy by attaching additional members to a primary policy term writers also allow applicants to add extra coverage for themselves by attaching additional writers to the main policy so I'm going to show you on an illustration here and I'll use my uh my whiteboard Okay so um a lot of term writers will actually expire okay so a lot of these term writers are going to going to expire but I'll show you an example actually they all do eventually um so we're going to draw a little line here and we're going to do our new blank canvas so say we got um uh there's the the the main whole life policy okay so we have Dad's that example I gave dad's whole life policy okay so Dad is covered he has his whole life policy say it's $100,000 okay example now this is permanent so P permanent Insurance okay so this could be permanent for Dad now what we have here is um he says well I have my whole life policy but I want to cover my wife and then our two children under the I want them to have life insurance coverage as well so it's almost it's kind of like bundling but not really like and I guess you could look at it that way it's just stacking policies on top of each other so essentially um and it it helps it just helps with underwriting and um it it typically a term writer for someone would be cheaper than them getting a separate Term Policy on themselves so that's what what's the advantage but say now we got Mom Mom's got some wacky hair going on she's happy because she's got her insurance and then she's got a baby in her arms too so that's a little baby carrying in her arm right there okay and then so say they got three kids and then here's Little Billy Billy's got a wacky hair do and then this is Susie Susie's very happy because she has it if my daddy dies I'm getting a bunch of money oh my gosh so um that's Su which would be very very unfortunate so we have um the Susie there and then we have her mom and then her brother and then her other sibling I don't know if it's a boy or girl can't tell from the from the drawing so dad's has dad has a whole life policy and then there's a $50,000 R term life on this child $50,000 term life on this child say for example um different term Riders have different features but say that covers them until they're 25 years old they're each going to have $50,000 in term life until they're 25 years old and then Mom has a $100,000 Rider say 100k for um I don't know say it's 20 years or something like that however long it lasts so that's additional coverage on them that's all included in this PO it's attached to this policy so it's like one single premium that comes out right it's not like these all have their own separate costs but it's not like on his bill every month it's like you know it's not like he gets charged five four or five times it's just yeah and then oh we forgot 50k on this little one too 50k dad can also get an additional $300,000 or whatever say he gets an additional $300,000 term for 20 years because he says okay well my kids are young I'm going to want $400,000 in total coverage for the next 20 years but I do want to have some permanent coverage and I want to start building cash value now right he wants to start building cash value now and he wants to have but he wants to have additional coverage but he doesn't want to pay the premium for a $400,000 whole life policy so this gives plus he also wants to have his family covered so this gives him an opportunity to get a $100,000 whole life policy for him start growing some cash value and get locked this in when it's a cheaper premium because he's younger and for the next 20 years he'll have a 300 an extra $300,000 Term Policy because if he got a $400,000 Term Policy and then waited 20 years to convert this to $100,000 whole life the premium for the whole life would be way higher because it would be based on his age at the time of conversion so this is how he can save some money on a whole life policy now get more coverage for his money by adding a term riter and make sure that his family has everything in the policy as well with a term riter so I hope this helps you understand kind of how that um how that functions there okay you guys can go back and pause that if you need to um yeah okay whole life policy next whole life um oh terms so to remember the features that the term uh something that you can you can look at is cradle so CR a DL cradle cradle term can be convertible or renewable or annual decreasing or level okay cradle so whole life policy whole life insurance death benefits are provided well here I'll let you you guys take notes on that for a second hold on if you need to pause it you can too okay whole life insurance death benefits are provided for the whole life of the insured it offers living benefits through accumulation of cash values these policies typically mature when the policy holder reaches the age of 100 and usually have level premiums throughout the policy duration all Whole Life policies offer the same core benefits permanent coverage until death or age 100 level premiums and level death benefits with the accumulation of cash value so it has pre permanent it has coverage that lasts until age 100 the premiums remain level and the death benefit is level as well the main difference between the types of Whole Life policies lies in how premiums are paid in some cash value is invested in different ways there's variable whole life which we'll get into in a second but some policies are paid all the way until death or age 100 some have a shorter premium payment which is a set number of years or until a specific age and then um certain policies may offer lower premiums in the beginning years to make them more affordable and then the price premium increase later on and then also some will allow them to pay for a a policy with a single premium payment whole life insurance is often compared to buying a house once it's fully paid you still own it for life with long-term value building over time example Mary buys a whole life insurance policy with fixed premiums until age 100 the policy provides a death benefit for her entire life and builds cash value over time regardless of the payment method the coverage lasts until death with level premiums and cash value much like buying a house that builds Equity types of whole life insurance straight life insurance straight whole life so I'm going to illustrate these for you I'm going to read it first and then illustrate it so for straight life premiums are paid for the duration of the insured's entire lifetime which with coverage continuing until in other words premiums are payable for as long as the coverage remains in effect similar to other Whole Life policies straight whole life offers level premiums a consistent death benefit and cash value accumulation whole life insurance also mandates that the insured be paid the face amount upon reaching age 100 which is when the policy reaches maturity or when it endows if a death benefit has not already been dispersed if someone seeks a policy with a fixed premium and a benefit that is paid out either at death or upon reaching age 100 they should consider a whole life policy um so obviously the policy we paid upon a death but this means like a fixed a policy with fixed premium and a benefit that's paid out at death or pun eaching age 100 that can't expire so there that that'll never expire or never terminate straight whole life insurance coverage provides coverage for your whole lifetime and allows you to distribute the cost evenly across your life Sarah purchases a straight whole life insurance policy with fixed premiums that are payable throughout her lifetime the policy guarant anes a level death benefit and accumulates cash value over time if Sarah lives to age 100 the policy will pay out the face amount or if she passes away before then the death benefit will be paid to her beneficiaries I'm going to go through all these types and then I will illustrate it whole life limited pay so this is where coverage remains in force until age 100 or the insured death whichever comes first while the premium payments are limited to a specific period so they only pay premiums for a certain amount of time right so while premiums are only paid for designated time the insurance protection extends for the entire lifetime or until age 100 so even though they're only paying for a certain amount of time they have it for their whole lifetime so like term insurance they pay for a specific amount of time the insurance only lasts for a certain amount of time limited pay whole life insurance they pay for a specific period of time but the coverage lasts their entire lifetime or until age 100 so this is ideal or for instance if you purchase a 10 10 pay policy premiums are paid for 10 years in a row after which no further payments are required coverage is then guaranteed until death or age 100 if any of this is confusing you guys I'm going to go through it in the illustration here in a minute but I promise you go through this a few times and study and and you'll you'll get it down this is ideal for those wanting to retire without ongoing premium ongoing premium payments such as a 35-year-old who wants the policy with level premiums permanent protection and no premium payments after retirement at age 70 the applicant would select a paid at up at age 70 limited pay policy a limited pay life policy offers lifetime coverage with level premiums that are fully paid over a shorter defined period example Taylor buys a 10 pay whole life insurance policy he makes premium payments for just 10 years after this period no additional premiums are required but the insurance protection continues until Taylor's death or age 100 whichever comes from first okay so I'm going to actually start illustrating these right now for you guys so you can better understand them so we have um ordinary whole life or not ordinary whole life a straight straight life straight whole life which is ordinary whole life I guess traditional whole life we have once again money over time okay so we're going to have the premium in Red so say they pay the same amount over time okay this is age 100 and then we have cash value which usually starts in year two so say cash value these amounts are not relative okay so it's not saying that the whole life is going to be more than the premium the premium is actually going to be a lot less um a lot more than the cash value sorry this is these do not take these as relative here okay the graph is too small to show that but I'm just Give an example the premiums are Level the cash value increases over time and then the um you know the death benefits always going to be level too so the the Orange is the death benefit that's always going to be level okay so that's with a or uh traditional whole life all right if you have a limited pay whole life the premiums will be more starting out but then they'll end at a certain age and then the policy still continues on after that so the life of the policy will still be enforced after so with a limited pay cost it costs a little bit more each year but overall the lifetime of the policy they usually end up paying less and it stops earlier okay next um yeah cover that modified so a whole life policy where the premium Remains the Same for the first five years then increases in the sixth year and stays level for the rest of the policy period offer the same features as standard whole life insurance including fixed premiums cash value accumulation and a level death benefit that's after the first 5 years right for the premiums the key difference is that the insurance company doesn't charge as much for the premiums in the initial 5 years making it more affordable initially so this is ideal for people who want the benefits of whole life but need an affordable option during their early years so example Emily a college student purchases a modified whole life insurance policy for the first 5 years her premiums are lower to fit her budget after this period the the premiums increase and stay level for the remainder of the policy this option allows Emily to benefit from whole life insurance while paying reduced premiums during her college Years so we're going to look here for the modified we're going to say it's a little lower at first and then after 5 years it increases and it's going to be more okay so that's like the modified if you look at that there okay that makes sense okay um Whole Life mod ified endowment contract so there were issues where people were um essentially I guess trying to evade taxes with their Whole Life policies because there are tax benefits to your cash value accumulation and the IRS passed a limit on how much can be put into the policy so a a modified endowment contract is a whole life policy that exceeds the IRS limits on the amount of Premium that can be paid into the policy while still being considered a life insurance contract if it fails to meet the seven pay test which ensures that the policy is not overfunded when a policy fails this test is classified as a modified endowment contract and loses its favorable tax treatment the seven pay test discourages schedules for premium payments that would allow a policy to be paid up in less than 7 years once classified as a modified endowment contract you have surpassed the maximum allowable premium for the policy to still qualify as a life insurance contract so you can't it's like overfunding a whole life policy So Jamie buys a whole life insurance policy that pays $115,000 or and pays $155,000 in premiums over the first 5 years with an annual premium of $2,000 since jimie has paid a total that exceeds the $144,000 limit 7 years and two for his uh $2,000 the policy fills a seven pay test and is classified as a modified D contract so essentially he gets a whole life policy and his premium is $115,000 over the first 5 years so he's like I'm going to pay $15,000 to this policy in 5 years but the annual premium of the policy is only 2,000 right for that that face amount so if Jamie pays in more than the allowable limit right 7 time 2,000 then um in that seven years then then the policy fails a seven pay test so this loses favorable tax treatment for the policy so it's just to make sure that people can't pay too much for their insurance policies okay okay all right next joint life policy a joint life policy and oh here and then um we're looking at the this one here there's also a single premium whole life so that's just one premium premium pay it at the beginning and then they never have to pay again that's it'll be in the the vocab that I'm going over but that's for a single premium whole life they pay once and then that's it joint life policy ures two individuals and reduce pre reduces Premium cost by averaging their ages so two people have a policy together the policy pays out the face amount on the death of the first insured okay the first insured similar to to a joint checking account where the account is shared between two people and the surviving person receives the full amount after the other passes away a policy that pays the face amount upon the death death of the first of the two insured people is known as a joint life policy example Alex and tayor purchases a joint life insurance policy the policy covers both individuals and offers a lower premium by averaging their ages if Alex passes away Taylor receives the full death benefit and the policy terminates with Taylor no longer being insured under that policy this type of policy pays out the full face amount upon the death of the first insured person okay next we have a joint Survivor or last survivor Life policies covers two individuals and reduces premium costs by averaging their ages so same as up above unlike a joint life policy a joint Survivor or last survivor policy or survivorship policy only pays out the death benefit after the second insured person dies these policies are designed to cover two people's lives but only pay the death benefit upon the death of the last insured individual so I mean you think it would be the opposite based on the wording but I just want you to remember that a survivor in a Survivor policy the coverage is still in force on the Survivor okay so in a Survivor policy the coverage is still in force on the Survivor so that's the way to remember it okay example Jordan and Casey purchase a joint Survivor life insurance policy the policy covers both individuals and offers lower premiums by averaging their ages if Jordan dies first the policy benefits provides no benefits until casy also passes away only after the death of the last surviving insured Casey in this case will the policy pay out the death benefit okay okay so a family maintenance policy a family maintenance policy type of life insurance policy that provides a monthly income to the beneficiaries from the date of the insured's death until the end of a pre-specified time period so that's saying that a family maintenance policy will pay income to the beneficiaries of the insured from the day the insured dies for a certain duration of time so so say well we'll give you a th000 a month for 5 years something like that after the pre-selected period ends the face amount of the policy is paid as a lump sum Family Maintenance policies offer an income for a designated period beginning from the moment of the insured's death so for this example say they're paying example right here if Sam wants a life insurance policy that provides a monthly income of $800 to his beneficiaries for 15 years after his death and a lump sum of $25 at the end of that 15-year period Sams choose a family maintenance policy this policy offers a regular monthly income starting from the insured death and pays out the face amount as a lump sum after the pre-selected period ends so essentially it'll pay out income for a certain amount of time and then at the end of that time it pays out a big chunk of money next we have family income policy family income policies they provide regular income starting from the insured's death and continue for predetermined period period after the policy issuance example family income policies provide a regular income starting oh sorry if Taylor buys a family income policy at age 45 with a 15year rider period and Taylor dies at age 50 Taylor's family would receive a monthly income for 10 years from the date of Taylor's death this type of policy provides an income for a period of time at the time of purchase for period specifi the time of purchase starting from the insur death so the rider for the family income right lasts for 15 years so if they die you know after 5 years then there's 10 years left for the rer to pay out next is adjustable life okay adjustable life adjustable life and Universal life are the same thing sometimes uh exams will call it adjustable life sometimes they'll call it universal life so just remember it's the same thing okay adjustable and Universal are the same okay okay so an adjustable life policy holder typically seeks this type of policy for flexible premium options it has flexibility with premiums and face amount allowing the policy owner to adjust both as their financial needs and goals change this combines the elements of whole life and term life into one plan okay so it has um for a policy owner seeking flexib we'll keep reading here for a policy owner sorry for a policy owner seeking flexibility in payment amounts and schedules along with the ability to adjust the death benefit according to evolving life needs an adjustable life policy would be IDE deal adjustable adjustable Life policies usually do not have dividends okay if the policy holder wishes to increase the face amount they may need to prove evidence of insurability so usually if they want to increase the face amount then they a lot of times they have to provide proof of insurability meaning they have to show that they are healthy enough to be insured for that much more coverage okay usually people who choose adjustable life have a specific need for flexible payment so look Emma self-employed and experiences fluctuating income so she chooses an adjustable life policy to accommodate her varying financial situation initially she opts for a low premium to match her current budget as her business grows her income increases Emma plans to raise her premium and adjust the death benefit to align with her expanding financial goals and family needs universal life insurance same thing ability to adjust both premiums and the death benefit investment gains from the policy are typically allocated to the cash value which the policy owner can use to manage the flexible features of the policy so um as I covered before in the previous example as you saw as gains were being made on the premiums that are put that are put in and added to that some of that's added to the cash value okay all right this is ideal for customers who want the most choices and control over their policy as univeral life offers flexibility in both premium payments and death benefits Universal Life policies leverage earnings to enhance the cash value and offer the policy holder the flex excuse me flexibility to adjust premiums and death benefits so example if Jordan wants a life insurance policy with flexible premiums and death benefits where the investment gains contribute to cash value he should choose a universal life policy this allows Jordan to adjust both premiums and coverage while the cash value grows based on investment performance so main difference between universal life and whole life is that the cost of insurance inside universal life increases every year so it's almost like there's an annual renewable term inside the universal life policy the cost increases every year a whole life policy the cost is just level throughout everything throughout the whole policy it's all built into the whole structure the premium and everything um next variable life insurance so Vari life insurance policies they necessitate that a producer hold valid finra and National Association of Securities dealers Securities registration before selling any variable policy contract including life insurance or annuities due to their inclusion of regulated Securities like mutual fund stuff like that okay so to sell variable life this is very important you have to have uh be you have to have a Securities registration with finra in the National Association of security dealers so you can't sell variable life insurance with only a life insurance license okay you have to have the Securities license as well and be registered with one of with those entities these are known as interest sensitive policies variable life insurance policies gen it's a type of Interest sensitive policy variable life insurance policies generally feature a fixed premium but their cash value and death benefits can change depending on how the underlying investment performs okay so typically there's a fixed premium but their cash value and death benefits can change depending on how the underlying Investments perform Investments for variable Life policies include things like mutual funds stocks and bonds for ordinary traditional whole life policy the money is put into the company's separate account okay so not separate account the company's general account all right includes variable annuity variable life variable whole life and Universal variable life and also um variable annuities variable life and variable whole life are typically the same thing and Universal variable life or variable universal life are the same thing this is ideal for those looking to offset inflation as these policies allow for potential growth however the policy owner assumes all the investment risk and returns returns are not guaranteed okay so the cash value you can get gains over time but the cash value some years may not grow as fast and some years it could potentially shrink if the market drops a lot so to sell any of these you have to have a finra Securities registration and a Securities license and a Securities Li uh an insurance license and a Securities license so over the longterm variable life will typically have uh more growth opportunity than traditional whole life example Alex is interested in a life insurance policy where the cash value and death benefits vary with the performance of Investments like mutual funds and stocks he should consider a variable life policy variable Life policies offer flexibility but involve the invest involve investment risk and the returns not guaranteed this is something I have debate with but this is how sometimes it's worded so variable universal whole life so blends of features of variable life and Universal Life policies typically it would just be called variable universal life not variable universal whole life so just so you know you might see variable universal whole life but usually it should just be variable universal life this allows the policy holder to manage the Investments as well as make adjustments to when premium payments are made and how much therefore so it's like a variable whole life policy except it's just universal life so it lets someone have more control over the policy's financial aspects like which invest M accounts to fund when premiums are paid where investment returns are allocated and the policy holder can adjust both the premium payments and uh Premium schedule and the amount potentially adjust the face amount too so um remember how we s talked about how universal life you can adjust the premiums and the face amount so in Universal Life we'll talk about this for a second here in Universal Life there is a Target Premium okay a Target Premium the Target Premium is the here let me just look this up because I always get confused on this so Target Premium universal life so yeah so this is how much the insured should pay the policy older should pay to ensure that the policy remains active and adequately funded for its entire duration okay so that's the Target Premium now there is another type of Premium that or another name for a premium there's a minimum premium which is the minimum amount that the insur needs to pay that premium schedule time to keep the policy in force so say to keep the policy enforced for the desired lifetime that client needs to pay you know $280 a month but maybe just for this payment to keep the policy enforced they need to spend $70 or something like that that's the difference and then there's a maximum premium that can be paid in to where the policy is maximumly maximum funded Max funded then they can't pay any more than that into the policy so those are some of the differences with premium in universal life you have the minimum premium which is the minimum amount they need to pay to keep the policy in force there's the Target Premium which is how much they should pay to keep the policy enforced through the policy's lifetime and then there's the maximum premium which is the amount that uh the maximum amount that they can pay into the policy so example of a v here if Emma wants a life insurance policy where she can control not only the timing and amount of her premium payments but also how her cash value is invested choosing between various investment accounts like mutual funds and stocks she cons she could consider a variable universal life policy this type of policy combines the features of variable life and universal life allowing Emma extra flexibility in both premium payments and investment choices okay so variable universal life it's a universal life policy where the underlying Investments of the policy are based in stocks and bonds and mutual funds and not in the company's general account so in if it was a regular universal life policy the the gains will be the company's risk right the company takes the risk and saying hey we're going to we're going to we're going to invest this money in the right place for you so the Investments are usually a lot more conservative because the company's looking out for itself in the long term variable universal life and variable life allow people to be a little bit more aggressive aggressive to get those longer term gains potentially okay okay Equity index universal life or Equity index life or index universal life this Blends the security and benefits of traditional life insurance with the potential for higher returns linked to an equity index so this is like a universal a universal life is a policy where it's a it's a universal life policy where the underlying investment is linked to um it's not directly it's not a direct it's not directly impacted by mutual funds and stuff like a variable life is but it's linked to an index so that if the say like the Dow Jones Industrial Average so if the stock market does well then this policy will do a little better right it may not be able to perform as high as a variable universal life would but also it has a guaranteed minimum interest rate paid out as well so that they can't lose okay so right here guarantees a minimum interest rate tax deferred interest accumulation and access to policy loans designed to match or outpace inflation these policies protect the against downside Market risk while offering the growth potential of the equity index combines term life insurance with an investment component much like a universal life plan okay um next we're looking at investor or stranger oriented or originated sorry life insurance policy so Ani stole it's usually sto St or um or ioli in investor is an ioli stranger is stoy s this policy in this policy an investor benefits financially from the death of the insured rather than a beneficiary with an insurable interest which is typical in ordinary circumstances so this involves when an investor purchases a policy in another person's life with the intent to profit from that person's death so essentially we got we'll look at here we'll look at stoy example St oi we got me and then we got Jeff Bezos example right so me I cannot get life insurance policy on Jeff Bezos to profit from his death because I have no insurable interest in him like if he dies it doesn't really impact my life except for maybe I don't have someone to learn how to get successful from and I don't have you know that maybe Amazon would have some changes or something like that but you know it's not like it's going to directly impact my finances so typically what happens is the insured receives um payments all usually during their lifetime so it's essentially like someone buys a policy in someone else's life to profit on it and um the person who's the insured often receives some sort of payment or remuneration so look here here what we got here okay Alex an investor purchas if Alex an investor purchases a $100,000 life insurance policy on Jamie the insured and names himself as the policy owner and beneficiary Alex would receive the $100,000 benefit on Jim's death Alex owns the policy he's the beneficiary jimie is the insured jimie in exchange for allowing this policy receives $500 a month this type of policy known as investor originated life insurance is illegal because it bypasses the insurable insance requirement allowing investors to profit from the death of someone they have no personal stake in so you can't get a life insurance policy just to profit off a strangers death cash value the cash value refers to the equity or savings within a whole life insurance policy so cash value is the cash accumulation within a whole life insurance policy it's a big feature of whole life insurance policy cash value can sometimes cash value can be eligible to receive dividends um or an earned dividend depends uh or or not so U it depends if it's a participating or nonparticipating policy example Sarah has a whole life insurance policy with a cash value after 10 years her policy's cash value has grown the $15,000 she uses this amount to take out a loan for home renovation so Sarah could dip into that cash value take a loan out against it to to renovate her home and um she can you know learn uh pay it back over time so in I have more videos on all these topics that go a little bit more in depth into them because what this is just basically covering is the vocabulary the definitions of each of these terms and some of the bigger concepts are found um in my other videos and also in some other courses that we offer okay so we have endowment policy okay endowment policy an endowment policy provides for payment of the face value at the end of a specified period upon reaching a certain age or upon the death of the insured's death upon the insured's death before the specified period ends so it provides for payment of the face value at the end of a certain period upon re a certain age or the insured's death so it's like uh so example John purchases an endowment policy with a face amount of $50,000 the policy specifies a maturity Peri period of 20 years if JN is alive at the end of that time he'll re 50 Grand if he receives before then they receive 50,000 so an endowment policy it's kind of like a whole life policy where the but the um maturity date of the policy is shrunk so it's not it doesn't take as long for the policy to mature so if you for example a normal whole life policy someone would have to live to 100 to get the benefit if they don't die in an endowment policy it's something where where they would be able to get that money beforehand and obviously they don't have to keep making premium payments after they get that benefit next face amount plus cash value policy a face amount plus cash value policy guarantees a payment that includes both the policy's face amount and an additional sum equivalent to the policy's cash value upon the insured's death example Sarah has a life insurance policy with a face amount of $330,000 and a cash value of $5,000 if Sarah passes away her beneficiaries will receive a total of $35,000 which includes both the face amount and the cash value so normally when someone dies they do not that's like usually with universal life um normally if someone dies they only receive the death benefit they don't receive the cash value on top of it okay so most policies the insured only receives the death benefit they do not receive um uh they they do not receive the cash value on top of it but if you want that then it obviously it cost more money for that policy because they're paying extra benefit so what we'll do we'll look at I'll just give you an example um where's the whole life policy okay well we'll say this is a whole ey policy so we're going to look at um say this is a whole life here's the premium being PA paid right here in red and this is the cash value increasing and this is the death benefit most of the time the insured died when when if say the insured died right here only the death benefit would pay out okay and a cash in a face amount plus cash value policy this would pay out plus this amount all right when the death benefit reaches the cash value which is by age 100 typically but you know so I did the the drawing to scale not the right scale here right because 100's here but when the death benefit reaches the cash value at age 100 that's when the policy endows okay that's why there's equity in the policy because essentially the company doesn't have to pay out as much from their own coffers to pay the claim as there's more cash value right so that's why there it would cost a lot more money to have a death benefit plus cash value policy okay juvenile Insurance these are life insurance policies for children with certain age limits typically while they're still under parental Authority so juvenile policy it's a policy on a kid non-medical life insurance is a type of life insurance policy that does not require the policy holder to undergo a medical exam although it generally costs more than medically underwritten policies they will evaluate their medic their medical history and lifestyle to assess risk even if no exam required and will adjust premiums accordingly based on the average risk okay so they can cover a broader AR broader R range of risks without individual medical assessments okay and then Target Premium we covered that a Target Premium is a recommended amount for Universal Life policies established to help indicate what is needed to maintain the policy under conservative estimates does not ensure there will be enough funds to keep the policy active indefinitely including throughout the insurance lifetime for Universal life policy the insurer might suggest a Target Premium of $2,500 annually this is an estimate to keep the policy active but it doesn't guarantee it's going to be there forever okay so this is an estimate of hey this is how long much you should pay to keep the policy active for however long the person wants to keep it active for they'll have Universal Life policies where say I want it to be active until I'm 90 years old okay you're going to have to pay this much I want it to be active until I'm 80 years old okay you're going to have to pay this much 70 years old okay you're going to have to pay this much so that's part of the flexibility that comes with Universal Life policies that that premium can will impact remember in the graph I showed right where the cash value I don't know if I still have it if I erased it yeah I erased it but where the cash value um will grow in the early stages of the universal life policy as you're as the insured is typically paying in more so say this $2,500 would be more more than what the policy costs internally then over time the internal cost will exceed that so the difference has to come out of the cash value so depending on how much they pay we'll determine how long the policy lasts because it'll let the the cash value grow at first so that there's more in there to help later on when the premium is not enough to cover the actual cost of the policy okay I am getting so sick of vocabulary but I'm still here so if you you can hear my voice I'm kind of sick but um I'm really s getting sick of vocabulary but whatever it's all good I'm sure you guys are too we're going to rock this out here and um we're going to make it happen so next we're going to be talking about some of the writers options Provisions all that good stuff for life insurance policies okay absolute assignment absolute thank you guys for rocking with me too I know this is a lot like man when I was studying for this I love I was so annoyed I was like dude these words are some of it was cool but a lot of it was so boring I was like man I cannot wait to just sell insurance and it gave me a different opinion of my friends who are lawyers too cuz I was like man you guys actually like this stuff but whatever some of this stuff was cool don't get me wrong but I was sometimes I was just like oh my gosh I'm ready to take this test and pass it so I don't have to read this material anymore okay absolute assignment refers to the complete transfer of ownership rights and control over an insurance policy from the original owner to another person known as the asse so this is when you comp absolute assignment is a complete transfer of Rights it's a complete transfer of Rights so this means when the new person becomes the owner they have access to cash value they can change the beneficiaries all that stuff in situ in situations where the policy is used as collateral for a loan the original owner retains any rights exceeding the debt amount even if the assignment appears to be absolute so that's called a collateral assignment so if someone has a loan we'll bring over my handy dandy whiteboard here so say someone has a loan for 100k okay they got a loan for 100k now they say they have a $200,000 life insurance policy okay $200,000 policy okay so they can assign if we got me I got actually I got hair now I got a transplant so we going to fill it in there got to give credit where credits due then you got me feeling cool with my loan and my policy super happy about my my situation now what I got to do I got the loan but we got the bank the bank the bank the bank so me I have to assign ownership collateral collateral assignment CA collateral assignment I give the bank ownership of $100,000 worth of of this benefit okay so the bank has rights to to the to that amount as I pay down the loan the amount that they have a right to decreases right because that whole amount isn't what I owe on the loan anymore okay hope that helps you understand collateral assignment and then a after that's paid off the assignment goes back to me okay and then the bank is is no longer assigned it I have full ownership again okay I like how I drew my picture there okay accidental death benefit this is a riter it's called the multiple Indemnity Rider an accidental death benefit writer provides an extra payment to the beneficiary if the insured death results from a covered accident this extra payment is usually a multiple of the policy face value such as um two or three times the original amount offering the most cost effective way to increase coverage temporarily so example Emily has a life insurance policy with a face value of 100,000 she has an accidental death benefit Rider that pays out double the face amount if she dies in an accident her beneficiaries receive 200,000 so we'll look at the illustrations here okay so we got Emily she's feeling coup with her policy she's like I'm going to get an accidental death benefit Rider okay so say Emily is here she's all happy and then one day she has a heart attack and she's not here anymore her family since that's a natural cause death will get that say she had a $100,000 policy her family will get 100K now in this other situation Emily is going along and say an asteroid Falls from outer space and takes rid of takes Emily out of the out of the equation Emily gets killed by an asteroid it's an accident right so in that case as long as it's a covered accident her family would get $200,000 if it was a Double Indemnity accidental death writer okay accelerated benefits writer The Accelerated benefits writer allows the policy holder to access a portion of the death benefit while still alive if diagnosed with a terminal illness expected to result in death within 1 to 2 years depends on the state the amount taken I don't think you need to know that your state specific stuff but that's just to know the amount taken in advance reduces the total death benefit available to beneficiaries it it's actually has to do with the uh State or the carrier that's selling the the insurance company example Maria is diagnosed with a terminal illness and have has life insurance policy with a $500,000 death benefit she uses the accelerated benefits writer to access $200,000 for medical expenses when she passes away her beneficiaries will receive the remaining $300,000 so for example we'll do here so say she's got uh $500,000 policy okay so we got 500k um so we'll go here so she's got 500,000 okay $500,000 and then one day she's diagnosed with a terminal illness TI terminal illness so say she has terminal cancer stage four cancer something like that doctor says you're going to die in you know eight months something like that so she says okay well I want some of this money ahead of time so I want you to give me whatever it was on there 300,000 now I forget the exact example but 300K now and then then later once she dies her family gets the the or her beneficiaries get the additional 200k okay so that's how the terminal illness Rider works or it's also called an accelerated benefits Rider accumulate interest option so this has to do with dividends dividend options the accumulate interest option lets the policy owner leave dividends where the in where the insurance company with the insurance company to earn interest over time okay so the interest is earned the interest earned is taxable as income for the policy owner okay so David say David earns dividends on his participating life insurance policy through a mutual insurance company on his whole life policy say it's earning dividends David choose to let his dividends accumulate at interest so the insured holds them they accumulate at interest okay the dividends earn $200 in interest which David will need to report as taxable income the dividends aren't taxable but the interest is there's an acronym you can use to learn your um dividends as well okay so it's it can be you can do c a p o okay Capo okay CAO it's cash accumulated interest I'm going to have you guys so you can see this accumulated interest paid up additions premium reduction and then onee term Cao okay give you guys a second there okay we'll get into those more in depth in here but one of them accumulated interest we're going to go here accumulated interest we got the company insurance company ABC Insurance Company okay and they pay out a dividend to John this is John's dividend okay John's here John's pumped he's like y give me my money dude here's John he's got his dividends coming okay and he's like you know what I'm good I'm going to send it back to you to hold and then I want you to pay me the interest that you earn and the money is going to stay here but then those little pieces of Interest are going to go back to John that is the accumulate at interest option example so he gets instead of him taking the dividend he lets the company hold on to it and then they invest it and then they pay him the interest earned on the dividend and that has to be declared as taxable income okay assignment Clause the assignment clause in an insurance policy per these are an ABC order I know it's kind of all over the place but it's hard to put them in perfect order for every subject cuz they're they like cross over you know it's like I could talk about cash value here I could talk about it before so it's hard assignment Clause the assignment clause in an insurance policy permits the transfer of policy rights to another party example Sarah assigns her life insurance policy to her business partner as part of a buy sell agreement this ensures that if Sarah passes away her partner will receive the policy benefits to fund the purchase of Sarah's share of the business so in the assignment Clause it means you it it says you can transfer rights you can assign the rights and ownership of the policy to someone else okay automatic premium loan writer or provision the automatic premium loan provision allows the insurer to cover a missed premium payment by borrowing from the policy's cash value at the end of the grace period so the grace period is a period of time after you miss a payment after the payment is due that you can still make the payment without your policy lapsing in other words if you miss a payment the insurance company can automatically borrow against your cash value to cover the premium this loan continues automatically until the policy owner starts making payments again or the cash value is depleted at which point the policy will lapse example Alex misses a premium payment on his life insurance policy the insurer uses the automatic premium loan provision to borrow from Alex's cash value to cover the payment this keeps the policy active until Alex starts paying again or the cash value runs out so I'll show you a quick example then we'll get back to the dividends um so say there's the cash value okay and then there's the premium okay if the premium is missed a certain amount of time will elapse say 30 for 30 days if it's a 30-day grace period that the insured can still make a payment okay if it's still not paid by then and there's enough money in the cash value the cash value will cover the premium and that amount will be reduced from the cash value as a loan will be taken out as against the loan so it's not double it's just we'll just put it here so that would make you think maybe it's double but it's not so here loan to cover the premium okay going to erase all this stuff here I don't know why I'm doing that but I'm just taking up extra time okay next we're looking at the cash option the cash dividend option permits the policy owner to receive their dividends and cash payments example after life insurance policy generates dividends Tom opts to receive the dividend amount directly as cash rather than reinvesting it so if we go here remember how before Rich Homie Alex will'll use Alex he it's like dude I got enough money I don't need my dividend dude you keep it just pay me the interest cuz I got it like that if that's sometimes maybe Alex is like you know what I kind of want that money right now so what happens in this case he says it's my money and I want it know so now Alex has the dividends in hand he's got that cash to go do it every he wants okay cash surrender option the cash surrender nonforfeiture option this is a nonforfeiture option so there's also nonforfeiture options so there's dividend options and then nonforfeiture options okay nonforfeiture options okay so the cash surrender option lets the policy owner take the policy's cash value after to this the policy holder no longer has insurance coverage by law insurers can defer paying the cash value for up to 6 months example after holding his life insurance policy for several years Jim decides to terminate it and chooses the cash surrender option to receive its accumulated cash value okay all right my power is flicking flickering on and off here so I might lose service okay here we go so next is uh the other options are extended term insurance and reduced paid up insurance so re C we'll cover that in a second but re e c the r is going to be well I'll just do this here the r r is reduced paid up e is extended term C is Cash surrender get all the money by term with the money and this is my whole life with the money okay so you want to take notes on that give you a second and if you don't have enough time I will do that okay so um collateral assignment we talked about that already that's where instead of absolute assignment and collateral assignment we're transferring rights of an insurance policy to a creditor creditor as collateral from the loan once the loan's paid off the assignment goes back to the insured or the owner of the policy if the uh insured dies then um if the insured dies then the whatever is in excess of the loan amount gets paid to the other beneficiaries of the policy I don't know where my wal is okay consideration clause the consideration Clause requires the policy owner to pay a premium to secure the insurer's commitment to provide benefits so the cons the policy owners cons we covered this earlier but the consideration involves submitting the application and paying the initial premium so essentially in the consideration Clause this specifies that how much you pay how much he's going to pay a month or how much he's going to pay how frequently he's going to pay and his application so John's life insurance policy contains a consideration clause which specifies he must pay a monthly premium of $100 in exchange for the insurers promised to pay the death benefit to his beneficiaries by submitting his completed application and initial premium payment John fulfills his part of the agreement under the consideration Clause so details about the amount and frequency of premium payments are outlined in the consideration Clause the policy owner's consideration involves submitting the application and paying the initial premium payment so that's saying here is my application here's my health history here's my premium please consider me for insurance okay next we have dependent writers or other insured writers okay dependent Riders allow individuals typically family members such as spouses and children to be added to the primary policy as insured so we covered this before in term writers dividend options dividend options refer to the various choices of policy older has for utilizing dividend payments from their insurance policy remember cappo ca cash accumulated interest paid up a so cash they just get the money accumulated interest that's where they get the insurance company keeps the dividend and pays the interest to the policy owner paid up additions we'll get into that we'll get into premium reduction in onee term quickly though paid up additions is just when that dividend is used to buy additional whole life insurance that allows the policy to grow that's like the most popular one this is this will allow cash value to grow faster because it'll compound over time because that new additional whole life policy a really small face amount will accumulate dividends as well so it's snowballs premium reduction this is when your dividend goes to pay paying your next premium so it just reduces the amount you need to pay then onee term this is when the dividend buys a term a policy for uh extends the term coverage for one year so well it buys a one-year Term Policy like essentially like a one-ear term rer almost but like a one-year Term Policy for however much Insurance the dividend purchases it for entire contract provision so this the entire contract provisions states that the insurance policy along with any attached writers endorsements and application constitute the complete agreement or entire contract between the insured and the insurer so the insurance policy the application and any writers endorsements okay so if you want to come up with an acronym for that we can so it be like um Tire contract we got the policy endorsements writers application so pair entire contract pair p e a r right p e a r p e a r policy endorsements application writers okay when reviewing his policy documents Kevin Kevin notes that the entire contract provision ensures that no outside documents or veral agreements can alter the terms of his policy exclusions exclusions are specific conditions or circumstances outlined in an insurance policy that are not covered by the policy Maria's life insurance includes an exclusion for death caused by participating in dangerous activities like skydiving if Maria dies while skydiving her beneficiaries would not receive the death benefit so one way to remember exclusions is um wash so it's War Aviation um suicide and then hazardous activity or job okay so wash exclusions going to take a second to write that down okay extended term so this is one of the re nonforfeiture options so with extended term nonforfeiture op sorry brain fart there with extended term nonforfeiture option the policy owner can apply the policy's cash value to obtain level term insurance coverage for a set duration with no further premium payments required the coverages amount is equivalent to the net death benefit of the original policy so say the net death benefit is $100,000 oh example when Paul can no longer afford to pay the premiums on his whole life insurance policy he chooses the extended term option the insurer uses the policy's accumulated cash value to purchase a term life insurance policy with the same death benefit but coverage will only last for a specified number of years depending on the cash value this allows Paul to maintain coverage for a limited time without continuing premium payments so give an example here um so say there's 100K in cash value okay and it's a um million doll term or million dooll whole life policy okay so a million dollar whole life so what happens is we have that 100K in cash value and that will purchase he says no that's for part of my nonforfeiture option I want to stop making payments I want to get rid of my policy but still has some value left over so he's like n I'll take some I'll take some term some extra term so what happens is this $100,000 goes to purchase what this does it becomes a $1 million Term Policy and depending on how old the insured is and their health rating and everything else that will determine the duration of the term policy so maybe that $100,000 will buy a term for you know 20 years or 30 years or whatever it is or 27.6 2 years you know something like that but that money is used to buy a $1 million Term Policy and then how and then it lasts for however long that amount of money will'll buy a Term Policy for okay okay free look period free look period gives a the policy owner a set number of days after the policy is delivered to examine it and return it for complete refund of premiums so they get to look at the policy for free okay free look you get to look at the policy for free after purchasing a life insurance policy Jane has a 10day free look period during which she can return the policy for a full refund if she's not satisfied with the terms so what the reason why they have that is because sometimes people aren't always approved as applied for for life insurance right so say someone applied for a preferred rate and they get approved at a standard rate well they want time to to review the policy and make sure they want to keep it so she has 10 days to review the policy uh and there are some rules around when the free look period starts typically it's when the uh agent delivers the policy or when they receive the policy in the mail typically it's like one of those days a lot of times it'll be when the delivery receipt is signed but if are mailed policies they don't always get a delivery receipt signed so grace period we covered this but the grace period is the time allowed for the premium due date during which the policy stays active without any payments so it's like um if you're well we'll cover an example here but if the insured passes away during the grace period without paying the premium the annual premium or the premium the beneficiary will receive the policy's face value minus any unpaid premiums typically the grace period for life insurance is 1 month Mark's life insurance premium is due on the first of the month but he has a 30-day grace period to make the payment if he passes away on the 15th without paying his beneficiary will still receive the death benefit minus the overdue premium okay so essentially it's doing the first of the month but he's got 30 days to make a payment and after that if if there's no money cover it in the cash value then the policy lapses okay guaranteed insurability rider future increase options so what this allows you to do is add insurance so you get it allows the policy holder to add more permanent life insurance at specified times without having to prove insurability it also covers certain life events such as marriage or the birth of birth of a child without requiring additional proof generally this can be used every 3 years allowing for increases in coverage up to the initial policy amount so say um say the insurer the policy holder with the guaranteed insurability rider um well here this example so leak's life insurance policy includes a guaranteed insurability rider when she has her first child she exercises the option to increase her coverage without having to undergo a medical exam or prove insurability a few years later she uses the riter again to add more coverage when she gets married ensuring her family has additional Financial Protection excuse me as her life circumstances change incontestable provision or incontestable period incontestability also called this states that afterlife insurance has been active for a certain period usually two years the insurer cannot dispute its validity case law has established that the incontestable call clause also applies in instances of fraud so after Dan's life insurance policy has been enforced for 2 years the insurer cannot challenge the policy's validity or denying claims based on misstatements or emissions in the application so after the policy's been in two years it has to pay the insuring clause or insuring agreement the insuring agreement details that the primary insurer's primary promise to pay defined benefits to a specified person if a covered loss occurs so this sets the coverage as extent and limits while essentially saying we guarantee coverage for you know if you die so in the insurance Clause of her policy Maria's insurer agrees to pay a death benefit to her beneficiaries if she passes away while the policy enforces is in forc so it says hey we will pay money to whoever you want us to if you die while the policy is in force okay misstatement of uh age or sex provisioner misstatement of age age and gender this provision enables the insured to modify the policy benefits if the insured's age or sex is incorrectly stated on the application benefits are recalculated based on the correct information um so this is gender at Birth so if the insurance actual age is older than reported the benefits will be reduced accordingly conversely if the insured is younger the benefits will be adjusted upward if the person's found to be uh applied as a female and as a male then the death benefit will be um because men have a higher risk than women in general if this is discovered while the policy is enforced they usually just adjust the premiums but as if it's discovered after they pass and they adjust the death benefit that's typically what I've read uh that's like what I've read what happens okay nonforfeiture options we covered those but these options are the choices available to a policy holder regarding their use of the policy's cash value if they desde to terminate a policy with a cash value component this option ensures the policy holder does not lose the accumulated value essentially if you're closing your account which is surrending you know this is an exam a metaphor but if you're closing your account which in Insurance terms is surrending your policy you'll need to decide what to do with the cash value after losing the policy when a policy owner chooses to terminate their policy they have the option to surrender it when Alice decides to take her and to end her whole life insurance policy she can choose a nonforfeiture option to either take the cash surrender value or use it to buy extended term insurance or use it to buy something else which is reduced paid up insurance so reduced paid up insurance is uh it's got to be on here yeah it's down there but reduce paid up insurance is when it takes that cash value and buys a permanent whole life policy for whatever the face amount of whatever face amount it'll buy that value but we're just going to cover the basic premise of nonforfeiture options here so say we got a policy once again we have money over time and then we're going to look at the cash value here so say there's this's cash value cash value is growing over time in this policy okay we're only looking at the cash value here cash Valu is grown over time now at this point in time the the person says well right here they're like no okay I want to cancel my policy well this is equity okay so it's like if you sold a home and you had this much and and you had this much positive equity in your house even though you still have a loan you know you sell it you you owe less or you owe you owe less than the house is worth so the house is worth more than what you owe on it right so you get the difference if you sell it for a whole life policy there's Equity so the the policy has a value so if you cancel it and you have your cash value it doesn't just disappear you can do something with this so you can go we'll go this way remember we have cash surrender we also have extended term and then we have reduced pay uh reduced paid up so re C re e c okay so this is you just get the cash this is when you have term insurance for a certain amount of time so you have it'll buy a Term Policy for the face amount and then end goes away and then this is when you have reduced paid up that should be a u so looks like a V reduced paid up it's when you buy it uses to buy a smaller whole life policy that you never have to make another payment on so say this is the death benefit on this policy that amount of cash value you know might buy that much whole life insurance or whatever the case is right so those are the the uh three main nonforfeiture options okay okay um onee term option this is for dividend options remember for dividend options remember our dividend options everybody I thought I had that here somewhere where NES yep dividend options so cppo CAO one-year term so the one-year term dividend option lets the policy owner use their dividends to purchase additional coverage through a one-year Term Policy instead of taking his dividends and Cash Bob uses them to buy a one-year Term Policy increasing his total coverage for the next year paid up additions it's another dividend option cappo CAO cash accumulated interest paid up additions premium reduction onee term the paid up addition option lets the policy owner use the dividend to purchase an additional whole life policy with a single premium payment Mark chooses the paid up additions options for his whole life insurance policy each year his Dividends are used to purchase additional small whole life insurance policies increasing his overall death benefit without requiring extra premium payments these paid up additions also build their own cash value value adding to the growth over time and they also earn dividends this is important to understand if you guys are getting into any sort of financial advising this is a a big thing so let's look here so we got once again money over time we're looking at the cash value so um say right here there say there's the the are the face amount of the policy so we're looking at the face amount of our participating whole life policy it might increase over time because it's participating in dividends because what happens is this earns a dividend right here say that a dividend is earned right there that dividend through paid up additions is earned to by another policy that increases the face amount then another dividend is earned right here it does it again and then another dividend is earned right here it does it again so the phase amount is keeps increasing because there's little small Whole Life policies that are being purchased with the dividend to add to the main policy and then this actually would actually increase more like this it increas increases like exponential and then it gets to a point where it just starts really snowballing it's like a Snowball Effect because then all these little ones will increase over time will add up and then that one from before is still at creating more dividends right so it just kind of all snowballs and accumulates and then all these that are earning Dividends are even adding so like these ones here that are earning Dividends are going to be adding more Insurance there so it just increases increases increases and has a Compound Effect pay your provision writer or CLA um if the individual responsible for paying the premiums on a juvenile policy dies or becomes disabled this provision waves all future premium payments ensuring the policy remains in forc so this means that if the if you if some guy has a say Johnny has a policy on his son um and JN dies if John's the payor his son if if John's the payer on his son's policy um he doesn't have to worry about his son's policy lapsing the payor provision means that if he and here like with Susan if Susan becomes disabled or passes away before her son reaches adulthood this will wave all future premiums ensuring the policy remains in force without requiring further payments and it'll remain in force even after the kid reaches maturity okay policy Loan cash withdrawal Provisions these Provisions apply to cash value policies allowing the policy owner to take out loans or withdraw cash from the policy these policies are required to start accumulating cash value after a specified period typically three years in Most states so they have to within three years some accumulate sooner those limited pay policies we talked about or single premium Whole Life policies those typically accumulate cash value faster and sooner these loans are not subject to tax in any outstanding loan amounts plus interest are deducted from the policy proceeds upon the Insurance's death oh sorry loans including interest cannot exceed the policy's guaranteed cash value or the policy will lapse so you can't take out more than the cash value uh as a loan because it's a loan against the cash value the cash value is the collateral for the loan it's like taking a home equity line of credit okay okay um example Mike's whole life insurance policy is it build up cash value over several years when he needs funds for an emergency he takes out a policy loan against a cash value which is not taxable the loan plus interest will be repaid Over time however if Mike passes away before repaying the loan the outstanding loan amount and interest will be deducted from the benefit his beneficiaries receive Okay so that's um cash value loans on the cash value okay reduced paid up option well again another dividend option remember re C you want to be me cuz I got cash value RC right there reduce paid up this nonforfeiture option allows a policy owner to stop paying premiums in exchange for a reduced benefit amount the policy remains enforced with the face value is decreased when Sarah can no longer afford her whole life insurance premium she chooses a reduce paid up option this reduces her policy's death benefit but she no longer has to make premium payments her policy remains in force for the rest of her life with the reduced benefit amount using the cash value that had already been built up okay so she she purchases A reduced face amount policy with her cash value so she takes all that equity remember we're talking about this Equity right here say her death benefit was up here before that cash value there might might uh buy a whole life policy its death benefit is there but or you know there but she never has to make another premium payment on it okay and it can earn dividends and all that stuff too okay reduced premiums option so this is a dividend option remember um under this dividend option thought I hit cap on one second here let me find my let me find my notes yeah Capital premium reduction or reduce premiums okay under this dividend option the policy owner can apply the dividend towards reducing the fcy the following Year's premium payments lowering the overall cost of maintaining the policy David's whole life insurance pays annual dividends this example listen closely he chooses the reduced premium option using his dividends to lower than next year's premium instead of paying the full premium amount David's payment is reduced by the dividend amount helping him save on his annual premium cost so essentially the dividend just use goes towards paying the next premium okay reinstatement provision reinstatement involves restoring a lapsed policy by providing acceptable proof of insurability in paying any overdue premiums okay this allows the policy owner to reactivate a laps policy provided they can demonstrate insurability and settle all past premiums outstanding loans and acred interest example Jane's life insurance policy lapsed after she missed several premium payments a few months later she decides to reinstate the policy to do so she provides proof of insurability pays all P du premiums and settles any outstanding loans and interest once these conditions are met her policy is reinstated and back in false you use the false return of Premium Rider the return of Premium Rider uh provides a refund of all premiums paid into the policy plus the face value if the insured dies within a specified period stated in the policy okay additionally it may refund the premiums to the insured if they outlive at the specified period so John purchases the term life insurance policy with the return of Premium writer if he passes away within the term his beneficiaries will receive not only the face value of the policy but also the premiums he paid over the years if JN survives a 20-year period the writer allows him to receive all the premiums he paid back in a lump sum so says you're going to get your benefit plus all the money you paid in and if you outlive the policy you're going to get all the money you paid in why would the company pay back the money they paid in well because as John's paying his premium the company is investing it in their own accounts to earn interest so they make a profit off his money okay suicide clause this is actually usually costs more money so this this Rider costs money this is not a free thing return of premium policies cost more than those that don't have return of Premium suicide clause this Clause voids the policy and denies the death benefit if the insured commit suicide in the first two years after the issuance of the policy this provision is intended to protect the insurer from applicants who purchase a policy with suicide in mind example Marge P Mark purchases a life insurance policy which includes a suicide clause if Mark were to commit suicide within the first two years of the policy the insurer would not pay the death benefit to his beneficiaries after the 2-year period the policy would pay out the full death benefit even in the case of suicide the Clause is designed to protect protect the insurer from people taking out policies with the intent of committing suicide after waiver of premium this Rider allows the policy owner to stop making premium payments if they become disabled while the policy remains active it's not a loan nor does it provide cash payments instead the insurer simply waves the premiums as if they were being paid regularly um did we cover that enough here yeah so if some someone can't buy a policy and commit suicide for someone to get a benefit they got to wait two years hopefully by that time they found the help they need and they don't feel that way anymore waiver of premium Rider this allows the policy owner to stop making payments if they become disabled so we cover that um it's not a loan nor does it provide cash payment it simply waves the premiums as if they were being paid regularly so um it allows the company to just um if someone becomes disabled um the insurance company will wave their monthly payments and it says that in the example there so that person's policy will stay in Force if they become disabled there's certain rules around disability wer premium Riders and how long they need to be disabled before it kicks in force just like if you're studying for your life and health insurance exam or your health exam there's there's writers about that um or details about you know you have to can it's not like oh I'm disabled today so I get the money it's usually like some sort of a period that it takes before it kicks in okay so we're going to cover some of the vocabulary in group life I hope this video is providing some value to you guys this is just about everything you need to know for the vocabulary for your pre-licensing exam um this is like most of the stuff you're going to be tested on this what I'm covering here is most of the general insurance content too this goes most of this content applies to life and health and maybe other types of insurance as well except for the life for insurance specific stuff obviously blanket Health policies blanket Health policies are designed to cover a group now this is some health thing but this was just on there so this this designed this is designed to cover a group exposed to similar risks with a constantly changing membership these policies may be issued to entities such as Airlines or schools to cover passengers or students respectively unlike Group Insurance blanket Health Plans do not provide individual certificates of coverage example a university purchased a blanket Health policy to cover all students part ipating in sports events throughout the Academic Year okay Certificate of Insurance a certific Certificate of Insurance is a document provided by an insurance company or broker that verifies coverage under specific conditions for listed individuals in Group Insurance the policy holder is the employer or the other or or whatever other organization owns the policy that's who maintains the master policy while the insured employees receive a certificate of an insurance of insurance instead of an individual policy example when Jake started his new job he received a Certificate of Insurance confirming his coverage under the company's group health insurance plan so in Group Insurance there's a master policy and if you fall under the master policy then you get a certificate of insurance instead of an individual policy contributory plan this is a type of group life insurance so a contributory plan is a group insurance plan where both the employ employer and the employee share the cost usually at least 75% of eligible employees must participate in the plan employees contribute to the premium payments example the company's health insurance was a contributory plan so Emma and her co-work Emma and her co-workers each paid a portion of the premium along with their employer conversion privilege the conversion privilege allows a policy holder to replace an expiring insurance policy with the new one continuing coverage without proving insurability okay conversion can be based on the insurance attained age age at con the age at conversion or the original age age at the initial policy issue this option is common in term life and group life insurance policies when Jack left his job he used the conversion privileged to switch his group life insurance to an individual policy without needing to prove his health status okay um so this is just where someone can convert their group life insurance into an individual policy okay credit policies credit policies are intended to assist the insured in repaying a loan if they become disabled due to an accident or illness or in the event of their death in the event of disability the policy supplies monthly benefits that are equivalent to the required loan payments so sometimes um we talked about credit policies but essentially these could cover everybody who P who gets a loan through a credit union so that's why this is a group policy because Credit Unions might have group plans that people can take out that help cover loans franchise insurance is life or health insurance plan that covers individuals groups of individuals with separate policies that have uniform Provisions but may vary in benefits these policies are typically solicited within an employer's business with consent franchise insurance is typically designed for groups that are too small to meet the requirements for Standard Group coverage when the policy is life insurance it's offered referred to as wholesale Insurance a small accounting firm in this example a small accounting firm with 10 employees offered franchise insurance providing each employee with individual health insurance policies tailored to their needs Master policy the master policy is issued to the employer as part of a group plan and includes all the uring provisions that outline employee benefits individual employees who are covered under the group plan receive certificates that summarize their coverage details example Jane's company issued a master policy for their group health insurance plan and each employee received a Certificate of Insurance highlighting their specific benefits Next non-contributory plan in a non-contributory plan the employer pays the total cost of employee benefits Most states require coverage to be provided for all eligible employees employees do not contribute to the premium payments so usually in a non-rib contributory plan all employees must be eligible employees do not contribute so this is like those small life insurance policies people get when they work somewhere they just automatically have just from working there at Linda's workplace the non-contributory health insurance plan meant she didn't have to pay anything for her medical coverage as the employer covered all the costs okay persistency persistency and insurance refers to the proportion of policies that continue to be in effect with the insurer after a certain amount of time so how many policies that are sold remain in force persistency is reduced when policies are replaced by the other insurers cancelled by the policy holder or laps because of non-payment business with stronger persistency rates are typically more secure and generate higher profits than those with weaker persistency typically companies strive to receive 80% persistency rate after 3 years and a 60% rate after 5 years indicating that 60% of the policies issues 5 years prev year should still be active example an insurance company with a high persistency rate demonstrates strong customer retention indicating policy holders are satisfied with their coverage and service okay next we are going to be covering some premiums beneficiaries benefits stuff like that we covered the accelerated benefit writer um we covered that already beneficiary this is the person or entity specified in the life insurance policy to receive proceeds upon the insured's debt so the beneficiary is the one who gets the money when the insured dies we already covered cash value class designation is refers to identifying a group of beneficiaries such as All My Children instead of listing specific indiv individuals by name so if you have a beneficiary or as a class designation all my children that it will be divided equally among all that person's children that's what class designation and it's a class of people it's a group of people remember I can assign the benefit to my class my classmates it'll all be split equally common disaster provision this is important so the common disaster provision part of the uniform simultaneous death act guarantees that if both the insured and the primary beneficiary die in a short time span the death benefits go to the contingent beneficiary the primary beneficiary must survive the insured by certain period to receive payout for example Tom has a life insurance policy with his wife Emily as a primary beneficiary and their daughter lily as the contingent beneficiary the policy includes a common disaster provision if Tom and Emily are both involved in a car accident and Emily dies within 30 days of Tom's death the death benefit will bypass Emily and go directly to Lily this ensures that the benefit is still distributed even if the primary beneficiary does not survive long enough to claim it okay so they have to live a certain amount if they're in the same accident the primary beneficiary has to outlive the the primary insured by a certain amount of time before their beneficiaries are still El eligible for it if they die in a certain amount of time then the contingent beneficiary will receive the benefit that brings us to contingent beneficiary the contingent beneficiary will receive the death benefit if the primary beneficiary pred deases the insured okay so if the primary beneficiary dies dies before the insured dies then the contingent beneficiary gets it okay take some time to learn and read about this the common disaster permission that was that was confusing to me this kind of explains it pretty pretty simply though earned premium is the part of the premium paid by the policy holder for the insurance coverage they received so far example if Susan pays an annual premium of $1,200 for her homeowners in insurance policy in 6 months have passed the insurer has earned half of the premium or $600 for the coverage provided during that time the remaining $600 is considered unearned premium until the coverage is provided for the second half of the Year expense Factor the expense factor or loading charge represents the expenses incurred by the insurance company to operate okay example when determining the premium for life insurance policy the insurer includes the expense factor to cover the costs of operating the company such as administrative fees agent commissions and marketing expenses so the expense expense factor is built into the insurance premium it's part of it and um it's it's it's part of the premium that's paid and it says hey this is how much it costs us to operate the company okay excess interest the excess interest provision in life insurance means that if the insurer or earns more than the Guaranteed Rate the cash value of a policy will grow at a faster rate example leisa's whole life insurance policy has a guaranteed cash value growth rate of 3% however because the insurer experienced strong investment returns that year her policy benefits from the excess ins interest op provision allowing her cash value to grow at 4.5% Instead This Means her cash value will accumulate more quickly than initially guaranteed fixed amount installment option okay a fixed amount installment option disperses the death benefit in predetermined installment amounts until both the principal and acred interest are fully paid out so this is a death benefit option Sarah's life insurance policy has a fixed amount installment option after her death the $200,000 death benefit will be paid to her son Mark in fixed installments of $1,500 per month these payments will continue until the entire 1,000 I mean sorry these payments will continue until the entire $200,000 plus any accumulated interest has been exhausted so give a little example there I'll pull out my handy dandy whiteboard say we got the 200k right here okay this is a $200,000 death benefit okay 200k death benefit put the little K in there there we go can't forget about the K okay so uh instead of this just going in one lump sum it goes in small little installments of $1,500 okay and at the same time as the $1,500 increments are being taken out of this this is earning interest so interest is accumulating on it right so what it'll do it'll pay out those $1,500 payments until the whole $200,000 is paid up plus the interest that was generated while that money was just sitting there having those little chunks taken out of it okay okay fix level premium um yeah we already talked about that so this involves spreading the total cost of a policy and irregular payments okay um more frequent payments result in a higher overall premium so example Emily purchased a life insurance policy with a fix or level premium of $1,200 annually if she wants to make monthly payments her premiums will be 115 per month which results in a total annual premium of $1,380 this higher cost reflects the the added cost of more frequent payments okay because there's you know they have to pay someone to process the payment and all that stuff okay fixed period or period certain option a fixed period or period certain option pays out the death benefit in an equal installments over a spe specific number of years the the installment amount is determined by dividing the total benefit by the number of installments example Michael's life insurance policy has a fixed period option after his death the $300,000 death benefit will be paid out in equal installments over 10 years each year his beneficiary will receive $30,000 until the entire death benefit plus interest has been paid out so we had the fixed amount option which is hey 1,500 a month until it runs out right this is the fixed period or period certain option which pays for a certain amount of time so a certain it pay like however amount it needs to to pay in equal installments over a certain period of time okay next is graded premium graded premium is a funding option where premiums start lower and gradually increase annually for a set introductory period the premiums R the premium Rises to a higher rate than the initial level premium would have been once the introductory period ends and remains unchanged for the life of the policy so Jennifer purchases a life insurance policy with a graded premium option for the first 5 years she pays a lower premium starting at $50 a month which increases annually to $80 by the end of year five at the introductory period her premium jumps to or after the introductory period her premium jumps to 150 per month and remains fix at that amount for the rest of her life so it starts at 50 increases a little bit until she gets to 80 and then after that period it jumps to 150 okay gross annual premium the gross premium is the sum of the net premium for an insurance cover plus commissions operating expenses miscellaneous costs and dividends example John purchases a life insurance policy with an annual premium of $1,500 this gross premium includes the net premium required to cover the cost of Insurance Plus commissions paid to the agent administrative fees and other operating expenses additionally if the insurer offers dividends those are factored into the calculation of the gross premium so um includes how much is cover is there to cover the cost of insurance but then it also includes what commissions have to be paid to the agents and other administrative and operating expenses too so say the just to cover the insurance it was you know $1,100 but then all the other stuff added up to 1,500 total interest Factor the interest Factor involves calculating the expected earnings from investing the collected insurance premium so basically an insurance works is like this we have all the insureds right so we're going to do this a bunch of people who want Insurance okay or who have insurance okay those are a bunch of people paying insurance now they're paying their premiums every month into this fund okay well to the insurance company not into a fund so they pay their premiums every month okay or every year premiums okay premiums now the insurance company takes these premiums and invests it and then these earn interest right so the insurance company tries to make a profit off of the premiums that are paid in so this calculates the expected earnings from the collected insurance premium so we're talking about the expense Factor here we're talking about the earnings that are expected this expected interest from the collected premiums when settling premiums the insurance company considers the interest factor for instance if the insurer expects to earn 3% annually by investing the collected premiums they can charge lower premiums while still ensuring that they have enough to pay future claims this anticipated investment return helps reduce the overall cost of the policy for the policy holder okay next we have the interest only option okay okay the interest only option is a death settlement choice where the insurance company retains the death benefit for a specified period and provides the benefit iary with only the interest earned during that time okay so this is where the insurance company retains the death benefit for a certain period and provides a beneficiary with the interest earned so minimum interest ratees guaranteed the interest must be paid out at least once a year so this is a death benefit option Emma's life insurance policy has an interest only option after her death the insurance company holds the $250,000 death benefit and pays the interest earned to her beneficiary Mark at a Guaranteed Rate of 3% annually excuse me Mark receives $7500 per year in interest payments while the principal remains untouched I am uh kind of sick right now so pardon me the full 200 dang the full $250,000 death benefit will be paid to Mark at a later date or when he decides to receive the lump sum irrevocable beneficiary an irrevocable beneficiary is one whose designation cannot be altered by the policy holder without obtaining written permission from the beneficiary so there's two types of beneficiaries there's revocable and then there's irrevocable revocable can be changed irrevocable cannot be without the policy holder's consent that's that simple joint Survivor option um this is a settlement choice that ensures benefits are paid for life to two or more individuals this Choice may have a certain period and the payment amounts are determined by the beneficiary's ages example John and his wife Mary select a joint and Survivor option for their life insurance settlement this ensures that benefits will be paid as long as either of them is alive if John passes away first Mary will continue receiving receiving payments for the rest of her life the payment amount is determined by their ages at the time of settlement if they also select a 10-year period certain and both pass away within those 10 years their beneficiaries will continue receiving the payments for the remainder of that period so that's an option that they can um have to where as long as the primary beneficiary and and um and a secondary beneficiary are still alive okay so um that that's how it that's how it works it has to do with the beneficiary succession and payouts life income option this the life income option income option provides a death benefit settlement death benefit settlement where the beneficiary receives guaranteed income for life so each installment amount is determined by the life expectancy of the recipient in the total principle so this is essentially you you turn the death benefit into an immediate annuity into a lifetime a life income annuity example Sarah selects the life income option for her life insurance policy after the death her beneficiary Jack will receive monthly installment payments for the rest of his life the amount of each payment is determined by Jack's life expectancy and the total death benefit regardless of how long Jack lives the payments will continue for his lifetime ensuring he has a steady income that he cannot outlive life settlement a life settlement involves a policy holder selling or transferring their life insurance policy to a third party for an amount that's less than the policiy expected death benefit example David at age 70 decides he no longer needs his $500,000 life insurance policy he enters into a life settlement agreement selling his policy to a third party company for $200,000 while the company will receive the full death benefit when David passes away David receives immediate compensation that is less than the polies death benefit but provides him with cash to use during his lifetime so that's when someone can transfer the rights of their life insurance policy um for an amount that's less than the death benefit so they sell the policy for less than the death benefit to get cash now lump some option um this is the most common one so this is where the death benefit pays out um in full so the it's the entire amount in one payment after deducting any outstanding policy loans and overdue premiums this is typically the default choice so that you know we don't have to talk about the example modified premium uh we talked about that lower premiums for the first few years and then it jumps to a level premium for the rest of the policy morbidity rate reflects the frequency and severity of disabilities anticipated within a specific group of individuals so it's what's the rate of disability in that group of people an example an insurance company offering disability policies evaluates the morbidity rate for a group of 10,000 workers in a high-risk profession based on their analysis they estimate that 10 individuals will experience significant disabilities each year this projected frequency and severity of disabilities help the insurer determine the appropriate premiums and coverage terms for the group so this is with disability they they can determine what to rate them depending on the morbidity rate like what what they'll pay in premiums they figure out based on the the the morbidity rate so how frequent do groups of that type get disabilities mortality rate this is an expression of the number of deaths within a population adjusted for the size of that population over a given period an insurance company uses the mortality rate to assess the likelihood of death for a group of 1,000 individuals age 65 it's example based on historical data they estimate that 25 individuals from this group will pass away each year this figure helps the insurer calculate life insurance premiums and determine the risk with associ the risk associated with providing coverage to this population next we have the net payment cost index net payment cost index okay the net payment cost index is a Formula that calculates the true cost of a policy for the policy holder allowing consumers to compare the cost of death protection over a period of 10 or 20 years for example the net payment cost index net payment cost index is a Formula that calculates oh um sorry Jennifer is comparing two life insurance policies and uses the net payment cost index to determine which offers better value over 20-year period one policy has an index of $5.50 per $1,000 of death benefit while the other has an index of $620 cents per $1,000 of De death benefit based on this calculation Jennifer chooses the policy with a lower net payment cost index as it provides more affordable death protection over the long term okay so the lower the net payment cost index the more bang for your buck net single premium the net premium is the amount calculated by an insurer to maintain policy reserves considering interest earnings and mortality rates so it's also called single premium example the insurance company calculates the net or single premium for a life insurance policy by considering the mortality rate rate and expected interest earnings on the invested premiums for a 40-year-old policy holder the net premium for $100,000 life insurance policy might be $115,000 this calculation helps the insure helps the insure ensure make sure they have enough reserves to cover future claims while accounting for mortality risks and investment returns so this is to make sure that they can you know make money and um you know still pay the claims that they need to so we're going to talk about a couple things that have to do with Benefits distribution here per capita which is by the head per capita by the head per capita means Distributing benefits equally among all name beneficiaries so example John and his three children Alice Bob and Clair names Alice Bob and Clair as beneficiaries of his life insurance policy under the per cap a designation if John passes away the $300,000 death benefit will be evenly distributed among the three with each receiving $100,000 if one of the children predeceases John the remaining two will split the death benefit equally with each receiving $150,000 next you could go per sturs I think it's called sturs or stures per sturs distributes benefits evenly it could be sturp I don't know distributes benefits evenly according to the family line example John names his three children again Alice Bob and Clair is beneficiaries of his life insurance policy under the per it's per stripe there but it's per sturs if Bob passes away before John Bob's share of the $300,000 death benefit will be evenly distributed among Bob's two children this means that aliceon Clair will receive $100,000 Bob's two children will each receive $50,000 hold on Alice bobin clar's beneficiaries life insurance po pass away jump Bob sh Alison Clair will receive $100,000 oh okay so this is saying it's a $300,000 benefit right so Alice Bob and Claire each receive $100,000 Bob dies but he has two kids so his $100,000 is split so his kids automatically become contingent beneficiaries on his benefit amount in the pur sturs distribution makes sense premium mode the premium mode refers to how often a policy holder chooses to make premium payments well you know annual monthly whatever primary beneficiary is the first person designated to receive benefits When the insured dies policy proceeds this is what's um paid out by the policy it includes for death benefits the policy's face values plus dividends minus any loans for surrender benefits it's the cash value minus any surrender charges in loans and for maturity benefits which is when they reach age 100 the cash value less any loans and interest example when John passes away the policy protees of his life insurance policy amount to $250,000 this includes the face value of the policy plus plus $5,000 in earn dividends minus the $10,000 outstanding loan amount and accruit interest his beneficiary Mary receives $245,000 after these adjustments similarly if John had surrendered the policy the proceeds would have been included would have included the cash value minus any surrender charges and outstanding loans next we got reserves final stretch here guys we got two two pages there six pages there four pages there and then four pages there so uh thank you guys for rocket with me here I know this stuff can be challenging I know it can be tough but you got this I know you're going to do this you're going to pass your exam I'm 100% confident that you can do this and that you will do this because you are awesome okay reserves are the funds an insurance company sets aside as required by state laws to ensure they can pay future claims so uh state laws require that insurance companies have a certain amount of money set aside in reserves example an insurance insurance company maintains reserves to ensure they can meet future claims for instance if the company has issued a large number of life insurance policies that required by state law to set aside a portion of the premiums collected in these reserves the funds are used to pay out claims when policy holders pass away ensuring the company remains financially stable and able to fulfill its obligations revocable beneficiary a revocable beneficiary is one whom the policy owner can change at any time without needing to inform or obtain consent from the beneficiary John names his daughter Emily as the revocable beneficiary of his life insurance policy since Emily is a revocable beneficiary John can change so revocable beneficiary the owner can change at any time settlement options so we just kind of covered that these are the death benefits uh or these are the policy Pro the options for um policy proceeds to be P passed out can be interest only lump sum fixed amount fixed period and life income and there's also joint and Survivor life income okay so those are the different set death benefit settlement options single premium funding uh we've talked about that they you know single premium whole life policy they make one payment and then the policy is paid for spend Thrift Clause the spend Thrift Clause protects policy proceeds from being claimed by creditors upon the Insurance's death so this can here well example John's life insurance policy includes a spend Thrift CLA when he passes away the $500,000 death Ben is protected from his son's Mark's creditors instead of a lump sum Mark receives a benefit in fix monthly installments of 5,000 over 10 years ensuring the funds are not spent irresponsibly in providing long-term Financial Security so saying that creditors cannot go after benefits of a life insurance policy surrender cost index the surrender cost index is a Formula that helps calculate the average cost per thousand of coverage for a policy that's cashed in for its value assisting and cost comparisons for policies expected to be surrendered in 10 or 20 years so that's kind of confusing see the example Megan is comparing two life insurance policies and uses the surrender cost index to evaluate which would be more coste effective if she plans to surrender the policy in 20 years one policy has a surrender cost index of $5,000 five sorry $5 per $1,000 of coverage while the other has an index of $6.50 based on this calculation Megan chooses the first policy because it has a lower average cost per ,000 of coverage if she decides to surrender it for the cash value in the future okay tertiary beneficiary the tertiary beneficiary is next in line to receive the death benefit Pro proceeds if both the primary and secondary or contingent beneficiaries are enabl to so it goes primary contingent and then secondary primary contingent secondary PCT PCT PCT there's a packed call it a packed underwriting Department we covered this already that's the department that um reviews approves or declines insurance applications unearned premium is the amount of Premium that's been paid for insurance coverage not yet provided example Sarah pays an annual premium of $1,200 for her homeowners insurance policy but after 3 months she decides to cancel the policy since the company has only provided coverage for 3 months and it's $100 a month of cost she already paid ,200 the remaining N9 months of the premium $900 is considered unearned premium and will be refunded to Sarah okay uniform simultaneous death act we talked about this but this dictates that if the insured in the primary beneficiary die simultaneously or nearly so in an accident without it being clear who died first it's assumed the primary beneficiary died first that way the death benefit will go to the contingent beneficiaries example John and his wife Emily are both involved in a car accident and pass away around the same time since it's unclear who died first the uniform simultaneous death act assumes that Emily the primary beneficiary died before JN as a result the death benefit from John's life insurance policy is paid to their children who are named as the contingent beneficiaries viatical settlement a viatical settlement is when an individual with a terminal illness sells their life insurance policy to a third party for a portion of the death benefit okay so it's when you're going to die and you sell your policy for money example Mark who's been diagnosed with a terminal illness decides to enter into a viatical settlement he sells his $500,000 life insurance policy to a third party company in exchange for $300,000 the company will receive the full $500,000 death benefit when Mark passes away but Mark gets immediate access to funds to help cover medical expenses and improve his quality of life during his remaining time okay now in that the viat viat the viatical or the viat is the new thirdparty owner so the new third party owner of the policy is referred to as the viat or the viatical and the Viator is the original owner of the life insurance policy so the Viator is the original owner of the policy so in the viatical settlement you have the Viator who's the original owner and then the vi IAL or the vet who is the new owner of that policy okay so next we're going to be talking about the uses of life insurance the uses of life insurance so let me get right into this here uh first one we're going to talk about is C actually first off if you find Value please subscribe to the channel um check out my other videos at least even if you don't subscribe just check out the other channels other videos I understand you may not watch this uh after you get your license but I do have another channel that focuses on sales it's just youtube.com final expense um I can help you guys learn how to sell insurance if you feel I I can also give you a free study guide too just reach out in the description of the video and then also um if you want to work with me selling life and Insurance I'd be more than happy to give you an interview see if you'd be a good fit and if we'd be a good fit for you uh I think we have the best system in the country for new agents to start but that's just me so cross purchase plans cross purchase plans are agreements where surviving business owners commit to buying the deceased owner share of the business this is typically funded through life insurance policies that each owner holds on the lives of the other owners so example in a small Law Firm each partner has a life insurance policy on the others if one partner excuse me if one partner passes away the surviving Partners use the insurance payout to buy the deceased Partners share of the business so we're going to look here on my thing here cross purchase plan um I'm going to draw it so we're going to go here we're going to do person one and U actually we'll make them smaller so I'll do one here and then we'll do one here then one here okay so these are three bu business owners okay now this owner would get life insurance on this one and this one okay this owner will get insurance on this one and this one okay and then this owner we'll get insurance on this one and this one okay so that way if this one dies then these two can purchase his share of the business okay so it says each partner has a life insurance policy on the other if one partner passes away the surviving partner use the insurance payout to buy the deceased partner share of the business so if this guy right here dies then his Partners get a life insurance benefit so that they can buy his share of the business so they own the policy so this one and this one will own the policy on him and he's the the insured and they're the beneficiary okay okay all right entity plans entity plans are agreements where the business itself is responsible for purchasing a diseased owner's interest thereby increasing the ownership Stakes of their surviving owners example in a corporation with four owners the business holds life insurance policies on each owner when one owner dies the business uses the insurance proceeds to buy back the deceased owner share and redistribute it among the surviving owners so in the entity plan um we're going to do this would be a little different so an entity plan say we have the three people again oh that guy's extra tall and then here okay in the entity plan we have the business okay the business has Insurance on all three that way say this one dies okay the money goes back in the business to buy back this person's portion and then it's redistributed amongst the owners of the business so in this case the business o owns entities or owns insurance on the owners in this case the partners own insurance on each other okay so it's a little different human life value approach the human life value approach calculates an individual's economic value based on the projected future earnings that would support their family example to determine how much life insurance Jon needs the human life value approach considers his current income the number of years he plans to work and the portion of his earnings to that supports his family estimating the total economic loss his family would face if he were to die okay so essentially um we'll take a look here at the human life value approach okay hlv human life human life value okay so we're going to um add a little text box okay so if um John makes $100,000 a year okay now if John Dies if John Dies he wants his income replaced to his family for 20 years his human life value to his family financially if say that's his only income is going to be $100,000 times 20 years times you know what the whatever if in the inflation right so assuming he's going to get raises and stuff like that so wouldn't be just straight 2 million cuz that's what it is I mean that's what 100,000 time 20 is it would be 2 million plus interest right or plus Tak into account that he's going to get a raise every year so and then you know maybe some of that money will be invested he'd return on or something so it' be more than 2 million but Basics there two million is what he's worth to his family over the next 20 years probably be about two and a half three with with uh you know interest in infl in inflation and um him getting raises and stuff like that but that's basically what human life value is human needs approach the human needs approach evaluates the insurance coverage required by assessing the financial needs and objectives of a family or business if the insured died became disabled or retired example using the human needs approach an insurance advisor determines the amount of coverage needed for Maria by analyzing her family's living expenses mortgage children's education costs and other Financial Obligations ensuring her family's Financial stability if she were to pass away so um essentially the human needs approach views the needs that This Woman's family would have if she passes away so based on their EXP expenses their mortgage Education costs and other things how much money would they need if Maria passed okay so it's a little different so human needs this is just based on the needs right so like um human life value may go towards above and beyond like needs right human needs is based on hey just what does my family need from me if I pass okay key person Insurance provides Financial Protection next one key person insurance this provides Financial Protection to a business against a loss resulting from the death or disability of a crucial member usually someone with essential managerial or technical expertise example when the CEO of a tech startup known for his unique vision and Leadership unexpectedly passed away the company used the key person insurance proceeds to stabilize operations and find a suitable replacement so key person insurance covers not only the revenue that the business would lose if that person died but it also covers the cost of training them okay needs based selling needs based selling refers to the ethical obligation of Insurance Producers to recommend products that meet the specific needs of the client rather than prioritizing the producer's financial gain a needs-based violation example is when a prospect has sold insurance with the highest premium rather than receiving the appropriate coverage for their situation example an insurance agent practices needs-based selling carefully by assessing a client's financial situation and recommending a life insurance policy that provides adequate quick coverage without unnecessary features or costs okay so needs-based selling refers to an insurance producer recommending products that fit the client's needs not that not ones that necessarily make the insurance producer the most money split dollar plans split dollar plans are life insurance Arrangements between two parties life insurance is taken out on one individual who designates a beneficiary to receive the death benefit which is the death benefit minus the cash value the other party is entitled to the cash value both parties typically contribute to the premium payments example in a split dollar plan an executive and their company agree on a life insurance policy the executive's family is the beneficiary of the death benefit while the company recovers a cash value of the policy upon the executive's death and both share the premium costs okay so split dollar plan the executive and the company agree on a life insurance policy the executive's family receives the death benefit while the company recovers the cash value upon the executive's death okay next we are going through annuities okay annuities all right so a 403b plan 403b plan is a retirement savings plan available to some employees of public schools in tax exempt organizations as well as certain ministers okay so Lisa a public school oh hold on Lisa a public school or sorry Lisa a teacher at a Public School contributes to 403b plan as part of her retirement savings each month a portion of her salary is invested in the plan allowing her to accumulate tax deferred savings over time when she retires Lisa can withdraw from the plan to supplement her pension and social security income okay so a 403 it's a retirement Savings Plan it's a tax sheltered annuity at TSA tax sheltered annuity it's a available to Public School Employees tact exempt organizations like charities in certain ministers So Lisa contributes to her plan for her retirement savings every month a portion of her salaries invested in the plan before tax then when she retires she can withdraw from the plan to supplement her pension in Social Security so it's like a little annuity 1035 contract exchange 1035 contract exchange is a provision of the Internal Revenue code applying to annuities it allows for the exchange of an annuity for another annuity without recognizing a gain for tax purposes this also applies to exchanging a life insurance policy or endowment contract for an annuity an annuity cannot be converted into a life insurance policy this tax code permits policy holders to transfer funds from an existing life insurance policy endowment or annuity into a new policy without facing ta consequences example Mark owns a life insurance policy but decides he would benefit more from an annuity as he nears retirement using 1035 excuse me using the 1035 contract exchange provision he transfers the cash value of his life insurance policy into a new annuity without triggering any taxable gains this allows him to defer taxes and transition his fund smoothly into a product better suited to his retirement goals so we're going to do a little illustration here here so you can see we got who I'm way over there okay we have um let's say we have a life insurance policy okay Li and inside the life insurance policy there's cash value okay cash value say this cash value is $400,000 okay you can take this $400,000 and put it into an annuity through a 1035 Exchange okay so 1035 Exchange into an annuity okay this is no tax consequence at all so this goes into this and then you restart receiving payments you can start receiving payments from the annuity all right now the payments from the annuity might be taxes ordinary income it depends how it's structured but the 10th the 400 400k can be transferred into a new annuity you know this can also be used to buy a new life insurance policy that's usually not recommended but sometimes it can okay so um you can use you can transfer one thing to another the value one thing to another without without tax consequences okay accumulation period so this has to do with an annuity accumulation period is the phase during which excuse me in annuitants premium payments are credited as accumulation units the accumulation phase can extend beyond when premium payments stop but before the payout phase begins these accumulation units are converted into annuity units for payout at the end of the accumulation period during the accumulation period of his def annuity James makes regular premium payments these payments are credited as accumulation units with grow which grow over time through Investments even after James stops making payments this accumulation period continues until he decides to start receiving payments when the accumulation period ends his accumulation units are converted into annuity units determining the size of his future payouts Okay so one second here there might be an error here so are you okay never mind accumulation units represents the value of an annuitant's contribution to their annuity minus expenses the worth of each accumulation unit is credit to the individual's account and fluctuates based on the performance of the underlying stock investment in a variable annuity okay so these are on variable annuities so the the accum ulation units are only applicable to variable annuities okay I believe that's the case I I like know it is but is only appliable to variable yeah they're primarily associated with variable annuities okay so where you see here um I'm going to edit this premium payments um decrease value of the annuity in a variable annuity there are accumulation units increase in a variable annuity here we go accumulation units increase okay so accumulation units are specific to variable annuities because of the investment component fixed annuities do not involve accumulation units as they have guaranteed interest rates or fixed payments in the accumulation units variable annuity are converted into annuity payouts at the end of the accumulation period okay in a fixed annuity the value is distributed total accumulated value is distributed okay okay so we're just going to lower this here so it's it all fits okay so example during the accumulation period of his deferred variable annuity James makes regular premium payments these payments are credited as accumulation units which grow over time through Investments even after James stops making payments the accumulation period continues until he decides to start receiving payouts when the accumulation period ends his accumulation units are converted into annuity units determining the size of his future payouts okay so in a fixed annuity guys sorry this is the only issue I've had in all these only correction um the fixed annuity the value just increases as they pay in the money and then whatever is there accumulated at the end the whole value gets distributed based on whatever payout option they select accumulation units represent the value of an annuitant contributions to their annuity minus expenses expenses like it costs money to invest in stocks and stuff like that or the the mutual funds the worth of each accumulation unit is credited to the individual's account and fluctuates based on the performant of the underlying stock so every time they pay in there's an accumulation unit then the value of that unit is credited to the underlying stock Investments example Sarah has a variable annuity and makes monthly contributions during the accumulation phase each payout buys accumulation units which are credited to her account the value of these units fluctuates with the performance of the underlying investments in her annuity portfolio as the stock market performs well the value of Sarah's accumulation units increases enhancing the overall value per annuity so I'm going to show you here basically the fixed annuity first so we fixed okay fixed so you pay in the money or pay in during the accumulation phase okay accumulation phase money's paid in okay and then the annuity phase the payout phase the money's paid out so in a fix the money's paid in this can be a lump sum at one time or this can be multiple payments paid over time which should result in the Deferred annuity okay so a fixed fixed versus variable well I'm not going to put that there but a a variable annuity the underlying Investments is in mutual funds and bonds and stocks a fixed annuity the underlying investment is in the company's general account okay so it's in the company's general account all right in a fixed annuity the person pays in and then they choose the annuity payout options which we'll cover in a minute here but in a variable annuity uh as it's paid in the value doesn't increase they purchase accumulation units whenever they pay into it essentially what happens so annuitant an annuitant is the person who received payments from an annuity or whose life expectancy Det determines the duration of the annuity payments example Sarah is the annuitant of her retirement annuity meaning she will she will receive monthly payments for as long as she lives annuity units annuity units are the conversion of accumulation units into annuity units used for calculating payouts in a variable annuity once the initial payout calculation is made the number of annuity units remains constant for the annuitant so essentially annuity units accumulation so during the accumulation phase in a variable annuity accumulation units are purchased in the in the annuity in the annuity period the annuitization phase the Anu the accumulation units are converted to annuity units and then their value is based on the underlying investment value example after years of contributing to his variable annuity Tom decides to be begin receiving payments at this point his accumulation units are converted into to annuity units based on the current value of the underlying Investments while the value of each in of each annuity unit might fluctuate the total number of annuity units Tom holds Remains the Same throughout the payout period determining the amount he receives in each payout okay so the total number of units Remains the Same but the value of each annuity unit might might fluctuate based on the underlying investment performance so now we're going to there's also annuity payout options so there's cash refund option the cash refund option ensures that if the annuitant dies before receiving payouts before receiving payments equal to the purchase price of the annuity the difference is paid out in a lump sum to the designated beneficiaries so if the annuitant dies before receiving payments equal to the purchase price of the annuity the difference is paid out in a lump sum to the benefit iici Aries example John purchases an annuity with a cash refund option he receives monthly payments from the annuity but passes away before the total payments equal the amount he initially paid into the annuity under the cash refund option the remaining balance is paid in a lump sum to his daughter the designated beneficiary okay so he receives payments but passes away so say he pays he has a cash refund option and there's a $100,000 annuity so we'll do it right here so cash refund option CR cash refund okay say John has a cash refund and there's a 100 thou the amount that he pays the value of the anity is 100,000 okay if he takes payments and they end up paying out 80k to him and he dies his daughter gets the 20K okay his daughter gets the 20K difference okay it would just be in one in one Chunk in a lump sum to his daughter deferred annuity a deferred annuity is an annuity that delays payments until after a specified period or the annuitant reaches a certain age it can be purchased with a single premium through flexible premium payments sorry single premium or through flexible premium payments they generally start providing income payments no sooner than one year after the purchase date example Emily purchases a deferred annuity at age 50 making regular contributions over several years the annuity is to design is designed to start paying out when she turns 65 providing her with a steady income during retirement since the payouts are delayed until that time her contributions have time to grow through investments before receiving pay payments so we'll do fixed and we'll do fixed and I mean no sorry deferred annuity deferred so we'll take person 50 years old 50 years old okay they get a deferred annuity they make payments until 65 years old and then they want money to start coming back to them okay so a deferred annuity it can be either a single premium where that 50-year-old puts a bunch of money in at one shot and then it grows until 65 or it can be multiple payments over time until age 65 now whatever is accumulated at that time will then pay out over time in an income stream to this person once they reach retirement age yay retired okay Equity indexed annuities Equity indexed annuities are a form a fixed deferred annuity okay so it's a deferred annuity and fixed meaning the interest is fixed there not variable it ensures an equity index annuity ensures a minimum interest rate with the opportunity to earn to earn extra interest linked to the performance of a market index example Michael invests in an equity index annuity which guarantees him a minimum interest rate on his contributions additionally if the stock market index performs well his annuity earns extra interest tied to the index's growth this allows Michael to benefit from potential market gains while still having the security of a guaranteed return if the market underperforms so um it allows him to get a little extra gain but not all the gain if the market performs up to a certain amount and it gives him a minimum floor so this the way that Equity index products work this is equity this is index life index universal life and index annuities so we'll take um say the maximum ear is 8% and then the minimum can earn is 2% okay like this so this is the max and this is the minimum okay 8% and 2% anywhere in here it can earn from there if the market performs higher so say the market performs at 12% okay the company the the in the um the insurance company keeps the the the excess 4% and the annuitant is credited with an 8% return on their account okay if it earns less than 2% or less then the the minimum it can earn is two so that's the floor could Poss can't go lower than that in this example so it can earn the thing is it can earn in between here so it has a guaranteed minimum but it also has the ability to participate in some upside gain anything over this the company's going to take okay exclusion ratio is a calculation used to determine the portion of annuity income that is not subject to federal income tax okay the exclusion ratio is a calculation used to determine the portion of annuity income that is not subject to federal income tax it's found by dividing the total in amount invested in the annuity by the total expected payouts okay total amount invested by the total expected payouts okay example Susan invested $100,000 in an annuity and expects to receive $200,000 in total payouts over her lifetime using the exclusion ratio she divides her investment $100,000 by the total expected payouts $200,000 resulting in an exclusion ratio of 50% this means that 50% of each payment she receives is not subject to federal income tax while the remaining 50% is taxable so what this means is that if you have an annuity and you're receiving payments from It Whatever you've paid in is not taxable once it starts paying out okay so if you've if someone's been paying into an annuity and then they start receiving payments from it the um it's it uses a a ratio to figure out what percentage of that payment is taxable so it takes a piece of out in taxes and then some of it's not taxable so they take how much they paid in they divide how much they paid in by the amount of the annuity and then that's the exclusion ratio fixed annuity fixed annuities provide a consistent rate of return with the insurer declaring interest rate in advance ensuring it will not drop below a specified minimum the insurer takes the investment rate so before we were talking about variable anity this is fixed annuity where money's paid in for a certain amount of time then it's distributed so in this example above person's paying in $100,000 it turns into two and then over the um over the lifetime of the annuity she's going to get back 200,000 okay so Lisa purchased a fixed annuity with a guaranteed minimum interest rate of 2% for the first year the insurer declare the insurance company declares an interest rate of 3% so Lisa will earn 3% on her contributions that year however even if the declared interest rate drops in future years it will never go go below the 2% guaranteed minimum stated in her contract immediate annuities so this has to do with there's immediate and then deferred defer I mean sorry immediate annuities begin paying out benefits one payment cycle after the purchase date they are bought with a single lump sum and begin dispersing income typically within a month so example John invests a lump sum of $100,000 into an immediate annuity upon his retirement the annuity starts paying him monthly income one month after the purchase providing him with a steady stream of payments for the rest of his life so immediate Anu annuity someone retires they take their retirement money or a chunk of it they put it in in annuity that way they can just get paid income for the rest of their life joint life and Survivor option on an annuity the joint and Survivor option ensures that annuity payments continue to be made to two individuals if one passes away the surviving person continues to receive the same income payments for Life once the surviving annuitant passes away no additional payments are made to any beneficiaries there are variations though under the full Survivor option the same benefit amount is paid to the surviving individual under the the 2/3 Survivor option the surviving individual gets 2/3 of the initial benefit amount while the one half Survivor option provides half of the original benefit example Mary and Jon chose the joint life and Survivor option for their annuity after Jon passed away Mary continued to receive the same monthly payments for the rest of her life next life with period certain annuity life income with term certain option the life with period certain annuity also known as the life income with term certain option provides income to the annuitant for Life while guaranteeing payments for a spec specific minimum period if the annuitant passes away within the designated period the beneficiary will receive the remaining benefit payments for the rest of that time frame so Susan purchases a life with period certain annuity with a 10-year term she receives monthly payments for life if Susan passes away after 6 years her designated beneficiary will continue to receive the same monthly payments for the remaining four years ensuring that the minimum 10-year payout is fulfilled if Susan lives beyond the 10 years payments will continue for her lifetime but no further payments will be made to anyone after death so that's saying hey a life with period certain or life income with term certain option but this life with period certain means I'm getting income for the rest of my life but I'm guaranteed that if I die within a certain time period that payments will continue for a specified time period after that like I'm guaranteed that payments either myself or my beneficiary will be for a certain amount of time because if it's just a straight life annuity then once someone dies the income payments stop market value adjustment a market value adjustment annuity sorry not market value adjustment a market value adjustment can be included in a deferred annuity offering a guarantee of fixed interest rate along with an adjustment factor that can alter increase or decrease the actual credited interest rates based on market conditions unlike Equity index annuity an MVA annuity's interest rate remains guaranteed fixed so a market value adjustment annuity's interest rate remains guaranteed fixed if the contract is held for the specific specified period the market value adjustment feature is only relevant if the contract is surrendered before the end of the specified period otherwise the annuity operates like a standard fixed annuity example Jack buys a deferred annuity with a seven-year term and a market value adjustment if he holds it for the full term he receives a fixed interest rate however if he surrenders the annuity early the market value adjustment applies if Market rates have risen his payout decreases if they have fallen his payout increases if held for the full term no adjustment occurs okay period certain annuity a period certain annuity guarantees income payments for a spe specified minimum period such as 10 or 20 years regardless of whether the annuitant lives or dies during that time okay example Karen chooses a period certain annuity with a 10-year payout option once she begins receiving payments she receives monthly payments for 10 years and if she passes away before the period ends her beneficiary will continue receiving the payments for the remainder of the 10-year term after 10 years payments stop regardless of whether karon or her beneficiary is still living so a period certain says hey I'm going to get the money in that certain amount of time okay so period certain says that that we're going to disperse this annuity within this certain period of time okay or for a minimum within that period of time okay periodic payment annuity flexible premium so a periodic payment annuity also known as a flexible premium annuity allows the owner to make multiple premium payments to build up the principal after the initial payment subsequent payments can be made flexibly in terms of both timing and amount example Maria purchases a periodic payment annuity and makes an initial deposit to start building her principal over the year she contributes addition principal is the amount in the annuity over the year she contributes additional amounts whenever she has extra funds with no set schedule or required minimums as her contributions grow so does the value of her annuity which will eventually provide her with a steady income during retirement Okay so so a periodic annuity allows you to make an initial deposit and then start paying amounts over time whenever you're able to with no schedule or required minimums principal the principal represents the amount of money invested in an annuity through one or more premium payments so for example L Lisa contributed $50,000 as the principal amount into her annuity which will grow over time and eventually provide her with income during retirement okay single Prem annuity a single premium annuity involves making a one-time payment at the beginning of the contract it can be structured as either a deferred or immediate annuity example Mark purchased a single premium annuity by investing $100,000 ensuring he would start receiving monthly payments immediately so a single premium annuity you pay once if it's an immediate annuity you get money right away if it's defer the money the amount that you invested increases over time then you start receiving payments okay straight life annuity straight life annuity is an annuity option that provides guaranteed income for life for the lifetime of the annuitant with payment ceasing upon the annuitant's death so John selected a straight life annuity in this example this guarantees him monthly payments for as long as he lives but no benefits paid to his beneficiaries after death so it's just for the lifetime of the individual variable annuities in variable annuities the investment risk is transferred from the insurer to the contract owner variable annuities are comparable to traditional fixed annuities and that they offer regular retirement payments to the annuitant generally for the rest of their lives unlike fixed annuities the payment from the variable annuities are not guaranteed and can fluctuate based on the performant of the Investments typically stocks these annuities invest the Deferred payments into the insurers insurance company separate accounts which is involved in stocks and mutual funds rather than General accounts used for fixed annuities because the value of these in Investments is not guaranteed a sales representative an agent must be registered with the financial industry regulation Authority finra and hold the state insurance license to sell variable annuities example Jessica purchased a variable annuity which allows her to invest in various stock portfolios her retirement income will vary based on how well these Investments perform rather than having a fixed payout I'm going to clarify deferred in variable annuities here real quick just in case you're not there so we have defer I mean sorry um fixed in variable so we have fixed okay fixed you put in 100K of your money say with interest and everything it became $200,000 by the time you're ready to annuitize it and then that will disperse you over time and you may end up getting you know 300 K from it or whatever okay so when you're when the annuitization period starts say it's equal to $200,000 because it was a deferred annuity and it grew and then you pay it's paid out over time and all the payments end up equaling like $300,000 so that's just an example of fixed for variable okay for variable annuity when you're paying in you're purchasing accum uh accumulation unit okay so accumulation units are purchased so accumulation units so it's not just like a straight $100,000 it's a certain amount of units and then once you retire these are converted to Anu or once you want to start payouts these are converted to annuity units okay these are converted to annuity units and then the value of the annuity units is based on the value of the underlying investment so the investment whatever it's invested in will determine the value of the annuity units wow I'm like losing my voice here this is taking me several hours and um definitely under the radar a little bit but we only got two more to do so we we shall make it thank you all for rocking with me here hope this is helping you Social Security Act of 1935 so so the Social Security Act um yeah this was established to promote the general welfare of citizens age 65 and older enacted by the Senate and House of Representatives the ACT aimed to help the individual states provide financial assistance for various groups including the elderly the blind dependent and disabled children and for maternal and child welfare public health and unemployment compensation so this was aimed to help people who were older blind dependent or disabled children for maternal meaning moms taking care of their kids maternal and child welfare means mom taking care of their kids public health and unemployment compensation so this is because after the Great Depression during the Great Depression people like really really really had it rough and they were like hey we need to be able to provide some money to people so they're not starving to death and like even if someone's homeless maybe they can have like a basic like eat off it right it wasn't intended for people to live off of um people a lot of people live off it now but it was intended to be an additional supplement to other forms of income people would have when they retire so key purposes creation of the Social Security Board okay they also had to raise revenue for it and it offered basic Financial Protection to working Americans against the challenge of death disability and aging right cuz imagine if someone didn't have a pension or something and they just retired with some money you know they needed something to help with that amendments to the act in 1939 the survivors benefits and benefits for retirees spouse and children were added so survivors benefits which is if someone dies then benefits can continue and benefits for the retiree spouse and children in 1956 disability benefits were introduced Social Security operates as an entitlement program where individuals contribute during their working years in exchange for benefits later rather than a welfare program so an entitlement program is people are supposed to contribute into it and then they get the money later rather than a welfare program which is when people just get money for free example John has contributed to social security throughout his career at age 65 he begins receiving retirement benefits if he passes away his wife and children can claim survivors benefits had JN become disabled before retirement he would have been eligible for disability benefits this illustrates pay now receive later system of Social Security which provides financial protection against aging death and disability so what this is this is essentially like hey contribute a little bit while you're able to and you can get more later blackout period the blackout period is the time following the death of the main main income earner in a family during which the surviving spouse is not eligible for social security benefits example after Jon's death his wife Sarah receives Social Security benefits to support their young children however once the children turn 18 Sarah enters a blackout period during which she no longer qualifies for benefits she will not receive Social Security benefits again until she reaches retirement age credits credits determine whether an individual is classified as fully insured or currently insured under Social Security being fully insured qualifies the person's family for survivorship benefits upon their death put simply the family is entitled to receive survivor benefits when someone's fully insured key points a person can earn a maximum of four credits per year to meet the 40 quarter rule which grants fully insured status an individual must have worked and paid FICA taxes for at least 10 years okay example over the course of his career Tom earned enough credits to pay through F taxes to become fully insured FICA taxes to become fully insured under Social Security by working for at least 10 years in earning four credits each year he met the 40 quarter rule as a result if Tom passes away his family becomes eligible to receive Social Security survivorship benefits due to his fully insured status currently insured currently insured status under Social Security provides limited eligibility offering only death benefits example Jake has worked several years but has not yet earned enough credits to be fully insured however because he has earned at least six credits in the last three years he has currently insured if Jake were to pass away his family would be eligible to receive Social Security death benefits though they will qualify for though they wouldn't qualify for other benefits like survivors retirement benefits disability benefit qualifications Social Security determines eligibility for disability benefits using both medical and non-medical criteria to qualify for Social Security disability insurance SSDI which is based on work credit or supplemental security income which is for low-income individuals one must first prove they are medically disabled Mark qualifies for Social Security disability insurance after proving his disability and having enough work credits meanwhile Lisa with no work hisory but low income applies for social supplemental security income it must also prove her disability to receive benefits so you need disabilities to receive both FICA taxes federal Insurance contributions act okay FICA taxes are payroll taxes used to fund Social Security program individuals who do not contribute through their payroll are not eligible for social security benefits example John's paycheck includes deductions for FICA taxes which contribute to his future Social Security benefits next fully insured fully insured status grants complete eligibility for all social security benefit including retirement disability Medicare and death benefits so if you're fully insured you get all the benefits like retirement benefits disability benefits Medicare and death benefits to achieve this status a person must have contributed FICA taxes for at least 40 quarters equivalent to 10 years of employment example after working for over a decade and paying FICA taxes Lisa became fully insured making her eligible for the full range of Social Security benefits okay fully and permanently insured an individual is considered fully and permanently insured if they have paid FICA contributions for at least 40 quarters and there in those quarters do not have to be consecutive example after working for more than 10 years and earning 40 quarters of FICA contributions Maria is considered fully and permanently insured this status ensures that she qualifies for social security benefits such as retirement and survivorship benefits regardless of whether her 40 quarters were earned consecutively OASDI old AG Survivor and disability insurance old age Survivor and disability insurance more commonly known as Social Security is funded through a tax on earned income withheld by employers the OASDI deduction on a paycheck indicates the amount withheld for this purpose not going to go in the example primary Insurance amount Pia the Pia is the amount a person is entitled to receive as a retirement benefit if they begin collecting at their normal retirement age that's the primary Insurance amount that's how much they can receive as a benefit if they collect at the normal age this amount is calculated before rounding down to the nearest whole dollar at normal retirement age the benefit is not reduced as it is with early retirement or increased as is the case with delayed retirement example when James reaches his normal retirement age his primary Insurance amount is calculated to be $1,850 since he is retiring at full retirement age he will receive the full primary Insurance amount with any reductions or increases if James had chosen early retirement his benefit would have been reduced or if he had delayed retirement the amount would have been increased quarter of coverage a quarter of coverage is a fundamental unit used to determine of workers insured status under the Social Security program example each year Sarah earns enough income to qualify for four quarters of coverage under Social Security these quarters are used to determine her insured status and eligibility for benefits such as Retirement and disability once she accumulates the necessary total overtime she needs 40 quarters total retirement benefits Social Security retirement benefits are available to fully insured covered workers upon retirement and are paid monthly workers retiring at the normal retirement age receive 100% of their primary Insurance amount Pia typically right now it's 65 but it might change early retirement a age at 62 results in a maximum benefit of 80% of the primary Insurance amount with this reduction persisting through retirement retirement benefits offer a monthly income to retired workers who are covered along with their spouses in qualifying dependent so say the primary Insurance amount is you know whatever amount a month 80% of that if they retire at 62 so it'll be 80% of that primary Insurance amount example Jane decided to retire at age 62 so she receives 80% of her primary Insurance amount as her monthly Social Security retirement benefit next taxation of Social Security benefits Social Security benefits are subject to federal income tax if the recipient's annual income exceeds certain thresholds so your benefits are taxed if your income exceeds a certain amount for individual filers benefits are taxable if their annual income is over 25,000 for joint filers they're taxable if the combined income is exceeds 32,000 so the benefits not tax if someone makes 25,000 or less example when JN files his taxes as individual his total income including Social Security benefits and other sources is $28,000 since this exceeds the $225,000 threshold a portion of his social security benefits will be subject to federal income tax similarly if John and his wife file jointly and their combined income is 35,000 they will owe taxes on a portion of their social security benefits since their income exceeds the $32,000 limit for joint filers so that includes all income sources can't make more than 25,000 individual or 32,000 jointly okay next we are covering retirement plans 401K plans a 401k plan is an employer sponsored retirement savings plan that allows employees to save and invest a portion of their earnings before taxes are deducted taxes are deferred until the money is withdrawn Mike contributes example Mike contributes a portion of his salary to his 401k plan reducing his taxable income for the year and saving for his retirement so what happens in a 401k you as the employee say someone makes 100,000 they can contribute a piece of this not pay tax on the money right now okay their employer the company it's a bad illustration of a building but the employer can also match up to a certain amount so that money grows tax deferred and they don't have to pay tax on the money they're paying in so that'll lower the taxable income this year so for example say they put in $5,000 okay they're not going to pay tax on $100,000 this year they're just going to pay tax on the $95,000 amount okay so that because tax on 95,000 is lower than 100,000 right so that can help reduce how much they have to pay in taxes too and allows them to save for retirement later on okay 403b we covered those those are tax deferred annuities tax sheltered annuity defined benefit plans these are pension plans because the benefit is defined right so this this is saying you're going to get a certain amount your benefit is a certain amount so it has a defined amount a specific amount that they'll get every month aser as compared to defined contribution plans which is are a lot which are a lot more popular now that's pretty much what people have now where they have to pay in and there's a defined limit to how much they can pay in defined pension plan I mean Define benefit plans these are pension plans where the benefits are calculated based on a specific formula example Laura works for a company that offers a defined benefit plan upon retirement her monthly pension is calculated using a formula that considers her years of service salary and age this guarantees her a set income for life regardless of how the Investments perform providing her with predictable Financial Security and retirement toine benefit plans are a lot less popular now because when these things came out people would retire at 65 and live until 75 now people live until like 90 95 so imagine someone works at a company for 30 40 years they retire at 65 and then they're alive for another 30 years so that company like before they used to only have to pay people for five or 10 years when they retired before they died now they're paying them for 30 or 40 years so they just get a lot of those plans don't exist anymore pensions aren't as popular defined contribution plans are so this these are plans that are tax advantage retirement accounts where the amount contributed contributed each year is based on a formula outlined in the plan the benefits of a participant the benefits of participant receives depend on the contributions made in the investment performance so how much someone receives depends on how much was paid in and the investment how much someone received in a defined benefit plan has nothing to do with the underlying investment performance so for this example John contributes to a defined contribution plan where his employer matches a percentage of his contributions and his retirement benefits will depend on the total amount contributed and the return on his Investments okay so on the defined contribution plan however much he gets depends on what he pays in and the performance and if the employer matches any Arisa erisa so this is the employee retirement income Security Act of 1974 this is a federal law that establishes minimum guidelines for most pension and health insurance plans established voluntarily by Private Industry aiming to protect individuals in these plans example John's company offers a pension plan governed by the employee retirement income Security Act orisa under Arisa John's plan must meet certain standards such as providing clear information about the plan's features funding and his rights as a participant this law ensures that J's pension is protected and that the plan is mar managed in his best interest with safeguards against his management and abuse so um in orisa essentially what there was rules and laws that were developed to help protect people against the plans that their companies came up with the companies they work for came up with typically these retirement plans Guys these are these are very confusing at least they were for me they may not be for you but when I was studying they were confusing um this is such a small portion of most of the exams I wouldn't stress about it crazy but obviously the more you know the better you're going to do k plans k plans are retirement savings plans designed for self-employed individuals they offer favorable tax treatment for contributions under the Kio act hr10 example as a self-employed consultant David sets up a Kio plan to save for retirement he contributes a portion of his income each year taking advantage of the favorable tax treatment allowed under the Kio act his contributions are tax deferred meaning he won't pay taxes on the money until he withdraws it during retirement this plan helps David build a substantial retirement fund while reducing his taxable income during his working years so essentially you can put money in a lot of these tax Tax Benefit Accounts you can put money away not pay tax on that money right now it lowers your taxable income it the money grows and you don't have to pay tax on it and then you pay tax on it when you withdraw it later okay you pay tax on each payment as income it's tax as income but you can't take withdrawals before age 59 a half or you have to pay an extra penalty which is a non-qualified withdrawal a non-qualified withdrawal occurs well you can take withdrawals but it has to be qualified there's there's only a few circumstances where you can do that and that's in some other material that we have in some other courses non qual it might be in here too I don't know non-qualified withdrawal a non-qualified withdrawal occurs when money is taken from a retirement account without meeting the specified criteria and the amount withdrawn exceeds the total contributions made the earnings portion of the withdrawal becomes taxable example if leis if Lisa withdraws funds from a retirement account before age 59 and A2 and the amount includes earnings Beyond her contributions she will face taxes on those earnings as a non-qualified withdrawal profit sharing plan so ENT non-qualified withdrawal sorry she can't take out money before 59 a. half unless it's for certain things okay there certain rules on that profit sharing plans profit sharing plans are Arrangements where a company sets aside a portion of its profits to be distributed among eligible employees example at XYZ Corporation employees benefit from a profit sharing plan where a percentage of the company's annual profits is allocated to their retirement accounts so in a profit sharing CL plan a percentage of the profit is put in their retirement accounts I wonder if a 401k could be a profit sharing plan let me see yeah it is a 401k is a feature um of a qualified profit sharing plan so um some of the profit can be contributed in a 401k um by the employer's profits the employer can match it up to a certain percent qualified plan a qualified plan is an employer established sorry hit my camera there an employer established retirement or Compensation Plan that follows specific IRS guidelines allowing it to receive receive favorable tax benefits so a qualified plan once again is an employer established retirement or Compensation Plan that follows specific IRS guidelines allowing it to receive favorable tax benefits so it's a plan that follows certain things where there's tax good tax treatment example Jane's employer offers a qualified retirement plan that meets IRS regulations allowing both our contributions and the employer matching contributions to grow tax deferred until retirement qualified withdrawals tax-free earnings distributions from a Roth IRA are possible through qualified withdrawals to qualify the account must have been held for at least 5 years and the withdrawal must be to qualify as a qualified it doesn't just have to be Roth IRA but it can be any um qualified plan the W withdrawal must be made in the event of a permanent disability made by a beneficiary after the can holder pass away or used for first time home purchase or building or rebuilding a home up to $10,000 right so tax re earning distributions from a well qualified plan are possible through qualify withdrawals okay there we go okay next rollovers oh example here sorry example of a of a qualified withdraw after holding her Roth IRA for 5 years Emily withdrew fund taxfree to help with the down payment on her first home rollovers a rollover involves transferring funds from an existing Ira or qualified retirement plan into a new individual retirement account example when John left his job he rolled over his 401k into a traditional irate to keep his retirement savings growing tax deferred so you can roll one into another you if you leave a job you have a 401k you can roll it into an IRA if you want and not have to pay taxes on the money you roll over okay Roth IRA so a Roth IRA is an individual retirement account that allows contributions with after tax income contributions grow taxfree and withdrawals made after 59.5 are also taxfree so in a Roth IRA you pay tax on the money and then you pay into it on a traditional IRA you don't you put money in before you pay tax so let me show an example so if we have Roth versus traditional okay say someone who makes 100K okay $100,000 let's say they have $80,000 after taxes then they put the then they put you know $5,000 in that money grows tax deferred and then when they take withdrawals they don't have to pay tax on this one they have the whole $100,000 in the traditional the they have the whole 100K they put in 5K they only pay tax on 95k okay and then this grows tax deferred and at the end they pay tax on the withdrawals so Roth IRA you pay taxes first and you don't pay taxes later traditional IRA you pay ta you don't pay taxes now and you pay taxes later so Roth IRA you don't pay you pay tax now sorry and you don't pay tax later traditional IRA you don't pay tax now and then you pay taxes later okay savings incentive match plan for employees A Simple Plan stands for savings incentive match plan for employees simple S A Simple Plan or savings incentive match plan for employees is a qualified retirement option that allows small businesses to create tax beneficial savings plans for their employees example Emily owns a small business and sets up a simple plan for her employees to help them save for retirement under the plan employees can contribute a portion of their salary and Emily matches their contributions up to a certain percentage both the employee contributions and Emily's matching contributions grow tax deferred allowing her employees to benefit from tax savings while building their retirement funds so this is for small business businesses and this lets small business employees contribute part of their salary and then the employer can match a contribution up to a certain percent okay so simplified employee pension SCP a simplified employee pension is a qualified retirement plan where the employer makes contributions to individual retirement accounts established in control by the employees so um this is usually what I've seen people do this they only do this if they're self-employed um but yeah where it's just a it's a has higher limits so these are typically for um self-employed individuals so you work for yourself much higher limits than traditional IRA and this just lets business owners put a big chunk of money aside to save retirement then traditional IRA a traditional IRA is a qualified retirement account that allows individuals to grow tax deferred income annually with contribution limits based on their tax bracket so um traditional IRA you put money before tax and then you pay tax later um I'm just going to look up limit on SEP IRA this is in 2024 I'm making this so right now A SE Ira annual contribution is $69,000 and then I'll look for traditional IRA limit 2024 it's $7,000 or $8,000 if you're 50 year older so SE Ira is Max is is 59,000 or 69,000 sorry in 2024 a traditional IRA is 7,000 all right so appreciate that just did a marathon of vocab words hope this helps you this is everything this is pretty much all the vocab that you would encounter on your pre-license exam for Your Life Insurance pre-license exam or a lot of the for your life and health um I hope this helped you please if you have any questions send me an email email if you feel like you'd be interested in interviewing with me send me an email my email is in the description of the video and if you want a copy of my free study guide click on the link in the description of the video my voice is gone my voice hurts and I'm excited to bring you guys this material so I'm going to be I'm really excited to get this out to you you're going to want to check out the other videos of my channel you're going to want to pass your exam and all get started on the next video coming up