Insurance and Annuities Frequently Asked Questions
Life Insurance
1.
What kinds of life insurance are offered?
Term, Whole, Universal, Equity Indexed Universal, Mortgage, Final
Expense, Graded, and Simplified
Issue.
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2. What does it mean to be an independent agent?
Insurance companies have a choice of how they market products.
Some companies contract or
employ agents that represent their products only. Other
companies contract non-exclusively with independent agents knowing
that the agents will sell products from a variety of companies.
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3. What can be the benefit of using an independent agent?
Each insurance company has their own products, underwriting rules,
and rate tables. Companies usually have situations where they
are better than their competitors. Independent agents have
a wide variety of companies available to be able to find the best
rate and coverage for the client's
situation.
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4. How are we compensated?
Each contract with an Insurance Company specifies a commission
schedule. The commissions are based on the premium amounts
and vary between companies. Insurance companies and brokerages
also may offer special incentives such as trips for large sales
of their products.
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5. How are products chosen for clients?
Using the best available information on the client’s circumstances,
quotes are generated for all able products available to the agency. Using
field underwriting guidelines, the rating for the client is determined.
If there are special considerations, the underwriting departments
of the insurance companies and their representatives are contacted
to get an indication of how the consideration will be handled.
The products with the best rates for the client are presented
with any options or qualifications.
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6. What are the tax implications of life insurance?
There are tax implications for premiums and claims paid on a life
insurance contract. The implications depend on the individual
circumstance. A source of information is the
IRS web site , Personal tax advisors should be consulted.
We have access to tax experts that can help with planning for
effective use of life insurance.
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Annuities
***Note: Guarantees are
based on the financial strength and claims paying ability of
the issuing insurance company.
1. What is an
annuity?
It is a contractual agreement with an insurance company
that guarantees a certain interest rate and payout stream in
exchange for a premium. An easy way to look at it is to
break down the parts. The premium can be put into a accumulation
stage where the premium earns interest tax-free. The payout
phase is when the accumulated money is paid out to the client..
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2. What is the deferral/accumulation phase?
The premium paid into the annuity changes value
based on contractual agreements with the insurance company.
There are options for withdrawals, but they can be restricted
and sometimes may include surrender charges.
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3. What is the payout phase?
The annuity pays out the accumulated amount in a lump sum or
over a designated period. The payout options vary by contract.
One of the common options is a lifetime payout. The company
sets an amount based on mortality tables and guarantees payments
even if a person lives longer than the expected lifespan. The
client may not get the full annuity value if they die before
their expected life span.89
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4. What is a fixed annuity?
A fixed annuity has guarantees regarding interest rates during
the term of the contract. They are structured to let the
company take the risks rather than the holder of the annuity.
Crediting methods do vary and sometimes are based on stock and
bond market indexes like fixed index annuities.
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5. What is a variable annuity?
A variable annuity reduces the guarantees and lets the client
invest in products that are market-related such as mutual funds.
The risk is passed to the client and the annuity changes value
based on performance of the investments chosen by the client.
We do not sell variable annuities.
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6. What is a fixed index annuity?
This is a fixed annuity that offers crediting options that are
based upon the change in a market index, if any. The most
common used index is the S&P 500®. As the index
moves, the rate of change is used to calculate value changes
in the annuity value. There is always some limitation
based on interest caps, index spreads, participation rates.
They also have a minimum guaranteed base rate. These annuities
offer interest based on changes in the index alongside guarantees
on the initial premium.
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7. What are surrender charges?
Most annuity contracts include tables of surrender charges.
These charges are subtracted from the withdrawal amount and
are meant to discourage early withdrawals. Most annuities allow
a client to withdraw a limited amount of the annuity value early
without surrender charge.
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8. What determines the interest and crediting rates?
The companies buy corporate and government bonds and index options.
Rates paid are based on the rates they are receiving. Index
spreads, participation rates and interest caps are based upon
the price of the index options and the minimum guaranteed contract
rates.
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Health Insurance
1. What health
insurance is available?
Individual and Family coverage is easily available for
healthy folks. There are a variety of deductible and coverage
limits for those wanting bare-bones to complete coverage.
Qualified high-deductible plans that qualify for Health Savings
Account contributions are the newest product and are increasingly
popular. Small group policies are available and are guaranteed-issue.
Medicare supplement plans are standard products and are easy
to qualify for.
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2. What determines health insurance rates?
Rates are set by zip code, age, and health history. Insurance
companies will reject applicants if there is a health risk they
do not want to take. Some insurance companies create business
blocks where their health experience dictates the rates.
Other companies set their rates based on the health experience
of all of their clients. If you are healthy, it makes
sense to shop around for cheaper insurance every few years.
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3. How do I set up a small group for insurance?
Each insurance company has its own rules. A small
business can form a group of full-time employees. Associations
can also form groups. Insurance through a small group
is more expensive because the groups must insure everybody.
The health insurer does not have the option to decline
unhealthy applicants.
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Disability Insurance
1. What is Disability
Insurance?
Disability insurance is most basically paycheck insurance,
If a person gets disabled and is not able to work, this insurance
pays out a large percentage of pay back to the insured. For
small businesses, it can also cover payments of overhead expenses
while diaabled.
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2. How is Disability Insurance underwritten?
There are two main factors that influence eligibility and rates;
income and health. The health of the applicant is evaluated
for risk of disability. The coverage is limited by the
amount of income. The practical way of looking at this
is the insurance company does not want to create an incentive
to become disabled.
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3. When does the Disability Insurance pay out?
If the insured is disabled and unable to perform his job, he
qualifies for payments. The payments at this time are
based on own occupation. Than means he cannot perform
his current job. Benefits at this stage are time limited.
After this period, the disabled may continue to qualify for
payments if he is totally disabled and unable to qualify to
do any work. There are also levels of partial payment
to compensate for partial disability. There are standard tests
and definitions to determine the level of
disability.
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4. What affects the premium rates?
The amount of the payment, the length of the payment, cost-of-living
riders, and elimination periods
are what affects the premium the most. The elimination
period is the time you wait before payments start.
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Long Term Care Insurance
1. What is long
term care insurance?
Long term care (LTC) insurance policies pay benefits when a
person has diminished capabilities that confine him to home
or institutional care. The payments can be reimbursement
or indemnity based and come out of a pool of money. The
cost of being confined can be substantial and is not covered
adequately by Medicare. Having this insurance can give a person
much better control of their assets
and their care.
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2. How are the premiums set? The premiums are set
by age, amount of coverage, length of coverage, flexibility
riders, health history and conditions, and payment waivers.
Most companies offer a discount if married couples both apply.
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3. How are benefits disbursed?
There are companies that provide reimbursements for incurred
expenses, and other companies that provide an indemnity payment
based on the times of services. Some companies will mix
the benefits. There are daily or monthly policies.
The variety is great, so it is important to shop around to find
the right combination of benefits for the premium dollar.
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4. What is the benefit of using an independent agent?
I believe Long Term Care Insurance is very non-standard and
it is hard to compare the benefits of the policies. Also,
the different companies will focus their marketing and pricing
at different age groups. This requires digging through
quotes and product guides to find the best fit for the customers.
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Travel Insurance
1. What is Travel
Insurance?
Travel insurance has several different parts that are combined
or sold separately. Trip coverage is for the costs of the trip
that are lost due to cancellation for any reason. Travel health
insurance is a supplement to domestic health insurance that
covers medical costs while abroad. The expenses covered include
the cost of evacuation and care in foreign hospitals.
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2. How is Travel Insurance underwritten?
The trip coverage is limited to the cost of the trip. The travel
health coverage is limited, so the underwriting is very light.
Pre-existing conditions are generally not covered. Because the
policies are limited, the underwriting is light.
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3. When does the Travel Insurance pay out?
The trip coverage part pays out if the trip is cancelled for
almost any reason. The health coverage pays out upon use of
medical facilities. Some companies have their own international
network that will submit bills directly to the company for coverage.
Most companies require submission of bills for reimbursement..
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4. What affects the premium rates?
The deductible, the trip cost, and the maximum coverage affect
the rates. Also, there is a difference if the client has existing
domestic insurance.
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