California Insurance Exam

Service Providers

- Not insurance compnies - Don't sell insurance, don't ahve policies, don't have policy owners. - E.g. Blue Cross Blue Shield - Blue Cross covers hospitalizatoin or facilities - Blue Shield covers the doctors, physical therapists, etc. - Sell contracts to subscribers.

Lloyd's of London

- Take greater risks and charge larger premiums. - A British insurance and reinsurance marketplace - Come together to pool and spread risk

Estoppel

- What someone or a company is prevented from doing because of the waiver. - (e.g. the company waives the right to collect premium if client becomes ill. The company is estopped from collecting)

Consideration Clause

- What the client is going to do for the company in exchange. - How will the client pay and how often will they pay it

Speculative risk

Hoping for a gain

Part D Medicare

- For drugs - Prescription drug plan for senior - What is the penalty if the senior doesn't enroll when qualified and then wishes to get coverage later?: 1% per month that it's declined

*Limited Pay Whole Life

- Limits the length of time of payment. - As the length of time is shortened, the premium rises.

Elements that makes risk insurable

- Loss must be due to chance - Loss must be definite and measurable - Loss must be predictable - Loss cannot be catastrophic - Loss exposures to be insured must be large (risk pooling and the law of large numbers) - Loss exposure must be randomly selected

*Part A Medicare

- Mandatory or compulsory - It is available to all at no charge at 65 and automatically beginning at age 65 - Provides coverage for: home health care, hospice, and hospitalization - Workers earned this part because 1.45% is removed from their pay checks their entire working lives - Primarily covers facilities - *Covers hospital services and fees with no monthly premium payments - *Pay $1132 the first day, and the next 59 days are covered by Medicare - 61st to 90th day, senior pays $283 per day and remaining costs are covered by Medicare - Life Time Accounts: 60 more days in the hospital. Senior pays $566 per day and the remaining costs are covered by Medicare - If senior is transferred to nursing facility, Medicare covers the first 20 days. For days 21 to 100, senior pays $141.50 per day

Methods to keep insurance claims costs down

- Mandatory second opinions - Pre certification review - Ambulatory surgery - Case management

*Features of Group Insurance

- Master contract - Lower cost (no physicals, no policies) - *People in group flow in and flow out of policy freely

Exclusions and restrictions of health insurance policies

- Maternity benefits - Pre existing conditions - Waivers for impairments

PRIVATE INSURANCE PLANS FOR SENIORS (HEALTH)

- Medicare Supplement Policies - Long Term Care Insurance

Other forms of Whole Life Insurance:

- Modified Whole Life - Graded Premium Whole Life - Indexed Whole Life

Main list of private insurance companies

- Stock insurers - Mutual insurers - Lloyd's of London - Reinsurers - Risk retention groups - Fraternal benefit societies - Home service insurers

Annuity Payout Options

- Straight Life Income - Cash Refund - Installment Refund - Life with Period Certain - Joint and Full Survivor - Period Certain

3 Ways Whole Life Insurance is paid (time-wise):

- Straight Whole Life - Limited Pay Whole Life - Single Premium Whole Life

Cost of Living Adjustment (COLA) Rider

- Ways for the insured to buy more coverage at a later time - Compared to the CPA which is the government's figure on inflation. The policy keeps pace with inflation

Hazard

- What causes the incident to happen. (e.g. your thoughts, actions, habits?) - 3 types

Risk Reduction

(e.g. smoking less cigarettes a day)

Ways Policy Proceeds are paid When Insured Dies:

(method chosen when setting up the policy) - Lump Sum Cash Option - Interest Only Option - Fixed Period Option - Fixed Amount Option - Life Income Options (6 choices)

Level Term Life Insurance~

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Factors used to determine amount of premium charged

- (MIX) - Morbidity - Interest - Expenses

Code of Ethics

- (NAIFA) National Association of Insurance and Financial Advisors created a code of ethics - State have incorporated that code into their insurance laws

Entity type

A company that purchases life insurance on its partners

Expense Factor

Actuaries need to be able to estimate how long people are going to live, how well they're doing on their investing, and what kind of expenses are going to be incurred out into the future as far as maybe 100 years.

Guaranteed Insurability Rider

Allows the insured to buy more coverage in pre-set amounts at a later time

Conservation

Any attempt by an existing insurer or their agent to dissuade a policy owner from replacing an existing life insurance or annuity contract

*At what age must owners of Traditional IRAs begin to receive payments from their retirement funds

April 1st of the year following the year they become 70 1/2

*Skilled Nursing Care

Around the clock, 24 hrs a day of professional nursing care

Financial Services Modernization Act of 1999

Banks can do insurance and insurance companies can do banking

*Fiduciary responsibilities

Being responsible and being careful for the assets and rights of another person. (a fiduciary is a person who has responsibilities of care)

Lump Sum Cash Option

Beneficiary is paid in a single check, a lump sum

*Unfair trade practices: Rebating

Bribing a client to purchase a policy

Pre certification review

Calling ahead to make sure the procedure is valid

Insurance is sold through

Career agents Brokers Aka Producers (independent insurance agents)

Benefits of Accidental Death and Dismemberment Policies

Come in two forms: 1. The principal sum (the death benefit) 2. The capital sum (pays for the loss of body parts - only pay when the body parts are gone)

(TSA) Tax Sheltered Accounts

Designed for non-profit organizations

Underwriters

Determine if prospective clients fall into the normal category or if they are more risky in one category or another. - They classify risks and determine which categories the insured should be placed - Adhesion: categories have been decided and approved in advance by the state in conjunction with the insurance company. - Categories of risks: Preferred (best premium rate), Standard, Substandard (most expensive)

Pooling the risk

Distributing the risk over a large number of people.

*Risk Retention

Doing nothing and retaining all the risk without any outside assistance. - "Self insuring" or retaining only a portion of the risk through paying deductibles

Suspension, termination, revocation of license and other penalties

E.g.: - Failing to maintain qualifications for a license or appointment - Failure to pass any required examination - Circumventing any of the requirements or prohibitions of the state insurance code - Demonstrating a lack of trustworthiness in the business of soliciting insurance - Fraudulent or dishonest practices

Flat

The stated amount that the insured must pay before policy benefits become payable

*Monthly Income

- So that the beneficiary will have enough to cover for lifestyle expenses - **May cover for possible Blackout period: The length of time between the youngest child turning 16 and the spouse becoming 60.

What is considered an insurance transaction?

- Solicitation to purchase insurance - Effectuation of a contract of insurance - Negotiations towards the sale of insurance - Transaction of matters subseuent to effectuation

**Look up replace of cash value in policies in the loose stack of notes

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*Any agent who contact a person after getting their name through some kind of advertisement must disclose that fact in the initial meeting

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*Beneficiaries who receive death benefits are spouses, children, and charities. If no one is named, then the estate is named so the death benefits would be added to the estate.

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*Generally, life insurance death benefits that are paid out to a beneficiary in lump sum are not included as income to the recipient of the life insurance payout. This tax-free exclusion also covers death benefits payment made under endowment contracts, worker's compensation insurance contracts, employer's group plans or accident and health insurance contracts.

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*If someone is rejected because of an MIB report, it must be disclosed. They have to be given the contact information, but cannot be told what the report contained. Agents don't get to see it either.

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*Morbidity vs. Mortality

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MEDICAL EXPENSE INSURANCE (HEALTH INSURANCE)

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What title as a financial advisor is legally acceptable to use?

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DISABILITY INCOME INSURANCE (HEALTH INSURANCE)

...(the only one that starts off with a probationary period for illness)

*McCarran Ferguson Act

Return supervisory power to the states

***What are considered activities of daily living?

Routine activities that people tend do everyday without needing assistance. - Eating - Toileting - Transferring (getting in or out of bed/chair) - Bathing - Dressing - Continence (able to control bowel movements)

*For life or disability insurance

Seniors get 30 days free look

Absolute Assignment

Signing over all the rights of ownership in a policy by the owner

Cash Vales

Small tanks of money that are inside each permanent policy

Void

Something never happened. (e.g. making the policy invalid)

*Paul vs Virginia

State would be in charge of the insurance industry

Consideration Clause

States what the client is going to do in exchange for the insuring clause: how much they have to pay and how often they have to pay it. (the consideration that the insured is going to give in return) - It's the amount and the frequency of premium payments

*Risk Avoidance

Stopping the behavior all together. (e.g. stop smoking)

Accumulate at Interest

Take the cash and hide it at the company in a separate account and let it accumulate at interest

457

- For everyone in state, local government and not for profit businesses - Salary reduction plan

Independent agents

- Functions like brokers

Risk retention group

A mutual company formed to cover a bunch of people in the same occupation.

*Free Look Provision

A period of time immediately following the issuance of a life insurance policy, during which you may legally cancel your policy with a full refund - *10 days normally (starting at the time the policy is physically delivered) - 30 days for seniors starting at age 60 or older

Equity Indexed Universal Life

A policy where the cash value is hedged again inflation.

Reduce the Premium

Take the cash, divide it by 12, and subtract that off my premium this coming year

Age

The older you are the higher the premium

Graded Vesting

The percentage matched increases over the years

Insured

The person whose life is the object of a life insurance policy

*Extended Term

The policy will continue at the current face amount but the policy will become a term policy and will continue until the cash value runs out due to premium payments. A provision that would allow the face amount of the policy to remain the same and the cash value would be used by the insurance company to pay the premiums at term rates. The policy would continue until the cash value is depleted by premium payments.

Final Expense Fund

- Have enough to cover all final expense needs. - To tidy up financial affairs, to cover funeral, etc.

*Participating Whole Life Insurance

- Have higher premiums than non because they have the intent on returning the excess

Purpose and Function of Annuities

- A savings plan at an insurance company instead of a bank - *Accumulation period: - *Annuity period: the payout period

SIMPLE Plans

- (Savings Incentive Match Plan for Employees) - Taken the plan of SARSEPSs - Amount of contribution is $11,500 per year - Catch up possibility $2,500 per year for age 50 or older

Policy clauses and provisions

- *Agents are permitted to be beneficiaries on the policies they are selling. - They have to make certain they have an insurable interest in the person to whom they're selling the policy.

Payor Provision or Rider

- Mentioned in # 98

2 Factors of Disability Income Insurance

- Partial disability - Residual disability

Two kinds of insurance companies:

- Stock Companies - Mutual Companies

Waiver of Premium Rider

- When added to the policy, prevents the company from collecting the premium is the insured is disabled. - If you're continuously disabled for min. 6 months, you're premiums will be waived - The company will refund the premiums paid during the waiting period

*Self Insurance

- When companies or government agencies decide they're large enough to pay the claims themselves, they hire insurance companies or consulting firms to process the paperwork. They have no financial responsibility for claims, they only run the process. - *ASO: (Administrative Services Only) an insurance company is hired - TPA: (Third Party Administrator) an administrative service / consulting firm is hired. (E.g. an outside organization that processes claims for an employer's self-funded plans)

Buy and Sell Agreement

-An approach used by sole proprietorships, partnerships and closed corporations to divide the business share or interest of a proprietor, partner, or shareholder. - The owner of the business interest being considered has to be disabled, deceased, retired or expressed interest in selling. - The buy and sell agreement requires that the business share is sold according to a predetermined formula to the company or the remaining members of the business. - Before the interest of a deceased partner can be sold to the company or remaining partners, the deceased's estate must agree to sell. - Who can buy a departing partner's or shareholder's share of the business (this may include outsiders or be limited to other partners/shareholders); - What events will trigger a buyout, (the most common events that trigger a buyout are: death, disability, retirement, or an owner leaving the company) and; - What price will be paid for a partner's or shareholder's interest in the partnership and so on. Buy-sell agreement can be in the form of a cross-purchase plan or a repurchase (entity or stock-redemption) plan.

Contingent Beneficiaries

-They receive remaining payments to be made under a settlement agreement upon the primary beneficiary's death - They receive the death proceeds if the primary beneficiary is deceased at the time of the insured's death - More than one contingent beneficiary may be named

*Replacement form

-When an agent replaces a policy, a replacement form is to be filled out. - It states: Name of the policy that's going to be replaced The policy number Name and address of the insured - The form is sent to the new company along with the application - *The form is then forwarded to the previous company so they are alerted that their client is working with another agent. - A copy of the replacement notice is sent from the replacing insurer to the existing insurer - The agent is required to wait 15 days after giving a notice to the policy owner that a replacement of cash value is taking place

Total Order~wrong

1. Flat deductible 2. Major medical comprehensive plan 3. Basic plan 4. Corridor 5. Integrated deductibles 6. Supplementary major medical plan

Cliff Vesting

100% matching occurs at a certain time

*What maximum time period does he insurer have to pay claims after adequate proof of loss has been received?

40 days

*Co-Insurance~

80/20 75/25 - **Example: If hospital bill is $10,500 and the deductible is $500. In a 80/20 arrangement, take out the $500 first, then take 20% of the remaining and add back the $500. That is how much you pay.

Emergency Fund

To cover for potential emergencies

*A life agent's continuing education hours?

A life agent must complete 24 hrs of continuing education per license term.

Reserves (same as above)

A large amount of money set aside by the company to pay claims that will be coming next year. - In HEALTH insurance, have 2 kinds of reserves: Premium Reserves: setting enough money aside to pay the claims that are coming next yr Loss or Claims Reserves: to cover expenses that have already been identified but the claim has not yet been paid.

*Which of the following is not party to an insurance contract

Agent! ------------ - Insurer - Insured - Owner are all part of the party!

Part Three:

Agent's report - Provides information on the applicant's - Financial condition - Character - Purpose of sale - How long the agent has known the applicant

Embezzlement

An agent converting the premiums he collects for his personal use

Stripping

An example is

Binder

An insurance binder is a temporary issuance of proof of insurance that will "bind" or cover you temporarily until a formal policy is issued. The binder must contain your name as the insured, the limits of coverage in dollar amounts, what type of insurance it is, what is actually being covered (such as your car or home) and the company issuing the insurance. The beginning date must be evident. If there is a loan used to buy what is being insured, the lender (lienholder) information should be listed as well. - You would need a binder for the purchase of a car, to buy real estate, an RV, motorcycle, or boat. - Marine, Auto, Fire - Life agents issues conditional receipts, not binders

*Needs Approach

Ask yourself: 1. How much will be needed at death to meet obligations. 2. How much future income is needed to sustain the household. - Focuses on the financial needs of the family - Considers final expenses - Considers disability income - Consideres monthly income

*Unfair trade practices: Defamation

Attempting to defame another part or agent by libel (written) or slander (spoken) in order to injure them financially or injure their reputation

*Do you have an insurable interest in yourself?

Yes

Conditionally Renewable

Coverage may cease if certain conditions occur E.g. Reaching a certain age / losing gainful employment

Pure risk

Covering for losses. No gain. So it's insurable.

Intermediate Nursing Care

Less than 24 hrs (single or double shift) of professional nursing care

*Straight Whole Life

Level premium payment over a person's lifetime

Expenses

Estimating overhead

Entire Contract

Everything pertaining to the policy is stated in it. The company cannot refer to outside the document.

*US vs SE Underwriters Association

Federal government in charge of the insurance industry

Premiums for 10 Year Term Policy

Has premiums level for 10 years

*Law of large numbers

Having a large number of people in a pool helps to correctly predict the outcome.

Housing Fund

Having enough money to cover the housing costs for the beneficiary

Dread Disease Insurance

Health insurance coverage only for a specified catastrophic disease such as a cancer.

Backdating

If an agent discovers that George's birthday is a week earlier than it's stated on the application, the agent can write on the application "please backdate to save age" - Company will charge extra for the number of days to get past that point by one day - But will cause the applicant to be one year younger for the rest of their life on their policy

Payment of claims

If death is one of the possibilities stated in the coverage, such as an AD&D policy, the company requests that the insured provide a beneficiary other than themselves. - There is also an expedited payment provision that allows the company to supply fund, such as $3000, to assist the family before they pay the claim.

Fraud

If death occurs 2 years after the fraud takes place, the benefit of a life insurance policy is still paid.

Misstatement of age

If someone accidentally misstates their age, the company will recalculate the benefits based on the new age

Unpaid premiums

If the client is in grace period and has a claim, the company will pay the claim but will subtract for what premium was not paid

Relation of earnings to insurance

In disability policies, the insurance company doesn't want to sell a policy that will cover over 60% of a person's gross income

Social Insurance Substitute Rider

In the case of the Social Insurance Substitute rider, benefits are payable only if no Social Security disability income benefits are payable. If any Social Security benefits are payable -- no matter how small -- no rider benefit is payable.

*What are mortality tables?

Indicate how long people are expected to live

Medical Report

Made up of: - APS (Attending Physicians Report) - The paramedics who obtain blood test, urine test, EKG, and ask questions.

Unfair trade practices: Misrepresentation

Making untrue statements about another company, their products, or their people

Insurance with other insurer

Marking sure client doesn't collect more than 100% of the bill and there won't be overpayment

Insurance with other insurers

Marking sure client doesn't collect more than 100% of the bill and there won't be overpayment

Other insurance in this insurer

Marking sure client doesn't collect more than 100% of the bill and there won't be overpayment

History

Medical history and can include family history as well

Fraternal benefit society

Membership groups that are created for membership to purchase insurance and gain other benefits.

**Tax deferred annuities are for

Nonprofit charitable organizations

Sex

Not discriminatory. It's built into the tables

Hospital confinement indemnity insurance policy

Pays the daily benefit coverage amount state in the policy for each day the insured is confined in the hospital

Actuaries

People who compute the premiums

Hospital Fixed Rate Policies

Policies that pay $100 for every day you're in the hospital or whatever amount you agreed upon in advance

Whole Life Insurance is more expensive in the beginning than Term Life Insurance

Premiums of whole life policies remain level, so the premiums are higher because part of the money goes into the savings portion (cash value)

Pre Existing Condition

Problems that are in existence before the coverage begins

*Divisible Surplus

Proportion of an insurance company's total surplus at the end of each year's operation that is distributed to policyowners of participating life insurance policies.

Participating Variable Annuity

Provide for expense savings which may be credited to individual VA accounts

1933 Class Steagall Act

Required banks to remain in banking and not do insurance and insurance companies to remain in insurance and not do banking.

Property and Casualty agent

Required to complete 24 hrs of continuing education each license term

Peril

The actual incident happening

Voidable

The client can walk away whenever they wish. (does no get all money back but is entitled to the cash value in the policy)

Notice of claim

The client has 20 days to let the company know there's going to be a claim

Proof of loss

The client has 90 days to fill in the forms, attach the receipts, and send it back to the company

Free look provision

The client has a set number of days to read the policy and then decline it if they don't wish to have it.

*Single Premium Whole Life

The client pays one time for the entire policy

Claim forms

The company has 15 days to supply the forms to the client

Time limit on certain defenses

The company has 2 years to defend itself based on a material misstatement, concealment, or fraud. Afterwards, they have to pay the bill.

Time payment of claims

The company has 45 days in which to pay the claim

*Reduced Paid Up

The face amount will be reduced so that the cash values remaining in the policy will be enough to cover the policy for the lifetime of the insured. The policy would continue but at a face amount less than the stated amount on the policy. The cash value would be used to purchase a reduced paid up policy based on the amount of cash value available in the policy. No additional premiums would be due for the life of the reduced policy.

Main types of loss exposure:

The four types of loss exposures that small businesses face are: 1) liability loss exposures 3) people loss exposures 4) property loss exposures.

Risk Transference

Transferring the risk to an insurance company

One Year Term

Use dividends as a single premium to purchase a one year term insurance.

Paid Up Additions

Use the dividends to purchase small amounts of insurance coverage which will increase the amount your beneficiary will receive when you die.

*Unfair trade practices: Churning

Using misrepresentation to "con" an insured into canceling their policy they have from the same company

Insuring Clause

What the company is going to do for the client and when the coverage is in effect.

Parol evidence rule

Whatever is said to the clients by the agent is no longer considered when the policy arrives. The policy takes over for everything.

*What must be described in the notice sent by a dually licensed agent to the policyholder if the purchase of securities will occur?

- How the insurance will be effected - Why it's advisable - Policies affected - Companies involved

*Pre-text insurance interview

- An interview in which the party gathering information refuses to reveal their identity, pretends to be someone else, misrepresents the true purpose of the interview or pretends to represent someone who is not in fact represented. - Federal and state laws prohibit pretext interviews in connection with insurance-related consumer reporting. - They are permitted only in connection with investigations into suspected material misrepresentation, fraud or criminal activity.

*Guaranteed Insurability Rider

- An option to buy more insurance coverage later without proving insurable. - Between ages 25 to 40, in 3 year intervals, at any one of those points can purchase addition coverage without proving insurable.

*Last Survivor / Second to Die Joint Life Policy

- Benefits are only paid when the second spouse dies (When the first spouse dies, estate taxes don't have to be paid) - The benefits are used to pay estate taxes

Immediate Annuity

- Bring in huge barrel of money, purchase the annuity, and want it to start right away

Commercial insurance companies

- Covers for medical expenses using reimbursement approach.

Simplified Employee Pensions

- Employees can contribute up to 25% of their compensation.

12 Mandatory Health Insurance Policy Provisions

- Entire Contract - Time limit on certain defenses - Grace period - Reinstatement - Notice of Claim - Claim forms - Proof of loss - Time payment of claims - Legal actions - Payment of claims - Physical exam and autopsy - Change of beneficiary

Long Term Care Insurance

- For the purpose of protecting assets long term - Preventing people from exhausting their life savings trying to cover medical expenses - Must deliver benefits of respite care, hospice care, and home health care services - Provide home care and institutional care - Medicare Part A covers for max 100 days - A valued insurance policy - Aimed at middle income consumers

Special Risk Policies

- For unusual individuation situations - Such as those that could be insured by Lloyd's of London. - One person at a time

Payout for an Annuity:

- Immediate - Deferred - Assumed that annuity payout is at age 65

Tax treatment of premiums and benefits for health, disability, and medical expense

- Life and disability policies: taxed the same way. before tax dollars and after tax dollars - Medical expense policies: add premiums paid for the policy + unreimbursed medical expenses, whatever is over 7.5% can become a potential tax advantage

Other types of policies where AD&D benefits can be added:

- Limited Risk Policies - Special Risk Policies

Limited Risk Policies

- Limited means a certain category of people - Categories include: aviation, automobile, and travel accident. - AD&D may be included for these groups because premiums are low

Types of Government Supplied Health Insurance:

- Medicare - Medicaid

*PPOs

- Preferred Provider Organizations - Get coverage for doctors in and out of the collection of providers (HMO only in collection) - Collection of healthcare providers who offer pre arranged discounted prices - Have deductibles - If you receive your care from a doctor in the preferred network you will only be responsible for your annual deductible and a copayment for your visit. - If you go outside their list of providers, the deductible gets alot larger

*The most expensive LTC policy

- Shortest elimination period and longest benefits period

*Competency test:

- The APPLICANT has to be competent - Not the insured or the beneficiary

Principles of Agency Law

- The acts of the agents are the same as the company - Contracted completed by the agent is same as company doing it - Payment made to an agent is same as paying the company - Knowledge of the agent is the same as the company knowing it

Morbidity

- The actuarial tables involved with health, and the likelihood of staying healthy over a lifetime

Fixed Period Option

- The payout is set over a length of time (requested by the insured) - The amount paid out each month will be calculated to match the length of time set

*Whole Life vs. Term Life~~

- WL has higher premiums

*Something about how sex? is illegal to be taken into account when determining insurability?

Asking for a person's age or sex is NOT discriminatory. But asking for religious beliefs IS discriminatory

*Part One

General information - Details of requested insurance - Beneficiary name - Additional life insurance pending - Alcohol - Drugs - Habits - Foreign travels - Insurer (any person capable of making a contract) - Plan - Amount of insurance - Death benefit - Riders - Premiums - Insured's insurance needs - Insured's personal history

Mandatory second opinion

Getting another opinion from another physician or practitioner

Interest

How well the company is doing on their investing

Reserves

Huge pot of money that the companies are required by the states to set aside in order to be able to pay the claims that occur next year.

Legal Actions

If the company doesn't pay the claim within 45 days the client can sue the company after 60 days

Joint and Two Thirds

If the primary annuitant dies, the surviving annuitant will receive monthly payments for life of a dollar value of two thirds of the annuity units that were previously being distributed

*Ambulatory surgery

If the procedure can be done in a neighborhood clinic, it's less expensive

Change of beneficiary

If there is a beneficiary mentioned in the policy, other than the insured, the owner has the right to change that beneficiary at any time, just like life insurance.

Annuity Basics

Initial purpose of annuity is to provide income for life - When annuity is annuitized, pays out as long as the annuitant lives. - Annuitization point (when it starts paying out) - *Deferred annuities: starting annuity early in life saving for the future. - Annuity purchased either with a single premium or with periodic payments

Social Insurance Supplement Rider

Instead of the substitute benefit, a supplement benefit might have been purchased. In that case, the benefit payable is the amount of monthly income purchased less any benefits provided by Social Security; the rider benefit supplements, and is payable in addition to, the Social Security disability benefits.

Case management

Insurance companies mire medical professionals to monitor ongoing claims of their policy owners

VGLI Insurance

Is a 5 year renewable and convertible term insurance

*Part Two

Medical information - Past & current health - Chronic - Family info - What you have or don't have medically - Primary care provider

Moral

The underwriter creates questions to determine if the habits or lifestyle of the applicant are not more exciting or dangerous from the average person

**How soon does an immediate annuity start paying out?

One payment interval from the date of purchase (one month from the date of purchase if it's paid out monthly)

Avocations

Our hobbies and how exciting they may be

Cancellation

The company has the right to cancel a policy after 45 written notice (depending on which level of renewability is stated on the policy)

Ceding Company

The company that is transferring the risk

Waiver

The giving up of a right. (e.g. signing a waiver that you won't sue)

Associations / Trade Association Qualifications:

The group has to be in existence for a certain number of years

*In an insurer issues a policy, within how many days must it file a notice of appointment with the commissioner?

The insurer must forward to the commissioner a notice of appointment of the agent as the insurer's agent not more than 14 days after the agent submitted the insurance application

*When does the offer begin?

When the agents sends the consideration into the company

Unfair trade practices: Controlled business

Where an insurance agent is the employer of the client or has a relationship where the client feels pressured to purchase a policy

*Rejected Business Rule

Where the agent's company refuses to sell the policy

*MEWA (Multiple Employer Welfare Arrangements)

Where trade unions ban together to improve the price of coverage.

NAIFA (National Association of Insurance and Financial Advisors)

Works for the best interest of all policy owners and for ways in broadening the opportunity and advancement of the individual agent

Other types of medical expense coverage:

- Hospital fixed rate policies - Limited risk policies

Mutual Companies

- (not-for-profit) Trying to make a surplus - Owned by the policy holders - The company has no stock - Goal of the company is to reduce the cost for the policy holders - When they have a surplus, they redistribute part of the surplus back to the policy owners in the form of dividends - Don't have to pay but want to - *Dividends are not taxable because they are an intentional return of overpayment of premium

In pricing a policy for the client:

- **(The insured triggers the policy when the doctor certifies that he/she can no longer perform two of the six activities of daily living) - The dollar value chosen as the benefit on a per day basis - Whether the benefit will cover for care in the home of the insured - How long the benefit will last in years - If an economic benefit is included to keep pace with inflation

*Social Security

- **Old Age, Survivor, and Disability Insurance (OASDI) know what the letters stand for!!! - Employed workers covered - Self Employed workers covered. - Some state and local government employees covered by a different system - Railroad workers covered by a different system (Railroad Retirement System) - Partially insured: the worker must have at least 6 quarters of coverage earned during a 13 quarter period which ends with the calendar quarter in which the covered person died, became eligible fore retirement benefits, or became disabled - *Currently insured: workers who contribute to social security 6 quarters of a year (1.5 years) - *Fully insured: workers who contribute for total of 40 quarters or more (10 years)

*Business Uses of Life Insurance

- *Cover for the loss of a partner: Buy/Sell Plan - Key Person Insurance - Employee Benefit Plans

*Medicare

- *For people who are 65 or older, have chronic kidney disease, or have qualified for Social Security disability - At age 65, Medicare become primary over your employer's health plan unless you're currently employed and under an employer Group Health Plan. But if you opt out of the employer's plan, Medicare become primary. - In 4 parts: A, B, C, & D

Types of Qualified Plans for small employers where employees contribute to own retirement:

- *Keogh Plan - *Simplified Employee Pensions (SEP): maximum contribution made on the employee's behalf is 25% up to $49,000 whichever is less - Salary Reduction SEP Plan (SARSEPs) - SIMPLE Plan

*Cross Purchase Plan

- *Know the number of policies purchased - Multiply the number of partners by one number lower than the number of partners = the number of policies. - If the plan is worth $300,000, divide that by the number of policies to see how much each person gets

*Limited Risk Policies

- *Limited risks or dread disease. - E.g. heart disease and cancer

*Employee Benefit Plan~

- *One type is Split Dollar: the employer is paying for part of the policy and the employee is paying for the other part. The employee is paying for the insurance portion, and the employer is paying for the cash value portion. The Split Dollar Insurance Plan is for individual life insurance - If the employee dies, the company get their cash value back, and the employee's family get everything else.

HEALTH INSURANCE POLICY PROVISIONS

- 12 mandatory (for the benefit of the client) - 11 optional (for the benefit of the company)

Underwriting Process:

- 1st: determine if the applicant is insurable; Application Medical Report MIB (Medical Information Bureau) Special Questionnaires Inspection Reports Credit Reports

*Chronic Illness

- A chronic condition, by contrast is a long-developing syndrome, such as osteoporosis or asthma.

*Mass marketing~

- A client interacts with an agent by phone or e-mail. Trying to get a number of people at one time to purchase insurance. - It reaches insureds who generally have no access to their own brokers or agents. - It also brings the policies to the insureds usually at lower prices than those charged in one-on-one sales because it reduces the "middleman" cost of agents. - *Direct response / direct mail. - A system that does not use an agent

Corridor

- A concept in universal life insurance. The corridor is the amount of pure insurance protection above the accumulation value to qualify as life insurance for tax purposes. - The basic medical expense policy will pay its limit, then the deductible will come into play, and finally, the supplementary policy will pick up the remainder. - The corridor deductible is usually a fixed dollar amount per loss and applies in the transitional area between basic coverage and major medical expense coverage. Basic policy benefits are paid first. When the basic policy benefits are exhausted, the corridor deductible is applied. Then the major medical plan benefits are paid.

Insuring clause

- A description of what the company is going to do for the client - How much the coverage is - When does the policy begin - When does the policy end

HMOs

- A healthcare delivery system that provides roup coverage for members who pay a fixed periodic fee in advance. - Stress preventative healthcare and early treatment

PPOs

- A healthcare system which supplies discounted arrangements from providers. - Do not have a deductible, if go outside their list of providers the deductible gets larger

Endowment Policy

- A life insurance contract designed to pay a lump sum after a specified term (on its 'maturity') or on death. - Has a high premium cost per dollar of face value - It is an Insured Savings Plan - The cash value and the face value are equal at the endowment date - A kind of contract that guarantees a sum of money that the client or the beneficiaries will get at the end of the predetermined contract period, whether he/she lives until the policy matures or dies sooner. At the end of the insured period the client will receive the benefit of the insurance policy- the amount paid at death - unless he/she died earlier; in which case the beneficiary named in the policy will get the money, which means that the family will still remain financially independent.

**Universal Life~~

- A major permanent insurance policy. - Made up of an ART policy and a savings plan (the cash value portion) - A contract containing a cash value account from which current mortality costs are drawn by the insurer - The maximum mortality charges against the cash values permitted by the insurer are disclosed in the policy and are based upon industry tables - The interest rate credited to the cash value is variable, and responds to the fluctuating market rates, but usually is guaranteed for an initial period - The main difference with whole life is premium schedules

Multiple Protection Policies

- A mixture of term life and whole life insurance that pays out a multiple of the face value during the term policy's period, and then turn into a whole life policy after the term is over. - The period known as the 'multiple protection period' is the time during which both policies are in effect.

People who can qualify for Medicare:

- A person who has been entitled to Social Security disability benefits for 24 months - A person who has reached 65, is willing to pay a premium but is not eligible for Social Security - A person who has reached 65 and is eligible for Social Security

Valued Policy vs.

- A policy is valued if you know what the outcome will be ahead of time. You know the monetary value you will get if that outcome happens.

*Adjustable Life

- A policy made up of a term and whole life insurance combined. - As a person or family's needs change, it's easy to adjust the payment amounts or payment coverage. - Gives holders the option to change the characteristics of their policies as their needs change over time. - Adjustable life insurance policies allow holders to manipulate the period of protection, increase or decrease the face amount, raise or lower the premium amount, and change the length of the premium payment period. - These policies also incorporate an interest bearing side fund (cash value). - No requirement to cancel or purchase additional policies as holders' circumstances change. - Adjustable life insurance is also known as "flexible premium adjustable life insurance".

Self Funded

- A self funded health strategy for an individual does not involve a health insurance plan

*Period Certain

- A set length of time - The company will pay no more or less than agreed. - E.g. a 10 year period certain annuity will pay the annuity only for 10 years - *If the annuitant dies before the 10 years have expired, the payments will continue to the policy's beneficiaries for the remaining term. - The monthly payment rate for a period-certain annuity is generally higher than the rate for a life annuity because the insurance company knows its maximum liability in advance. - Will not cover life's contingencies

*Stop Loss~

- A stated amount to protect companies from catastrophic claims - *Find a stop loss example

Keogh Plan

- A tax deferred pension plan - For self employed - For sole proprietorship - For people in unincorporated businesses - Funds can be accessed as early as 59.5 and withdrawals must begin by age 70.5 - Receive deductions for the money contributed into the plan - Have higher contribution limits because contributing both for employer and yourself - Contributing a percent of EARNED income not gross income

Constructive Receipt Rule

- A tax term mandating that a taxpayer is liable for income, which has not been physically received, but has been credited to the taxpayer's account or otherwise becomes available for him or her to draw upon in the future. Constructive receipt of income prevents taxpayers from deferring tax on income or compensation they have not yet utilized or spent. - The rule allows for 60 days to make a determination

Rollover IRA

- A transfer of funds from a retirement account into a Traditional IRA or a Roth IRA. - The transaction must occur within 60 days of distribution - There is no limit on the amount of money you can rollover. - 401(k) plans rolled over into a Rollover IRA, can now also get rolled into a new employer's 403(b), 401(k) or 457 plans.

*Equity Indexed Annuities

- A type of fixed annuity - Used to hedge again inflation - The investment is connected to the Standard & Poor's 500 industrial average

Viatical settlements

- Another variation of policy proceeding method - Offers cash ahead of time but at a reduced amount - If you were ill and needed the money from the insurance policy, take a % loss but get money right away - Viatical agents are required to have life insurance license - Accomplished through absolute assignment

Pension Plan

- A type of retirement plan, usually tax exempt, wherein an employer makes contributions toward a pool of funds set aside for an employee's future benefit. The pool of funds is then invested on the employee's behalf, allowing the employee to receive benefits upon retirement. - In many ways, a pension plan is a method in which an employee transfers part of his or her current income stream toward retirement income. There are two main types of pension plans: defined-benefit plans and defined-contribution plans.

*Accident related disabilities

- Accidental means provision: the accidents are covered as long as the insured didn't do anything intentionally stupid - *Accidental results provision: covers the client no matter what happened. Just pay the bill (the defaulted one)

*Unfair trade practices: Sliding

- Adding an insurance policy with the sale of something and telling the customer it's state law that they initial the form selecting a life insurance policy to cover for the item they just purchased. - "Sliding on a deal"

Non-traditional Life Insurance Policies

- Adjustable Life - Universal Life - Equity Indexed Universal Life

Authorized, unauthorized, and eligible companies

- Admitted or non - Authorized or non - Approved or non - Certified or non - All the same thing. Either the comapny is approved in that particular state or not. - If the insurance company is not approved in that state, the state can't help you interact with the company

5 Other Factors in Calculating Premiums:

- Age - Sex - Health - Occupation / Avocation - Habits

4 Other Risk Factors underwriters consider when insuring potential client:

- Age - Sex - History - Avocation

Criterium for Insurability

- Age and gender of policy holder - MIB: Medical history/pre-existing conditions (you fill in form, but many companies also use database of Medical Information Bureau - MIB) - Family medical history - Results of medical exam - Smoker or not - Mental health record - Occupation - Lifestyle issues, such as leisure activities that the insurance company considers risky - Driving record - Where you travel regularly - Features, coverages and limits selected - Credit history

*Maintaining a license

- Agent are required to continue their studies in the form of continuing education courses - For a life and/or health agent, 24 hrs of continuing education is required every 2 years - *If the agent change their physical contact information, they need to update their records with the state within 60 days

*Marketing practices

- Agents are to supply a life insurance or health insurance buyers guide and a policy summary upon request, or before the initial premium is accepted.

Industrial Insurance

- Aka "home service, debit, burial policy" - Purchased and issued in low dollar amounts - Frequent premium payments - If an insured wants to convert several industrial life policies to a single ordinary life policy, the combined face value of the industrial life policies must be $3000

*Franchise Life Insurance

- Aka "wholesale insurance" (are real individual policies with real medicals) - Like individual policies but grouped together so it drops the costs

Accidental Death Benefit Rider

- Aka double indemnity - The beneficiary will receive twice the face amount of the policy if the insured dies in an accident

Characteristics of insurance contracts:

- Aleatory: the money being put in compared to the benefits received does not work out equally - Adhesion: states have approved all insurance policies and contracts. Therefore, no negotiations on policies - Unilateral: one of the two parties are stuck. which is the insurance company. Client can get out when they wish. - Not a personal contract: can change the ownership of the policy. The owner is the one paying for it which is different from the "insured person" - Conditional: payment must be made to continue and company must pay if insured dies

Revocable beneficiary

- All beneficiaries considered revocable unless otherwise stated - The beneficiary can be changed at any time

*Guaranteed Renewable Term Life Insurance

- Allows clients to renew the policy on an anniversary date - Premium rises only based on age - Coverage is guaranteed - Incontestability clause is not renewed - The face value of the policy normally remains the same

Cost of Living Rider

- Allows you to upgrade or purchase additional insurance coverage to cover the increasing cost of living

*Unfair trade practices: Twisting

- An agent replacing an existing policy from another company with one from his own company which is of no financial advantage is to the insured Using misrepresentation to "con" an insured into canceling their policy they have from a different company

*Set up and duties of a co-partnership

- An application for registration myst be signed by a general partner - The continuing co-partnership must file an application for registration of the change in membership within 30 days and pay the required fees - At least one person who exercised the agency or brokership power of the predecessor co partnership must continue to exercise the agency or brokership powers of the continuing co partnership

Discounted Medical Plan

- An arrangement that provides medical services at a discount - Regulated by state insurance department - Not considered insurance

Captive agents

- An insurance agent who can only sell one insurance company's products -An insurance agent who only works for one insurance company. A captive agent is paid by that one company either with a combination of salary and commissions or with just commissions. He or she may be a full-time employee or an independent contractor, and may be provided with office space and benefits by the employer. - Captive agents have in-depth knowledge of their particular company's insurance products, but cannot help a client who does not need or does not qualify for that company's products. - The parent company may push its captive agents to sell certain policies or meet certain sales quotas.

*Types of Premium Payments

- Annually - Semiannually - Quarterly - Monthly - Weekly

Life and health guaranty associations

- Any insurance company whether life or health insurance have to be a member of the state's Guaranty Association in each state they function in. - The association are funded by the insurance industry, not by the states - Reason for existence is it's a backup in case a company fails. - If a company cannot pay a claim, the association will pay the claim. - HMO's backup is the Consumer Assistance Plan. It provides coverage to HMO subscribers if the HMO becomes insolvent.

Selling Annuities to Seniors

- Anyone aged 65 or older - People selling annuities to seniors are required to make recommendations that are reasonable and within standard guidelines. - May need to rescind or provide complete refund in the case of inappropriate sale of annuity - If annuity contract exchanged, need to supply comparison of the benefits of the annuities, fees, charges, and any other differences - *No pretext interviews - Use simple language - Do not oversell

*Key Person Insurance

- Anyone in the company whose efforts toward the operation and success off the business are quite important - Any officer of the company - *Know the exact titles of the people who consists of key people - Key Person Insurance Policies are owned by the company and paid for by the company - The company is also the beneficiary

People required to be licensed

- Anyone soliciting insurance to hold a valid insurance license - Licensee must also be appointed by one or more insurance companies to be able to sell the company's products.

**Underwriting / Application Process

- Applicant watches while the application is filled out and then signs his/her name - The agent signs, witnessing the signature - If there is a change in the application, the agent drives back, makes the change with the applicant watching, both applicant and the agent initials it, and the agent drives home. -The policy effective date is the same as the date of application. - When application is completed, and the applicant has signed the check for the initial premium, they're given a conditional receipt. (means client is covered if everything checks out). If it does check out then get approval receipt. - The client is covered if everything checks out. - The conditional receipt goes into effect after the paramedic has completed the exam (but will remain conditional until the exam comes back positive) - If the client died after exam and it was positive, claim would be paid. - (Conditional receipt has maximum payout of $100,000)

Special Questionnaire

- Asks questions about hobbies and jobs. - (The more experienced someone is in their hobby the less concerned they are)

*Per Capita

- Assume per capita unless otherwise states - All surviving family members will receive an equal share

Jumping Juvenile Insurance

- At age 21, the insurance coverage increases by 5x the previous face amount without the premium increasing.

4 Treatments of Risk

- Avoidance - Reduction - Retention - Transference

*MET (Multiple Employer Trusts)

- Banning together employers of small sizes to get a better price for insurance

Cash Refund

- Based on lifetime of the individual - Based on mortality table - If die sooner than stated in the table, get refund in a lump sum

Installment Refund

- Based on lifetime of the individual - Based on mortality table - If die sooner than stated in the table, get refund in installments

3 Types of Basic Medical Plans

- Basic medical expense plans are known as "first dollar" because it provides benefits immediately before any deductible is considered - Basic Hospital Expense - Basic Surgical Expense - Basic Physicians (nonsurgical) Expense

Interest Only Option

- Beneficiary is paid in interest payment until a certain point. Then the remaining balance is paid at that point. - (The interest is based on how well the company is doing in their investments)

Social Security Disability

- Benefits are based on the level of a worker's earnings up to the time of the disability - Benefits will continue only while the worker cannot work at all - Workers must be totally and permanently disabled for at least 5 months to be eligible for benefits - Each family member may be eligible for a monthly benefit of up to 50 percent of your disability rate. However, there is a limit to the amount we can pay your family. -We automatically enroll you in Medicare after you get disability benefits for two years. The two parts of Medicare we enroll you in are hospital insurance and medical insurance. 1. Hospital insurance (Part A) helps pay for inpatient hospital bills and some follow-up care. The taxes you paid while you were working financed this coverage, so it is free. 2. Medical insurance (Part B) helps pay doctors' bills, outpatient hospital care and other medical services. You will need to pay a monthly premium for this coverage if you want it.

Flexible life products

- Can be flexible in terms of Universal Life policies because they can be easily adjusted by the policy owner during the lifetime of the policy - Can also mean variable products which are invested in mutual funds

Juvenile Insurance

- Can be sold up to the age of 14 or 15 to cover the life of the person as a "child" - Do not have to sign the application - The policy is usually owned by the applying adult - The policies may be Ordinary or Industrial types

Temporary Insurance Agreement

- Can be written up for a period up to 60 days - A company will automatically give cover upon receipt of an application, the premium, and completed medical exam. - After you (as the applicant) sign an application for life insurance, the insurer starts determining whether they are willing to insure you. During this process, you may be eligible for temporary insurance if: 1. you are likely insurable standard rates (i.e., no rating expected) 2. you have completed the policy application you have made the first premium payment 3. The temporary insurance agreement is a binding contract between the insurer and the applicant which the agent issues → puts insurer at risk since the policy is not yet approved or issued. -

**What happens if you are convicted of insurance fraud?

- Fine up to $50,000 - or twice as much the amount of the fraud (which ever is greater) - Up to 5 years in prison - If misdemeanor, fine up to $10,000 and up to 1 yr in jail

3 Types of Deductibles

- Flat - Corridor - Integrated

Managed Care Organizations (MCO)

- Can minimize costs by changing the amount of the deductible or varying the coinsurance factor - A healthcare provider whose goal it is to provide appropriate, cost-effective medical treatment. - 3 major types of MCOs: HMO, PPO, & POS - POS: A POS plan combines characteristics of both a PPO and an HMO. Under a POS plan, you may choose to see your "primary care physician." If you do see your primary care physician, the expense will be covered like an HMO plan. However, you may also choose to see any other doctor of your choosing. If the doctor you choose to see is "in-network," but not your primary care physician, the expenses will be covered similarly to that of an "in-network" PPO. Therefore, you may only be required to pay 20 percent of the covered expenses. However, if the doctor is "out-of-network," you may still visit the doctor, but may be required to pay 40 percent of the covered expenses.

Renewability

- Cancelable - Non cancelable - Optionally renewable - Conditionally renewable - Guaranteed renewable

5 Ways to Receive Dividends:

- Cash - Reduce the Premium - Accumulate at Interest - Paid Up Additions - One Year Term

11 Optional Health Insurance Policy Provisions:

- Change of Occupation - Misstatement of Age - Other insurance in this insurer - Insurance with other insurer - Insurance with other insurers - Relation of earnings to insurance - Unpaid premiums - Cancellation - Conformity with state statutes - Illegal occupation - Intoxicants and narcotics

Non cancelable

- Changes the least and costs the most - It guarantees you that after you place a policy in-force that there will be no changes to your premium schedule, your monthly benefits, or your policy benefits to age 65 or a certain age. The insurance company legally can not change a thing unless you want them to. Many people do not have a guarantee that their income will never go down again, under a Non-Cancellable policy even if your income goes down later in life, if you are totally disabled the company will pay you the total disability benefit you originally placed in-force. Under a Non-Cancellable policy even if you changed jobs from being a white collar, low-risk occupation to a professional weight lifter the company could not change your benefits for the worse.

Major medical expense plans

- Characterized by high deductibles and low monthly premiums. - These plans typically cover only major hospital and medical expenses above a certain deductible. -Two versions: 1. The basic plan comes first, then the deductible, then the supplementary major medical plan 2. Deductible comes first, then the comprehensive major medical plan - Major medicals are generally 80 insurance/20 me or 75/25 (co-insurance) -Characteristics: Deductible, coinsurance, & maximum amounts

**Probationary Period

- Client is on probation when the policy begins for about 15 to 30 days (only for illness) - Accidents are covered immediately - In group insurance, the probationary period is for people who joined the group after the effective date

Health Insurance Providers

- Commercial insurance companies - Service providers - HMOs - PPOs

*MIB (Medical Information Bureau)

- Company owned by the insurance industry - Gathers information: Every time someone applies Every time someone has a health insurance claim Gets all Medicare records, Medicaid records, and military medical records - The purpose is "the prevention of misrepresentation and fraud" - The main purpose is to hold down the cost of insurance

How social security benefits are calculated~

- Compute AIME (Average Indexed Monthly Earnings) - Plug into PIA formula (Primary Insurance Amount) - PIA is monthly calculation that determines the amount of benefits for retirement, survivor's benefits, and disability insurance coverage - PIA is equal to the full retirement benefit at age 65

Indexed Whole Life

- Connected to the Consumer Price Index (government figure generated monthly indicating inflation. The face amount gradually rises as inflation increases)

*COBRA

- Consolidated Omnibus Budget Reconciliation Act - Gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods of time under certain circumstances - Mean not converting and staying with the company's plan - COBRA applies to employers with at least 20 employees - Employees can elect COBRA for 18 months if they are terminated from their job or if their hrs are reduced to where they no longer qualify for the company plan. - An employee's family can elect COBRA for 36 month if the employee dies, if the children get too old for the plan, children get too old, or as a result of divorce. - The employee can elect to pay out of pock to stay on the plan

*Policy Issue and its Delivery:

- Constructive delivery: done by phone call, a postcard, or email - Free Look does not begin until real delivery - When the policy is delivered to the client, that's when they explain it and make sure that the policy covers the needs of the client. - If no check for the premium was received at the time of application, meaning there was no offer,when the policy is delivered to the client, that's when the first check is received from the client and it's also the time when the client signs a statement of insured's good heath (only when there's no premium).

Group Life Insurance Characteristics

- Contain Annual Renewable Term policies (it's most popular for group and keeps costs down) - Companies are encouraged to pay for up to $50,000 worth of insurance coverage using before tax dollars. - The employer purchases the insurance portion and the employee pays for the cash value segment - Group Term Life Insurance is tax deductible under certain conditions

Reentry Method Term Life Insurance

- Coverage is guaranteed - Assess the insured's health at the time of renewal to determine amount of premium to pay

*Basic Types of Health Insurance

- Coverage that pays when someone goes to the hospital - Medicare supplement insurance - Long term care insurance - Service Providers (not insurance company) - Disability policies - *Accidental death and dismemberment policies - *HMOs (not health insurance company)

Group Insurance

- Covering a group of people - The company, association or employer is writing the check and paying for the policy - 10 people are needed to qualify

*Morale Hazard

- Focus on hobbies and jobs - Jump out of airplanes? - Attitude towards the item insured and to act carelessly about it

*Education Fund~

- Covering educational expenses for family member. - *529 Plan (prepaid tuition plan) - *Coverdell education savings accounts: allows contributions of $2000 per year per chid until the child turns 18. (fund must be used by youngest child turns 30) Functions like a Roth IRA, not taxed. Has 10% penalty if withdraw past 30 years old. The beneficiary will not owe tax on the distributions if they are less than a beneficiary's qualified education expenses at an eligible institution.

Principles of Group Insurance:

- Covers a group of people - Provides a master contract to the group with certificates to the individuals in the group indicating their coverage. - Can be contributory or noncontributory - (Noncontributory plans - when employers pay 100% of premium and every employee who qualifies must all be enrolled for all times) - (Contributory plans - employees contribute to the premium. have no participation requirement)

Blanket Life Insurance

- Covers a group of people exposed to a common hazard - Policies that cover groups in motion. - E.g. transportation companies, schools, churches, or event major events

*Basic Physician (nonsurgical) Expense

- Covers for primary care physician who referred you to the surgeon - Doctor can visit you in the hospital and when you return home, go to their office for follow up visits

*Sources of information an underwriter uses to find info on an applicant

- DMV - MIB - Physician / medical records

Benefit Period

- Decided by the policy owner - A maximum length of time the policy will cover - E.g. 2, 3, 4 years all the way to age 65. - The higher the number of covered years the higher the premium - Delayed disability: delay and then become apparent. Company will pay - Recurrent disabilities: disabilities that may return. Company will pay

*Deferred Annuity

- Deferred time wise (don't start paying out until later) until the investor elects to receive them - Does not pay any benefits until a delay of longer than 1 year - Has savings phase: invest money into the account. - Has income phase: plan is converted to an annuity and payments are received - Deferred tax wise (don't pay taxes until annuity starts paying out) - The beneficiary of the annuity is guaranteed the principal and the investment earnings. - Does not have tax deductions

Soliciting means:

- Describing the benefits of policies - Inviting prospective clients to enter into a contract arrangement - Completing applications for insurance products - Making recommendation concerning insurance products - Comparing or advising regarding insurance products - An employee of a life or health insurance company may solicit and effectuate contracts of insurance without being licensed, as long as that person is accompanied by a licensed and appointed agent.

*Joint and Full Survivor

- Designed for two people - When one spouse dies, the remaining one still receives same original payout. - 2 variations: "Joint and two thirds" and "Joint and one half" (the survivor receives a reduced amount of the annuity if the other spouse dies)

*Vending Machines~

- Direct selling - (A method of distribution) - Generally limited to travel accident insurance , supplemental health or disability policies, or life insurance policies with a small face amount.

Types of Health Plans

- Discount medical plan - HMOs - PPOs - EPOs

Term Life Life Insurance~

- Does not include a savings plan - Lasts for only a set amount of time - An individual with a low income and high insurance needs should buy term insurance. It has lowest cost to benefit ratio

*Domestic, Foreign, and Alien companies

- Domestic: in the state being discussed - Foreign: outside the state but inside the US - Alien: outside the US - E.g. New Mexico, Guam, & Puerto Rico (outside the state we're discussing, but inside the US - foreign)

ERISA

- Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans. - Designed to protect group plan participants, establish pension equality, and mandates strict reporting and disclosure requirements - ERISA's presence guarantees the employees that their rights and money are protected while participating in their employer sponsored plan. - Participants are always aware of any changes in benefits, coverage and performance ahead of time and it gives them time to adjust accordingly. - ERISA entitles the plan participants the right to sue the company over benefits and breaches of fiduciary duties. - If your company goes bankrupt, ERISA can guarantee certain benefits

Conditions of insurance policies:

- Entire contract provision - Insuring clause - Free look provision - Consideration clause - Grace period provision - Reinstatement provision - Policy loan provision - Incontestable clause

EPOs

- Exclusive Provider Organization - An insurance plan that allows access to health care from a network physician, facility or other health care professional, including specialists, without designating a Primary Physician or obtaining a referral - There is no claim forms or bills. - Benefits are available for office visits and hospital care, as well as inpatient and outpatient surgery. - Does not provide out of network.

Situations for the Replacement Rule where new life insurance is purchased:

- Existing insurance is lapsed, forfeited, surrendered - Existing insurance is converted using the non-forfeiture options of either paid-up extended term - Cash values subjected to extensive borrowing - The policy is continued at a lower face amount

Special Situation Whole Life Insurance Policies:

- Family Plans Policies - Multiple Protection Policies - Joint Life Policies - Juvenile Insurance - Credit Life Insurance

Medicare Supplement Policies

- Fill in and pay for charges that are not covered by Medicare. - Insurers may offer policies that contain only the core benefits - Insurers are required to issue all policies on either a guaranteed renewable or noncancellable basis - If the policy has been in force for 6 months, the insurer is prohibited from excluding any preexisting conditions - *Which plan does not cover Part A deductible? (Plan A!)

Individual Uses of Life Insurance (what people need the policy benefits for):

- Final Expense Fund - Housing Fund - Education Fund - Monthly Income - Emergency Fund

401k

- For employees in large profit making companies - Employer-sponsored - The company matches to some extent the contribution of the employee. - Money comes be before tax income so will be taxed until withdrawals - A salary reduction plan where the salary is reduced immediately before any other deductions are taken. - There are contribution limits - Employees cannot withdraw funds from their plan before age 59 1/2 - Required to start withdrawing at age 70 1/2

403b

- For employees in not for profit companies - Salary reduction plan

Change of Occupation

- For health insurance, companies are more worried about occupations. - Worried people will change to a more dangerous occupation without notification - If there is a claim after switching to new occupation, the company will recalculate benefits based on new occupation rate.

To be qualified to sell Long Term Care insurance in California, agents must comply with:

- For licenses issued before Jan 1 1992, 8 hrs before each renewal can take place - For licenses issued after Jan 1 1992, 8 hrs of training for the first 4 we month periods from the date of license issuance, then 8 hrs before each renewal. - Non resident licensees file with the INsurance Commissioner and have Commissioner approve education requirement

Payor of Last Resort

- For people who ca't obtain coverage from usual providers due to health reasons - It's coverage for people who can't be covered in any other way

Other types of group life insurance:

- Franchise Life Insurance - Group Credit Life Insurance - Blanket Life Insurance - Multiple Employer Trusts - Multiple Employer Welfare Arrangements

*Retirement plans

- Given favorable tax treatment in order to encourage the general public to save for the future - *Retirement plans are regulated by ERISA; not regulated by the states

Group Credit Life Insurance

- Group policies are sold to banks or car dealerships by an agent - The loan officers at the bank or dealership have their customers initial they they wish to have a group policy - (Loan officers don't need insurance license. Agents selling policies do) - Usually specifies the minimum number of individuals that can be written (ten persons is referred to as a "true group"; less than 10 is referred to as a baby group) - Provides a "master policy" to the administrator of the group and a "certificate of insurance" to each member - Usually not requiring evidence of insurability from individuals within the group ! Written on a contributory basis (e.g., employer and employee pay for the premium) or noncontributory basis (only the employer pays; the employee does not contribute) - Requires 100% participation by employees for noncontributory plans and 75% participation by employees for contributory plans - Individual underwriting usually not required and coverage usually guaranteed issue - Usually has a grace period of 31 days - Premium based on average age of group - Has a two year incontestability period applicable to the sponsor (employer, association, union, etc.) - Plan of insurance is usually one year renewable and convertible term insurance

Policy Riders:

- Guaranteed Insurability Rider - Waiver of Premium Rider - Automatic Premium Loan Rider - Payor Provision or Rider - Accidental Death Benefit Rider - Cost of Living Rider

Fixed Deferred Annuities

- Guaranteed principal: You can't lose your money unless the insurance company fails, which is unlikely if it has a strong financial rating. - Guaranteed minimum interest rate: Your money never earns less than this rate, even if the insurance company reserves the right to reduce the rate it gave you in the first year. - Annual withdrawals: Most contracts let you withdraw up to 10 percent of the value of the annuity every year with no penalty. If you're younger than age 59-1/2, however, you may owe an IRS penalty. - Surrender period and surrender charges: This is the waiting period (one to ten years in most cases) during which you can't withdraw more than 10 percent of your money per year without a penalty or adjustment. - Death benefits: If you die while owning the annuity, your money (including the interest you've earned up to your death) goes to your beneficiaries. If you want, you can change the beneficiary after you buy the contract. - Income option: You can convert the value of the fixed annuity to a guaranteed income stream (regular payments to you) for a specific number of years or for as long as you (or you and your spouse) are living. - Premium requirements: The minimum initial investment for a fixed annuity ranges from $2,000 to $100,000. You can purchase a single-premium contract with one payment or a flexible-premium contract with ongoing payments. If you send in more than one premium, each premium may require the purchase of a separate contract.

Ways Term Life Insurance can be renewed:

- Guaranteed renewable - Annually Renewable Term (ART) ~ automatic method - Reentry option

*Penalty for transacting insurance without a valid insurance license?

- Guilty of a misdemeanor (Acting in a capacity that requires an active license without having a valid license) - Fine up to $50,000 - Up to 1 year in jail

Unfair trade practices: Unfair claims settlement

- Handling claims poorly - Resisting, denying or delaying valid claims

Physical Hazard

- Has to do with the body. - Is the body going to live a normal length of time? - Are there negatives due to health issues, hobbies, or profession?

Characteristics of variable policies:

- Has to guaranteed cash value because money is invested in the market - The agent needs a securities license to sell these products because the products are dually regulated by the state and by the SEC

*Eligible Groups

- Have to be natural group and not fictitious (didn't form for the purpose to buy insurance) - Single employer group - Multiple employer group - *Labor Unions - Trade Associations (has to be a natural group and been in existence for 2 years) - Creditor/Debtor groups - Fraternal organizations

Insurable Interest

- Having a family or financial connection. The owner/beneficiary must suffer in some way if the insured dies. - *Therefore the OWNER must have insurable interest

In order to remain solvent, the insurer's requirements by California Code are:

- Having enough assets to provide for its liabilities and reinsurance for all outstanding risks - To be solvent, the insurer's assets must EXCEED its liabilities, not just meet them - Must also meet minimum requirements of paid in capital

*Grace Period Provision

- How long can the client still keep their policy without paying their premium. - If a client has a claim within the grace period, the company pays the client but will subtract for the amount of the premium that should have been paid.

Two methods of determining insurance need:

- Human Life Approach - Needs Approach

Incontestable Clause

- If after 2 years have passed and then the material misstatement, concealment, or fraud was discovered, insurance companies cannot contest the claim. - It is 2 years from the issue date - 3 exceptions: Impersonation No insurable interest Murder

Whether policy is taxed when it's cashed in depends on:

- If amount paid in premium is less than cash value received, the difference is taxable. - If the amount paid in premium is more than cash value received, no tax is due.

Tax treatment of policy proceeds:

- If buy policy individually, it's with after tax dollars so benefits will not be taxed. - If company buys policy, it's before tax dollars, so proceeds will be taxed.

Group Health Insurance

- If employees are no longer covered under their group plan, they have the right to a conversion privilege (still have coverage for 31 days after termination) - Employers are entitled to tax deduction for the premiums they pay to group health plans for the benefit of their employees. - Benefits received from group plans are not taxable because they are considered covering for a loss. There was no gain realized. - If group insurance pays you, can count that in computing above 7.5% of AGI - Your contributions into the plan can be used towards 7.5% AGI

Reinstatement

- If the policy lapsed because the premium wasn't paid, the policy can be restarted. - *The insured will be on probation for 10 days, only for illness and not accident. - The coverage will restart automatically after 45 days if the company ignores the insured

Waivers for Impairments

- If the problem already exists with the insured, it's possible for the insured to still be covered without including benefits for those particular problems (the client's decision)

Claims

- In LIFE insurance: we have one claim - In HEALTH insurance: we have multiple

*Profit Sharing Plan

- In a money purchase pension plan, employers are required to contribute a fixed percentage of each eligible employee's salary annually to each worker's separate account. - The contributions are tax-deductible to the employer and tax-deferred for the employees. Investments grow tax-free until money is withdrawn in retirement. - A plan that gives employees a share in the profits of the company. Each employee receives a percentage of those profits based on the company's earnings. This is a great way to give employees a sense of ownership in the company. The company decides what portion of the profit will be shared.

*Occupation

- In heath insurance, more concerned with occupation. - *AAA, AA, A, B and C - If the client changes to a more dangerous occupation and doesn't tell the company, the company will recalculate the benefits based on the premium rate of the new occupation.

Maternity Benefits

- In individual policies, may be available and can be added if desired - In group policies, maternity benefits must be offered

Uses of Life Insurance

- Individual uses - Business uses - Main reason for life insurance is to provide for missing income

Who can be a beneficiary?

- Individuals - Businesses - Trusts - Estates - Charities - Minors - Classes (a group of people e.g. children of the insured)

Agency licensing

- Insurance agencies are required to be licensed like agents are. - A license must be obtained for each place of business where the insurance agents are employed

Policy Loan Provision

- Insurance companies allow clients to borrow from their policies if there is cash value in the policy. The loan does not have to be repaid (but you might want to because the value of the policy will gradually decrease) - Highest fixed policy loan interest rate is 8%

Certificates of Authority

- Insurance companies are required to have certificates of authority from each state they conduct business in. - Obtained in the process of becoming an approved or authorized company - For an HMO to function in a state, they must obtain a certificate of authority from the insurance department in that state

Unfair trade practices: Unfair discrimination

- Insurance is a concept of adhesion where we adhere to all of the specifications of policies as previously approved by the insurance company in conjunction with the state. - Everyone gets the same deal, no negotiating, no discrimination

Non-forfeiture Values

- Insureds have the right to the cash value of their policy if they stop their policy - The cash value can come in 3 forms: Cash Surrender Value Reduced Paid Up Extended Term Policy

4 Health Insurance Policy Provisions must needed to have a policy:

- Insuring Clause - Consideration Clause - Conversion privilege for dependents - Free look provision

*Moral Hazard

- Issues resulting from weakness of human behavior - Does the person follow rules and laws of society? - Dealing with the difference between right and wrong

Life with Period Certain

- It will pay for life unless died before the stated amount of time. - If die before the stated amount of time, then payment will end at the end of the stated time.

Part C Medicare~

- Known as Medicare Advantage - Intent is to provide Medicare beneficiaries with options

*The following information does not need to be communicated in a contract

- Known information - Information that should be known - Information the other party waives

Reinstatement Provision

- Lapsed policies can be restated even after no payment has been made (typically 3-5 yrs. up to seven years) - To reinstate the policy, the policyholder must provide evidence of insurability - The policyholder must provide evidence of insurability; pay all overdue premiums plus interest; and any policy loan must be repaid or reinstated with interest.

*Money Purchase Plan

- Money purchase plans have required contributions. That is, you, as the employer, are required to make a contribution, on behalf of the plan participants, to the plan each year. - With a money purchase plan, the plan states the contribution percentage that is required. For example, let's say that your money purchase plan has a contribution of 5% of each eligible employee's pay. You, as the employer, need to make a contribution of 5% of each eligible employee's pay to their separate account. - Fixed contributions, undefined benefits

3 Factors in Calculating Premiums:

- Mortality - Interest - Expenses

Mortality

- Mortality tables indicate how long people are expected to live - The probability of death - The average number of deaths that will occur each year in each age group in comparison to the number of living people in that same group - Mortality tables: probability of death and expectation of life

*Insurable interest must exist at which point?

- Must exist at the inception of the policy (at the time of the application)

*If meeting is in a senior's home

- Must give at least 24 hrs notice - Must state your name and producer number - *Notices given to seniors must be in 14 pt font.

*Implied Authority

- Not written but needed to perform as an agent - The agent has the right to operate in a business manner doing the things typical of any business - Implied that an agent can do something that can be done within the normal functioning of a business situation. (e.g. business cards) - A representation in an insurance contract is an example

*Irrevocable beneficiary

- Nothing can be changed without the consent of the beneficiary

Types of OASDI

- OA: to assist workers in their retirement - S: survivor benefits that are paid to the spouse and/or children if the worker dies - DI: benefit is available if the worker is disabled and qualifies for disability insurance coverage. - (up to 85% of Social Security benefits are taxable)

Government supplied insurance

- OASDI (Social Security) - Medicare - Medicaid - Military plans (SGLI & VGLI)

Four ingredients to make contract

- Offer and Acceptance - Consideration - Legal purpose - Competent parties (minor under age of 14 or 15) - It's made up of the policy and when attached, the application

Human Life Value Approach~

- One of two ways of calculating insurance need. - By discounting estimated future income - Calculating the amount of life insurance a family will need based on the financial loss that they will suffer if the insured person were to pass away today - 10X salary - Based on age, gender, planned retirement age, occupation, annual wage, employment benefits, as well as the personal and financial information of the spouse and/or dependent children.

Indemnity Policy

- Only covers for the loss. Don't know what you will get a head of time.

3 Categories of Life Insurance

- Ordinary Life - Industrial Life - Group Insurance

Term Life Insurance can be converted to Permanent Policy (pricing) by:

- Original Age Method - Attained Age Method

*Individual Retirement Plans (IRA)

- Originally set up for workers who didn't have the opportunity to contribute to major plans like 401ks - Deductible contributions and taxable distributions - You set up your own IRA (with a little help from your bank or financial planner) and deposit money into it every year. - Can't borrow from an IRA - Usually have more investment choices - things like stocks, bonds, mutual funds and Certificates of Deposit (CDs). - *No young age limit. Can start at any age. - There are contribution limits - Anyone with a reported income can have one - Workers cannot start or contribute to an IRA after the age of 70 1/2. So 70 1/2 is the latest age one may start saving in a Traditional IRA - Distributions can be taken without tax penalty after age 59 1/2

Reimbursement

- Owners are billed for the medical services they received, they pay the bill, and they are reimbursed by the insurance company - You don't know what the cost is ahead of time - E.g. of Reimbursement Policies: Medical expense policies and Medicare supplement policies - E.g. of Valued Policies: Long Term Care policies, Disability Income policies, Accidental Death and Dismemberment (know the value ahead of time)

**Illustration fact to know

- Pages must not only be numbered but numbered in relationship to the total number of pages - The applicant and agent must sign the illustration. - A copy must be left with the applicant - Another copy must be submitted along with the application to the underwriter - Illustration used must be bold and the guaranteed values and the non guaranteed values must be in standard point.

**Parts of an Insurance Application:

- Part One: General (clerical information) - Part Two: Medical History (not same as medical report) Made up of a list of medical questions - Part Three: Agent's Report - Signatures need from: Applicant, Insured, Owner, and agent

*Other premium factors to determine amount of premium charged

- Past claims experience - Age - Sex - Occupation - Hobbies

*HMOs

- Pay a fixed periodic fee - Provides both the healthcare services and healthcare coverage - Most restrictive managed care plan compared to PPO and POS - Stress preventive healthcare and early treatment - Do not have a deductible - Have a co payment system. Subscribers pay a small fee for each visit to their provider - Purpose is to provide comprehensive healthcare and keep costs down - You must choose doctors, hospitals, and other providers in the HMO network. - Your HMO will not provide coverage if you do not have a PCP. - Assigned a PCP from the network -You will need a referral from your PCP to see a specialist who is in the HMO network - *HMOs costs are less because they don't have hospitalization. They can't stay in the hospital overnight.

*Straight Life Income

- Pays the established amount for the lifetime of the annuitant - *The payout is directly related to the actuarial table on the life time. - An option if you want to start receiving payments from your annuity and avoid paying a penalty for early withdrawal

*AGENT AND AGENCY LICENSING for Life, Health, and Annuities

- People required to be licensed - Maintaining a license - Suspension, termination, revocation of license and other penalties - Unfair trade practices - Misrepresentation - *Twisting - *Churning - *Rebating - Defamation - Unfair discrimination - Unfair claims settlement - Fraud - *Sliding - *Coercion - Agency licensing

Methods of Distribution to Beneficiaries:

- Per stripes - Per capita

PPGA

- Personal Producing General Agent - an above-average salesperson with a proven sales record who is hired primarily to sell life insurance under a contract that provides both direct and overriding commissions. - The PPGA usually has contracts to sell products from many different insurance companies. - vs. GA (General Agents: primarily recruit and train)

Salary Reduction SEP Plans (SARSEPs)

- Phased out in 1997 - Contributions up to $16,500 a year with added catch up possibility for age 50 or older (applies to all salary reduction plans: 401k, Roth 401k, 403b, Roth 403b, 457) - Reduces your salary

3 Major Risk Factors underwriters consider when insuring potential client:

- Physical condition - Moral - Occupation

*Qualified Employer Plan~

- Plans certified by the " Internal Revenue Code Section 401(a)" and the "Employee Retirement Income Security Act of 1974 (ERISA)" therefore it is entitled for advantageous tax treatment, permitting employers to subtract yearly permissible contributions for every participating employee - Must be fore the exclusive benefit of employees - Life insurance benefits must be incidental to retirement benefits - Cannot be discriminatory by sex or age - Tax deferred - Tax deductible - As soon as the employee is 21 years old and has been with the company for one year or longer, must be let into plan. - *Plan cannot favor the elite (owners, officers, and highly paid people) - Two types: Defined Contribution or Defined Benefit

*Joint Life / First to Die Policies

- Policies that cover two people but pays only once - When one spouse dies, the other is the beneficiary - The surviving person can elect to continue the insurance contract as an individual without proof of insurability.

*Credit Life Insurance

- Policy used to cover a financial debt. - An individual policy covering an individual's death

*Annually Renewable Term (ART) Term Life Insurance

- Premium increases year by year based on mortality costs - Coverage is guaranteed

Graded Premium Whole Life

- Premium is reduced the first 5 years but will stair-step up over 5 or 10 years allowing people to get in at a lower starting price

*Taxation of Life Insurance

- Premiums paid by an employer can be deducted by the business - There are no current taxes as cash value build each year - Decedent/beneficiary's proceeds they receive are included in estate taxes and are taxed

*Unfair trade practices: Coercion

- Pressure to purchase - Attempting to intimidate a client into buying an insurance product

3 Categories of Beneficiaries

- Primary - Secondary - Tertiary (collects only when the primary and secondary die before the insured)

Disability policy provisions (time windows)

- Probationary period - Elimination period - Benefit period

Medicaid

- Program is designed to provide health care for poor people of all ages - Means tests: recipients have to qualify an assets test - A government program that shares expenses between the federal and state government. - 56% federal - 44% state

*Fair Credit Reporting Act

- Provides that the applicant for insurance be informed that a consumer report may be requested - A federal provision that requires privacy of a client's information - Designed to promote accuracy, fairness, and privacy of information in the files of every "consumer reporting agency" - You must be told if information in your file has been used against you. - You can find out what is in your file. - You can dispute inaccurate information with the CRA. - Inaccurate information must be corrected or deleted. - You can dispute inaccurate items with the source of the information. - It is not required that the CRA name be disclosed if you are denied coverage - Outdated information may not be reported. - Access to your file is limited. - Your consent is required for reports that are provided to employers, or reports that contain medical information. - You may choose to exclude your name from CRA lists for unsolicited credit and insurance offers. - You may seek damages from violators.

Ordinary Life Insurance~

- Purchased by one person from one agent

Health Insurance

- Purchased through individual plan and group plans - Two ways money is paid: Reimbursement Right of Assignment - Usually nonparticipating. Only have par policies in group plans

Types of Retirement Plans

- Qualified - Non Qualified

*Variable Life Insurance~~

- Regulated by the State & SEC - THe owner may balance the risk of loss with the desire for gain - The cash values are determined by the value of underlying mutual funds selected by the owner

Insurers

- Regulations are in place to make sure that companies follow state's laws and rules regarding: Investments Responding to client Handling claims in a timely fashion - Companies are required to invest in stable and long term products and cannot invest in "junk bonds" - "below investment grade" corporate bonds

*Basic Hospital Expense

- Reimburses policy owners for their hospital care. - For daily room and board - Miscellaneous expenses (various products and the use of the operating room and supplies)

Characteristics of Health Insurance:

- Renewability - Premium factors - Participating vs. Nonparticipating - Reserves - Claims

Participating vs. Non

- Stock insurance companies have non par policies - Mutual insurance companies have par policies - Par is the possibility of having dividends. - For HEALTH insurance, only have par policies in GROUP PLANS (if dividends are paid, it goes to owner of the group not the individuals)

Career agents

- Represent multiple insurance companies and work on behalf of the client to find them a policy. Non-captive agents receive the majority of their earnings through the commission of policies sold, although they may also be compensated by their sponsored agencies. - While some non-captive agents are completely independent of a primary company, most non-captive agents report chiefly to one company, As an independent agent of XYZ Company, the agent must report the majority of their business to XYZ. However, if XYZ is unable to sell a policy to a customer for any reason, the non-captive agent can then find the customer a policy through another affiliated insurer. Theoretically, non-captive agents are able to pick and choose the best policy for their clients.

Brokers

- Represents the people and finds a company to insure them - Assist prospective insureds with developing risk management strategies appropriate to their risk profiles. - *Cannot legally bind insurance - Represents the client in purchasing the insurance product

*Waiver of Premium Rider

- Rider is purchase as an option - The insurance company stops collecting the premium if the insured becomes disabled due to accident or sickness. - The premiums start up again when the insured recovers. - (Does not require retroactive pay back) - An option that may be rated or denied

Multiple Employer Welfare Arrangements

- Same as MET - But for trade unions to combine and improve pricing

Alternative methods of providing health coverage to people:

- Self Insurance - MET (Multiple Employer Trust) - MEWA (Multiple Employer Welfare Arrangements)

Home service insurers

- Sell low dollar value policies (e.g. $1000/$2000 of face amount) - Paid for by bank draft of check sent in by mail

Agent

- Sells the company's products to the public - When someone becomes an agent, they become a "field underwriter" - Develops base for long-term sources of clients by using referrals, occupational, and special-interest groups to compile lists of prospects. - Approaches potential clients by utilizing mailings and phone solicitation; making presentations to groups at company-sponsored gatherings; speaking publicly to community groups on the subject of financial well-being. - Determines clients' particular needs and financial situations by scheduling fact-finding appointments; determining extent of present coverage and investments; ascertaining long-term goals. - Develops a coordinated protection plan by calculating and quoting rates for immediate coverage action and long-term strategy implementation. - Obtains underwriting approval by completing application for coverage. - Completes coverage by delivering policy; planning future follow-up visits and evaluations of needs. - Provides continuing service by providing direct deposit forms; processing changes in beneficiary and policy loan applications. - Provides death benefits by delivering policy proceeds; reassessing client needs. - Updates job knowledge by participating in educational opportunities; reading professional publications; maintaining personal networks; participating in professional organizations. - Enhances insurance agency reputation by accepting ownership for accomplishing new and different requests; exploring opportunities to add value to job accomplishments.

*Acute Illness

- Short lived and can fully recover from - Acute conditions are severe and sudden in onset. This could describe anything from a broken bone to an asthma attack.

Preliminary Term

- Short-term insurance coverage issued to a policyholder in order to cover the risk until the date the policyholder wishes to establish at the long-term policy's anniversary date.

*What is needed for an insurance contract to be a real contract?~~

- Signature - Date -???

3 Levels of Long Term Care

- Skilled Nursing Care - Intermediate Nursing Care - Custodial Nursing Care

Spousal IRA

- Spouses can have the same dollar value in their IRA, even without an earned income as long as the family income is $10,000 - Allows a working spouse to contribute to a nonworking spouse's retirement savings. - The working spouse's income, however, must equal or exceed the total IRA contributions made on behalf of both spouses. - While IRAs cannot be held jointly in both spouse's names, spouses can share their account distributions in retirement.

HICAP

- Stands for Health Insurance Counseling Advocacy Program - Serves people needing information about Medicare - Does not sell or endorse any specific type of information

*Roth IRA

- Started in 1997 - Non deductible contributions and tax free distributions - The employee can contribute the same amount as a traditional IRA but cannot deduct it off his/her taxes - Uses non deductible contributions - The money accumulated in the plan is tax free - The amount contributed into the plan is called the principle and it's with after tax dollars so it's not taxed - The interest generated in the plan is not taxed either - Can be started at any age with no requirement to as the when to start distributing money. It never has to be taken and can be left for beneficiaries.

State Insurance Departments

- State departments of insurance are responsible for monitoring companies, agencies, agents and providing the public with assistance. - They don't make the laws. - *The insurance departments and their CFOs make rules but not laws. - The state laws are written by legislators. - *(FTC) Federal Trade Commission isn't involved at all.

Unfair trade practices (an insurer's violation of federal laws)

- State have adopted NAIC's unfair trade practices act - This gives states the power to investigate insurance companies, issue cease and desist orders, restrain insurers from using any methods that are unfair or deceptive, and to impose penalties on violators - Fine of up to $50,000 - If the violation is criminal, result in imprisonment

LAWS AND RULES PERTINENT TO LIFE AND HEALTH INSURANCE

- State insurance departments - Insurers - *Marketing practices - Code of ethics - Policy clauses and provisions - Group life - Par and non part policies - Retirement plans - Flexible life products - Medicare - Payor of Las Resort

Par and Non Par Life Policies

- Stock companies sell non par policies - Mutual companies sell par policies - Par means the policy owners participating in the experience of the company - Par policies cost more - Par policies have dividends - Dividends are not guaranteed

Basic Surgical Expense

- Surgeon and anesthesiologist priced together - 3 ways to cover costs: Surgical schedule (sample of procedures and what the policy will cover) Reasonable and customary (based on geography) Relative value scale (system of points)

Annuity Features (of ALL types of annuities)

- Tax deferred - Protected from suit (401k, 403(b), IRA - Earn a greater return than a savings account

*Income tax treatment of annuity benefits

- Tax deferred until payout time. At that point you do the tax calculations - Taxes are based on the exclusion ratio. - Need to figure out each time receive annuity check, how much is excluded from taxes - Exclusion ratio: the amount of money George put into the annuity, divided by what he expects to receive in return if he lives to exactly what the mortality table indicates. - The fraction applies to every payment you receive. - Take the payments X12, then multiple by the fraction. Then you will know how much can be excluded from the yearly payout. The rest is taxable. - *There is a penalty if withdraw money sooner than age 59 1/2. You lose 10% of whatever is withdrawn that year.

*An agent's appointment with an insurer will be discontinued if any of the follow circumstances occur:

- The agent's insurance license expires - The agent quits working for the insurer - The insurer files a notice to terminate the appointment

Cash Surrender Value

- The amount of accrued cash value in a policy that would be payable to the policy owner at surrender of the policy minus any surrender fees - Must be available to the insured within 6 months

*You're denied of a license without a hearing if:

- The applicant has been denied a license in the past 5 years - The applicant has had license revoked in the past 5 years - The applicant has been convicted of a felony (but not a misdemeanor - will go to trial)

Fixed Annuities

- The cash value is included in the company's general account - The deferred variety accumulate regular rates of interest and the immediate kind make fixed payments (determined by your age and size of your annuity) during retirement. - There is a guaranteed rate of return - Tax deferred - Protected from suit (401k, 403(b), IRA - Earn a greater return than a savings account

Variable Annuities

- The cash value is invested in equity investments such as mutual funds (knows as separate accounts. ) - Have no guaranteed cash value at any point during the accumulation period or the annuity period. - Developed as a hedge against inflation - The agent is required to have a Series 6 securities license - Must calculate units during the lifetime of this product. "Accumulation units" and "Annuity units" - During the accumulation period, the number of units is increasing and each unit 's value varies as the market varies. - Regulated by the state and the SEC - Tax deferred - Protected from suit (401k, 403(b), IRA - Earn a greater return than a savings account - Does not have an option for lump sum payout

Cancelable

- The company can cancel at any time they wish, and for any reason. - They can also raise the premium on any one individually at any time

Optionally Renewable

- The company can cancel on an anniversary date - They can raise the premium but only on the whole group of people that are buying that policy

Guaranteed Renewable

- The company can't cancel except on reaching a date in the future such as 60 or 65. - Can't raise the premium except on the whole group of people that are buying the policy

Non-cancelable

- The company can't cancel the policy - Can't raise the premium

Physical exam and autopsy

- The company has the right to require a physical exam or autopsy during the claim investigation. (companies have to pay for it) - *How often can the company require a physical exam? (as often as necessary!)

*Partial disability

- The company is helping the policyholder back to work by supplementing salary. - *If the doctor says you can go back to work half time, the company can cover for the other half. - Generally a short term benefit

Stock Companies

- The company is owned by stockholders - Major purpose is to create a profit - Company does this by selling insurance products to the public with competitive pricing. - At end of the BOD declares dividends to the stockholders from the profits of the company. - Dividends are taxable because they are a return on the stockholder's investment

Conformity with state statutes

- The company will conform to whatever rules and laws the state requires. - There are differences between states and this allows the flexibility for the policy to disagree with state regulations. - The state regulations will take precedence

*Whole Life Life Insurance

- The coverage is for a person's whole life - The cash value grows over a person's whole life - The premium is paid over a person's whole life. - Has a savings portion (the cash value)

Contract must have consideration. Which includes?

- The initial premium - The application

Social Security Rider

- The insurance policy kicks in first because Social Securities benefits start slowly. When SS disability kicks in, the company looks at how much the insured is receiving from SS and how much the insured can receive from the company. (60%) If the insured qualifies for Social Security disability

Grace period

- The insured is given a small window of time where they still have the policy even if they haven't been paying the premiums. - If someone has a claim during the grace period the company pays the claim but will subtract for the premium that was due.

Fixed Amount Option

- The insured wants a set dollar amount monthly. - Money will be paid out until it runs out

*Money can withdraw from IRA before 59 1/2 if:

- The owner dies or is disabled - The owner has a certain amount of qualifying medical expenses - Higher education expenses - First time home purchase expenses up to $10,000 - Health insurance premiums while unemployed - If distribution started in equal payments over the insured's lifetime - To correct or reduce excess contributions

Rights of ownership

- The owner has all the rights. - The owner can: assign or change a beneficiary, decide on how the proceeds will be paid, cancel the policy, take out a loan against the policy, receive policy dividends if policy is from a mutual company, assign ownership to someone else

*Payor Rider

- The payor is the adult who's buying the child's policy. - If the adult is disabled due to accident or sickness, or dies, the company discontinues collecting premiums until the adult gets better or the child turns 25.

Family Income Plan

- The policy will pay for as long as you're alive - Uses a decreasing term insurance to add to a basic whole life policy - Pays out the annual required benefit. So if you wanted 30,000 per annum you took the plan out with that level of sum assured and then if the worst happens the plan pays out 30,000 per annum. - Does Indexation. This meant that each year the value of the benefit actually increased to ensure that if and the when the worst actually happened the amount your loved ones would receive would be the right amount regardless of how high or low inflation had been. Furthermore once claimed it would continue to rise with inflation making sure that continued to maintain that value from the benefit.

*Modified Whole Life

- The premium is reduced alot the first 5 years. Then it goes back up to the regular price for the remainder of the lifetime. - Allows people to get in at a lower price in the beginning.

Elimination Period

- The waiting period BEFORE benefits begin - Like a deductible but in terms of days instead of money. - Self chosen by the policy owern - The higher the number of days, the lower the premium.

Part B Medicare

- There is an annual deductible and co-payment - It is paid entirely by FICA (social security) payroll taxes - It provides some coverage and benefits for most medical expenses not covered by Part A - There is a charge for coverage, a monthly fee - *A supplementary program to cover the costs of care received from physicians, surgeons, and other health services - Primarily covers people - Voluntary - If senior makes more than $85,000, the fee increases

Non Qualified Retirement Plan

- These plans are financed by employers therefore are flexible compared to "qualified retirement plans" however do not include tax benefits that "qualified retirement plans" offer. - Benefits, structured in annuities form, are paid generally at retirement age and are "taxed" just like "ordinary income tax"; or in "lump sum" or one single payment that may be transferred or changed into IRA so to suspend or defer taxes.

*What are dividends?

- They are not taxable and are a return of overpayment of premium

Buy/Sell Plan

- To cover financial losses due to the loss of a partner - An agreement between the partners in the business to cover for the value of stock owned by that partner - The agreement is done in writing, in case of tragedy, all details worked out in advance. - The beneficiary of the deceased partner receives the dollar value of that partner's share in exchange for the stock.

Purpose of Disability Income Insurance

- To cover for missing income - Benefits are usually in the form of monthly payments to the disabled individuals

Residual disability

- To cover for policy owners who can't ever get back to work in the same position - Long term benefit

Uses of Annuities

- To provide income for retirement - Saves during working years and receives payout over retirement years - Only type of investment based on length of lifetime - Saving for college - Use as a vehicle to defer tax

Physical condition

- Underwriter is attempting to determine if the applicant will be as healthy as an average person - If not, the applicant can be rate and would charge a higher premium

Family Maintenance Policy

- Use level term insurance which is added to a basic whole life contract - An insurance policy that pays the beneficiary an income from the date of the insured's death for a stated timeframe. When this is over, the face amount of the policy is paid out to the beneficiary. - If an insured dies after the end of the selected period, the beneficiary receives only the face value of the policy.

*Attained Age Method

- Use whatever age the insured has reached at the time of the conversion as the set age of the permanent one

Decreasing Term Life Insurance~

- Used for covering mortgages and other financial debts - The coverage gradually decreases

*Automatic Premium Loan Rider

- Used if the insurance company loses the client because the client's checking account was closed and the insured did not notify the company - First they try to find the client, if they are unable, they take the premium out of the cash value as a loan until they can find the client. - Does not work with term policies (policy must have cash value to work)

Increasing Term Life Insurance~

- Used to hedge against inflation, increased family responsibility, or increased income expected - The coverage gradually increases

Inspection Reports

- Used to provide a picture of the applicant's character and reputation - *Information on the prospective insured's lifestyle - Contains information about assets, liabilities, and their mode of living. - The more insurance coverage, the more involved the report is. - Assets and Liabilities are listed

*Original Age Method

- Uses the insured's starting age of the term policy as the set age of the permanent policy

Benefits of Disability Income Insurance

- Usually uses 60%, a maximum percentage benefit based on gross income. - Premiums are paid with after tax dollars so the benefits are tax free. - (Premiums are however not deductible) - *Which definition is better for the client, "any" occupation, or "own" occupation? (own!)

Disability Insurance Policy Riders

- Waiver of Premium Rider - Social Security Rider - Cost of Living Adjustment (COLA) Rider - Guaranteed Insurability rider

Policy exclusions (will not be insured):

- War: if the insured is killed in a war zone - Aviation: will not cover death on an airplane - Hazardous occupation or hobbies - Commission of a felony: insured committing a felony at time of death - Suicide: will pay after 2 years of holding the policy

Defined Benefits Plan

- What the company is doing for its employees later - In a defined-benefit plan, the employer guarantees that the employee will receive a definite amount of benefit upon retirement, regardless of the performance of the underlying investment pool. - *Defined Benefit Pension plan commences at age 65 - Usually have an agreed early distribution date (often age 55) which allows the employee to take a reduced amount of benefits as an annuity without penalty. Otherwise distributions are generally not permitted in DB plans.

*Defined Contribution Plan

- What the company is doing for its employees now - a fixed contribution (percentage of total paycheck or a fixed sum) is made per pay period - In a defined-contribution plan the employer makes predefined contributions for the employee, but the final amount of benefit received by the employee depends on the investment's performance. - 3 types: *Profit sharing Stock bonus Money purchase (Pension plan is NOT a type of Defined Contribution Plan) - Have a 10% penalty for withdrawals before age 59 1/2 except for allowed contributions

*Express Authority

- What the contract spells out - Kind of authority that is expressed within the contract between the agent and the agent's company

*Apparent Authority

- What the public assures the agent possess - Authority that is granted to the agent as an employee of the company

Entire Contract Provision

- What you see is what you get - Everything in the policy is a description of the way the policy functions, and the company cannot refer to an outside document. - Everything has to be stated within the policy

*Group life

- When a policy covers a group and the company is discontinuing the coverage because the contract was not renewed, it's the COMPANY's responsibility to notify the members of the group of the expiration of the policy. - Two way to notify: 1. Advising people in group directly 2. Advising the employer, and the employer advises the employee - Group policies have conversion plans where they have the right to convert to an individual policy if no longer wish to be included in group. (COBRA is staying with the company plan)

Conversion privilege for dependents

- When dependents are in a policy, they have the right to convert and purchase an individual policy as a result of, divorce, death, or children becoming too old to remain in the policy - Must receive written application and the first premium for the individual life insurance policy within 31 days after the insurance under the Policy ceases. No evidence of insurability will be required.

*When is an applicant considered covered?

- When the insurance company mails the policy for delivery and at least one months premium is submitted with the application

*Simultaneous Death (Uniform Simultaneous Death Act)

- When the insured and the beneficiary die at the same time, the insured person died last. - Even after 14 to 30 days, the Insured is still considered to have died last - If we know who died last, go to "Common Disaster Provision" where the insured still dies last - This prevents the proceeds going to the estate of the primary beneficiary

*What is the Common Disaster Provision?

- When we know who died last but the insured is still considered to have died last. - When the beneficiary dies 30 days AFTER the insured, the insured is still considered to have died last.

1035 Exchange

- When you cash in your policy, you can move the cash value from it to the cash value of an annuity. - Money is tax deferred until you take the money out of the annuity for good. - This only works from a Life Insurance Policy to an annuity or from an annuity to an annuity

*Family Plans Policies

- Where all members of the family are in one policy. - The primary person has a permanent policy and the spouse and children have level or decreasing term riders. - A policy that is sold in proportioned units to cover an insured, spouse and children - Child rider: a term insurance. Child riders last until your children are a certain age, then it expires. Depending on the company, it ranges from ages 21-25. After your child rider expires, you have to purchase an individual life insurance policy if you want to continue coverage.

*Multiple Employer Trusts (MET)

- Where all small employers are able to purchase insurance at a better rate - (They were already qualified as a small employer)

*Vesting

- Where the company can match funds contributed by the employees - Companies can decide what percentage of an employee's contribution will be matched

*Per Stripes

- Your immediate surviving family will receive equal share - Your grandchildren's generation will split the share of their deceased parent

Custodial Nursing Care

- Zero hours per day of professional nursing care. - Have floater people who are not assigned to anyone in particular but are ready to cover for problem when they arise.

Social Insurance Benefit Rider

- a Social Insurance Benefit rider pays a monthly disability income benefit only if Social Security does not pay. If and when Social Security disability benefits are payable, some or all of the benefits under these riders cease. - 2 Types of riders: Social Insurance Substitute rider Social Insurance Supplement rider

*Know what type of information is considered under each part of the application

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*Know what type of information the MIB gathers and discloses

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*Non-participating Whole Life Insurance

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*Question on insurable interest and who has insured interest in the other

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*The agent has 21 calendar days to get the required information to the DOI concerning a claim

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*Variable Universal Life Insurance~~

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*What are unfair methods of competition?

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*What does it mean to be the "owner" of a life insurance policy

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*What if the primary beneficiary dies before the insured? The second beneficiary gets it?

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*What is an irrevocable beneficiary allowed or not allowed to do?

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*What kind of information is in the agent's report?

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*When does the second beneficiary get to have the proceeds?

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*Which is not one of the occupation ratings?

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*Which of the following is not one of the major risk factors used by underwriters?

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*Who has the right to change the beneficiary on insurance policy?

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*some question about the size of font it has to be for seniors

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ACCIDENTAL DEATH & DISMEMBERMENT (HEALTH)

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Asking about marital status is discriminatory.

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At which point does the insurance contract become binding?

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BEGINNING OF HEALTH INSURANCE

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Health Insurance vs. Life Insurance

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If someone commits suicide within two years of purchasing a policy, the total of all premiums paid will be return and nothing more.

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Integrated Deductible~

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Managed Care Plans

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Private Fee for Service Plans

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Some question about having a rider where you don't need to prove insurability?

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Something about the contract being mailed out is it considered binding from time it left the office, time it was stamped at the post office, or time received

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Unfair trade practices: Fraud

Companies have 2 years in which to contest data supplied

Reinsurers

Companies that take part of the risk of insurance companies. (The company that is taking a part of the risk)

EPOs

EPO is an HMO that is sponsored by an insurance company