Mike Russ EB Study Set

Req's for Noncontributory (Group Insurance Premiums)

1. 100% of the premium is paid by the employer or sponsoring organization. 2. 100% of all eligible members or employees must be covered under the plan. This is required to prevent unfair discrimination on the part of the employer.

Main Advantages of Group Insurance

1. When it is offered to a large group (101+ employees) there is usually minimal, or no evidence of insurability required. 2. There are often favorable tax benefits in the deductibility of premiums and the tax-free distribution of benefits from group insurance policies. 3. It provides benefits to people who could not otherwise afford insurance because all, or a significant portion, of the premium is paid by the employer or sponsoring organization (individual plans, while offering greater flexibility, choice, and coverage that is not tied to work or other affiliations, are often very expensive). 4. Group coverage can be tailored to meet the needs of a specific group both in the types of coverage written and the amounts of coverage.

how long can unmarried children be eligible for coverage under a group policy?

19 OR 24 if they remain in school

Disability Income, Year Implemented, Definition

1957 available to those who were unable to work because of a permanent or long-term disability

Medicare, Year Implemented, Definition

1966 provide medical and hospital benefits to those aged 65 and older and to certain disabled people

How to achieve Fully Insured status (SS), Year Implenented

1978 When a person works and pays SS taxes, he/she earns up to four "credits" per year. the dollar amount earned that qualifies as a credit changes annually. After an individual earns 40 credits/quarters, the worker is considered fully insured even if there is no further employment.

Definition of Hazard

A circumstance that increases the likelihood or severity of a loss due to a peril.

Nondiscriminatory Groups (Group Ins. Underwriting)

A group cannot be defined in a way that increases the opportunity for ADVERSE SELECTION (i.e. the acceptance of too many bad risks) or is unfairly discriminatory. This means that the insurer must have legitimate grounds for the classification of the group and the insurance cannot provide different levels of benefits to people who are in the same classification (e.g. occupation or income level) within the group.

Dependent Coverage (Definition and 5 Types)

A group life or health insurance policy can insure one person, or it can be extended to include the primary insured's dependents. Covered dependents can also benefit from dividends paid or premium refunds generated by the policy. The insured's: Spouse Children Dependent parents Registered domestic partner any other for whom dependency can be proven.

Definition of Indemnity

A legal term that strongly affects insurance and prevents individuals from using insurance as a profit making device. To restore the insured person, in whole or in part, to the financial condition that existed prior to the loss with no chance for profit.

AIME Meaning, Definition

Average Indexed Monthly Earnings Based off the persons wages which have been subject to SS FICA payroll taxes and the individual's year of birth.

Rescission

Both parties have the right to Rescind the contract, meaning it will be cancelled from its inception and treated as though it never existed (also called "voiding")

Probationary Periods

Companies require an employee to be with them for a certain amount of time before the coverage is affective.

Unilateral Contracts, Definition

Contracts are unilateral (one-sided) agreements because only one party (the insurer) makes an enforceable promise. Only the Insurance company must live up to its side of the agreement and they are the only party legally bound by said contract.

Contributory Vs. Noncontributory Plans (Group Insurance Premiums)

Contributory: If the cost of the group insurance is shared on any basis between the employer and the employees Noncontributory: the members of the group do not contribute to the cost of the insurance; it is paid totally by the employer.

Predetermined Coverage Amount (Group Ins. Underwriting)

Coverage amounts must be determined based on some method other than the selection of individuals; usually through occupational classification, number of years of service, or income level.

Difference between "covered" and "eligible" for Social Security

Covered: the individual is participating in the program through regular tax contributions. Eligible: you can be covered by SS but not qualify for certain benefits based on criteria needed to receive it.

Direct Marketing

DTC, AKA "Non-agency building system"

3 main types of direct marketing systems

Direct Writing Companies Non-Insurance Sponsors Vending Machine Sales

Enrollment Percentage (Group Ins. Underwriting)

Employers and sponsoring organizations are required to meet the member participation percentage and premium payments guidelines . This is designed to prevent both adverse selection and unfair discrimination.

Extension of Group Benefits (Definition and 3 Rules)

Every group policy containing life insurance or disability income benefits must allow for an "extension of benefits" upon discontinuance of the policy. This extension applies to employees who became totally disabled while insured by the policy and continue to be totally disabled. In this case, "discontinuance" means the termination of a policy or coverage between the group sponsor and the insurance company; not the termination of any individual member's coverage. 1. Policies containing life insurance benefits without disability provisions need only provide the disabled employee with the same rights of conversion to an individual life policy that the employee would have been entitled to if employment had terminated. 2. Policies containing life insurance benefits and disability provisions must allow CONVERSION PRIVILEGES and not allow the discontinuance to affect the disability benefit. 3. Policies providing hospital, medical, or surgical benefits must extend benefits for expenses directly relating to the condition causing the total disability for at least 12 months from the date premium payments cease.

Actuarial (Structure of Ins. Co's)

Focuses on the mathematical and statistical analysis sunctions of an insurance company. Developing mortality tables and loss histories calculating premiums and claim reservies Calculating dividends Preparing financial reports

Direct Writing Companies

Hire individuals as agent-employees to market their products.

Definition of Loss

Identify risk situations that present the possibility of loss

Difference between individual and group coverage

Individual: private insurance for business risks or to provide benefits to employees or members. Group: property and casualty coverage, life insurance, and annuities are frequently issues as either personal or commercial lines policies, disability income and accident and health plans are most often sold as commercial lines. Group insurance plans provide coverage for a specified number of people who work for the same company or have the same affiliation or interests.

Contracts of Adhesion, Def

Insurance policies are contracts of adhesion because they are drawn up by the insurance company, and offered to applicants who agree to the terms. as a result, if there is any ambiguity in the wording of the contract it is resolved against the party who wrote the contract and in favor of the person who accepted it.

Types of Groups (Group Coverage)

Labor and Credit Unions. Fraternal Societies and Co-operatives. Professional organizations. Groups of debtors covered by creditors. Self-employed individuals through a trust arrangement.

Types of Private Insurance (4)

Life Accident and Health Property Casualty

Structure of Insurance Companies (Four Main Departments)

Marketing and Sales (ADA Distribution System) Actuarial Underwriting Claims

Req's for Associations to Join Group Coverage

Must be a "natural group." It has to have been formed for some other purpose than to secure group insurance benefits. The association has to have been in existence for a certain amount of time. typically 2 years.

Disability Insured Status

Must be fully insured and meet an additional requirement of recently earned credits. (Must be fully AND currently insured).

Types of Insurance Companies (For-Profit)

Mutual Capital Stock

(OASDHI), Definition, Categories of Benefits

Old Age Survivors Disability Health Insurance AKS Social Security Retirement (for workers and dependents) Survivors (for the family of a deceased worker) Disability Income (for a covered worker and dependents) Medicare (Health insurance benefits for the aged)

Disadvantage of Group Coverage

One of the biggest disadvantages of group insurance is that if the insured changes jobs or leaves the group, he or she may not be covered under the group contract and may be faced with the possibility of paying much higher premiums for individual coverage

The Social Security Act, Year Passed, Effective Date, Definition

Passed in 1935 Effective January 31st, 1937 Provide benefits to workers who retired at age 65.

Medical Examinations (Group Ins. Underwriting)

Perhaps the biggest difference between group insurance and individual insurance is in underwriting. For a group, no evidence of individual insurability is required since the underwriter is concerned with the group as a whole. The larger the group the losses are more predictable, thus individual medical exams are not required. Group insurance can cover many different types of insurance, but only health insurance can no longer hold a pre-existing condition against a person to obtain coverage.

4 Main Categories of Hazards

Physical: tangible hazards like brakes on a vehicle or structure of a building Moral: an increased possibility of dishonest or exaggerated claims Morale: a state of mind causing indifference or apathy toward loss (alcohol/drug abuse) Legal: situations more likely to result in legal entanglements (unfair discrimination)

P.I.A. : Meaning, Definition, 2 Factors

Primary Insurance Amount The amount of income the individual will receive after average earnings under SS before retirement and the workers age at retirement.

3 Types of Principal Loss

Property Loss Liability Loss (associated with legal claims) Human Loss (personal losses faced by individuals or families) or Personnel loss (losses faced by businesses)

Property and Casualty Insurance

Property insurance provides protection to an insured whose property is stolen, damaged, or destroyed by an insured peril. typically covers negligent acts or errors causing injury to a third party.

Types of Risk (2)

Pure risk: only a chance of loss, no opportunity for gain (injury or death from an accident) Pure risk is insurable Speculative risk: both the chance of loss as well as the possibility of gain or profit (gambling and stock market investments) Cannot be insured

Patient Protection and Affordable Care Act of 2010

Requires health insurers to cover dependent children up to age 26.

Underwriting (Structure of Ins. Co's)

Responsible for the evaluation, selection and distribution of insurable risks in a manner that is fair for the members of the group of insureds and profitable for the insurance company

How Does Gov. Calculate "Currently Insured"

SS takes the quarter and year of death or disability and subtracts 3 from the year; the period begins with t he quarter of the resulting year that corresponds to the quarter of death or disability. Ex: Jane died on May 21, 2015, which is part of the second quarter of 2015. The date three years prior to this is May 21, 2012 (in the second quarter of 2012). So, the 13-quarter period begins with the start of the second quarter of 2012 and ends with the following thirteenth quarter, which begins in April 2015. Therefore, if Jane earned at least six credits in the time period between May 21, 2012 and April 1, 2015, she was "currently" insured when she died.

Five Primary Ways of Avoiding Risk

STARR Sharing Transfer Avoidance Reduction Retention

Types of Transfer of Risk

Social (provided by gov) Private (provided by insurance companies)

Differences Between Social and Private Insurance

Social insurance participation is mandatory and automatic for all eligible taxpayers Social insurance benefits are not provided under contract or policy, but are prescribed by law. Social insurance seeks to be adequate to meet the needs of the public, rather than to be equitable in terms of the ratio of taxation to benefits provided.

How is Social Security Funded, and by WHO/WHAT

The Federal Insurance Contributions Act (FICA) ensures that majority of US workers pay into the program through federal taxes that are withheld from payroll checks.

Principles of Agency Law (Four main assumptions)

The agent legally represents the principal Contracts made by the agent are contracts of the principal payment made to the agent under his or her authority is considered to be payment made to the principal The agent must disclose all material information that is discussed, observed or acquired.

Employer Control (Group Ins. Underwriting)

The employer or sponsoring organization is usually in charge of enrollment, premium payment, benefit selection and all other areas of administration (including recordkeeping) that are not the function of the insurance company.

Composition of the Group (Group Ins. Underwriting)

The group must be structured in such a way that there will always be an influx of new members coming into the group while current members leave. This flow of members in and out of the group averages the risk of the group over time, thus minimizing adverse selection.

Insurance Incidental to the Group (Group Ins. Underwriting)

The group must have been formed for a purpose other than that of obtaining insurance benefits. In other words, groups that qualify for benefits must have a fundamental purpose or common interest other than the need for insurance. Without this requirement, a high-risk group could be formed solely to obtain minimally underwritten coverage, significantly increasing the insurance company's risk.

Definition of Subrogation

The insurer's right to recover its claim payment to an insured from a negligent 3rd party

Eligibility (Group Ins. Underwriting)

The nature and function of the group must fall within the underwriting guidelines of the insurer in order to qualify for benefits (e.g. war, military and aviation risks may be excluded).

Req's for Contributory (Group Insurance Premiums)

The plan must be offered to all eligible employees and at least 75% of all eligible members must elect to participate and be covered by the plan.

Definition of Risk

Uncertainty of loss

Certificate of Insurance

What you receive after filling out the enrollment card.

Demutalization

When a mutual insurer turns into a stock company

Facility of Payment

When policy benefits are to be paid to someone who has a legal entitlement other than the named beneficiary, the transfer of funds is permitted through Facility of Payment. It allows the insured person to pay the person of their choice, not those entitled.

What does it mean to be Fully Insured (Social Security)

Worker and his or her family are entitled to retirement, premium free Medicare Part A and survivors benefits.

Accident and Health Insurance Definition

a broad category of insurance that includes hospital and medical coverage, long-term nursing care, and disability income policies sold to individuals or to businesses and other organizations on a group basis

Exclusive (or Captive) Agency System

agent is a rep. of a single insurer and is obligated to submit business only to that company, or at minimum give that company first chance at refusal. classified as self employed direct sellers Do not own records and policies

3 Factors to Determine Valid Insurable Interests Exists

an individual has a legitimate financial interest in the person or item being insured the policy holder would experience a potential economic hardship in the event of the death of the insured individual or the loss/destruction of the insured property There is no possible gain or profit if payment is made as a result of a loss.

Broker

an insurance licensee who does not work directly for the company with which he or she does business with but represents the prospective customer.

Life Insurance and Annuities Definition, (Annuity Seperate)

any type of insurance contract which guarantees that a specific sum of money will be paid to a designated beneficiary upon the death of the insured. Annuity: not an insurance policy. They are investment vehicles that provide either immediately or at some future date, fixed or variable income payments for a specified number of years or for the life of the recipient.

Agent (and two types)

anyone who solicits insurance, assists in evaluating and placing risks, or collects premiums on behalf of an insurance company. Independent Agency System Exclusive or Captive Agency System

What is a "True Group"

at least 10 people insured under one master contract. Some states and companies do accept smaller numbers, for example, in California the minimum group size is two. Group coverage is generally available without a medical examination, and with very limited medical underwriting. Premiums are calculated based on the experience of the group as a whole. The insurance cannot benefit the sponsoring organization (e.g. employer); they must be paid to the covered member or their dependents. An employer cannot be the beneficiary of an employee's group life insurance policy. Individuals covered under the plan are classified in such a manner that they do not choose their level of benefits, but rather the level is usually determined by salary, position or length of employment. Certain group insurance rules and requirements vary depending on the size of the employer. Generally, a small employer has 1-100 eligible employees and a large employer has 101+ eligible employees.

How is dependency determined?

by their relationship to the insured, residency in the home, or appearing on the policyholder's income tax return as a financial dependent.

Five Primary Ways of Avoiding Risk (Avoidance)

bypassing any situations, events, or circumstances that create the possibility of a loss. (by choosing not to install an inground swimming pool, the risks associated with the pool are avoided)

Aleatoric Contracts, Def

contractual performance depends upon an uncertain event. must always be an element of chance involved. Ex: you may pay $35/mo for health insurance your entire month and never use it, which means the company benefited from you. OR you may use it in your first month for a $25,000 surgery and you benefit from the company.

Stock Companies (Capital Stock Companies)

corporations owned by individuals who contribute capital to the company through the purchase of shares of stock. Stockholders elect the board of directors who in turn appoint executive officers to operate and manage the company. Non-par (means the policy holders are not entitled to share in company profit or earnings) Allstate

Independent Agency

enters into agency agreements as ind. contactor. find best product based on client's needs. not controlled by anyone, but pays all admin costs out of commissions earned. They own records and policies

Five Primary Ways of Avoiding Risk (Sharing)

frequently utilized by insurers in their contracts with each other. if a risk is substantial, insurers will pool their resources. can also occur when risk is partially retained and partially transferred.

Definition of Social Insurance

government created laws to provide coverage to a segment of the population who could not otherwise afford life insurance, disability insurance, retirement income or medical insurance. Medicaid Social Security

Common Examples of insurable interest relationsips

insured in him/herself parent in a child employer in a key-employee creditor in a debtor spouses in each other blood relatives business partners in each other owner in property

Two Types of Insurable Interest in EB world

interest that exists in close family relationships. based off financial and emotional loss. referred to as the "blood" relationship based on a specific financial interest in the insured person Must exist at the time of application for insurance, but not necessary at the time of the insured's death.

Distribution Systems Def

methods used to market the insurer's products to businesses and the general public. Can be done directly by insurer or through the use of intermediaries

Fraternal Benefit Societies

non profit org authorized to insure members and their families against possibility of accident, sickness, or death.

Five Primary Ways of Avoiding Risk (Retention)

occurs when persons or orgs exposed to risk accept responsibility for the potential loss themselves. (opposite of risk transfer) customer assumes a bit of risk themselves and is willing to pay some, but not all of the payment (deductibles/co pays)

Five Primary Ways of Avoiding Risk (Reduction)

occurs when the risk cannot be avoided entirely and instead action is taken to reduce the chance of loss (exercise, proper diet and not smoking reduce chance of death)

Captive Insurers

org owned by a parent company that provides insurance to cover the parent company's loss exposures.

Non-Insurance Sponsors

organizations that target select groups of individuals who have a history of making systematic or periodic payments. Common orgs that use it: banks stock brokerage firms credit card companies

Mutual Companies Definition

owned by policy holders who contribute capital through the purchase of policies. Usually issue participating policies (par) where the policy holders share proportionately in the insurer's earned surplus or excess premiums by receiving policy dividends State Farm

Responsibility of Insurers to Agents

permit the agent to act and fulfill all the terms of his or her employment contract recognize all the provisions of this contract Pay compensation (e.g. commissions) in a timely manner as well as reimbursement, where applicable, for business expenses. Keep the agent informed of new product developments and marketing methods.

Definition of Insurance Policies

personal, two-party contracts between the policy holder and the insurance company under which the company has a legally enforceable obligation to make all benefit payments for which premiums have been paid. (personal contracts because the person is insured, not the property)

Private Insurance, Definition

purchased insurance defined as a contract or social device that spreads risk among a large number of people.

Claims (Structure of Ins. Co's)

receives, evaluates, and handles requests by insureds for indemnification or payment after an insured loss

Marketing and Sales (Structure of Ins. Co's)

responsible for the identification of prospective clients and the sale of a company

Five Primary Ways of Avoiding Risk (Transfer)

shifts the potential of loss from one person to another (via lawsuit) or from an individual to a group (by pre-arrange agreement). basic principal of all insurance.

What is a Master Contract?

the MASTER CONTRACT is between the insurer and the group sponsor, (i.e. an employer, trade association, professional organization, union, lodge etc.). The sponsor, also known as a master policyholder, selects the types and amount of coverage the group will have and pays all or a portion of the premium.

Definition of Peril

the cause of loss (fires, thefts, floods, disease, uncertainties)

Insurable Interest, Definition, Reason

the economic interest that a person would have in the safety or preservation of the subject or object being insured. all insurance contracts must contain an element of it. to avoid situations where a person may be encouraged to act negligently or fraudulently.

Req's for Trust Group to Join Group Coverage

the fund has been established by two or more employers in the same field or by one or more labor unions. Trustees are the policy holders cannot benefit the employer, union, or association.

What happens if their is confusion in the interpretation of a contract?

the interpretation of policy provisions is not a primary objective of insurance regulation. If a court finds that a party is in breach of a contract the injured party has the right to seek damages, reasonable attorney fees and court costs.

Waiver and Estoppel

the voluntary giving-up of a known right. Once a waiver has been made the right cannot be re-asserted without notice. Estoppel is the insurer giving "due warning" before changing a waiver such as acceptance to a late payment.

Currently Insured Status (SS) Qualifications

the worker must have at least six credits earned during a 13-quarter period which ends with the calendar quarter in which the covered person died, became eligible for retirement benefits, or became disabled.

Producers

those who market insurance products as intermediaries between insurers and general public

Vending Machine Sales

traditional method of selling travel accident insurance at airports, providing a large amount of coverage for a low premium. coverage is valid for the duration of their trip only. professional life agents are not authorized to transact travel accident insurance

Reciprocal Insureres

unincorporated associations that enable individuals and business firms to insure one another. each policyholder agrees to insure all of the other policyholders in the association, and in turn is insured themselves. Subject to state laws and managed by an Attorney-In-Fact

Conditional Contracts, Def

when a loss occurs certain conditions must be satisfied in order for claims to be paid. Provisions/conditions detail the duties and rights of all parties to the contract.