LH&A
Reinsurance Agreement Types
- Facultative - Treaty Arrangement
Commercial Lines Insurance
Property and casualty insurance to cover a BUSINESS
Exposure Unit
The item of property or the person insured
Financial Regulation
Various regulations are designed to improve insurance company solvency, detect financial problems, and protect insureds in the case of insolvency
Preretirement Period
When the children are no longer dependent on the surviving spouse. Usually, the surviving spouse's income needs lessen during this period
Facultative Arrangement
Both the primary insurer and the reinsurer retain full decision making powers with respect to each insurance contract. - Looking at each individual risk - Reinsurance company looks at each risk and decides if they want to be a part of the agreement and take on the risk
Private Insurers:
Stock insurers Mutual insurers
Loss Ratio Information...
...will sometimes be used to make decisions about whether to renew accounts, whether to continue agency contracts, and whether to tighten underwriting standards on a given line of insurance
Producer
A general term used to describe someone who sells insurance, such as an agent, broker, or solicitor
Attorney-in-Fact
A person who is empowered to handle all of the business of the reciprocal
Peril
Cause of loss (fire, collision)
Policy Analyst/Screener
Check the applications to make sure all information is correct and complete
Direct Response System
There are no agents. These companies sell through direct mail or over the phone.
Expense (Loading Charge)
Added to the net premium to: - Cover all expenses and contingencies - Have funds for expenses when needed - Spread cost equitability among insured
AIDS Considerations- Insurers are expected to develop sound statistical bases to draw upon in making decisions to do the following
- Accept or reject an applicant - Rate an applicant as a standard or substandard risk - Renew, Nonrenew or cancel a policy
Sources of Underwriting Information
- Application - Agent's report - Inspection report - Medical Information Bureau (MBI) - Medical exams and history
Optional requirements in group underwriting
- Employer Control - Group Size - Predetermined Coverage Amount - Enrollment Percentage > 100% for noncontributory plan > 75% for contributory plan - Insurance Incidental to Group - Eligibility - Composition of Group
Costs Associated with Death
- Final medical expenses of the insured - Funeral expenses - Day-to-day expenses family maintenance - Estate taxes - Paying off debts - Mortgage payments - Immediate income needs
Payment Less Than Face Amount for Life Insurance
- There is an outstanding loan against the cash value of the policy - When a premium payment is due - When an error is made in determining the age or gender of the insured when the policy was issued
Methods of Distributing an Estate
- Inter Vivos transfers - Testamentary transfers
Capital Conservation Advantages:
- It generates income indefinitely - It creates a legacy
Determining Premiums or Rating Considerations:
- Mortality (life insurance rates) or morbidity (health insurance rates) - Interest - Expenses
Group Underwriting Considerations
- No medical underwriting - All eligible participants maintain coverage - Adverse Selection - Company turnover - Adverse Underwriting Decisions - Probationary Period (90 days) - Eligibility Period > Runs for 30-31 days following probationary period > Happens with contributory plans to avoid medical underwriting
Statutory Requirements for Group Underwriting
- Nondiscriminatory Classifications
Producer Responsibilities Upon the Insured's Death
- Notify the company immediately - Contact the person designated to receive proceeds of the policy - Completed and official form of the insured's death - Render the best possible services to the beneficiary
Most Applications Provide the Following Information
- Part 1: General Information - Part 2: Medical Information - The agent's statement or report - Proper signatures of all parties to the application
Personal Uses of Life Insurance
-survivor protection -mortgage payoff -estate creation -estate conservation -liquidity -cash accumulation
Creditors and Debtors
There is insurable interest between the two Credit Life Insurance
Agent's Responsibilities
- Solicitation and Sales Representation - To insure proper handling (Buyer's Guide)
A rate must be adequate to pay:
- The cost of losses that will have to be paid - The cost of conducting the business - A small profit
Applicants Eligible for Preferred Risk Classifications are those who:
- Work in low-risk occupations and don't participate in high-risk hobbies - Have a very favorable medical history - Presently are in good physical condition without serious medical problems - Do not smoke - Meet certain weight limitations
Material Misrepresentation
- a false statement that changes the outcome of issueing a policy - generally with the health statement (cancer)
Regulation and the Company
-Admitted and Non-Admitted Companies -Certificate of Authority
A. Who may be examined
-Company authorized to do business in Minnesota -Person who is involved in the formation of an insurance company -Licensed producer or solicitor of any person seeking a license -Person engaged in the business of adjusting losses or financing premiums
The following constitutes transacting insurance business:
-Issuing or delivering a policy or annuity -Soliciting an application for insurance -Collecting premiums, fees, or assessments for a policy -Any other transaction related to an insurance policy
Requirements for a Producer's License:
-Must be 18 years of age -Complete the necessary prelicensing education -Pay the applicable fees -Successfully pass the examination -Not have committed any act which is grounds for license denial -Consent to a criminal history background check and fingerprinting
Insurance Agent Responsibilities
-Selling Insurance -Issuing and countersigning policies -Collecting Premiums
Powers and Duties of the Commissioner
1. Broad Powers 2. Examination of Powers 3. Must examine the affairs and conditions of every insurer licensed in MN at least once every 5 years 4. Notice and Hearing 5. Forms and Rate Review
State Insurance Department Areas of Responsibility
1. Companies 2. Agents 3. Ratification 4. Enforcement
Parts of an Insurance Contract
1. Declarations 2. Insuring agreement (Heart of the Policy) 3. Conditions (Ground Rules) 4. Exclusions (Losses that aren't covered) 5. Definitions (Clarifies the meaning of terms)
Unfair Claims Settlement Methods and Practices
1. Delaying or refusing a settlement because the claimant retains an attorney or public adjuster 2. Demanding irrelevant information that has nothing to do with the loss 3. Failing to adopt reasonable standards for prompt investigation of a claim 4. Refusing to pay a claim without conducting a reasonable investigation 5. Compelling an insured to commence litigation by offering an inadequate settlement 6. Making settlement on one part of a claim contingent on agreement to settle on another part of the claim 7. Denying a claim without disclosure. The insurer must cite the specific policy provision that applies 8. Making an arbitrary assignment of comparative negligence. The insurer must have reasonable evidence and documentation 9. Denying a claim because the insured did not "officially" report it or use the proper forms 10. Refusing to pay a claim because the insured might collect somewhere else 11. Requiring inspections at specific places or unreasonable distances 12. Failing to reply to customer claims / inquiries within 10 days 13. Making claims payments without identifying the coverage under which the payment is made
Licensing Requirements
1. Education Requirements -Prelicensing (20 hours per major line of authority) 2. Types of Licenses a. Producer b. Nonresident c. Agency d. Managing General Agent e. Surplus Lines f. Exceptions to Licensing 3. Termination of License a. Expiration b. Revocation or Suspension 4. Appointment 5. Termination of Appointment 6. Maintenance and Duration of Licensing a. Notification Requirements b. Reinstating a Lapsed License
Levels of Agent Authority
1. Express Authority 2. Implied Authority 3. Apparent Authority
Four Lines of Insurance
1. Property 2. Casualty 3. Life 4. Health and Disability
Three Types of Business Organizations
1. Sole Proprietorship 2. Partnership 3. Corporation
Other Insurance Functions
1. Underwriting > Loss, Expense, and Combined Ratios 2. Policy Analyst / Screener 3. Rater 4. Assembly and Filing Area 5. Claims Department 6. Actuarial and Statistical Department 7. Accounting Department 8. Investment Department 9. Legal Department 10. Audit Department 11. Loss Control Department 12. Agency Department 13. Marketing Department 14. Personnel 15. Training 16. Information Systems 17. Administration 18. Forms and Filings 19. Building and Maintenance
Financial Status (Independent Rating Services)
AM Best Fitch Standard and Poor's Moody's Weiss Independent rating services provide guides to the financial strength and stability of an insurance company
Agency
A business entity acting as an insurance producer is required to obtain an insurance producer license using the Uniform Business Entity Application
Handling a Claim
A claim and its payment are the end result of the insurance process. It means the insured has died and the beneficiary stands ready to collect from the insurer what is due
File and Use States
A company may begin using forms and rates as soon as they have been filed
Exposure
A condition or situation that presents a possibility of loss.
Publicly Held Corporation
A corporation that may have thousands of stockholders and whose stock is traded on a national securities market.
Close Corporation (Closely Held Corporation)
A corporation whose shareholders are limited to a small group of persons, often family members.
Apparent Authority
A doctrine that holds that an agent may have whatever authority a reasonable person would assume the agent has In the public's eye, an agent acting under apparent authority binds the company as fully as under expressed or implied authority
disability income insurance
A form of health insurance that provides periodic payments to replace income when the insured is unable to work as a result of illness, injury, or disease-not as a result of a work-related accident or condition Disability income statements are issued on an individual basis or on a group basis through an employer-sponsored plan, labor union, or association
Reinsurance
A form of insurance whereby one insurance company (the reinsurer) in consideration of a premium paid to it, agrees to indemnify another insurance company (the ceding company) for part or all of its liabilities from insurance policies it has issued. ▬ A form of insurance between issuers ▬ "The insurance company's insurance company"
Twisting
A form of misrepresentation in which an agent persuades an insured/owner to cancel, lapse, or switch policies, even when it's to the insured's disadvantage. The insured then buys a policy from them Twisting is illegal
Risk Retention Group (RRG)
A group captive that can write any type of liability coverage except employers' liability, workers compensation, and personal lines -Group self-insurance programs or group captive insurance companies -Protects them against product liability exposures and to purchase liability insurance on a group basis
Adverse Selection
A high-risk person benefits more from insurance, so is more likely to purchase it. Very poor risks and parties with fraudulent intent
Administrative Services Only (ASO)
A large employer may elect to fully self-fund or may self-fund a plan but contract for administrative services only.
Contract
A legal agreement between two competent parties that promises a certain performance in exchange for a certain consideration
Suspension of License
A license is suspended for any period of 3 months or more The producer man not sell or service insurance policies during that time
Appointment
A licensed producer is at all times the agent of the insurer, not the insured, and has a fiduciary responsibility to the insurer
Notification Requirements
A licensee is required to give written notice to the commissioner in the following situations 1. Change of Name or Address (10 days) 2. Administrative Actions (30 days) 3. Criminal Prosecutions (30 days) 4. Criminal Convictions and Guilts Pleas (10 days) 5. Assumed Names
Issuing the Policy
A life insurance policy may be issued as applied for, modified, or even amended if the applicant meets the underwriting standards of the insurance company
Advantages as Property
A life insurance policy's cash value can be used as collateral or backup property for borrowing money A type of property and creates an immediate estate
Fraternal Benefit Society
A life or health insurance company formed to provide insurance for members of an affiliated lodge, religious, or fraternal organization with a representative form of government. -Not for profit -Must obtain a certificate of authority from the Commissioner and must abide by reserve and trade practice regulations -Every society transacting business in Minnesota must file an annual statement with the Commissioner reflecting its financial condition, transactions, and affairs for the previous year
Concealment
A means of hiding or not sharing information (material) Could void the policy
Interest-Adjusted Net Cost Method
A method of comparing costs of similar policies by using an index that takes into account the time value of money by applying an interest adjustment to yearly premiums and dividends. Provides an estimate of the policy owner's average annual out-of-pocket net premium outlay, adjusted for the time value of money Does not assume the policy is surrendered at the end of the period. Cash value element is omitted "Net Payment Cost Index"
Traditional Net Cost (TNC) Method
A method of comparing insurance costs that sums the premiums over a stated period (usually 10 or 20 years) and subtracts from this the sum of all dividends over that same period "Surrender Cost Index" The projected total cash value of the policy at some point in the future is subtracted from the total premium payments to the same point in the future to find out how much the policy costs. The net cost is averaged over the number of years in the period to arrive at the average cost per thousand for a policy that is surrendered for its cash value at the end of the period
Needs Approach
A method of determining how much life insurance you need based on funds your family would require to maintain their lifestyle after your death
National Do Not Call Registry
A national registry, managed by the Federal Trade Commission, that lists the phone numbers of consumers who prefer to limit the telemarketing calls they receive.
Nonresident
A nonresident of Minnesota shall receive a nonresident producer license if the person is currently licensed as a resident and in good standing in the person's home state Has submitted the proper request for a license and has paid the required fees Has submitted to the Commissioner the license application submitted to the person's home state or completed a Uniform Application
Agent's Statement
A part of the application that requires the agent to provide information regarding the proposed insured, such as the relationship between the agent and the insured
Indemnity
A payment for damage or loss -Insurance should restore the insured -Insurance puts you back to where you once were before the loss Indemnity = Restore
Agent
A person authorized to act on behalf of the insurance company -When acting under powers granted by their principal, their actions are considered to be the acts of the principal -Acts can include making contracts and accepting money
Insured
A person covered by an insurance policy
Standard Risk
A person entitled to Life Insurance protection without extra rating or special restrictions. An applicant or insured who is considered to have an average probability of a loss based on health, vocation and lifestyle. About 90%of individuals covered
Fiduciary
A person in a position of financial trust Attorneys, account officers, accountants
Moral Hazard
A person might create a loss situation on purpose just to collect from the insurance company
Revoked License
A person who has had their license revoked is prohibited from license reapplication for at least two years from the effective date of the revocation As a condition of reapplication, the producer must obtain a performance bond of at least $20,000 with the state of Minnesota as obligee
Multiple Employer Trust (MET)
A policy may be issued to the trustees of a trust group if the fund has been established by: 1. Two or more employers in the same related field 2. One or more labor unions or associations - Known as Taft-Hartley trust
Third Party Ownership
A policy owned by a person other than the insured A corporation may apply for insurance on the life of a key employee
Level Premium
A policy premium that remains the same over the period of time premiums are paid. The level premiums paid by the policyowner are equal to the increasing sum of the premiums caused by the increased risk of mortality
Graded Death Benefits
A policy where the full face value will not be paid until graded time has passed, according to policy terms (often 2 to 3 years) due to a substandard risk The insured pays the standard premium of the insurance but receives a policy with a face value smaller than the initial investment. After some time has elapsed, the company may increase the amount of insurance periodically, and when the company considers the substandard condition to no longer exist, the full amount of coverage will be granted
Company Ratings
A rating of the financial strength of insurance carriers on the basis of an analysis of the company's claims experience, investment performance, management, and other factors Rating Organizations include: A.M Best, Inc. Standard and Poor's Moody's
Inspection Receipt
A receipt obtained from an insurance applicant when a policy (upon which the first premium has not been paid) is left with the applicant for further inspection. It states that the insurance is not in effect and that the policy has been delivered for inspection only.
Misrepresentation
A representation that was actually false but does NOT affect the underwriting decision
Pure Risk
A risk that presents only the possibility of loss; no possibility for gain. EX: If a fur coat is stolen
Accidental Death and Dismemberment
A special form of insurance coverage for accidents that result in death or the loss of limbs or eyesight
Self-insurance
A special form of planned retention by which part or all of a given loss exposure is retained by the firm -No benefit of insurance coverage to fall back on if a loss occurs
Flat Additional Premium
A specific additional premium is added to the standard rate. This is a constant rate, meaning that it doesn't vary with age.
Representation
A statement believed to be entirely true to the best of one's knowledge
Mortality Table
A statistical table that shows the likelihood for a person to die based on their age, sex, and other characteristics
Surplus Lines
A surplus lines license allows the producer to place insurance risks with eligible surplus line insurers
Consideration
A thing of value exchanged for the performance promised in the contract In insurance, the consideration that the insured gives is the premium payment. The consideration that the insurer gives is the promise to pay for certain losses suffered by the insured.
Association or Labor Group
A third type of organizations eligible for group insurance includes members of labor organizations An association or labor group must have the following characteristics to be considered an authorized group: 1. Have a constitution and bylaws 2. Be organized and maintained in good faith for purposes other than maintaining insurance 3. Have insurance for the purpose of covering members, employees, or the employees of members for the benefit of persons other than the association or its officers or its trustees
Conditional Contract
A type of an agreement in which both parties must perform certain duties and follow rules of conduct to make the contract enforceable.
Mutual Insurance Company
A type of insurance company owned by its policyholders. Both insureds and stockholders are owners of the company. Dividends are not taxed in an insurance company because it's considered a refund of premiums. - Dividends are paid to policyholders As owners, they can vote to elect the management of the company. - Issues Participating policies Most mutual companies are advance premium companies that charge non-assessable premiums -Means they must maintain a legal reserve system
Lloyd's Association
A voluntary association of individuals, or groups of individuals, who agree to share in insurance contracts. Each individual or "syndicate" is individually responsible for the amounts of insurance it writes. Also known as "Surplus Lines." Not an insurance company.. issues one of a kind risk Celebrities may insure their hair Athletes may insure their arm Lloyd's of London is an underwriting group
Compensation of Licensees
A. An insurer or producer may not pay a commission or other valuable consideration to a person for selling or negotiating insurance in Minnesota if that person is required to be licensed and is not B. A person may not pay a commission or other valuable consideration for selling or negotiating insurance in Minnesota if that person is required to be licensed and is not C. Renewal or other deferred commission may be paid to a retired producer for policies that were sold while the producer was licensed D. A licensed producer may not charge fees for service unless all fees are reasonable and fully disclosed in writing. Before providing services, the producer must provide a written statement disclosing the amount of the fees, the services for which the fees are charged, and that the fees are charged in addition to the premiums
Examination of Records
A. Who may be examined B. Purpose, Scope and Notice of Examination C. Access to Examinee D. Examination Report E. Order 1. Restore any Deficiency 2. Cease and Desist F. Penalty
AIDS Considerations
AIDS, ARC and HTLV-III are the subject of legislation covering a broad range of considerations Many states instruct insurers to threat the three diseases exactly like other diseases - Underwriting decisions must be applied in the same manner - Provisions regarding coverage limitations, deductibles, exclusions, coinsurance, and similar clauses must be applied in the same manner - Claim settlement considerations must be on the same basis as other diseases
E. Order
After the examination report has been issued, the commissioner may also issue an order, which must be adhered to within the time specified Two Orders: 1. Restore any deficiency 2. Cease and Desist
Independent Agency System
Agencies that are independent contractors contract with several different companies to represent and sell insurance for those companies.
Cominginging
Agent cannot use the agent's fund along with theirs and then pay the funds back later
Personal Delivery
Agent personally delivers policy to the insured. good practice bc agent can explain coverage to the insured.
Unfair Discrimination
Agents can be in violation of the law if they unfairly discriminate against insureds. This means that an insured cannot be given a lower or higher rate than another insured in identical circumstances. It also means that the agent cannot accept a bribe from a client to provide insurance or lower the premium.
Misrepresentation
Agents may not misrepresent or falsely advertise the terms or benefits of a policy or the financial condition of the company
Suspense or Diary System
Alerts the agent before the policy renewal time
Forms and Rate Review
All schedules of policy premium rates, policies, certificates of insurance, notices of proposed insurance, applications for insurance, and endorsements and riders used in Minnesota must be filed with the Commissioner
Adding an Endorsement
Allow policy holders to modify or make changes to the original policy in some way -Broadening coverage -Restricting coverage -Changing the name of an insured
Open Competition States
Allow the companies to compete openly with the forms and rates they select, subject only to requirements of adequacy and nondiscrimination
Change of Insured Provision
Allows a company to maintain a key person policy for a succeeding key person if the original individual leaves the company, without the need to cancel the policy and issue a new one
Section 303 Stock Redemption
Allows a corporation to make a distribution of a portion of the stock of a decedent that will not be taxed as a dividend. -The business must be a regular corporation or an S corporation (closely held) -The value must be more than 35% of the adjusted gross estate -Only an amount stock equal to a total of all estate taxes and administration expenses can be redeemed
Shared Funding Arrangement
Allows the employer to self-fund health care expenses up to a certain limit. The employer can select a deductible and pay covered expenses for any individual incurring claims up to that maximum, at which point the insurer assumes the risk
Domestic, Foreign, Alien
Although a company may conduct business in several states, it is formed and incorporated in only one state
A problem that sometimes arises in insurance contracts:
Ambiguity - Occurs when the insurer does not make the terms and agreements of the policy perfectly clear
Gross Annual Premium
Amount the policy owner actually pays for the policy GAP = Mortality Risk - Interest + Expenses
Managing General Agent (MGA)
An MGA: -Hires producers -Supervises a territory -Is responsible for agent activity -Must be a licensed insurance producer
Fraud and False Statements
An act committed by an individual who knowingly gives false material information to an insurer, agent, or broker with the intent to obtain insurance, an inaccurate rating, or undue claim payments. - Conceals making false material statements, making false entry of material in any report/statement to... -Deceive -Embezzle -Misappropriate money -Corrupting/Influencing admin from an ongoing investigation of a rep of insurer Fine and/or imprisonment (10-15 years) > 15 years if it jeopardizes the financial soundness of the company
Excess lines agent
An agent licensed by the state to handle the placement of such coverages with nonadministered companies (ones that are not authorized to conduct business in the state under ordinary circumstances)
Independent or Nonexclusive Agent
An agent who represents more than one company -Independent businessperson -Collect commissions on the policies sold but collect no salary from the companies they represent
Cross Purchase Plan
An agreement that provides that upon a business owner's death, surviving owners will purchase the deceased's interest, often with funds from life insurance policies owned by each principal on the lives of all other principals.
Viatical Settlement
An arrangement that allows someone living with a life threatening condition to sell their existing life insurance policy and use the proceeds when and where they are most needed, before death. By selling the policy, this advances a percentage (usually 60%-80%) of the eventual death benefit Not taxable as income
Admitted Carrier
An authorized insurer, issued a certificate of authority to transact business in the state.
Executive Bonus Plan
An employee benefit plan in which an employer gives an employee a bonus in the amount of the premium payments on a life insurance policy.
Licensing and Appointments
An individual may not sell, solicit, or negotiate insurance in the state of Minnesota for any class of insurance unless the person is licensed for that class of security
Purchasing Group
An individual or a group of individuals who are responsible for purchasing activities for a material or a group of materials. -Can transact business in all other states -Exempt from state insurance regulation and guarantee funds
Expration
An individual producer may voluntarily surrender his license by choosing not to renew it
Reinstating a Lapsed License
An individual producer whose license lapses may, within 12 months from the renewal date of the renewal fee, reinstate the license without having to pass a written exam
Medical Information Bureau (MIB)
An information database that stores the health histories of individuals who have applied for insurance in the past. Most insurance companies subscribe to this database for underwriting purposes. Non-profit central information agency that was established by a number of insurance companies to aid in underwriting. Speeds up underwriting and helps prevent fraud. The MIB has over 600 member companies that write 80% of the health insurance and 99% of the life insurance policies in the US and Canada Reports the number of times information has been requested about an individual in the past two years. - Report is called the Insurance Activity Index (IAI)
Personal Contract
An insurance company does not insure property; it insures the person who owns the property.
Foreign Company
An insurance company doing business in a state other than the one in which it is incorporated
Alien Company
An insurance company incorporated in a country other than the United States but doing business in the states
Multiline Company
An insurance company that writes more than one line of insurance
Monoline company
An insurance company that writes only one line of insurance
Aleatory Contract
An insurance contract is contingent on an uncertain event (a loss) that provides for unequal transfer of value between the parties
Unilateral Contract
An insurance policy is one sided because only the insurance company is legally bound to perform its part of the agreement Insureds are not legally obligated to pay premiums. If insureds stop paying premiums, the insurance company can cancel coverage, but it can't take them to court for breaking the contract
Termination of Appointment
An insurer terminates the appointment, employment, or contract with a producer must notify Commissioner within 30 days following the effective date of the termination.
Waiver
An intentional, knowing relinquishment of a legal right Voluntarily giving up of a known right, claim, or privilege
Surety Association of America (SAA)
An organization that collects data on written and earned premiums and losses incurred for fidelity and surety bonds. Functions as a ratings bureau for surety bonds
Sole Proprietorship
An unincorporated form of business whereby an individual, using his own special talents and abilities, owns and manages a business
Reciprocal Company
An unincorporated group of subscribers that exchange insurance responsibilities with other members, managed by an attorney-in-fact. -They insure eachother and share losses with eachother under a contract -Members are known as subscribers Subscribers all pay a premium
Insurable Interest
Any financial interest in life or property such that, if the life or property were lost or harmed, the insured would suffer financially. - A person must have a chance at financial loss or a financial interest in a property to be insured - A person is presumed to have an insurable interest in their own life or in the life of a close blood relative or spouse - Can be based on a financial loss that will occur if an insured individual dies
F. Penalty
Any person who violates or aids and abets any violation of a written order may be fined up to $10,000 for each day the violation continues
Surplus Lines
Any type of insurance not offered by an insurer licensed to do business within the state; must be given to a nonadmitted insurer -Issued by a surplus lines broker
Hazard
Anything that increases the chance of loss
Roles in the Insurance Process
Applicant Policyowner Insured Beneficiary Third-Party Ownership
Tabular Rating
Applicants are classified on the basis of extent to which mortality of risks with their impairment or degree of impairment exceeds that of the standard risk Percentage tables are developed and used to calculate the amount of extra premium to be charged for any class of impaired risks Extra percentage tables usually reflect about a 25% increase above 100%, or standard The company actuary determines what the exact surcharge should be for a client with a particular impairment based on claims history of similar clients
Inter Vivos transfers
Are made while the estate owner is still alive. Transfers can be made as: - Gifts - Trusts - Policy ownership under rights of survivorship
Capital Liquidation
Assumes both principal (capital) and interest are liquidated over the relevant time period to provide the required income for the dependents. Sometimes called "Capital Utilization"
Implied Authority
Authority given by the insurance company to the agent that is not formally expressed or communicated Allows the agent to perform all of the usual and necessary tasks to sell and service insurance contracts and to fully exercise the agent's authority
Interest
Because premiums are paid in advance of claims, insurance companies have money to invest to earn interest The interest earned helps to lower the premium rate
Warranty
Becomes part of the contract itself and is a statement that is considered to be guaranteed to be true. Any breach of warranty provides grounds for voiding the contract
Business Continuation Agreement
Buy-Sell Agreement A legal contract that determines what will be done with a business in the event that an owner dies or becomes disabled. The agreement provides necessary cash with which to keep the business doors open until the business can be sold at its fair market value for the benefit of the family
Audit Department
Checks the accounting records of these insureds at the required intervals to obtain the necessary information used to determine these types of premiums.
General Overhead Loading
Clerical salaries, furniture, fixtures, rent, management salaries, and so forth must be considered when determining expenses
Non-Admitted Carrier
Companies without a certificate of authority Cannot write business in the state
Rater
Computes the premium to be charged
Elements for a Legal Contract: CLOAC
Consideration Legal Purpose Offer Acceptance Competent Parties
Agency Agreement
Contract between an insurance agent (producer) and insurance company (insurer) that describes the powers, rights, and duties of the agent.
Hold Harmless Agreement
Contractual arrangement where one party assumes the liability of a situation and relieves the other party of responsibility.
Advantages to Life Insurance as Property
Convenience for paying in installments Safety of principal Return on Investment No maintenance obligations (besides premium pmts) No managerial care required
Acquisition Cost
Costs related to getting policies on the books
Estate taxes known as..
Death Taxes
Human Life Value Approach
Death benefit determined by Insured's projected lost earnings potential. The present value of the family's share of the deceased breadwinner's future earnings In determining how much life insurance is needed the worker's annual earnings are multiplied by the number of years remaining until he/she retires. From the resulting figure taxes and expenses are subtracted.
Payment of Claims
Death benefits are paid to the beneficiary, other benefits may be paid directly to provider of services or the insured. Life insurance companies are required to pay death claims within a specified period after proper notification of such claims is received. This period is usually 2 months (60 days)
Deferred Compensation Plan
Deferral of an employees compensation to some future age or date. These plans are frequently used to provide fringe benefits, such as retirement income, to selected personnel
Other Elements of Insurability
Definite Loss (Death) Unexpected Financial Hardship (Risk large enough to cause significant financial hardship) Calculable (Loss has to be calculable) Affordable (The cost of the insurance must be affordable to the insured) Losses are Predictable (There much be a large number of persons with a similar potential loss available for the insurance so that overall, losses become predictable) Adequate Spread of Risk
Property Insurance
Designed to handle property risks- Risks that we will suffer financial loss because something we own is damaged or destroyed Property Insurance includes: -Dwelling -Homeowners -Commercial Property -Inland Marine -Ocean Marine -Crime
Accident and Health Insurance
Designed to handle the risk of medical bills and loss of income resulting from injury or sickness Accident and Health policies include: -Medical Expense Insurance -Disability Insurance -Accidental Death and Dismemberment -Long Term Care Insurance -Credit Disability Insurance
Life Insurance
Designed to handle the risk of premature death or the risk that an individual may outlive his or her financial resources Coverage on human lives and provides benefits from the following types of policies: -Term Insurance -Permanent Insurance (fixed and variable) -Endowments -Annuities (fixed and variable) -Credit Life
Attending Physician's Statement (APS)
Designed to obtain more specific information about a particular medical problem revealed in the application or during the medical examination
Minimum Premium Plan (MPP)
Designed to support a self-insured plan, a minimum premium plan helps insure against large, unpredictable losses that exceed the self-insured level. The employer is responsible for a minimum premium consisting of administrative expenses, reserves, and a premium for stop-loss to fund claims over the trigger
Insurance Marketing Systems
Distribution Systems used to market insurance: 1. Exclusive Agency system 2. Direct Writer system 3. Direct Response system 4. Independent Agency system
Domicile
Domestic Insurer is incorporated, organized and domiciled in this state (MN)
AIDS-related complex (ARC)
Early stage of human immunodeficiency virus (HIV) infection in which mild symptoms of infection are present, including lymphadenopathy, fatigue, fever, night sweats, weight loss, and diarrhea
Guaranty Association
Established by each state to support insurers and protect consumers in the case of insurer insolvency, guaranty associations are funded by insurers through assessments A state mandated association of all insurance companies designed to protect consumers from impaired or insolvent companies.
Medical Examinations and Testing
Examination by a physician on behalf of an applicant for insurance or in substantiation of a claim.
Agency Relationship
Exists when one person (the agent) is authorized to act on the behalf of another person (the principal).
Private vs. Government Insurers
FEDERAL and STATE GOVERNMENTS provide social insurance programs in those areas where private insurers either cannot or will not write insurance. 1. Participation in government insurance programs is mandatory and automatic for all citizens 2. The government does not provide benefits under a insurance contract or policy. These benefits are in place as a result of the passage of certain laws. The only way any benefits is to change the laws that affect them. 3. Social insurance programs are designed to be adequate enough to meet public needs rather than equitable. As the government redistributes income through the system, individuals who contribute the least amount into the system receive greater benefits. 4. The government has a clear and strong monopoly as an insurance provider. Federal Programs: Social Security, Medicare, Medicaid, Military Programs, Federal Employee Benefits, Insurance for the Needy
Federal Regulations
Federal law imposes penalties for fraud and false statements made in connection with insurance transactions
Life Insurance Reserve
Fixed liability of the insurer The liability represents the insurer's promise to pay the face amount of the policy at some point in the future
Claim Frequency Rate
Frequency at which a specific population is predicted to become injured, sick or disabled
Cease and Desist
From transacting business that may harm the company's policyholders or the public
Split Dollar Plan
Funding mechanism whereby employer & employee share cost of premium. Upon death, benefit is shared between employer & beneficiary. Guarantees a cash value The employer's share of the premium is an amount equal to the annual increase in the policy's cash value
Reserves
Funds set aside to pay future, existing and ongoing claims as well as for emergencies The amount together with interest to be earned and premium to be paid that will exactly equal the company's contractual obligations
Group Insurance: The trustees are the policyholders of the plan that covers eligible employees
Group insurance must not be for the benefit of the employer, union, or association
Group Insurance Premiums
Group insurance policies are often able to provide coverage at a lower premium than individual policies can. This is due to: - Lower administrative costs - Based on the experience of the group as a whole
Physical Hazard
Hazard that arises from the condition, occupancy, or use of the property itself
Marketing Department
Helps determine the company's overall marketing strategy Develops advertising and sales aids or works closely with a separate advertising department to accomplish these goals
Reinsurance
Helps protect insurance companies from catastrophic losses and from wild fluctuations in underwriting results
Excess Lines or Surplus Lines
Highly specialized insurance coverages -Auto racing liability -Tuition Refund Insurance Often not available from any company admitted to do business in a state
Insurance Services Office (ISO)
ISO files both loss costs and standardized forms on behalf of its member companies
Conditional Receipt
In Life and Health insurance, a Conditional Receipt provides that if premium accompanies the application, coverage shall be in force from the date of application (whether the policy has yet been issued or not) provided the insurance company would have issued the coverage on the basis of facts as revealed by the application and other usual sources of underwriting information. Remember, there is never any coverage unless the premium has been paid!
Charitable Uses of Life Insurance
In accordance with tax laws, a policy owner may purchase a life insurance contract on their life, pay the premiums, and designate a charitable organization as the beneficiary
Preferred Risk Policy
If a substandard risk presents an above-average risk of loss, a preferred risk presents a below-average risk of loss Sold at lower rates to individuals whose mortality experience is expected to be lower than average In an effort to encourage the public to practice better health, the insurance industry developed preferred risk policies with lower (preferred) premium rates
Restore any Deficiency
If an insurance company's capital, surplus, or reserves become impaired
Intestate Transfer
If the estate owner dies without leaving a will, which is called dying intestate, the property will be transfered as an intestate distribution under the laws of the state
Notice and Hearing
If the insurer or producer disagrees with the Commissioner's findings, the insurer has the right to request a hearing within 30 days of the order Once the hearing has been requested, the Commissioner has another 30 days to hold the hearing
Expense Ratio
Indicates the cost of doing business Expense Ratio = Underwriting Expenses / Written Premium
Penalties for Violating Insurance Laws
In addition to administrative penalties levied by the Commissioner, the following criminal penalties apply when violating insurance laws: 1. First offense is a misdemeanor, each subsequent offense is a gross misdemeanor 2. The following offenses are a gross misdemeanor on the first offense: - Acting as an insurance producer without a valid license - Making false statements on an insurance application - Forging the signature of another person
The Concept of Indemnity
In life and health insurance, a person's economic value or human life value is the individual's present and future earning power
B. Purpose, Scope and Notice of Examination
In order to examine the records, the Commissioner must provide notice of the scope of examination A copy is sent to the examinee
Long-Term Care Insurance
In order to offer, sell, or negotiate long-term care insurance, a licensed producer must complete an initial 8 hour training course, followed by 4 hours of ongoing training every 2 years after
Payment Less Than Face Amount
In property and casualty insurance, the amount of claims paid is often less than the face amount of the policy. In life insurance, the full amount of the policy is generally paid
Immediate Payment of Claims
In rate making, it is assumed that all claims are paid at the end of the year. This is not true; assume that claims will be spread throughout the year. Allowance must be made for this loss in the expense loading Compensates for the difference between when the claims are projected to be paid and when the claims are actually paid
Buy-Sell Agreement
In the context of partnerships, an express agreement made at the time of partnership formation for one or more of the partners to buy out the other or others should the situation warrant—and thus provide for the smooth dissolution of the partnership.
Capital Conservation
Income is only derived from the interest gained on principle Sometimes called "Capital Retention"
Receive more underwriting scrutiny...
Individuals applying for individually owned life and health insurance
Certificate Authority
Insurance companies must obtain a certificate of authority to transact business int he state
Principal
Insurance company -Can grant certain powers, or authority, to their agents
Domestic Company
Insurance company doing business in the state in which it is incorporated.
Maintenance and duration of license
Insurance producer's licenses are valid for a period of 24 months and expire biennially on the last day of the producer's birth month
Insurance Consultant
Insurance professional who, for a fee, offers advice on the benefits, advantages, and disadvantages of various policies; they sell advice, not insurance
Insurance on High-Risk Cases
Insurers vary in the number of tables on which they will accept risks. Companies can been found that will write up to 1000%, or even higher More and more high-risk cases are becoming acceptable. Today, it is a rare case when coverage cannot be found anywhere for almost any risk
Legal Department
Interprets various state insurance laws and helps the company keep its policies and practices in compliance. A key role is the department's Involved in court cases arising from claims -Helps determine fair indemnification for insureds
Mailing the Policy
Legally, the policy is considered delivered when it is mailed or turned over to the policyowner
Casualty Insurance
Liability coverage of an individual or organization for negligent acts or omissions -Result of our actions towards others Casualty Coverage also includes: -Aviation -Auto -Workers' Compensation -Surety bonds
Key person Life Insurance
Life insurance that protects a firm against losses due to the death of a key employee
Private Insurance includes:
Life policies Health policies Property policies Casualty policies
Morbidity
Likelihood that an individual will suffer an accident, contract a disease, or otherwise require medical care Refers to ill health in an individual and the levels of ill health in a population or group. Insurance companies keep records documenting the outcome of insuring various types of risks
Living Benefits of Life Insurance
Loan values Retirement income Cash withdrawals Dividends
Elements of an Insurable Risk- CANHAM
Loss must be: ▬ Calculable: prior loss statistics are available. ▬ Affordable: premiums must be affordable to the average consumer. ▬ Non-catastrophic: No earthquakes, war, terrorism. ▬ Homogeneous exposures: Similar exposures. ▬ Accidental: Not intentional. ▬ Measurable: Number & dollar amounts
Other Sources of Funds
Medicare Medicaid Group Retirement Plans Savings Investments Other Income Annuities Other Insurance
STARR
Methods of Handling Risk: - Sharing - Transfer - Avoidance - Retention - Reduction
Prohibited Practices
Methods, acts, and practices which are defined as unfair or deceptive: -Defamation -Discrimination of military personnel -Misappropriation of funds -False Advertising -Boycotting, Coercion, and Intimidation -False Financial Statements -Forgery
Modifiers
Modifiers (8 lowercase letters) may be added to assigned ratings, which are in uppercase letter, to qualify the status of a rating
Net Premium
Mortality - Interest = Net Premium
Notice of Policyholder Rights
Must be given at the time of application
Estoppel
Once a waiver has been created, it can't be changed - Protects the insured EX: Insuring an old building
NAIC
National Association of Insurance Commissioners Composed of insurance commissioners from all 50 states, the District of Columbia and the 4 U.S territories, formed to resolve insurance regulatory issues.
Temporary Producer License
Not to exceed 180 days and doesn't require an exam if: - To the surviving spouse or court-appointed personal representative of a deceased or disabled license producer to allow adequate time for the sale of the business, or the producers recovery, or the licensing of a replacement - To an employee of a business entity licensed as a producer, upon the death or disability of the licensed of the individual designated on the license - To the designee of a licensed producer entering active service in the armed forces of the United States - In any other circumstance that serves the public interest
Loading for Contingency Funds
Once a level premium policy has been issued, the premium can never be increased. However, unforeseen contingencies could make the rate inadequate
Policy Organization
One format uses a policy jacket, also called a skeleton policy, that contains general conditions and the declarations. To complete the policy, a policy form or coverage form containing the insuring agreements, exclusions, definitions and additional coverages must be attached
Adhesion Contract
One party has more power than the other party in drafting the contract. "Take it or Leave it" The provisions of the contract are prepared by one party-the insurer The other party-the insured- does not take part in the preparation of the contract
Investment Department
Oversees the funds the company needs to invest to make sure adequate funds will be on hand to pay claims. Attempts to maintain a healthy rate of return while maintaining the safety of the investment
Noncontributory Plan
Pension plan in which all the funds for pension benefits are provided by the employer
Substandard Risk
Person who is considered an under-average or impaired insurance risk because of physical condition, family or personal history of disease, occupation, residence in unhealthy climate or dangerous habits. An applicant who may be subject to an increased premium. Fewer than 2% of individuals who apply are turned down for coverage completely
Fiduciary
Person who stands in a special relationship of trust to another person Agents have fiduciary duties towards their clients
Stock purchase plan
Plan in which the corporation provides matching funds equal to the amount invested by the employee for the purchase of stock in the company. A price is determined and each stockholder agrees to purchase a proportionate share of the deceased shareholder's stock
Estate Planning
Planning for the accumulation and management of property during one's lifetime and the distribution of one's property at death. 1. Determine the Value of Your Estate 2. Choose Your Heirs and Decide What They Receive 3. Determine the Cash Needs of the Estate 4. Select and Implement Your Estate Planning Techniques
Underwriting
Process of selecting certain types of risks and rejecting others so the insurance company will have a book of business that will produce the company's desired results.
Personal Lines Insurance
Property and Casualty coverages that protect an individual or family
Consumer Protection
Protection for consumers against unfair, unethical or unjust business practices.
Binding Receipt
Provides coverage as soon as premium is received (before approval) Makes the company liable for the risk from the date of application. The coverage lasts for a specific time or until the insurer issues the policy or notifies the applicant that the policy has been refused The specific time limit us usually 30-60 days
Accounting Department
Provides quantitative information about the finances of the business including recording, measuring, and describing financial information.
Temporary Insurance Agreement
Provides the applicant with immediate life insurance coverage while the underwriting process is taking place. Coverage begins on the date of the application regardless of whether or not the applicant is insurable. Coverage is issued for a short period of time, such as 30 to 60 days.
Methods of determining the extra rate for substandard class risk:
Rated-Up Age Flat Additional Premium Tabular Rating Graded Death Benefits
National Counsel on Compensation Insurance (NCCI)
Rating bureau with jurisdiction over workers' compensation
Treaty Arrangement
Reinsurance company takes all of the risk for a certain type - Specific, will only take risk if they meet a certain requirement - Given part of the premium by the initial insurance company The original insurer is obligated to automatically reinsure any new underlying insurance contract that meets the terms of a prearranged treaty, and the reinsurer is obligated to accept certain responsibilities for the specified insurance
Surplus Lines
Represent non-admitted companies
Insurance Agent
Represents the insurance company and sells insurance policies to individuals and businesses -Direct link between the company and its insureds Also referred to as Producers
Broker
Represents the insured
Continuing Education
Required for producers licensed to sell lines of insurance for which an exam is required 1. Producers must complete a minimum of 24-credit hours of commissioner-approved courses during each 2-year licensing period. At least 3 of those hours must be in a class or classes in the areas of ethics 2. Only half of the credit hours obtained may be through company-sponsored courses 3. Producers may take all continuing educations hours over the internet, or other verifiable self-study 4. The education provider will provide the producer with a certification of compliance and also report the producer's continuing education hours to Sircon
Gramm-Leach-Bliley Act
Requires insurance companies to disclose their privacy policy, and how a customer's personal (non-public) information may be used and shared with affiliates and third parties. The Act requires companies to provide their privacy policy when a policy is issued and at least once a year thereafter.
NAIC Model Model Life Insurance Solicitation Regulation
Requires two interest-adjusted cost indexes for a policy- surrender cost index and net payment cost index
Speculative Risk
Risks in which there exists both the possibility of gain and the possibility of loss EX: Poker games, If the price of a stock goes down
Sales vs. Liquidation of a Business
Sale: A family will usually receive fair market value for the business interest Liquidation: A forced sale which may only bring 10% of the true business value
Claims Department
Sees that the company's insureds are adequately indemnified for their losses
Solicitor
Sells insurance and may even be authorized to collect premiums. Cannot issue or countersign policies, can only be handled by an agent Has more limited authority than an agent
Multiple Employer Group
Several employers forming a trust to combine their workers for life insurance eligibility
Errors and Omissions (E&O) Insurance
Should be purchased by agents to protect themselves against legal liability arising from inadvertent errors or omissions
Quotation
Shows the prospect what the premium for the proposed coverage will be
Doctrine of Reasonable Expectations
States that a policy includes coverages that an average person would reasonably expect it to include, regardless of what the policy actually provides.
Certificate of Authority and Surplus Lines Companies
Surplus lines companies may sell insurance in Minnesota without a certificate of authority, but they may only transact business through a licensed surplus lines agent/producer
Commissioner's Standard Ordinary (CSO) Table
Table of mortality based on intercompany experience over a period of time, which is legally recognized as the mortality basis for computing maximum reserves on policies issued within past years.
Broad Powers
The Commissioner is empowered to: -Enforce insurable laws -Create rules that assist the enforcement of insurance laws -Conduct investigations and hold hearings to determine if any person has violated any insurance law or rule -Examine and approve policy forms -Examine the books, records, and documents of any person or entity engaged in regulated activity -Publish information collected from investigations, hearings, and examinations -Require reports of all sales or transactions that are regulated -Appoint a staff to help with the enforcement duties
Revocation or Suspension of License
The Commissioner may: - Restrict - Censure - Suspend - Revoke - Refuse to issue or renew an insurance producer's license - Levy a civil penalty
Prohibited Persons in Insurance
The Federal Violent Crime Control and Law Enforcement Act expanded federal law in several ways
Service Needs
The agent must be available to assist the insured with needs such as: -Name Change -Change in the method of premium payment -File and follow up on claims
Before selling a policy...
The agent must: -Obtain information on the prospect's particular exposures -Review existing policies -Analyze the prospect's coverage needs -Make recommendations as to the amount and type of coverage appropriate for each exposure
Countersigning
The agent signs each new policy prepared by the company before delivering it to the insured -Often required to validate the contract
Expressed Authority
The authority specifically given to an agent, either orally or in writing, by the principal. - The authority an agent has with a company
Rates
The basic charges an insurance company sets for various types of insurance
Risk
The chance or uncertainty of loss
Aggregate Claim Amount
The claim frequency rate and average cost per claim multiplied together. This is one of the primary factors in establishing health insurance rates.
Stock Company
The company is owned by people who own the company's stock (stockholders / shareholders). They are paid back with dividends. Has a Board of Directors The insured do not own stock in the company - Issues Nonparticipating policies - Policyholders do not own the company and will never receive profits from the company (dividends)
Stock Redemption Plan
The corporation is the owner, beneficiary, and premium payor of the life insurance policies and the corporation agrees to purchase the deceased's stock.
Underwriting Expenses
The costs required to acquire and maintain a book of business. This includes: -Advertising -Commissions -Salaries -Administrative costs
Risk Management
The dollar amount of potential risk is determined by statistics of prior losses - Statistics determine whether the risk is insurable
Exposure Unit in Life and Health Insurance
The economic value of the individual person's life
Employer Control
The employer should be in charge of enrollment, premium payment, benefit selection, and all other areas of administration that are not an insurance company function
Employee or Individual Employer Group
The first type of group would be the employees of an eligible employer. The employer is the policyowner and establishes the eligible class of employees to be covered under the group policy The classification of the eligible class is determined by the employer and often includes full-time employees, and will specify full-time, salaried, nonunion employees as well as retired employees. By classifying the employee class in this manner, the employer is legally able to exclude certain groups of employees (part-time and union) from the eligible class of covered employees
Residual Market Insurance
The government sometimes steps in to provide insurance that is not ordinarily available from private insurers. -War risk insurance -Nuclear energy liability -Flood insurance -Federal crop insurance At the state level, the government is involved in providing unemployment insurance
Written Premium
The gross amount of premium income on the company's books Includes both earned and unearned premiums Premiums for new business, renewals and policy endorsements make up written premium
Beneficiary
The individual or individuals who the policyowner has named to receive the benefits of the policy
Applicant
The individual who fills out the application and applies for the insurance
Policyowner
The individual who pays the premium, accepts the policy when it is delivered by the agent, and has the special owner's rights, such as designation beneficiaries The policyowner is usually, but not always, the applicant
Unpaid Premium Reserve
The insurance company always has a certain amount of money that it has not yet earned by providing protection When a policy is canceled before its term ends, unpaid premium is usually returned to the former policyowner
Exclusive or Captive Agency System
The insurance company contracts with agencies, which are independent businesses, to represent and sell insurance only for that insurance company.
Prior Approval States
The insurance company must obtain official approval before using new forms and rates
Exclusive Agency, Direct Writing and Direct Response Systems vs. Independent Agency System
The insurance company owns and controls its accounts, policy records, and renewals. If the agency or employment relationship terminates, that person looses all rights and interest in company business and related commissions vs. The agent owns and controls accounts, policy records, and renewals. If an independent agent's contract with a particular insurer terminates, the agent retains rights to active accounts and may place them with another insurer and continue to receive commissions
Contract of Utmost Good Faith
The insurance company relies on the truthfulness and integrity of the applicant when issuing a policy. In return, the insured relies on the company's promise and ability to provide coverage and pay claims.
Direct Writer System
The insurance company's agents are actually employees. They may receive a salary, be paid by commission, or a combination of both.
Retrospective Premium
The insurer agrees to collect a provisional premium but may collect additional premium or make a premium refund at the end of the year based on actual losses
C. Access to Examinee
The insurer or producer must give free access to all books, records, and documents in question Failure to submit to an examination is grounds for suspension, refusal, or nonrenewal of a producer's license
Law of Agency
The law that governs the relationship between a principal and his or her agent.
Premium Mode
The manner or frequency that the policyowner pays the policy premium - Annual, semiannual, quarterly, monthly The more payments the insured wishes to break the premium into, the higher the total premium
Law of Large Numbers (LLN)
The more examples used to develop any statistic, the more reliable the statistic will be
Contributory Plan
The most common type of employee-sponsored defined-contribution retirement plan; accepts employee as well as employer contributions towards the plan's premium. In most states, at least 75% of eligible employees must participate under a contributory plan.
Mortality Rate
The number of deaths per 1,000 people Converted into a dollar and cents rate EX: If the mortality rate for a certain age group is 4.00, that means that 4 people of every 1000 people can be expected to die at that age An insurance company would need to collect $4.00 from each of the 1,000 policyowners to have sufficient premium to pay out $1,000 in benefits for those who die in that age group
Actuarial and Statistical Department
The numbers department Actuaries determine the rates to be charged for various types of insurance
unlimited liability
The owner is personally and fully responsible for all losses and debts of the business
Income Period
The period of time in which the family is most vulnerable to financial instability if the insured dies prematurely. - Family Dependency Period - Preretirement Period - Retirement Period
Rated-up Age
The plan assumes that the insured is older than his actual age, meaning he will not live as long or remain as healthy as a standard risk The premium for a "rated-up" policy is that of a standard risk, but for an insured 5 to 10 or more years older than the actual age of the proposed insured. This method is no longer widely used
Living Benefits
The policy owner can borrow against the cash value while the policy is in effect, or can receive the cash value when the policy is surrendered. They're benefits that allow the policyholder to receive a portion of death benefits prior to death
Earned Premium
The premium that the company actually earned by providing insurance protection for the designated period of time
Net Premium
The premium without expense loading. Mortality risk discounted for interest, without any expense adjustment.
Entity Type Plan
The process where the business will buy out a deceased partner's share in the company. Because this type of plan usually involves several partners, the entity buys out the shares of each member, so only one policy exists.
Replacement
The purchase of one's life insurance policy with another Can be disadvantageous to consumers
Comparative Interest Rate Method
The rate of return that must be earned on a "side fund" in a buy term invest the difference plan so that the value of the side fund will be equal to the surrender value of the higher premium policy at a designated point in time
Nonexcessive
The rates cannot be so high as to allow the company to make a windfall profit or make insurance an unrealistic purchase
The Department of Commerce
The regulatory authority of the Minnesota insurance industry
D. Examination Report
The report contains a statement of findings and a summary of important points, recommendations, and suggestions
Combined Ratio
The sum of the loss ratio and the expense ratio Combined Ratio = Loss Ratio + Expense Ratio 100% is considered to be the breakeven point -Less than 100% indicates the company had an underwriting profit -Greater than 100% indicates the company had an underwriting loss
Family Dependency Period
The surviving spouse will have children to support during this time. The family's income needs will be greatest during this period.
Retirement Period
The surviving spouse's working income ceases and his Social Security and outside retirement benefits begin.
Adverse Selection
The tendency of persons with a higher-than-average chance of loss to seek insurance at standard rates Adverse = Bad
Exceptions to licensing
There are certain company positions or functions involving insurance for which a producer license is not required
Central Service Bureaus
These organizations, made up of numerous individual insurance companies, gather, pool and analyze statistics from all of the member companies
Universal Benefit of Life Insurance Products
They provide financial security Less than half of American adults own individual life insurance policies - Average American has $45,000 of life insurance
Loss Costs
This is a factor which insurers use in calculating insurance rates. It represents the amount an insurer should collect to cover expected losses.
USA Patriot Act
This landmark federal law (following the September 11 terrorist attacks on the World Trade Center and the Pentagon) greatly expanded the ability of law enforcement and intelligence agencies to tap phones, monitor internet traffic, and conduct other forms of surveillance in pursuit of terrorists.
Determining Health Insurance Rates
To set rates for health insurance, insurers need to consider not only how often people will become ill or injured, but how much it will cost when they do
Codes Regulating Agents
Trade Practices Fiduciary Misrepresentation Twisting Rebating Unfair Discrimination Prohibited Practices
Testamentary Transfer
Transfer of property by will at the death of the property owner
Loss Ratio
Used to compare the company's operations from year to year. Shows % of losses the company insured for every dollar of earned premium. Loss Ratio = Incurred Losses / Earned Premiums
Claims Adjusters or Representatives
Used to: -Inspect a loss -Determine whether there is coverage for the loss -Identify indemnification -In come cases, pay for the loss immediately Large companies have their own claims adjusters where as smaller companies may use the services of independent adjusters
Field Underwriting
Using preestablished criteria to seek out the type of business that is likely to be acceptable to the company
Constructive Delivery
When the issuer mails a policy to its producer for actual delivery to the policy owner because the insurer has issued the policy and released it for delivery A legal delivery has not yet occurred if the insurer requires personal delivery for verification of good health at the time of delivery
Application
When the prospect buys, the agent must complete a detailed application which must be carefully, completely, and accurately filled out and submitted on a timely basis
Assembly and Filing Area
Where the policy forms are printed and assembled
Agency Department
Works closely with, and directs the operations of, the agents who represent the company. Is responsible for recruiting, appointing, and training agents. Department monitors sales and marking efforts of exclusive agents to make sure that they are tuned to the market the company serves.
Credit Insurance
Written to provide payment of the insured's debt when he dies prematurely or is disabled as a result of accident or sickness The creditor is the policyowner and the debtor is the insured Benefits are not permitted to exceed the amount of indebtedness
Insurance
a contract or device for transferring risk from a person, business, or organization to an insurance company that agrees, in exchange for a premium, to pay for losses through an accumulation of premiums
Morale Hazard
an individual, through carelessness or by irresponsible actions, can increase the possibility for a loss
Comparison Statement
comparing 2 or more quantities in a real world statement.
Elements of a Valid Contract
competent parties legal purpose offer and acceptance consideration
Liability Risk Retention Act
created in 1981 and amended in 1986 to give the right to form RRG's and PG's to all businesses, they are prohibited from writing workers' compensation and personal lines insurance -Gives product manufacturers more product options when insuring against product liability
Incurred Losses
include amounts paid on claims for covered losses and various expenses related to handling claims
Loss Control Department
inspects factories, certifies boilers, and makes recommendations to insureds as to how risks may be avoided or reduced "Engineering Department"
Use and File States
insurers must file rates and forms within a certain period after they are first used.
Rebating
is giving or offering some benefit other than those specified in the policy, such as cash, gifts, or securities, to induce a customer to buy insurance
Accelerated Benefits
living benefits paid by the insurance company that reduce the remaining death benefit available for the beneficiary The government does not consider accelerated death benefits to be taxable income, and the policy owner gets 50%-95% of the policy's full benefit
Insurance Commissioner requires..
requires that a specific reserve must be maintained if a company is to be solvent
Nindiscrimanatory
the insurer cannot charge different rates for the same class of insureds
Blackout Period
the period from the time that Social Security survivor benefits terminate to the time the benefits are resumed
