Financial Protection with Insurance Table of Contents
Chapter 1: Creating Retirement Protection	1
Covid-19 Creates Difficult Economic Times	1
Inflation Affects Retirement Vehicles	2
Inflation Affects Every Financial Vehicle on Earth	3
Utilizing Insurance Products for Growth	4
Insufficient Planning Haunts Retirees	5
Insurance and Longevity	6
Retiring with Insufficient Retirement Funding	8
Creating Income During Retirement	10
Rising COVID Medical Costs & the Effects on Insurance	11
COVID-19 Appears in 2020 Creating Additional Costs	11
High Medical Costs in Normal Times	13
Long-Term Care Insurance Policies	18
Selecting the Appropriate Insurance Policy	20
Preserving Retirement Plans	21
Debt Can Affect the Purchase of Insurance	23
Debt Affects Insurance Rates	25
Saving for the Future	26
An Aging Nation Impacts Insurance & Governments	29
Buying the Right Insurance Products	33
Compounding Power is Important	35
Retirement Income	35
Social Security Benefits/Age of Collection	36
Supplementing Income with Annuities & Personal Savings	37
Women Live Poorer in Retirement than Men	37
Primary Insurance Amount (PIA)	39
PIA Definition	39
PIA Formula Bend Points	39
Benefit Based on PIA and Age	39
Average Indexed Monthly Earnings	39
Summary	40
Monthly Benefit Amounts	40
Old Computing Methods	41
Average Indexed Monthly Earnings	41
Indexing Yearly Income	41
Computation	41
Supplementing Employer Pension Benefits	42
Tax Deferred Retirement Benefits	43
Individual Savings	43
Managing Income in Retirement	44
Pre-Retirement Income	44
Retirement Shortfalls	45
Getting a Return on Savings	47
Receiving Income from Investment Vehicles	49
Taxation on IRA’s, Annuities and More	49
Withdrawals Prior to Age 59 ½	50
The Age 55 Penalty Exception	50
The Five-Year Rule for 72(t) Payments	51
Chapter 2: The SECURE Act Apply to Insurance Producers	52
SECURE 2.0 Act of 2022	57
Public Law 116-124	57
H.R. 1994 AN ACT	59
SEC 1 Short Title, Etc.	59
Title I: Expanding Coverage and Increasing Retirement Savings	59
SEC 101 Expanding automatic enrollment in retirement plans	60
SEC 102 Increase In 10% Cap	66
SEC 103 Rules Relating to Election	66
SEC 104 Increase in Credit Limitation	69
SEC 105 Small Employer Auto Enroll Credit	69
SEC 45T Auto-Enroll Option	69
SEC 106 Multiple employer 403(b) plans	70
SEC 107 Repeal of Maximum Age for IRA	71
SEC 108 Indexing IRA catch-up limit	72
SEC 109 Higher catch-up limit to apply	72
SEC 110 Treatment of student loan payments as elective deferrals for purposes of matching contributions	72
SEC 111 Application of credit for small employer pension plan startup costs to employers which join an existing plan	73
SEC 112 Qualified Cash or Deferred	74
SEC 113 Penalty-Free Withdrawals	76
SEC 114 Deferral of tax for certain sales of employer stock to employee stock ownership plan sponsored by S Corporation	79
SEC 115 Withdrawals for certain emergency expenses	79
SEC 116 Allow additional nonelective contributions to SIMPLE plans	79
SEC 117 Contribution limit for SIMPLE plans	79
SEC 118 Tax Treatment of nontrade or business SEP contributions	80
SEC 119 Application of section 415 limit for certain employees of rural electric cooperatives	80
SEC 120 Exemption for certain automatic portability transactions	80
SEC 121 Starter 401(k) plans for employers with no retirement plan	81
SEC 122 Assist States in locating owners of applicable savings bonds	81
SEC 123 Certain securities treated as publicly traded in case of employee stock ownership plans	81
SEC 124 Modification of age requirement for qualifies ABLE programs	82
SEC 125 Improving coverage for part-time workers
SEC 126 Special rules for certain distributions from long-term qualifies tuition programs to Roth IRAs	82
SEC 127 Emergency savings accounts linked to individual account plans	83
SEC 128 Enhancement of 403(b) plans	84
Title II: Preservation of Income	84
SEC 201 Remove required minimum distribution barriers of life annuities	84
SEC 202 Qualifying longevity annuity contracts	85
SEC 203 Insurance-dedicated exchange-traded funds	85
SEC 204 Eliminating a penalty on partial annuitization	86
Title III: Simplification and Clarification of Retirement Plan Rules	86
SEC 301 Recovery of retirement plan overpayments	86
SEC 302 Reduction in excise tax on certain accumulations in qualified retirement plans	86
SEC 303 Retirement savings lost and found	87
SEC 304 Updating dollar limit for mandatory distributions	87
SEC 305 Expansion of Employee Plans Compliance Resolution System	87
SEC 306 Eliminates the “first day of the month” requirement for governmental section 457(b) plans	88
SEC 307 One-time election for qualified charitable distribution to split-interest entity; increase in qualified charitable distribution limitation	88
SEC 308 Distribution to firefighters	88
SEC 309 Exclusion of certain disability-related first responder treatment payments	88
SEC 310 Application of top-heavy rules to defined contribution plans covering excludable employees	89
SEC 311Repayment of qualified birth or adoption distribution limited to 3 years	89
SEC 312 Employer may rely on employee certifying that deemed hardship distribution conditions are met	90
SEC 313 Individual retirement plan statute of limitations for excise tax on excess contributions and certain accumulations	90
SEC 314 Penalty-free withdrawal from retirement plans for individual case of domestic abuse	90
SEC 315 Reform of family attribution rule	91
SEC 316 Amendments to increase benefit accruals under plan for previous plan year allowed until employer tax return due date	91
SEC 317 Retroactive first year elective deferrals for sole proprietors	91
SEC 318 Performance benchmarks for asset allocation funds	91
SEC 319 Review, and report to Congress relating to reporting and disclosure requirements	92
SEC 320 Eliminating unnecessary plan requirements related to unenrolled participants	92
SEC 321 Review of pension risk transfer interpretive bulletin	93
SEC 322 Tax treatment of IRA involved in a prohibited transaction	93
SEC 323 Clarification of substantially equal periodic payment rule	93
SEC 324 Treasury guidance on rollovers	93
SEC 325 Roth plan distribution rules	93
SEC 326 Exception to penalty on early distributions from qualified plans for individuals with a terminal illness	94
SEC 327 Surviving spouse election to be treated as employee	94
SEC 328 Repeal of direct payment requirement on exclusion from gross income of distributions from governmental plans for health and long-term care insurance	94
SEC 329 Modification of eligible age for exemption from early withdrawal penalty	94
SEC 330 Exemption from early withdrawal penalty for certain state and local government corrections employees	95
SEC 331 Special rules for use of retirement funds in connection with qualified federally declared disasters	95
SEC 332 Employers allowed to replace SIMPLE retirement accounts with safe harbor 401(k) plans during a year	95
SEC 333 Elimination of additional tax on corrective distributions of excess contributions	95
SEC334 Long-term Care contracts purchased with retirement plan distributions	96
SEC 335 Corrections of mortality tables	96
SEC 336 Report to Congress on section 402(f) notices	96
SEC 337 Modification of required minimum distribution rules for special needs trust	96
SEC 338 Requirement to provide paper statements in certain cases	96
SEC 339 Recognition of tribal government domestic relations orders	97
SEC 340 Defined contribution plan fee disclosure improvements	97
SEC 341 Consolidation of defined contribution plan notices	97
SEC 342 Information needed for Financial Options Risk Mitigation Act	97
SEC 343 Defined benefit annual funding notices	98
SEC 344 Report on pooled employer plans	98
SEC 345 Annual audits for group of plans	98
SEC 346 Worker Ownership, Readiness, and Knowledge (WORK) act	98
SEC 347 Report by the Secretary of Labor on the impact of inflation on retirement savings	98
SEC 348 Cash balance	99
SEC 349 Termination of variable rate premium indexing	99
SEC 350 Safe harbor for corrections of employee elective deferral failures	99
Title IV: Technical Amendments	100
Title V: Administrative Provisions	100
Title VI: Revenue Provisions	100
SEC 601 SIMPLE and SEP Roth IRAs	100
SEC 602 Hardship withdrawal rules for 403(b) plans	100
SEC 603 Elective deferrals generally limited to regular contribution limit	101
SEC 604 Optional treatment of employer matching or nonelective contributions as Roth contributions	101
SEC 605 Charitable conservation easements	101
SEC 606 Enhancing retiree health benefits in pension plans	102
Title VII Tax Court Retirement Provisions	102
SEC 701 Provisions relating to judges of the Tax Course	102
SEC 702 Provisions relating to special trial judges of the Tax Course	102
Editor’s Observations	103
Chapter 3: Life Insurance	107
Policy Provisions	108
Defining the Contract	108
Policy Application	109
Policy Ownership	110
Preventing Money Laundering Activities	110
Terrorism Produces Insurer Risk	110
Financial Action Task Force (FATF)	111
Legal Requirements Adopted	112
The USA Patriot Act	112
Broker-Dealer Requirements	114
AML Program Requirements	115
Know Your Customer (KYC)	118
Compliance	118
Suspicious Activity Reports Filing Requirements	118
A Change in Thinking	119
A Global Problem	120
Covered Products	122
Nine Identified Money Laundering (ML) Methods	123
1. Single Premium Life Insurance Contracts	123
2. Early Policy Redemption	124
3. Claim Fraud	124
4. Cash Premium Payments	124
5. “Free Look” Periods	124
Example	125
6. Collusion	125
7. Third-Party Premium Payments	125
8. Risks Involved in International Transactions	125
9. Fraudulent Customers	126
Money Laundering Indicators Not Unique to Insurance Products	126
1. Large One-Off Cash Transactions	126
2. Use of False Addresses	126
3. Overseas Business from Higher Risk Area	127
Policyholder Characteristics and Behaviors	127
A Known Criminal or Criminal Associate or Relative	129
Erratic or Abnormal Use of Policies	129
High Premiums Compared to Verifiable Income	129
Lack of Concern for Charges or Costs	130
Undue Interest in Payout Options	130
Change of Beneficiary	130
Insurance on Assets Inconsistent with Income	130
Early of Suspicions Claims	131
Product Characteristics and Maintenance	132
1. Policy Payments from Third Parties	133
2. Multiple Sources of Funds to Pay Premiums	133
3. Significant Premium Top-Ups to a Policy	133
4. Overpayment of Premium	133
5. Using an Insurer like a Bank	133
6. Early Redemption	134
7. Unusually High Commission Charges	134
Customer Due Diligence (CDD)	134
Policy Features and Provisions	136
Premiums	137
Policy Options	137
Nonforfeiture Options	137
Dividend Options	138
Settlement Options	138
State Required Provisions	140
Incontestability	141
Misstatements in the Application	141
Deferment Clause	142
Nonforfeiture	142
Loan Values	142
Grace Periods and Reinstatement	143
Allowed Policy Provisions	144
Suicide	144
Aviation	144
War	144
General Provisions	145
Deduction of Indebtedness	145
Change of Beneficiary	145
Assignment	146
Beneficiary Designation	146
Policy Payments	148
Cash Values	148
Dividends	149
Proceeds	149
Special Clauses	150
Contract Use	152
Group Insurance Principles	152
Eligible Groups	152
Single-Employer Groups	152
Multiple Employer Trusts (METS)	152
Unions, Association, and Other Groups	153
Creditor-Debtor Groups	153
Underwriting Advantages	154
Keeping Current with Business Needs	155
The Informed Consumer	156
Providing a Quote	156
The Contract Participants	158
The Insurer	158
The Insured	158
Insurance Contract	159
Underwriting and Rating	159
Finance	160
A Public Interest	160
Key Person Insurance	161
Buy-and-Sell Agreements	162
The Key Person Principle	163
Insurable Interest for Life Insurance	163
Example	164
Disability Insurance on Key Employees	165
Example	165
The Small Company’s Exposure	167
Loss of the Small Business Owner	167
Planning Ahead for Death or Disability	171
Insuring Entities	171
Private and Government Insurance	171
Private Insurers	171
Life Insurance	172
Property and Liability Insurance	173
Government Insurance	173
Voluntary Government Insurance	173
Compulsory Government Insurance	174
Mutual Companies	174
Assessment Mutuals	175
Non-assessable Mutuals	177
Conversions	177
Reciprocal or Inter-Insurer Associations	178
Stock and Mutual Underwriting	179
Factory Mutuals	180
Superior Agents and Brokers	181
Chapter 4: Annuities	184
Annuity Choices	184
Joint and Survivorship Annuities	184
Guaranteed and Life-time-certain	185
Level Annuities	185
Capital-Back Guaranteed Annuities	185
Escalating Annuities	186
Inflation-Linked Annuities	186
Enhanced Annuities	186
Annuity History	187
Agents Must Understand Terminology	190
Annuity Basics	194
Choosing Between Fixed and Variable	195
Choosing Between a Lifetime and Term	196
Company Financial Strength	198
Annuity Extras	198
Principal Protection	198
Cost of Living Protection	198
The Ups and Downs of Annuities	199
Principle Protection	199
Tax Efficiency	199
Supplementing Other Retirement Income	200
Reasons to Buy an Annuity	200
Reasons to Avoid Buying Annuities	200
Making the Right Annuity Choices	201
Many Annuity Choices	202
Annuities for Retirement	204
Everyone is Living Longer These Days	204
Putting Off Retirement	205
Fixed-Rate Annuities	207
How Fixed Rate Annuities Work	207
Variable Annuities	209
Annual Expenses	210
Funding Variable Annuities	210
Variable Annuity Fees	211
Variable Annuity Death Benefit	211
Surrender Fees	211
Early Withdrawal Penalty	211
Taxation	211
Equity-Indexed Annuities	212
COVID-19 and Annuities	212
The Future Outlook	213
Insurer Investments were Affected	214
Insurance Producers May Struggle	215
Assessing COVID-19 Impact	216
Financial and Practical Impact on Insurers	217
Short and Long-Term Insurance Impacts	218
The Life Insurance Industry in America and Around the World	219
Underwriting During the Aids Crisis May be Similar	219
Non-Health Elements Affecting Policy Underwriting	219
Underwriting Life Insurance Products in these COVID-19 Times	219
Applications for Annuity and Life Insurance Policies	221
Policy Provisions Now Apply to COVID-19	223
Suitability in Annuity Transactions Model Regulation	224
Section 1. Purpose	226
Section 2. Scope	227
Section 3. Authority	227
Section 4. Exemptions	227
Section 5. Definitions	228
Section 6. Duties of Insurers and Producers	230
Best Interest Obligations	230
Disclosure Obligations	232
Conflict of Interest Obligation	233
Documentation Obligation	233
Application of the Best Interest Obligation	234
When Annuity Transactions are Not Based on a Producer’s Recommendation	234
Supervision System	235
Prohibited Practices	237
Safe Harbor	237
Section 7. Producer Training	238
Section 8. Compliance Mitigation; Penalties; Enforcement	239
Section 9. Recordkeeping	240
NAIC Model Law Appendix A	240
NAIC Model Law Appendix B	242
NAIC Model Law Appendix C	243
Chapter 5: Health Insurance	244
Adverse Selection in Insurance	244
The Potential Future of the Affordable Care Act	247
Without Insurance Health Care is Expensive in the U.S.	248
Short–Term or Temporary Health Insurance	252
Health Insurance Plans Offer Variety	254
Manage Care Plans	254
Health Maintenance Organizations (HMOs)	255
Point-of-Service Plans (POS)	255
Preferred Provider Organizations (PPO)	256
Catastrophic Coverage	256
Health Savings Accounts (HAS)	257
Hospital Indemnity Policies	257
Critical Illness Insurance	258
Cancer Insurance	259
Accidental Death and Dismemberment Policies	259
Identity Theft Insurance	260
Long-Term Care Nursing Home Policies	261
Defining Long-Term Care	263
Partnership for Long-Term Care Begins	265
Partnership Policies Created	267
Medicaid is the Largest Nursing Home Payor	267
DRA of 2005 Provides Asset Protection	268
Agent and Consumer Education	269
Policy Benefits	269
Inflation Protection	269
Program Benefits	270
Making Benefit Choices	270
Daily Benefit Options	272
Determining Benefit Length	273
Policy Structure	273
Home Care Options	273
Simple and Compound Protection	274
Required Rejection Form	274
Elimination Periods in LTC Policies	274
Policy Type	275
Restoration of Policy Benefits	275
Preexisting Periods in Policies	275
Deciding Between Policy Types	276
Nonforfeiture Values	277
Waiver of Premium	277
Unintentional Lapse of Policy	278
Policy Renewal Features	278
Items Not Covered by the LTC Policy	279
Extension of Benefits	279
Affordability Contracts	279
Standardized Definitions	280
Minimum Partnership Requirements	280
Benefit Duplication	280
Partnership Publication	280
Truly a Partnership	281
Saving Assets from Medicaid Qualification	282
Accessing Policy Benefits	283
Asset Repositioning	285
Partnership Participation Does Not Guarantee Medicaid Qualification	286
Policy Considerations for Non-Partnership Traditional LTC Policies	286
Underwriting for Policy Issue	287
NAIC Model Regulations	288
Partnership Plans Protect Assets, Not Income	289
Application Age Affects Cost	289
Reducing Benefits to Save Premium	290
Example	291
Policy Renewal	291
Policy Review: 30-Day “Free Look”	291
“Notice to Buyer”	292
Policy Schedule	292
Policy Terminology	293
Elimination Periods in Policies	297
Policy Termination	297
Mental Impairments of Organic Origin	297
Hospitalization Requirements	298
Home and Community-Based Benefits	298
Bed Reservation Benefit	299
Waiver of Premium	299
Selecting Other Types of Care	300
No Policy Covers Everything	300
Age Misstatement	301
Third-Party Notification	302
Reinstatement of a Lapsed Policy	302
Section 6021: Expansion of State LTC Partnership Program	303
NAIC 2000 Model Act	305
“Level Premium” Does Not Mean Unchanging Rates	306
Financial Requirements for Rate Increases	307
Rate Certification from the Insurer’s actuary	307
Consumer Disclosure	307
LTC Personal Worksheet	307
Determining Policy Suitability	308
Consumer Publications	308
Post Claim Underwriting	309
Tax-Qualified Policy Statement	309
Replacement Notices	310
Policy Conversion	310
An Overview	310
The Model Act Applies to All	311
Policy Renewable Provisions	312
Payment Standards Must be Defined	312
Preexisting Standards	312
Policy Type Must Be Identified	312
Activities of Daily Living (ADL)	312
Life Insurance Policies with Accelerated Benefits	313
Nonforfeiture Provisions	313
Extension of Benefits	313
Home Health & Community Care	314
Additional Provisions for Group Policies	314
Outline of Coverage	314
Policy Delivery	314
No Field Issued LTC Policies	314
Policy Advertising and Marketing	315
Prominent Statement Required Regarding Claims Not Covered	315
Prior to the Sale	315
Twisting and High-Pressure Tactics: Simply Illegal	316
Association Marketing	316
Following the Sale	316
Failure to Pay Premiums	317
In Conclusion	317
A Few Unusual Policies	318
Riot Insurance	318
Fantasy Football Insurance	318
Athlete Loss-of-Value Insurance	318
Hole-in-One Price Insurance	318
Body-Part Insurance	319
Paranormal Insurance	319
Death-by-Laughter Insurance	319
Change-of-Heart Insurance	319
Lottery Insurance	319
Kidnapping & Ransom Insurance	320
Key Person or Essential Employee Insurance	320
Multiple-Birth Insurance	320
Bicycle Insurance	320
Surety Bond & Insurance	320
Chapter 6: Insurance Ethics	322
What Ethical Agents Know	322
Insurance Perceptions	322
Establishing Ethical Goals	324
Example	327
Why be Ethical?	328
Following the Law	328
Ethics in the Workplace	329
Ethics Are the Same Regardless of the Name Used	330
Understanding How the Past Affects the Future	332
Companies Set Ethical Guidelines	337
Examples	341
Promoting Ethical Behavior	341
An Ethical Theory: Egoism	344
Is It Possible to Teach Ethical Behavior to Other People?	345
What is The Scope of Ethics?	345
What Does it Take to be A Moral Person?	347
What Quality of Work Does the Individual Want to Perform?	348
What is The Legacy Desired?	348
Who Determines Ethics?	349
Example #1	350
Example #2	351
What Are An Individual’s Responsibilities to Other Moral People?	351
The Theory of Objectivist Ethics	354
Holding an Ethical Code	355
Example	356
Sympathy/Empathy	361
Looking Professional	362
Courtesy	362
Mores	363
Measuring the Ethical Values of Others	367
General Education and State Mandated CE	368
Getting Education in a Timely Manner	370
Laying Out Policy Benefits and Limitations	372
Policy Replacement	375
When the Agent Allows Misconceptions	377
When the Premiums Seem too High to the Client	378
Obtaining Proper Application Signatures	378
Keeping in Touch After the Sale	379
Selling the “Fast Buck” Items	380
Commingling Funds	381
Professional Investment Advisors	381
Preparing for Tomorrow	382
Fixed and Variable Income	382
Financial Management	383
Due Diligence	384
Due Diligence Technical Versus Common-Sense Approach	387
Telling the Truth Requires Responsibility and Accountability	393
Selecting Insurers to Represent	403
Does Legal Also Mean Ethical?	403
Last Page	406

United Insurance Educators, Inc.

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Eatonville, WA 98328