Life & Health Insurance - Alabama

Last year Wendell, age 57, withdrew $1,500 from his IRA, which consists entirely of pretax contributions. In addition to including that amount in his taxable income, he has to pay a penalty of:

$150. pay a 10% penalty.

Alberto falls from his ladder while hanging holiday lights around his house. He breaks his arm and files a claim for $3,100. His health insurance premium which is $310 is due at the end of the month and has not yet been paid. How much of the benefit will be paid, assuming no deductibles or coinsurance?

$2,790. Under the optional "unpaid premium" provision, if a premium is due at the time a claim is made, the amount of the premium will be deducted from the total amount paid on the claim

Roberta is the insured in a $30,000 life insurance policy for which she pays an annual premium of $700. There is an outstanding policy loan of $2,500. Her last premium due has not been paid and she dies during the grace period. How much will her beneficiary receive?

$26,800. $30,000-$700-$2500

Things to know about insurable interest

- a risk of loss (assumed in one's self and relationships) - must be proven before policy can be purchased - the relationship doesn't have to exist at death

In traditional whole life the death benefit...

- amount at risk to the company - plus cash values

What are the premium mode options?

- annual (lowest) - semi-annual - quarterly - monthly

What are the underwriting sources of information?

- application (primary source) - medical exams & testing - attending physician statement (aps) - AIDS testing (applications may not ask about sexual orientation, testing is not based on geographical location, and it requires insured's written consent) - Medical Information Bureau (application CANNOT be denied solely on MIB info, insureds must be informed of MIB, and MIB gets info from insurance companies) - Consumer reports (insured must be informed) - Investigative Reports (insured must give consent)

What are the business uses of life insurance?

- buy sell funding (cross purchase or entity purchase) - key person - executive bonus - deferred compensation

What are the 6 characteristics of an insurable risk?

- calculable - affordable - noncatastrophic - homogeneous - accidental - measurable

What are the types of whole life policies?

- continuous premium - limited payment - single premium (immediate cash values) - modified premium (lower premium first 3-5 years, premium jumps once then levels off) - graded premium (initial premium lower than whole life, premium increases for 5-10 years then levels off) - indeterminate premium (premiums adjusted by the company, has a guaranteed maximum premium) - interest sensitive (has a current interest rate, guaranteed interest rate)

TERM INSURANCE decreasing term

- death benefit decreases - premium remains level

TERM INSURANCE increasing term

- death benefit increases - premium increases

TERM INSURANCE level term

- death benefit is level - premium is level for the term

Things to know about U.S. Patriot Act

- designed to prevent and detect money laundering and financing of terrorism - report suspicious activity

Characteristics of Universal Life

- flexible premium - cash account (cost of insurance withdrawn monthly, fees withdrawn monthly, current or guaranteed interest) - option A is level death benefit (insurance amount only) - option B is increasing death benefit (insurance amount plus cash account)

In traditional whole life cash values.....

- guaranteed interest - may be surrendered - may be borrowed - endows at age 100

Determining the amount of life insurance needed

- human life value (current income) - needs approach (money for specific needs)

What are the classes of life insurance policies?

- individual vs. group - term vs. permanent - participating vs. non-participating - fixed vs. variable - industrial and home service

What are premium elements?

- mortality - interest - expenses - net premium (mortality minus interest and net single)

What is gross premium?

- net premium plus expenses - gross annual

TERM INSURANCE return of premium term

- premium higher than regular term policy - premium paid by insured is paid back if insured alive at the end of the term

Things to know about ERISA

- protects participants in employee benefit plans - qualified pension plans and group insurance - reporting and disclosure information for plan participants

TERM INSURANCE FEATURES

- renewable (no new app required, new premium based upon attained age) - convertible (can be changed to permanent insurance, no new app required)

Things to know about "Statement of Good Health"

- required if no premium with application - if health changed - agent CANNOT deliver policy

What are personal uses of life insurance?

- survivor protection - mortgage payoff - estate creation - estate conservation - liquidity - cash accumulation

Things to know about the effective date of coverage

- terms of conditional receipt is issued - substandard and pays additional premium - date of policy delivery - no receipt - policy delivery date if premium paid at delivery

Things to know about Fair Credit Reporting Act

- third party info - notice to applicant required - consumers have rights and can dispute information in files - penalty: fines (max of $5,000) and/or imprisonment (one year)

What are the characteristics of a 'conditional' receipt?

-premium paid with application -insurance effective later of: date application completed and signed or medical exam (if required) -must be standard or preferred risk (can be determined after death)

A company has 1,200 eligible employees for its group life insurance program, and the company pays the total premium. How many employees must be insured to initiate the plan?

1,200. If the plan is noncontributory 100% of eligible persons must be insured.

What are the classifications of risks?

1. standard 2. preferred 3. substandard 4. declined

If an employer pays the entire premium for a group life insurance policy, the policy must insure what percentage of eligible employees?

100%. If employees contribute, only 75%

Identify the number of days the insured must do the following in this order: notice of claim, claims forms, proof of loss, waiting period for sickness claims upon reinstatement.

20, 15, 90, 10

The payment of claims provisions states that the insurer will pay the death benefit within how many days after receiving notification of the claim?

60 days

Prior to the Affordable Care Act, according to HIPAA, a newly hired worked was not subject to a waiting period if she had less than how many days between jobs with no health insurance coverage?

63 days

What does an Accidental Death and Dismemberment (AD&D) Rider do for a disability policy?

Accidents that result in death or dismemberment are entitled to a capital sum. This benefit will not be paid for a disability resulting from illness, nor would workers' compensation generally pay a lump-sum benefit.

Equity-indexed Universal Life

Equity indexed universal life works the same way as universal life insurance except the interest rate is tied to a stock market index.

A beneficiary receives the proceeds from a life insurance policy in a lump-sum payment. How will the proceeds be treated in relation to the debts of the beneficiary?

It can be subject to the beneficiary's debts and creditors. When proceeds of a life insurance policy are payable to a beneficiary but held in trust by the insurer, the beneficiary has an exclusive right to the proceeds. These payments are not subject to the beneficiary's debts and cannot be reached by creditors. The protection only applies to policies in which the proceeds are payable in INSTALLMENTS. It does NOT protect proceeds paid up in a lump sum. The protection also does NOT extend to proceeds once they are paid to a beneficiary.

Charles signs up for Medicare Part B on March 21, during the open enrollment period. His coverage will become effective....

July 1st

What is the withdrawal rule on annuity cash value?

LIFO - last in, first out. means if the policyowner takes a withdrawal, the company will give the owner interest first, which is taxable at the insured's individual income tax bracket. If the owner is not at least 59.5 years old at the time of withdrawal, a 10% penalty will also be assessed to taxable dollars withdrawn. the owner never pays taxes on withdrawing the cost basis or the money paid into the annuity.

Under what system do a group of doctors and hospitals in a designated area contract with an insurer to provide services at a prearranged cost to the insured?

PPO Preferred provider organizations are groups of doctors and hospitals that contract with an insurer to provide medical services at a prearranged cost, thus allowing insureds to choose among these groups.

Eric works for J&G corporation and is recently divorced. His 56-year-old ex-spouse, Sophie, wants to know if she can maintain coverage under Eric's group medical insurance plan. How might this situation be treated?

Sophie would be able to continue coverage for up to 3 years by paying up to 102% of the premium required for the group coverage.

John purchased a life insurance policy with a $250,000 death benefit at age 32. When John died the insurer discovered that he was really 25 years old at the time of application. How much will the beneficiary receive?

The death benefit will be increased according to how much coverage the premium John paid would have purchased had he reported his correct age.

What is one of the advantages of purchasing an individual credit life insurance policy?

The policy can continue in force even after the loan has been paid off. Another one is that the death benefit is allowed to exceed the amount of the debt or loan, unlike group life

Which cause of death is generally NOT covered by a life insurance policy?

War/military duty

Out of a local florist, a car dealership, a shoe store, and a restaurant, who is most likely to offer group credit life insurance?

a car dealership is most likely to offer this as a form of collateral which guarantees that if the owner of the care dies, the dealership, who is the beneficiary, will be compensated for the remaining balance

What is the definition of pre-existing condition in a long-term care policy?

a condition for which advice or treatment was received within 6 months before the effective date of coverage

An insurance company that transacts insurance directly with consumers without the assistance of producers is called

a direct response company

Assured Insurance Company deals directly with insureds and does not have any agents. Assured is.....

a direct writer salaried employees instead of commissioned agents

A cash value loan is.....

a loan from the insurer to the policyowner. a comparable portion of the policy's cash value is used as collateral to secure the loan

A deferred compensation plan is

a nonqualified plan funded by the employer agreements between employers and employees. funds are set aside by an employer for when an employee retires. if plan is funded with life insurance, the company is the owner, premium payor, and beneficiary of the plan and the employee is the insured. these types of plans are nonqualified because they do not meet participation, nondiscrimination, and other requirements of qualified plans

An executive bonus plan is....

a nonqualified plan in which life insurance is purchased by an employer as an alternative to paying a cash bonus. the employee owns the policy and names the beneficiary, so the employer retains no policy rights. The premiums paid by employer as a bonus are deductible by the employer, and the amount of the premiums paid for the employee is reportable as income.

The period of time a new employee has to wait before she may enroll in a group life insurance plan is called _______.

a probationary period

At a certain point in time, an employee will have a nonforfeitable right to the money contributed to a pension plan by the employer. This right is known as:

a vested interest

In legal terms, the voluntary relinquishment of a known right is called ________.

a waiver

Which of the following individuals investigates, settles, and provides reports involving claims arising under insurance contracts?

adjuster

A qualified distribution (one that is not taxed) is made.....

after the taxpayer reaches age 59.5, made to a beneficiary after the taxpayer's death, made because the taxpayer is disabled, used to buy the taxpayer's first home, or used to pay education costs. Furthermore, the distribution cannot be made any earlier than 5 years after the account was set up.

Essential health benefits include:

ambulance, emergency, hospital, maternity, and newborn care

A deductible that is measured in time rather than dollars is called:

an elimination period

What is a fraternal benefit society?

any incorporated or unincorporated society, order, or lodge that operates solely for the benefit of its members and their beneficiaries. The society must be nonprofit and operate on the lodge system with a representative form of government. Fraternal benefit societies usually provide insurance benefits, including death benefits; endowments; annuities; disability benefits; hospital, medical, and nursing benefits; and monument or tombstone benefits.

Individuals who choose not to purchase qualifying health care coverage....

are violating federal law

With life insurance, insurable interest is only required...

at the time of application

The two categories that survivors' financial needs fall into:

cash needs (funerals, medical bills, debt pay off, children's education, emergency fund) income needs (food, clothing, utilities, & a mortgage)

Angela, a recent applicant for a $50,000 life insurance policy, failed to state on her application that she suffered a heart attack a year earlier, fearing it would affect her insurability. What term describes Angela's action?

concealment

The fact that an insurance contract promises to pay benefits contingent on a future uncertainty (such as death or illness) makes it what type of contract?

conditional

The two types of buy-sell agreements:

entity & cross-purchase

Which type of agent authority is specifically set forth in writing in the agent's contract?

express

What settlement option is designed to pay out a specified amount of income at regular intervals over an unspecified period of time?

fixed-amount option

What is the one reason coverage can be denied with HIPAA?

for individuals who have had their coverage canceled for nonpayment of premiums

Individuals who own life insurance and are called certificate holders are members of a:

fraternal benefit society

With regard to medical benefits available through the federal government, Medicaid provides.....

funds to states to assist their medical public assistance programs MEDICARE provides health benefits for the aged and disabled

Liquidity

how easily an asset can be converted into cash without loss of value examples: bank savings or checking accounts - the most liquid assets after cash itself; and life insurance proceeds - are paid in cash

With the cost-of-living rider, any increase in the death benefit as a result of this rider will also result in a(n) ______ in premium.

increase

What are the required signatures for life insurance application?

insured, producer/agent, and applicant

What entity does an insurance producer represent in an insurance transaction?

insurer

Characteristics of adjustable life insurance?

it gives the policy owner options to: - adjust face value/death benefit - adjust premium - adjust length of coverage - have term and whole life in one policy

What are the characteristics of a 'binding' receipt?

it is temporary and not common in life insurance

Oral surgery, braces, and implants are all examples of what kind of dental service?

major

Nicole plans to take out a $200,000 mortgage for a vacation home. Her bank, however, requires her to provide some type of collateral for the loan. If Nicole owns a $500,000 whole life insurance policy, the policy:

may be used as collateral for the loan because Nicole's whole life insurance is considered property with a quantifiable cash value, it may be used as collateral or security for the loan.

Calculating premium rates for life insurance is based on what 3 elements?

mortality, interest, and expenses

When must an insurer provide a buyer's guide and a policy summary to a prospective life insurance purchaser?

no later than at policy delivery

What types of organizations are eligible for 403(b) plans to benefit their employees?

nonprofit organizations such as public schools, churches, and hospitals

Under Medicare Part A, the participant must pay his deductible:

once per benefit period

What measures do insurers implement to reduce the amount spent on medical care?

outpatient benefits, second surgical opinions, preauthorization, & limits on length of stay

Examples of illiquid assets:

precious metals, gems, or stamps real estate farms and farming equipment small or privately held business interests

Traditional whole life has fixed....

premium & level death benefit

The significance of a free-look provision is that it:

provides life insurance policyholders with the right to return their policies for any reason within 10 days of delivery for a full refund of premiums

Keogh plans are qualified retirement plans designed for....

self-employed individuals in unincorporated businesses

Variable contracts and their distribution are regulated....

separately but in a fairly coordinated fashion between the Department of Insurance, the SEC, and FINRA.

Backdating is usually no more than __ months.

six

For a policy to be reinstated, an insured must

submit a written app, prove insurability, and back pay all premiums

Making appropriate product recommendations based on the needs, objectives, and circumstances of a client is referred to as:

suitability considerations

If a business entity purchases disability insurance on the lives of the business owners to fund a disability buyout....

the business cannot take a deduction for the premiums paid

Jake and Sue signed a contract in which Sue agreed to pay half of the life insurance proceeds to Jake if he murdered her estranged spouse. The contract between Jake and Sue would not be enforceable in court because:

the contract lacks a legal purpose

The annuitant of an annuity can be compared to _______ with respect to a life insurance policy?

the insured the annuitant is the person by whose life the contract is measured.

Under the option illegal occupation provision, what applies if a loss occurs while the insured is participating in a felony or an illegal occupation?

the insurer is not liable for that specific loss

Insured losses are covered immediately after a health policy is reinstated when:

the losses result from accidental injuries

Leo purchases a $50,000 5-year level term policy. This means that

the policy provides a straight, level $50,000 of coverage for 5 years.

Under an installment refund settlement option, if the primary beneficiary dies, the secondary beneficiary will receive:

the same income payments until the total amount paid out to both beneficiaries equals the original amount of proceeds

While a policy loan is generally an available option with any form of permanent life insurance, a partial withdrawal of cash value from the policy is available only with which type of life insurance?

universal life