Life Insurance Flash Cards

For a contract to be legally binding you must

CLOAC

Surplus Line Insurers

High Risk and done solo by non-approved carriers. Can also be called Excess. Can be charged cheaper rates Ex: Casinos, gaming, entertainment, mining. Can only be sold to certain high risk insureds.

Lloyd's Association

Organizations that provide support facilities for underwriters or groups of individuals that accept insurance risk. Insurance written by underwriters not insurance companies underwriters not insurance

Competent Parties

Those who are legally capable of entering into contracts.

Acceptance

an offer must be unconditional and unqualified.

peril

hazard

Unilateral

one sided contracts - insurance pays for losses

Law of Large Number

the more accurate losses can be predicted

Personal Contract

- An agreement between an insurance company and an individual that states that insurance policies cover the individual's insurable interest. - Can't be assigned to someone else - Property and Casualty are examples of personal contracts - Life and Health are insurance

Underwriting Sources of Information

- Application - Medical exams - Attending physician statement - AIDS testing - MIB - Consumer reports - Investigative consumer reports

Application has 3 parts

- General Information - Health Information - Producer's Report

4 types of agents

- Independent - Exclusive or captive - General agents or managing general agents - direct writing companies

Conditional Receipt

- Premium paid with application - Insurance effective - later of * Date application completed * Signed - Medical exam (if required) - Must be standard or preferred risk - Can be determined after death, if the policy was being underwriter at the time of passing can get as long as is found insurable under the company's underwriting guidelines.

Backdating

- allows an agent to write a 41 year old a policy as an earlier age of 40 - most states allow applicants to be backdated up to 6 mo

AIDS considerations

- can not ask sexual orientation - can ask specific questions related to being exposed to AIDS or ARC (aids related complex) - may require AIDS testing for certain amounts of insurance benefits with the applicants written consent - they are to be informed of the purpose of the test and reports will be sent to insurer. - if positive insurer will report the findings to the Medical Information Bureau (MIB) about the abnormal blood findings - presence of AIDS can not be revealed to anyone except who the applicant designates like a medical provider. if they do not provide a medical doctor, the states law may require it to be sent to the state department of health. - PAID BY THE INSURER

producers must approach the completion of the application with

- confidentiality - accuracy - completeness

Binding Receipt

- effective for 30-60 days from date of application - temporary, not common in life insurance - mainly in auto and home - with life insurance are called: temporary insurance agreements - insurer can either issue policy or cancel the binder before the stated period

"Offer to Buy" Insurance

- exists when the premium is given at the time of the life insurance application - if no premium is submitted at the time of application coverage is delayed until the premium is paid - if they become uninsurable or die before paying the premium it will pay no benefits

Concealment

- failure to disclose * if intentional, and information is material (important) coverage could be voided. * if NOT intentional coverage can not be voided

Applications Heath Information

- height and weight - tobacco use - drug use - international travel - current medical treatments (from last dr visit) - current medications - conditions the insured has sought treatment for or diagnosed with - history of disability claims - prevalent health conditions of the insureds family - high risk hobbies (sky diving, scuba diving, bungee jumping) - name and address of current physician

HIPPA DISCLOSURES

- if any health information is to be shared, the applicant should be given full notice of: * insurers information sharing processes * the right to maintain privacy * the right to refuse their information to be shared

Medical exams and testing

- insurers will underwrite some applications on a NON-MEDICAL BASIS when the death benefit applied for is below a certain level. - evaluated by the health info on the application - larger death benefits require a medical exam - amount of death benefits determines the amount and types of tests and exams - INSURER PAYS FOR MEDICAL EXAMS DURING THE UNDERWRITING PROCESS!

Indemnity

- intended to restore the insured to the financial state they were in before loss occurred. - a payment for damage or loss that leaves client no better no worse

Application General Information:

- name - address - date of birth - gender - social security number - drivers license number - marital status - occupation - income - type of policy and face amount being applied - beneficiary - other insurances owned if applicant is other than insured, their name and address are needed.

qualified (conditional) acceptance

- no agreement has been reached - Rejection of offer, but offeror may treat it as a counter offer and accept its terms

Medical Information Bureau (MIB)

- non-profit insurance trade association that maintains underwriting information on applicants. - account for 99% of all individual life insurance policies and 80% of all health and disability policies issued by US and Canada. - files contain: medical history, hazardous jobs or hobbies, poor driving record - purpose is to reduce misrepresentation and fraud * insurers may not make a decision based solely on information given from MIB. Can only use to further investig. * Insurers do NOT report underwriting decisions to MIB, so other companies can't base off of what another did. * Applicant must be given written notice that information might be reported on or obtained by MIB. the underwriters may contact MIB and applicant must give written authorization. * Applicant must be notified that applying for insurance or filing a claim with another company may trigger the release of MIB information

Fraud/False statement (federal regulation)

- one that transacts interstate commerce and intentionally makes false material statements in connection to financial reports or documents are subject to * prison up to 10 years * a fine * both - fine or imprisonment up to 15 years for statements that jeopardize the the safety and soundness of the insurer or significant cause of conservation, rehabilitation or liquidation from the courts. - embezzlement included

Required Signatures

- part 2 of application - insured - producer/agent - proposed insured, if not the applicant - parent or legal guardian if minor

Producers/Agents Report/Producer's Statement

- part 3 of application - producer (agent) records information that pertains to the proposed insured. * financial status * habits * character - signed only by producer - never seen by client - not attached to policy if issued.

Investigative Consumer Reports

- reports containing information obtained about the applicant from friends, neighbors, co-workers, etc. - consumers must give authorization for reports - AKA inspection report

Reciprocal Insurers

- unincorporated groups of people that agree to insure each other's losses under a contract - member are subscribers - Run by an Attorney - In - Fact - each subscriber has an account that have paid premiums and tracked interest rate. if loss is suffered by subscriber covered under policy, each subscriber account is assessed an equal amount to pay the claim

Mutual Insurer

-Owned by the policyholders (customers) -If the company is profitable, can return excess premium to its policyholders--nontaxable dividend -Issues participating policies. does not have stockholders. Policyholders policyowners

Insurance Risks

2 kinds: Speculative Pure

What if insured dies before policy is issued but has conditional receipt?

2 things: - if the deceased insured meets the company requirements and a policy would have been issued if they were alive, the policy is in force and the death benefit will be paid to the beneficiary - if the deceased is found to be uninsurable or a substandard risk, no coverage would be in force. Premium paid will be reimbursed to the policyholder or beneficiary.

hazards

3 kinds physical - can be seen or determined: wet floor Moral - intentionally causing a loss Morale - carelessness

Measurable Risk

A definite (time and place) and measurable loss means that proof of loss must be established with numbers and dollar amounts, not just casual references.

Misrepresentation

A false statement or lie that can render the contract void.

offer

A proposal by one party to another intended to create a legally binding agreement.

Material Misrepresentation

A statement that, if discovered, would alter the underwriting decision of the insurance company. Misrepresenting a middle initial ok, misrepresenting heart condition not ok.

Attending Physician's Statement (APS)

A statement usually obtained from the applicant's doctor to find out about the applicants condition and medical history

Suitability considerations

An agent has a responsibility to make purchase recommendations that are appropriate, or suitable, in light of a client's particular needs, objectives, and circumstances

Unauthorized Insurer

An insurance company that has not applied, or has applied and been denied a Certificate of Authority. Can operate business outside of the State

Authorized Insurer

An insurance company that has qualified and received a Certificate of Authority from the Department of Insurance to transact insurance in the state.

Foreign Insurer

An insurance company that is incorporated in another state.

Alien Insurer

An insurance company that is incorporated outside the United States.

Stock Insurer

An insurer that is owned by its stockholders and formed as a corporation for the purpose of earning a profit for the stockholders. Stockholders Shareowners

Waiver

An intentional, knowing relinquishment of a legal right.

Insurable Risk

CANHAM calculable affordable non-catasrophic homogeneous accidental measurable

Elements of a Legal Contract (CLOAC)

CLOAC Consideration Legal Purpose Offer Acceptance Competent Parties

Agent Authority

Express Implied Apparent

Financial Ratings of Insurers

Financial strength rating - a report card of the company

Accidental Risk

Insurance is a method of handling risk. If a loss is certain to occur, there is no risk.

Risk Retention Group (RRG)

Insurer formed for the sole purpose of providing liability insurance to its policyholders Liability insurance company created for policyholders from the same industry: Examples: Car Dealers RRG, only car dealers can be in the group

Reduction of Risk

Lessening the chance that a loss will occur, or to lessening the extent of a loss that does occur

Fraternal Benefit Societies

Life or health insurance companies formed to provide insurance for members of an affiliated lodge, religious organization, or fraternal organization with a representative form of government. benefit of members

Implied Authority

Not written but are the things agents normally do to sell insurance. things you know to normally do in your job as an agent, not told to do, or company standards

Calculable risk

Premiums must be calculable based upon prior loss statistics for that particular risk in order to predict future losses.

Methods of Handling Risk

STARR Sharing Transfer Avoidance Reduction Retention

Retention of Risk

Self Insure - accepting a risk and confronting it if it occurs

Homogeneous risk

The individual risks that the insurer covers must all be similar, or homogeneous, in regard to factors that affect the chance of loss.

Transfer of risk

The insurance agrees to pay for cost of premium

Affordable risk

The premium for transferring the risk should be affordable for the average consumer.

Apparent Authority

Things the agent does that a reasonable person would assume as authority, based on the agents' actions and statements. Example: handing out company monogramed coozy's to promote the company. the people receiving those assume bc of the APPARENT nature of what you are doing that you work for the company.

Conditional Contract

a contract that requires certain conditions to be filled before performance under the contract can be enforced.

Aleatory Contract

a contract where the values exchanged may not be equal but depend on an uncertain event

Fiduciary

a person who holds assets in trust for a beneficiary

Representation

a statement believed to be true to the best of one's knowledge

Estoppel

actions reasonably relied on by one party can't be denied by the party that accepted same previously

Reinsurance

an insurance company (the ceding company) paying another insurance company (reinsurer) to take some of the companies risk of catastrophic loss Protect company from catastrophic losses in some geographical areas

Avoidance of Risk

eliminating a particular risk by not engaging in a certain activity

Warranties

guarantees made by a seller that an article, good or service will conform to a certain standard or will operate in a certain manner - always made by the insurance company. if they break the promise the insured could sure the company - may be promised by the insured, if promise is broken then their coverage would drop - guaranteed to be true

General Agent or Managing General Agent (MGA)

hire, train and supervise other agents. receive overriding commissions on the sales the agents they manage sell.

non-catasrophic risk

insurance can not insure events that cause widespread loss to large numbers of insured at the same time.

direct response

insurer sells directly to the consumer by television or some other media, internet, mail, magazine, etc no agent/producer involved

Fraud

intentional misrepresentation of an existing, important fact to deceive another party - intentional act to cheat another - voids the policy

Commingling

mixing personal funds with the insured's or insurer's funds NOT ALLOWED

Changes in the Application

must be initialed by the applicant, next to the correction

Conditional Insured

must pay the premium for coverage and file a claim Life insurance - must file death cert

Speculative Risk

possibility for loss but also a possibility for gain. Will not cover gambling losses

underwriting

process of evaluating a risk to determine if it is acceptable according to the insurance companies guidelines.

If premium is paid at the time of application the producer must:

provide the applicant with a receipt.

Adhesion

provisions are written by only one party in the contract and other party is to adhere to them

Captive or Exclusive Agents

represent one company, not employees but independent agents that only sell one companies insurance. company owns the renewals of the policies sold

independent insurance agent

represents many different insurance companies, not an employee of the insurer. Own renewal of policies they sell

Self-Insurers

retain risks and must have a large number of similar risks and enough capital to pay claims. However, they may save money if the loss experience is lower than the expected costs. Example: A business that pays its own claims RETENTION

Legal Purposes

risk transfer doesn't violate the law

Adverse Selection

risks that have higher chances for loss

Consideration

something of value exchanged for something else of value

disclosure notification

state law requires applicants be given advanced written notice stating who is authorized to disclose personal information, the kind of information, and reason it is being collected

Life Insurance Binders

temporary insurance agreements

Law of Agency

the insurance agent acts on behalf of the principal (insurance company) one person

Utmost Good Faith

the insured and insurance company have a right to expect honesty from each other

Reasonable Expectations

the other party will not try to conceal pertinent patient information

principal

the person or entity on which the agent acts on behalf of. (dignity memorial, Neptune society, etc)

Pure Risk

the possibility of experiencing a loss and can be covered by insurance, Example: Car accident

exposure

the risk assumed by the insurer and the amount the insurer may have to pay out at any given time.

Domestic Insurer

the state where a company is incorporated

Sharing of risk

two or more individuals agree to pay a portion of any loss incurred by any member in the group. Stockholders

Direct Writing Companies

usually pay salaries to employees whose job function is to sell the company's insurance products

Expressed Authority

what the agent's written contract with the company says What the company expressed their authorities are