IC Reviewer

IC REVIEWER 11/26/2019 version 1.2

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 LIFE INSURANCE
Life Insurance is the scientific means of attaining
economic security and protection from premature
death, disability and old age.

It provides protection by facilitating the transfer of

personal risk (i.e., risk of economic loss due to
death, disability and old age) from the proposed
insured to the life insurer.

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 BASIC TERMS
the person whose life is
INSURED given protection

BENEFICIARY recipient of proceeds

amount payable to the

SUM ASSURED beneficiary

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 BASIC TERMS
amount of money regularly
PREMIUM paid in exchange of the
protection

the written contract of

POLICY insurance between the insured
& company

POLICYOWNER person who pays the premium

PAYOR on life insurance

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 LIFE INSURANCE
IN EFFECT, IT IS:
TRANSFER OF PERSONAL RISK

POOLING AND SHARING OF

PERSONAL RISK

SUBSTITUTE CERTAINTY FOR

UNCERTAINTY

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 LIFE INSURANCE
FAMILY
PROTECTION

SAVINGS
GREAT SERVICES
OF LIFE INSURANCE

RETIREMENT
INCOME

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 OTHER USES:

KEYMAN INSURANCE MORTGAGE

COLLATERAL REDEMPTION
CONTINGENCY FUND ESTATE CREATION
BUSINESS ESTATE
CONTINUATION CONSERVATION

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 KEY CONCEPTS:
RISK SHARING

PURE RISK

PROBABILITY

LAW OF LARGE NUMBERS

MORTALITY TABLE

LIFE EXPECTANCY

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 KEY CONCEPTS:
RISK SHARING
a group of people would pool funds
together to prepare for life’s uncertainties.

PURE RISK
involves the uncertainty of an event which
produces a loss with no possibility of gain.

PROBABILITY
the principle used in determining the
number of expected deaths in a group.

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 KEY CONCEPTS:
LAW OF LARGE NUMBERS
the more frequent an event is observed, the
closer one gets to the event’s true probability.

MORTALITY TABLE
the recorded rate of deaths per age group.

LIFE EXPECTANCY

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 INSURANCE PREMIUMS

PREMIUM an amount the insurer charges

in exchange for the economic protection
given to the insured.

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 INSURANCE PREMIUMS
FACTORS IN PREMIUM RATE
DETERMINATION:
MORTALITY
FACTOR
accurately predict how many
INTEREST
people are expected to die
investment earnings from
within a given year
premiums paid

LOADING
operating costs

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 INSURANCE PREMIUMS
FACTORS: EFFECTS ON PREMIUMS:

MORTALITY P

INTEREST P

LOADING P
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 INSURANCE PREMIUMS
INSURANCE COMPANIES
EARN PROFIT FROM:

MORTALITY

SURPLUS DIVIDENDS
INTEREST
EARNINGS

LOADING

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 TYPES OF PREMIUMS
Premiums which increase as
NATURAL PREMIUMS one ages
Premiums which remain the
LEVEL PREMIUMS
same

SINGLE PREMIUMS Premiums paid in lump-sum

ANNUAL PREMIUMS Premiums paid once a year

Premiums paid more than
FRACTIONAL PREMIUMS
once a year

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 RISK SELECTION
Insurance is a pooling or sharing of risks. To provide
equitable insurance coverage, companies charge each
insured a premium rate that corresponds to the risks
that the individual represents to the company.

The process of IDENTIFYING and CLASSIFYING

risk is UNDERWRITING or RISK SELECTION
Underwriting guards against ANTI-SELECTION
(the tendency of individuals who believe they are in poor health
but more likely to apply for life and health insurance
than people in average or good health)

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 FACTORS AFFECTING RISK:
AGE PHYSICAL
CONDITION
BUILD MORALS

OCCUPATION HOBBIES
OR AVOCATION
PERSONAL GENDER
HISTORY
FAMILY RESIDENCE
HISTORY OR TRAVEL
HABITS

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 RISK CLASSIFICATION
PREFERRED Lower than usual mortality
RISK

STANDARD Within expected risk or

RISK normal risk

SUBSTANDARD Higher than usual

RISK mortality

UNACCEPTABLE Uninsurable or declined

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 SOURCES OF UNDERWRITING INFO
APPLICATION ATTENDING
FORM PHYSICIAN’S
REPORT
AGENT’S MEDICAL
CONFIDENTIAL INFORMATION
REPORT BUREAU

MEDICAL FINANCIAL
REPORT STATEMENTS

INSPECTION
REPORT
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 RISK SELECTION
An amendment to the insurance contract
whereby the company’s liability shall be
limited to the return of premiums paid or
LIEN payment of only a portion of the sum
assured if the condition cited in the lien
causes death of the insured

EXAMPLES:
PREGNANCY LIEN AVIATION LIEN
CHILD’S LIEN ASSASSINATION LIEN

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 POLICY CLASSIFICATION
ACCORDING TO:
COVERAGE LINE OF
• INDIVIDUAL BUSINESS
• JOINT • ORDINARY
• GROUP • INDUSTRIAL
• GROUP

PARTICIPATION IN
DIVISIBLE SURPLUS
NATURE
• PARTICIPATING
• NON-PARTICIPATING • TEMPORARY
• PERMANENT

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 LIFE INSURANCE POLICY
Provides protection (death
TEMPORARY benefits) only.

Has renewability & convertibility features.

Provides protection (death

PERMANENT benefits) as well as savings
(living benefits).
Has cash values & dividends.

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 LIFE INSURANCE POLICY

TEMPORARY PERMANENT

TERM WHOLE LIFE ENDOWMENT

DECREASING ORDINARY REGULAR
LEVEL LIMITED-PAY LIMITED
ANTICIPATED

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 LIFE INSURANCE POLICY
COVERAGE BENEFIT CASH VALUE

TERM LIMITED PROTECTION

WHOLE PROTECTION
LIFETIME
LIFE & SAVINGS

ENDOWMENT PROTECTION
LIMITED
& SAVINGS

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 RIDERS

• Provides auxiliary benefits that basic plans do

not offer
• For the extra benefit, a small additional
premium is added.

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 RIDERS
WAIVER OF PREMIUM
• Insured shall no longer pay premiums
for his policy once he/she becomes
totally & permanently disabled.
• 6 month waiting period
• Once insured is able to be gainfully
employed, he/she shall resume paying
for premiums.

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 RIDERS
PAYOR’S BENEFIT
• Premiums shall be waived upon death or
total and permanent disability of the
PAYOR until child-insured reaches the
age of majority or end of the policy term,
which ever comes first.

• Attached to juvenile policies.

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 RIDERS
ACCIDENTAL DEATH BENEFIT

• Provides additional cash benefits if

the insured dies due to an accident

• Also known as double indemnity

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 RIDERS
TERM INSURANCE RIDER
• Provides for additional benefits on top of
the basic upon death of the insured
before the end of the term insurance
period
• Advantage: Cheaper protection
• Disadvantage: Term insurance portion
will not earn cash values/dividends

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 RIDERS
GUARANTEED INSURABILITY
• Makes it possible for the insured to buy
additional life insurance at stated future
intervals without evidence of
insurability

AGES WHEN
ORIGINAL # OF PURCHASE OPTIONS
PURCHASE: OPTION: ARE AVAILABLE:
0-24 06 25, 28, 31,
34, 37, 40

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 RIDERS
FAMILY INCOME RIDER

• A decreasing term insurance rider

that provides a monthly allowance
in addition to the face amount up
to the end of the decreasing term
insurance period.

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 RIDERS
HEALTH INSURANCE RIDER
• Provides additional benefits in the event
the insured suffers either from disability,
illness or diagnosis of a dreaded disease

• It may be in the form of:

o medical expense coverage
o disability income

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 LIFE INSURANCE CONTRACT

INSURABLE INTEREST
• Exists if a person stands to suffer an
economic loss if the insured dies

• A person always has insurable

interest on his own life.

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 LIFE INSURANCE CONTRACT

INSURABLE INTEREST
• Relationships where insurable
interest exists:
o Spouses, parent & child, siblings
o Pecuniary (Creditor-Debtor)
o Key person insurance
o Business partners

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 POLICY PROVISION

GENERAL PROVISIONS
• Required policy provisions which spell
out and protect the rights of
policyholders and beneficiaries of life
insurance

• Also impose certain obligations on the

insurer to advance the interest of the
policyholder

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 POLICY PROVISIONS
ENTIRE CONTRACT REINSTATEMENT
CLAUSE PROVISION
GRACE PERIOD DIVIDEND OPTION
INCONTESTABLE NON-FORFEITURE
CLAUSE OPTION
SUICIDE CLAUSE BENEFICIARY
PROVISION
MISTATEMENT OF SETTLEMENT
AGE OPTION
POLICY LOAN

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 POLICY PROVISIONS
ENTIRE CONTRACT CLAUSE
A provision in life insurance policies that
defines the documents that constitute
the entire insurance contract

GRACE PERIOD
A specified period within which a renewal
premium may be paid without penalty (31
days from the premium due date)

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 POLICY PROVISIONS
INCONTESTABLE CLAUSE
• A provision in life insurance policies that
limits the company’s right to question
the validity of the contract
• 2 years from the issuance or
reinstatement of the policy

SUICIDE CLAUSE
A provision that governs the payment of
policy proceeds if the insured dies as a
result of suicide.
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 POLICY PROVISIONS
MISTATEMENT OF AGE
A provision that describes how the face
amount will be adjusted to the amount
which the premium would have purchased
at the correct age, if the age of the insured
is misstated.
FACE AMOUNT
DECLARED AGE ACTUAL AGE
ADJUSTMENT
30 31 Decrease FA

31 30 Increase FA

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 POLICY PROVISIONS
POLICY LOAN PROVISION

A provision that grants the owner of a

life insurance policy the right to take a
loan for up to a percentage of the
policy’s cash value.

Death benefit payable while there is a loan

= (Face Amount - outstanding loan)

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 POLICY PROVISIONS
DIVIDEND OPTIONS
Options given to a policyowner on
how to use his/her dividends

CASH
BUY PAID-UP
ADDITIONS
REDUCE PREMIUM
PAYMENT
BUY ONE-YEAR TERM
ACCUMULATE TO
EARN INTEREST
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 POLICY PROVISIONS
NON-FORFEITURE OPTIONS
Options given to a policyowner in case
of forfeiture of premium payments

Available only at the end of 3 years

CASH SURRENDER PAID-UP

VALUE INSURANCE
EXTENDED TERM AUTOMATIC
INSURANCE PREMIUM-LOAN

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 POLICY PROVISIONS
NON-FORFEITURE OPTIONS
CASH VALUE/
CASH SURRENDER VALUE
The policyowner surrenders the policy
for its corresponding cash value.

EXTENDED TERM INSURANCE

Cash value is used to buy term
insurance for the full coverage amount
provided by the original policy.
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 POLICY PROVISIONS
NON-FORFEITURE OPTIONS
PAID-UP INSURANCE
(REDUCED AMOUNT)
Cash value is used to buy fully paid-up
insurance with a smaller face amount
than the original policy

AUTOMATIC PREMIUM LOAN

Payment of an overdue renewal
premium by making a loan against
the policy’s cash value
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 TRANSFER OF OWNERSHIP
ASSIGNMENT
An agreement under which one party
transfers some or all his ownership
rights in a particular property to
another party

TWO TYPES OF ASSIGNMENT:

ABSOLUTE COLLATERAL

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 TRANSFER OF OWNERSHIP
ASSIGNMENT
TWO TYPES OF ASSIGNMENT:

ABSOLUTE COLLATERAL
An assignment of a life A temporary assignment
insurance policy under of the monetary value of
which the policyholder a life insurance as a
transfers all policyowner security for a loan
rights to the assignee
Ex. Absolute assignment Ex. Mortgage
to a key person Redemption Insurance

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 POLICY PROVISIONS
SETTLEMENT OPTIONS
In lieu of lump sum payment, these
are the choices given as to how the
proceeds of insurance will be paid
out

INTEREST FIXED AMOUNT

OPTION OPTION
FIXED-PERIOD LIFE INCOME
OPTION OPTION

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 POLICY PROVISIONS
SETTLEMENT OPTIONS
INTEREST OPTION
The insurer invests the proceeds of a life
insurance policy and pays interest on
these proceeds to the payee
FIXED-PERIOD OPTION
The insurer pays the policy proceeds and
interest in a series of equal installments
for a specified period of time
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 POLICY PROVISIONS
SETTLEMENT OPTIONS
FIXED AMOUNT OPTION
The insurer pays the policy proceeds and
interest in a series of equal installments
for as long as the proceeds last
LIFE INCOME OPTION
The insurer pays the policy proceeds and
interest in a series of periodic
installments over the payee’s lifetime
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