As society continues their quest to achieve security and reduce uncertainty, more formalized means are required for mitigating the adverse consequences of unemployment, loss of health, death, old age, lawsuits and destruction of our property. The function of insurance is to safeguard against such misfortunes by having the contributions of many pay for the losses of the unfortunate few. Essentially, insurance involves the sharing of losses, and, in the process, substituting certain small “losses,” also called the premium, for uncertain large losses. To appropriately plan for this, insurers use a principle called the Law of Large Numbers.
There are four ways people respond to risk: risk avoidance, risk reduction, risk transfer, and risk retention. Are you prepared for the unexpected? At Alvini & Associates, P.A., we are committed to the concept of needs analysis in determining the suitable insurance products our clients need based off of their own, personal risk management needs. We can also help educate our clients on the taxation of various insurance products. Our risk management process follows six steps:
identifying loss exposure,
measuring loss exposure,
developing a plan,
implementing the plan, and
regularly reviewing the plan
It is important to find the best insurance company and policy to meet your needs. Factors we consider in determining the proper amount of insurance one needs are based on deductible or retention, policy limits, tax implications, ability to pay for losses, psychological factors, and social and ethical concerns.
Alvini and Associates, P.A. offers help in areas such as Life Insurance, Health Insurance, Disability Insurance, Long Term Care Insurance, and Variable* and Fixed Annuities.
*These services are offered by Michael J. Alvini through his/her affiliation with HD Vest
Accelerated death benefit rider
Supplementary benefit that allows an insured to receive a specified portion of the policy’s proceeds before the insured’s death if he or she is diagnosed with a terminal illness.
Accidental death benefit
Supplementary benefit under which the insurer pays the beneficiary an additional amount if the insured dies as a result of an accident.
The fund choices a client makes on a variable product.
An insurance product where the client pays in premiums for a period of time (accumulation period), then annuitizes and begins receiving periodic payments from the insurance company.
Attending physician’s statement (APS)
Doctor’s records ordered by the underwriter through a paramedical carrier (EMSI, PMSI, etc.)
Automatic premium loan provision (APL)
A provision that allows the insurer to pay an overdue renewal premium out of the policy’s cash value.
The amount of money, before adjustments for facets such as policy loans, that the policyowner will receive if a permanent life insurance policy does not remain in force until the insured’s death.
A temporary assignment of the monetary value of a life insurance or annuity policy as security for a loan.
The amount of money, usually a percentage of the premiums, that is paid to an insurance agent for selling an insurance policy.
Conditional premium receipt
A type of premium receipt that specifies certain conditions that must be met before temporary life insurance coverage will become effective.
The party named to receive the proceeds of a life insurance policy if the primary beneficiary should die before the insured dies.
Death benefit option (DBO)
Available options on UL/ VUL. Under Option I, the death benefit is level. (In other words, if the client buys $50,000 of insurance, it stays $50,000 no matter how much premium the client pays in.) Under Option II, the death benefit is increased by the cash value of the policy (e.g., if the client buys $50,000 and has accrued $2,500 in cash value, the total death benefit would be $52,500).
Evidence of insurability
Proof that a person is an insurable risk (e.g., lab tests and exams, doctor’s records, etc.)
Policy provisions that describe circumstances under which the insurer will not pay the policy proceeds following the insured’s death.
Extended term insurance nonforfeiture option
A nonforfeiture option under which the policy’s net cash value is used to purchase term insurance for the same face amount as the original policy for as long a term as the net cash value can provide.
The amount payable under a life policy if the insured person dies while the policy is in force.
An annuity where the client receives a guaranteed rate of return on their premium paid in.
Free examination provision (“free look”)
A provision that gives the policy owner a stated period after the policy is delivered in which to examine the policy and to return it to the insurer for a full refund.
A specified length of time within which a renewal premium may be paid without penalty.
A telephone interview ordered by the underwriter through a paramedical carrier. The interviewer asks basically the same questions that are on the application in order to verify information taken on the application and to research “yes” answers more closely.
The likelihood that a policy owner or beneficiary of an insurance policy will suffer a genuine loss or detriment in the event of the insured’s death.
A life insurance policy beneficiary whose designation as beneficiary may not be cancelled by the policy owner unless the beneficiary consents.
Key person life insurance
Insurance purchased on the life of any person or employee whose continued participation in a business is necessary to the success of the business and whose death would cause the business a significant financial loss.
Level term insurance
Term insurance where the premium is guaranteed not to change during the term (7, 10, 15, 20 yrs.) purchased and the face amount of the policy does not change. This type of policy does not accumulate cash value.
Long-term care coverage (LTC)
A type of specified expense coverage that provides benefits for medical and other services provided to insureds who need constant care in their own homes or in a nursing home.
A misrepresentation that is relevant to the insurance company’s evaluation of the proposed insured.
Modified endowment contract (MEC)
In the simplest terms, if a client overfunds an insurance contract, it becomes an MEC and loses its favorable tax status. This prevents clients from hiding large sums from tax liability by pouring them into insurance products.
National Association of Insurance Commissioners (NAIC)
Since insurance is not regulated by the federal government, this committee of state insurance department superintendents and commissioners create model laws which some states adopt in an effort to create a system of uniform insurance law.
Pre-authorized check system (PAC)
An automatic premium payment technique whereby the policy owner authorizes the insurer to generate a check against the policy owner’s bank account to pay each renewal premium.
Premium deposit fund (PDF)
In simplest terms, this is a savings account set up at the insurance company to hold premium overpayments separate from the insurance policy. This is normally set up to avoid creating a modified endowment contract.
Premium payment mode
The frequency at which renewal premiums are payable.
The party designated to receive the proceeds of a life insurable policy following the death of the insured.
An account which qualifies for favorable tax treatment (e.g., IRA, 403(a), etc.)
Reduced paid-up insurance nonforfeiture option
A nonforfeiture option under which the policy’s net cash value is used as a net single premium to purchase paid-up life insurance of the same plan as the original policy.
The process by which an insured puts back into force a policy that has lapsed for nonpayment of premiums.
An insurance company that accepts a risk transferred from another insurance company.
A beneficiary whose designation as beneficiary may be cancelled by the policy owner at any time prior to the insured’s death.
An amendment to an insurance policy that either expands or limits the benefits payable under the policy.
Second-to-die life insurance
A joint life insurance policy that provides for payment of the proceeds when both insureds have died.
Expense charges sometimes imposed when a policyowner surrenders a universal life policy.
A situation in which the owner of an insurance policy is other than the insured.
Insurance company employees who are responsible for identifying and classifying the degree of risk represented by a proposed insured.
Universal life (UL) insurance
Insurance where the insured receives interest on premiums paid above the cost of insurance. Premiums are flexible, but must meet the minimum (cost of insurance) and be below the maximum (point at which it becomes a MEC – defined above). Excess premiums and interest are called cash value.
An annuity where the client chooses how their money is invested (in hopes of receiving a better return than the guaranteed amount in a fixed annuity).
Variable universal life (VUL) insurance
Just like UL, but the client is able to choose where their money is invested.
Waiver of premium benefit (WOP)
A supplementary benefit under which the insurer gives up its right to collect renewal premiums that become due while the insured is totally disabled.
An exchange of one insurance product for another by which the funds go directly from one insurance company to another; thus it is not a taxable event to the client. There are three basic rules: (1) It must be the first money into an account, (2) It must go “like-to-like” – if the contract is joint owned at one carrier, it cannot be singly owned at the other and (3) You cannot exchange from an annuity to a life product, but can exchange from a life product to an annuity.