principles of life insurance

Nature of Insurance, Risk, Perils and Hazards, Chapter3. and compensation given against. An independent agent works for himself and sells the insurance products of many companies. These companies specialize in a particular type of insurance called industrial insurance, which is characterized by relatively small face amounts (usually $1,000 to $2,000) with premiums paid weekly. Likewise, mutuals Anyone purchasing insurance from a mutual insurer is both a customer and an owner. Many times, a self-insurer will look to an insurance company to provide insurance above a certain maximum level of loss. The contract between the employer and the health care professional, whether physician or a hospital, spells out the kind of services to be provided. Mass marketing methods provide exposure to large groups of consumers, often using direct selling methods with occasional follow-up by agents. The company transferring the risk is called the ceding company; the company assuming the risk is the reinsurer. They sell medical and hospital care services, not insurance. Most states require this to be done before the applicant’s initial premium is accepted. All state insurance commissioners or directors are members of the National Association of Insurance Commissioners (NAIC). Principal of utmost good faith:. Assessment mutual companies are classified by the way in which they charge premiums. Revision f89211cd. To be characterized as a He has the right to vote for members of the board of directors. The Code specifies certain words and phrases that are considered misleading and are not to be used in advertising of any kind. The insurance company promises death assistance in contemplation of the disbursement of premium by the insured. ► 1999-Financial Services Modernization Act. What are the client’s needs? The turmoil created by the SEUA case prompted Congress to enact Public Law 15, the McCarran-Ferguson Act. Sickness and disability can also leave economic scars, often more intense than death. They both can write life, health, property, and casualty insurance. Reinsurers are a specialized branch of the insurance industry because they insure insurers. Based on this principle, the insured has the right to insure an insured object due to the relationship of financial interest that is legal by law between the insured and the insured object. The primary purpose of this regulation is to promote public welfare by maintaining the solvency of insurance companies. In the broadest of terms, there are two classifications: private commercial and government. The National Conference of Insurance Legislators (NCOIL) was formed to help legislators make informed decisions on insurance issues that affect their constituents and to declare opposition to federal encroachment Basic (But Obscure) Life Insurance Jargon And What It Really Means Offer and Acceptance. The ethical agent assesses the correlation between a recommended product and the client’s needs and capabilities by asking and answering the following questions. The following are illustrations of such cases of insurable interest: (a) Employer – Employee: An employer has insurable Life insurance from Principal® is issued by Principal Life Insurance Company, Des Moines, IA 50392. can convert to stock companies through a process called demutualization. Life insurance companies would not be able to accurately predict mortality rates if this was allow… fraternal benefit society, the organization must be nonprofit, have a lodge system that includes ritualistic work, and maintain a representative form of government with elected officers. Reciprocals are managed by an attorney-in-fact. For cost and coverage details, contact your Principal representative. Instead, the owners are the policyholders. PR IN CIPL E O F. IN DE MN IT Y. Indemnity means sec urity, pr otection. This decision did not affect the power of states to regulate insurance, but it did nullify state laws that were in conflict with federal legislation. ► Suitability of recommended products. 2. Included in the context of unfair trade practices are misrepresentation and false In Bartolo Wood Turners Ltd. v. Middle Sea Insurance Plc (2007) , the insured property (a factory) was damaged by fire. Another type of service provider is the health maintenance organization (HMO). Does the client have the capability, financially and otherwise, to manage the product? However, PPGAs do not recruit, train, or supervise career agents. Instead, independent agents represent any number of insurance companies through contractual agreements. Both parties must abide by these principles. However, in the case of life insurance, the principle of indemnity does not apply because the value of human life cannot be measured in terms of money. The insurer assuming the risk is called the, Question 10: A nonparticipating company is sometimes called a(n), Question 11: A type of insurer that is owned by its policyowners is called. Two principles of needs-based selling include find the facts, and educate the client. A pure assessment mutual company operates on the basis of loss-sharing by group members. This is an overview of the benefits group life insurance provides, but there are limitations and exclusions. Death may strike anyone prematurely. An insurance contract comes into existence when one party makes a proposal of a contract and the other party accepts the proposal. Participation rate of life insurance in Japan 2. In most states, however, the agent may represent as many insurers as will appoint him. Annuities provide income by making a series of payments to the annuitant for a specific period of time or for life. The insurance industry is regulated by a number of authorities, including some inside the industry itself. Much like … But the insurer is all too aware of it. Any insurance company that fails to comply with this act is liable to the consumer for actual and punitive damages. ALL RIGHTS RESERVED, to create certainty out of the greatest uncertainty confronting an individual, the more similar those people are to one another, All they need to know is how many people, on average, die within any given year, Speculative risk is a special type of risk in that it measures the risk of loss involved in gambling or investing. As noted at the beginning of this unit, federal and state governments are also insurers, providing what are commonly called social insurance programs. An insurer established and owned by a parent firm for the purpose of insuring the parent firm’s loss exposure is known as a captive insurer. ► 1945-The McCarran-Ferguson Act. Agents hired by a PPGA are considered employees of the PPGA, not the insurance company, and are supervised by regional directors. Industry Overview - The Basic Reasons for Insurance; Overall Advantages of Insurance Under the usual PPO arrangement, a group desiring health care services (e.g., an employer or a union) will obtain price discounts or special services from certain select health care providers in exchange for referring its employees or members to them. A contract of insurance must be made based on utmost good faith ( a contract of uberrimate fidei). Stockholders may or may not be policyholders. Creditor in the life of a debtor. Rather than transfer risk to an insurance company, a self-insurer establishes its own self-funded plan to cover potential losses. Stock and mutual companies are often referred to as commercial insurers. So if there will be financial loss to the person if the insured object gets destroyed. In the mid-1950s the Federal Trade Commission (FTC) sought to control the advertising and sales literature used by the health insurance industry. Instead, each member is assessed an individual portion of losses that actually occur. Question 1: What is the primary purpose of a rating service company such as A.M Best? They primarily sell insurance, although they may build a small sales force to assist them. Should an insurer be financially unable to pay its claims, the state guaranty association will step in and cover the consumers’ unpaid claims. With the direct selling method, the insurer deals directly with consumers by selling its policies through vending machines, advertisements, or salaried sales representatives. Independent agent represent any number of insurance companies through contractual agreements. The SEC also regulates variable life insurance. Under this new legislation, commercial banks, investment banks, retail brokerages, and insurance companies can now enter each other’s lines of business. Under this insurance contract both the parties should have faith over each other. What product can help meet those needs? Some sell primarily life insurance and annuities, while others sell accident and health insurance, or property and casualty insurance. The ethical agent knows that a sale does not mark the end of a relationship with a client, but the beginning. This act gives chief financial officers the power to investigate insurance companies and producers, to issue cease and desist orders, and to impose penalties. It is very important insurance agents understand and obey the insurance laws and regulations. Mutual insurance companies are also organized and incorporated under state laws, but they have no stockholders. Utmost Good Faith i would like a book revealing a total life insurance … ► 1970-Fair Credit Reporting Act. The act also gives officers the authority to seek a court injunction to restrain insurers from using any methods believed to be unfair. When taking out insurance, policyholders often think more about their own needs than the risk the insurer takes on. However, there are a number of small but very important details that one has to take into account when looking to buy a policy or making changes on a current one. states was in the public’s best interest. In an attempt to protect an individual’s right to privacy, the federal government passed the Fair Credit Reporting Act, which is the authority that requires fair and accurate reporting of information about consumers, including applications for insurance. No premium is payable in advance. Table of contents 1. The principle of indemnity ensures that an insurance contract protects you from and compensates you for any damage, loss, or injury. Nature of contract is a fundamental principle of insurance contract. There are two essential life insurance principles – PRINCIPLE OF UTMOST GOOD FAITH and PRINCIPLE OF INSURABLE INTEREST. ► Full and accurate disclosure. It pays only if death occurs during the term of the policy, which is usually from one to 30 years. In any dispute between the insured or beneficiary and the insurer, the agent who solicits an insurance application represents the insurer and not the insured or beneficiary. Life insurance is based on a number of principles that are tailored to meet market conditions and ensure insurance companies make profits, while offering security policies to insured individuals. Social insurance programs include the following: ► Old-Age, Survivors, and Disability Insurance (OASDI), commonly known as Social Security, ► Social Security Hospital Insurance (HI) and Supplemental Medical Insurance (SMI), commonly known as Medicare. Principle of life insurance The main principle on which a contract of insurance is based are as under. There could be multiple policies covering the same life and they all are liable to pay. The agent uses fact-finding forms and obtains the client’s written agreement for the needs determined, the products recommended, and the decisions made. premium accepted. If any consumer report is used to deny coverage or charge higher rates, the insurer must furnish to the applicant the name of the reporting agency conducting the investigation. Policy dividends can also include a share in the company’s investment, mortality, and operating profits. Contrary to popular belief, Lloyd’s of London is not an insurer but rather a syndicate of individuals and companies that individually under­write insurance. All states have established guaranty funds or guaranty associations to support insurers and to protect consumers if an insurer becomes insolvent. Health insurance also evolved from scientific principles to provide funds for medical expenses due to sickness or injury and to cover loss of income during a disability. Essentially, policy dividends represent a “refund” of the portion of premium that remains after the company has set aside the necessary reserves and has made deductions for claims and expenses. The financial strength and stability of an insurance company are two vitally important factors to potential insurance buyers and to insurance companies. The independent agency system, a creation of the property and casualty industry, does not tie a sales staff or agency to any one particular insurance company. An agent has an agent’s contract; a broker has a broker’s contract. While most insurance is sold through agents or brokers under the systems previously described, a large volume is also marketed through direct selling and mass marketing methods. LESSON 1: BASIC PRINCIPLES OF LIFE AND HEALTH INSURANCE and THE INSURANCE INDUSTRY. They should be presented clearly, completely, and accurately. In case of life insurance spouse and dependents have insurable interest in the life of a person. 1. A common reinsurance contract between two insurance companies is called treaty reinsurance, which involves an automatic sharing of the risks assumed. Hence there are certain principles that are important to ensure the validity of the contract. Corporations also have insurable interests in the life of it's employees; In case of life or marine insurance, insured must be the owner both at the time of entering of entering into the insurance contract and at the time of accident. This is our final principle that creates an insurance contract and the most simple one probably. In an uncertain event, it is the insured’s responsibility to take all precautions to minimize the loss on the insured property. However, it also made possible the application of federal antitrust laws “To the extent that [the insurance business] is not regulated by state law.” This act led each state to revise its insurance laws to conform to the federal laws. contracts. The net payment cost comparison index gives the buyer an idea of the cost of the policy at some future point in time compared to the death benefit. Health insurance also evolved from scientific principles to provide funds for medical expenses due to sickness or injury and to cover loss of income during a disability. AA-: Very strong financial security characteristics. Reinsurance is an arrangement by which an insurance company transfers a portion of a risk it has assumed to another insurer. Annuities provide income by making a series of payments to the annuitant for a specific period of time or for life. If the original premiums exceed the operating expenses and losses, the surplus is returned to the policyholders as dividends. It is structured the same as any corporation. Usually, reinsurance takes place to limit the loss any one insurer would face should a very large claim become payable. This organization has committees that work regularly to examine various aspects of the insurance industry and to recommend appropriate insurance laws and regulations. Principles of insurance: Life, health, and annuities [Jones, Harriett E, Long, Dani L., Jones, Harriett E.] on Amazon.com. These are the career agency system, personal producing general agency system, and independent agency system. Oregon Policy GC 6000(06/04) and GC 6000 (VTL) (06/04). Life insurance products for groups are different from life insurance sold to individuals. AA-: Very strong capacity to meet policyholder & contract obligations. These guides explain the various types of life insurance products (including variable annuities) in a way that the average consumer can understand. Retirement may be forced upon them before they have adequately prepared for a non-income earning existence. For a fixed periodic premium paid in advance of any treatment, subscribers are entitled to the services of certain physicians and hospitals contracted to work with the HMO. There are broadly four major insurance principles applied in India, these being: ► Documentation. ► 1944-United States v. Southeastern Underwriters Association (SEUA). Nature of contract:. The ethical agent documents each client meeting and transaction. However, the laws regarding insurance marketing and trade practices vary from state to state. This principle applies to all types of insurance. This case, which was decided by the U.S. Supreme Court, involved one state’s attempt to regulate an insurance company domiciled in another state. Self-insurance is often used by large companies for funding pension plans and some health insurance plans. The result of the SEUA case was to shift the balance of regulatory control to the federal government. Complaints are handled promptly and fully. This law made it clear that continued regulation of insurance by the A life insurance policy is an agreement with an insurance company. The seven principles of insurance are :- Principle of Uberrimae fidei (Utmost Good Faith), Principle of Insurable Interest, Principle of Indemnity, Principle of Contribution, Principle of Subrogation, Principle of Loss Minimization, and Principle of Causa Proxima (Nearest Cause). The surrender cost comparison index compares the cost of surrendering the policy and withdrawing the cash values at some future time. must be given to applicants before initial Question 3: An insurer’s ability to make unpredictable payouts to policyowners is called. Although MetLife demutualized, it continued to pay dividends to its whole life insurance policyholders. Question 7: Why are dividends from a mutual insurer not subject to taxation? 7 Most Important Principles of Insurance 1. Legal Concepts of the Insurance Contract, Chapter4. These state associations are funded by insurance companies through assessments. Each policyholder assumes a share of the risk brought to the company by others. In the SEUA case, the Supreme Court ruled that the business of insurance is subject to a series of federal laws, many of which were in conflict with existing state laws, and that insurance is a form of interstate commerce to be regulated by the federal government. A large volume of insurance is also sold through mass marketing techniques, such as over the Internet, newspaper, magazine, radio, and television ads. 1. Principles Of Insurance The concept of insurance is risk distribution among a group of people. This principle doesn’t apply to life insurance … Ranging from crop insurance to bank and savings and loan deposit insurance, these programs have far-reaching effects. The chronology cited reflects the roles the courts and the federal government have played in regulating the insurance industry. policy dividends, mutual insurers allow their policyowners to share in any company earnings. 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