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Table Of Contents / McGill's Life Insurance

Preface i
About the Author ii
About the Editors iii

Chapter 1: Economic Bases of Life Insurance 1

Dan M. McGill

Revised by Edward E. Graves

Family Purposes 2

Business Purposes 16

Chapter 2: Basic Principles21

Dan M. McGill

Revised by Edward E. Graves

Concept of Risk Pooling 22

Yearly Renewable Term Insurance 25

Level Premium Plan 27

Chapter 3: Term Insurance35

Dan M. McGill

Revised by Edward E. Graves

Nature of Term Insurance 36

Critique of Term Insurance 43

Chapter 4: Whole Life Insurance 49

Dan M. McGill

Revised by Edward E. Graves

Principal Types of Whole Life Insurance 49

Joint-Life Insurance 59

"Special" Whole Life Policies 60

Functions of Whole Life Insurance 62

Chapter 5: Variations of Whole Life Insurance 63

Edward E. Graves

Endowment Policies 64

Adjustable Life Insurance 66

Variable Life Insurance 68

Variable Adjustable Life Insurance 77

Universal Life Insurance 77

Current Assumption Whole Life 90

Variable Universal Life 94

Methods of Comparing Life Insurance Policy Costs 100

Tables 1-17 107

Chapter 6: Annuities 125

Dan M. McGill

Revised by Edward E. Graves and Joseph W. Huver

Nature of Annuities 126

Single-Life Annuities 130 Joint Annuities 138

Variable Annuities 140

Equity-Indexed Annuities 144

Actuarial Considerations 148

Uses of the Annuity 151

Structured Settlements 152

Chapter 7: Individual Disability Income Insurance 163

Edward E. Graves

Likelihood of Becoming Disabled 165

Sources of Funds for Disabled Persons 169

Disability Income Insurance Policies 171

Insurance Company Limitations on the Amount of Coverage 192

Business Uses of Disability Insurance 195

Chapter 8: Long-Term Care Insurance 201

Burton T. Beam, Jr.

Need for Long-Term Care 202

Sources of Long-Term Care 203

Development of Insurance Coverage 205

NAIC Model Legislation 208

Effect of Health Insurance Portability and Accountability Act 210

Characteristics of Individual Policies 213

Group Coverage 220

Checklist for Comparing Long-Term Care Policies 220

Chapter 9: Family Uses of Life Insurance 225

Edward E. Graves

Sources of Immediate Funds 226

Income to Family Survivors 230

Funds to Repay Debt 233

Funds to Pay Death Taxes 233

Funds to Dependents' Education 234

Funding Trusts at Death 235

Charitable Donations 236

Funding for Gifts to Individuals 237

Supplementing Retirement Income 237

Finding Home Health Care or Nursing Home Care 237

Transferring Assets to Younger Generation 238

Discreetly Providing for Confidential Needs 238

Chapter 10: Needs Analysis, Surrender Options, and Policy Illustrations 241

Dan M. McGill

Revised by Edward E. Graves

Needs Analysis 241

Surrender Options 246

Automatic Premium Loans 254

Policy Illustrations 256

Policy Illustration Regulations 275

Outlook 278

Chapter 11: Tax Treatment of Life Insurance and Annuities 281

Ted Kurlowicz and James F. Ivers III

Income Taxation of Death Proceeds of Life Insurance 282

Income Taxation of Living Proceeds of Life Insurance 285

Deductibility of Premium Payments 288

Income Taxation of Annuity Contracts 288

Life Insurance in Estate Planning 290

The Federal Transfer Tax System 291

Transfer Tax Implications of Life Insurance 296

Federal Gift Taxation of Life Insurance Transfers 296

Federal Estate Taxation of Life Insurance 298

Federal Generation-Skipping Transfer Taxation of Life Insurance Products 304

Practical Uses for Life Insurance in the Estate Planning Context 305

Conclusion 311

Chapter 12: Business Uses of Life Insurance 313

Ted Kurlowicz and John J. McFadden

Life Insurance in Employee Benefit Planning 314

Group Term Life Insurance (Sec. 79) Plans 315

Executive Bonus (Sec. 162) Life Insurance Plans 318

Split-Dollar Life Insurance Plans 322

Life Insurance in Deferred-Compensation Plans 331

Life Insurance in Qualified Plans, IRAs, and 403(B) Plans 332

Life Insurance in Nonqualified Deferred-Compensation Plans 338

Key Person Protection 341

Funding Buy-Sell Agreements with Life Insurance 344

Chapter 13: Basis of Risk Measurement 357

Dan M. McGill

Revised by Norma Nielson and Donald Jones

Theory of Probability 357

Application to Life Insurance 359

Common Characteristics of Public Tables 369

Chapter 14: Time Value of Money 377

Dan M. McGill

Revised by Norma Nielson and Donald Jones

Definition of Terms 378

Compound Interest Functions 379

Current Interest Assumptions 395

Chapter 15: Net Premiums 397

Dan M. McGill

Revised by Norma Nielson and Donald Jones

Net Single Premium 398

Net Level Premium 413

The Effect of Gender-Distinct Mortality on Premiums 418

Chapter 16: The Reserve 421

Dan M. McGill

Revised by Edward E. Graves

Types of Reserves 422

Methods of Determining the Reserve 424

Statutory Regulation of Reserves 435

Safety Margins in the Legal Reserve 436

Supplemental Reserves 436

Voluntary Reserves 438

Table 16-1 440

Table 16-2 444

Chapter 17: Gross Premiums 447

Revised by Norma Nielson and Donald Jones

General Considerations 448

Loading of Participating Premiums 450

Gross Nonparticipating Premiums 456

Chapter 18: Modified Reserve Systems 467

Revised by Norma Nielson and Donald Jones

Modified Reserves 468

Statutory Regulation of Reserves 474

Chapter 19: Surrender Values 477

Revised by Norma Nielson and Donald Jones

Guiding Principles 478

Nonforfeiture Legislation 481

Relationship Between Surrender Values and Other Values 485

Nontraditional Insurance Products 486

Table 19-1 488

Chapter 20: Surplus-An Insurance Company's Capital 491

Norma Nielson and Donald Jones

Managing Surplus 492

Distribution of Surplus 497

Illustrative Dividend Computation 501

General Equity of the Dividend Scale 503

Chapter 21: Selection and Classification of Risks-Part 1 509

Dan M. McGill
Revised by Jeremy S. Holmes and James F. Winberg
Representing the Home Office Life
Underwriters Association

Risk Classification 510

Guiding Principles 511

Factors Affecting Risk 513

Chapter 22: Selection and Classification of Risks-Part 2 529

Dan M. McGill
Revised by Jeremy S. Holmes and James F. Winberg
Representing the Home Office Life
Underwriters Association

Sources of Information 530

Classification of Risks 534

Nonmedical Insurance 538

Insurability Option 543

Insurance at Extremes of Age 544

Ethical Issues of Classifying Risk 558

Chapter 23: Insurance of Substandard Risks 563

Dan M. McGill
Revised by Jeremy S. Holmes and James F. Winberg
Representing the Home Office Life
Underwriters Association

Incidence of Extra Risk 564

Treatment of Substandard Risks 565

Removal of Substandard Rating 570

Value of Substandard Insurance 571

Chapter 24: Reinsurance 573

Dan M. McGill
Revised by Jeremy S. Holmes and James F. Winberg
Representing the Home Office Life
Underwriters Association

Purposes of Reinsurance 574

Proportional Reinsurance 577

Nonproportional Reinsurance 581

Reinsurance Agreement 583

Chapter 25: Settlement Agreements 591

Dan M. McGill
Revised by Edward E. Graves

General Concepts and Rules 592

Structure and Functional Characteristics of Settlement Options 597

Use of Settlement Options 612

Sample Settlement Agreement 617

Chapter 26: The Regulation of Life Insurance-Part 1 623

Jon S. Hanson

Development of Insurance Regulation at the State Level 624

Goal of Insurance Regulation 628

Licensing: Foundation of Regulatory Control 630

Substantive Content of State Insurance Regulation 633

Chapter 27: The Regulation of Life Insurance-Part 2 663

Jon S. Hanson

Allocating Regulatory Authority between Federal and State Government 664

Early Federal-State Interaction

Increasing Applicability of Federal Antitrust 666

Law to the Business of Insurance 667

Dual Federal-State Regulation and State Responses 675

Chapter 28: Types of Life Insurance Carriers 701

Jon S. Hanson

Commercial Life Insurance Companies 702

Government-Provided Life Insurance 712

Internal Organization of Life Insurance Companies 713

Afffiliations 72

Chapter 29: Life Insurance Marketing 733

Michael B. Petersen, Walter H. Zultowski,

Archer L. Edgar, and Ram S. Gopalan

Structure of Marketing Departments 734

Variety of Producers 737

Structure of Field Organizations 738

Relationship Between Agent and Company 741

Marketing Costs and Profitability 742

Recruiting, Selecting, and Developing Producers 744

Other Distrubution Channels 746

Future of Life Insurance Marketing 747

Chapter 30: Financial Statements and Ratings-Part 1 751

Harry D. Garber

Considerations in Life Insurance Company Accounting 752

Life Insurance Company Financial Statements 760

Chapter 31: Financial Statements and Ratings-Part 2 775

Harry D. Garber

Ratings 776

Rating Process 778

Regulatory Measures 781

Comparative Performance Measures 787

Chapter 32: Life Insurance Company Investments 791

Francis H Schott

Historical Perspective 792

Life Insurance Portfolio Management 794 Regulation of Life Insurance Investments 804

Life Insurance Investments and Commercial Rating Agencies 810

Chapter 33: Group Life Insurance 815

Burton T. Beam, Jr.

Group Insurance Characteristics 816

The Govenmental Environment for Group Life Insurance 822

Group Term Life Insurance 830

Postretirement Group Life Insurance 858

Chapter 34: The Incontestable Clause 869

Dan M. McGill

Revised by Burke A. Christensen

Nature and Purpose of the Clause 869

Types of Incontestable Clauses 874

Matters Excluded from Incontestable Clause 876

Relationship to Other Policy Provisions 877

Chapter 35: Policy Provisions 883

Burke A. Christensen

Policy Face Page 885

Standard Policy Provisions 886

Required Provisions 887

Prohibited Provisions 893

Optional Provisions 894

Waiver and Estoppel 897

Additional Common Provisions 899