Life Insurance

Key Historical Events

-1869 Paul v. Virginia: the U.S. Supreme Court ruled that insurance transactions crossing state lines are not interstate commerce. -1905 The Armstrong Investigation Act gave the authority to the states to regulate insurance. -1944 United States v. South-Eastern Underwriters Association ruled that insurance transactions crossing state lines are interstate commerce and are subject to federal regulation. Thus, many federal laws were conflicting with existing state laws. However, this decision did not affect the power of states to regulate insurance. -1945 The McCarran Ferguson Act states that while the federal government has authority to regulate the insurance industry, it would not exercise its right if the insurance industry was regulated effectively and adequately on the state level. Under the McCarran-Ferguson Act, the minimum penalty of a producer who has obtained personal information about a client without having a legitimate reason to do so is a fine of $10,000.* -1970 Fair Credit Reporting Act: provides individuals privacy protection and fair and accurate credit reporting. Insurance companies are required to notify applicants if a credit check will be made on them. Under the Fair Credit Reporting Act, the maximum penalty of a producer who has obtained Consumer Information Reports under false pretenses is a fine of $5,000. -1999 Gramm-Leach-Bliley Act (Financial Services Modernization Act): This law repealed the Glass-Steagall Act; this allows Banks, Retail Brokerages and Insurance companies to enter each other's line of business. -2001 USA PATRIOT ACT (Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act): as it relates to the insurance industry, is designed to detect and deter terrorists and their funding by imposing anti-money laundering requirements on brokerage firms and financial institutions. -2003 National Do Not Call Registry: Insurance calls are not exempt from the no not call registry. -2010 Patient Protection and Affordable Care Act (PPACA): often shortened to the Affordable Care Act (ACA), represents one of the most significant regulatory overhauls and expansions of coverage in U.S. history.

Self Insurers (Retention)

-A business that pays its own claims -Reserves funds to cover losses -Retains risk rather than transfers

Elements of Insurable Risk

1. Due to chance 2. Definite and measurable 3. Predictable 4. Not catastrophic 5. Loss exposure to be insured must be large 6. Insurance must not be mandatory/ insured must be randomly selected

Treatment of Risk

4 opts: avoid risk, reduce risk, retain risk, or transfer risk

Buyer's Guide

A booklet that describes insurance policies and concepts, and provides general information to help an applicant make an informed decision.

Pure Risk

A chance of loss or no loss, but no chance of gain. Insurable

Speculative Risk

A chance of loss, no loss, or gain. Not insurable

hazard

A condition that increases the chance of loss.

unfair trade practices ad

A model act written by the National Association of Insurance Commissioners (NAIC) and adopted by most states empowering state insurance commissioners to investigate and issue cease and desist orders and penalties to insurers for engaging in unfair or deceptive practices, such as misrepresentation or coercion.

notice of claim

A provision that spells out an insured's duty to provide the insurer with reasonable notice in the event of a loss.

Proof of Loss

A statement of facts about a loss for which the insured is making a claim.

independent agent system

Agencies that are independent contractors contract with several different companies to represent and sell for those companies.

Career Agency System

Agents are recruited, trained and supervised by either a managing employee or General Agent who is contracted with the insurance company.

Deductible

Amount you must pay before you begin receiving any benefits from your insurance company

Lloyd's of London

An association of individuals and companies that underwrite insurance on their own accounts and provide specialized coverages.

national association of insurance commissioners

An association of insurance commissioners whose purpose is to coordinate insurance regulation activities among the various state insurance departments.

Sharing

Each party assumes a portion of the risk receiving benefits under the system

health insurance

Insurance that covers medical illness or injury and accidnt or disabilites

Fair Credit Reporting Act

Law that grants consumers to the right to know/be notified who/when requests to view their credit report over the past year

Property Insurance

Provides payment to the insured person if his or her property is damaged or destroyed by an accident covered by the insurance policy.

reinstatement

Putting a lapsed policy back in force by producing satisfactory evidence of insurability and paying any past-due premiums required.

Homogeneous Exposure Units

Similar objects of insurance that are exposed to the same group of perils.

Reinsurance

Spreading risk from one insurer to one or more other insurers to deal wit catastrophic loss

Adverse Selection

Tendency for poorer than average risks to seek insurance.

Liquidity

a company's ability to make unpredictable payots to policyowners

Risk Retention Group

a mutual insurance company formed to insure people in the same business, occupation, or profession

Physical Hazard

a physical condition that increases the chance of loss/peril ex: person's disaibilities

Declaration Page

a piece of paper which provides basic information about an insurance policy

participating plan

a plan where the policy owner recieves shares(dividends) of the divisble surplus

Policy Summary

a summary of the terms of an insurance policy, including the conditions, coverage limitations, and premiums. Policy summaries are often used with life insurance, long-term care insurance, and annuities.

Risk Retention

accepting risks and confronting if it occurs, ex: self insurance

Multi-line Insurer

an insurance company or agent that provides one-stop shop for businesses or individuals seeking coverage for all their needs

enitre contract

an insurance policy provision stating that the application and policy contain all provisions and consititute the enitre contract

captive insurer

an insurer owned by a parent firm for the purpose of insuring the parent firm's loss exposures

Personal Producing General Agent system

are like career agency system but do not recruit, train, or supervise career agents. they primarily sell insurance, maintain their own offices and administration, agents hired by PPGAs are employees of th PPGS not the insurance company

Risk Avoidance

avoiding risks by choosing not to participate

Morale Hazard

carelessness or indifference that increases chance of loss, ex: driving recklessly, no fear of death or injury

peril

cause of finiancial loss, ex: earthquake, tornado, or accidents

reinsurer

company that provides financial protection to insurance companies

State 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. All authorized insurers are legally required to participate in the State Guaranty Association for any state they are authorized to do business in regardless of where their corporate office is.

Social Security

federal program of disability and retirement benefits that covers: retirement, young child of deceased parent, quailifying federal disability

Reserve

funds held by the compant to help fulfill future claims, minimums re usually set by the Dep. of Insurance

rating services

guides to insurance companies finaincial intergrity and claims-paying ability published regularly by rating services: A.M. best, FitchRatings, Standard&Poor's, Moody's, and Fitch's

Tri-Care

health insurance for members of the military and their family

Medicare

health insurance for the elderly

Medicaid

health insurance for the poor

Mutual Companies

insurance companies characterized by having no capital stock; owned by its policy owners

Stock Companies

insurance companies owned/controlled by a group of stockholders, whose investments provides the safety margin necessary in issuance of guaranteed, fixed premium, nonparticipating policies

life insurance

insurance paid to named beneficiaries when the insured person dies

medical expense

insurance pays benefits for nonsurgical doctors' fees commonly rendered in a hospital; sometimes pays for home and office calls.

Nonparticipating plan

insurance where the insured isnt required to share in the divisble surplus of the company

causalty insurance (liability)

insurance which broadly encompasses insurance not directly concerned with life/health/property insurance. it includes: vehicle/liability/theft/workers comp/elevator insurance in event of being sued

Risk Reduction

lessen involvelment in risks or reduce the risk, ex: installing smoke alarm

Term Life Insurance

life insurance that pays a benefit in the event of the death of the insured during a specified term.

whole life insurance

life insurance that pays a benefit on the death of the insured and also accumulates a cash value.

Principle of Indemnity

making an insured whole by restoring them to the same condition as before a loss.

Fraternal Benefit Societies

nonprofit benevolent organiation that provide insurance to its members

service provider

offer benefits to subscribers in return for the payment of a premium

Consideration

part of an insurance contract setting forth th amount of initail and renewal premiums and frequency of future payments

Loss Exposure

possibility of loss

2 types of insurance companies

private (commercial) and government

Risk Management

process of analyzing exposures that create risk and designing programs to handle them

Group Life Insurance

provides life insurance on a group of people in a single master contract

disability income insurance

provides payments to replace income when an insured person is unable to work

claim settlement practices

regulated by state insurance departments

Evolution of Industry Oversight

regulation by a number of authorities, including some inside the industry itself. primary purpose is to promote public welfare by maintaining the solvency of insurance companies. Other purposes: consumer protection, ensure fair trade practices as well as fair contracts at fair prices.

History of Regulation

seesaw between authority of the states and federal govt

Private insurance companies

sell health insurance policies to individuals; most of these companies sell more than just health insurance

Risk Pooling

sharing the financial consequences associated with risk

the insuring agreement

summarizes the major promises of the insurer

Moral Hazard

tendencies that people may have which increases chance of loss, ex: alcoholism or drug addiction

advertising code

the code specifies certain words and phrases that are considered misleading and are not to be used in advertising of any kind

Law of Large Numbers

the larger the number of individuals that are randomly drawn from a population, the more representative the resulting group will be of the entire population

Risk Transference

transfer the risk by using other means to compensate for the loss, such as by purchasing insurance

Risk Defined

uncertanity regarding loss ex: home fire, death of family provider, or inability to work due to diasbility

loss

unintentional decrease in the value of an asset due to a peril

property and causality insurance

when things owned have the potential to harm people in ways that caused lawsuit. ex: auto/home-owner's/renter's/umbrella insurance