Participant Manual

LOMA:

Life of an Insurance Policy

December 2, 2011

LIFE OF AN INSURANCE POLICY TABLE OF CONTENTS

Learning Objectives .......................................................................................................... 1 Life of a Policy ................................................................................................................... 2 Importance Of Market Segmentation .............................................................................. 3 Product Development ....................................................................................................... 4 Product Development Process........................................................................................ 4 Distribution Systems ........................................................................................................ 6 New Business (Application Processing) ........................................................................ 7 Underwriting ...................................................................................................................... 8 How Life Insurance Underwriters Classify Risk ............................................................ 9 Basic Risk Classes ........................................................................................................ 10 Customer Service............................................................................................................ 12 Conserving In-Force Life Insurance Policies ............................................................... 12 What Do You Think? ..................................................................................................... 13 Conservation ................................................................................................................. 13 Claim Administration ...................................................................................................... 14 How Claims Are Processed and Paid ........................................................................... 14 Fraudulent Claim ........................................................................................................... 14 Claim Decision Process ................................................................................................ 15 Claim Investigation ........................................................................................................ 15 Benefit Calculations ...................................................................................................... 15 Settlement Options ........................................................................................................ 16 Review Life Insurance Process ..................................................................................... 17

For home office use only, based on business need to know. Not for distribution to the field or public.

NOTES

LIFE OF AN INSURANCE POLICY

LEARNING OBJECTIVES
The importance of market segmentation Key product development activities that occur when a new product is developed The three primary distribution systems insurers use How life insurance underwriters classify the risk presented by a proposed insured Key customer service activities used to help conserve in-force life insurance policies How claims on life insurance policies are processed and paid

PARTICIPANT MANUAL: LIFE OF AN INSURANCE POLICY (120211)

For home office use only, based on business need to know. Not for distribution to the field or public.

NOTES

LIFE OF A POLICY
The life of an insurance policy can be broken done into seven steps: Market Identification Product Development Distribution Application Processing (New Business) Underwriting Customer Service Claim Administration

We will begin by looking at the Market Identification step.

PARTICIPANT MANUAL: LIFE OF AN INSURANCE POLICY (120211)

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NOTES

IMPORTANCE OF MARKET SEGMENTATION

Sell policies to meet customers needs Need to know those needs inside and out.

Group members can differ by: Age, sex, and nationality Location Lifestyle Product needs Purchase habits

Target market divided into two segments: Individuals Organizations

Individuals further broken down into two groups: Men Women

Women are further divided into age, income, and marital status.

PARTICIPANT MANUAL: LIFE OF AN INSURANCE POLICY (120211)

For home office use only, based on business need to know. Not for distribution to the field or public.

NOTES

PRODUCT DEVELOPMENT
The second step of the life of a policy is the Product Development step.

PRODUCT DEVELOPMENT PROCESS

There are various key activities that occur when a new product is developed. Activity Benefits Premiums Commission Notes Provisions Approval Business Plan Description What should we feature? What fees should we charge? These are needed to pay the sales people. What are the rights of the company and the customer? Is the new product approved? Development of a business plan is the final step.

PARTICIPANT MANUAL: LIFE OF AN INSURANCE POLICY (120211)

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NOTES

PRODUCT DEVELOPMENT, CONTINUED

Some of Northwestern Mutuals products include: Life Insurance Permanent Life Insurance Term Life Insurance Combination Life Insurance Universal Life Insurance Variable Life Insurance

Disability Insurance Long-Term Care Insurance Annuities

PARTICIPANT MANUAL: LIFE OF AN INSURANCE POLICY (120211)

For home office use only, based on business need to know. Not for distribution to the field or public.

NOTES

DISTRIBUTION SYSTEMS

The distribution of an insurance companys products and services to customers can be done using one or more different systems. The three primary distribution systems insurers use are: Distribution System Personal Selling Third-Party Distribution Direct Response Distribution Description Referral from a friend Through a bank, brokerage firm, etc. Through Internet, U.S. Postal Service, telephone

Northwestern Mutuals main distribution system is personal selling. We have a pretty unique distribution system for our industry. Only a few other companies do the same by only allowing registered agents from the organization to sell their products.

PARTICIPANT MANUAL: LIFE OF AN INSURANCE POLICY (120211)

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NOTES

NEW BUSINESS (APPLICATION PROCESSING)

For insurance purposes, the general term used to describe the business areas in which all the activities required to market insurance, submit applications for insurance, evaluate the risks associated with those applications, and issue and deliver insurance policies is known as New Business. At Northwestern Mutual, our New Business Department is divided into various divisions, one of which is called, Application Input. This division is responsible for all aspects of application processing.

PARTICIPANT MANUAL: LIFE OF AN INSURANCE POLICY (120211)

For home office use only, based on business need to know. Not for distribution to the field or public.

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UNDERWRITING

The Underwriting area of an insurance company is responsible for assessing and classifying the degree of risk represented by a proposed insured or group with respect as it relates to a specific insurance product. Then, they make a decision concerning the acceptance of that risk.

PARTICIPANT MANUAL: LIFE OF AN INSURANCE POLICY (120211)

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HOW LIFE INSURANCE UNDERWRITERS CLASSIFY RISK

There are three different risk assessment factors that insurers use to estimate mortality risk: 1. Medical 2. Personal 3. Financial

Risk Assessment Medical Personal Financial

EXAMPLES

Description Age Build Medical history Family medical history Use tobacco, alcohol, or other drugs Hobbies Driving history Living abroad Does the person need the coverage? Can the person afford the coverage?

Good body build, stable safe job Serious illness, poor medical history

Decrease risk Increase risk

Continued on next page.

PARTICIPANT MANUAL: LIFE OF AN INSURANCE POLICY (120211)

For home office use only, based on business need to know. Not for distribution to the field or public.

HOW LIFE INSURANCE UNDERWRITERS CLASSIFY RISK, CONTINUED

BASIC RISK CLASSES CLASS NAME ON LOMA Preferred class Standard class DEFINITION Lower-than-average risk; we charge lower--than-average premium rates Average risks; we charge average premium rates NORTHWESTERN MUTUAL CLASS NAMES Premier - those with the most favorable mortality. Preferred represents approximately 15% of all applicants those with small risk factors (usually cardiovascular), but with mortality still significantly better than the general population. Substandard class Increased risks; we charge higher-thanaverage premium rates Standard Plus - Ten other risk categories identified as classes Standard Plus (SP) and 1 through 9 reflect increasing levels of anticipated mortality. Declined class Too much risk; we cant insure them Unacceptable - anticipated mortality levels higher than the companys issue limits, denied You will learn more about Northwestern Mutuals risk classifications later in your training.

Continued on next page.

PARTICIPANT MANUAL: LIFE OF AN INSURANCE POLICY (120211)

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NOTES

HOW LIFE INSURANCE UNDERWRITERS CLASSIFY RISK, CONTINUED

EXAMPLE

Referring to the example in the on-line course and shown above, answer the two questions below. 1. Substandard class = which Northwestern Mutual class?

2.

Standard class = which Northwestern Mutual class?

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For home office use only, based on business need to know. Not for distribution to the field or public.

NOTES

CUSTOMER SERVICE

Customer Service is defined by LOMA as the broad range of activities that a company and its employees undertake in order to keep customers satisfied so they will continue doing business with the company and speak positively about the company to other potential customers.

CONSERVING IN-FORCE LIFE INSURANCE POLICIES

Outstanding customer service is crucial to conserving in-force life insurance policies. At Northwestern Mutual, there are customer service divisions in many departments. From the New Business Department to the Disability Income department; from the IPS Sales Department to the Advisory and Trust Services Department. Regardless of where the customer service division is located, it is a critical component of the organizations success.

Continued on next page.

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NOTES

CUSTOMER SERVICE, CONTINUED

WHAT DO YOU THINK?

CONSERVATION In the insurance industry, an insurers efforts to ensure that insurance policies and annuities, once issued, do not lapse but are retained on the insurers books for as long as possible. Important reason for great customer service is to make sure a policy doesnt lapse unexpectedly (e.g., when a policy terminates because its premiums are not paid) Very expensive for a company when customers let their policies lapse before theyve been in force very long (i.e., when early lapses rise, revenue falls)

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For home office use only, based on business need to know. Not for distribution to the field or public.

NOTES

CLAIM ADMINISTRATION

LOMA defines claim administration as follows: Within an insurance company, the insurance administration function that assesses each claim made, decides whether the claim is justified, and authorizes the payment of benefits to the proper person.

HOW CLAIMS ARE PROCESSED AND PAI D

The policy represents our promise to pay benefits if an insured person dies while the policy is in force. Paying claims is how we keep our promise We have two goals: Pay valid claims quickly, fairly, and accurately Avoid paying invalid claims

FRAUDULENT CLAIM Cost insurance companies billions of dollars each year. Employees, company owners, and other customers (who may end up having to pay more for insurance) are all impacted.

Continued on next page.

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HOW CLAIMS ARE PROCESSED AND PAI D, CONTINUED

CLAIM DECISION PROCESS Question Was the policy in force when the insured person died? Is the person who died the person We dont want to pay benefits on the insured by the policy? Is there proof that the insured person actually died? Is the death covered by the policy? Some causes are excluded (e.g., suicide). wrong person. No benefits if the insured is alive. Reason Question Asked Premiums may have stopped.

Also, we may not pay a claim if we discover the applicant lied on the application. CLAIM INVESTIGATION Most claims are clean, yet some claims need to be investigated. BENEFIT CALCULATIONS If a claim is payable, the Claim Administrator needs to decide how much the benefit payout should be. Policy loans Policy dividends Extra benefits Decrease the payout. Increase the payout. Increase the payout.

Continued on next page.

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NOTES

HOW CLAIMS ARE PROCESSED AND PAID CONTINUED

SETTLEMENT OPTIONS The last step of the claim process is to pay policy proceeds to the beneficiary. There are several different options to pay out the proceeds. 1. Lump Sum to policy beneficiary (person who receives the policys death benefit) 2. Series of Payments to Policy Beneficiary (alternative settlement option) 3. Leave on deposit with insurance company to earn interest (alternative settlement option)

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For home office use only, based on business need to know. Not for distribution to the field or public.

NOTES

REVIEW LIFE INSURANCE PROCESS

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