Life Insurance Washington

Credit Insurance

Written to insure the life of the debtor and pay off the balance of a loan in the event of the death of the debtor. Written as a decreasing term insurance.

What do consumer reports include?

Written/oral info regarding a consumer's credit, character, rep, or habits collected by a reporting agency from employment records, credit reports, and other public sources.

What premiums are not deductible for business beneficiaries?

Key-employee (key-person) insurance, stock redemption or entity purchase agreement, split-dollar insurance.

What's another name for the accumulation period?

Pay-in period.

Moral Hazards

Tendencies towards increased risk. Involve evaluating the character/reputation of the proposed insured. Applicants who may lie on an application for insurance, or in the past have submitted fraudulent claims against an insurer.

If the insurer isn't registered with the Commissioner's online services, when is the expiration notice sent?

45 days before the renewal date and 60 days if registered with online services.

Twisting

Misrepresentation or incomplete or fraudulent comparison of insurance policies that persuades an insured owner to their detriment to cancel, lapse, switch policies, or take out a policy with another insurer.

What do rebates include?

Money, prizes, merchandise, reductions in commissions, promises, employment, dividends, stocks, and personal services.

Results Clause

Only excludes the DB if the insured is killed as a result of an act of war.

Accidental Death & Dismemberment Rider (AD&D)

Pays the principal (face amount) for accidental death & pays a percentage of that amount (capital sum) for accidental dismemberment.

Incontestability Clause

Prevents an insurer from denying a claim due to statements in the application after the policy has been in force for 2 yrs, even if there has been a material misstatement of facts or concealment of a material fact.

Negative Information

Info regarding a customer's delinquencies, late payments, insolvency or any other form of default.

Alien Insurer

Insurance company incorporated outside the US.

Domestic Insurer

Insurance company that is incorporated within the state.

Foreign Insurer

Insurance company that's incorporated in another state or territorial possession (Puerto Rico, Guam, American Samoa).

One-Year Term Option

Insurance company uses the dividend to purchase additional insurance in the form of 1 yr term insurance that increases the overall policy DB. Choice is to either use the dividend as a single premium on as much 1 yr term insurance it'll buy or purchase term insurance equal to the policy's CV for as long as it'll last.

Insurable Interest

To purchase insurance, the policyowner must face the possibility of losing money or something of value in the event of loss.

What's the purpose of retention?

To reduce expenses and improve cash flow, increase control of claim reserving and claims settlements, to fund for losses that can't be insured.

The benefits that the Association may become obligated to cover must not exceed $500,000 for what?

Total net cash surrender and net cash withdrawal values for life insurance, life insurance death benefit for any one life, health/disability insurance benefit for any one individual, present value of annuity benefits for any one life.

Reduction

Lessen the possibility/severity of a loss. I.e. installing smoke detectors, annual physical.

Decreasing Term Policies

Level premium & DB that decreases each year over policy term. Used when time sensitive. Purchased to insure payment of mortgage/other debts if insured dies prematurely.

Increasing Term Policies

Level premiums & DB that increases each yr over duration of policy term. Used to fund certain riders that provide a refund of premiums or gradual increase in total coverage (cost of living of premium riders). Ideal to handle inflation/cost of living.

How is joint whole life different from whole life?

The premium is based on a joint average that's between the ages of the insureds, the DB is paid upon the first death only.

Implied Authority

Not expressed or written into the contract, but which the agent is assumed to have in order to transact business of insurance for the principal. Incidental to and derives from express authority since not every single detail of an agent's authority can be spelled out in the written contract.

Any time a business is the named beneficiary of a life insurance policy, or has the beneficial interest in the policy, any premiums that the business pays for insurance are what?

Not tax deductible.

Options

Offer insurers and insureds ways to invest or distribute a sum of money available in a life policy.

Gross Annual Premium

One year cost for mortality, plus the cost of operating the company (expense loading).

What are dividends paid on?

Only on participating policies.

Speculative Risk

Opportunity for either loss or gain (e.g. gambling). Not insurable.

Fraternal Benefit Society

Organization formed to provide insurance benefits for members of affiliated lodge, religious organization, or fraternal organization w/ a representative form of government. Sell only to their members & considered charitable institutions & not insurers.

Pure Life

Otherwise known as life-only or straight-life, ceases @ annuitant's death. Highest monthly benefits.

Mutual Companies

Owned by policy owners and issue participating policies. Policy owners entitled to dividends (return of excess premiums & nontaxable). Generated when premiums/earnings combined exceed actual costs of providing coverage, creating a surplus (not guaranteed).

Stock Companies

Owned by stockholders who provide the capital necessary to establish/operate the insurance company and who share in any profits/losses. Officers are elected by stockholders and manage stock insurance companies.

Insurance Producer

Person required to be licensed under state law to transact insurance (title insurance agents & surplus lines brokers not classified as such).

Standard Risks

Persons who are entitled to insurance protection w/o extra rating or special restrictions (average risk).

How are hazards classified?

Physical, moral, morale.

Risk Retention

Planned assumption of risk by an insured through the use of deductibles, co-payments, or self-insurance.

Backdating

Policy may be backdated no more than 6 months before the date of the application or medical exam (whichever is later). Only allowable reason is to affect a lower premium.

Straight Life Insurance (Ordinary Life/Continuous Premium Whole Life)

Policy owner pays premium from time the policy is issued until the insured's death or age 100. Lowest annual premium.

Nonparticipating Policies

Policy owners don't share in profits/losses. Doesn't pay dividends but taxable dividends are paid to stockholders.

Under an executive bonus, what's taxable to who?

Premium payment amount tax deductible to employer and income taxable to employee.

What do endowments require?

Premiums far in excess of the amount required to fund the death benefit.

Limited-Pay Whole Life

Premiums for coverage will be completed paid up well before age 100. Annual premium is higher. LP-65 and 20-pay life are common.

What are a field underwriter's responsibilities?

Proper solicitation, helping prevent adverse selection, completing the application, obtaining required sigs, collecting the initial premium and issuing the receipt, delivering the policy.

Level Premium Term

Provides level DB & premium.

Whole Life Insurance

Provides lifetime protection & endow at age 100. CV created by accumulation of premium is scheduled to equal the face amount of a policy at age 100.

Return of Premium

Provides that at death prior to a given age, the original face amount is payable & an amount equal to all premiums previously paid is also payable to the beneficiary (usually expires at age 60).

Which acts are considered as transacting insurance?

Solicitation, negotiations preliminary to execution, execution of an insurance contract, transaction of matters subsequent to execution of the contract and arising out of it, and insuring.

To who may a temporary insurance producer license be issued?

Spouse/rep of licensed producer who dies or becomes disabled, member/employee of business entity licensed as insurance producer in event of disability/death of an individual that's designated in the business entity application of the license, designee of a licensed insurance producer entering active service in the US military, an other circumstance deemed fit.

What else does defamation apply to?

Statements that are maliciously critical of the financial condition of any person or a company.

Entire Contract

Stipulates that the policy & a copy of the application along with any riders or amendments constitute the entire contract.

What is the owner of an annuity entitled to at surrender?

The premium, plus interest, minus the surrender charge.

When does the free-look period start?

When the policyowners receives the policy (policy delivery).

When is an insurance agent license not required by an officer, director or employee of an insurer?

When they're not directly or indirectly involved with an actual sale of an insurance contract and don't receive any commission.

Delivery Receipt

When an agent hand delivers an individual policy or annuity to the policyowner, the agent must obtained a signed one of these.

Cash Refund

When annuitant dies, the beneficiary receives a lump-sum refund of the principal minus benefit payments already made to the annuitant.

Installment Refund

When annuitant dies, the beneficiary will continue to receive guaranteed installments until the entire principal amount has been paid out.

When dividends are left with the insurer to accumulate interest, what happens to the interest earned?

When its earned on the dividend account, its subject to taxation as ordinary income each year interest is earned, whether or not the interest is paid out to the policy owner.

When does an applicant usually make an offer?

When submitting the application.

When is risk retention known as self-insurance?

When the insured accepts the responsibility for the loss before the insurance company pays.

Concealment

The intentional withholding of information of a material fact that's crucial in making a decisions.

Warranty

Absolutely true statement upon which the validity of the insurance policy depends.

Riders

Added to the policy to modify provisions that already exist.

Life W/ Guaranteed Minimum

Also known as refund life, if the annuitant dies before the principal amount has been paid out, remainder of principal mount will be refunded to the beneficiary.

Hazards

Conditions/situations that increase the probability of an insured loss occurring (i.e. lifestyle/health or scuba diving).

Regardless of being from a life insurance policy or an MEC, how is the death benefit received by the beneficiary?

Always tax free.

Minimum Premium

Amount needed to keep the policy in force for the current year.

If the group life policy coverage is $50,000 or less, the employee doesn't have to do what?

Report the premium paid by the employer as income (not taxable to the employee).

To appoint a producer what must the insurer file?

A notice of appointment with the Commissioner within 15 dates from the date the agent contract is executed or after the first insurance application is submitted (whichever is later).

What is the proper way for insurance producers to deliver insurance policies to insureds?

A physical delivery.

What must an agent issue when collecting premiums?

A premium receipt.

How much is the fine for violations of the provisions of the Insurance Code?

$1,000 (must be fully paid 15-30 days within the order).

What's the maximum fine if the person violates the order after expiration of 10 days after the cease and desist order has been received?

$250.

The Commissioner may temporarily suspend a license by an order sent through the mail no less than when?

3 days prior to the effective date (suspension period may not last longer than 12 months).

An approved course for which the licensee has previous claimed credit may be repeated for credit after a period of how long?

3 yrs from the previous completion date.

How long must a replacing insurer maintain evidence that all requirements were met during the policy replacement?

3 yrs or at least until the next scheduled examination.

What is the maximum interest rate on a policy loan?

8% per annum.

How long does a licensee have to respond back to the Commissioner and request a hearing?

90 days after receiving written notification.

A person who's knowingly made a false/misleading statement or impersonation or who's willfully failed to reveal a material fact in an application for insurance is guilty of what?

A gross misdemeanor.

What are dividends?

A return of excess premiums, making them not taxable to the policyowner.

When does a deferred annuity begin to provide income?

After one year from the date of purchase (SPDA or FPDA).

What components make insurance contracts legally binding?

Agreement, consideration, competent parties, legal purpose.

What must applicants for a nonresident license provide from the insurance department of their state of residence?

All currently active licenses held, lines of insurance for which the producer has qualified to sell, all disciplinary actions taken against the applicant.

Bail-Out Provision

Allows contract holder, in the event that interest rates drop a specified amount within a specified time frame, to surrender the contract without charge.

Guaranteed Minimum Withdrawal Benefit

Annuitant can withdraw a max. percentage of his/her investment annually until the initial investment has been recovered. Protects annuitant against investment losses.

Pension Protection Act of 2006

Annuitants are allowed to transfer money from an annuity to pay for long-term care insurance premiums, tax free (may also eliminate taxes on annuity gains).

What's another name for the annuity period?

Annuitization, liquidation, or pay-out period.

Life W/ Period Certain

Annuity payments are guaranteed for the lifetime of the annuitant and for a specified period of time for the beneficiary.

Conservation

Any attempt by an existing insurer/producer to dissuade a current policyowner from the replacement of existing life insurance/annuity.

Rebating

Any inducement offered in the sale of insurance products that is NOT specified in the policy.

7-pay Test

Any life insurance policy that fails a 7-pay test is classified as an MEC and loses the standard tax benefits of a life insurance contract.

Replacement

Any transaction where a new annuity/life insurance is to be purchased and an existing policy has/becomes: lapsed, forfeited, surrendered, terminated, reissued w/ any reduction in cash value, converted to reduced paid-up insurance, continued as term insurance, or reduced in value by use of nonforfeiture benefits, amended so as to effect either a reduction in benefits or in the term for which coverage would otherwise remain in force or for which benefits would be paid.

The AG can bring a civil action against who?

Anyone who engages in conduct that's in violation of Section 1033 of not more than $50,000 for each violation or amount of compensation the person received as a result of prohibited conduct, whichever is greater.

How often can the Commissioner examine accounts, transaction records, and documents?

As often as deemed necessary but at least every 5 years.

Preferred Risk

Individuals who meet certain requirements and qualify for lower premiums than the standard risk. Superior physical condition, lifestyle, habits.

What information is considered prohibited on consumer reports in connection with a policy or credit transaction of less than $150k?

Bankruptcies more than 10 yrs old, civil suits, records of arrest, convictions of crimes, or any other negative info more than 7 years old.

What's the renewal date of a business entity's license?

Based on date of application, valid for 2 yrs.

If the policy renews at the end of the period during level premium insurance, what happens to the premium?

Based on insured's attained age at the time of renewal.

Needs Approach

Based on predicted needs of a family after the premature death of the insured. Considers income, amount of debt (mortgage), investments, other ongoing expenses.

Producers whose license has been expired for more than 60 days but less than 12 months can reinstate the license how?

By submitting all the requirement documents and fees. After 12 months, the producer must retake & pass all applicable pre-licensing education courses/examinations.

Per Stirpes

By the bloodline, distributes the benefits of a beneficiary who died before the insured to that beneficiary's heir.

Per Capita

By the head, evenly distributes benefits among the living named beneficiaries.

How can policy loans be repaid?

By the owner while the policy is in force, at policy surrender/maturity, subtracted from the cash value, or at the insured's death, subtracted from the death benefit.

Surplus Lines

Certain coverages that cannot be procured from authorized insurers.

What happens if someone transacts insurance without a license?

Class B felony and may be subject to a cease and desist, suspension/revocation of any licenses, or a civil penalty of 25k for each violation.

Annuity

Contract that provides income for specified period of years (or life). Not life insurance but vehicle for accumulation of money and liquidation of an estate.

What policies aren't covered by the Association?

Coverage by the Association of another state, the portion of variable product that's not guaranteed, reinsurance policies, group plans that are self-fundedor uninsured, an allocated annuity contract issued or in connection w/ a benefit plan protected under the federal pension benefit guaranty corporation.

Who does the replacement regulation not apply to?

Credit life insurance, group life/annuity contracts unless the new coverage is solicited on an individual basis, an application to the existing life insurance when a contractual change/conversion privilege is being exercised, proposed life insurance that's to replace life insurance under a binding/conditional receipt issued by the same company, transactions where the replacing insurer & existing insurer are the same or are subsidiaries or affiliates under common ownership or control.

Paid-Up Additions

Dividends are used to purchase a single premium policy in addition to the face amount of the permanent policy. Each single premium payments will increase the DB of the original policy by whatever amount the dividend will buy. Each of these paid-up policies will accumulate cash value and pay dividends.

Claimant

Either a first party, third party, or both and includes such claimant's designated legal representative and a member of the claimant's immediate family designated by the claimant.

What tax advantages apply for qualified plans who meet the general requirements?

Employer contributions are tax deductible to the employer, and aren't taxed as income to the employee, the earnings in the plan accumulate tax deferred, and lump-sum distributions to employees are eligible for favorable tax treatment.

Fair Credit Reporting Act

Established procedures that consumer-reporting agencies must follow in order to ensure that records are confidential, accurate, relevant, and properly used. Also protects consumers against circulation of inaccurate/obsolete personal or financial info.

How often must an appointment be renewed for a producer's license?

Every 2 years.

How often must continuing education be completed?

Every 2 yrs, 24 hours of CE, including 3 hours in ethics (exception is resident adjusters, individuals holding only limited credit insurance, travel insurance, surety licenses).

Status Clause

Excludes all causes of death while the insured is on active duty in the military.

Life insurance proceeds paid to a named beneficiary are generally free of what income taxation?

Federal if taken as a lump sum.

What's the punishment for anyone engaged in the business of insurance whose activities affect interstate commerce and who knowingly makes false material statements?

Fined, imprisoned for 10 yrs, or both. If the activity jeopardized the accompanied insurer it can be 15 yrs.

How long must producers maintain written disclosures?

For a period of 5 yrs.

Survivor Protection

Funds necessary for the survivors of the insured to be able to maintain their lifestyle in the event of the insured's death.

What happens to an individual who willfully violates the Fair Credit Reporting Act?

If they're violated it enough to constitute a general pattern or business practice, they are subject to a penalty of $2,500.

Misrepresentation

Illegally publishing, issuing, circulating any illustrations or sales material that's false, misleading, deceptive as to policy benefits/terms, payment of dividends etc. Refers to oral statements as well.

How are policy death benefits paid under a business owned or an employer provided life insurance policy received?

Income tax free by the beneficiary.

Mortality Tables

Indicate # of individuals within specified group (i.e. females vs. males or smokers vs. nonsmokers) starting at a certain age, who are expected to be alive at a succeeding age.

Third Party Claimant

Individual, corp, association, partnership, or other legal entity asserting a claim against any individual, corp, association, partnership or other legal entity insured under an insurance policy or insurance contract of an insurer.

First Party Claimant

Individual, corp, association, partnership, or other legal entity asserting the right to payment under an insurance policy arising out of the occurrence of a loss covered by such a policy.

Unlike an individual taxpayer, a corporation may deduct interest on what?

Interest on a life insurance policy loan for loans up to $50k.

Uniform Simultaneous Death Law

It will be assumed that the primary beneficiary died first in a common disaster. 14-30 days in which death must occur for this provision to apply.

What taxation rules apply to the death benefit?

It's tax free if taken as a lump-sum distribution to a named beneficiary, the principal is tax free, and interest is taxable if paid in installments.

What is a person who unknowingly violates the Fair Credit Reporting Act subject to?

Liable for the amount equal to the loss of the consumer as well as any reasonable attorney fees incurred in the process.

Once a license is issued, how long is the license active?

Licensee's next birthday anniversary plus 1 year.

The Commissioner may extend the approval period for forms for how long?

Maximum of 15 days provided that notice of the extension is given before the expiration of the initial 30-day period.

The Commissioner may issue a temporary insurance producer license for the servicing of existing business for how long?

Maximum of 180 days without requiring a written exam.

If embezzlement was for an amount less than $5,000, how long might the prison sentence be?

May be reduced to 1 yr.

Sharing

Method of dealing w/ risk for a group of individuals/businesses w/ the same or similar exposure to loss to share the losses that occur within that group (reciprocal insurance exchange).

Level Term Insurance

Most common type of temporary protection purchased. Level DB that doesn't change throughout life of policy.

How long do licensed persons have to respond to the Commissioner about an inquiry?

No longer than 15 days.

Are premiums tax deductible?

No they aren't.

Are payments of the principal face amount after the insured's death taxable as income?

No they're not.

Is money borrowed against the cash value taxable income?

No, however insurance companies charge interest on outstanding policy loans.

Since dividends are a return of unused premiums, are they considered income?

No, not considered income for tax purposes.

Annuities Certain

Short-term annuities that limit the amounts paid to a certain fixed period or until a certain fixed amount is liquidated.

Reduced Paid-Up Insurance

Single premium is used to purchase a completely paid-up permanent policy that has a reduced face amount from that of the former policy.

What are the duties of the Commissioner?

Supervise insurance business, licensing, approve policies/forms, enforce insurance laws and impose penalties for violations, conduct examinations, investigations, hearings, appoint deputies.

When accelerated benefits are paid under a life insurance policy to a terminally ill insured, how are the benefits received?

Tax free.

What taxation rules apply to an MEC's cash value?

Tax-deferred accumulations, any distributions are taxable, including withdrawals and policy loans, distributions are taxed on a LIFO (interest first) basis, distributions before age 59 1/2 are subject to a 10% penalty.

How long is the Insurance Commissioner in WA state elected for?

Term of 4 years.

If the annuitant dies during the accumulation period, what's the insurer obligated to pay?

The cash value or total premiums paid, whichever is greater.

Peril

The causes of loss insured against in an insurance policy.

What two accounts does the association maintain?

The disability account and the life insurance and annuity account.

The premiums that an employer pays for life insurance on an employee, whereby the policy is for the employee's benefit is tax deductible to who?

The employer as a business expense.

What's the primary difference between consumer reports and investigative consumer reports?

The info obtained on an investigative consumer report is that the info is obtained through an investigation and interviews w/ friends, associates, and neighbors of the consumer.

How may surplus lines be obtained from unauthorized insurers?

The insurance is solicited through a surplus lines broker, the potential insured has made a diligent effort and failed to obtain insurance from the insurers authorized to transact that kind of insurance in the state, and coverage isn't obtained from the unauthorized insurer in order to secure a lower premium rate than an authorized insurer would require.

Extended Term Option

The insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy. The duration of the new term coverage lasts for as long a period as the amount of cash value will purchase.

When may nonresidents qualify for coverage by the Association?

The insurer which issued the policy is domiciled in Washington, the states on which the persons reside have associations similar to the Washington Association, the persons aren't eligible for coverage by an association in any other state due to the fact that the insurer wasn't licensed in the state at the time specified in the state's guaranty association law.

What right does a licensee have?

The right to request that a hearing be presided over by an administrative law judge (request can't be denied).

What about accelerated benefits paid to a chronically ill insured?

These benefits are tax free up to a certain limit.

What waiver do annuity contracts provide?

Waiver of surrender charges if the annuitant is confined to a Long-term Care facility for at least 30 days.

Waiver of Premium

Waives the premium for the policy if the insured becomes totally disabled (6-month waiting period from time of disability until the first premium is waived).

When must a receipt of a claim be acknowledged?

Within 10 working days (15 for group contracts).

If the producer is eligible, when will the Commissioner verify the appointment?

Within 15 days of receiving notice from the insurer (10 days if deemed ineligible).

When must the hearing be held?

Within 30 days after the receipt of the demand.

When must insurers complete the investigation of a claim?

Within 30 days of notification.

When must death occur for the accidental death rider to pay some multiple of the face amount?

Within 90 days of such an accident (benefit is normal 2x (double indemnity) the face amount).

When does an immediate annuity begin to provide income?

Within one year from the date of purchase (SPIA).

What does an agent's report provide?

Agent's personal observations concerning the proposed insured.

Indemnity

Also referred to as reimbursement is a provision in an insurance policy that states that in the event of loss, an insured (beneficiary) is permitted to collect only to the extent of the financial loss & isn't allowed to gain financially b/c of the existence of an insurance contract.

What is the insurance component of a universal life policy?

Annually renewable term insurance.

Apparent (Perceived) Authority

Appearance or the assumption of authority based on the actions, words, or deeds of the principal or b/c of the circumstances the principal created.

Under key person insurance, who's considered to be the business?

Applicant, policyowner, premium payer, beneficiary.

Substandard (High Exposure) Risk

Applicants aren't acceptable at standard rates b/c of physical condition, personal/family history of disease, occupation, or dangerous habits. Referred to as "rated" b/c they could be issued w/ the premium rated-up, resulting in a higher premium.

Declined Risks

Applicants who're rejected.

Morale Hazards

Arise from state of mind that causes indifference to loss, such as carelessness. Actions taken without forethought may cause physical injuries.

Executive Bonus

Arrangement where employer offers to give the employee a wage increase in the amount of the premium on a new life insurance policy on the employee.

How is group insurance usually written?

As an annually renewable term.

Adjustable Life Policy

Assumes the form of either term or permanent. Insured determines how much coverage is needed and the affordable amount of premium. Insurer determines the appropriate type of insurance to meet insured's needs.

When must insurable interest exist?

At the time of application, but once a policy has been issued, the insurer must pay the policy benefit regardless.

Express Authority

Authority a principal intends to grant an agent by means of the agent's contract (written in the contract).

Who must sign the application?

Both the agent and the proposed insured. If the proposed insured and policyowner aren't the same person, policyowner must also sign.

What is an insurer's largest expense?

Commission paid to its agents.

What is the binding force in any contract?

Consideration.

Option B (Increasing DB Option)

DB includes the annual increase in CV so that the DB gradually increases each year by the amount that the cash value increases. At any point in time, the DB will always be equal to the face amount of the policy + current CV. Expenses much greater-causing the CV to be lower in older yrs.

Option A (Level DB Option)

DB remains level while the CV gradually increases.

Provisions

Define the characteristics an insurance contract and are fairly universal from one policy to the next.

Market Conduct

Describes the way companies and producers should conduct their business (Code of Ethics).

When insurers plan to seek and use info from investigators, what must they provide the applicant'insured?

Disclosure Authorization Notice.

What constitutes unfair discrimination between individuals of the same class?

Discriminating in policy rates/benefits based on age, gender, physical or mental impairment, blindness/partial blindness, genetic characteristics/genetic testing, or sexual orientation.

What characteristics do insurable risks involve?

Due to chance, definite and measurable, statistically predictable, not catastrophic, randomly selected and large loss exposure.

Universal Life Insurance (Flexible Premium Adjustable Life)

Flexibility to increase/decrease the premium.

Investigative Consumer Report (Inspection)

General reports of applicant's finances, character, work, hobbies and habits.

Human Life Value Approach

Gives the insured an estimate of what would be lost to the family in the event of the premature death of the insured. Calculate's life value by looking at the insured's wages, inflation, # of yrs to retirement, time value of money.

Certificate of Authority

Granted by state department of insurance & must meet any financial requirements set by the state. Those who have met these standards and are approved are considered authorized or admitted into the state as legal insurers.

Pure Death Protection

If the insured dies during term, the policy pays the death benefit to the beneficiary. If the policy is canceled/expires prior to insured's death, nothing is payable at the end of the term, there's no cash value or other living benefits.

Net Single Premium

Includes mortality & interest components necessary to keep the policy in force until maturity.

What options does the policyowners have in adjustable life?

Increase/decrease the premium or premium-paying period, increase/decrease face amount, change the period of protection.

Physical Hazards

Individual characteristics that increase the chances of the cause of loss (i.e. physical condition, past medical history, condition at birth).

Agent/producer

Individual licensed to sell, solicit or negotiate insurance contracts on behalf of the principal (insurer).

Absolute Assignment

Involves transferring all rights of ownership to another person/entity. Permanent and total transfer of all the policy rights.

Premium Mode

Manner or frequency that the policyowners pays the policy premium.

Statutory Definition of Life Insurance

Must be a specified "corridor" or gap maintained between the CV and DB in a life insurance policy.

What are the ownership rights?

Naming/changing the beneficiary, receiving the policy's living benefits, selecting a benefit payment option, and assigning the policy.

How are private insurance companies classified?

Ownership, authority to transact business, location (domicile), marketing/distribution systems, rating (financial strength).

How is survivorship life different from joint life?

Pays on the last death. Often used to offset the liability of the estate tax upon death of last insured.

Annually Renewable Term

Purest form of term insurance, the DB remains the same and the policy is guaranteed to be renewable each yr w/o proof of insurability but the premium increases annually according to attained age.

Target Premium

Recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.

Loss

Reduction, decrease, disappearance of value of the person/property insured in a policy caused by a named peril.

Pure Risk

Refers to situations that can only result in a loss or no change. There's no opportunity for financial gain. Only type of risk that insurance companies are willing to accept.

The Law of Agency

Relationship between the principal & agent/producer: the acts of the agent/producer within the scope of authority are deemed to be the acts of the insurer.

What are the primary factors used in premium determination?

Risk, interest, expense.

Conditional Receipt

Says that coverage will be effective either on the date of the application or the date of the medical exam (whichever occurs last).

Acceptance

Takes place when an insurer's underwriter approves the application and issues a policy.

Term Insurance

Temporary protection b/c it only provides coverage for a specific period of time (pure life insurance).

For what kind of insurance is there a max. age above which coverage won't be offered and at which it can't be renewed?

Term (pure life) insurance.

Who's the owner and beneficiary of the policy?

The creditor but the premiums are generally paid by the borrower. Cannot pay out more than the balance of the debt.

What does the insuring clause state?

The insurer's promise to pay the death benefit upon the insured's death.

Collateral Assignment

Transfer of partial rights to another person. Usually done in order to secure a loan or some other transaction. Partial/temporary of some policy rights. Once the debt/loan is repaid, assigned rights are returned to policyowner.

What's the most common type of permanent life insurance?

Whole life insurance.