FL 214 Principles of Life Insurance (units 7-17) exam

Insurable Interest - - An interest must exist between two parties where one party has the potential to suffer a loss in the event that a particular outcome occurs (which was covered by the insurance policy). - Insurance cannot be purchased on strangers, friends, associates of no financial significance, or the like where the potential for gain, instead of loss, were to occur. -When speaking of life insurance, insurable interest must exist at the time of application, but is not required to still exist at the time of an insured's death. Stranger-Originated Life Insurance (STOLI) - - Initiated by individual investors and investor groups such as hedge funds, STOLI schemes are often advertised as 'zero premium' or 'no cost' life insurance, promoting premium-paid life insurance for two years, as well as a lump sum of cash after the two years, in exchange for future ownership in a life insurance arrangement. -Also referred to as an Investor-Owned Life Insurance (IOLI) arrangement, -a STOLI (or IOLI) arrangement is considered to be a scam because it involves inducing an elderly individual into agreeing to purchase a life insurance contract with the intention of naming the investor as the contract's beneficiary in exchange for 'free' insurance and future compensation. -the investor may promote paying a percentage of the policy's death benefit once transfer of ownership occurs to the insured as compensation for the arrangement. -Once ownership is assigned to the investor or investment group, it continues to pay the policy's premiums until the death of the insured, at which point it receives the policy's death benefit proceeds. -In addition to the unethical nature of the arrangement, a STOLI transaction is illegal because it undermines the insurable interest requirement when purchasing a life insurance policy. The intention to sell the contract to the stranger, who will ultimately collect the policy's death benefit, voids the contract. Personal Uses of Life Insurance - -Financial protection against the loss of a family's breadwinner -Estate creation and conservation -Living benefits through loans made against the policy's cash value -Accelerated benefits payable to the policyowner in the event of terminal illness or other qualifying event -Ability to sell one's life policy to a viatical company in exchange for immediate payment of a percentage of the policy's death benefit. The viatical settlement company typically pays between 60-80% of the policy's death benefit back to the insured and keeps the death benefit when the insured dies. This type of settlement allows a terminally ill individual the ability to receive living benefits before death, while at the same time earning a 20-40% profit for the viatical company. Family Income Cycle - -Family Dependency Period -Pre-retirement Period (Blackout Period) -Retirement Period Blackout Period - - The period of time in the family income cycle when a family's children are no longer dependent on the surviving parent,