MR. WATSON: This chapter is about life insurance. There are a number of policies to learn, so take your time. Take notes and don't rush it. Our course goes into great detail, probably more detail than needed, but I want you to understand "how" policies are constructed and when and why they might be used. If you have questions please feel free to text, call, or email. We only have your career in mind and you have my word that the more you learn and understand the better you will be prepared, not only for the exam, but for your career afterward.
MR. WATSON: There are three categories of life insurance.
MR. WATSON: The acronym is HOG, H-O-G.
MR. WATSON: What kind of policies do home service companies sell?
STUDENTS: Industrial.
MR. WATSON: Home service companies sell industrial policies. Some characteristics of industrial are weekly payments and small face amounts. Sometimes this is called "debit insurance" and the premiums are collected weekly at the person's home.
- (O)rdinary. Ordinary is just ordinary. The premiums are paid annually, semi-annually, quarterly, or any other frequency that is not weekly. This is the principal type of life insurance sold.
- (G)roup insurance.
MR. WATSON: You qualify for life insurance with your health. What does a wealthy person have a lot of? Income. Can a very sick person buy life insurance? Generally no. Why? Because he is very ill. So you buy insurance with what? Your health. And you keep it in force with premiums.
MR. WATSON: But with group insurance, they look at the group as a whole, not the individual members of the group. Does that make sense? How could a very sick person get insurance? With a group. Could they exclude the sick guy? No.
MR. WATSON: What determines a group?
MAN: Is it like insurance through your employer?
WOMAN: It's more than one person.
MR. WATSON: Listen to her. Tell them.
WOMAN: It's more than one person.
MAN: No, I know a group is "more than one," but is it like health insurance through the employer? I'm trying to figure out how a sick person could get insurance since he is gravely ill.
MR. WATSON: If the NBA had a group policy for all its teams, then that one policy covers everybody in the NBA. So if the sick guy worked for the NBA, he could get coverage under their group plan.
WOMAN: That means one couldn't walk in off the street to an insurance agent, saying "I want to get insurance," but he could through his employer?
MR. WATSON: Exactly. Let me tell you this. There is a large business, a very large construction-type business. They have a guy that works for them, he's a type 5 hemophiliac. His medication costs $30,000 every other week. Do the math. It's over three-quarters of a million dollars every year. If a health insurance company took over the group insurance where this hemophiliac works, could they exclude the hemophiliac? No. They would have to take him. They could not exclude him. They look at the group as a whole. It is the same with group life.
MR. WATSON: Basically, the group is so large, they use all the money from the healthy guys to pay for the expensive guy.
MR. WATSON: Guys, it has to be a natural group. So, what is an unnatural group?
MR. WATSON: An un-natural group is one that came together for the purpose of buying group insurance. You can't do that. It has to be a natural group, whose purpose was to come together for some purpose other than buying group insurance, like a business or nonprofit or whatever.
MR. WATSON: A husband and wife do not constitute a group.
MAN: But you said more than one person --
MR. WATSON: Right, but not a husband and wife. It must be a natural group, a group that did not form for the sole purpose of buying insurance. Insurance must be incidental (secondary). An entire chapter is devoted to this. See Chapter 10.