costs. But the public image of which we are most proud is the reputation of our subsidiaries and agencies in their niche markets. As a result, we market our products under the names of each subsidiary rather than the Torchmark name to take advantage of the strong market niche recognition that each of our subsidiaries already had developed before joining the Torchmark group. It would be difficult to overstate the value of the positive name recognition that our leading subsidiaries have as stable, high quality organizations. 

## OUR PRODUCTS 

## LIFE INSURANCE 

The life insurance we write is designed to provide a basic financial benefit in the event of the death of the insured person, which is the foundation of all life insurance programs. For many of the customers we serve, it may well be the first and only life insurance they own. The policies are either simple, individual whole life policies which will over time build modest cash surrender amounts, or simple term policies. In 2002, the face amount of 

## protection life insurance 

Very few of our life insurance products contain additional savings, or asset accumulation features that are dependent on outside financial market growth for their financial success. As a result, the reserves that we are required to put aside for paying future life insurance benefits are very stable and not subject to swings in financial markets. These features of protection life insurance not only insulate the customer from swings in the market value of their insurance purchase, but also result in very predictable profits for us with little influence from outside financial market swings for which we have no control. 

## HEALTH INSURANCE 

The health insurance that we market is individual supplemental health insurance. The term 

our average agent-sold life insurance policy was $32 thousand and $12 thousand for our average direct-response sold life policy. 

“supplemental” means that the insured person has a primary health insurance program that pays most of the insured’s expenses, such as the federal Medicare program for individuals age 65 and over. Medicare supplement policies, for which Torchmark’s United American Insurance Company is best known, are designed to coordinate with traditional, fee-for- service Medicare by paying the deductibles and coinsurance required under Medicare. 

We also sell other types of limited-benefit supplemental policies that are popular with those who choose to self fund much of their day-to-day 

routine health care. They can reduce the risks of self funding by buying a limited- benefit supplemental policy that helps pay for hospitalization and surgical costs only. We also sell 

supplemental policies that pay benefits only when the insured person contracts a dread disease such as cancer. Almost all of our health insurance policies are underwritten before issue for health risks on an individual basis. Torchmark does not sell any comprehensive, major medical health insurance. 

About 69% of the health insurance premium that we collected in 2002 was from Medicare supplement insurance. Health insurance, especially Medicare supplement insurance, is highly regulated at both the state and federal level. As a result, it is characterized by lower profit margins than life insurance and requires strict administrative discipline and economies of scale for success. In recent decades spiraling health care costs have caused somewhat unpredictable results for primary health insurers. But for supplemental health insurance with its caps on benefits, and in the case of Medicare supplements that benefit from the strict cost controls in the federal Medicare program, results are more controllable and predictable. 

Because Medicare supplement policies coordinate with the federal Medicare program which experiences 

## individual supplemental health insurance 

