Study Guide For Credit Life Disability Insurance

A STUDY GUIDE FOR
CREDIT LIFE and
DISABILITY INSURANCE
GARY FAGG AND ANGELA HAMMERLY

Published by
CREDITRE CORPORATION
330 Grapevine Highway
Hurst, TX 76054
Phone: (817) 788-8121
Fax: (817) 788-8123
ISBN 0-9627820 1-7

HOW TO USE THIS STUDY GUIDE
This study guide was written to accompany the textbook, Credit Life and Disability
Insurance. The intent of this guide is to reinforce and simplify the concepts presented in
the textbook. All page number references apply to the textbook.
The order of the subject matter in this study guide differs from that of the textbook. This
ordering is designed to introduce and lead the reader through the many facets of the
credit insurance industry. Familiarity with the terms and formulas explained in earlier
lessons is a prerequisite for understanding subsequent lessons. A reader who is new to
the subject matter of credit insurance should follow the order of this study guide.
Each lesson contains objectives, key words, an outline of the suggested reading
material and review questions. A suggested course of study for any lesson is:
Read the objectives and key words of the lesson.
Read the material in the textbook, noting key words and important topics
indicated by the objectives.
Read the outline to reinforce your knowledge and clear misunderstandings.
Re-read the objectives. Make sure you can perform these objectives.
Complete the review questions at the end of the lesson.
Check your solutions.
Helpful Hints:
Always make sure you can solve any examples given in the text and in the
outline. You will be asked to perform these skills in the review questions.
Keep a calculator handy when you are reading sections that involve mathematical
problems.
Refer to the Glossary in the textbook when needed.
Special Note:
Information that is shown in bold italic typeface updates or adds to the

information contained in the textbook.
TABLE OF CONTENTS
Page
Section I: Basic Lessons
Lesson One: Introduction, Terminology, History .............................................. 1

(Refer to pp. xiii-xxi, 355-370)
Lesson Two: Credit Life Insurance ................................................................. 11
(Refer to pp. 1-20)
Lesson Three: Credit Disability Insurance ......................................................... 19
(Refer to pp. 21-34)
Lesson Four: Direct Writers, Captives, and
Producers .................................................................................. 29
(Refer to pp. 35-43, 49-61)
Lesson Five: Home Office Operations I .......................................................... 37
(Refer to pp. 87-125, 130)
Lesson Six: Home Office Operations II ......................................................... 49
Lesson Seven: Premiums I ................................................................................ 57
Lesson Eight: Premiums II ............................................................................... 71
Lesson Nine: Reserves (Basic) ....................................................................... 81
Lesson Ten: Profitability ................................................................................. 93
Page
Section II: Advanced Lessons
Advanced Lesson One: Captive Reinsurance .........................................................109

(Refer to pp. 43-49, 62-85, 126-129)
Advanced Lesson Two: Reserve Methods (Detail) .................................................117
Advanced Lesson Three: Statutory and GAAP Accounting .......................................129
Advanced Lesson Four: Federal Income Taxation of Life
Insurance Companies .......................................................145
Advanced Lesson Five: Regulation of the Credit Insurance
Industry .............................................................................155
Advanced Lesson Six: Studies of Consumer Attitudes and Claim
Costs ................................................................................165
Advanced Lesson Seven: Property and Casualty Products ........................................175
Section III: Answers to Study Guide Review Questions ...........................................................181

LESSON ONE: INTRODUCTION, TERMINOLOGY, HISTORY
(REFER TO PP. xiii-xxi, PP. 355-370)
OBJECTIVES
You will have mastered this lesson when you are able to:
1. Define or identify the Key Words of this lesson.
2. List the common characteristics of current credit insurance policies.
3. Discuss the founding of the credit insurance industry.
4. Outline the growth of credit insurance from 1917 to present.
5. List the market segments for the credit insurance industry.
6. List the purposes of a trade association.
Page 1
KEY WORDS
account
borrower
collateral
consumer credit insurance
Consumer Credit Insurance Association
credit disability insurance
credit life insurance
creditor
debt
debtor
democratization of credit
evidence of insurance
financial institution
gross minus refunded premiums
gross written premiums
lender
lending institution
Morris Plan Banks
Morris Plan Insurance Society
net written premiums
premium refunds
premium producer
single premium
Uniform Small Loan Act of 1916
written premiums
Page 2
OUTLINE
A. INTRODUCTION
Consumer Credit Insurance: Life or disability insurance sold in conjunction

with a loan associated with the purchase of consumer goods.
Credit Life Insurance: Insurance that pays off a loan obligation if the insured
borrower or co-borrower dies.
Credit Disability Insurance: Insurance that provides a monthly benefit equal to

a loan's monthly payment if the borrower is disabled.
Common Characteristics of Current Credit Insurance Policies
The average policy size is under $20,000, and the term of insurance is short,
generally under sixty-one months.
The premium charged is a single premium paid at the inception of the policy.
The premium is included in the amount advanced and is financed along with
the principal of the loan.
No underwriting conditions are imposed to qualify for the insurance except a

maximum age limitation.
The same premium rate is charged regardless of age or sex.
Coverage matches the loan obligation.
Insurance terminates when the loan obligation ceases.
The first beneficiary of the policy proceeds is the lender, who uses the
proceeds to extinguish the loan obligation. Any additional proceeds are paid
to the second beneficiary or the estate of the insured.
Policy forms contain few exclusions.
B. TERMINOLOGY
Lender or Producer: The corporate entity offering credit insurance to the

consumer. It is often the corporate entity providing the funds (which may be
called creditor, financial institution or lending institution)-such as banks,
credit unions, etc. But the term may also apply to other places where the
product is actually sold, such as automobile dealerships. An insurer may refer to
a particular lender or producer as an account.
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Borrower or Debtor: The consumer entering into the debt obligation.
Loan or Debt: The obligation to repay money entered into by the borrower or debtor in
exchange for cash or consumer goods.
Evidence of Insurance: A form stating the conditions and coverage of the insurance. If
the borrower is insured under a group policy, he receives a certificate of insurance. If
he is insured under an individual policy, he receives an individual policy. The generic
term policy is often used to refer to both forms.
Premium: The amount paid by the borrower for the insurance, also called the gross
premium.
Single Premium: The total cost of the insurance paid at the time the policy or
certificate is issued (usually financed along with the principal of the loan).
Premium Refunds: The portion of the original single premium representing the unused
insurance which is returned to a borrower who terminates the insurance before
maturity.
Gross Written Premiums: The total premiums collected by the lender on all new
policies issued.
Written Premiums (or Net Written Premiums): The total gross written premiums less
the premium refunds paid on terminated policies. Also called gross minus refunded
(G-R) premiums.
C. HISTORY OF THE CREDIT INSURANCE INDUSTRY
The Establishment of Morris Plan Banks
Before 1910, bankers would only lend to those individuals who had deposits in the
bank or could provide unimpeachable collateral.
The lending practices of the day led Arthur J. Morris to develop an idea for the
democratization of credit; i.e., a bank should be willing to lend money if the
borrower could show good character and the earning power to repay the debt.
In 1910, Morris organized a bank in Norfolk, Virginia based on this principle.
Morris formed the first bank holding company to aid in establishing other banks that
would adhere to his lending ideology.
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Morris franchised these types of banks nationwide, calling them Morris Plan
Banks.
The Morris Plan Bank concept spread. At its peak, 170 were operating.
The Establishment of The Morris Plan Insurance Society
Morris realized that the death or disability of the borrower cut off the
borrower's earning power, the collateral of the loan.
This situation led Morris to develop the concept of credit insurance. In 1917,
Morris established The Morris Plan Insurance Society, a credit insurance
company with the motto, "No man's debt should live after him."
Other Early Credit Insurers
The Credit Life Insurance Company
Prudential Insurance Company of America
Old Republic Life Insurance Company
Credit Union National Association Mutual Insurance Society
Growth of Credit Life Insurance
1917-1941. The credit life insurance industry experienced steady growth

during the pre-WWII era.
1942-1945. Credit life insurance in force declined during WWII as

consumer spending was curtailed.
1946-present day. Credit life insurance in force grew tremendously for a

variety of reasons:
Increase in spending on consumer goods
Broadening of state insurance laws
Acceptance of the product by lenders
Group versus Individual Policies
Before 1960, the industry was generally divided between insurers writing
under group policy forms and those writing under individual policy forms. As
group statutes became more permissive, credit insurers wrote a
traditional group policy in order to benefit from the simpler administration
procedures and special deductions under the 1959 Tax Act.
By 1970, 84% of all credit insurance was written on a group plan.
Development of Credit Disability Insurance
The first credit disability insurance policies paid off the loan if the insured met
the conditions for being totally and permanently disabled.
By 1950, a product providing a monthly benefit equal to the loan's monthly

payment during the insured's continued disablement replaced the original
concept.
Credit disability insurance has grown rapidly in the last twenty years.
D. THE ADOPTION OF CREDIT INSURANCE PROGRAMS BY VARIOUS MARKET

SEGMENTS
Market Segments
Automobile dealers and manufacturers Credit unions Commercial

banks Finance companies Sales finance operations, such as
furniture and appliance stores Small loan companies and industrial
banks
Factors Affecting the Acceptance of Credit Insurance by Lenders
In the 1950s, there were heated debates on the interpretation of state laws
and regulations based on the provisions of the Uniform Small Loan Act of
1916. The debates centered on whether a charge could be made for credit
insurance sold in conjunction with small loans. They were resolved by the
development of the NAIC Model Regulations and by the amendment of state
banking and loan laws that specifically authorized the sale of credit insurance
with a contributory charge.
In 1972 the Federal Reserve Board decided to permit a bank holding

company to own an insurance subsidiary.
E. TRADE ASSOCIATIONS
Definition: An organization of insurers formed to promote the industry and to

assist in development of regulations.
Page 6
Consumer Credit Insurance Association (CCIA): The primary trade association of
credit insurers. Founded in 1951, it now has over 200 member companies and
concentrates on the credit insurance industry.
Other trade associations serve many types of insurers, with credit insurance as only
one aspect of their activities:
American Council of Life Insurance (ACLI)
National Association of Life Companies (NALC)
Health Insurance Association of America (HIAA)
Page 7
REVIEW QUESTIONS
1. Insurance that pays off the loan obligation if an insured borrower or co-borrower
dies is called .
2. A is the corporate entity which offers the

credit insurance product to the consumer.
3, is the primary trade association

for the credit insurance industry.
4. Two purposes of a trade association are:
5. All of the following are common characteristics of current credit insurance policies
except:
(1) No underwriting conditions are imposed and very few exclusions are contained
in a policy.
(2) The average policy size is less than $20,000.
(3) The term of insurance is less than sixty-one months.
(4) The rate of the policy varies with respect to the age of the borrower.
(5) The premium is usually financed along with the principal of the loan.
6. Which of the following contributed to the growth of the credit insurance industry?
A. The adoption of Regulation "W" in 1941.
B. The expansion of Morris Plan Banks.
C. Increases in the cost of consumer goods.
Page 8
D. The founding of the Morris Plan Insurance Society.
(1) A, B and C only
(2) B, C and D only
(3) B and C only
(4) A, C and D only
7. Why did the development of the Morris Plan Bank trigger the founding of the Morris Plan
Insurance Society?
8. List five market segments of the credit insurance industry.
Page 9
LESSON TWO: CREDIT LIFE INSURANCE
(REFER TO PP. 1-20)
OBJECTIVES
You will have mastered this material when you are able to:
2. List the loan conditions affecting credit life insurance for closed-end
loans.
3. List the alternatives utilized to compensate for group maximum limits.
4. List the differences between group and individual policies.
5. State the criticisms of gross coverage and net payoff coverage.
6. State the common eligibility requirements and exclusions for credit life
insurance.
7. Explain the difference(s) between initial net and gross indebtedness.
8. Given the type of loan, state the credit life insurance product(s)
commonly offered.
9. List the types of consumer credit transactions.
Page 11
KEY WORDS
balloon loan single payment loan

cash loan term of coverage
closed-end loan termination date
consumer credit transaction total amount advanced
contributory coverage truncated life insurance coverage
credit card lending uniform decreasing term life insurance
critical period life coverage variable rate loan
effective date
fixed rate loan
installment loan
group maximum limit
group policy
gross coverage
gross indebtedness
individual policy
initial gross indebtedness
initial net indebtedness
installment sales contract
joint life insurance
level-decreasing insurance
level loan
monthly outstanding balance
net payoff coverage
net indebtedness
non-contributory coverage
open-end loan
partial coverage insurance
principal
scheduled interest charges
Page 12
OUTLINE
A. CREDIT LIFE INSURANCE
Definition: Term life insurance purchased in conjunction with a consumer credit

transaction (cash loan, installment sales contract, or credit card borrowing),
excluding first mortgage loans, which provides a death benefit sufficient to pay off
the credit obligation in the event of an insured's death during the term of coverage.
B. INDEBTEDNESS
Initial net indebtedness: The total amount advanced, which normally includes the
principal of the loan plus the insurance premium.
Initial gross indebtedness: Initial net indebtedness plus the scheduled interest
charges.
Net indebtedness: The amount due under a debt obligation at any time. This
normally includes the outstanding principal and insurance premium amounts, plus
any accrued interest since the last payment.
Gross indebtedness: The sum of the remaining scheduled payments due under a
debt obligation. This includes the net indebtedness plus the unearned interest
charges.
C. CLOSED-END LOANS
Installment Loans
Conditions: A loan with both the amount and term fixed; the principal is repaid in
equal monthly payments. The monthly payment is the initial gross indebtedness
divided by the term of the loan. Each payment provides for payment of interest
charges (based on net indebtedness at the beginning of that month). The
outstanding balance at any time is the net indebtedness.
Insurance: Decreasing term insurance.
Example: Fixed interest rate automobile loan.
Level Loans
Conditions: A single payment loan in which the payment is due from the
borrower at maturity. Since the interest accrues as time elapses, the net
indebtedness increases during the term of the loan. The gross indebtedness
remains level during the term of the loan.
Page 13
Insurance: Level term insurance for the amount of initial gross indebtedness.
Example: Short term personal loans.
Balloon Loans
Conditions: A loan repaid in equal periodic payments with an additional lump

sum payment at maturity.
Insurance: A combination of level and decreasing term insurance.
Example: Automobile leases.
D. OPEN-END LOANS
Conditions: A loan repaid with monthly payments ranging from a minimum

payment up to the payment of the full outstanding balance.
Insurance: Insurance to meet the outstanding balance; i.e., net payoff coverage.
Example: Credit card borrowing or a line-of-credit.
E. LOAN CONDITIONS FOR STANDARD CREDIT LIFE INSURANCE ON CLOSED-

END LOANS
Term of Coverage is determined by the term of the loan.
Effective Date and Termination Date are set by the corresponding dates of the loan.
The principal, initial net indebtedness, and initial gross indebtedness of the loan
affect the death benefit, which in turn affects the type of coverage and premium
charged.
Number of borrowers affects coverage; either single life or joint life coverage will be
offered.
The rate of interest and whether it is fixed or variable affect the type of coverage,
the amount of benefits and the premium charged.
F. GROUP AND INDIVIDUAL POLICIES
Individual Policy: The contractual relationship is between the borrower and the
insurance company. The borrower receives an individual policy as evidence of
insurance.
Page 14
Group Policy: The contractual relationship is between the lender and the insurance
company. The borrower is enrolled in the group and receives a certificate of
insurance.
Group Maximum Limits: Laws and regulations in some states restrict the amount
of insurance which can be provided by group insurance. However, insurance can be
provided on loans when the initial indebtedness exceeds such limits by:
Offering the insurance on an individual policy
Offering the insurance with a death benefit equal to the maximum allowed or the
remaining indebtedness, whichever is less, i.e., a level-decreasing insurance
policy
Offering partial coverage under the state maximum
G. GROSS COVERAGE VERSUS NET PAYOFF COVERAGE
Gross Coverage: Amount of insurance covers the gross indebtedness of the loan.
Uniform decreasing term life insurance is the resulting plan.
Criticism: Amount of insurance exceeds the net indebtedness.
Net Payoff Coverage: Amount of insurance covers the net indebtedness of the
loan but limited to the scheduled net indebtedness plus an amount sufficient to
cover a specified number of delinquent payments (usually two).
Criticism: Amount of insurance may not be sufficient to pay loan balance if the
borrower has been delinquent in payments.
Critical Period Coverage: Amount of insurance offered is limited to a fixed number

of monthly payments. This coverage provides loan payments for a period of time so
that the financial stability of the insured's household can be regained.
H. PREMIUM MODE
Single Premium: A premium to pay for the full coverage provided and charged to
the insured at the inception of the loan.
The premium is added to the principal of the loan and is financed.
Premium rates are expressed per $100 of initial gross indebtedness, and per year
of coverage.
Page 15
Monthly Outstanding Balance (MOB): A premium collected monthly.
Premium rates are expressed per $1,000 of insurance in force.
I. CONTRIBUTORY AND NON-CONTRIBUTORY INSURANCE
Contributory Insurance: Coverage provided with the borrower paying an identifiable

charge. This is the common form of credit insurance.
Non-contributory Insurance: Coverage provided without an identifiable charge to the

borrower. This is commonly found in credit unions.
J. COVERAGE PERIOD
Generally, the coverage period is the same as the term of the loan.
Truncated Life Coverage: Usually net payoff coverage for the full outstanding net
indebtedness, but death must occur during the term of insurance coverage. The insurance
term is less than the term of the loan.
K. ELIGIBILITY REQUIREMENTS AND EXCLUSIONS
Eligibility Requirements
A person must be under a specified age, generally sixty-five.
The borrower may be required to sign a good health statement. An application with health
questions may be required for larger amounts.
Exclusions
If suicide occurs within a specified period after issue (six months to two years), no benefit
is paid; but the estate receives a refund of the unused insurance premium.
Page 16
REVIEW QUESTIONS
1. Cash loans, installment sales contracts, and credit card borrowing are all types of
2. The total amount advanced (including the insurance premium) plus the scheduled
interest charges over the loan term equals the
3. Under an individual policy, the contractual relationship is between the and the
4. Under a group policy, the contractual relationship is between the and the
5. Credit unions often provide life insurance coverage to borrowers without an

identifiable charge. This is called coverage.
6. State the difference between critical period coverage and truncated life coverage.
Explain the reason for each coverage.
7. Decide whether the following statement is true or false. Justify your answer.
Single premiums are usually charged in conjunction with credit card borrowing.
8. Which of the following statements are true regarding the advantages of offering
group policies versus individual policies?
A. Group policies may permit simpler administration procedures.
B. The insurer charges higher premium rates on group policies.
C. Special federal income tax deductions for group business were provided by
the 1959 Tax Act.
Page 17
D. Individual policies have maximum limits set by the various states.
E. Individual policies are often sold if the insurer desires to ask health questions.
(1) A, B and C only
(2) B, C and D only
(3) C, D and E only
(4) A and E only
(5) A, C and E only
9. Which of the following are common eligibility requirements and exclusions for credit
life insurance?
A. A person must be under a specified age to be eligible.
B. Suicide within a specified time after issue is excluded.
C. A good health statement may be required for eligibility.
D. The occupation of the borrower is considered for eligibility.
E. Medical information about the borrower is usually required for coverage.
(1) A, B and C only
(2) A, B, D and E only
(3) A, C and D only
(4) B, D and E only
Page 18
LESSON THREE: CREDIT DISABILITY INSURANCE
(REFER TO PP. 21-34)
OBJECTIVES
2. Determine the benefits payable, given:
a. date of disability
b. elimination period
c. retroactive or non-retroactive benefits
d. monthly benefit
e. date disability ceases
3. Determine whether benefits are payable in a situation when the six and six exclusion
is in effect.
4. Describe the difference(s) between critical period disability coverage and truncated
disability coverage.
5. Describe 14NR, 14E and 14R.
Page 19
KEY WORDS
actively-at-work
anti-selection
any occupation disability
critical period disability coverage
dismemberment benefit
elimination period
his (or own) occupation disability
lump sum coverage
monthly benefit gross coverage
non-retroactive benefits
preexisting condition
presumptive test of disability
retroactive benefits
six and six exclusion
total and permanent disability
truncated disability coverage
waiting period
Page 20
OUTLINE
A. CREDIT DISABILITY INSURANCE
Definition: Disability insurance purchased in conjunction with a consumer credit

transaction which provides a monthly benefit equal to the required monthly
payment, while the insured is disabled, during the term of coverage.
Alternatively, a few policies provide a lump sum benefit if the insured is totally
and permanently disabled.
Definition of Disability
His occupation disability: A person is unable to perform the essential tasks

of his usual occupation. This is now also called own occupation disability.
Any occupation disability: A person is unable to perform the duties of any

occupation for which the person is reasonably suited by reason of education,
training, or experience.
Total and permanent disability is determined by one of two methods:
Presumptive Test of Disability: If the borrower is disabled for a specific

number of days, usually ninety days, he is considered totally and
permanently disabled.
If the insurer can determine that the disability is total and permanent, then
the benefit is paid. This method is used in the credit union market.
B. CHARACTERISTICS OF DISABILITY PRODUCTS
All disability policies provide gross coverage. The monthly benefit is equal to the
monthly loan payment, which includes interest charges.
Elimination Period: The period of disability before any benefits are payable,
also called the waiting period.
The period is usually 14 or 30 days but may be 7 or 90 days.
Determine if benefits are payable:
Example 1
Elimination period: 7 days

Length of Disability: 10 days
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Benefits are payable since the length of disability exceeds the
elimination period.
Example 2
Elimination period: 30 days

Length of Disability: 25 days
Benefits are not payable since the length of disability does not exceed
the elimination period.
Elimination Period Benefits
Non-retroactive Benefits: Benefits begin after the elimination period has

been completed.
Retroactive Benefits: Benefits are payable from the first day of the
elimination period, once the elimination period is completed.
Calculation of Disability Benefits:
Example 1
Plan of Insurance: 14R (14 day elimination period,

retroactive benefits) Length of Disability: 16
days Monthly loan payment: $350.00
1) Determine if any benefits are payable.
Since the length of disability exceeds the elimination period,

benefits are payable.
2) Determine the number of days benefits are payable.
14R means that benefits are payable from the first day of disability.
Therefore, benefits for 16 days are payable.
3) Calculate the amount of benefits payable.
Amount of Benefits = number of days x monthly payment
=16x350
30
_ $186.67
Page 22
Example 2
Plan of Insurance: 14E Length of Disability: July 10th

through August 31st Monthly Payment: $100.00
1) Determine if any benefits are payable.
Since the length of disability is greater than 14 days, benefits are

payable.
2) Determine the number of days the insured was disabled.
Number of days in July 31

- days in July not disabled -9
Number of days disabled in July 22
Number of days disabled in August: 31
Total days disabled = 22 + 31
= 53
3) Determine the number of days benefits are payable.
Since the plan of insurance is 14E, benefits are payable from the
15th day of disablement.
53 - 14 = 39 days
4) Calculate the amount of benefits.
Amount of Benefit - number of days x monthly benefit

30
=39x100
30
= $130.00
Exclusions
Preexisting Conditions
Definition: An impairment for which the insured has been treated prior to
the effective date of insurance.
Page 23
Six and Six Exclusion
Definition: The exclusion from coverage of a disability if the insured

becomes disabled from a preexisting condition within six months after the
effective date, if any treatment for that preexisting condition occurred
within the six months prior to the effective date.
Determine if benefits are payable when a six and six exclusion is in effect:
Example 1
Effective Date: January 1, 1989

Last Date of Treatment: September 1, 1988
Date of Disability: July 15, 1989
The preexisting condition was treated within six months before the
effective date, but the disability occurred over six months after the
effective date. Benefits are payable.
NOTE: As long as the disability occurs after six months from

effective date, benefits are payable.
Example 2
Effective Date: June 1, 1989

Last Date of Treatment: November 1, 1988
Date of Disability: July 1, 1989
The preexisting condition was last treated seven months prior to the
effective date. Benefits are payable provided the elimination period
conditions are met.
Other Exclusions
Normal pregnancy, self-inflicted injuries, acts of war, and aviation on non-

scheduled flights are also excluded. Coverage of normal pregnancy is
required in Massachusetts, Nevada and New York.
Eligibility Requirements
Only the primary borrower is eligible for coverage in most cases. Joint
insurance is rarely offered in the U.S. but is available in Canada.
Coverage is offered if the primary borrower is under age sixty-five.
Page 24
The borrower must also be actively-at-work; i.e., working thirty or more hours
per week on the effective date of the insurance.
C. BENEFITS ON VARIOUS TYPES OF LOANS
Closed-End Installment Loans
The monthly payment defines the monthly disability benefit. The maximum
benefit at any time equals the sum of the remaining payments.
Single Payment Loans
When offered, the benefit is a lump sum equal to the outstanding balance of
the loan. However, the only coverage offered requires total and permanent
disability.
Open-End Loans
Monthly payment benefit
This policy usually has a 14- or 30-day elimination period and may have
either retroactive or non-retroactive benefits.
The benefit is the minimum monthly payment due, generally the amount
needed to repay the balance of the loan on the date of disability within 24
months.
Lump Sum Benefit
The benefit is the outstanding balance of the loan on the date of disability,
usually with a 90-day elimination period.
D. COVERAGE PERIOD
Customarily, credit disability policies provide coverage and benefits for the full
term of the loan.
Critical Period Disability Coverage
Definition: Coverage offered for the full term of the loan, but with the benefit
limited to a specified number of monthly payments, or the remaining
payments if less.
This coverage is usually offered on loans over sixty months to decrease the
borrower's total dollar outlay while offering essential protection.
Page 25
Truncated Disability Coverage
Definition: Coverage offered during a portion of the term of the loan. Benefits
are paid only if the disability occurs during the term of coverage. Monthly benefit
payments continue only until the end of the term of insurance.
For example, on a ten-year loan, truncated coverage may be offered for the first
five years. A disability must occur during the first 60 months. In addition, all
benefits cease at the end of the 60 month coverage period.
Page 26
REVIEW QUESTIONS
1. If the borrower is working thirty or more hours per week on the effective date of
insurance, he/she is considered
2. (Circle One) Increasing the elimination period will raise/lower/not affect the
premium.
3. benefits provide for the payment of benefits

from the first day of disability.
4. A ninety-day period of disability is common for the determination of

disability.
In questions 5-8, calculate the amount of benefits payable:
Use the information below to answer questions 5 and 6.
Joan Doe is insured by a credit disability insurance policy. Payment is due on

the first day of each month. Plan: 14E. Monthly loan payment: $150.00
5. If Joan is disabled 45 days, what benefits are paid?
6. If Joan is disabled 14 days, what benefits are paid?
Use the information below to answer questions 7 and 8.
John Smith is insured by a credit disability insurance policy. Payment is due on the
first day of each month. Benefits: 30R. Monthly loan payment: $300.00
7. If John is disabled from July 30 through August 31, what benefits are paid?
8. If John is disabled from July 25 through August 8, what benefits are paid?
Page 27
Use the information given below to answer questions 9-11. State only whether
benefits are payable.
Effective date of credit disability insurance: January 1, 1989

Exclusions: Six and Six Exclusion in effect
(Assume the cause of disability is the preexisting condition)
9. Last date of treatment: September 1, 1988

Date of disability: April 1, 1989
Are benefits payable?
10. Last date of treatment: March 1, 1988

Date of disability: February 1, 1989
11. Last date of treatment: August 1, 1988

Date of disability: September 1, 1989
12. All of the following are common exclusions for credit disability insurance EXCEPT:
(1) Self-inflicted injury
(2) Normal pregnancy
(3) Preexisting condition
(4) Aviation on scheduled flights
(5) Acts of war
13. Variations of the six and six exclusion exist. Read the information below and
answer the following:
Effective date of credit disability insurance: January 1, 1989

Exclusion: One year - two year exclusion Last date of
treatment: September 1, 1988
What is the earliest date that disability from the preexisting condition can occur so
that benefits are payable? Explain.
Page 28
LESSON FOUR: DIRECT WRITERS, CAPTIVES, AND PRODUCERS
(REFER TO PP. 35-43, 49-61)
OBJECTIVES
2. List the types of life insurance companies.
3. Describe the relationship between a direct writer and a captive reinsurer.
4. State the additional responsibilities of the direct writer if captive reinsurance is

involved.
5. List the possible sites to form a captive.
6. List the producers of credit insurance.
7. Specify the data needed to calculate a producer's penetration rate.
8. List the administrative functions of a direct writer.
Page 29
KEY WORDS
acceptance corporation
assume (the risk)
assuming reinsurer
captive insurance company
cede
ceding insurer
controlled foreign corporation
direct-writing captives
direct writer
domestic insurer
domicile
exotic reinsurance company
extraterritorial regulations
finance and insurance specialist
line-of-credit
mutual life insurance company
non-controlled foreign corporation
penetration rate
reinsurance
reinsurer
retention
retrocede
retrocessionaire
retrospective compensation
stock life insurance company
Page 30
OUTLINE
A. DIRECT WRITERS
Definition: The insurance company issuing the policy. The contractual

agreement is between the policyholder and the direct writer.
The direct writer must meet the obligations guaranteed by the policy, regardless
of any reinsurance arrangements.
Types of Insurance Companies
Stock Life Insurance Companies: Stockholders provide the capital to start

the company, which they own and control. Profits are paid to stockholders as
common stock dividends.
Mutual Life Insurance Companies: The policyholders own the company.

The control of the company is in the hands of the Board of Directors and
management. Profits are returned to the policyholders as policyholder
dividends.
Types of Direct Writers Selling Credit Insurance
Full-Line Ordinary Companies
Credit Insurance Specialty Companies
Direct-Writing Captives
Formation of a Direct-Writing Insurance Company
Substantial time and significant capitalization are required. The specific

requirements vary from state to state.
A direct writer is incorporated in one state, its state of domicile. In this state, it
is considered a domestic insurer.
Once the direct writer is incorporated, it can apply for licenses in other states.
The direct writer is considered a foreign insurer in these states.
Reinsurance
Definition: The transfer of risk from one insurance company (the ceding
company) to another insurance company (the assuming company). The direct
writer cedes the risk to the reinsurer who assumes the risk. If the reinsurer
does not want to retain all of the risk it assumes, it will retrocede a portion of
the risk to a second reinsurer, the retrocessionaire.
Page 31
B. CAPTIVE INSURANCE COMPANY (CAPTIVES)
Definition: An insurance company owned by a producer which accepts the

underwriting risk on the business sold by the producer.
Formation of a Captive Insurance Company
Within the United States, a captive may be formed and licensed in only one
state; the requirements vary from state to state. Arizona is the logical choice.
A captive can also be formed outside of the United States in Bermuda, the
Cayman Islands, the Turks and Caicos or other sites; these are called offshore
captives.
Controlled foreign corporations are offshore reinsurance companies which

do not qualify as non-controlled and are subject to U.S. taxation as any U.S.
corporation. Most offshore credit insurance captives are in this category.
Non-controlled foreign corporations are offshore reinsurance companies

that are not subject to United States taxation until the profits are brought back
into the U.S.
Exotic Reinsurance Company
Definition: A reinsurance company with more than one class of stock. It may
be onshore or offshore.
An exotic is formed by a group of producers, usually a group of automobile

dealers. The profit on each dealer's business inures to that dealer's class of
stock.
Advantages of an Exotic
The overhead operating costs of the captive are distributed.
The volume may qualify the captive for lower administrative fees from the
direct writer.
Disadvantages of an Exotic
Serious problems arise when one class has bad loss experience.
If one dealer goes bankrupt, the captive fails to receive premiums.
Page 32
C. PRODUCERS OF CREDIT INSURANCE
Definition: The corporate entity offering the product to the borrower.
Credit insurance is offered to the borrower at the place where the loan is
extended. Therefore, the primary producers are lending institutions including the
following:
Banks
Credit Unions
Finance Companies
Production Credit Associations (now called Farm Credit Banks)
Savings and Loan Associations
Credit insurance is also offered in conjunction with installment sale contracts

where the thrust of the business is the sale of consumer goods or services.
These businesses include:
Acceptance Corporations
Automobile, Mobile Home and Recreational Vehicle Dealers
Retail Outlets
Penetration Rates
Definition: The number of borrowers electing to purchase coverage divided

by the number of loans extended in which the borrower qualifies for
insurance, often expressed as a percentage.
A penetration rate of over 60% on life insurance is considered excellent.
A penetration rate of 40% to 60% on disability insurance is considered

acceptable.
Higher penetration rates generally result in better loss experience.
Calculation of a Penetration Rate:
Example
At a certain automobile dealership, 250 loans were extended where the

borrowers qualified for insurance. One hundred life insurance policies were
sold.
Page 33
Penetration rate = number of policies sold
total number of qualified buyers
100
250
= .40
= 40%
Page 34
REVIEW QUESTIONS
1. Regardless of any reinsurance agreement, the must

meet the obligations guaranteed by the policy.
2. The two types of life insurance companies are

and
3. is the transfer of risk from the insurance

company issuing the policy to another insurance company.
4. A direct writer formed in Arizona and licensed in all other states is considered
a/an insurer in Arizona and a/an
insurer in other states.
5. List five producers of credit insurance:
6. All of the following statements can correctly be made about an exotic reinsurance
company:
A. An exotic is formed by a group of producers.
B. The combined volume of the producers may qualify for lower administrative
fees by the direct writer.
C. Investment income is spread equally among the producers.
D. Most exotics are formed by groups of automobile dealers.
E. The direct writers of an exotic vary from producer to producer.
(1) A, B, C and D only
(2) A, C, D and E only
(3) A, B and D only
(4) B and D only
(5) A, B and D only

7. Last year a producer extended 500 loans and 305 borrowers elected to
purchase life coverage while 135 elected to purchase disability coverage.
Calculate the producer's penetration rates for both life and disability coverages.
Life Disability
8. Describe the purpose of an F & I specialist.
9. List the five primary administrative functions of a direct writer.
10. Which of the following correctly describes the relationship between a captive
reinsurer and the direct writer?
A. A captive reinsurer takes over the majority of the direct writer's administrative
functions.
B. Most captives accept 100% of the risk where permitted.
C. With the acceptance of risk, a captive reinsurer becomes responsible to the

insureds.
D. A captive reinsurer does not have to be licensed in the state where the policy
is sold.
(1) D only
(2) B and D only
(3) C and D only
(4) A and B only
Page 36
LESSON FIVE: HOME OFFICE OPERATIONS 1
(REFER TO PP.87-125,130)
OBJECTIVES
2. List the major responsibilities of the various departments of a credit insurance

company.
3. Describe the differences between front commissions and retroactive commissions.
4. List the actions an examiner must take to adjudicate a death claim; a disability claim.
5. List the typical investments of a credit insurance company.
Page 37
KEY WORDS
assignment of commissions
case reserve
claimant
commission caps
compensating balances
contestable period
contingent commission
Continuance of Disability Form
experience refund
first and final
front commission
general agent
good health statement
guaranteed issue limit
non-resident agent
override commission
policyholder dividends
report and remittance
resident agent
retroactive commission
return commission
service fees
Page 38
OUTLINE
A. SALES AND SALES ADMINISTRATION
Sales Staff
Internal sales staff may be adequate for regional companies.
Widely licensed insurers may utilize independent general agents who will
provide local sales and service.
Responsibilities of the Sales Staff
Solicit new accounts
Service existing accounts by:
Training the producers' personnel
Working with producers when problems arise
Monitoring producers' financial experience, taking corrective action

when necessary, such as:
Adjusting commissions
Cancelling business
Filing for rate increases
Reviewing policy forms and limits
Implementing rate changes and product modifications
Sales Administration
A separate section of the sales department that handles the administrative

functions and maintains contact with the accounts on day-to-day operational
matters.
Responsibilities of Sales Administration
The initial setup work for a new account. This includes supplying the
account with reporting procedures, forms and rate calculation materials.
On-going service requirements for accounts, such as changes in

procedures, policy forms, rates and compensation.
Insuring that all agents meet the licensing requirements.
Page 39
B. COMPENSATION TO HOME OFFICE SALES STAFF, GENERAL AGENTS, AND
PRODUCERS
Home Office Personnel are salaried employees.
General Agents are compensated in either or both of the following ways:
Override Commission: A percentage of premium paid to the agent on the

business he produces. The usual procedure is to apply the override
percentage to the gross premium collected minus the refunds paid for the
month.
Override commissions are generally paid as front commissions, i.e., the

entire amount of commissions is paid as the premium is collected.
These are guaranteed commissions.
These commissions emphasize producing new business, rather than the

profitability of the business.
Retroactive or Contingent Commission: Compensation that is dependent

upon the profitability of the general agent's business. The general agent and
the insurer share the following:
Earned premiums less incurred claims, less paid compensation to

accounts and override commissions, less the insurer's expense charge.
Producer Compensation includes at least one of the following methods:
Front Commission: Guaranteed compensation usually expressed as a

percentage of net written premium.
Service Fee: Payment for the actual cost of offering the products. Some
state and federal regulations do not allow the payment of commissions to
financial institutions, but permit payment of service fees.
Experience Refund or Retroactive Commission: A portion of

compensation that may be paid contingent on the profitability of the
producer's business. The calculation is similar to the formula for a general
agent's contingent commission. Although a producer may not be responsible
for a loss, a negative balance would be carried forward to future accounting
periods.
Policyholder Dividends
In a mutual insurance company, policyholders receive an equitable

distribution of profits annually.
Page 40
For group credit business, the producer is the group policyholder. The
allocation by policyholder generally follows the formula for experience
refunds. However, expense is allocated to the producer for actual expenses
incurred for processing the producers' business rather than a set charge.
All profitable policyholders are eligible for a dividend.
Unprofitable policyholders usually do not receive a dividend.
Allocation among profitable policyholders may not be an exact reflection

of the individual producer's experience; i.e., some pooling of claims or
expenses may be used.
The calculation also reflects the practice of retaining a small portion of

the profits as a permanent surplus of the insurer and the practice of
pooling the loss experience on small policyholders.
Limitations on Compensation
Some states impose limitations on maximum compensation paid by insurers

to general agents and producers (called commission caps). They are
designed to protect insurer solvency and to impose controls on product
pricing.
Compensating Balances
In exchange for the credit insurance business of a financial institution, an

insurer may offer to maintain deposits in the institution, often equal to one
year of written premiums. When the interest paid on these deposits is less
than market rates, the deposits are considered compensating balances.
C. AGENT LICENSING
State laws and regulations require that an agent must be licensed in his state of
residency. In this state, he is a resident agent. If licensed in other states, he is a
non-resident agent.
Agent licensing requirements to sell credit insurance are simplified or eliminated

in most states if the person selling the product to the borrower does not receive
a commission for the sale.
Page 41
D. PREMIUM BOOKING
Report and Remittance
Generally, a producer submits monthly reports regarding business

processed for the month. These reports include:
Business issued
Refunds made
Remittance for the gross premiums collected minus the refunded premiums,
less any deducted compensation, is submitted to the insurer along with
supporting documentation (consisting of a copy of the group certificate or
individual policies).
Billing Method
An application for insurance is received by the producer. The applications

are submitted to the insurer who prepares a bill and then presents it to the
producer.
Various Methods of Booking

Business
Most insurers book the business as received. The producer is notified of

necessary corrections, missing data, or cancellations. Corrections are made
in subsequent reports.
Monthly outstanding balance business requires little auditing. Detected

errors are corrected in subsequent reports.
A report received without money requires the insurer to maintain a listing of

amounts due from producers. A second system is necessary to verify that all
producers provide reports.
E. CLAIMS ADMINISTRATION
The principles of claims administration are:
Consistency of claim handling
Timely processing
Adherence to policy provisions

Life Claims
Claims processing is relatively simple, and payments are usually made

within seven working days.
Processing Requirements
Completed claim form
Certified copy of the death certificate
Copy of the evidence of insurance
An examiner must verify:
The deceased is the insured.
The date of death is between the effective date and expiration date of
the insurance and a refund has not occurred.
The age on the death certificate is consistent with the age on the
insurance policy.
Disability Claims
Claims processing is more difficult for disability policies due to the

exclusions and the determination of disability.
Open files are classified as continuing claims in the payment status or

pending claims under investigation.
Closed files are those for which the final payment has been made because
of termination of disability, expiration of coverage, or denial.
Examiners must determine:
Is the claimant disabled?
Has the disability occurred during the policy term?
Have all policy conditions been met?
Are any policy exclusions applicable?
Examiners have four choices for action on a claim.

Develop the file: To secure all the basic information to adjudicate, or
process, the claim.
Pay
Payment may be first and final; i.e., a claim involving one payment.
Payment may continue for several years in which case the claimant
must complete a Continuance of Disability form every 30-90 days.
Deny
Investigate
The examiner reviews evidence of insurance and policy forms to

determine the conditions and exclusions of the coverage.
Form letters, phone calls and inspection companies may be used for
inquiry.
Auditing of the Claims Department
Internally, the department measures and tracks time and quality of service.
Audits are also performed by the corporate internal audit staff. These audits
concentrate on timeliness, accounting and conformance with corporate
policy.
On triennial examinations, state examiners sample claim files for

consistency, fairness and accuracy.
F. INVESTMENT DEPARTMENT
Investment departments attempt to match the terms of invested funds with the
terms of the underlying liabilities. Since credit insurance is short-term in nature,
a large portion of invested assets are short to medium term investments, such
as:
Certificates of deposit
Short-term bonds
Page 44
Checking accounts
Savings accounts
Other Responsibilities
Reconcile bank statements
Monitor the activity in trust accounts of captive reinsurance companies
Compare the amount of letters of credit posted to the required balance (of
offshore captives with letters of credit in lieu of a custodial trust)
Page 45
REVIEW QUESTIONS
1. are guaranteed commissions paid to a general

agent which emphasize producing new business.
2. The type of producer compensation that is contingent upon the profitability of the
business is called
3. When handling a disability claim, an examiner has four options. List them.
4. In exchange for the credit insurance business of a financial institution, an insurer

may offer to maintain deposits in the institution in accounts which pay less than the
market rate of interest. These are known as
5. List the items included in a producer's monthly report.
6. Which of the following are responsibilities of the sales force?
A. Solicitation of new producers

B. The training of the producers' personnel
C. The monitoring of producers' financial experience
D. Providing the producer with rate calculation material
E. Supplying the producer with reporting procedures
(1) A, B and E only

(2) A, B, C and E only
(3) A, B and C only
(4) B, D and E only
(5) B and D only
Page 46
7. List the principles of claims administration:
8. State the reasoning for the following statement, "Disability claims are more difficult to
process than death claims."
9. A. List the typical investments made by a credit insurance company.
B. What is the common characteristic of all of these investments? Why?
Page 47
LESSON SIX: HOME OFFICE OPERATIONS II
(REFER TO PP. 131-157)
OBJECTIVES
2. Given the type of clause within a policy form, describe its contents and purposes.
3. List the major difference between group and individual policy forms.
4. List the procedures that are followed in filing a policy.
Page 49
KEY WORDS
claim clauses
coverage clause
deemer provision
eligibility clause
Flesch Scoring Method
grace period
incontestability
insurable interest
insuring clause
misstatement of age clause
refinanced loan
variable reference basis
Page 50
OUTLINE
A. GROUP POLICY FORMS
The basic concept of group insurance is that the contractual relationship is

between the insurance company and the group policyholder (the lender).
A group master policy is issued to the lender by the direct writer.
Provisions
Insuring Clause: The clause that describes the benefits paid under the
various life and disability plans. The group certificate provided to the insured
may contain all possible options, and the desired benefits are selected by
marking the appropriate benefit box.
Eligibility Clause: The specific requirements that the insureds must meet,
such as a maximum age limitation and an actively-at-work test.
Coverage Clause
This clause specifies the date when insurance begins and ends.
The purpose of the clause is to measure the effective date from the first
date of the loan.
On refinanced loans, the effective date of the suicide clause, the

incontestable period and the preexisting conditions clause are often
modified to use the date of the original loan, at least to the extent of
the amount refinanced.
For example, if a person has a $1,000 indebtedness which is

refinanced in conjunction with a new loan for $2,500 then
immediately commits suicide, $1,500 of the claim would be denied.
However, the decision of the refinanced $1,000 would be based on
the date of the original loan, its suicide provision and the date of
death.
Considerations and Premiums Clause
A consideration clause is necessary for legal purposes, since the policy

is a legal contract.
The premium rates are defined for the plans of insurance, usually by
reference to a schedule or the group application.
Reports
Lenders are required to maintain records of the insureds under the

group policy. Reports must be sent to the insurer and must include:
Information about the insureds

Amounts and terms of the debts
Copies of certificates
Cancellations
Changes
Additions
Grace Period: The lender is permitted a 30 or 31 day grace period for the
remittance of premium to the insurer.
Entire Contract
The basic idea of this clause is to state that the written contract contains
all of the terms of the agreement.
This clause also contains general statements required of all group

policies. For instance, "fin defense . . . of the insured." In defense of a
claim, the insurer can only apply statements made in the written
application of the insured. (A copy of which must be attached to the
document given to the insured.)
Individual Certificates: The insurer guarantees that each debtor will

receive an individual certificate. The certificate is a concise version of the
group policy provisions as they pertain to the insured.
Termination of Insurance: Clauses will specify conditions of termination of

the group policy and the individual borrower's coverage.
On a group policy termination, the insurer is responsible for all business

in force unless the business is reinsured to another insurer.
Individual coverage termination occurs when the term expires, the

debtor requests cancellation, or the loan is terminated prior to the
scheduled maturity date.
Incontestability: This clause states that misrepresentations in the

application cannot be used as a defense for a claim if death or disability
occurs after the contestable period. This period is usually two years.
Page 52
Misstatement of Age
Case One: The borrower misstates his age so that he is eligible for
insurance, but his true age exceeds the eligibility requirement.
The claim is denied regardless of the contestable period on the

basis that the insurance was never in force.
Case Two: The borrower states his true age, however, his true age
exceeds the eligibility requirement.
The insurer must recognize the situation and rescind the certificate.
The time to rescind the certificate is limited in some states to 60 or
90 days after the effective date.
Claim Clause: Several clauses define the process of claim filing and the
beneficiaries under the policy.
Exclusions Clause: The exclusions for credit disability insurance are

outlined, such as six and six exclusion, suicide during the contestable
period, etc..
Definitions Clause
This clause will define a variety of terms found in the contract, such as:
Accident Sickness Disability: his (or own) occupation;

any occupation
General Clauses: The general clauses are representative of a variety of

general provisions. Some may be required by the state, while others serve
to cover minor items of the contract.
B. INDIVIDUAL POLICY
The contractual relationship is between the insured borrower and the insurer. The
individual policy is used for several reasons:
A state's group statutes may contain maximum limits on group policies.
Underwriting of the policy may be desired by the insurer; i.e., health questions
may be required, and insurers often use an individual policy instead of a group
policy (some states do not permit health questions on group policies).
Page 53
The insurer generally issues individual policies.
Provisions generally follow the description of the group policy.
C. POLICY FILING
The development of a policy form is a long and tedious process. Time for final
approval can range from one to eighteen months. The form must meet the credit
insurance regulations of each state where approval is desired. The general process
is:
A draft form of the policy is prepared.
An initial review is made for compliance with the state regulations where the
policy is to be filed. A master policy filing manual is referenced.
Filing requirements:
Filing fees are required by most states.
Readable forms are required in many states; the readability is judged by the
Flesch scoring method.
Rates must be filed:
Compliance with state maximum rates is required.
Actuarial justification is needed for age-rated policies, critical period

coverage, and MOB disability plans.
A package is assembled for submission to each state where approval is desired.

It generally includes:
Two copies of the form completed using "John Doe" information
A letter describing the submission
Filing fee
Long delays often occur.
Initial feedback may take from thirty to ninety days.
Some states have a deemer provision in their laws and regulations which
provide that a filing is deemed approved unless the department objects
within a specified period of time, usually thirty days.
Trends of Policy Filing
Many states require that a form be submitted and approved by the insurer's
domiciliary state before submission to other states.
Submission of solicitation and advertising material is now requested by some

states.
REVIEW QUESTIONS
1. The is used by many states to

determine a policy's level of readability.
2. A is a regulation in many states that

protects the insurer from an overextended policy approval period.
3. List the possible reasoning for writing an individual policy instead of a group policy.
4. Read the following information and answer the questions that follow.
A 48-month credit life policy with a suicide provision of two years was accepted by
the insurer.
A. If the insured committed suicide during the third year of the policy term, would
the death benefit be paid? Why or why not?
B. If the insured committed suicide during the second year of the term, would the
death benefit be paid. Why or why not?
5. Circle the correct response. If an insured misstates his age on a policy and is actually
above the maximum age limit, death benefits are (payable/not payable) after the
contestable period.
Page 56

Study Guide For Credit Life Disability Insurance

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Study Guide For Credit Life Disability Insurance

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A STUDY GUIDE FOR

CREDIT LIFE and

GARY FAGG AND ANGELA HAMMERLY

ISBN 0-9627820 1-7

Read the objectives and key words of the lesson.

Read the outline to reinforce your knowledge and clear misunderstandings.

Complete the review questions at the end of the lesson.

Check your solutions.

Refer to the Glossary in the textbook when needed.

Information that is shown in bold italic typeface updates or adds to the

Section I: Basic Lessons

Lesson One: Introduction, Terminology, History .............................................. 1

Section II: Advanced Lessons

Advanced Lesson One: Captive Reinsurance .........................................................109

Section III: Answers to Study Guide Review Questions ...........................................................181

1. Define or identify the Key Words of this lesson.

2. List the common characteristics of current credit insurance policies.

3. Discuss the founding of the credit insurance industry.

4. Outline the growth of credit insurance from 1917 to present.

5. List the market segments for the credit insurance industry.

6. List the purposes of a trade association.

Consumer Credit Insurance: Life or disability insurance sold in conjunction

Credit Disability Insurance: Insurance that provides a monthly benefit equal to

Common Characteristics of Current Credit Insurance Policies

No underwriting conditions are imposed to qualify for the insurance except a

The same premium rate is charged regardless of age or sex.

Coverage matches the loan obligation.

Insurance terminates when the loan obligation ceases.

Policy forms contain few exclusions.

Lender or Producer: The corporate entity offering credit insurance to the

C. HISTORY OF THE CREDIT INSURANCE INDUSTRY

The Establishment of Morris Plan Banks

In 1910, Morris organized a bank in Norfolk, Virginia based on this principle.

The Establishment of The Morris Plan Insurance Society

Other Early Credit Insurers

The Credit Life Insurance Company

Prudential Insurance Company of America

Old Republic Life Insurance Company

Credit Union National Association Mutual Insurance Society

Growth of Credit Life Insurance

1917-1941. The credit life insurance industry experienced steady growth

1942-1945. Credit life insurance in force declined during WWII as

1946-present day. Credit life insurance in force grew tremendously for a

Increase in spending on consumer goods

Broadening of state insurance laws

Acceptance of the product by lenders

Group versus Individual Policies

By 1970, 84% of all credit insurance was written on a group plan.

Development of Credit Disability Insurance

By 1950, a product providing a monthly benefit equal to the loan's monthly

D. THE ADOPTION OF CREDIT INSURANCE PROGRAMS BY VARIOUS MARKET

Automobile dealers and manufacturers Credit unions Commercial

Factors Affecting the Acceptance of Credit Insurance by Lenders

In 1972 the Federal Reserve Board decided to permit a bank holding

Definition: An organization of insurers formed to promote the industry and to

American Council of Life Insurance (ACLI)

National Association of Life Companies (NALC)

Health Insurance Association of America (HIAA)

2. A is the corporate entity which offers the

3, is the primary trade association

4. Two purposes of a trade association are:

(2) The average policy size is less than $20,000.

(3) The term of insurance is less than sixty-one months.