Life Insurance Course

Being Currently Insured under the Social Security program means that a worker's dependents are

entitled to receive only Survivor Benefits based on the worker's earnings history

Insurance companies will only issue a policy if the applicant has an

insurable interest in the Insured. An insurable interest exists if the applicant would suffer a financial loss if the covered loss occurred.

AD&D policies do cover

loss of vision

Consideration may be anything of

value, including promises, money, property, and services

The steps involved in a typical replacement transaction include:

• The agent must ascertain whether a new policy is being purchased to replace another so that the existing company may be warned that a replacement may take place. The existing company will provide a Policy Summary(for Life Insurance) or Outline of Coverage (for Health Insurance), which explains the existing policy's coverage. The replacing agent will furnish the customer with: 1) a Buyer's Guide (or Shopper's Guide) which includes general consumer information about making the new insurance purchase; and 2) a Policy Summary/Outline of Coverage describing the unique features of the proposed replacement policy.

Individual Uses for Life Insurance #5

• To create a cash value savings account: Some Life Insurance policies act as a forced savings account by accumulating a cash value over time. The cash value may be withdrawn or borrowed against in later years. That's great for those of us who would otherwise never save a dime.

Off-the-job accidents and sicknesses will be covered by group or individual Medical Expense Policies which are

"nonoccupational" policies - they generally don't cover on-the-job accidents or illnesses.

Time Limit on Lawsuits Clause

After submitting the claim, the Insured must wait 60 days prior to filing any lawsuit. And any lawsuit must be filed within 3 years - this time limit is also referred to as a Statute of Limitations. If the Insured doesn't file the lawsuit within the 3-year Statute of Limitations, the right to sue the Insurer on that claim is lost.

Temporary (Term) Policy

Any Life policy which pays upon death (has a death benefit) but which does not build any cash value savings account (no living benefit) is a Temporary Policy. Temporary Policies are also called Term Policies.

Agreement =

Offer + Acceptance

Free Look Clause

State law requires Life and Health policies to include a Free Look Clause giving Insureds at least 10 days after delivery of the policy to review the policy and terminate coverage. If the Insured decides to cancel within the 10 days, the Insured may do so without reason and without financial penalty. The Insurer will be required to refund the entire premium (without interest). Policies sold to the elderly (Medicare Supplement and Long Term Care) must have a 30 day Free Look Clause.

Certificate of Insurance

The Insureds usually receive an individual Certificate of Insurance, which may simply be a booklet explaining the coverage and an identification card. These booklets are considered informational only, although they may take on legal significance if they somehow differ from the master contract.

Face Value (Face Amount, Death Benefit, Proceeds)

This is the amount that will be paid to the beneficiary upon the Insured's death.

Contributory Plans are plans in which the group member pays at least

a portion of the premium. These groups must have 75 percent of members opt in to be eligible for Group Insurance

Under the Fair Credit Reporting Act, the Insured has NO right to: Select one: a. Require that the Insurer provide a copy of the report to the Insured. b. Insert a corrective statement in the report.

a. Require that the Insurer provide a copy of the report to the Insured.

Indemnity means:

a.Being made whole.

AD&D policies cover

accidents only, not sicknesses

A misrepresentation is

an intentional misstatement (lie) regarding a material fact. The ever-proper insurance industry calls lies "misrepresentations." How nice. A misrepresentation may be grounds for voiding a contract and denying claims

A valid contract is one that results from

an offer made by one competent party and accepted by another competent party and for which both parties agree to exchange something of value

Each of the following may have an insurable interest EXCEPT? Select one: a. The Insured's parent. b. A charity to which the Insured consistently donates money. c. The Insured's employer. d. The Insured's spouse.

b. A charity to which the Insured consistently donates money.

What policies do NOT contain a Free Look Clause: Select one: a. Individual b. Group

b. Group

Which policy section specifies the policy's coverage limits? a. Consideration Clause b. Insuring Clause

b. Insuring Clause

Carl owns a $250,000 Life policy with a Triple Indemnity Rider. While running a marathon he suffers a fatal heart attack. How much will the Insurer pay? Select one: a.$0 b.$250,000 c.$500,000 d.$750,000

b.$250,000

Jim owns a $250,000 Life policy with a $50,000 AD&D Rider. While mountain climbing, Jim had an asthma attack which causes him to lose control. He fell and died. What is the total death benefit? Select one: a.No death benefit will be paid because the death occurred while engaging in a dangerous hobby. b.$250,000 c.$275,000 d.$300,000

b.$250,000

Chad owns a $100,000 Life policy with a Double Indemnity Rider. He accidently runs into a boat and is killed instantly. How much will the Insurer pay? Select one: a.$0 b.$100,000 c.$200,000 d.$300,000

c.$200,000

Which document is signed to initiate coverage if no conditional receipt is used? Select one: a. The policy. b. The application. c. The premium receipt. d. The statement of continued good health.

d. The statement of continued good health.

If the Insured dies as a result of an accident, the policy will pay as a lump sum the face value of the policy, which is also

principal sum. The death must occur within 90 days of the accident. The death benefit will be paid to the beneficiary

HIPAA protects consumers' health information by

regulating how and when information can be shared.

Insurance is one

risk management technique

Only consumers who have applied for Life or Health insurance in the past 7 years will have an MIB record. MIB records do NOT include:

the member company's underwriting decision; the amount of insurance applied for; or • whether a policy was issued.

Insurance contracts are:

(1) Conditional (2) Unilateral (3) Contracts of Adhesion (4) Aleatory

A Fully Insured worker is entitled to a Retirement Benefit at full retirement age that is equal to

100 percent of the worker's PIA. Workers who retire at age 62 receive a Retirement Benefit equal to 80 percent of the PIA

The Do Not Call List is administered by the FTC. Check the database every

31 days

When an individual requests not to receive calls, the request has to be honored for

5 years and must be implemented within 31 days. In addition, each company must compare its records against the National Do Not Call Registry database at least every 31 days.

In order to qualify for AD&D coverage, the accident must directly cause death within how many days? Select one: a. 120 Days b. 60 Days c. 30 Days d. 90 Days

90 days

Insurable groups - especially employee groups - are generally ___________ for an insurance company?

= good risks, bc of decreased adverse selection. The adverse selection is reduced due to a mixed risk pool and the natural employee turnover from older to younger employees

Underwriting for smaller or newer groups is usually based on

A community rating, which involves combining claims history over a class of groups that are similar in nature and 1 may even be in a similar geographic area. So, if Bill's Body Shop with three new employees who have never filed a claim in the two weeks the business has been open is compared with 50 other small body shops in a geographical area (such as a state), the combined employee's claims history could be used to calculate the next year's premium. Although an experience rating would not be useful in predicting future claims, averaging the claims history of the employees of 50 body shops through a community rating will produce much more relevant information.

The cause of the loss is called:

A peril.

c) The Company may

Accept the Applicant's Offer. The company will "issue" the policy by sending it to the agent. The agent will then contact the applicant to obtain a signed Statement of Continued Good Health. At this point, the applicant's offer is accepted when the agent "delivers" the policy to the applicant. This personal delivery gives the agent an opportunity to explain the details of the policy to the applicant. The very, very general rule is that an insurance policy is effective upon the agent's delivery of the policy to the applicant, if the premium has been paid. Until the policy is delivered, assume that a contract is not yet in place and that no coverage exists.

The Accidental Death and (or) Dismemberment (AD&D) rider is also called

Accidental Loss of Life and Limb rider

Must an applicant be notified in advance that an insurance company will obtain or use a credit report?

Although most insurance companies do this voluntarily (or because it may be required by a state law), the answer under the FCRA is "No."

Permanent Policy

Any Life policy which has both a death benefit and a living benefit (a cash value savings account) is a Permanent Policy. There are several Permanent Policies, but we will focus on the Whole Life Policy in Chapter 10. Don't assume that a "permanent" policy will "permanently" provide life insurance. The typical Permanent Policy, the Whole Life Policy, provides life insurance only to age 100, at which time it pays the cash value savings account funds to the Insured

As with Retirement Benefits, the spouse and children of a disabled worker are also eligible for Disability Benefits.

As an added benefit, after receiving Disability Benefits for 2 years (disabled for 29 months), the insured person automatically becomes eligible for Medicare, regardless of age.

Business Uses of Life Insurance #3

As part of an employee compensation package: Sometimes businesses will purchase Life Insurance for employees, usually executives, as a fringe benefit. Using Life Insurance as part of an employee compensation package serves the needs of both the business and the employee.

Physical Exam and Autopsy Clause

At its own expense, the Insurer has the right to conduct as many physical exams upon the Insured as are reasonable. The Insurer may perform one autopsy unless prohibited by state law.

AD&D Insurance also provides benefits if the Insured is accidentally dismembered or suffers a loss of vision. To collect, an Insured must lose

At least a hand, a foot, or vision in one eye. If the Insured loses two hands or feet or has a total loss of vision, the policy will pay the maximum payout - the principal sum

But, the Insured has two opportunities to be dishonest or simply make a mistake by providing inaccurate information:

At the time of application; • And when filing a claim by submitting a Proof of Loss form.

The FCRA requires Insurers to notify an applicant in writing when requesting a

Consumer Investigative Report. The FCRA does not require an applicant's knowledge or consent to request a Consumer Credit Report.

Proof of Insurability

During the life insurance application process, the applicant will usually be required to provide proof of insurability by passing a medical exam, unless we are dealing with group life, where usually this requirement is waived. The Insured may also have to provide proof of insurability if significant changes are made to the policy, particularly when attempting to increase the face value.

Consent to be tested for HIV is not required in the following situations:

Emergency treatment; Blood donation;Incompetent individuals (although consent must be given by a guardian); orResearch where the individual's name is not connected to the testing.

Fair Credit Reporting Act (FCRA)

FCRA helps ensure privacy and fair treatment for consumers. Consumers can sue an Insurer or a Consumer Reporting Agency for failing to comply with FCRA FCRA is a federal law that regulates both insurance companies and Consumer Reporting Agencies to ensure fair and accurate reporting of consumer information. Most states have very similar laws which are often even stricter than the FCRA. FCRA deals with both:• Consumer Credit Reports; and• Consumer Investigative Reports.

the Do Not Call List, this group of consumer protection measures is administered by the

Federal Trade Commission (FTC) The legislation allows con- sumers to place their names on the National Do Not Call Regis- try and, once registered, not receive most solicitation phone calls.

Buying Insurance

For most of us, the obvious way to manage many risks is to buy insurance. Buying insurance is just one risk management technique. When you buy insurance you transfer a portion of your risk to the Insurer.

invitations to negotiate

For that reason, an advertisement placed by an insurance company is not an offer - there is no intent to be legally bound by the ad. Likewise, a mere application for insurance is not considered to be made with the intent to be bound and thus does not constitute an offer. The ad by the Insurer and the application made by the applicant are considered to be mere invitations to negotiate - they do not rise to the level of an offer. An invitation to negotiate may start the contract process in motion but unlike an offer, an invitation to negotiate is not a required contract element.

Contestable Clause

I apply for insurance. You deliver the policy. A copy of the application is attached to the policy. Years later, I get so sick that I am in a coma (or I die). Wouldn't it be unfair for the Insurer to wait until then to complain that the application is incomplete, has errors, or that I lied or concealed information in an attempt to commit fraud?? To limit the ability of Insurers to raise those issues after a set time, the Uniform Policy Provision Law requires that the policy contain what is really a Statute of Limitations called a/an: • Contestable Clause; or • Incontestable Clause; or • Time Period on Certain Defenses Clause. Be careful, the Contestable Clause never applies to: • failure to pay the premium - the policy is always contestable in the sense that it will lapse after a 31-day Grace Period if the premium isn't paid. • misstatement of age or gender. Rather than contesting the policy due to misstatement of age or gender, the Insurer will adjust the premium or the benefits. • omissions in an incomplete application. If the Insurer issues the policy, the concept of waiver prevents the Insurer from contesting the policy. But, according to the Contestable Clause, • during the first 2 years: • an honest mistake or fraud is contestable by the Insurer; • after the first 2 years, • an honest mistake is incontestable by the Insurer; • fraud is incontestable by Life Insurers and Group Health Insurers; but • fraud remains contestable forever by Individual Health Insurers. Allowing the Insured to use the 2-year time limit to get away with cheating on a Group Health policy application but not on an Individual Health application really makes no sense, but it does show how different parts of the insurance industry have developed totally different rules. Our job is to remember that distinction for our exam.

Misstatement Age or Gender Clause

I know that this sounds impossible, but what if I check the wrong box for gender (M/F) or incorrectly calculate my age? The Insurer will simply adjust the benefits according to what would have been paid given the correct age or gender. That means that the Incontestable Clause doesn't apply to a misstatement of age or gender - even if I intentionally misstated my age or gender.

#1 Application Submitted Without a Premium =

If no premium is included, a submitted application is merely an invitation to negotiate. The company's underwriters will evaluate the application, perhaps require a medical exam, and decide whether to issue a policy. If so, the company will issue the policy to the agent. The agent will deliver the policy (finally, this really is an offer) to the applicant with an invoice for the premium due and a request that the applicant sign the Statement of Continued Good Health. The applicant can reject the Insurer's offer. If the applicant chooses to accept the Insurer's offer, the acceptance will occur when the applicant signs the Statement of Continued Good Health and pays the premium - coverage will then be in effect.

first party ownership

If the Insured and the policy owner are the same person, we have first party ownership. First party ownership is the most common arrangement. So, if Jack buys Life Insurance on himself, he is the applicant, the Insured, and the policy owner. He may name anyone as the beneficiary. He might even name his estate as beneficiary

#2. Consumer Investigative Reports

If the Insurer orders a Consumer Investigative/Inspection Report, the applicant must be notified in advance in writing.The notice must advise the applicant of the right to contact the Consumer Reporting Company to request further information about the report. Upon request, the Consumer Reporting Com- pany must disclose the nature and scope of the report, but details such as the sources that provided the information will not be disclosed. Remember that no such warning is required before ordering a Consumer Credit Report.

#2 Application Submitted With a Premium

If the applicant submits the application with the premium, we have an offer. The agent should promptly issue a receipt for the premium payment and submit the application to the company which will begin its underwriting process. Until the company accepts by delivering the policy, the applicant may revoke the offer and demand the return of the initial premium. The company can choose to do one of three things with an applicant's offer: a) Reject the offer; or b) Make a counteroffer; or c) Accept the offer.

Revocable Beneficiary

If the beneficiary is revocable, the owner can designate a new beneficiary at any time. Beneficiaries are presumed to be revocable unless the policy states otherwise. A Revocable Beneficiary has no vested interest in the policy until the Insured dies. All it takes to remove a Revocable Beneficiary is a letter from the policy owner to the company.

third party ownership

In some cases, the policy owner and the Insured are two different people. This arrangement is known as third party ownership. Third party ownership is common in business insurance and estate planning situations. With third party ownership, the person who owns the policy is not the person insured by the policy. In third party ownership situations, the policy is not legal unless the Insured gives consent. Keep in mind, the third party owner and beneficiary can be the same person. An example will help. Nancy and her husband Jack have four children. She suggests that Jack purchase a $1 million Life policy so Nancy and the kids will be taken care of if Jack dies. Jack wants to buy a new fishing rod instead, so Nancy decides to buy the policy. Jack will be the Insured, but Nancy will be the policy owner and beneficiary. Can she do that? The answer is: Yes, but only if Jack consents by signing the application. The policy owner can cancel the policy, transfer it to another owner, or change the beneficiary. Once the Insured provides consent for the policy to be issued, all the rights belong to the third party owner. If the applicant and the Insured are two different people, the Insured must give consent before the policy will be issued. This is usually accomplished when the Insured signs the application. The purpose of this little technicality is to prevent people from unfairly benefiting from the misfortunes of others.

The key players in the insurance transaction are the

Insurer, Insured, agent (or producer), and broker. Other parties to the contract may include the policy owner and the beneficiary

In addition, consumers may request that a specific company not call them - therefore companies must each maintain an

Internal Do Not Call List.

The Law of Large Numbers:

Is used to determine premiums based on historical loss figures.

Grace Period

Just in case you missed it in the last chapter, we 1 want to review the 31-day Grace Period. The grace period is initiated when the policy owner fails to pay the premium by the due date. If the premium is paid within the grace period, coverage continues uninterrupted. If the grace period expires and payment has not been received, the policy will lapse in 31 days but will still provide coverage during that 31-day period. If the Insured dies during the Grace Period, the policy will pay the death benefit less the amount of the premium owing plus interest

Lapse

Lapse (lapsation) refers to a Permanent policy's termination because the owner fails to pay the premium within the 31-day Grace Period

Accelerated Death Benefit Rider

Many life policies include an "Accelerated Death Benefit Rider" that requires the Insurer to pay out part of the death benefit (usually 50%) if the Insured has a diagnosis of a particular illness likely to cause death within 12 months. This provision also may permit the Insured to receive early payment if the Insured needs to be admitted to a long term care facility. The "Accelerated Death Benefit" is often referred to as a "living" benefit because it permits the Insured to access money without dying.

Maturity

Maturity occurs when the policy pays the face value. This happens when the Insured dies with both a Temporary and Permanent Policy but also happens when a Permanent Policy pays the cash value upon the Insured reaching age 100. Maturity involves payment of the face value. Both Temporary and Permanent policies mature upon the Insured's death. Only a Permanent Policy "matures" by paying the face amount when the Insured reaches age 100

Simultaneous Death act: What happens to the death benefit if the Insured and the Pri- 1 mary Beneficiary die at the same time?

Most states have adopted the Uniform Simultaneous Death Act. This law says that if an Insured and Primary Beneficiary appear to have died simultaneously, it shall be presumed that the Primary Beneficiary died first unless there is proof otherwise. The death benefit would go to the Contingent Beneficiary,

There are two ways to pay for Group Insurance coverage

Non-Contributory Plans (employer pays it all); and Contributory Plans (workers pay part or all)

But, if the death is any way "triggered" by a sickness, the AD&D rider won't pay anything (Jack has a heart attack and then dies from the fall off the roof)

Nor will it pay if the death is "trig- gered" by an accident, but then directly caused by a sickness. For example, if Jack is injured in the accident falling from the roof, but dies from pneumonia while in the hospital, the AD&D policy won't pay. To make matters worse, the death must occur within 90 days of the date of the accident.

Reinstatement Clause

OK, I was bad. I forgot to mail the premium check. The Grace Period is over. The policy has lapsed. May I please, please, please "reinstate" the lapsed policy? I don't want to be treated like a brand new applicant - the premium will go up due to my higher attained age. The reinstatement rules are different for Health policies, but here are the main points for reinstating a Life Policy. A Life policy is required to include a Reinstatement Clause which prohibits the Insurer from charging a reinstatement fee. Within the time limits provided by state law, I may reinstate if I: • submit a reinstatement application (which triggers a new incontestable period on statements in the new application); • pay any outstanding policy loans (if the Life policy permitted policy loans); • pay missed premiums plus interest; and • provide proof of insurability. The advantage of reinstatement over simply applying for a new policy is that reinstatement is done according to my age when the policy was first delivered rather than at my higher attained age. Thus, the premiums should be less when reinstating a lapsed policy than when applying for a new policy.

Normally, the Insured ___________ names the beneficiary at the time of application and may change the beneficiary at any time

Owner

The first and often only beneficiary named is the

Primary Beneficiary. **Recognizing that the Primary Beneficiary may die before the Insured, it is common to name more than one level of beneficiary. Hopefully, the levels of beneficiaries will be clearly ranked so that no question exists about who is entitled to the death benefit. When we have these "layers" of beneficiaries, here are the rules for the distribution of the death benefit

Order of beneficiaries:

Primary Beneficiary. The primary beneficiary is first in line. If the primary beneficiary is alive at the time the Insured dies, the primary beneficiary will receive the entire death benefit. But, ifthe primary beneficiary dies before the Insured, the death benefit is paid to the Insured's estate UNLESS, you have named a: Contingent Secondary Beneficiary. A Contingent (second or tertiary) Beneficiary is an individual who will receive the death benefit if the primary beneficiary is no longer living at the time of the Insured's death. The Contingent Secondary Beneficiary receives nothing if the primary beneficiary is alive at the time of the Insured's death It is even possible for the policy owner to designate a Contin- gent Tertiary Beneficiary (third) who receives the death ben- efit if both the Primary and Contingent Secondary Beneficiaries are no longer alive. If all of the contingent beneficiaries die before the Insured, the death benefit is paid to the Insured's estate

The dollar amount of all benefits is based on the worker's

Primary Insurance Amount (PIA), which is the full retirement benefit that person is entitled to receive at full retirement age. All benefits are computed by multiplying the person's PIA by a percentage

HIPAA provides consumers with several rights relative to the confidentiality and disclosure of PHI, including:

Receipt of a Notice of Privacy Practices; • Privacy for PHI; and • Access to PHI for inspection and copying.

Group Policies share these three characteristics:

Reduced Cost;• Reduced Adverse Selection; and • Fixed Benefits.

a) The Company may

Reject the Applicant's Offer. If the company rejects the applicant's offer and chooses not to sell the applicant any policy, the premium payment will be refunded and the applicant will have no policy, and no coverage.

The three main components of the Social Security program are

Retirement Benefits, Disability Benefits, and Survivor Benefits

Uncertainty of loss is

Risk

Many companies will instruct the agent to not deliver a policy to an applicant until the agent obtains the applicant's written and signed

Statement of Continued Good Health to verify that the applicant's health hasn't changed. This assures the company that no material changes have occurred since the time the application was completed several weeks earlier.

A labor union is eligible to establish a Group Insurance plan for its members. Businesses that employ workers cannot pay worker insurance premiums directly to the union because that violates the federal labor union law known

Taft-Hartley Act. There is, however, a way around this. Although an employer cannot pay a union directly for its members' insurance, the Taft-Hartley rules do allow a company to endow a trust fund set up for the very same purpose. This arrangement may also be referred to as a "Taft-Hartley trust."

Insurance agents and companies are impacted by the

Telephone Consumer Protection Act (TCPA) and the Do-Not-Call Act

Surrender

Termination may also result from the surrender of the policy. This means you physically return the policy to the company for cancellation. Some experts say the termination of the policy upon lapsation is also a type of surrender. A key reason for surrendering a Permanent Policy may be to get the money in the cash value savings account

There are two major required HIPAA disclosures that must be delivered to a customer at the point of service

The first required disclosure has already been covered - it is the Notice of Privacy Practices that must be given to each patient at the time service is provided. The second required disclosure is the HIV informed consent disclosure. When Life and Health underwriters gather information about insurance applicants, it is possible they (or the medical exam provider) will test the applicant for HIV. This is obviously a very sensitive process, so there are special rules that govern it.

Insurable Interest Requirement for Third Party Ownership =

The insurable interest requirement builds on the concept that in order to be insurable, a loss must be economic. It is very important that the applicant for insurance stand to lose something of value should the loss covered by the policy occur. With regards to Life and Health Insurance, an insurable interest exists if the applicant would suffer financially if the Insured were to die or become ill. If the applicant and the Insured are one and the same (first party ownership), the insurable interest is a given. One always has an insurable interest in oneself. The following all have an insurable interest: • Spouses; • Close relatives; • Creditors in debtors; • Employers in employees; and • Business partners in each other. But, you don't have an insurable interest in your golfing buddy, your hair dresser, your day care provider, or your neighbor. You can see how all this might get complicated. When reviewing each application, insurance companies must make a judgment call as to whether the applicant has a sufficient insurable interest in the Insured. Note that the applicant does not need to have an insurable interest in the life of the beneficiary. With Life Insurance and Health Insurance, the insurable interest must be present at the inception of the policy. The insurable interest does not need to exist when the death, sickness, or disability actually occurs. If a Nancy buys a Life Insurance policy on Jack and names herself as the beneficiary, the policy will remain in effect even if they divorce the day after it is issued. An insurable interest is only required at the inception of the policy.

Master Contract

The one overriding contract that can affect the lives of hundreds or thousands is called the Master Contract. This contract is an agreement between the insurance company and the organizing entity (employer, association, or whatever), not between the Insurer and the Insured. The organizing entity actually is considered the policy owner.

The ____________ controls all aspects of an insurance policy

The owner controls all aspects of an insurance policy. The owner can cancel the policy, change the beneficiary, or even transfer ownership. Basically, the policy owner has all the rights. Along with rights come responsibilities. The policy owner is responsible for paying the premiums to keep the policy in force. Every insurance policy contains an Ownership Clause specifying the owner's rights. There are two types of ownership - first party ownership and third party ownership. Nope, there is no second party ownership.

legally competent parties

The point here is that only people who are capable of understanding the terms of a contract and who are not under duress may become parties to a contract. The age at which a person becomes legally competent varies among the states, but this age is generally lower for insurance policies than for other contracts. In many states, individuals as young as 15 may enter into insurance contracts. Often, potential problems regarding the legal competency of minors are avoided by having a parent or guardian sign for the minor

Irrevocable Beneficiary

The policy owner may name an Irrevocable Beneficiary. This is often required by a divorce settlement. An Irrevocable Beneficiary acquires a vested interest in the policy and has control that otherwise would belong solely to the owner. With an Irrevocable Beneficiary, the owner must have the beneficiary's permission to borrow from the policy, to assign the policy, or to otherwise diminish the policy's value. And obviously the owner cannot name a different beneficiary without consent of the Irrevocable Beneficiary. However, an *** Irrevocable Beneficiary's consent is not needed to make changes that don't harm the beneficiary, such as changing the premium mode or increasing the death benefit. An Irrevocable Beneficiary retains a vested interest in the policy's death benefit even if the Irrevocable Beneficiary dies before the Insured.

Expire

This applies to Term Life only. If the Insured lives beyond the policy's specified period of time, the Term Polices expires.

Attained Age

This is the fancy term we use when talking about the Insured's age. Some insurance companies round your age up if you are within six months of a birth- day. Some will even let you purchase the right to be considered one year younger. As long as the company treats everyone the same, it can establish its own definition for "attained age."

The HIV test results are confidential and may only be given to:

Those with written approval; or• Those who need to know the HIV status in order to provide medical care and services, including:• Medical care providers;• Persons involved with foster care or adoption;• Parents and guardians;• Jail, prison, probation and parole employees;• Emergency response workers and other workers in hospitals or medical offices who are exposed to blood and bodily fluids in the course of their employment; • Public health officials as required by law; and• Insurers if necessary to pay for care and treatment.

Individual Uses for Life Insurance #2

To create an estate: Perhaps you haven't built the type of estate you've always dreamed of leaving to your heirs. Do not fret! You can purchase a Life Insurance policy for the amount you would like to leave behind and, upon your death, your beneficiaries will receive the death benefit. This scenario will only work if you can afford to pay the premiums during your lifetime.

Individual Uses for Life Insurance #4

To guarantee insurability: Many parents (and even grandparents) purchase Life Insurance on newborn babies or young children. One reason is that many Life Insurance policies provide opportunities to increase the amount of coverage - without providing evidence of insurability by taking a medical exam..What if the child develops a medical condition that would normally prevent the purchase of Life Insurance? Because a policy is already in place, it may allow the child to add more Life Insurance coverage later in life regardless of the child's health. No medical exam and thus no need to provide evidence of insurability. Adults also purchase Life Insurance for themselves to guarantee future insurability. When you are relatively young and healthy, Life Insurance is affordable. Young, healthy persons might consider buying a policy now to eliminate the worry of becoming uninsurable later when the policy is really needed.

Individual Uses for Life Insurance #3

To protect an estate: You've worked hard in life. And now you have a large (or even small) estate to leave to your heirs, but you don't want government estate or inheritance taxes to take a big slice of the pie. Without bogging down in the details of death taxes, we do know that a great way to pay death taxes without reducing the amount left to your heirs is to buy a Life Insurance policy. Typically, you would name your estate as the beneficiary and buy a face amount close to the amount you expect will be consumed by estate taxes.

Business Uses of Life Insurance #1

To protect the business if a key person dies: Some 1 people (owners or employees) are more critical to the survival of 2a business than others. Payroll People, a small company that processes payroll for about 50 local employers, has just one computer programmer, Polly. Over time, Polly has single- handedly designed a customized database that makes processing payroll a cinch. The only problem is that no one else at Payroll People knows how to use the program. What should be done? Well, first Payroll People might want to think about a contingency plan in case Polly quits (such as training another employee on how to use the program). In addition, Payroll People can purchase a Life Insurance policy on Polly. If Polly is tragically hit by a bus on her way home, the death benefit can help cover Payroll People's expense of finding a qualified temporary replacement and recruiting a long term replacement as quickly as possible. Life Insurance is a good way to protect a business if a key person dies.

Business Uses of Life Insurance #2

To protect the remaining partners if a partner dies: If you own a business with a partner, what will happen if one of you dies? Would the business be able to carry on? Or would the remaining partner be required to sell the whole business to compensate the estate of the deceased partner? Judy and Trudy have been longtime partners in a consulting business called Consult Pro. Each of them would like to continue consulting even after the other dies, but they see a problem lurking. Judy can't stand Trudy's adult children and doesn't ever want them as partners. Trudy feels the same way about Judy's husband. Sounds complicated - how can Life Insurance help? Through a special arrangement called a Business Continuation Plan (which we will cover in depth later), the partners can agree to use Life Insurance to buy the deceased partner's half of the company.

Individual Uses for Life Insurance #1

To protect your family in case you die prematurely: What will happen to your family (you know - your spouse and eight young children) if you die today? People die unexpectedly all the time due to some unforeseen tragedy and most of us do not have enough money stashed away to care for our survivors for a month, much less several years. Life Insurance can go a long way in relieving the financial hardship suffered by your family if you die prematurely. This is the main reason why Life Insurance was created.

Common Disaster Clause: But, what if a witness states that Nancy lived five minutes 14 longer than Jack?

To the rescue comes the Common Disaster Clause. An Insured could insert a Common Disaster Clause in the AD&D policy which would say that if both the Insured and Primary Beneficiary die as the result of the same accident, the Primary Beneficiary shall be considered to have died first (and get nothing) unless the Primary Beneficiary outlives the Insured by 60 days

#3 Using a "Conditional Receipt" to Eliminate Coverage Delay

To the rescue comes the Conditional Receipt. When the agent takes the application and initial premium payment, the agent will simply give the applicant a Conditional Receipt which will allow coverage to become effective even if the applicant dies before the policy is delivered. So, we can say that the Conditional Receipt may make coverage retroactive. The only catch is that the applicant must meet the company's underwriting requirement for the particular policy. The Conditional Receipt promises that if the policy would have been issued, coverage will be in effect from the date of the application or medical exam, whichever is later, thus providing coverage while the application is being processed. If the applicant submits an application with premium and the agent provides a Conditional Receipt, coverage will begin on: • the date of application; or • the date of the medical exam, whichever is later - assuming the applicant met the company's underwriting requirements. The application must include the first premium payment in order to receive a Conditional Receipt. If the applicant does not meet the insurability requirements, the Conditional Receipt will be meaningless. The Conditional Receipt is not a guarantee that the policy will be issued, but rather an assurance that if the policy would have been issued, it will be in effect from the date of application or medical exam, whichever is later, thus providing coverage while the application is going through the underwriting process. A Conditional Receipt creates an exception to our general rule that coverage only begins when the agent delivers the policy to the applicant. A Conditional Receipt allows coverage to begin retroactively.

Indemnification applies to Health Insurance (T/F)

True

Multiple Employer Group

Two or more employers may join forces to meet minimum member requirements and in other ways jointly provide insurance for their employees

#1. Consumer Credit Reports

Under FCRA, the Insurer may obtain the applicant's Consumer Credit Report with- out the applicant's knowledge or consent. However, if the Insurer makes an adverse underwriting decision based in whole or in part on information found in the applicant's Consumer Credit Report, FCRA requires that the applicant be notified.

voluntary plans

Voluntary worksite programs are typically "add on" programs that are reasonably priced because of volume discounts. These programs allow the workers to pick and choose what works best for them. Because the employees typically pay all of the premiums, these plans

Can the policy owner name a different beneficiary?

Well, it depends whether the beneficiary is a revocable beneficiary or an irrevocable beneficiary. As with nearly all other aspects of the policy, it is the owner (not the Insured) who decides whether the beneficiary is revocable or irrevocable

Grace period Clause

What happens if I forget to mail the insurance premium? Do I have to start over and apply for a new policy? Nope, I am protected by the the Grace Period Clause which delays lapsation for a period of (usually) 31 days. If I get sick or die during that time, I am covered as though I had paid the premium. Of course, the Insurer will be able to deduct the premium plus interest from the claim payment. So, what happens if I fail to mail the premium check? Nothing! I am still fully covered for the 31-day Grace Period. However, after the 31-day Grace Period, the policy will lapse resulting in lapsation.

Single Employer Group

When most of us think of Group Insurance, we almost always think of employees getting insurance at the work place. That's all this is. When one employer seeks coverage under Group Insur- ance, we have a Single Employer Group. This is simply an insurance plan administered by an employer to cover employees, officers, and even the board of directors (but not shareholders because they aren't employees). EX. school districts, public universities, and other governmental entities

experience rating

When setting premiums for larger and established groups, Group Insurance underwriters use experi- ence rating which looks at the claims history for this particular group. Experience rating puts the burden for high premiums (and the credit for low ones) squarely on the shoulders of the group, because of the particular group's past claims history. Remember, however, that the Insurer evaluates the insurability of the group as a whole, not as individual members.

Premium

With Life Insurance, we will always assume that during the policy period the premiums remain the same, or as the insurance industry likes to say, level and fixed. We will see some exceptions to this rule, but our slogan will be "life insurance premiums are level and fixed for the policy period."

b) The Company may Make

a Counteroffer. If the company decides that the applicant is a risky applicant, it can counter-offer a "rated policy" at a higher premium. A counteroffer occurs when the agent offers a more expensive policy along with an invoice for the additional premium (or offers a policy that provides less coverage in return for the original premium). Coverage will not become effective until the applicant accepts the counteroffer by paying the additional premium. The applicant may reject the counteroffer and demand a premium refund.

With Group Insurance the organizing entity is the policy owner and the Insureds are the covered group members. The policy is called

a Master Contract and is retained by the organizing entity.

How do we keep a big spender beneficiary from foolishly wasting all of the death benefit? Worse yet, the beneficiary might get sued after a bar fight and the creditors could seize the death benefit. The solution is to create

a Spendthrift Trust and name the trust as the policy's beneficiary. The Insured creates the Spendthrift Trust for the benefit of the big spender and names a trustee to oversee the disbursement of the money. The trustee is instructed to provide money to the trust beneficiary (big spender) only under specific circumstances (such as no more than $500 per week). A Spendthrift Trust can- not be seized by the big spender's creditors.

National Association of Insurance Commissioners (NAIC)

a group that greatly influences the industry today. One goal of the NAIC is to provide uniformity in insurance laws and regulations throughout the country. But it also serves as a sort of champion-of-the-people by attempting to ensure that all Insurers conduct business in a fair and equitable manner. Thanks to NAIC and the Uniform Policy Provision Law, many insurance rules are the same in all 50 states.

Elements of a Contract

a legal purpose; • competent parties; • consideration for each party; and • an agreement consisting of an offer and an acceptance.

The Multiple Indemnity Rider always pays a multiple of the un- derlying Life Insurance policy's death benefit whereas an AD&D Rider has

a separate face value. Both pay the beneficiary if there is a death whereas the AD&D rider pays the Insured if there is adismemberment or loss of vision - but it pays nothing for deafness.

A representation is

a statement regarding a material fact that the applicant believes to be true to the best of the applicant's knowledge and belief. These statements are more-or-less "approximately" true. Under insurance law, there is a presumption that statements made by the applicant in both the application and in the Proof of Loss form are representations. That is, if an item is stated incorrectly, the Insured gets the benefit of the doubt by the presumption that it was an honest mistake, that is, the statement is presumed to have been made with the best of the applicant's knowledge and belief. Thus, the applicant does not provide a warranty that all of the statements are perfectly correct. Although the insurance company would like for all of these statements to be considered warranties, they are really treated as mere representations.

Jeanine has a Group Health plan at work. Her employer pays half of the premium each month and deducts the other half from Jeanine's paycheck. What is this type of plan called? Select one: a. A contributory plan. b. A split dollar plan. c. A deferred compensation plan. d. A noncontributory plan.

a. A contributory plan.

An applicant submits a premium with the application. The purpose of having the producer deliver the policy to the applicant is to? Select one: a. Accept an offer b. Make an offer

a. Accept an offer

The inability of an Insured to negotiate any changes in the policy language relates to the concept of? Select one: a. Adhesion b. Aleatory c. Unilateral d. Conditional

a. Adhesion

Which policy section specifies the amount of the premium? Select one: a. Consideration Clause b. Insuring Clause

a. Consideration Clause

Each of the following is a factor in calculating gross premium EXCEPT: Select one: a. Dividends. b. Interest. c. Expenses. d. Risk.

a. Dividends.

Each of the following statements regarding noncontributory plans is correct EXCEPT? Select one: a. Each employee must be given the right to select individual benefit levels. b. All eligible employees are automatically covered. c. The plan may use a probationary period to determine when the employee is eligible to participate in the group insurance. d. The employer pays for the coverage.

a. Each employee must be given the right to select individual benefit levels.

Which of the following actions is an agent likely to take when a conditional receipt is NOT used? Select one: a. Have the client sign a statement of continued good health at the time of policy delivery. b. Make sure the application is processed as quickly as possible. c. Caution the Insured to be extra careful until the policy is issued. d. Collect two months premium in advance in case the policy takes a while to issue.

a. Have the client sign a statement of continued good health at the time of policy delivery.

Evan buys a 20-year Term policy on his 38th birthday. At age 52 he dies of a sudden heart attack. What happens to Evan's policy? Select one: a. It matures. b. It lapses. c. It is surrendered. d. It expires.

a. It matures. The only way a Term Policy "matures" is to have the Insured die while coverage is in effect. "Expires" means the Insured was still alive when the Term policy terminated.

The creation of a contract requires each of the following elements EXCEPT? Select one: a. Negotiation and notarization. b. Agreement. c. Consideration and Offer and Acceptance. d. Legally competent parties.

a. Negotiation and notarization.

The creation of a contract requires each of the following EXCEPT? Select one: a. Negotiation. b. Consideration. c. Legal purpose. d. Agreement.

a. Negotiation.

An applicant submits an application with the first premium payment. This constitutes a/an? Select one: a. Offer. b. Agreement. c. Invitation. d. Acceptance.

a. Offer.

The time period one must be employed before becoming eligible for group Disability Income or Health Insurance is known as the: Select one: a. Probationary period b. Waiting period

a. Probationary period

Which of the following statements regarding a single employer group plan for a new business is CORRECT? Select one: a. Proof of insurability will not be required and the Insurer will use "community" rating. b. The plan will always be contributory. c. "Experience" rating will be used because of the group's long experience claim's history. d. Proof of insurability is always required for new enrollees.

a. Proof of insurability will not be required and the Insurer will use "community" rating.

An applicant was denied insurance based on information contained in his or her credit report. The applicant may: Select one: a. Receive the name and address of the consumer reporting agency from the Insurer. b. Obtain a copy of the report by making a request to the Insurer. c. Require that the Insurer disregard the credit report in the underwriting process. d. Sue the Insurer for violation of the Federal Fair Credit Reporting Act.

a. Receive the name and address of the consumer reporting agency from the Insurer.

A company may provide group insurance for each of the following EXCEPT: Select one: a. Shareholders b. Officers c. Employees who are members of a labor union d. Directors

a. Shareholders

Mr. T applies for life insurance but does not make an initial premium payment. Coverage will be effective when? Select one: a. The Insurer delivers the policy and the applicant pays the premium. b. The Insurer issues the policy. c. The Insurer delivers the policy and obtains a Statement of Continued Good Health.

a. The Insurer delivers the policy and the applicant pays the premium.

Which of the following is correct regarding an association buying group insurance? Select one: a. The group cannot be formed for the purpose of buying insurance. b. The members each receive a copy of the policy.

a. The group cannot be formed for the purpose of buying insurance.

The primary source of moral character information is: Select one: a. The inspection report. b. The application. c. The credit report. d. MIB.

a. The inspection report.

Li owns a policy and wants to change the beneficiary. Which of the following statements is true regarding changing the beneficiary? Select one: a.The insurance company will consider the change effective immediately if the request is in writing. b.The beneficiary cannot be changed without a court order. c.The insurance company will notify the previous beneficiary and then make the change. d.The insurance company will need to obtain the previous beneficiary's consent before the change can be completed.

a. The insurance company will consider the change effective immediately if the request is in writing.

Mr. Z submits an application with premium to his life insurance producer. The producer gives Mr. Z a conditional receipt . Prior to the time Mr. Z takes a medical examination, he is considered to be? Select one: a. Uninsured b. Temporarily Insured

a. Uninsured

When does the grace period begin? Select one: a. When the policy owner misses a premium payment. b. When the Insured dies. c. When the policy is issued. d. When the policy has lapsed.

a. When the policy owner misses a premium payment.

The Insured has a valid health claim but has lied about age in the application. Under the Misstatement of Age Provision in the Health Policy, the Insurer may: Select one: a. adjust the claim. b. deny the claim.

a. adjust the claim.

If only 5% of a company's employees choose insurance coverage, this presents what type of issue? Select one: a. an adverse selection issue b. a premium mode issue

a. an adverse selection issue

Each of the following groups is eligible for group life or health insurance EXCEPT: Select one: a. family groups b. employee groups c. government worker groups d. association groups

a. family groups

Under the Fair Credit Reporting Act, the Producer must inform the client of the rights regarding consumer investigative reports at the time: Select one: a. of application. b. the policy is delivered.

a. of application.

Each of the following is true regarding a Stranger Originated Life Insurance (STOLI or IOLI) transaction EXCEPT: Select one: a. they are used to prevent money laundering by criminals and terrorists. b. they permit life insurance to be sold to an investor or broker. c. death benefits are paid to an investor or broker rather than a traditional beneficiary. d. the investor or broker is able to circumvent the typical state laws requiring the owner of the policy to have an insurable interest in the Insured.

a. they are used to prevent money laundering by criminals and terrorists.

If an Insurer issues a rated policy, when will coverage become effective? Select one: a. when delivered to the applicant and the applicant pays the additional premium b. when issued

a. when delivered to the applicant and the applicant pays the additional premium

Which of the following statements regarding AD&D Insurance is CORRECT? Select one: a.AD&D policies cover accidents only, NOT sickness. b.AD&D policies are required to be added to all Life policies. c.AD&D policies are reimbursement contracts. d.AD&D policies do not provide death benefits, just dismemberment benefits

a.AD&D policies cover accidents only, NOT sickness.

Who helps place a client with an insurance company and owes a fiduciary duty to the client? Select one: a.Broker b.Agent

a.Broker

New point - be sure to read the explanation! If Kori's life insurance policy specifies that her beneficiaries are "her children," this is an example of what type of beneficiary designation? Select one: a.Class b.Irrevocable c.Individual d.Contingent

a.Class Beneficiaries may be individually named, such as "my children Alek and Tori," or designated by class, such as "my children." Naming a class, such as "my children," may lead to problems if Kori has children from a prior marriage. This is a new point not covered in the text.

Which of the following would NOT be covered by an AD&D policy? Select one: a.Income b.Hands c.Eyes d.Death

a.Income

Which of the following beneficiary choices restricts the policy owner's flexibility? Select one: a.Irrevocable b.Revocable

a.Irrevocable

Nancy is the beneficiary on Jack's Life policy and Cassie is the contingent beneficiary. What will happen if Nancy and Jack are killed at the same time under the Uniform Simultaneous Death Act? Select one: a.The policy proceeds will be paid to Cassie. b.The policy proceeds will be paid to Nancy's estate. c.The policy proceeds will be paid to Jack's estate. d.The policy proceeds will be distributed among all of Nancy and Jack's surviving children.

a.The policy proceeds will be paid to Cassie.

Nancy is the beneficiary on Jack's Life policy and their daughter Cassie is the contingent beneficiary. Nancy and Jack are involved in a serious car accident, which kills Jack instantly. Nancy is on life support for two weeks and then dies. What will happen under the Common Disaster Clause? Select one: a.The policy proceeds will be paid to Cassie. b.The policy proceeds will be paid to Nancy's estate. c.The policy proceeds will be distributed among Nancy and Jack's surviving children. d.The policy proceeds will be paid to Jack's estate.

a.The policy proceeds will be paid to Cassie.

Before being tested for HIV, a patient must sign a consent to be tested and must be informed about

about both the HIV testing and the disclosure of the test results.

Riders are optional provisions not included in the original policy but which are

added at a later time. Riders address issues not covered elsewhere in the policy. The Insurer and Insured can create a customized policy through the use of riders. A rider will reduce the cost of the policy if it excludes coverage but will cost extra if it adds coverage. A rider may also be called an extension or an endorsement.

Group Insurance cuts down on administrative costs and reduces adverse selection. Employer groups especially have reduced

adverse selection because people who are employed are typically fairly healthy and are pre-retirement age

When one party or the other has the potential to receive dramatically different levels of benefits relative to the cost of receiving those benefits, the contract is said to be

aleatory. Insurance contracts are aleatory EX. Jack makes only one $150 premium payment on his $1 million Life Insurance policy and then dies of a sudden heart attack. The Insurer has to pay $1 million even though the Insurer has only received $150.

When attached to a Life Insurance or Health Insurance policy, the AD&D Rider will pay

an additional death benefit if the Insured's death is the direct result of an accident.

Replacement regulations dictate the behaviors of an

an insurance agent and both insurance companies involved if a proposed insurance transaction would result in the client purchasing one policy and then canceling a similar policy.

Concealment is

an intentional nondisclosure or hiding of material facts, and may be grounds for voiding an insurance contract. The only difference between concealment and misrepresentation is that concealment involves omitting information. Concealment is the intentional failure to disclose material facts • intentionally hiding the truth; or • intentionally telling only a partial truth.

A provision is simply

any clause in the policy. Provision and clause are interchangeable terms

A conditional receipt provides coverage from the date of

application or the date of medical exam, whichever is later IF the applicant meets the underwriting guidelines.

Accidental Death and Dismemberment (AD&D) Rider and the Multiple Indemnity Rider are almost always sold

as "add ons," that is, riders, to either a Life Policy or a Health Policy.

Under the Common Disaster Provision, both the Insured and the Beneficiary are presumed to have died at the same time if the Beneficiary dies within what time after the Insured's death? Select one: a.30 days b.60 days c.90 days d.120 days

b. 60 days

An employee covered under an employer group policy will receive which written document that outlines coverage and provides evidence that group coverage is in effect? Select one: a. A rider. b. A certificate of insurance. c. A policy. d. An extension.

b. A certificate of insurance.

Who established the MIB (which used to be called the Medical Information Bureau)? Select one: a. The insurance commissioner. b. A group of insurance companies. c. A group of doctors. d. The federal government.

b. A group of insurance companies.

An applicant has an insurable interest in each of the following situations EXCEPT? Select one: a. Parents in their children. b. A parent in his or her child's care provider. c. Business partners in each other. d. A wife in her husband.

b. A parent in his or her child's care provider.

An applicant submits an application with the first premium payment. The company delivers the policy. This constitutes a/an? Select one: a. Invitation. b. Acceptance. c. Offer. d. Counteroffer.

b. Acceptance.

A conditional receipt accomplishes which of the following? Select one: a. Guarantees that the permanent policy will be issued. b. Allows retroactive coverage in some situations.

b. Allows retroactive coverage in some situations.

An applicant has an insurable interest in each of the following EXCEPT? Select one: a. Parents in their children. b. An ex-spouse. c. Business partners in each other. d. Businesses and their key employees.

b. An ex-spouse.

Who can alter an insurance policy? Select one: a. The agent. b. An executive officer of the company.

b. An executive officer of the company.

The Federal Fair Credit Reporting Act requires the Insurer to warn the Insured in advance that: Select one: a. A credit report will be obtained. b. An inspection report will be obtained.

b. An inspection report will be obtained.

Ms. L applies for life insurance but does not make an initial premium payment. Her actions constitute? Select one: a. An offer to purchase life insurance. b. An invitation to negotiate for the purchase of life insurance.

b. An invitation to negotiate for the purchase of life insurance.

To protect the applicant's privacy and confidentiality, some information is given to the underwriter and not to the Producer. Which of the following is the ONLY item that the Producer would have access to in the normal insurance transaction? Select one: a. MIB report b. Application c. Results of the physical exam d. Credit report

b. Application

When must an insurable interest exist for Life and Health Insurance? Select one: a. For at least the first three years of the policy. b. At the inception of the policy. c. At the time of each premium payment. d. At the time of the loss.

b. At the inception of the policy.

Which of the following individuals will NOT need to sign an application? Select one: a. Applicant b. Beneficiary c. Insurance Agent d. Insured

b. Beneficiary

Underwriting involves each of the following activities EXCEPT: Select one: a. Reviewing applicant information. b. Carefully investing premium dollars to achieve returns. c. Predicting future losses. d. Placing an applicant in the appropriate rate group.

b. Carefully investing premium dollars to achieve returns.

An insurance policy will lead to the payment of a claim only if the Insured pays the premium and notifies the Insurer of the loss. This relates to the contract concept of? Select one: a. Aleatory b. Conditional c. Adhesion d. Unilateral

b. Conditional The stipulation that the company will only pay a claim if the Insured notifies the Insurer of the loss is an example of a condition. All insurance policies contain this "condition" and thus we say that all insurance policies are conditional.

The producer tells the Insured that the premium is due each year on June 1st. The Insured may confirm this by reading which section of the policy? Select one: a. Insuring Clause b. Consideration Clause

b. Consideration Clause

Exchanging something of value is known as? Select one: a. Contract. b. Consideration. c. Agreement. d. Purchase.

b. Consideration.

To determine the applicant's financial standing, an underwriter would most likely use a/an? Select one: a. Investigative Report. b. Credit report.

b. Credit report.

The 10-Day Free Look provision is initiated by the: Select one: a. Inspection Report b. Delivery Receipt c. Credit Report d. Application

b. Delivery Receipt

The amount that the beneficiary will receive if the Insured dies is called the: Select one: a. Premium value b. Face value.

b. Face value.

An agent is asked to sell a Life Insurance policy with a minor as the insured. The agent should: Select one: a. Report the transaction to the state insurance commissioner. b. Have the minor Insured's parent or guardian sign the application.

b. Have the minor Insured's parent or guardian sign the application.

What does a Multiple Indemnity Rider do? Select one: a.Allows the policy owner to cover additional (multiple) Insureds under the same policy. b.Increases the death benefit by a specified multiple if the death occurs as the direct result of an accident. c.Allows the policy owner to name more than one beneficiary. d.Provides coverage for any individual injured by the Insured where the Insured is found liable.

b. Increases the death benefit by a specified multiple if the death occurs as the direct result of an accident.

The Insured died six months after a life policy was delivered. The Insurer discovered that the application was incomplete and not signed by the applicant. The Insurer will do which of the following? Select one: a. Deny the claim b. Pay the claim

b. Pay the claim

Ms. Y lied about material facts on her life insurance application but the insurance company did not discover the lie until Y died 3 years later. What will the company do? Select one: a. Deny the claim. b. Pay the claim. c. Pay the claim after charging a higher premium. d. Deny this claim but cover future claims from this person.

b. Pay the claim.

A Hospital Indemnity Policy: Select one: a. Is an indemnity policy. b. Pays even if other insurance has already paid for the hospital stay.

b. Pays even if other insurance has already paid for the hospital stay.

The purpose of the Fair Credit Reporting Act is to: Select one: a. Ensure that all people are treated equally, regardless of credit background. b. Provide fair and accurate consumer credit reporting.

b. Provide fair and accurate consumer credit reporting.

Under the Fair Credit Reporting Act, the Insured is entitled to: Select one: a. Receive a copy of the consumer report from the Insurer. b. Receive the name and address of the reporting agency from the Insurer. c. Talk to the underwriter regarding the specifics of the report. d. Receive a copy of the consumer report from the agent.

b. Receive the name and address of the reporting agency from the Insurer.

The Fair Credit Reporting Act entitles the applicant to review information obtained by: Select one: a. The Insurer. b. The consumer reporting agency.

b. The consumer reporting agency.

Assume that no conditional receipt is used. If the premium has been paid and the medical exam taken, a policy's coverage becomes effective when? Select one: a. The policy is issued by the insurance company. b. The policy is physically delivered to the applicant.

b. The policy is physically delivered to the applicant.

If a conditional receipt is used: a. Coverage will become effective only when the policy is delivered to the Insured. b. The policy may become effective prior to delivery.

b. The policy may become effective prior to delivery.

The consideration given by the Insurer consists of? Select one: a. Payment of the policy premium. b. The promise to pay future claims. c. A customer gift (such as a company calendar). d. The application.

b. The promise to pay future claims.

What is the primary reason the agent physically delivers the policy to the Insured? Select one: a. To verify the applicant's physical condition. b. To explain the policy terms and answer any questions. c. To collect the agent's commission. d. To collect any due premium.

b. To explain the policy terms and answer any questions.

Each of the following is a reason people purchase Life Insurance EXCEPT: Select one: a. To protect a family. b. To pay a benefit if the insured is hospitalized. c. To create an estate. d. To protect an estate.

b. To pay a benefit if the insured is hospitalized.

The fact that the Insurer makes a promise but the Insured does not make a promise relates to the concept of? Select one: a. Conditional b. Unilateral c. Aleatory d. Adhesion

b. Unilateral

Which of these provides coverage only if an employee chooses to join the group? Select one: a. a non-contributory group policy b. a contributory group policy

b. a contributory group policy

When must a life or health insurance applicant have an insurable interest? Select one: a. at the time of the loss. b. at the inception of the policy.

b. at the inception of the policy.

What document triggers the 10-day Free Look period? Select one: a. credit report b. delivery receipt c. inspection report d. application

b. delivery receipt

Life insurance protects against: Select one: a. living too long. b. dying too soon.

b. dying too soon.

If a physical exam reveals a serious medical condition (such as HIV), the information may be reported to the applicant's: Select one: a. roommate. b. physician. c. employer. d. spouse.

b. physician.

The Uniform Policy Provision Law provides: Select one: a. that all policies sold in a particular state must be identical b. the right to sue within a stated time after filing a Proof of Loss claim

b. the right to sue within a stated time after filing a Proof of Loss claim

New point - be sure to read the explanation! The purpose of having the Insured name a beneficiary in a life insurance policy is to: Select one: a.Give the Producer a larger commission. b.Avoid probate.

b.Avoid probate.

An AD&D Rider will cover which of the following? Select one: a.Death by a sudden major heart attack. b.Death while on a regularly scheduled flight. c.Suicide. d.Death in combat (for military only).

b.Death while on a regularly scheduled flight.

A risk management technique that transfers risk is: a.Risk retention. b.Insurance. c.Risk reduction. d.Risk avoidance.

b.Insurance

An AD&D policy covers each of these accidents EXCEPT? Select one: a.Loss of vision b.Loss of hearing c.Dismemberment d.Death

b.Loss of hearing

Jack named Nancy as his Life policy beneficiary. Nancy dies but Jack forgot to name another beneficiary. Several years later, Jack died but Nancy was still named as beneficiary. What will happen? Select one: a.The policy proceeds would revert back to the insurance company. b.The policy proceeds will be paid to Jack's estate. c.The policy proceeds would be paid to Nancy's children. d.The policy proceeds would be paid to Nancy's estate.

b.The policy proceeds will be paid to Jack's estate.

A contingent beneficiary will receive the death benefit only if: Select one: a.The Insured dies before the primary beneficiary. b.The primary beneficiary dies before the Insured.

b.The primary beneficiary dies before the Insured.

Which of the following will an AD&D policy cover? Select one: a.Sicknesses. b.Traveling as a fare-paying passenger on a regularly scheduled flight. c.Military service losses. d.Self-inflicted wounds.

b.Traveling as a fare-paying passenger on a regularly scheduled flight.

Teka has two primary beneficiaries, X and Y. X dies and then Teka dies. Who gets the death benefit? Select one: a.half goes to the estate of X and the other half to Y. b.it all goes to Y.

b.it all goes to Y.

The owner, not the insured, names the

beneficiary

Remember, if an incomplete application gets by the agent and the underwriters, and a policy is issued and delivered, the company is

bound by the policy under the concept of waiver.

In a contributory plan, at least what percentage of eligible employees must participate in the group plan? Select one: a. 0% b. 50% c. 75% d. 100%

c. 75%

With group insurance, the Insured receives: Select one: a. A copy of the insurance policy. b. A letter of coverage. c. A certificate of insurance. d. An appointment letter.

c. A certificate of insurance.

If the policy owner misstates her age on the application, the company will: Select one: a. Pay the benefits fully. b. Cancel the policy and return the premiums without interest. c. Adjust the benefits paid. d. Deny the claim but keep the policy in force.

c. Adjust the benefits paid.

Under an insurance policy, either the Insurer or the Insured may receive disproportionate payment under the concept of: Select one: a. Conditional b. Adhesion c. Aleatory d. Unilateral

c. Aleatory

An applicant has an insurable interest in each of the following situations EXCEPT? Select one: a. Parents ask to insure their child. b. Business partners ask to purchase life insurance on each other. c. Alec wants to purchase life insurance covering his ex-spouse. d. A business wants to purchase life insurance covering a key employee.

c. Alec wants to purchase life insurance covering his ex-spouse.

When a Term Life policy ends and the Insured is still living, the policy: Select one: a. Is surrendered. b. Matures. c. Expires. d. Lapses.

c. Expires. Key point for the exam! Term policies expire, whole life policies don't. When the term life policy's coverage period is over but the Insured is still alive, the policy is said to "expire."

Each of the following statements regarding the Fair Credit Reporting Act is true EXCEPT? Select one: a. FCRA allows consumers to dispute information within their Credit Report. b. FCRA governs the Consumer Reporting Agencies that assemble information about consumers. c. FCRA requires Insurers to share credit report information with the applicant. d. FCRA requires Insurers to notify an applicant if a Consumer Investigative Report will be used.

c. FCRA requires Insurers to share credit report information with the applicant.

Which of the following statements regarding MIB is CORRECT? Select one: a. MIB provides applicant credit information to Insurers. b. MIB provides applicant financial information to Insurers. c. Medical information is supplied to MIB by the member insurance companies. d. MIB provides a method for applicants to compare prices among various insurance company premiums.

c. Medical information is supplied to MIB by the member insurance companies.

In a noncontributory plan, what will eligible group members need to do to enroll other than complete an application? Select one: a. Prove insurability. b. Submit an application. c. Nothing. Enrollment is automatic. d. Submit the first premium.

c. Nothing. Enrollment is automatic.

An applicant is rejected for life insurance due to a prior medical condition. The Producer may do each of the following EXCEPT: Select one: a. Obtain a receipt from the applicant when returning the premium. b. Notify the applicant of the rejection. c. Notify MIB that the applicant was rejected. d. Return the applicant's premium.

c. Notify MIB that the applicant was rejected.

The Fair Credit Reporting Act prevents the Insurer from: Select one: a. Using the consumer investigative report as the basis for rating the policy. b. Using the consumer credit report as the basis for denying the application. c. Obtaining a consumer investigative report without notifying the applicant. d. Using a consumer investigative report as the basis for denying the application.

c. Obtaining a consumer investigative report without notifying the applicant.

The purpose of the life insurance Replacement Regulations is to: Select one: a. Require Insureds to update their policies at least every 5 years. b. Require Insureds to replace out-of-date beneficiaries with more appropriate beneficiaries. c. Protect the Insured against loss of benefits. d. Prevent the insured from buying excessive insurance.

c. Protect the Insured against loss of benefits.

Which of the following is required for an insurable interest to exist? Select one: a. The Beneficiary must consent. b. The relationship must have existed for at least three years. c. The applicant must be in a position to lose something of value. d. The Insured must be a financially dependent on the applicant.

c. The applicant must be in a position to lose something of value.

In a group policy situation, who receives the policy certificate? Select one: a. The Insurer b. The employer c. The employee d. The state insurance regulator

c. The employee

What happens when the whole life policy's grace period expires? Select one: a. The insurance policy matures. b. The policy expires. c. The policy lapses. d. The policy is surrendered.

c. The policy lapses.

Nancy is the beneficiary on Jack's Life policy and their daughter Cassie is the contingent beneficiary. Nancy and Jack are involved in a serious car accident, which kills Nancy instantly. Jack is on life support for two weeks and then dies. Who gets the policy proceeds? Select one: a.The policy proceeds will be distributed among Nancy and Jack's surviving children. b.The policy proceeds will be paid to Jack's estate. c.The policy proceeds will be paid to Cassie. d.The policy proceeds will be paid to Nancy's estate.

c. The policy proceeds will be paid to Cassie.

When does a Term Life policy mature? Select one: a. When the Insured converts the policy. b. When the Insured reaches age 100. c. Upon the Insured's death within the policy term. d. At the end of the policy term.

c. Upon the Insured's death within the policy term. There is only one way for a Term policy to mature - the Insured must die while coverage is in effect. Remember, "mature" means that the policy pays the limit (the face value).

Carla owns a $100,000 Life policy with a $50,000 AD&D Rider. She is hit by a train while jogging and her foot is severed. While she is in the hospital, she contracts an infection and dies five weeks later. The Insurer will pay: Select one: a.$50,000 b.$100,000 c.$125,000 d.$150,000

c.$125,000

In order to qualify for AD&D coverage, the accident must directly cause death within how many days? Select one: a.30 Days b.60 Days c.90 Days d.120 Days

c.90 Days

An Insured wishes to name her daughter as beneficiary for her Life Insurance policy, but does not want to give up any ownership rights. The Insured should name her daughter as? Select one: a.A universal beneficiary. b.An irrevocable beneficiary. c.A revocable beneficiary. d.A preferred beneficiary

c.A revocable beneficiary.

Which of the following losses is least likely to be insurable? Select one: a.Measurable loss. b.Accidental loss. c.Catastrophic loss. d.Predictable loss.

c.Catastrophic loss.

Zena is diagnosed with cancer. As a result, her foot must be amputated. Several weeks later, Zena died from the cancer. How much will her AD&D policy pay? Select one: a.Both the capital sum and the principal sum. b.Only the capital sum. c.Neither the capital sum nor the principal sum. d.Only the principal sum

c.Neither the capital sum nor the principal sum.

Jack and Nancy are both killed in a car accident. Jack has a Life policy that names Nancy as the primary beneficiary and their daughter, Cassie as the contingent beneficiary. Under the Common Disaster Clause, who will receive the death benefit if Nancy lived 5 minutes longer than Jack? Select one: a.The Insured's estate. b.The primary beneficiary's estate. c.The daughter (Cassie). d.One half to the Insured's estate and one half to the daughter (Cassie).

c.The daughter (Cassie).

Nancy is the beneficiary on Jack's Life policy and daughter Cassie is the contingent beneficiary. Nancy and Jack are involved in a serious car accident, which kills Jack instantly. Nancy is on life support for two weeks and then dies. What will happen under the Simultaneous Death Act? Select one: a.The policy proceeds will be paid to Cassie. b.The policy proceeds will be distributed among Nancy and Jack's surviving children. c.The policy proceeds will be paid to Nancy's estate. d.The policy proceeds will be paid to Jack's estate.

c.The policy proceeds will be paid to Nancy's estate.

The TCPA prevents insurance agents from

calling customers on the National Do Not Call Registry unless they have entered into an insurance transaction within the previous 18 months

Loss of just one primary body part will generate a benefit called

capital sum, which is half of the principal sum. It seems only reasonable that benefits for dismemberment are paid to the insured, not to the beneficiary

Insurance companies make a profit by

charging more in premiums than they pay out in benefits and other expenses

Almost all contracts, including insurance contracts, are

conditional. This means that for the terms of the contract to be carried out, certain future conditions must be met. The policy owner must pay the premiums, suffer a loss, and file a claim. Only if these important conditions are met will the insurance company be obligated to pay

The Insurer's gives

consideration in the form of promises (to pay future claims)

The Fair Credit Reporting Act (FCRA) protects

consumer information, and how it is collected and distributed, to ensure privacy and fair treatment

In a noncontributory plan, what percentage of eligible employees will be covered under a Group Health plan? Select one: a. 0% b. 50% c. 75% d. 100%

d. 100%

Under AD&D Insurance, what does the capital sum represent? Select one: a.A periodic income payment paid for accidental dismemberment of a primary body part that results in partial disability. b.The cost of renewing the policy if no claims have been filed. c.A periodic income payment paid to the beneficiary after the Insured's accidental death. d.A lump sum, half of the face value, paid for accidental dismemberment of a primary body part.

d. A lump sum, half of the face value, paid for accidental dismemberment of a primary body part.

Paul has a Group Health plan at work. His employer pays the whole premium and Paul does not have to pay anything for the coverage. What is this type of plan called? Select one: a. A deferred compensation plan. b. A split dollar plan. c. A contributory plan. d. A noncontributory plan.

d. A noncontributory plan.

Offer plus acceptance equals? Select one: a. Consideration. b. Legal purpose. c. Legal capacity. d. Agreement.

d. Agreement.

The Fair Credit Reporting Act: Select one: a. Allows an Insurer to obtain consumer investigative reports without notifying the applicants. b. Prohibits Insurers from obtaining credit reports without consent of the applicant. c. Requires Insurers to provide the applicant with copies of all reports. d. Allows consumers to insert a corrective statement in a consumer report.

d. Allows consumers to insert a corrective statement in a consumer report.

Each of the following statements regarding MIB (Medical Information Bureau) is correct EXCEPT? Select one: a. MIB was formed by member insurance companies. b. MIB information is supplied by member insurance companies. c. MIB is regulated by the Fair Credit Reporting Act. d. An applicant's MIB report may show the amount of insurance for which the applicant previously applied.

d. An applicant's MIB report may show the amount of insurance for which the applicant previously applied.

A conditional receipt accomplishes each of the following EXCEPT? Select one: a. Allows for temporary coverage while the application is being processed. b. Allows retroactive coverage in some situations. c. Provides coverage from the date of application or the date of the medical exam, whichever is later. d. Guarantees that the permanent policy will be issued.

d. Guarantees that the permanent policy will be issued.

An applicant submits an application without the first premium payment. This constitutes a/an? Select one: a. Offer. b. Agreement. c. Counteroffer. d. Invitation.

d. Invitation.

Which of the following statements regarding an AD&D policy is CORRECT? Select one: a.It pays a death benefit when death is the result of disease, such as bubonic plague. b.It will pay the capital sum (rather than the principal sum) in the event of an accidental death. c.Dismemberment benefits are paid in monthly payments. d.It provides a death benefit, so the Insured should name a beneficiary.

d. It provides a death benefit, so the Insured should name a beneficiary.

Which element of contract law requires that all parties be of sound mind, sober, and the age of majority to form a contract? Select one: a. Consideration b. Agreement c. Legal purpose d. Legally competent parties

d. Legally competent parties

Consenting to be insured by a third party owner: Select one: a. Normally involves verbal consent by the Insured. b. Will require the Insured's signature on a special form approved by the state insurance commissioner. c. Is not required if the applicant has an insurable interest in the Insured or the policy has a limit of liability less than $100,000. d. Must be given in writing and normally consists of the Insured signing the application.

d. Must be given in writing and normally consists of the Insured signing the application.

Jill fails to pay the premium due on her Whole Life policy. What happens immediately? Select one: a. The policy expires. b. The policy matures. c. The policy lapses. d. Nothing.

d. Nothing.

New point, be sure to read the explanation! A Hospital Indemnity Policy's Elimination Period is applied: Select one: a. Monthly b. Every six months c. Once per year d. Once per each hospital stay

d. Once per each hospital stay

Each of the following statements regarding the Fair Credit Reporting Act is correct EXCEPT? Select one: a. The applicant must be notified that the Insurer will be using a Consumer Investigative Report. b. The applicant has the right to demand that any mistakes in the credit report be investigated and corrected. c. The applicant has the right to request a copy of the Credit Report if an adverse underwriting decision is made. d. The applicant must give consent before an Insurer can access any consumer reports.

d. The applicant must give consent before an Insurer can access any consumer reports.

Jeanine forgot to fill in a few answers on her application. The agent and the underwriters fail to notice and issue the policy. What is the likely outcome? Select one: a. The policy is void because the applicant failed to give total consideration. b. The policy may be voided within the contestability period if the omitted information was material. c. The policy is enforceable, but the premium will probably go up. d. The insurance company is bound by its contract and the policy is enforceable.

d. The insurance company is bound by its contract and the policy is enforceable.

A policy's coverage becomes effective when? Select one: a. The policy is physically delivered to the applicant. b. When the agent explains the terms of the policy to the applicant. c. When the policy is issued by the insurance company to the agent, assuming the full premium has been paid. d. The policy is physically delivered to the applicant, assuming the premium has been paid.

d. The policy is physically delivered to the applicant, assuming the premium has been paid.

Scott buys a 10-year Term policy on his 29th birthday. What happens on Scott's 39th birthday if he doesn't renew or convert the policy? Select one: a. The term policy is surrendered. b. The term policy matures. c. The term policy lapses. d. The term policy expires.

d. The term policy expires.

A statement of continued good health is used in which of the following situations? Select one: a. Each year when the premium is paid. b. Only if the applicant appears to be ill when the policy is delivered. c. When the permanent policy is delivered and a conditional receipt was issued. d. When the policy is delivered and no conditional receipt was issued.

d. When the policy is delivered and no conditional receipt was issued.

Assume that an application doesn't include a premium payment. Which contract element is missing? Select one: a. competent parties b. legal purpose c. negotiation d. consideration

d. consideration

An insurer will likely require proof of insurability in each of these situations EXCEPT: Select one: a. when applying for an individual Term policy. b. when increasing the policy's face value. c. when applying for an individual Whole Life policy. d. when changing the beneficiary.

d. when changing the beneficiary. Any time the Insured wants to increase the face value, you can pretty well bet that the Insurer will want a new medical exam as proof of insurability. Merely changing the beneficiary in no way changes the risk to the Insurer, so proof of insurability won't be required. Also remember from Chapter 4 that proof of insurability usually isn't required when purchasing group life insurance.

A Multiple Indemnity Rider (also referred to on the exam as an Accidental Death Benefit Rider) is best suited for coverage of which of the following? Select one: a.Lost Income b.Accidental Death or Dismemberment c.Hospital Costs d.Accidental Death

d.Accidental Death

The Simultaneous Death Act applies to the simultaneous death of the Insured and the: Select one: a.Owner b.Insurer c.Producer d.Beneficiary

d.Beneficiary

Jack and Nancy are going through a divorce. As part of the settlement, Jack is required to name Nancy as the beneficiary of his Life policy. What type of beneficiary designation is this likely to be? Select one: a.Primary beneficiary. b.Revocable beneficiary. c.Secondary beneficiary. d.Irrevocable beneficiary.

d.Irrevocable beneficiary.

Jack named his wife Nancy as the beneficiary under his life policy with their daughter Cassie as the contingent beneficiary. Jack's policy contained a Common Disaster Provision. Jack and Nancy were both in an accident. Jack died immediately and Nancy died 95 days later as a result of injuries suffered in the accident. The Insurer will pay the benefits under Jack's policy to which of the following? Select one: a.Cassie b.Jack's estate c.Nancy and Cassie will each receive 50% of the benefits. d.Nancy

d.Nancy

Helen has a Group Health policy and an AD&D policy. She falls down and is injured while at a dinner with a business client. Which policy will pay? Select one: a.Helen will sue somebody and make them pay. b.The Group Health policy will cover the medical expenses. c.The AD&D policy will pay the capital sum. d.Neither, Workers Compensation Insurance will cover Helen's loss.

d.Neither, Workers Compensation Insurance will cover Helen's loss.

Under an AD&D policy, which pays the most, the Capital Sum or the Principal Sum? Select one: a.They both pay the same. b.It varies with the policy. c.The Capital Sum d.The Principal Sum

d.The Principal Sum

Jack has named Nancy as the beneficiary on his Life policy and daughter Cassie as the contingent beneficiary. Under the Common Disaster Clause, what will happen if Jack and Nancy are killed at the same time? Select one: a.The policy proceeds will be paid to Jack's estate. b.The policy proceeds will be distributed among Nancy and Jack's surviving children. c.The policy proceeds will be paid to Nancy's estate. d.The policy proceeds will be paid to Cassie.

d.The policy proceeds will be paid to Cassie.

Under which of the following circumstances would an AD&D policy pay a benefit? Select one: a.When an Insured dies as the result of a stroke. b.When the Insured loses the use of his legs. c.When the Insured is a soldier and has to have an arm amputated. d.When the Insured is blinded in a tragic grilling accident.

d.When the Insured is blinded in a tragic grilling accident.

In many cases, an applicant will ask the insurance company, or more likely the insurance agent, about information in either type of consumer report. The insurance company is only required to

disclose the name and address of the Consumer Reporting Agency and to advise the applicant of his or her rights, which were stated above. If the applicant wants to know the information provided by the Consumer Reporting Agency, the request must be submitted directly to the Consumer Reporting Agency.

The applicant has a right to

dispute the completeness and accuracy of the consumer report information. If the reinvestigation does not resolve the dispute, FCRA allows the consumer to insert a brief statement (up to 100 words) in the report setting forth the nature of the dispute. Under FCRA, negative credit information cannot be included in a consumer report if the information is more than 7 years old. However, bankruptcy information may be kept in the report for 10 years.

With Life Insurance, always assume that

during the policy period the premiums will remain level and fixed.

Insurance companies will only cover

economic losses • In addition, to be insurable a loss must be: Accidental, Predictable, Measurable, and NonCatastrophic

AD& D policies are usually riders and may be sold with

either a Life or a Health Insurance license

The Theory of Shared Risk and the Law of Large Numbers underpin

every insurance transaction

The Notice of Privacy Practices

explains how the Covered Entity will use the patient's health information for treatment, payment, and operations (TPO) purposes and the rights the patient has with respect to PHI. This notice must be provided by 19 the Covered Entity before the patient service. Health care plans 20 must mail these notices to their covered members.

An MIB member company cannot obtain an applicant's MIB record unless the applicant is

first provided with an MIB pre-no- tice. The applicant must also sign an authorization allowing MIB to release the MIB record to the MIB member company that is underwriting the application. No member company may access an MIB record without the applicant's prior consent. The MIB pre-notice includes the following disclosures: PApplicant information may be shared with MIB by the Insurer. PAn MIB report may be requested by the Insurer regarding the applicant. PIf the applicant later files a claim, MIB may supply the company with the applicant's updated MIB report.

Misrepresentation and concealment are both examples of

fraud. If the Insurer discovers the fraud, it may have the right to cancel the policy,

**New employees who are still around when the waiting/probationary period ends** For a Non-Contributory Plan:

here the employer is pay- ing the entire cost, new employees who survive the waiting/ probationary period are automatically enrolled. No sign up required - 100 percent of new employees are covered. The assumption is that all employees will take the "free" insur- ance.

The Needs Approach focuses on

how much the survivor requires to sustain the household - an amount that may be more or less than the amount determined under the Human Life Approach.

The Insuring Clause

identifies the parties, has the Insurer's promise to pay, refers to the benefits in at least a general way, and warns that there will be limitations and exclusions found in the policy. The Insuring Clause states the maximum amounts the Company will pay.

On the other hand, if you accidentally misspell the name of your street on your Health Insurance application, this street information is not material to the transaction - it is

immaterial. The insurance industry and the courts are not concerned with immaterial issues.

non-contributory plan

is a Group Insurance plan in which the entire cost of coverage for all eligible group members is covered by the organizing entity, usually the employer. Although there may be a waiting period prior to coverage beginning, everyone is automatically covered after the waiting period

A contract of adhesion

is a non-negotiable contract. - take it or leave it. The applicant has no voice whatsoever in the language of an insurance contract. The Insured is "stuck" with the terms of the contract, take it or leave it, which is the definition of a contract of adhesion. The Insured can't make any changes in a policy form. Only the company can make changes in the policy form - thus, an insurance policy is a contract of adhesion. We are all used to signing contracts of adhesion. Our cell phone contract, the bank loan agreement, the credit card agreement, and the agreement with Speedy Lube to change the oil in your car are all examples of contracts of adhesion While it is no fun for the consumer to have zero input, this does confer one significant advantage upon the purchaser of an insurance policy. Because the insurance company wrote the policy all by itself, any ambiguities will usually be interpreted by the courts in favor of the Insured.

A warranty is

is a statement made on an application for insurance that the applicant guarantees to be true (i.e., a guarantee of absolute truth). This information becomes part of the insurance contract and, if later found to be false, may be cause to void the contract. Way back when, insurance companies made applicants sign a statement warranting all statements in the application and Proof of Loss form. The extreme result was that any mistake could be grounds for cancelling the policy. Today, the courts, the insurance regulators, and the legislators prevent an insurance company from treating as warranties the applicant's statements in Life or Health Insurance applications or claims forms

material fact

is information that would have caused the Insurer to not issue the policy at that premium had it known the truth. If you intentionally misstate the year you were born, that is material information that influences the amount of premium charged.

contributory plan

is one in which all or part of the costs of coverage must be paid by individual group members. With a contributory plan, healthy group members may opt out of the program rather than spend money on something they don't think they need. Most states require that a contributory plan have at least percent of eligible members agree to participate

mutual consideration

is really just a fancy word for "something of value." For a contract to be valid, the parties must exchange something of value. Some of the most common examples of consideration are money, property, services, and promises. When it comes to insurance contracts, the Insured gives the Insurer two items of consideration: 1. The initial premium payment; and 2. The statements made in the application. In return, the Insurer gives just one item of consideration - the promise to indemnify the Insured in the event of a covered loss. For example, the Insurer promises to pay the death benefit in a Life Insurance policy and to pay the doctor's bill in a Health Insurance policy

Underwriting

is the selection and classification of risk. An applicant who is a substandard risk will pay a higher premium or may be declined. If the customer presents relatively little risk, the company will issue the policy as a standard or perhaps preferred risk. And how does the Insurer evaluate the risk? By checking the applicant's medical background, perhaps requiring a physical exam, and by peppering the person with questions about age, habits, hobbies, employment, credit history, and the like - in short, gathering all sorts of information about the individual.

Underwriting is

is the selection and classification of risks

underwriting

is the selection and classification of risks.

A contract is a

legally enforceable agreement between two or more parties

AD&D Insurance pays benefits in a

lump sum, but only when an Insured's death or dismemberment is the direct result of an accident. The policy will never pay if the accident is 'triggered" by an illness. Because the policy pays in a lump sum, it is considered to be a "valued" policy rather than an "indemnity" policy.

Misrepresentation is an intentional misstatement regarding a material fact. Concealment is intentionally omitting information regarding a material fact. Both are fraud and

may be grounds for canceling a policy

Insurance companies will not pay death benefits directly to a

minor under age 18 because the minor is not of sufficient legal age to release the insurance company from liability. Insurance companies recommend that the policy owner set up a trust for the benefit of the minor and name the trust as the beneficiary.

Single employer groups are the kind

most commonly covered by group insurance. Most American workers acquire health insurance on the job via one of these groups

A Multiple Indemnity Rider is based on a

multiple of the death benefit

Adverse Underwriting Action Under FCRA, if the underwriters take an adverse underwriting action (higher premiums, rejection, etc.) based in whole or in part on information contained in either type of consumer report, the applicant

must be notified by the insurance company.Keep in mind, FCRA does not apply solely to the insurance industry. The same requirements apply to any company that rejects an applicant based in whole or in part on a consumer report. For example, a credit card company would be required to follow the same rules if it rejects an applicant's credit card application.

In an adverse underwriting situation, the applicant must be given the

name and address of the Consumer Reporting Agency and be advised of the right to: Receive a free copy of the Consumer Credit Report; Be informed of the nature and scope of the Consumer Investigative Report; Request that the Consumer Reporting Agency reinvestigate and correct any errors in the report; Insert a corrective statement in the report if the Consumer Reporting Agency has reinvestigated but has not changed the report.

If a check is invalid, the agent should explain that the conditional receipt will

not be valid until proper payment is received.

An agent of the insurance company, on the other hand, is

not included in this relationship. Agents are only considered to have an Existing Business Relationship with the customer if there has been a transaction within the past 18 months. An agent may con- tinue to contact the consumer beyond the 18 month time frame if the agent receives written permission from the consumer.

Negotiation and notarization are

not required steps to form a contract

**New employees who are still around when the waiting/probationary period ends** With a Contributory Plan

once the employee makes it through the waiting/probationary period, the eligibility peri- od starts. The new employee has a specified amount of time (such as 45 days) in which to enroll. Or, as an alternative, the employer may declare a certain month the open enrollment period for all employees who have become eligible to enroll. Any new employee who opts out of the contributory plan to save money, but who later wants in, may have to provide proof of insurability at the next open enrollment period.

Estoppel means that

once you waive a right, you have no grounds to complain about the consequences. The concept of estoppel is closely related to that of a waiver. If you waive a right, you are thereafter "estopped" from asserting that right.

The Common Disaster Clause provides better protection for ____________ than does the Simultaneous Death Act

owners

Premium mode specifies whether the premium will be

paid annually, semi-annually, quarterly, monthly, or even weekly. The more frequent the payments, the greater the total annual premium outlay will be

If no beneficiary is named, the death benefit will be

paid to the Insured's estate.

Being "covered" by Social Security means that a worker is

participating in the program. It does not mean that each worker is entitled to the same benefits.

Jack has a $50,000 AD&D Rider attached to his$1 Million Life policy. If he falls off the roof to his death, his underlying policy will

pay Nancy the$1 Million death benefit and then the AD&D Rider will pay Nancy the AD&D principal sum, $50,000

Hospital Indemnity Policies

pay a predetermined benefit (for example, $500) for each day spent in the hospital. Because the benefit is predetermined, this is considered a "stated value" policy. The benefit is not meant to indemnify (reimburse) the policyholder for hospital expenses. That means that the Hospital Indemnity Policy is really a stated value policy, not an indemnity policy. These insurance policy names can be tricky!

Supplemental Accident Benefit policies

pay a specified dollar over and above any other insurance a worker already has - and there is no deductible involved. This is pure mad money! A specific type of Supplemental Accident Benefit policy is the Hospital Indemnity Policy.

If Jack survives the fall from his barn roof, but loses one primary body part, say his hand, the AD&D Rider will

pay the capital sum of $25,000 to Jack. If Jack loses one hand and one foot, or two hands, or vision in both eyes, the policy will pay the $50,000 principal sum

Social Security programs are paid for with

payroll taxes levied on employers and employees. These contributions are authorized by FICA, the Federal Insurance Contributions Act

If the applicant does not complete a portion of the application, the applicant must

personally make the changes and sign or initial them

An insurance policy is effective upon physical delivery of the

policy to the applicant, assuming that the full premium has been paid

Acceptable applicants are divided into three classes:

preferred risks, standard risks, and substandard risks

MIB is a

private, non-profit company created by insurance companies to share medical information between Insurers. MIB is regulated by the federal Fair Credit Reporting Act as well as similar state laws.

In 1996, Congress enacted the Health Insurance Portability and Accountability Act (HIPAA) to

protect consumer privacy regarding health information and to set standards for individual rights regarding Health Insurance. HIPAA safeguards the privacy of Protected Health Information (PHI), which is any individually identifiable health information. HIPAA regulations apply to Covered Entities and their Business Associates.

Multiple Indemnity Rider

provides for a Life policy to 19 pay a specified multiple of the face value if the Insured dies as a 20 result of an accident. EX. Jack has purchased a Double Indemnity rider to go. along with his $1 Million Life Policy. Jack accidentally falls off the barn roof to his death. Beneficiary Nancy will receive a check for $2 Million. Again, the death cannot be attributed to a sickness and the death must occur within 90 days

Being Fully Insured under the Social Security program means that a worker (or the worker's dependents) is entitled to

receive the maximum benefits based on the worker's earning history.

The Human Life Approach tries to

replace all of the income lost when the Insured dies.

legal purpose

requirement says that if a contract is to be valid, its purpose must be legal. An agreement that fulfills all the other requirements of a contract is still not a legal and binding contract if its purpose is contrary to law. For example, a contract to buy illegal drugs would not be legally binding

Consumers have the right to

review the record and request a reinvestigation if it contains inaccurate information. If the reinvestigation determines that the record is inaccurate, MIB will promptly make the correction. In addition, if requested, MIB will provide notice of the correction to any member company that received a copy of the MIB record during the preceding 12 months. If the reinvestigation confirms the accuracy of the orig- inal report, MIB will not change the information, but consumers have the right to file a "statement of dispute" that will appear in the MIB report.

The beneficiary is presumed to be

revocable

Groups must be formed for

some other "defined" purpose, not solely for the purchase of insurance. The point here is that the group must somehow be defined so that some people will be included and others excluded. Although these definitions vary widely from state to state and among insurance companies, several basic kinds of groups are found in almost all states: • Associations; • Creditor Groups; • Labor Union Groups; • Employer-Sponsored Groups; and • Multiple Employer Groups.

Credit Life Insurance pays a

specified debt in the event that the Insured dies before the loan is paid.

Workers Compensation benefits are determined by

state law and cover only work-related accidents

The Consideration Clause

states that the Insured gives 2 items of consideration: • the premium; and • the statements made in the application. The Consideration Clause also specifies the amount of the premiums and the schedule for paying the premiums.

The two main kinds of insurance companies are

stock (non-participating) and mutual companies (participating)

A Life Producer must have reasonable grounds to believe that the policy recommended is

suitable based on the Insured's objectives, financial situation, age and other information known by the Life Producer.

A Life Producer must have reasonable grounds to believe that the policy recommended is

suitable based on the Insured's objectives, financial situation, age and other information known by the Life Producer. The two major approaches used to determine policy suitability are the Human Life Approach and the Needs Approach. The Human Life Approach tries to replace all of the income lost when the Insured dies. The Needs Approach focuses on how much the survivor requires to sustain the household - an amount that may be more or less than the amount determined under the Human Life Approach.

Employer want to control employee benefit costs, yet increase the appeal of work-related benefit offerings to attract and retain valuable employees. Voluntary Employer-Sponsored (Worksite) Plans offer =

supplemental benefits to employees on an optional cafeteria basis. Because of the voluntary nature of these plans, an employer can offer workers the opportunity to purchase exceptional benefits that enhance existing programs without adding any additional cost for the company. EXAMPLES: • Life Insurance Policies; • Health Insurance Policies; • Disability Income Policies; • Auto Policies; 6 • Homeowner Policies; • Supplemental Accident Benefit Policies; and • Hospital Indemnity Policies.

Replacement regulations set

that insurance companies and agents must follow when replacing most Life and Health policies. Any time a consumer applies for a policy with the intent of canceling a similar policy, it is likely that the Replacement Regulations will come into play. The laws are designed to ensure that consumers are informed so they can make educated decisions.

An association cannot seek Group Insurance unless they meet specific guidelines. One guideline is

that the group must have a reason for forming an association other than seeking inexpensive insurance

The two major approaches used to determine policy suitability are

the Human Life Approach and the Needs Approach

A person choosing to retire at age 62 will receive 80 percent of

the PIA

Old Age, Survivors, and Disability Insurance (OASDI) benefits are part of

the Social Security program

Make certain that premium checks are filled out correctly, signed, and made payable to the company, not to the agent. • If a check is mistakenly made payable to the agent

the agent should ask the client to destroy it and write a new check.

If the agent makes a mistake on the agent's portion of the application,

the agent should correct the change and sign or initial the correction.

A peril is

the cause of loss. Life Insurance deals with the peril of death. Health Insurance deals with several perils relating to accidents and sicknesses.

Pure Risk

the chance of experiencing a loss (without the possibility of gain). A car accident, a sports injury, or getting a serious illness all represent pure risks. You either sustain a loss or you don't, but there is no opportunity for gain with a pure risk. Insurance companies are willing to insure pure risks.

Adverse selection refers to

the fact that the people who need insurance the most are the ones most likely to buy it - and buy more of it causing more loss claims. Group Insurance is especially good at fighting adverse selection, and therefore is often less expensive than individual coverage. Here's why adverse selection is less of a problem with Group Insurance:

Non-Contributory Plans are Group Insurance plans where the organizing entity pays

the full cost of coverage for all eligible members

The Insured gives consideration in the form of

the information on the application plus the initial premium payment

Under the Entire Contract Clause

the policy consists of only: • the policy, and • the attached application. Promises allegedly made by the agent don't count. Statements allegedly made by the applicant don't count unless they are written into the application. The Entire Contract Clause keeps an unscrupulous Insurer from trying to enforce "company guidelines" that aren't found in either the policy or the application. The clause also protects both the Insurer and Insured if the agent tries to modify the policy - the clause states that only specific company officers have any authority to make policy changes. State law requires this provision to be in all policies. The Entire Contract Clause provides the best defense in the event that the: • Insured tries to claim that the agent made unwritten promises; or • the Agent makes an unauthorized change in the policy; or • the Insurer tries to impose guidelines that weren't written in the policy

Underwriting is

the selection and classification of risks

For the most part, the insurance industry is regulated at

the state level

Adverse selection is

the tendency for high risk people to be more likely to apply for insurance than low risk people.

Adverse selection refers to

the tendency for insurance applicants to be the people who most need to be insured. Rating policies allows insurance companies to compensate for adverse selection by requiring the risky applicants to pay higher premiums.

A waiver is

the voluntary surrendering of a right. Regarding insurance, both the company and the policy owner may waive rights. If an Insurer delivers a policy after receiving an incomplete application, it waives the right to demand that the application be completed.

There are at least a few signatures required on an insurance application. With first party ownership, the applicant (soon to be Insured) signs the application. With third party ownership,

there will be two different signatures - both the applicant and the Insured. Also, if the Insured is a minor, the minor's parent or guardian will sign for the minor. Not to be left out, the insurance agent also must sign the application. It should be noted that the beneficiary does not sign the application.

so HIPAA is related to both

to both Life and Health Insurance.

Many companies require the agent to deliver a policy in person. The reason for this is

to explain the terms of the policy and, if a policy is rated, to explain the reason why.

The owner of an insurance policy has all the rights associated with the policy - the owner can

transfer ownership, cancel the policy, and change the beneficiary. The owner and the Insured may be the same person or two different people.

Most contracts are bilateral - that is, both parties make legally enforceable promises. Surprisingly, Insurance policies are

unilateral, meaning that only one party - the Insurer - has made a legally enforceable promise. The policy owner makes no promises, not even a promise to pay a single premium! In a unilateral contract, only one party makes a promise. The Insurer promises to pay future claims. The policyholder makes no promise. If the policy holder continues to pay the premiums, the contract will remain in force. But, the policy holder does not promise to make any payments. The Insurer cannot sue the Insured and force the Insured to pay premiums. Insureds don't make a promise, the Insurer does. That's a unilateral contract.

Unless a conditional receipt is used, the agent should explain that the Insured will not be covered

until the policy is delivered, no matter how many good faith delivery attempts are made by the agent.

The Fair Credit Reporting Act rides to the rescue to protect

us consumers. Consumers can sue Consumer Reporting Agencies and Insurers who don't comply with the act.

With large established groups, the particular groups' experience rating will be

used to predict future claims and calculate the group premium. For smaller or newer groups, a community rating underwriting method will need to be used.

Employers use a to _______________________________ screen out new employees who just want a job only to get insurance for an existing illness. The new employee won't be covered by the Group Insurance until the waiting/probationary period has expired.

waiting period (probationary period)

If a fully insured worker dies, some Social Security retirement benefits

will continue to be paid to the spouse and dependent children

Exemptions in the national program include:

• Existing Business Relationships - those businesses with which a consumer has had a transaction within the last 18 months; Charities; Telephone survey research companies; and Companies to which you have made an inquiry or submitted an application may call you for 90 days.

Offer

• Offer. To get the ball rolling, someone must offer something. And the party making the offer must have the intent to be legally bound. In an insurance transaction, an offer (made with the intent to be bound) will exist either when: • The applicant submits an application accompanied by the initial premium payment; OR • The Insurer or its agent delivers the policy to the applicant.

Individual Uses for Life Insurance #6

• To repay a loan: When you borrow money for a big ticket item, such as a house or car, your lender will probably offer a type of Life Insurance called Credit Life Insurance that will pay the loan if you die. So, let's say you finance your car for five years. If you die a week later, the bank still expects the loan payments to be made. If you purchased Credit Life Insurance, the loan would be paid by the insurance company.

Risk Avoidance

Don't agree to be the bouncer at your cousin's wedding reception. Risk avoidance means staying away from risky activities altogether. But obviously, not all risks are avoidable.

Indemnification applies to Life Insurance (T/F)

False

Morbidity tables predict

accidents while mortality tables predict deaths

Who sells insurance to a client and owes a fiduciary duty to an insurance company? Select one: a.Broker b.Agent

b.Agent

Which type of insurance company is owned by its policyholders? Select one: a.Stock Company b.Mutual Company

b.Mutual Company

Fully Insured =

A worker is considered Fully Insured after working (and paying FICA taxes) for 10 years. A Fully Insured worker is eligible for all three types of Social Security benefits: • Retirement Benefits; • Disability Income Benefits; and • Survivor Benefits.

While certain factors such as religion, race, and ethnicity cannot be legally used in the underwriting process, a number of personal attributes may be considered while deciding whether to issue a Life or Health policy and what to charge. These factors include:

Age: Gender: (Does not determine, approval or denial, only premium increase or decrease for gender) Occupation: Health: Tobacco Use: Drugs and Alcohol: Aviation: Military: Hobbies: Reputation:

Standard Risk.

Insureds in the standard risk category constitute the vast majority of people who apply for insurance. There is nothing about them to suggest that they will be of greater (or lesser) than average risk for the company to insure. They will pay the advertised price for their insurance.

Mortality Tables.

Mortality tables predict the age at which people in a given group are likely to die. (death statistics)

Risk Retention (Self-Insuring)

Some individuals and businesses choose to save the expense of insurance premiums and accumulate a fund to pay claims that an insurance company would have paid. In these situations, the individual or business that opts not to buy insurance retains the entire risk. Self-insuring is nothing more than having enough funds to cover losses. Self-insuring means that we have NOT bought insurance.

There are two Survivor Benefits.

The first Survivor Benefit is a lump sum payment of $255 to the surviving spouse or children of either a Fully Insured or Currently Insured worker to help cover funeral costs. The second Survivor Benefit is a percentage of the PIA paid to the survivors of a Fully Insured worker.

Stranger-Originated Life Insurance (STOLI) also known as Investor-Originated Life Insurance (IOLI)

This is a rather complicated mechanism whereby an investor encourages someone to buy life insurance and then give the investor the right to purchase the policy. If the investor buys the policy, the investor will usually bundle it with a number of other policies and sell the bundle to an institutional buyer, such as a bank or brokerage firm. There are a number of federal income tax issues involved which could jeopardize these transactions if the tax laws change.

Insurance: Select one: a.Decreases risk. b.Increases risk.

a.Decreases risk.

A life insurance applicant gives consideration to the Insurer in return for? Select one: a. Guaranteed Insurability. b. The Insurer's promise to pay a claim.

b. The Insurer's promise to pay a claim.

The fact that only one party in an insurance policy makes a promise is related to which contract law concept? Select one: a. adhesion b. conditional c. unilateral d. aleatory

c. unilateral

Which of the following is required for a worker to be eligible for disability benefits under Social Security? Select one: a.The worker must be age 65. b.The worker must need help with at least two activities of daily living. c.The worker must have fully insured status. d.The worker must first enroll in Medicaid.

c.The worker must have fully insured status.

Indemnification

is an insurance concept that states that some portions of the insurance industry prefer that we be made only whole after a loss rather than coming out ahead. Of course, our Insureds would prefer to come out ahead after filing a claim.

"Money laundering"

is the process of converting "dirty money" from criminal activity into money held by legitimate businesses in such a manner that the source of the money cannot be easily traced, but could fund acts of terrorism. The federal government has identified life insurance policies and annuities as insurance products particularly subject to money laundering.

Subrogation

is the transfer to the Insurer of the Insured's rights to recover damages from a responsible third party. This prevents me from coming out ahead and it should, in theory, reduce the Insurer's costs.

stock insurers are also referred to as

non-participating companies

Because policyholders can receive dividends, mutual Insurers are called

participating companies.

The industry uses the term " " when assessing a greater premium for a greater risk. People who are substandard risks are usually offered

rated policies

Workers Compensation Insurance is the

sole remedy for an injured worker because the worker gives up any right to sue the employer in return for receiving the state-regulated benefits.

Speculative Risk

the chance of loss one accepts in the hope of realizing a gain. Insurance companies won't insure a speculative risk. An example of a speculative risk would be starting a small business or gambling in Vegas. Although both are very risky, you can easily see that there is a potential to realize a gain, so these speculative risks are not insurable. So, insurance covers pure risk but not speculative risk.

Applicants who are too risky are declined and are ingeniously called

"declined risks."

Workers Compensation Insurance is required (compulsory) for almost all employees. The employer pays the premium. This is a perfect example of what we can call

"occupational insurance" because it covers work-related accidents but not off-the-job accidents.

The Social Security Administration defines disability as

"the inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of no less than 12 months

definitions of insurance

(1) Insurance is a contract whereby an Insurer agrees to protect an Insured against injury, damage, or liability arising from some future event.. (2) Insurance is the transfer of risk. An insurance policy transfers some portion of the policyholder's risk to the insurance company (3) Insurance is a social device through which individuals, by paying a premium fee, transfer a defined and limited portion of their risk to an insurance company. (4) Insurance is a mechanism for sharing risk, that is, spreading risk among a large number of policyholders.

Lists of insurable losses:

(1) Pure Risk - No potential gain (2) Economic (3) Predictable (4) Accidental (5) Measurable (6) Non-Catastrophic

risk management techniques:

(1) Risk Avoidance (2) Risk Reduction (3) Risk Shifting (4) Buying Insurance (5) Risk Retention (Self-Insuring)

The maximum Social Security payment for disability income is: Select one: a.35% of the PIA (Primary Insurance Amount). b.50% of the PIA (Primary Insurance Amount). c.75% of the PIA (Primary Insurance Amount). d.100% of the PIA (Primary Insurance Amount).

100% of the PIA (Primary Insurance Amount).

Social Security became known as OASDI, which stands for

= old age, survivors, and disability insurance. It is managed by the Social Security Administration.

Life Insurance policies are considered to be

= valued policies because they pay a specific value regardless of the "worth" of the deceased.

Currently Insured =

A Currently Insured worker has not met the 10 year requirement to be Fully Insured and is only eligible for some Survivor Benefits.

Viatical Settlements

An Insured who has a serious illness might simply sell the policy to an investment company that will continue to make the premium payments and collect the death benefit when the Insured dies. The Insured will sell only if an investment company will pay more than the current cash surrender value. The parties will ask a doctor to certify that the Insured is indeed facing imminent death (typically one to five years).

Social Security retirement (or "old age," as it is sometimes called) benefits are paid only to

Fully Insured retired workers and their families. There are no retirement benefits for Currently Insured workers.

There are two classifications of workers eligible for Social Security benefits:

Fully Insured; and • Currently Insured.

Risk Shifting

Get someone else to accept the risk. Before you admit the guests to the wedding, have them sign a waiver of liability stating they won't hold you responsible for any accidents that occur at the party

refers to any situation where one insurance policy covers multiple people

Group Insurance

Risk Reduction

If you do agree to be the bouncer, wear a flak jacket and carry a big can of mace. That way you reduce the chance of something bad happening. Risk reduction means taking measures to reduce your risk.

Morbidity Tables.

Morbidity tables predict how often people in a given group are likely to get sick or have an accident. (sickness and accident statistics.)

For Life and Health Insurance, actuarial data appears in two forms:

Mortality Tables. Morbidity Tables.

Preferred Risk.

People in the preferred risk category are those who through exemplary health and/or lifestyle demonstrate that they are better-than-average insurance risks. These lucky ones will pay premiums that are even lower than those in the standard risk group.

Substandard Risk.

People placed in the substandard risk category are those who have health, lifestyle, credit, or other ingredients in their lives that make them somewhat riskier to insure. The company has already decided to insure them. Now the question is how much insurance to issue and how much to charge. You may rest assured that these Insureds will pay more for the same coverage than will folks in the standard risk category

When calculating the total insurance premium, the insurance company uses this formula:

Premium = Risk + Expenses - Interest

The company does this by collecting information about the applicant's health, occupation, hobbies, and habits. This information comes from a variety of sources, including:

The Application • The Medical Exam • Consumer Reports (covered in Chapter 6) • The Medical Information Bureau (MIB) report (covered in Chapter 6)

Risk is defined as:

Uncertainty of financial loss

Which statement is correct? a. If a Conditional Receipt is used, the policy may become effective prior to delivery. b. Although policies are often physically delivered, coverage is effective when the policy is issued by the insurer. c. Physical delivery of the policy will initiate coverage even if the premium has not been paid. d. If the premium has been paid, state law requires that the policy be mailed rather than being personally delivered.

a. If a Conditional Receipt is used, the policy may become effective prior to delivery.

Unilateral means: Select one: a. Only one party to the contract makes a legally enforceable promise. b. The requirement that some future condition(s) be met for the contract to remain enforceable.

a. Only one party to the contract makes a legally enforceable promise.

Sally wants to buy Life Insurance covering Mike. Which of the following statements is true? Select one: a. Sally needs to have an insurable interest in Mike and obtain Mike's consent on the policy application. b. Sally does not need to have an insurable interest nor obtain Mike's consent.

a. Sally needs to have an insurable interest in Mike and obtain Mike's consent on the policy application.

Which of the following statements is true concerning the agency relationship? a.An insurance broker owes a fiduciary duty to the client. b.An insurance broker owes a fiduciary duty to one or more insurance companies.

a.An insurance broker owes a fiduciary duty to the client.

The main principle of insurance is: Select one: a.Transfer of risk. b.Elimination of risk.

a.Transfer of risk.

In order to select and classify risks, the underwriter must compile information about the applicant. Let's say we know all about an applicant's health, age, occupation, and habits. Now what? This information is compared to existing data regarding when particular groups of people tend to die, get sick, or have an accident. A mathematician who tracks this type information is called an

actuary.

Premium mode

also known as mode of premium, refers to how frequently an Insured will pay the premium. The company has several premium mode options for customers. The most common payment is the annual mode. The insurance company loves the annual mode because the annual premium can earn more interest. Also, the overhead incurred for processing just one payment each year is relatively low compared to some other premium modes.

An applicant submits an application with the first premium payment. The company issues a rated policy along with a bill for the difference in premium. The company's response is an example of a/an? Select one: a. Invitation. b. Counteroffer. c. Acceptance. d. Offer.

b. Counteroffer. The application with the premium is an offer. The company chose not to accept the offer but rather made a counteroffer of a different policy (the rated policy). The company's action is an example of a counteroffer.

Q submitted a life insurance application for her young daughter who has a history of heart problems. Q neglected to mention the heart problems in the application. The daughter died of the heart condition 18 months after the policy was delivered. The Insurer will probably:

b. Deny the claim. During the Contestable/Incontestable Period, the Insurer may cancel the policy for either intentional or unintentional misstatements. After the 2-year Contestable period, the policy cannot not be voided due to material misstatements

A business insures its key executive. This is an example of? a. First Party Ownership b. Third Party Ownership

b. Third Party Ownership

Abe's Insurer issued his policy even though his application was incomplete and unsigned. The Insurer cannot cancel the policy because of which legal concept? Select one: a. Concealment. b. Waiver or Estoppel c. Consideration d. Adhesion.

b. Waiver or Estoppel

A and B, a married couple, each purchase life insurance policies on each other. Several years later, they divorce. The policy premiums were kept current. Will the policies pay upon death? Select one: a. No, the people no longer has an insurable interest in the life of each other. b. Yes, the fact that the couple has divorced has no impact on the policy's insurable interest requirement.

b. Yes, the fact that the couple has divorced has no impact on the policy's insurable interest requirement.

John and Carol are a married couple in their early twenties. John has worked full time at the local factory for 3 years. It is his first job. John is killed in a tragic golfing accident. Carol is eligible for which of the following: Select one: a.John's retirement benefits, but not until age 65. b.A single lump sum survivor benefit of $255. c.A monthly check in the amount of John's PIA. d.Enrollment in Medicare.

b.A single lump sum survivor benefit of $255.

The Law of Large Numbers allows Insurers to: Select one: a.Sell different types of insurance policies. b.Accurately predict future losses. c.Sell policies in more than one state. d.Eliminate large claims.

b.Accurately predict future losses

Which of the following statements is true concerning the producer's agency relationship? Select one: a.An insurance producer owes a fiduciary duty to the Insured (the client). b.An insurance producer owes a fiduciary duty to an insurance company.

b.An insurance producer owes a fiduciary duty to an insurance company.

To qualify for Old Age and Survivors Disability Insurance, one must: Select one: a.Have been employed full time for only two of the last 3 quarters. b.Have been employed for at least 40 quarters. c.Have been self-employed. d.Have worked for the federal or state government.

b.Have been employed for at least 40 quarters.

Under Social Security, a worker that is fully insured would be eligible for each of the following benefits EXCEPT: Select one: a.Survivor benefits b.Hospital benefits c.Retirement benefits d.Disability benefits

b.Hospital benefits

Each of the following statements regarding insurance is true EXCEPT: Select one: a.It involves the transfer of risk. b.It involves the Insured paying a premium to transfer all risk to the insurance company.

b.It involves the Insured paying a premium to transfer all risk to the insurance company.

Amy accidentally provided false information on an application. Before the policy was issued, she notified the agent of the mistake. What is the agent's proper course of action? Select one: a. Notify the state insurance commissioner. b. Have the agent complete a "Revised Application" form. c. Have Amy correct the mistake and initial the change. d. The agent should correct and sign the application after discussing the matter thoroughly with Amy.

c. Have Amy correct the mistake and initial the change.

Each of the following statements is true regarding the agency relationship EXCEPT: a.The agent represents the Insurer. b.The broker represents the Insured. c.The agent represents the Client. d.The producer represents the Insurer.

c. The agent represents the Client.

Each of the following statements regarding Social Security Retirement benefits is correct EXCEPT: Select one: a.The benefit amount will vary if the worker retires early or late. b.A worker must have fully insured status to be eligible for retirement benefits. c.Retirement benefits will be reduced if the worker has retirement income from a company-sponsored retirement plan. d.Congress can change benefit levels.

c.Retirement benefits will be reduced if the worker has retirement income from a company-sponsored retirement plan.

Social Security provides each of the following benefits EXCEPT: Select one: a.Survivor benefits b.Disability benefits c.Unemployment benefits d.Retirement benefits

c.Unemployment benefits

To be fully insured under OASDI rules, one must have been employed for at least: Select one: a.180 days b.30 months c.3 years d.40 quarters

d.40 quarters

Each of the following involves pure risk EXCEPT: Select one: a.Getting sick. b.Becoming disabled. c.Dying. d.Gambling in Vegas.

d.Gambling in Vegas.

A policy that covers losses due to employment is known as "occupational coverage." A policy that does NOT cover losses due to employment is known as: Select one: a.Void b.Illegal c.Occupational d.Nonoccupational

d.Nonoccupational

Molly is injured in a work-related accident. Molly is considering filing a negligence lawsuit against her employer. Select one: a.Molly must make a decision to sue her employer or file a work comp claim - the choice is hers. b.Because work comp applies, Molly will not be eligible for Social Security if she is totally disabled. c.Molly may recover under Work Comp and sue her employer. d.Work Comp is Molly's sole remedy - she cannot win a lawsuit against the employer.

d.Work Comp is Molly's sole remedy - she cannot win a lawsuit against the employer.

Some insurance applicants are considered too risky and are not offered insurance. These are known as

declined risks

Social Security has a death benefit and also provides

disability income coverage - just like Life and Health policies. The same can be said for Work Comp in an occupational setting

The Social Security Disability Benefits coverage has an

elimination period of 5 months. This means that the person must be disabled for 5 months before starting to receive Disability Benefits.

Risk is defined as:

the chance of loss; or • the uncertainty of loss.

The Law of Large Numbers is

the mathematical concept that makes it easier to predict losses if we have a large number of Insureds. It is easier for a large insurance company with millions of policyholders to predict its annual losses than for a small company with only a few hundred policyholders. Increase the client pool to several thousand or million Insureds, and the likelihood of almost any loss can be predicted with surprising accuracy, thanks to the Law of Large Numbers.

Primary Insurance Amount (PIA).

the more a worker has paid into Social Security, the more the worker (or dependents) will get out of it. Once the average monthly figure has been determined, this amount is plugged into a formula that calculates the full retirement benefit to which the worker will be entitled at age 65. This number is called PIA. The Primary Insurance Amount becomes the basis for calculating all other benefits. The PIA is considered to be the full or 100 percent benefit, and any other benefits paid will be percentages of this number.

There are three main OASDI benefits:

• Retirement Benefits; • Disability Income Benefits; and • Survivor Benefits.