Life Insurance 101 Manual - Traditional Life

Life Insurance 101: Traditional Life
FOR STUDY PURPOSES ONLY AND NOT FOR DISTRIBUTION
FOUNDATIONS OF LIFE INSURANCE

As an Agent in this business, you are to embark on a mission of making the benefits of life insurance
known to more people. When a man dies, that does not mean the end of his family. They have a right to
and must go on living. Life insurance guarantees that they will. For life insurance is sold not because
someone may die, but because someone must live.
Life Insurance as Family Protection

Consider a husband and a father. The loving husband and indulgent
father looks beyond the present and is concerned about what would
happen to his wife and children if he were to become a statistic in a
mortality table. He realizes that the only possible contribution that he
can make after his death is a financial one.
If he were to investigate all the possible methods of providing this

financial sustenance, he would still arrive at the same conclusion. He
could deposit his money in a bank, put it in stocks or bonds, invest in
mortgages, or any other medium except life insurance, and he just
could not be sure that he was saving enough, fast enough to guarantee his family the income
he would require. He would find that life insurance is the only means by which he can
purchase a certain amount of future income for a small amount per month.
History of Life Insurance
The concept of life insurance began with the “passing of the hat” before death struck the
community. To raise and maintain a fund that would be available whenever death struck
unexpectedly and take care of any bereaved family. The passing of the hat had to be made
regularly and everybody contributed a certain amount.
Thus came about the concept of RISK-SHARING whereby a group of people put funds and
resources together in preparation for life’s many risks, notably death. It enables men to
accomplish through cooperative risk-sharing what they could not accomplish as individuals.
This concept of contributing to a “common fund” and community cooperative “risk sharing” is
still the fundamental philosophy behind life insurance selling.
Tools in Life Insurance

Mortality Table - is used to estimate the rate of survival or rate of death among persons of a
given age. This table tells us, more or less, how long a person of a certain age, for example 35
years old, will live.
Laws of Probability - also known as the law of large numbers; is used to determine the
average number of people of a particular age who will live or die within a given a period. It
predicts the chances or possibility that a 40-year-old person will still be alive after 20 years,
or even after 25 years.
Property of The Insular Life Assurance Co., Ltd. ▪ NOT FOR DISTRIBUTION Page 1 of 27
Fundamental Terms in Life Insurance
 The Insured is the person whose life is covered by life insurance

 The Face Amount is the money the insurance company will provide when the insured dies.
It is also the measure of indemnity under an insurance policy
 The Premium is the payment necessary to put the policy and to keep it in force
Beneficiary
 The Ben eficiary 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
Who the Actuary Is
 The Actuary is the person who determines the amount of premium to be charged
Premium Rate Factors
There are four factors considered by the actuary in premium computation:
1. Mortality - the rate of death per age group that will occur in a 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
An increase in mortality will result in an increase in premium rates; a decrease in mortality will
result in a decrease in premium rates.
An increase in interest will result in a decrease in premium rates; a decrease in interest rates
will result in an increase in premium rates.
expense
An increase in expen se will result in an increase in premium rates; a decrease in expense will
result in a decrease in premium rates.
Premium Computation:
GROSS PREMIUM = NET PREMIUM + LOADING
Where:
NET PREMIUM = MORTALITY FACTOR + INTEREST FACTOR
LOADING = SAFETY MARGIN REQUIREMENT FACTOR + EXPENSE FACTOR
Premium Concepts
Natural Premium, Level Premium and Cash Value
Under the natural premium concept, premiums are expected to increase as the insured
grows older; under the level premium concept, premiums remain the same while the policy is
in effect.
A cash value results as an effect of leveling the natural premium. It is also

the savings element of a policy, which allows the insured to get maturity
benefits if he outlives the policy. Cash values are guaranteed and policies
usually start to earn it at the end of second or third policy year depending on
the plan. It continues to accumulate every year and once policy reaches
maturity, cash values equal the face amount of the policy.
Note that the premium actually quoted by the Agent to a proposed insured will depend on
the choice of plan, the face amount and the age of the proposed insured, as previously
determined by the actuary, under the level premium system. The premium actually quoted is
the gross premium, which already includes the policy fee, the fixed amount added to the
premium of a given policy regardless of policy size.
Significance of Life Insurance
Life insurance is a wiser means to minimize risks

Three risks covered by life insurance:
1. Dying Too Soon - What do you think will happen to a family

when a breadwinner suddenly passes away? Will the children
still be able to continue their education?
2. Living too long - chances are, when people grow old and they
did not prepare for their retirement, which they did not save
enough, they become a burden to their families.
3. Being disabled - will minimize the risk of experiencing the

financial pains and difficulties of being disabled.
Life insurance secures the future income of the family

When income is stopped by any risk-whether the breadwinner dies too soon, or becomes
disabled, insurance can provide benefits that the family needs most.
Life insurance is a great equalizer

This simply means that anybody who wants to be insured and qualifies for insurance -
whether rich or poor, black or white, Catholic or Muslim - may get insurance coverage
Life insurance is thrift

Insurance is actually forced savings. It helps man save regularly and be systematic in his
savings plan. Paying premiums is actually savings that we entrust in an insurance company.
Life insurance is investment

It guarantees safe and successful investment. If you buy insurance worth P 1Million, it doesn’t
mean that you have to pay P 1Million worth of premiums. Total premiums paid are always
lesser in amount.
Life insurance is adequate time

You don’t need to wait for a longer period of time just to have immediate creation of
sufficient fund. In life insurance, even if you have paid only the first premium, your family is
assured of the guaranteed fund that you intended to provide them.
Other Points to Remember
 Life insurance as indemnity agreement

Life insurance contract is treated primarily as indemnity when a creditor insures the life of
his debtor to protect himself.
 Social significance of life insurance

Provides funds in times of financial distress to widows, children and to elderly beneficiaries
and it makes people less dependent on public charity.
 Reinsurance
A method that by one insurance company is able to insure a portion of a policy that it has
written with another company.
 Life insurance guarantees the following funds:

1. Clean-up fund - funds needed when someone passed away. Funds such as
hospital bills, interment, payment of debts, etc.
2. Educational fund - funds needed for your children’s education
3. Mortgage- funds needed for payment of loans (e.g. housing, property)
 Human Economic Value

Capitalized earning power of an individual is an asset just like other forms of tangible
property such as real estate and securities.
Human value as working force should be preserved for as long as possible just as we
endeavor to preserve property value.
 Insurance programming of critical years

Critical years in insurance programming refer to the years when the children are small and
cannot provide for themselves.
BASIC PLANS
For a good craftsman knows the tools and materials he works with;
the truly competent underwriter knows his product well.
Plans According to Benefits

There are two broad classifications of basic insurance plans: Permanent and Term Plans
Permanent Plan Term Plan
Provides a combination of both insurance

protection and savings
Provides insurance protection only and no
The savings feature a of permanent plan savings
leads to a gradual accumulation of cash in
the policy that equals the amount of These plans offer insurance protection at
insurance coverage at policy termination the least cost.
date. This savings component is in the form
of Cash Values build up.
Permanent Plan
Permanent plans are classified either as: (1) Whole Life or (2) Endowment.
 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:
1. Ordinary/Straight Life – premiums must be paid until age 100.
2. 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
 Endowment Plan
Offers insurance protection for a specified period of time or until a specified age; matures
at the end of a specified period of coverage or until a specified age; premiums are payable
for a specified period or until a specified age.
Types of Endowment Plan:
1. Regular Endowment - endowment plans that endow or mature at the end of the
premium paying period. Examples: 20 Year Endowment, Endowment at age 65.
2. Anticipated Endowment/Special Anticipated Endowment - Endowment plans that

provide portions of the maturity proceeds before the end of the period of coverage.
3. Limited Endowment - Endowment plans that may be fully paid before the end of period
of coverage.
Planss
Other Features of Permanent Plan
 Permanent plans may earn dividends if they are Participating Plans
 Non-
Non-Participating plans do not earn dividends
(Dividends are return of excess premiums)
Term Plan
Term plans are classified either as:
1. Level Term Plan - offers the same amount of protection throughout a policy year; the
face amount of a term plan remains the same.
2. Decreasing Term Plan - often used in conjunction with loans and amortization; 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.
Other Features of Term Plans
 Convertibility – The term policy can be converted to a Permanent Plan without proof of
insurability.
 Renewability – The term policy allows for renewal of the term policy without proof of
insurability.
Summary
TERM RIDERS
Basic plans, by themselves, can only provide substantial savings and retirement benefits, aside from
protection. Term riders are intended to enhance the benefits provided by the basic plan.
Definition of Term Riders

Term Riders are supplementary contracts attached to a basic plan.
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
Rider - has to be attached or has to “ride on” a basic policy
Benefits Provided by Term Riders

Term riders offer different kinds of benefits, depending on their nature:
1. 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 permanent
disability. Total and permanent disability is defined as uninterrupted disability for not less
than 6 months which prevents the insured from engaging in any gainful occupation
employment or business for which he is fitted by education and training.
Premiums due and paid during the “waiting period” are then returned to the insured.
Exclusions
Disability due to suicide and combat activities are excluded risks, under this rider.
Insured should be gainfully employed.
2. Payor’s Benefit Rider (PB)
Provides for a waiver of premium benefit in the case of death or disability of the payor-
owner of the policy. It is attached to juvenile policies. The PB benefit terminates when the
policy matures or when the child reaches the age of 25, whichever comes first.
The PB rider comes in two kinds:

 Payor’s Benefit for death
 Payor’s Benefit for death and disability
3. Accidental Death Benefit Rider (ADB)
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-to-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 the payment of the Face Amount of the basic
plan but not the Principal Sum from the ADB rider.
4. Term Insurance Rider (TIR)
A ten-year term plan attached to either a whole life or endowment policy, resulting to a
higher amount of protection at minimal cost.
5. Guaranteed Insurability Option rider (GIO)
Allows a policy-owner to purchase specific amounts of additional coverage of the same

kind at stated future ages at standard rates without presenting evidence of insurability.
Example:
The option dates correspond to the policy anniversary immediately following the insured’s
25th, 28th, 31st, 34th, 37th and 40th birthday. That’s a total of 6 opportunities to buy additional
protection.
The option dates may be advanced however, upon:

1) Birth of a child or
2) Marriage
6. 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.
RISK SELECTION
As a field underwriter, your job does not only require a skill in selling. It also requires the ability
to select and screen prospects well… this is called RISK SELECTION.
Definition of Risk Selection

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.
Classifications of Risk
There are three kinds, as far as an insurance company is concerned:
 Standard Risk - persons who, based on their health and occupation, carry the usual or
average chance of sickness, accident or death.
 Sub-standard Risk - persons who, based on their health and occupation, carry above
average chance of sickness, accident or death. If accepted, substandard cases are
issued as rated policies.
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 underwriting

guidelines and procedures, are unacceptable clients for life insurance.
Pure risk involves uncertainty as to the happening of an event which may

produce a loss but which involves no possibility of gain.
Risk Factors • POLFR
The factors considered in risk selection are:
P hysical - includes age, build, current condition, personal and family medical history of the
proposed insured; in case of illnesses, accident, operation or medical consultation, the
following information must be furnished by the Agent:
1. Date of the illness, accident, operation or consultation

2. Doctor’s complete name and address
3. Diagnosis
4. Duration of the illness or confinement
5. Date of relapse, if any
O ccupational - includes occupations inherently more dangerous than others. These are
known as hazardous occupations, the duties of which expose the insured to greater chances
of suffering accident, health and social hazards.
Lifestyle - hobbies that are considered high risk including car racing, scuba diving, rock and
mountain climbing.
F inancial - includes consideration of the proposed insured’s capacity to pay the premiums,
given the insurance coverage applied for
R esidence 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.
Sources of Underwriting Information

The sources of underwriting information are:
The Agent or field underwriter

The Application Form
The Medical Report
The Attending Physician’s Statement
The Medical Information Bureau (MIB)
The Inspection Report
POLICY PROVISIONS
The fundamental legal principles of a life insurance contract provide the legal vehicle
for the life insurance process.
Definition of a Legal Contract

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.
Elements of a Life Insurance Contract

A life insurance contract to be valid must possess four elements required under contract law:
 LEGAL CAPACITY – both parties, the insured and the insurance company must possess
legal capacity:
A life insurance company possesses legal capacity when it is registered both with the
Insurance Commission (IC) and the Securities and Exchange Commission (SEC).
A proposed insured possesses legal capacity if he is of sound mind, of legal age, not a
public enemy and with insurable interest.
LEGAL AGE
Full legal age is attained at age 21. At this age, a person can purchase life insurance on
his own life or on the life of another provided insurable interest exists. Between the
ages 18 to 21, a person does not have full legal capacity and can only purchase life
insurance on his own life and designate as beneficiaries his immediate family
members. At age 18 however, he may receive insurance money from a death claim.
For a person less than 18 years old to have insurance, somebody of legal 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 is a citizen or a national of another country with which the Philippines
is at war.
 MUTUAL CONSENT - the parties to a life insurance contract should have entered into
contract without being coerced. They must express definite assent to the terms and
conditions of the contract.
 ADEQUATE CONSIDERATION – is whatever the insurer asks in exchange of the promise.

Payment of the first premium by the proposed insured or policyholder constitutes
adequate consideration. It puts the policy in-force. The succeeding premiums paid are
conditions necessary to keep the policy in-force.
Should the proposed insured pay the company the equivalent of at least one quarter’s
premium during application signing, as evidenced by a Binding receipt, he enjoys an
insurance coverage which will take effect on the latest of the date of application or date of
the last medical examination (if required), if he is accepted at a standard rate.
 LEGALITY OF PURPOSE - legal reason for buying insurance must exist. The presence of
insurable interest guarantees the legality of purpose in life insurance contract and it must
exist at the inception of the contract.
A beneficiary is said to have insurable interest on the life of the insured if he continues to
benefit while the insured lives and suffers a loss when the insured dies.
Insurable interest is readily understood to exist amongst:

 persons with ties of love and affection: parents, spouses, children, brothers & sisters
 pecuniary relationships: creditor-debtor relationships
 business relationships: between business partners, employer & employees
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
Provisions of a Life Insurance Contract When the Insured is Alive:

1. 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.
2. PREMIUM PAYMENT - states how premiums can be paid. There are four modes of
payment: annual, semi-
semi- annual, quarterly and monthly.
monthly
The premiums quoted in premium cards or Agent‘s tools are rates for an annual mode of
payment. Should the proposed insured decide to pay premium on a mode other than
annual, the premium is calculated by multiplying the annual premium by a conversion
factor for the mode of payment desired.
If a plan requires premium payments for a given number of years, and the proposed
insured wishes to pay the premiums in a shorter period of time, the insurance company
may accept the advanced premiums and treat part of it as a deposit.
A single premium policy is a policy under which only one premium payment is required.
3. GRACE PERIOD - states that the insured has 30 days within which to pay
premiums, after the premium due date without lapsing the policy; he can
also avail of an extension for 30 more days, provided he has:
 Paid two quarterly premiums or one semi-annual premium and

 This is the first time he is requesting for an extension for that policy year
Should the policyholder die during the grace period, the beneficiaries receive the total face
amount less the premiums due.
4. 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 minimal interest
on the loan to replace investment income the insurer cannot earn 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.
5. DIVIDENDS - states that the policyholder has 5 dividends options:
 Cash Payment option - dividends are paid directly to the policyowner in cash
 P remium Reduction option - dividends are used to reduce premiums
 Interest option - dividends are left with the company to earn interest
 Paid-
Paid-up Additions option - dividends are used to buy small paid up policies
 Buy Yearly Renewable Term - dividends are used to buy yearly renewable term equal to the
premium paid or cash value with any extra remaining on deposit with the Company and
earning interest at a rate to be declared by the Company from time to time
IMPORTANT!
Dividends are not and cannot be guaranteed by any life insurance company and apply
only to participating policies.
6. CHANGE OF PLAN – states that a policyholder must submit proof of insurability when
applying for a change from a higher premium paying plan to a lower premium paying
plan; likewise there is need for evidence of insurability when the request is to change a
plan from a higher premium paying plan to a lower premium paying plan. This applies to
permanent plans only.
7. ASSIGNMENT - states that some or all of the ownership rights of a policy may be
transferred from one person, the assignor to another person, the assignee, and that the
insurance company must be notified in writing. The assignment may be:
 Absolute - transfer of all ownership rights are permanent

 Collateral - transfer of some policy rights, to a bank or other lender to provide
security for a loan
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
8. CONVERTIBILITY - states that a term plan may be converted to a permanent plan,

without evidence of insurability, provided the insurance coverage applied for is of the
same amount (otherwise, proof of insurability would still be required).
The two (2) types of conversion are:
1. Current Date or Attained Age Conversion -premiums of the insurance are based
on the attained age of the policyowner
2. Original Age Conversion - premiums are based on the policyowner’s age at

original issue
9. RENEWABILITY - states that a term plan may be renewed after the period of original
coverage ends, for a specified number of times, without proof of insurability. The
premiums for the renewed term policy will be based on the attained age of the insured at
each renewal date.
10. ENTIRE CONTRACT - states that the entire contract consists of the policy, the application
form and the endorsements, if any. The completed application must form part of the
contract in as much as it is the basis for the issuance of the policy contract: the company
may accept or reject an applicant for insurance on the basis of the information given in
the application.
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.
Provisions of a Life Insurance Contract When the Insured Dies:

1. MISSTATEMENT OF AGE – refers to an error committed in the declaration of the insured’s
age which will result in the adjustment of the face amount the beneficiaries will receive. A
decrease in the amount results if the age of the insured is understated, while an increase in
the amount results if the age is overstated. The misstatement of age is discovered when
the beneficiaries go through the process of making a claim. The claim process will require
documents that lead to the determination of the insured’s true age.
2. BENEFICIARY - defines the rights of beneficiaries given their designations.
Types of Beneficiary
a. Primary beneficiary – has priority to receive the

proceeds of the policy in case the insured dies
b. Contingent or secondary beneficiary - receives the
death proceeds if no primary beneficiary is alive at the
time of death of the insured.
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 Designation

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 policyholder exercises any of his ownership rights
b. Irrevocable - one who has vested rights over the policy; whose consent therefore is
required when the policyholder exercises any of his ownership rights
TAXATION IN LIFE INSURANCE

Taxes are also part of the legal aspects of life insurance. Proceeds of life insurance are
subject to either estate tax or income tax.
Premiums as Business Expense
 Tax deductible if company insures employees and make their FAMILIES the
BENEFICIARIES
 Not tax deductible if company insures key employees and makes ITSELF the
BENEFICIARY
3. SETTLEMENT OPTIONS – presents several ways of safeguarding the proceeds of the

policy. Provides the insured with the prerogative to leave the death proceeds with the
insurance company who will hold the proceeds in trust.
The insured has 4 options as to how the proceeds are to be paid out:
 Interest Option - the company holds the proceeds in trust for a specified period of
time and pays the beneficiary a rate of interest at regular intervals. The principal
proceeds can be made available to the beneficiary at any time in the future.
 Fixed Period Option - the company pays the beneficiary equal installments of an
amount that will exhaust the principal and interest during the specified period of
payment.
 Fixed Amount Option - the company has been instructed to pay out to the
beneficiaries a fixed or specified amount until the fund - proceeds and interest, is fully
exhausted.
 Life Income / Life Annuity Option - the insurance company pays out to the
beneficiaries the proceeds and interest during their lifetime. This is also referred to as
Life Annuity because proceeds and interest are paid to the beneficiaries in the form of
annuity as long as they live.
4. INCONTESTABILITY - 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.
Material misrepresentation in the application form can render an insurance

contract void. A misrepresentation in the application form is considered
material if the insurance company would have changed its risk appraisal
decision had the truth been known.
5. SUICIDE - holds the company liable for the payment of the face amount if the cause of
death of the insured is suicide and it is committed beyond the stated contestability period.
If death from suicide occurred within the contestable period, the company simply returns
to the beneficiary the equivalent of the total premiums paid.
However, if the beneficiaries can establish that death was suicide in the state of insanity,
they will be compensated under Philippine law as stated under Batas Pambansa 874.
6. PRESUMPTION OF DEATH - There are cases when an Insured is missing and has not been
heard of for many years.
For unexplained or “mysterious disappearance”, the court generally waits 7 years before it
declares the person dead. It is the court who declares the missing person dead in absence
of his remains.
When an Insured is missing:
 The date of death could be taken as the date of the court order or it could be even the
date of filing the suit.
 Beneficiary has to prove the death of the insured before the policy expires, otherwise,
no benefits are payable.
 Beneficiary may continue to pay the premiums until the court establishes the insured’s
death. Then, he can recover from the insurer the amount of overpayment of premiums,
as well as the death benefit.
During instances when a specific event can be linked to the missing person, presumption
of death may be declared after 4 years.
 A person 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.
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.
Provisions of a Life Insurance Contract When the Insured Quits:

1. NON--FORFEITURE OPTIONS - states 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 four (4) options:
 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 stops completely.
 Premium Loan Option - the insured, upon the signing of the insurance application, has
Instructed the company to get enough cash out of the cash value of the policy, to pay
the premiums that may fall due. If the cash value is depleted and premiums are still
due, the policy will lapse.
 Reduced Paid-
Paid-Up Insurance Option – the insured has instructed the company to take
the cash value built up by the policy, to buy a fully paid plan of exactly the same kind
as the original, that will provide coverage for the same period of time as the original
policy but which will have a face amount that is less than the original plan.
 Extended Term Option – the insured has instructed the company to take the cash
value of the policy to buy a fully paid term insurance plan that will provide the same
amount of protection, but which will have a length of coverage that will be shorter
than the original plan. The insurance coverage therefore becomes temporary.
2. REINSTATEMENT - states that a policy contract that has lapsed, may still be reinstated
provided the owner shows proof of insurability and the process is initiated within 3 years
from the lapsation date of the policy.
There are 2 methods of reinstatement:
 Pure Reinstatement
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.
 “Redating”
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.
GROUP INSURANCE
Many employees see group insurance coverage as a major perk for faithful company service.
It brings peace of mind and a feeling of security for their families.
Definition of Group Insurance

A group insurance contract basically provides protection for a class or group of people. The
group is often all of the employees under an employer or company. Group insurance
contracts give rise to experience rating refunds.
Parties to the Contract

The parties to a group life insurance contract are the insurance company and the employer.
When applying for group insurance coverage, the employees or group members fill out
individual enrollment cards, and are each issued a certificate of coverage. The master
contract, which embodies the provisions of the contract, is given to the employer.
Underwriting 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
Experience Rating Refund
If the mortality of a certain group is significantly favorable than the mortality experience of
similar groups insured by the same insurance company, then that particular group will
receive an experience rating refund which is given to the employer.
Types of Group Insurance Plans

Group policies may either be term plans or permanent plans.
plans
They may also be categorized as group permanent insurance plans, group medical insurance
plans, group retirement plans or creditor life insurance plans.
Note: The most common group insurance sold in the Philippines is

Group Yearly Renewable Term - it is the cheapest life plan available.
Conversion Privilege
An individual previously enjoying group coverage may upon his resignation or retirement
from the group, request for a conversion of coverage to an individual plan, within 30 days of
the resignation or retirement, without proof of insurability.
HEALTH INSURANCE
Like other forms of insurance, health insurance is a form of collectivism where people pool their risk,
in this case the risk of incurring medical expenses.
Definition of Health Insurance

A health insurance provides benefits for the protection against economic losses due to
illness. It provides benefits when the insured is hospitalized or medically treated or dies due
to accident or illness.
Types of Health Insurance Benefits

1. Disability Income Benefit
Provides the insured with income in the event of a disability caused by either illness or
accident for a period of 2 years for short term policies or up to age 65 for long term
policies. The disability income becomes payable after a waiting period of 6 months.
2. Accidental Death & Dismemberment Benefit

Provides the insured or his beneficiaries the full principal sum in case of accidental loss of
life, both hands, both feet, sight of both eyes, any two members, hearing or speech. It also
provides 50% of the principal sum in case of accidental loss of one hand, one foot, or sight
of one eye, and 10% of the principal sum in case of accidental loss of a thumb and index
finger of one hand
3. Expense Reimbursement Benefit

Benefit
Provides the insured with an amount to reimburse him in part, for hospital expenses,
surgical expenses, and regular medical expenses.
 Hospital expense benefits may include coverage for daily room expense: room and
board, nursing care, and other miscellaneous expenses such as operating room, x-ray,
and medication expense.
 Surgical expense benefit may include coverage for the surgeon’s fee.
 Regular medical benefits may include coverage for expenses for doctor’s fee other
than the surgeon, and medical check up.
The Concept of a Deductible Amount

The exact amount the insurance company reimburses the insured, under the expense
reimbursement benefit, is the difference between the total expenses covered under the health
insurance plan and a deductible amount.
A deductible is the amount of money which the insured party must pay before the
insurance company's own coverage plan begins. In practical terms, insurance
companies include a deductible in their policies to avoid paying out benefits on
relatively small claims (wisegeek.com)
Limited Policy vs. Blanket Policy
The amount of coverage or the benefits provided by a health insurance plan depend on the
nature of the plan. It can either be:
 A limited health policy which covers limited hazards

 A blanket health policy which covers all kinds of hazards
INDUSTRIAL INSURANCE
INSURANCE
In the early years, some companies expanded into "industrial life insurance," so called because it was
generally aimed at industrial workers and are geared towards lower income families.
Definition of Industrial Insurance
An industrial insurance contract is an insurance contract that provides

insurance coverage to blue collar workers. Blue collar workers include
taxi drivers, construction workers, painters, janitors, etc.; individuals who,
typically, cannot afford larger policies and cannot set aside enough to pay
annual, semi-annual, quarterly or even monthly premiums on regular
insurance.
Industrial Insurance vs. Ordinary Life Insurance

 It is relatively more expensive; in terms of premium charges per thousand of insurance
protection provided and are available only in small amounts of coverage.
 It is sold by Agents who are assigned in specific territories and who adapt the door-to-
door approach. This is called the debit system and the Agent is called the debit agent.
 It has more frequent premium payments, usually daily, weekly, or monthly and the
client enjoys a percentage refund if he pays directly to the company. This percentage
refund will be given in the form of cash or in the form of premium reduction.
 It is purely non-medical in nature and no inspection report is made out on the

proposed insured. The insurance age is based on the last birthday, if premiums are
due weekly and on the nearest birthday, if the premiums are due monthly.
 Its grace period is a period of 4 weeks if paid weekly or 30 days if paid on a monthly
basis. It also provides the insured with an option to surrender the policy within 3
weeks of its issue.
 It has a built in coverage for Accidental Death Benefit and the proceeds are payable to
anyone.
ANNUITIES
Life insurance offers protection against the risk of death or disability, however, man also faces another
risk and that is the risk of outliving one’s income or financial resources.
Definition of Annuity
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.
Why does a person buy annuity?
A person usually buys an annuity to ensure continuing income, usually during old age. It is
sometimes bought by individuals who can no longer qualify to buy life insurance. The
following are terms related to an annuity:
The annuitant is the person to whom the annuity income is paid, usually
the person who purchases the plan.
The vesting date is the date when the annuity income payment begins.
The successor-payee is the person who receives the remaining annuity

income in case the annuitant dies before the fund is exhausted.
How does an annuity differ from a life insurance plan?
An annuity differs from a life insurance plan by the very nature of its terms. It may be:
 A single premium immediate annuity plan which provides monthly annuity payments
immediately after buying the annuity for a stipulated period of time or for life in
exchange for a premium that is paid once.
 A single premium deferred annuity plan which provides monthly annuity payments for a
stipulated period of time in exchange for a premium that is paid once. Annuity payment
commences to some specified date in the future.
 An installment deferred annuity plan provides monthly annuity payments for a

stipulated period of time in exchange for several premium payments.
 A straight life annuity plan provides no further payment on the event of the annuitant's
death.
 A refund annuity plan continues to provide installments or a lump sum even after the
annuitant's death.
 A joint and survivor annuity plan provides periodic payments during two annuitant’s
lifetimes. Payments continue after one annuitant’s death to the surviving annuitant for
the surviving annuitant’s lifetime.
 A variable annuity plan provides annuity payments that vary according to the
investment earnings of a special fund.
 A period certain annuity plan provides the successor payee the remaining income for
exactly the length of time specified for the annuity.
INSURANCE COMMISSION AND CODE OF ETHICS

The rules governing the operations of the life insurance industry in the Philippines are contained
in the Insurance Code of the Philippines.
The Regulation of Insurance Companies

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. It 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 capitalization requirement for new entrants in the insurance industry is at 100M
pesos: 75 million pesos in paid-up capital and 25 million pesos in surplus.
 The reserve is the amount of money kept by an insurance company to provide for
future claims. Policy reserves are considered future obligations on the part of the
insurance company.
 The margin of solvency serves to cushion against adverse experience due to a

calamity or an epidemic.
 The power of adjudication allows the insurance commission to settle claims up to as

much as 100,000. Amounts higher than this is settled by the Supreme Court.
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.
 A life insurance company has two sources of income: income from premiums and
income from investments. Investments become a source of income for an insurance
company through the interest it earns. This income is used to provide living benefits to
the insured and death benefits to the beneficiaries of the insured.
Criteria for Investments

There are three major considerations made before an insurance company decides to invest:
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.
Types of Investments
Bonds. A bond represents a promise on the part of its issuer to repay the sum of money (the
principal) to the bondholder (the investor) at a stated time in the future (the maturity date)
and to pay interest to the bondholder at a specified rate. Upon maturity, the interest plus the
principal is returned to the bondholder.
Bonds may be issued both by government, in the form of government securities, or by

corporations in the form of corporate bonds. Corporate bonds may either be secured or
unsecured. An insurance company may buy secured bonds only.
Mortgage. A mortgage is a legal instrument under which the property pledged can be
claimed by the lender if the borrower cannot repay the loan on the due date. Mortgage
investments for insurance company come in the form of first mortgage or deed of trust of
unencumbered real estate. An insurance company lends money to corporations or persons
for building homes, factories or buying land.
Stocks. Stocks represent a share of ownership in a corporation and therefore a share in the
profit or loss of a corporation. Stocks may be common stocks or preferred stocks.
Common stocks confer on its owner the right to vote, share in the profits, share in the
distribution of assets upon liquidation.
Preferred stocks on the another hand, do not confer on its owner the right to vote, but
first priority rights over dividends and the distribution of assets upon liquidation.
Real Estate. A life insurance company engages in the building and selling of real estate
properties. It may also acquire properties through the foreclosure of properties of mortgage.
Role of Investments in the Economy
Investments fuel the economy by generating income

and jobs in various industries.
The Insurance Commission regulates both stock insurance companies and mutual insurance
companies.
 A stock insurance company is owned by stockholders.

 A mutual insurance company is owned by policyholders.
The process of converting a mutual company to a stock company is called demutualization.
The Agent’s Code of Ethics

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 and 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 ff.:
 A clean record of employment

 A reasonable educational background
 A clean reputation and good character
 IC Exam
 Sufficient training
 Enough knowledge as evidenced by passing
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 considered 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 facts preliminary
and in reference to making the insurance contract.
 Knocking - saying things that will put a fellow Agent in bad light with a potential client
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.
Non--Renewal of License
Other Grounds for Non
 Unremitted premium collection (UPC)
 Modification of statements made by the prospect in the application
 Material concealment
 Violation of provisions of the insurance code

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Life Insurance 101: Traditional Life

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FOUNDATIONS OF LIFE INSURANCE

Life Insurance as Family Protection

If he were to investigate all the possible methods of providing this

History of Life Insurance

Tools in Life Insurance

Fundamental Terms in Life Insurance

 The Insured is the person whose life is covered by life insurance

Who the Actuary Is

Premium Rate Factors

There are four factors considered by the actuary in premium computation:

A cash value results as an effect of leveling the natural premium. It is also

Significance of Life Insurance

Life insurance is a wiser means to minimize risks

1. Dying Too Soon - What do you think will happen to a family

3. Being disabled - will minimize the risk of experiencing the

Life insurance secures the future income of the family

Life insurance is a great equalizer

Life insurance is thrift

Life insurance is investment

Life insurance is adequate time

Other Points to Remember

 Life insurance as indemnity agreement

 Social significance of life insurance

 Life insurance guarantees the following funds:

 Human Economic Value

 Insurance programming of critical years

Plans According to Benefits

Permanent Plan Term Plan

Provides a combination of both insurance

 Whole Life Plan

Types of Whole Life Plan:

1. Ordinary/Straight Life – premiums must be paid until age 100.

Types of Endowment Plan:

2. Anticipated Endowment/Special Anticipated Endowment - Endowment plans that

Other Features of Term Plans

Definition of Term Riders

Rider - has to be attached or has to “ride on” a basic policy

Benefits Provided by Term Riders

1. Disability Waiver of Premium Rider (WP)

2. Payor’s Benefit Rider (PB)

The PB rider comes in two kinds:

3. Accidental Death Benefit Rider (ADB)

4. Term Insurance Rider (TIR)

5. Guaranteed Insurability Option rider (GIO)

Allows a policy-owner to purchase specific amounts of additional coverage of the same

The option dates may be advanced however, upon:

6. Family Income Rider (FIR)

Definition of Risk Selection

Risk selection is a means to guard against anti-selection - the

A life insurance company may accept or reject an applicant for life

Rated Policies – policies with an additional premium commensurate to the added

 Unacceptable or Declined Risk - persons who, based on the company’s underwriting

Pure risk involves uncertainty as to the happening of an event which may

Risk Factors • POLFR

The factors considered in risk selection are:

1. Date of the illness, accident, operation or consultation

Sources of Underwriting Information

The Agent or field underwriter

Definition of a Legal Contract

A life insurance contract is an agreement whereby one party undertakes to

Elements of a Life Insurance Contract