Fl Life, Health and Annuities Licensing 2-15
Consideration
in exchange for a member's premium the insurer promises to pay when there is a loss.
Medical information bureau
A non profit data collection agency supported by over 700 insurance companies. - reliable source of applicant information - keeps members from concealing or lying about their health
Perils, hazard, risk
A peril is the cause of a risk. A peril is the immediate specific event causing loss and giving rise to risk. When a building burns, fire is the peril. A hazard is the source of danger. The hazard is the underlying factor behind the peril that leads to the probability of a particular loss to the insurer. It is the active ingredient that could create a peril, which could then lead to a particular loss event
Fiduciary
A person who holds a position of special trust and confidence. Example: when they accept premium payments on behalf of the insurer that person is a fiduciary.
Acute illness
A serious condition such as pneumonia or influenza from which the body can fully recover with proper medical attention
Representation
A statement made by the applicant that they believe to be true
Joint and full survivor annuity payments
A two person annuity. - one person dies survivor gets income payments. - last person dies, benefit payments cease
Equity indexed annuities
A type of fixed annuity. - higher returns than a fixed annuity, but still guaranteed money returned. - tied to the S & P 500 composite stock price index
Agent vs broker
Both are known as producers. Agent: tied to an insurance company. Broker: represents the buyer and can sell many insurance carriers
Captive or career agent
Can only sell one companies insurance policies
Sliding
Selling an ancillary product by saying it is required when purchasing insurance, or that it is free when there is actually a premium.
Minimum age in Florida to sign life insurance application
15
Under NAIC uniform policy provision, how long does insured have to notify insurer of claim?
20 days
Maximum death benefit from social security
$255
3 incompetent applicant possibilities for a contract
- minors - mentally infirm - drunk or high
The fair credit reporting act of 1970
- protects an individual's right to privacy - law requires fair and accurate reporting of information about consumers - insurance must inform applicants about any investigations - if something is used to deny or charge higher rates, applicant must be given the name of the reporting agency
Nonforfeiture option
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Three elements of an insurance contract to make it legal
1. Consideration 2. Legal purpose 3. Have competent parties
Three situations where incontestable Claus doesn't apply
1. Impersonation 2. No insurable interest 3. Intent to murder
In Florida an agent is required to deliver the applicant what?
1. Life insurance buyers guide. 2. Policy summary. Usually given before the first premium payment
three factors that are considered when computing premiums for life insurance
1. Mortality - accurate prediction of mortality 2. Interest - premiums are invested 3. Expense factor
Two key formulas to remember for life insurance premiums
1. Net single premium = Mortality Cost - Interest 2. Gross Premium = Net Single Premium + expenses
Two things that are the foundation of an effective sales presentation
1. Uncover the needs of the prospect. 2. Help them solve financial problems.
Applicants have how many days to inspect a delivered application?
10
If agent doesn't notify the state within 60 days of a change, they are fined:
$500 for subsequent offenses
Under the Unfair Trade Practices act, insurers must pay claim within this time frame if not contesting
45 days
How long does a company have to provide a summary of information used to make an adverse determination?
5 days.
The statute of limitations to sue an insurer after providing proof of loss
5 years
Age to withdraw from annuity without 10% tax
59.5
Agents have how long to notify the state of a change in address, name, etc
60
Incontestability Clause
A clause in most life insurance policies that prevents the provider from voiding coverage due to a misstatement by the insured after a specific amount of time has passed. A typical incontestability clause specifies that a contract will not be voidable after two or three years due to a misstatement.
Aleatory contract
A contract that: - there is an element of chance for both parties - dollar values exchanged may not be equal. Ex: member pays premium but may not receive benefit for a long time.
The annuity rule
A fraction of the death payment made monthly is considered a return of principal and not taxable - interest made off of balance is taxed
Cliff vesting
After 5 years an employee is 100% vested
First dollar insurance
Aka basic medical expense insurance. Pays benefits up from without the patient having to first pay deductible.
Cash values for whole life
Aka cash surrender value - the amount of money the pH will get if the policy is canceled
Participating companies
Aka mutual insurance companies - policyholders are both customer and owner - money left over after cost of business is partially refunded
Single premium immediate annuities (SPIAs)
Annuitant makes a one time payment, with first payout to start one month later. ! Annuities cannot both accept premiums and payout income at the same time!
Adjustable life
As financial needs change, pH can make coverage adjustments 1. Increase or decrease premium 2. ditto - the face amount 3. Ditto - the period of protection
Financial Services Modernization Act of 1999
Banks, retail brokerages, and insurance companies can now enter each others line of business
Endowment life policies
Cash values grow at a rapid pace so that policy matures on a specified date
Independent agents
Cell all plans, Blue Cross Blue Shield, Humana, etc
Conditional receipt
Certain conditions must be met in order for insurance to go into effect - given following payment of the first premium by the insured
Graded premium whole life
Cheap premiums to start off, gradually get more expensive until it plateaus
Chronic condition
Conditions such as arthritis heart disease or hypertension that are treatable but not curable
The McCarron - Ferguson Act of 1945
Continued regulation of insurance by the states is in our best interest. Result: each state revised its insurance laws to conform to federal law
Policy true effective date
Date the insurer accepts an offer by the applicant as written
Universal life death benefit: option 2
Death benefit = Face amount + cash value
Life insurance described as investment
Do not imply this! Life insurance is a means of protection not investment.
Increasing term insurance
Dollar amount paid out after death increase over time
Decreasing term insurance
Dollar amounts paid out after death decrease over time.
Fixed annuity
Dollar premiums are invested in conservative long term securities. - guaranteed rate of return - interest rate is set and guaranteed to be no less then a minimum rate Downside: fixed dollar amount paid out losers buying power due to inflation
A complete review of an HMO is done how often
Every 5 years
Flexible premium deferred vs single premium deferred annuities
FPDA : premiums are paid periodically SPDA : premiums are paid in one lump sum Both payout in a future date
FICA
Federal Insurance Contributions act
FAIFA
Florida association of insurance and financial advisors. Oversees all life agents.
What is FIGA
Florida insurance guaranty association
Legal purpose
For a contract to be enforceable in court the object of it and its intent must be legal.
Deferred annuity bailout provision
I can cash out my annuity without penalty if the interest drops below a certain point.
Per stirpes distribution
If a beneficiary of a policy dies, the original policy proceeds will be passed down to the beneficiaries living kids
Assessment mutual company
If premiums don't cover cost of losses, co. Can assign further premium charges. Two types that are based on how premiums are charged - pure assessment company: Premium is only paid when loss occurs - advanced premium company: premium is paid at start of policy, money left over is refunded after insurer adjusts for cost of business
Uniform simultaneous Death Act
If the insured and primary beneficiary are killed in the same accident and there is not sufficient evidence to show who died first: 1. Then benefits are to be distributed as if the insured died last
Joint life policy
Life insurance covering two or more people - survivors after someone dies have the option of purchasing individual insurance - ages of the people are averaged and one premium is charged per person
7 pay test
If the total amount paid by pH into a life contract during its first years exceeds Bassam of the net level premiums that would have been payable to get paid up future benefits in 7 years then the policy is a modified endowment contract Ex: member has $100,000 life policy 1. Yearly premium set at $7500 2. Member pays that amount the first year 3. Second year member pays $10,000
Cash surrender nonforfeiture options
Immediate cash payment of the cash value of plan - insurers must allow after 3 years for whole life and five for industrial insurance
Warranty
In insurance a warranty is a statement made by the applicant that is guaranteed to be true. - if found to be untrue can cause a contract to be terminated
Level premium funding method
In the early years of life insurance policy, Premium is higher. Later in life, the fixed premium is lower. ! Averages out!
Reinsurers
Insurance for an insurance company
Grace period provision
Insured has 30 days past due date to pay premiums
The USA vs the southeastern underwriting associations of 1944
Involving the US Supreme Court, which ruled that selling insurance is interstate commerce - did not strip state power to regulate, what did align state laws with federal law
Paul verses virginia 1868
Involving the US Supreme Court. - ruling: sale of insurance is not interstate commerce, therefore states rights to regulate insurance was upheld
Modified endowment contract
Life policy that meets the 7 pay test - any amount withdrawn or loan from the life policy is taxed - first as normal income - second as return of premium, if there is any game in the contract over premiums paid
Loan vs withdrawal
Loan: can be paid back or deducted out of death benefits Withdrawal: deducted immediately out of death benefits, generally only allowed with universal life and vul policies
Variable life
Long term life insurance, money is kept in a separate account with insurance Co 1. Money is invested in riskier assets than whole life 2. Cash value rises or falls based on investments 3. Minimum benefit still guaranteed
Modified whole health
Lower premiums during first few years typically 5, then higher after that - makes initial purchase sexy and good for individuals with less money
Multiple Employer Welfare Arrangement
MEWA. An employee welfare benefit plan that provides one of more insurance plans to employees of two or more employers.
ERISA Savings Clause Provision
Makes clear that the federal erisa law doesn't supercede state laws
Level term insurance
Member must die within a specified period of time to get death benefits Ex: a 10 year level term pays out if member dies in those 10 years. If not, policy expires and member gets nothing
Option to convert
Member option to go from term to permanent aka whole life plan
Conditional receipt
Member pays the initial premium, on the condition that they will make it through enrollment and are eligible. - it is the ethical responsibility of the agent to explain this.
mutualization vs demutualization
Mutual: going from stock insurance company to Mutual Insurance Company. De mutual: the opposite
NAIC
National Association of Insurance Commissioners objectives: 1. to encourage uniformity in state laws and regulations 2. To assist in the administration of those laws and regulations by promoting efficiency 3. To protect the interests of policyholders and consumers. 4. To preserve state regulation of insurance business
Erisa Deemed Clause
No employee benefit plan shall be deemed as an insurance company or be in the business of insurance.
3 ways insurance contracts are different than other legally binding documents
Number one. They are aleatory. Meaning the insured pays a premium but may not receive anything back. Number 2. They are contracts of adhesion meaning the contract was prepared by one party. number 3. They are unilateral meaning only the insurance company promises anything in the contract
Group life insurance
Offered through employer and underwriting is done based on group not the individual
Flexible premiums
Once the initial premium has been paid additional premiums in the future are flexible or optional. Never imply that after first premium the policy will fund itself!
Single premium whole life
One time huge premium payment
Living benefits
PH can use the cash value of their whole life plan, withdraw with taxes and use for life expenses - cash value can be used as collateral or security for a loan
Accelerated benefits provision
Partial payment for terminally ill policyholder - the remaining amount is payable on death to beneficiary
Indemnity contract
Pay the amount of the loss only, by paying the amount necessary to return the insured back to previous condition
Multiple protection policies
Pays 2x or 3x the normal amount if death occurs during a specified period - if not, benefactor gets normal payout
Straight life income annuity payment
Pays guaranteed amount until the person dies. - no further amount paid after that. - balance left over is forfeited
Life with period certain option annuity payment
Pays the annuitant income for life, but guarantees a minimum period of payments. Ex: person has 10 year guarantee. - person dies in 6 years - beneficiary gets payment for 4 more years
Deferred annuity surrender charge
Penalty when you liquidate deferred annuity in the early years of the contract. - covers the cost of selling, issuing, and liquidating investments that were involved - typically first 5 to 8 years of contract
Cash refund annuity payment
Periodic dollar amount pay out to the annuitant. - when person dies, remaining amount is paid to beneficiary in lump sum
Installment refund annuity payment
Periodic dollar amount payout to the annuitant. - when person dies, remaining dollars paid in periodic payments to benificiary.
Straight whole health
Permanent level of protection, with level premiums for life of plan
Variable universal life
Policy blends whole, universal and variable life - minimum premium, once paid policyholder can pay whatever premium they want Key features: 1. Flexible premium 2. Cash value investment control 3. Death benefit flexibility
Florida lookback provision
Policy owners have 14 days to return the policy for full premium refund
Variable annuity
Premiums paid go into the insurance companies separate account with no guaranteed interest. - riskier than fixed annuity - must be registered with the Financial Industry Regulatory Authority to sell - annuity payments also fluctuate
annuities: funding methods
Premiums: - single lump sum payment or periodic payments over time - cashing out life insurance to make a one-time annuity premium payment
Reinstatement provision
Reinstatement after policy lapses due to nonpayment of premiums, must be done within 3 years Rules: 1. all back premiums must be paid 2. Any back interest must be paid 3. Any outstanding loans must be paid 4. May have to be underwritten
Representation vs warranty
Representation: during life insurance application, statements made by applicant are true to their best knowledge Warranties: statements made are considered to be 100% true - any wrong information is cause for void of policy
Vanishing premiums
Should never use this term! Used in the past to imply guaranteed vanishing. - crazy high requirements meant it never happened. - never state or imply that premiums will vanish or end.
Industrial life insurance
Small issue amounts, like $1000 - premiums are collected weekly or monthly by the agent at the pH house - very rare
Who governs workers comp laws
State government
Stoli
Stranger originated life insurance - investor persuades pH to take out insurance plan and name them the benefactor
Fully funded MEWA
Subject to all state laws
Self Funded MEWA
Subject to state laws that are identical to ERISA unless exempted by the US department of labor.
N a I c unfair trade practices act
The State Department of Insurance CFO has the power to investigate insurance and producers to issue cease and desist orders and to impose penalties - has been adopted by many states
Concealment
The failure of the applicant to disclose a known material fact when applying for insurance
Insurance contract is conditional in that...
The insurance company agrees to pay benefits only when there is a loss
Valued contract
The insurer pays a specified amount of money to or on behalf of the insured upon the occurrence of a defined loss. the money amount is not related to the extent of the loss. Ex: a life insurance policy is an example of a valued contract.
Express authority
The intended power given by the principal to the agent. Granted by the agency contract. Ex: agent has the express authority to solicit applications for insurance on behalf of the company.
Ordinary life insurance
The main types of life insurance in the USA. - includes many types of temporary or term and permanent insurance. - premiums are paid monthly, quarterly, semi annually or annually
Participation rates
The percentage of the interest growth that is credited back to the insured.
Revocable beneficiary
The policyholder may change benefactor whenever needed or wanted - policyholder is in control, benefactor can't force change
Net single premium
The single amount needed today to find the future benefit - the premium plus interest to pay for the death benefit - one time premium
Legal Reserve for Life Insurance company
The sum of money, along with any future expected premiums, plus assumed interest from investments that will cover cost of all their plans maturing.
Insurable interest must exist at:
The time of application
Comutative contract
There is no element of chance because dollar amount exchanged is equal Ex: real estate contract states the dollar amount to buy which is equal to the selling amount
Tax treatment of life insurance premiums
They are considered personal expenses and not deductible from gross income. Exceptions: 1. When paid by charity 2. Paid by an ex spouse as part of alimony 3. Paid by a business creditor for life insurance purchased as collateral for a debt 4. Paid by an employer for employee group life insurance
HMOs are distinct because of what?
They provide the insurance and the health care itself.
Universal Whole life
Type of whole life insurance, very flexible 1. PH can determine the dollar and frequency of premiums and upgrade or downgrade policy 2. Each month a mortality charge is taken from the cash value to cover cost of insurance 3. Can make partial withdrawals from the cash value
How long life insurance has to challenge the validity of a contract due to fraud
Typically 2 years. Can't contest- after if found out fraud occurred during application.
Extended term option nonforfeiture
Use the whole life insurance policy's cash value to purchase an extended term insurance policy in an amount equal to the current plan
Spendthrift trust clause
Used for life insurance, any proceeds paid out following a death in installments is protected from creditors
Variable annuity units
When the plan finally pays out, members accumulation units convert to annuity units. - when converted, the number of annuity units remain the same for the life of payout. - however, value of the unit can vary
Mutual insurance company as corporation?
Yes. Legally required to be incorporated to write business.
Variable annuities: accumulation units
earned during the accumulation period of the annuity. - premiums - expenses equal accumulation units. ex: in 2014 A.U. are valued at $10. - person makes payment of $200. - person has purchased 20 A.U.
Limited pay whole health
level premiums are paid for a period of time, then no premiums at all
Life insurance conversion provision
life insurance through employer, you leave an employer, in the state of Florida you can convert group plan to individual plan - guaranteed issue
Prospectus
required when presenting variable life plans - created by the Insurance Co - contains info about the nature and purpose of the plan
Viatical settlement
terminally ill life insured sells their policy 28 viatical company. -NAIC has fair pay guidelines ensuring the insured gets between 50 percent to 80 percent of the policy face value
SEC Intervention
the issue was variable annuities. Question: are these to be state or federally regulated. Ruling : federal securities laws apply to these insurers, thus they must conform to both sec and state regulations.
FTC intervention of 1958
they sought to control advertisements and sales literature The US Supreme Court held that the McCarron - Ferguson Act made that illegal