|. FOUNDATIONS OF LIFE INSURANCE Why does man work? Man works because he wants to earn money. It is a means to achieve the different dreams for ourselves and for our loved ones. Every individual finds meaning in life by striving to give the best to their loved ones. Let us put this in the light of achieving our financial goals in life either for ourselves or for our family. Income is therefore unarguably important. But how do we keep a steady flow of income? To ensure that we realize our dreams, we protect, save or invest our income. Sources of Income: © Man at Work * Money at Work * Donations/Charity CRE eee urea) Life is full of risks. There are risks in life that stand to endanger the income and cash flow of any income earner. * Dying Too Soon The untimely death of the provider means an end on the contribution to the family income. This devastating loss is a familiar scenario that may happen to just about anyone. * Living Too Long Retirement is inevitable. While to some it means living off their retirement Pay, to others it means loss of income. + Disability A person who can no longer physically and effectively perform his given task will be forced to terminate his employment and this is tantamount to income loss for the family. PR eee reer elt ire A person's human life value is a measure of what he has been able to accumulate like his assets and what he can reasonably expect to earn in the future. Risk-sharing is the founding concept of life insurance. With life insurance, we do not face these life risks alone. a PCTC MANUAL 030614 aire 2 ‘Scanned with CamScannerThrough isk-sharing or ‘pakikiramay,’ people pool their resources to create a dependable device in the event that such life risk happens. This is the core of life insurance. Sinn A concrete example of tisk-sharing is fund pooling. . |t refers to a collective savings scheme that is known as a way of putting sums of Money from many people into a large fund spread across many lypes and classes of investments as a source of profit that are managed by experts. EER enecmenes The Insured is the person whose life is covered by life insurance. - * The Premium is the payment necessary to put the policy in force and to keep it in force. The Face Amount is the money the insurance company will provide when the Insured dies. Itis also the measure of indemnity under an insurance policy. The Maturity Benefit is what the Insured gets at the end of the maturity period of the policy. The Beneficiary is the person who will receive the Face Amount when the Insured dies. The Policy is the written contract between the Insured and the insurance company, MM chs eee R UE ene Dee RCC CSS j tients Dying too soon Family Protection Being disabled ‘Savings Living too long Retirement Income With fe insurance’s concept of risk-sharing, it allows people who have similar circumstances to help each other in order to prepare for the adversity that hazards to income may bring to the family, CEs There are four factors considered by the actuary in premium computation: 41, Mortality ~ the rate of death per age group that will occur ina year 2. Interest - the rate of return of invested premiums 3. Expense ~ the operational expense of an insurance company 4, Safety Margin - the amount set aside to meet adverse claims AT Tenner An increase in mortality will result in an increase in premium rates; a decrease in mortality will result in a decrease in premium rates, PCTC MANUAL 030514 robes cre o ‘Scanned with CamScannerna decrease in premium rates; a decrease in i ' i i it An increase in interest will result na i rales. intere, i st rates will result in an increase in pr result in an increase in premium rates; a decre, i in expense will a erence wil resol se in premium rates. Se in expense will result in a decrea’ Premium Computation: Net Premium = Morality Factor + Interest Factor Add: Loading = Safety Margin Requirement Factor + Expense Factor Gross Premium = Net Premium + Loading Natural Premium and Level Premium as the insured grows older; under the level premium concept, premiums A Under the natural premium concept, premiums are expected to increase all remain the same while the policy is in effect. A cash value results as an effect of leveling the natural premium. Itis also the ‘savings element of a policy, which allows the insured to get maturity benefits if he outlives the policy. BASIC LIFE INSURANCE PLANS Life insurance products are classified according to the benefits that they provide. We have three general types of plans, namely, Temporary or Term Plans, Permanent and Unit-Linked Plans also known as Variable Unit Linked Plans. We will be focusing our discussion on Temporary and Permanent plans. These are generally referred to as the Traditional Life plans. Dieta ina ies “PROTECTION | [PROTECTION —seore : __ONLY | ee PROTE: SHONGS: INVESTMENT + Cash Vatues {Dividends Term plan offers on! ; " ona yearly basis,” MH" Protection. It has no savings aspect and is usually renewes Temporary plans are classified either as: (1) Level or (2) Decreasing PCTC MANUAL 030614 @ i regent ITE ‘Scanned with CamScanner1. Level Term - offers the same amount of protection throughout a policy year. The face amount and premium remain constant throughout the term: Decreasing Term - often used in conjunction with loans and amortization that could relieve the insured’s family from financial obligation. The face amount of a decreasing term plan decreases each year during the term of the plan or until the end of the policy's life. Decreasing term is usually known as MRI or Mortgage Redemption Insurance. Features of Term Plans 1. Renewability - gives the policyowner the right to renew the insurance coverage at the end of the specified term without submitting evidence of insurability. Every time he renews the plan, the premium of the renewed term policy is higher due to the increase in the age of the policyowner using the attained age method at the time of renewable. 2. Convertibility - allows the policyowner to change his term policy to a permanent Policy without providing evidence of insurability. The premium of the permanent Policy is higher due to the increase in the age of the policyowner using the attained age method at the time of conversion. No proof of insurability is required Convertibilily and Renewability features do not require proof of insurability of the insured. This means even if the health of the insured has deteriorated to the point that he would otherwise be uninsurable; the insured can still renew for another period of coverage or convert his temporary insurance into a permanent one. TENE Permanent plans provide a combination of both insurance protection and savings. The savings feature a of permanent plan leads to a gradual accumulation of cash in the policy that equals the amount of insurance coverage at policy termination date. This savings component is in the form of Cash Values build up. Permanent plans are classified either as: (1) Whole Life or (2) Endowment. 4. Whole Life Plan Offers insurance coverage up to age 100, premiums are payable up to age 100 and these policies mature when and if the insured reaches the age of 100. ‘Types of Whole Life Plan: a. Ordinary/Straight Life - premiums must be paid until age 100. b. Limited Pay Life — premiums are payable within a specific period of time or up to a specific age. Example: 20-Pay Life, Life Paid-up at 65 PCTC MANUAL 030614 ‘Scanned with CamScanner2. EndowmentPlan Offers insurance protection for é matures at the end of a specif premiums are payable for a spec specified period of time or until a speciteg Mes fied period of coverage or until a specifieg 3 a fied period or until a specified age. ge; Types of Endowment Plan: 1. Specific Age - matures ata specific age of the insured Example: Endowment al age 65 2. Specific Period - matures at a specific time Example: 20-year Endowment GEEneuu Permanent plans can be classified as either participating or non-participating plans, 1. Participating Plans - earn dividends 2. Non-Particlpating plans - do not earn dividends. Dividend is considered a return of excess premium because this is the portion of the Premium paid that is returned to the policyowner if the company had favorable experience on these three factors - Mortality, Expenditures and Earnings of the company. Dividends are not guaranteed as these factors vary every year. If the company has low or minimal claims, controlled expenditures and high earnings from investments, the company is likely to declare dividends. ‘The policyowner is allowed to choose one from five options concerning methods of receiving or applying dividends, Dividend Options: . Cash Payment option - dividends Premium Reduction option - divi Interest option - dividend: Paid-up Additions option - i it . Buy Yearly Renewable Ten i ose al Bale UP ao equal to the premium paid are paid directly to the policyowner in cash idends are used to reduce premiums opens PCTC MANUAL 030614 Dns wire : repent LITE ‘Scanned with CamScannerwith the Company and earning interest at a rate to be declared by the Company from time to time ‘Summarylof BasiaiPlans: ~ ITPLANS Doerr we Sor: (aomgr te lame oa) comes crcl) Seeman een Stn) ——- —- = — ee ea Co ‘nrcart (Face Amant (Upto age 100) eee EE ee, Ondnay Lied Limied Pay Specie Ags Specie Perot Sroigt ule Le Ill. TERM RIDERS We leamed that basic plans only give protection against death. A basic plan may provide substantial savings that may be used for retirement, but it does not protect you from risks such as accident, disability, dismemberment or hospitalization. Knowing the limitation of basic plans, we need to provide our clients with additional benefits. And riders provide supplementary benefits that basic plans do not offer. For the extra benefit, a small additional premium is required. PEPE nen Term Riders are supplementary contracts attached to a basic plan. ‘a. Term - may only be in effect for a specified period of time. The length of coverage and premium paying period may be less than or equal to that of the basic plan b. Rider-_ has to be attached or has to “ride on” a basic policy PMT celles Term riders offer different kinds of benefits, depending on their nature: 4. Disability Waiver of Premium Rider (WP) WP waives the payment of premium in case of total and permanent disability for the continued period of at least 6 months. The WP rider allows a policyholder to waive his premiums upon total and ermanent disability. Total and permanent disability is defined as uninterrupted pe disability for not less than 6 months which prevents the insured from engaging in a PCTC MANUAL 030614 Prepennd LIe 7 ‘Scanned with CamScanner. for which he is fitted by . ment of Busines® WO iod” ot any gainful occupation or aid during the “walling Period” are then Tela and training. Premiu to the insured. Exclusions icide and 00 Disability due to suit mbat activities are excluded risks, under this sis . Insured should be gainfully employed. 2. Payor’s Benefit Rider (PB) i it f the death or disabj i i iver of premium benefit in case of the c isabit This roves | Me is oc It is attached to juvenile policies. The Pp bene, eeitias whan the policy matures or when the child reaches the age of 2, whichever comes first. The PB rider comes in two kinds: = wai it death of Payor-Own . Payor’s Benefit for death - waives premium upon f 7 b Payor's Benefit for death and disability - waives premium upon death or disability of Payor-Owner. © . Accidental Death Benefit Rider (ADB) It gives additional benefit in addition to the proceeds of the basic policy if death resulted from an accident. Death should occur within ninety (90) days from the date of accident. The extra amount provided by the ADB may be less than or equal to the face amount, thus the term double indemnity rider. This additional benefit is called the principal sum. However, a maximum of five times (5x) the face amount of the basic policy or 14 million, whichever is lower, may be given on a case-lo-case basis. Exclusions Death due to sickness, poisoning, suicide and gas inhalation, combat activities, attempt to commit a crime and aviation activities are considered excluded hazards. Death due to an excluded hazard results in th the a 1 payment of the Face Amount of basic plan but not the Principal Sum from the ADB rider, 4. Term Insurance Rider (TIR) A term plan attache. : d to either a whole i sulting to higher amount of protection at minima! aig or endowment policy, resulting Guaranteed Insurability Option rider (Gio) Allows a policyowner 20 ir to purchas if at e of same kind, at stat © Specific amounts of additional coverag' insurabilty, "=" oture ages, at standard rates without presenting evidence © roa sce | Scanned with CamScanner 2 PCTC MANUAL 030614Example: The option dates correspond to the policy anniversary immediately following the insured's 25°, 28°, 31", 34", 37” and 40” birthday. That's a total of 6 Opportunities to buy additional protection. The option dates may be advanced however, upon: a. Birth of a child or b. Marriage a . Family Income Rider (FIR) A decreasing term insurance attached to a permanent basic life plan. The monthly installments are payable starting at the time of the claim, up to the end of the Period stated in the FIR contract. Like any term coverage, no cash benefits are to be expected if the insured is still living when the FIR terminates. CASEI ES oso In summary, the main point of attaching riders is to respond to the total needs of our customers. The concept of Total Needs Selling will help you understand the basic needs of every person that can be addressed by an insurance plan. By attaching term riders to basic plans, we offer a comprehensive solution to your client's financial needs. IV. RISK SELECTION The objectives of this module is to determine the classifications of risks considered by a life insurance company in evaluating applicants for insurance and to identify the sources of underwriting information used by a life insurance company in evaluating various types of risks al Definition Risk Selection is the process by which an insurance company screens applicants for life insurance coverage. It is the process of evaluating the insurability of a proposed insured, given the hazards (risk) he is exposed to. Risk selection is a means to guard against anti- ? selection: the tendency of persons with health impairments or hazardous occupations to apply for life insurance. A life insurance company may accept or reject an applicant for life insurance subject to its underwriting rules. Without risk selection, the phenomenon of anti- ‘selection would occur, PCTC MANUAL 030614 rohan cere Scanned with CamScannerPRR oleae) The factors considered in risk selection art build, current condition, personal and fami includes age, r medi * tp a ‘a croposed hsuted: in case of illnesses, accident, operation o¢ a Consultation, The D's must be furnished by the agent: ical Date of the illness, accident, operation or consultation Doctor's complete name and address Diagnosis Duration of the illness or confinement . Dale of relapse, if any @aoce 2. Occupational - includes occupations inherently more dangerous than These are known as hazardous occupations, the duties of which expo; insured to greater chances of suffering accident, health and social hazards, Others, SE the 3. Financial - includes consideration of the proposed insured's capacity to pay the premiums, given the insurance coverage applied for 4, Moral — includes the proposed insured's_ moral standing in the community. takes into consideration possible reports of infidelity, drug addiction, alcoholism, ‘smuggling, swindling, questionable or illegal activities, 5. Aviation and Avocation: a. Aviation - includes the insured's aviation activities other than as a fare-paying passenger in a non-commercially accredited aircraft. b. Avocation — hobbies that are considered high risk including car racing, scuba diving, rock and mountain climbing 6. Residence and Travel — includes hazards in the form of extreme climate, impure drinking water, disturbed peace and order situation in the proposed insured’s residence and places of travel. FT meates Based on the different sources of Underwri determine whether to accept an aj into any of these classifications: ting information, the lay underwriter wil !pplicant for insurance or not. An applicant may fall 1. Standard Risk - persons _ who, based on their health and occupation, carry he usual or average chance of sickness, accident or death. 2. Sub-standard Risk - persons who, based on their health and occupation, 2" above average chance of | sickness, a = : , acc ted, sul cases are issued as rated policies a PCTC MANUAL 030614 = 0 ‘Scanned with CamScannerRated Policies — policies with an additional premium commensurate to the added risk the applicant presents. Unacceptable or Declined Risk - persons who, based on the company's undenwriting guidelines and procedures, are unacceptable clients for life insurance. c= Sourcesiof Underwriting Information The sources of underwriting information are: Advisor or Field Underwriter Application Form Medical Report Attending Physician's Statement Medical Information Bureau (MIB) Inspection Report PUPoOna V. THE POLICY PROVISIONS The objectives of this module are: * To be familiar with the important terms and conditions in the policy contract * To use this knowledge as ameans of guiding and servicing policy owners A legal contract is an agreement between two parties which can be upheld in a court of law. A life insurance contract is an agreement whereby one party undertakes to indemnify another, against loss, damage or liability arising from an unknown or contingent event, for a given consideration. A life insurance contract is composed of the following: «Application Form * Supplementary Forms / Endorsements The statements in the application form are said to be representations not guarantees. The provisions of a life insurance contract can only be amended upon the approval of the company president and the Insurance Commission. PMS G kee ecm daurtone A life insurance contract to be valid must possess the four elements required under contract law: 4. Legal Capacity — both parties, the insured and the insurance company must possess legal capacity: PCTC MANUAL 030614 a 4 ‘Scanned with CamScannerlegal capacity when itis registered yy Alife insurance company possesses TO cor iting and Exchange Comm the Insurance Commission (IC) and the (SEC). bot mission .sges legal capacity if he is of sound mind, of legal Ge A proposed insured Po arable interest. not a public enemy and wit! Legal Age Full legal age is eained at age 24. At this age, @ Person can purchase fg aan fe or on the life of another, provided insuraye insurance on tis own the ages 18 to 21, a person does et ave i legal capacity and can only purchase life | ooe 2 iS OWN fg and designate as beneficiaries his immediate a y members. At age 13 however, he may receive insurance money from a death claim, i 7 body of | Fora person less than 18 years old to have insurance, somebody of Jega) age ‘and full legal capacity must apply for him, own the policy and pay the premiums. The payor must also be designated primary beneficiary. Public Enemy A public enemy cannot be insured. He or she is a citizen or a national of another country with which the Philippines is at war. 2. Mutual Consent - the parties to a life insurance contract should have entered into the contract without being coerced. They must express definite assent to the terms and conditions of the contract. 3. Adequate Consideration — is whatever the insurer asks in exchange of the promise. Payment of the first premium by the proposed insured or policyowner Constitutes adequate consideration. It puts the policy in-force. The succeeding premiums paid are conditions necessary to keep the policy in-force. . Legality of Purpose - legal reason for buying insurance must exist. The presence of insurable interest guarantees the legality of purpose in a life insurance contract and it must exist at the inception of the contract. insurable Interest — A unique element in the life insurance contract A beneficiary is said to have insurable interest if i ihe ° on the life of the insured conlioties ‘o benefit while the insured lives and suffers a loss when the insured ies. Insurable interest is feadily underst ‘i 100d to E * penons, Witt ee exist amongst: brothers and sistes OV" 80 alfection: parents, spouses, children. Pecuniary relations + business. relatio employees, . ships: Creditor-debtor relati i ionships ships: between business partners, employer #4 MANUAL 030614 @ . rag SLOe ‘Scanned with CamScannerThe following cannot become beneficiaries because of legal impediment: * common law spouse (although they can be designated trustees) * persons receiving money from his accomplice in a crime Public officials or any person expressly prohibited by law Fiduciary Relationship The insurance company and the agent, on the other hand, have a fiduciary relationship. It refers to a relationship based on a high degree of trust and confidence. Since the life insurance company cannot act on its own, it needs agents to represent the company so as to meet its goals and objectives. PRA iene eM nea Policy provisions stipulate the rights and obligations of the insured and the insurer under the life insurance policy. Provisions protect both the insured and the insurer. 1. Effectivity of Policy - the effective date is significant because it is the date on which the insurance company becomes liable under the contract. A policy is said to be effective if the following requirements are met. It is approved and delivered during the lifetime and good health of the insured and first premium has been paid. 2. Ownership - states that the policyowner has the right to assign, amend a policy, change beneficiaries, collect cash value or dividends, and exercise all allowed options. 3. Premium Payment - states how premiums can be paid and how it permits the insured to change his/her payment mode. Conversion Factor — a multiplier used when converting an annual mode to a more frequent mode of payment like semi-annual, quarterly or monthly. 4, Grace Period - states that the insured has 30 days within which to pay premiums after the premium due date without lapsing the policy. Should death occurs during the grace period, the unpaid premium due will be deducted from the face amount less any indebtedness, if any. 5, Automatic Premium Loan - states that the policyholder can take out a loan against the policy for an amount not greater than the cash value, and is charged finimal interest on the Ioan to replace investment income the insurer cannot fam since a loan has been granted. If the interest on a policy loan is not paid at the policy anniversary, the insurance company may increase the loan by the interest, Should the insured die while a loan is outstanding, the loan plus any interest due is deducted from the face amount. PCTC MANUAL 030614 roQenee, LIne 13 ‘Scanned with CamScannerolicyholder must submit prc re ene higher premium paying ea “haba, ae eang. pian. Likewise there is need for evidence of insu aeomest is to change a plan from a higher Premium paying plan coon im paying plan. This applies to permanent plans only. 6. Change Of when applying for a lov? Ability vet te © 2 av the ownership rights of a poy, 1 - states that some or al of Ti 7 enebred tam one person, the assignor to another person, the hou? ™4Y be thal he insurance company must be netfed In wating. The assignment ee ana a. Absolute - transfer of all ownership rights are permanent b. Gollateral - transfer of some policy rights, to a bank or other lender tg Prov security for a loan. fe. The assignee acquires the right to the following: Make a loan up to 75% of the cash value ‘Surrender for cash up to 75% of the cash value Collect net proceeds Use the proceeds for collateral Avail of the non-forfeiture options The assignor retains the following rights: + The settlement option * Change or add beneficiaries * Claim disability benefits : refers to an error committed in the declaration of the insured's age which will result in the adju beneticcries will receive, fa jjustment of the face amount the rmination of the insured's true age. 2 . . Beneficiary - defines the rights of beneficiaries given their designations. Types of Beneficiaries a. Prima benefic ~ ‘ori inosine surat Priority to receive the proceeds of the policy Contingent ol No primary tan een tatY benef; i if Ty = recei roceeds netciany is alive at clary - receives the death pr he time of the death of the insured. PCTC MANUAL 030614 rocthnny L108 " ‘Scanned with CamScannerc. Estate = becomes the beneficiary if there are no persons named as beneficiaries or if there are no more living primary nor contingent beneficiaries. ‘Types of Beneficiary Designations Shows the extent of authority the beneficiary has over the insured’s exercise of his rights. A beneficiary may be: a. Revocable - one who has no vested rights over the policy; whose consent therefore is not required when the policyowner exercises any of his ownership rights. b. Irrevocable - one who has vested rights over the policy; whose consent therefore is required when the policyowner exercises any of his ownership rights. LIFE INSURANCE PROGEEDS. Estate Tax Imposed on the transfer of properties to another upon death of the estate owner. In the case of maturity proceeds, the amount taxable as income is the difference between the amount of proceeds received as endowment and the total premiums paid. Taxable under Estate Tax: «Insurance proceeds whose beneficiary designation is REVOCABLE + Estate is named beneficiary Taxable under Income Tax: «Interest earnings on death proceeds * Any amounts in excess of the TOTAL PREMIUMS that have been paid are considered income and are therefore taxable. Tax exempt under Estate Tax: Insurance proceeds whose beneficiary designation is IRREVOCABLE Tax exempt under Income Tax: * Death proceeds * Account Value Taxes are also part of the legal aspects of life insurance. Proceeds of life insurance are subject to either estate tax or income tax. PCTC MANUAL 030614 roca sere i ‘Scanned with CamScannerways of safeguarding the proceg ogative to leave the death proces! the roceeds in trust. S with nt several se 43, Settlement Options — PUA, the prem pt i vide the insured wit) fee pole ance eompany who wil NOI sas to how the proceeds are to be paid out; ceeds in trust for ion - mpany holds the pro a ape tntarest re id the tne beneficiary a rate of interest at regular iment a reeeal| oneeds can be made available to the beneficiary at _ va e pri in the future. The insured has 4 option’ a. any pays the beneficiary equal instalments com| . - Ne al and interest during the specify ion - t b. Fixed Period Option «the ore in of an amount that will ex period of payment. been instructed to pay out t + Option - the company has be oe © oiaes @ eer gpactied amount until the fund - proceeds and interest, is fully exhausted - Life income / Life Annuity Option - the insurance Company pays out fo the ‘ boneficiares the proceeds and interest during their lifetime. This is also ty because proceeds and interest are pald to the referred to as Life Annuity bece beneficiaries in the form of annuity as long as they live. 4. Incontestabillty - sets a limit to the length of time the company can question statements declared in the application, except in the case of gross fraud. This period is often set at 2 years, from the effective date of the policy. Grounds of Contesting a Claim within 2 years from date of effectivity: a. Material Misrepresentation - refers to the act of making a false statement regarding a condition that is material to the risk being proposed, b. Material Concealment - a neglect to communicate that which a party knows ought to communicate. 5. Suicide - holds the company liable for the he m1 payment of the face amount if the cause of death of the insured is suicide and it is committed beyond the stated perce bated, | death from suicide occurred within the contestable period, im 1 ° eee any sinaly relums to the beneficiary the equivalent of the tole He it _ lowever, if the beneficiaries can establish that death was suicide in the stale of insanity, they will be insanity, th “Y Compensated under Philippine law as stated under Bala 8. Presumption of Deatl Ih iS not been heard af fe There are cases when an Insured is missing and " many years. PCTC MANUAL 030614 6 reams ere ‘Scanned with CamScannerFor unexplained or “mysterious disappearance”, the court generally waits 7 years before it declares the person dead. Itis the court who declares the missing person dead in absence of his remains. During instances when a specific event can be linked to the missing person, Presumption of death may be declared after 4 years: * Aperson on board a vessel lost during a sea voyage, or an airplane which is missing A person in the armed forces who has taken part in war A person who has been in danger of death under other circumstances Missing due to extraordinary forces of nature such as but not limited to typhoon, flashflood, landslides, earthquake or tsunami. Reappearance If insured reappears after having been declared dead by a court and after the death benefit has been paid to the beneficiary, the Insurer then has the RIGHT to recover the money because it was paid under a mistake of fact unless the insurer entered into a compromise settlement with the beneficiary before the release of the claim. es Provisions ‘ofa Life Insurance Contract wien ithe Insured Quits’ 1. Non-Forfeiture Options - state that the insured does not forfeit the cash value a policy may have accumulated, when he decides to stop premium payments before the end of the prescribed premium paying period. The policyholder has 3 options: a, Cash Surrender Option - the policyholder may surrender his policy for the total cash value the policy has accumulated provided there are no outstanding loans. When the cash value has been paid out, the insurance contract terminates completely. b, Reduced Paid-Up Insurance (RPU) Option — cash value is used to buy the same kind of plan as the original but with a smaller face amount. c. Extended Term Insurance (ETI) Option — the opposite of RPU. In here the cash value is used to buy a term insurance with the same face amount. The means, the insured, who used to be covered under a permanent plan is now being protected under a term insurance under the same face amount. A pure endowment or the unused portion of the cash value is refunded to the policyowner upon termination of the Extended Term Insurance. Example of NFO Computation: + Age at Issue 35 = P400,000 Face Amount a PCTC MANUAL 030614 sure 7 Scanned with CamScanner; Wile Ti HP paying at the end of the 10” policy year + Client Necoerage a a x 6s P240,000 [onan | Sena an acy seed) —_| Le ee pao = 000 x ats = P10. | Up to age 100 | Loe | Se fm 0 0 Tito years and 264 cays | (nT Pecoso 2. Reinstatement - states that a policy contract that has lapsed, may stil be reinstated provided the owner shows proof of insurability and the process ig initiated within 3 years from the lapsation date of the policy. There are 2 methods of reinstatement: a. Pure Reinstatement - results in a policy that has the same effective date as the original policy and a contestability period that starts anew. This procedure requires that all back premiums plus interest, and loans, if any, are paid. b. Redating - results in a policy that has a new effective date and a contestability period that starts anew. This procedure requires that premiums Paid prior to lapsation are applied to that period when premiums were unpaid. This is allowed once in the entire life of a policy, provided no cash value has been acquired. Vi. GROUP INSURANCE Group insurance recognizes that people is a company's greatest asset. Let's discuss its significant features on how it can offer protection to employees at affordable rates. ER A group insurance contract basi people. The group is often all of Group insurance contracts give rise t cally provides protection for a class of grup the employees under an employer or compar 0 experience rating refunds. CTs ors Contract: ‘The parties to a group life insurance contract are the Insurer and the Employe"- PCTC MANUAL 030814 @ 8 re present LIES ‘Scanned with CamScannerWhey applying for group insurance coverage, the employees or group members fill out aivigual enrollment cards, and are each issued a certificate of coverage. The Le which embodies the provisions of the contract, is given to the Undenwriting Guidelines: Group insurance requires that each member works a minimum number of hours each week, usually 30 hours, and is non-medical in nature. It assumes that the group is generally healthy. Underwriting therefore depends on group characteristics such as Number of group members Age and sex of the members. Income and job type Work environment & geographical location Group insurance covers death of employees regardless of cause, except suicide during the first or first two years of the contract Premium Payment Premiums for group insurance coverage may be paid solely by the employer or may be shared by both the employer and the employees. When the employees share in the payment of the premiums, the plan is said to be contributory, otherwise it is said to be non-contributory. Vil. ANNUITY A person usually buys an annuity to ensure continuing income, usually during old age. itis sometimes bought by individuals who can no longer qualify to buy life insurance. ERP An Annuity is a specified sum payable at regular intervals for a stipulated period of time. It is a purchase of future income, a systematic accumulation of cash which would be distributed later on in the manner desired by the annuitant. It is not the same as life insurance. 4, Annuitant - the person to whom the annuity income is paid, usually the person who purchases the plan. | 2. Vesting date - the date when the annuity income payment begins. 3 Suecessor-Payee - the person who receives the remaining annuity income in case the annuitant dies before the fund is exhausted. PCTC MANUAL 030614 ane eine 19 ‘Scanned with CamScannerEI eee + Immediate Annuity th, three mont Payments start at stated period such as one month, ‘onths or one year aheg the purchase. am Deferred Annuity ; Payments start fat the end of a specified number of Years or until the annuitany attains a specified age or a predetermined date. d._ Commoni Types of/Annuit + Retirement Annuity . i iis wih is nes An annual savings arrangement to provide a pension for life with no life iMSurancg coverage + Joint And Survivorship Annuity . | Usually covers both husband and wife where the annuitant receives income as long as he/she lives. In case the annuitant dies, the surviving spouse wil receive income as long as he/she lives VII. THE INSURANCE COMMISSION (IC) AND CODE OF ETHICS The Insurance Commission is the government agency tasked to regulate all insurance companies and their agents on the rationale that insurance industry affects the public’s interest. is a body under the Department of Finance. It sets forth guidelines for capitalization, reserves, investments, solvency measures, and exercises the power of adjudication for certain amounts of claim in dispute. The IC’ Regulations (CRISP) Life insurance companies must adhere to some requirements mandated by IC. We will just cover the vital details. Let us remember CRISP. * Capitalization requirement for new entrants in the insurance industry is at P100 Million: P75 Million in paid-up capital and P25 Million in ‘surplus, « Reserve - the amount for future claims. Policy res the insurance company. of money kept by an insurance company to prove eves are considered future obligations on the part * Investment — through the int insured and di economy by this is one of the sources of income for an insurance corn rest it earns. This income is used to provide living benef 10 he leath benefits to the beneficiaries of the insured. Investments fuel generating income and jobs in various industries. 0 PCTC MANUAL 030614 oa Qn ya LITE ‘Scanned with CamScannerve sre three major considerations made before an insurance company decides est: 1. Safety - an insurance company must consider the risk associated with the investment it makes. This is the primary criterion it uses. 2. Liquidity - an insurance company must consider the ease by which the investment can be converted to cash. 3. Yield- an insurance company must consider the rate of return the investment will provide. ° porated ~ Serves to cushion against adverse experience due to a calamity or an demic. Power of Adjudication - allows the insurance commission to settle claims up can Much as P100,000. Amounts higher than this is settled by the Supreme Our Under certain situations, an insurance company may file Interpleader action with a Court of law. This remedy is used to decide conflicting claims on the same insurance Proceeds. The Insurance Commission regulates both stock insurance companies and mutual insurance companies. a. A stock insurance company is owned by stockholders. b. A mutual insurance company is owned by policyholders. ‘The process of converting a mutual company to a stock company is called demutualization. Ceres cies The Golden Rule of Professionalism of an agent is to always do for others what he would want to do for himself. He should always work in the client's best interest and needs rather than try to sell him a plan which would pay the highest commission possible. When an agent uses the approach of first determining a prospect's complete financial requirements preparatory to offering him a policy, he is using the selling approach known as total needs selling. An agent must also treat all information about his client with utmost confidentiality for his is in a fiduciary relationship with his client. ‘A person applying for a license to sell life insurance must meet and show proof of the following: * Aclean record of employment a PCTC MANUAL 030614 reaping Agee 2 ‘Scanned with CamScanner* Areasonable educational background * Aclean reputation and good character * IC Exam * Sufficient training | * Enough knowledge as evidenced by passing An agent's license may be renewed if: * The information furnished is accurate * The commission requirement of P 3,600 is met Note: An agent of Philam Life must meet company requirement for renewa license (TTC es A life insurance agent performs a job that is a service in the interest of the : Public. The following practices are considered detrimental to this code, and are Considereg unethical: Rebating - the sharing of one’s commission with the client Twisting - the convincing of a policyholder to surrender his policy in favor of a new one. Misrepresentation - the promise of benefits that are not stated in the Plan or policy contract applied for by the proposed insured or the misstatement of facs preliminary and in reference to making the insurance contract. Knocking - saying things that will put a fellow agent in bad light with a potential Glient in order to acquire his business. It also means making derogatory remarks against a competing insurance company to rob it of business. Overloading - convincing a client to apply for more insurance than his finances warrants, Other Grounds for Non-Renewal of License « Unremitted premium collection (UPC) * Modification of statements made by the Prospect in the application * Material concealment Violation of provisions of the insurance code Again, when you are in the business of life insurance, your business is people. ist the public's best interest when you offer the services of life insurance because YOU . helping people avoid the infliction of poverty caused by untimely death of breadwinner. 2 PCTC MANUAL 030614 recess “uk ‘Scanned with CamScanner