Life fundamentals
Life insurance pays a death benefit when the insured dies, and (for permanent products) may build cash value. Half of the “L&H” track. Not the Glacis line, but core exam content. All STABLE.
Core concepts
Section titled “Core concepts”- Insurable interest — must exist at the time the policy is issued (not at death, unlike property). You can insure your own life, or a life in which you have a financial/relational interest (spouse, business partner, key employee).
- Mortality vs morbidity — mortality = likelihood of death (drives life pricing); morbidity = likelihood of sickness/disability (drives health pricing).
- Level premium — permanent policies charge a level premium: you “overpay” early (building reserves/cash value) so the premium doesn’t spike as mortality risk rises with age.
- Cash value — the savings element in permanent life that grows tax-deferred and can be borrowed against or surrendered.
How life is sold and underwritten
Section titled “How life is sold and underwritten”- Risk classification: preferred (best health → lowest rate), standard, substandard/rated (higher risk → higher premium), or declined.
- Field underwriting — the producer’s first-pass screening via the application.
- Tools: the application + medical questions, an Attending Physician Statement (APS), paramedical exams, and the MIB (Medical Information Bureau) to catch omissions.
- Insurable interest + consent of the insured are required to issue.
The three uses of life insurance
Section titled “The three uses of life insurance”- Income replacement / family protection — replace a breadwinner’s income.
- Final expenses & debt — funeral, mortgage, estate liquidity.
- Business uses — key person coverage, buy-sell funding, executive benefits.
Determining how much (needs analysis)
Section titled “Determining how much (needs analysis)”- Human life value — the economic value of future earnings.
- Needs approach — sum of obligations (debts, income replacement, education, final expenses) minus existing resources.
This is a suitability issue — recommending the right type/amount is part of the producer’s ethical duty (see 12 Ethics & trade practices).
Participating vs non-participating
Section titled “Participating vs non-participating”- Participating (usually mutual insurers) — may pay policy dividends (a non-taxable return of premium).
- Non-participating (usually stock insurers) — no dividends. See 01 Insurers & distribution.
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