Life/Health Insurance

Fine per violation for unknowingly engaging in an unfair competition or practice

$1,000

Fine for violation of a cease and desist order

$10,000

Maximum aggregate fine for unknowingly engaging in an unfair competition or practice

$10,000

Time of total CE required in CT insurance regulations or ethics

3 hours

Time for commissioner to notify licensee of license denial or nonrenewal

30 days

Time for commissioner to verify appointment

30 days

Time to notify commissioner of administrative action taken against the producer

30 days

Time to notify commissioner of change in personal information

30 days

Time: Commissioner will hold hearing after notice is served

30 days

Multiple Life Annuities

Cover 2 or more lives

Single Life Annuities

Cover one life, contributions can be made on a periodic or on a single premium basis

Consultant's fine for receiving commissions from insurers or producers

$250-$2,500

Fine per violation for knowingly engaging in an unfair competition or practice

$5,000

Maximum aggregate fine for knowingly engaging in an unfair competition or practice

$50,000

Elements of a Legal Contract

- Agreement (Offer and Acceptance) - Consideration - Competent Parties - Legal Purpose

Legal Interpretations Affecting Contracts

- Ambiguities in a Contract of Adhesion - Reasonable Expectations - Indemnity (Reimbursement) - Utmost Good Faith - Representations/Misrepresentations - Warranties - Concealment - Fraud - Waiver - Estoppel

Methods of Handling Risk

- Avoidance - Retention - Sharing - Reduction - Transfer

Annuities

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Dental Insurance

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Disability Income and Related Insurance

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Federal Tax Considerations for Accident and Health Insurance

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Federal Tax Considerations for Life Insurance & Annuities

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Flexible Premium Policies

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Group Health Insurance

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Health Insurance Basics

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Individual Health Policy General Provisions

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Insurance Regulation

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Insurance for Senior Citizens and Special Needs Individuals

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Life Insurance

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Life Insurance Policies

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Life Insurance Policy Provisions, Options & Riders

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Medical Plans

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Qualified Plans

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Specialized Policies

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3 Most Important Underwriting Factors for Health Insurance Applicants

1. Physical condition of the applicant and other insureds 2. Moral and morale hazards 3. Occupation

Time period for reinstating a lapsed license without retaking a written examination

12 months

Time for insurer to file notice of appointment

15 days

Age to Apply for License

18

Duration of Temporary License

180 days

Time until Continuing Education due

2 years

Time for continuing education requirement

24 hours

Time for commissioner to notify insurer of determination

5 days

Time for CE for each line of authority

6 hours

Premature Distributions and Penalty Tax

A 10% penalty is imposed on the annuity tax base for early withdrawals prior to age 59.5

Nonforfeiture

A deferred annuity has a guaranteed surrender value that is available if the owner decides to surrender the annuity prior to annuitization

Medicare

A federal medical expense insurance program for people age 65 and older even if the individual continues to work. Medicare is available to anyone, regardless of age, who has been entitled to Social Security disability income benefits for 2 years or has chronic kidney disease or impairment (End Stage Renal Disease - ESRD)

Roth IRA

A form of an individual retirement account with after-tax contributions. • Roth IRAs can continue beyond age 70.5 and distributions to not have to begin at age 70.5 • Roth IRAs grow tax free as long as the account is open for at least 5 years

Twisting

A misrepresentation, or incomplete or fraudulent comparison of insurance policies that persuades an insured/owner, to his or her detriment, to cancel, lapse, or switch policies. Twisting is prohibited. • An insurer or producer guilty of twisting may be fined up to $5,000, imprisoned for up to 30 days, or both

Nonresident Producer

A nonresident can receive a nonresident producer's license when: • The person is currently licensed as a resident and in good standing in home state • The person has submitted the proper request for licensure and has paid the required fees • The person has submitted to the Commissioner the application for licensure that the person submitted to his/her home state or a completed uniform application • The person's home state awards nonresident producer licenses sto residents of this state on the same basis (states have reciprocity) • Nonresident producer must file a Change of Address form no later than 30 days after change of residence

Presumptive Disability

A provision that specifies the conditions that will automatically qualify the insured for full disability benefits. Benefits are paid, even if the insured is able to work (blindness, loss of speech, hearing)

Life Settlement Provider

A person (other than the owner) who enters into a life settlement contract with the owner

Resident Producers

A producer appointed by an insurer to act on the insurer's behalf

Representing an Unauthorized Insurer

A producer cannot transact insurance with or by any insurance company which does not hold a valid certificate of authority. Any person who violates this rule can be fined a maximum amount of $2,000, be imprisoned for up to 6 months, or both

Partial Hospitalization for Mental Health Treatment

A program of outpatient mental health care

Social Security Disability

A program which is designed to provide protection for eligible workers and their dependents against financial loss due to old age, disability, or death

Any Occupation Policy

A provision that will only provide benefits when the insured is unable to perform any of the duties of the occupation for which they are suited by reason of education, training, or experience

Additional Monthly Benefit (AMB)

A rider in the approximate amount that social security would pay. The benefit only is provided for one year, then it's assumed social security would begin

Sickness

A sickness or disease contracted after the policy has been in force at least 30 days

Fixed Period Installments

A specified period of years is selected, and equal installments are paid to the recipient

Stranger-Originated Life Insurance (STOLI)

A type of insurance that is initiated on behalf of a 3rd party that has no insurable interest in the life of the insured, for the primary purpose of affecting a life settlement contract. In most states STOLIs are illegal

Backdating

A way to lower the premium rate

Life Settlements

Any transaction in which the owner of a life insurance policy sells a life insurance policy to a third party for some form of compensation, usually cash

Cost of Living Rider

Addresses inflation by automatically increasing the amount of insurance without evidence of insurability from the insured

False Advertising

Advertisements cannot include any untrue, deceptive, or misleading statements that apply to the business of insurance or anyone who conducts it.

Part B Coverages

After the annual medical insurance deductible is met, medical insurance will generally pay for 80% of the approved charges for covered expenses for the remainder of the year. There is no maximum out of pocket limit on the 20% coinsurance payable for Part B expenses • Doctor Services • Outpatient Hospital Services • Home Health Visits • Other Medical and Health Services (ambulance, supplies, x-rays, etc.) • Prescription Drugs (limited coverage) • Outpatient Treatment of Mental Illness - 45% coinsurance instead of usual 20% • Yearly Wellness Visit

Accelerated Death Benefits

Allow the early payment of some portion of the death benefit if the insured is diagnosed as having a specified catastrophic illness, is terminally ill, or permanently confined to a long-term care facility

Children's Term Rider

Allows children of the insured to be added to coverage for a limited period of time for a specified amount

Bail-Out Provision

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

Guaranteed Insurability Rider

Allows the insured to purchase additional coverage at specified future dates or events without evidence of insurability

Waiver of Premium

Allows the insured, when disabled, to forego paying the premiums once he/she qualifies for benefits. Premiums that were paid by the insured during the elimination period are usually refunded once the insured qualifies to begin receiving benefits

Replacement

Any transaction in which new life insurance or a new annuity is purchased and, as a result, the existing life insurance have been or will be • Lapsed/surrendered • Reissued • Converted • Amended • Pledged as collateral • Used in a financed purchase

Warranties

An absolutely true statement upon which the validity of the insurance policy depends. Breach of warranties can be considered grounds for voiding the policy or a return of premium.

Solicitation of Insurance

An attempt to persuade a person to buy an insurance policy, and it can be done orally or in writing

Sickness

An illness which first manifests itself while the policy is in force

Partially Insured

An individual who has earned 6 or more crdits during the 13 quarter period ending with the quarter in which the insured dies, becomes entitled to disability insurance benefits or old-age insurance benefits

Permitted Compensation

An insurance company may pay compensation to an agent for the sale of a medicare supplement, however the first year commission may be no more than 200% of the renewal commission for servicing the policy in the second year

Personal Contract

An insurance contract is a personal contract because it is between the insurance company and an individual. The company has a right to decide with whom it will/will not do business, so the insured cannot be changed to someone else without the written consent of the insurer, nor can the owner transfer the contract to another person without the insurer's approval. **Life insurance is an exception to this rule: a policyowner can transfer ownership to another person, but the insurer still must be notified in writing

Fraternal Benefiet Society

An organization formed to provide insurance benefits for members of an affiliated lodge, religious organization, or fraternal organization with a representative form of government. Since fraternals sell only to their members and are considered charitable institutions, they are not subject to all of the regulations that apply to the insurers that offer coverage to the public

Waiver

Annuity contracts provide for a waiver of surrender charges if the annuitant is confined to a long-term care facility for at least 30 days

Rebating

Any inducement offerred to the insured in the sale of insurance products that is not specified in the policy. They are ILLEGAL. Rebates may include: • Rebates of premiums payable on the policy • Special favors or services • Advantages in the dividends or other benefits • Stocks, bonds, securities, and their dividends or profits

Dependent Child Age Limit

Any medical expense policy that covers the insured's family must cover dependent children until the earliest of these events: • Child marries • Is no longer a resident of this state • Becomes covered under a group health plan or through his/her employment • Reaches age 26

Licensing Process

Applicants for a producer license must furnish satisfactory evidence to the Commissioner that they are: • Of good moral character • Financially responsible • Trustworthy and competent Eligibility Requirements: • At least 18 years old • Not committed any act that is a ground for denial, suspension, or revocation • Pay required fees • Successfully passed required exam

Changes in the Application

Applicants must initial the correct answer

Individual Disability Income Insurance

Applied and paid for by the individual rather than through the employer. Premiums are paid with after tax dollars, and benefits are not income taxable

Participating Doctor or Suppliers

Doctors and suppliers who sign agreements to become medicare participating

Needs Approach

Based on the predicted needs of a family after the premature death of the insured. Some of the factors considered by the needs approach are income, the amount of debt (including mortgage), investments, and other ongoing expenses • Types of Information Gathered: o Debt o Income o Mortgage o Expenses • Determining Lump Sum Needs: o Costs associated with death (post mortem) o Debt cancellation o Emergency reserve funds o Education funds o Retirement fund o Bequests • Planning for Income Needs: o Replacing insured's salary or lost services o Social security income "blackout" period o Liquidation vs. retention of capital

Ambiguities in a Contract of Adhesion

Because only the insurance company has the right to draw up a contract, and the insured has to adhere to the contract as issued, the courts have held that any ambiguity in the contract should be interpreted in favor of the insured

Cash Payment

Beneficiary receives a lump sum

Disability Income Benefits

Benefits are based upon the worker's primary insurance amount (PIA), which is calculated from their average indexed monthly earnings over their highest 35 years. The lowest 5 years may be deleted

Nonscheduled Plans

Benefits are paid on a reasonable and customary basis and are subject to deductibles and coinsurance. Services are usually divided into three broad benefit categories: - Diagnostic/Preventive Service - Basic Services - Major Services

Minors

Benefits are paid to the minor's guardian or paid to the trustee of the minor or paid as directed by the court

Nonparticipating

Doctors or suppliers who may choose whether or not to accept assignment on each individual claim

Certified Insurance Consultant

Can examine insurance and annuity contracts and make recommendations for a fee. • A consultant contract must be in writing and executed by the person receiving the consultant's services • Consultants CANNOT receive commissions or compensation from any insurer/producer in connection with the sale or writing of any insurance contracts involved with his/her consulting (fine between $250 and $2,500)

Unfair Discrimination

Cannot discriminate based on: • Physical disability • Mental retardation • Blindness • Partial blindness • Exposure to diethylstilbestrol through a female parent

Custodial Care

Care for meeting personal needs such as assistance in eating, dressing, or bathing, which can be provided by nonmedical personnel

Ambulatory Surgical Services

Care that is not provided at an ambulatory center

Section 1035 Exchanges

Certain insurance policies and annuities may occur as non-taxable exchanges: • A life insurance policy for another life insurance policy, endowment contract, or annuity contract • An endowment contract for another endowment contract or annuity contract • An annuity contract for another annuity contract The key is that the exchange may not be from a less tax-advantaged contract to a more-advantaged contract. Same to same is acceptable

Modifications

Changes in the policy must be endorsed on, or attached to, the policy in writing over the signature of an executive officer of the insurer. An agent cannot waive/change the policy

Adopted and Prospective Adopted Children

Children placed for adoption are covered on the same basis as other dependents

Combination Plans

Combine features of both the basic and comprehensive plans. They generally cover diagnostic and preventive services on a usual and customary basis but still use a fee schedule for other dental services

Hazards

Conditions or situations that increase the probability of an insured loss occurring. Hazards are classified as physical hazards, moral hazards, and morale hazards

Nonrenewable

Coverage is only for a specified period of time, and when the term expires the insured must purchase another policy

Infertility Coverage

Coverage of infertility for a 1 year period

Rehabilitation Benefit

Covers a portion of the cost of the rehabilitation

Cash Surrender Value

Creates a cash value of around 70% of the premiums paid in excess of claims

Skilled Care

Daily nursing and rehabilitative care that can only be provided by medical personnel, under the direction of a physician

Minimizing Adverse Selection

Dental plans minimize adverse selection by utilizing probationary periods (insureds that had no prior dental coverage are likely to have a large number of untreated dental problems) or limiting benefits for late enrollees

Exclusions

Dental plans typically exclude cosmetic services (unless required by an accident), replacement of lost dentures, duplicate dentures, oral hygiene instruction, occupational injuries covered by Worker's Compensation, services provided by government agencies, and treatment for pre-existing conditions

Dependent Eligibility

Dependent of an employee must be: • A spouse • A child younger than the limiting age (natural children, stepchildren, children legally placed for adoption, legally adopted children) • Unmarried children beyond limited age that are full time students • Unmarried disabled children who are incapable of self-support as the result of disability/mental retardation -Upon death/divorce the employer must offer coverage to surviving dependent for 156 weeks - Same sex partners in existing civil unions are considered spouses in regards to coverage

Health Savings Accounts (HSAs)

Designed to help individuals save for qualified health expenses that they, their spouse, or their dependents incur. HSAs are tax deductible. An individual who is covered by a high deductible health plan can make a tax-deductible contribution to an HSA, and use it to pay for out of pocket medical expenses. Contributions to HSAs are by individuals are deductible, but contributions to an employer are not included in the individual's taxable income

Respite Care

Designed to provide relief to the family caregiver

Disability Income Insurance

Designed to replace lost income in the event of a disability. It may be purchased individually or through an employer on a group basis

Exclusions

Disability income policies do not cover losses arising from war, military service, intentionally self-inflicted injuries, overseas residence, or injuries suffered while committing or attempting to commit a felony

Dividends

Dividends are a return of excess premiums and are not taxable to the policyowner. Companies cannot guarantee dividends. • The first dividend can be paid as early as the 1st policy anniversary and can occur no later than the end of the 3rd policy year

Interest Rate Guarantees

During the accumulation phase, the insurer will invest the principal, and give the annuitant a guaranteed interest rate based on a minimum rate as specified in the annuity, or the current interest rate, whichever is higher

Failure to Remit Premiums

Each insurance company authorized to do business in CT must report hte following to the Commissioner: • Any failure on the part of the insurer to remit premiums for policies/endorsements issued to insureds within 30 days following the due date • Whenever a check issued by the producer to the company is returned for insufficient funds or otherwise dishonored and remins outstanding 15 days following receipt of the return

Eligibility of Employees

Eligible employee: • Any employee who works on a full-time basis (30 hours or more a week) • A sole proprietor, a partner in a partnership or an independent contractor, provided such individual is included as an employee under the employer's health care plan • Employees who are not actively at work but who are covered under the employer's health plan by virtue of Workers Compensation, COBRA or other laws

Avoidance

Eliminating exposure to a loss (ex: not flying on planes)

Short Term Disability (STD)

Employers provide short term disability benefits for all of the company's employees. The elimination period could be as short as 0 days and the benefit period not longer than 2 years, but the benefit period could be 6 months or 1 year. The benefit will generally be somewhere within 70% to 80% of income

Life Settlement Contract

Establishes the terms under which the life settlement provider will pay compensation to the policyowner, in return for the assignment, transfer, sale or release of any of the following: o The death benefit o Policy ownership o Any beneficial interest

Connecticut Comprehensive Health Care Plan

Every carrier must make an individual comprehensive health care plan available to every resident of the state, except for residents who are both 65 years of age or older and eligible for medicare. • Lifetime max of $1 million

Reimbursement

Expenses may be paid directly to the insured (by the insurer), and the insured would be responsible for paying the medical expenses

Hospice Care

Facility providing short term continuous care to terminally ill people with life expectancies of 6 months or less

Basic Services

Fillings, oral surgery, periodontics, and endodontics may require the insured to pay a deductible or 20% of the balance (insurer would pay the other 80%)

Equity Indexed Annuities

Fixed annuities that invest on a relatively aggressive basis to aim for higher returns and are tied to a familiar index like the S&P 500

Hospice Care

For as long as doctor certifies need, medicare pays all but limited costs for outpatient drugs and inpatient respite care

Coverage: Home Health Care

For as long as you meet medicare requirements for home health care benefits, medicare pays 100% of approved amount and 80% of approved amount for durable medical equipment

Medical and Dental Expense

For group medical and dental expense insurance any premium paid by the employer is deductible as a business expense. However, any premiums provided by the employee are only deductible to the extent that the employee premium, when added to all other reimbursed medical expenses, exceeds 7.5% of the taxpayer's adjusted gross income, if the taxpayer itemizes deductions

Waiver of Cost of Insurance

Found in Universal Life Insurance, the rider waives the cost of insurance and other expenses, but does not waive the cost of premiums necessary to accumulate cash values

Diagnostic/Preventive Services

Generally are not subject to coinsurance or deductibles

Employer Group Dental Expense

Generally included in an employer group dental insurance plan is preventative care for up to two visits per year. However, it will not provide coverage for cosmetic treatment, and there may be limits on procedures such as braces or other appliances

Human Life Value Approach

Gives the insured an estimate of what would be lost to the family in the event of the premature death of the insured. It calculates an individual's life value by looking at the insured's wages, inflation, the number of years to retirement, and the time value of money

HIPAA Requirements

Group Health Plans: • Limits exclusions for pre-existing conditions • Prohibits discrimination based on health condition • Allows opportunities to enroll in a new plan to individuals in special circumstances Individual Policies: • Guarantee access to individual policies for qualifying individual • Guarantee renewability of individual policies

Extension of Benefits

Group insurance plans that are terminated generally provide for an extension of benefits to any totally disabled employee or dependent. It's provided up to a period of 12 months or until the individual is no longer totally or continuously disabled

Peer Review Organizations

Groups of practicing doctors and other health care professionals who are paid by the government to review the care given to medicare patients

Joint and Survivor

Guarantees an income for two or more recipients for as long as they live. Most contracts provide that the surviving recipient will receive a reduced payment after the first recipient dies

Joint and Survivor

Guarantees an income for two recipients that neither can outlive

Primary Beneficiary

Has first claim to the policy proceeds following the death of the insured.

Contingent Beneficiary

Has second claim in the event that the primary beneficiary dies before the insured (gets nothing if primary is still alive)

ConnPACE

Helps eligible senior citizens and the disabled afford prescription medicines

Part A

Helps pay for inpatient hospital care, inpatient care in a skilled nursing facility, home health care, and hospice care

Producer Liability for Errors and Omissions

If an agent or broker engages in misrepresentation during the replacement of health insurance contracts, he/she may be exposed to errors and omissions liability as well as having their insurance license suspended or revoked

Policy Insurance Alternatives

If an applicant's risk is more than standard but less than a decline, the underwriter could offer the policy on a rated up basis

Full Time Students

If child continues full time education, coverage extends to age 23

Estates

If none of the beneficiaries is alive at the time of the insured's death, or if no beneficiary has been named, the insured's estate receives the proceeds

Catastrophic Coverage

If the beneficiary's spending during the gap reaches the limit of coverage gap, catastrophic coverage will cover 95% of prescription drug costs

Tax Advantages for Employers and Employees

If the general requirements for qualified plans are met, the follow tax advantages are: • Employer contributions are tax deductible and are not taxed as income to the employee • The earnings in the plan accumulate tax deferred • Lump-sum distributions to employees are eligible for favorable tax treatment

Expense Incurred Basis

If the insured has 2 or more policies from different companies and the policies cover same expenses, each insurer pays proportionate share

Controlled Business

In Connecticut, no one may obtain an insurance producer license for the primary purpose of writing controlled business, which is insurance written on: • The life or property of the producer • The producer's immediate family • The producer's employees or employer • Any business in which the producer has control Whenever the premiums from these sources of policies exceed 9 times the premiums on policies issued to the general public, the license will be suspended or non-renewed

Capital and Surplus Requirement

In order for an insurance company to obtain a certificate of authority in Connecticut, the company must comply with minimum capital and surplus requirements to write specific lines of insurance. • Stock insurance companies are required to have capital of $1 million and surplus of $2 million in order to write life insurance, and the capital of $500 thousand and a surplus of $500 thousand for health insurance • Mutual insurance companies are required to have a surplus of $4 million for life insurance and $1 million for health • Insurance companies' surplus funds must bear a reasonable relationship to its liabilities based upon the type, volume, and nature of insurance business transacted and risk based capital related to its total adjusted capital must be adequate for the types of business transacted

Disability Income Benefit

In the event of disability the insurer will waive the policy premiums and pay monthly income to the insured

Consumer Reports

Include written and/or oral information regarding a consumer's credit, character, reputation, or habits collected by a reporting agency from employment records, credit reports, and other public sources

Net Single Premium

Includes the mortality and interest components necessary to keep the policy in force until maturity Mortality - Interest = Net Premium

Family Term Rider

Incorporates the spouse term rider along with the children's term rider in a single rider

Eligibility for HSAs

Individual must be covered by a high deductible health plan (HDHP), must not be covered by other health insurance (any insurance), must not be eligible for medicare, and is not claimed as a dependent on someone else's tax return

Major Services

Inlays, crowns, dentures and orthodontics, could either have large deductibles or pay around 50% for services provided

Failure to Maintain Complaint Records

Insurance companies are required to maintain a complete record of all complaints that the insurer has received since the date of its last examination

Disclosure Information about Individuals

Insurance company cannot disclose personal information about an individual unless: • A written authorization by the individual dated and signed wi thin the past 12 months has been provided • Information is being provided to: law enforcement agency, auditor, insurance co., group policyholder, etc.

Child Enrollment with Noncustodial Parents

Insurer must: • Provide necessary information to the custodial parent in order for the child to obtain benefits • Permit custodial parent to submit claims for covered services without the approval of the noncustodial parent • Make payments on claims directly to the custodial parent, the health care provider, or the Department of Social Services

Adverse Selection

Insuring of risks that are more prone to losses than the average risk. Insurance companies try to protect themselves from this by refusing or restricting coverage for bad risks, or charging them a higher rate for insurance coverage

Integrated Deductibles vs. Stand-Alone Plans

Integrated plans may have a common deductible. Some integrated plans maintain separate deductibles for the medical and dental portions of the contract

Collateral Assignment

Involves a transfer of partial rights to another person. It's a partial and temporary assignment of some of the policy rights. Once the debt or loan is repaid, the assigned rights are returned to the policyowner

Absolute Assignment

Involves transferring all rights of ownership to another person or entity. This is a permanent and total transfer of all the policy rights

Fraud and False Statements

It is considered unlawful insurance fraud for any person engaged in the business of insurance to willfully, and with the intent to deceive, make any oral or written statements that are either false or omit material facts. • Anyone engaged in this business may be imprisoned for up to 10 years or fined or both. • If the activity jeopardized the security of the accompanied insurer, the punishment can be up to 15 years • Anyone acting as an officer, director, agent or other insurance employee who is convicted of embezzling funds faces the aforementioned fines and imprisonment. However, if the embezzlement was in an amount less than $5,000, prison time may be reduced to 1 year • Anybody who violates Section 1033 (crime involving dishonesty, breach of trust, etc.) may be subject to civil penalty of not more than $50,000 for each violation or the amount of compensation the person received as a result of the prohibited conduct - whichever is greater

Change in Name or Address

Licensees must notify the Commissioner in writing about change in name/employer/business/residence within 30 days

Cash Loans

Loan Value = Cash Value - (Unpaid Loans + Interest)

Consideration Clause

Located on first page of policy, makes it clear both parties to the contract must give some valuable consideration

Durable Medical Equipment

Medical equipment such as oxygen equipment, wheelchairs, and other medically necessary equipment that a doctor prescribes for use in the home

Outpatient Physical and Occupational Therapy and Speech Pathology Services

Medically necessary outpatient physical and occupational therapy or speech pathology services prescribed by a doctor or therapist

Coverage: Medical Expenses

Medicare pays for medical services in or out of the hospital, medicare pays 80% of approved amount after the deductible, 55% of the approved chargers for most outpatient mental health services

Riders

Modify provisions that already exist and are used to increase or decrease policy benefits and premiums

Underwriting - Occupational Considerations

More hazardous the occupation, higher the premium, and vice versa

Long Term Disability (LTD)

Often reserved for management employees. The benefit period may be up to age 65. Lower wage employees are usually limited to 66.67% of monthly wage, while higher wage employees are limited to 50% of monthly wage

Deductibles and Coinsurance

Most dental plans have a deductible amount such as $25, $50, or $100 which must be met each calendar year

Limitations

Most plans provide for calendar year maximum benefits and lifetime maximum benefits. Routine exams and cleaning are generally limited to once every 6 months, full mouth x-rays to once every 2 to 3 years, and replacement of dentures to once every 5 years

Inflation Protection

Must offer increases in benefit levels annually at a rate not less than 5%

Long Term Care Policies

Must provide coverage for at least 12 consecutive months • Eligibility: insured must be unable to perform at least 2 of the ADLs or suffer an impairment of cognitive ability

Living Needs Rider

Provides for the payment of part of the policy death benefit if the insured is diagnosed with a terminal illness that will result in death within 2 years

Individual Employer Groups

Normally provides insurance coverage to all full-time employees. The employer can specify within some limitations who will be covered

Predetermination of Benefits

Not mandatory, allows the insured and the dentist to know in advance what benefits will be paid (AKA precertification or prior authorization)

Intermediate Care

Occasional nursing or rehabilitative care provided for stable conditions that require medical assistance on a less frequent basis than skilled nursing care

Options

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

Qualified Institutional Buyer

One that owns and invests at least $100 million in securities and is allowed by the SEC to trade in unregistered securities. They may buy life insurance policies in these transactions

Oral Surgery

Operative treatment of the mouth such as extractions of teeth and related surgical treatment

Part D - Prescription Drug Insurance

Optional coverage provided through private prescription drug plans that contract with Medicare. • To receive benefits, beneficiaries must sign up with a plan offering this coverage in their area and must be enrolled in medicare part a or in parts a and b

Defamation of Insurer

Oral or written statements made that are intended to injure a person engaged in the insurance business. This also applies to statements that are maliciously critical of the financial condition of any person or a company

Carriers

Organizations that process claims that are submitted by doctors and suppliers under medicare

Intermediaries

Organizations that process inpatient and outpatient claims on individuals by hospitals, skilled nursing facilities, home health agencies, hospices, and certain other providers of health services

Comprehensive Outpatient Rehabilitation Facility Services

Outpatient services received from a medicare participating comprehensive outpatient rehabilitation facility

Scheduled Plans

Pay benefits from a list of procedures up to the amount shown in the schedule. Most plans provide first dollar benefits without coinsurance or deductibles. Maximum benefits are often lower than the usual and customary charges of dentists who force the insured to bear a portion of the cost

Living Needs Rider Effect on Death Benefit

Payable Death Benefit = Face Amount - Amount Withdrawn - Earnings Lost by Insurer in Interest

Joint Life

Payout arrangement where two or more annuitants receive payments until the first death among the annuitants

Fixed Amount Installments

Pays a fixed, specified amount in installments until the proceeds are exhausted

Accidental Death Rider

Pays some multiple of the face amount if death is the result of an accident as defined in the policy. Death must occur within 90 days of the accident. The benefit is normally 2 times the face amount

Insureds

People covered by insurance

Subscribers (Participants/Members)

People who sign up for pre-paid health plans, such as HMOs

Comprehensive Car Policies

Plans that provide a comprehensive package of health care services that typically includes preventive care, routine physicals, immunizations, outpatient services, and hospitalization

Specified Coverage Policies (Limited Coverage)

Policies that limit coverage to one illness or one limiting group of coverages

Community Rating

Premiums are based upon the overall claims experience of the insurance company (for individual policies)

Accidental Death and Dismemberment

Premiums are deductible to the employer as an ordinary business expense. The benefits are income tax free

Misstatement of Age

Premiums changed to what would have been purchased at the correct age

Contract of Adhesion

Prepared by one of the parties (insurer) and accepted or rejected by the other party (insured). Insurance contracts are offered on a "take-it-or-leave-it" basis by an insurer

Incontestability

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

Spendthrift Clause

Prevents the beneficiary from recklessly spending the benefits by paying the proceeds in a fixed period or fixed amount installments

Prohibited Use of Senior-Specific Designations

Producers cannot use senior-specific certifications and professional designations that might mislead prospective insurance applicants to believe that the producer has special training in the sale or solicitation of insurance or annuity products

Total Disability Plan

Protects the family or an individual against the economic loss that comes with the total disability of the wage earner

Prepaid Plans

Provide medical and hospital benefits in the form of service rather than dollars. The providers are compensated regularly whether or not they provide service. There is no additional compensation when service is provided

Fee-For-Service Plans

Providers receive a payment for their billed chargers for each service provided

Return of Premium Rider

Provides a refund of a percentage of premiums at certain times

Single Life

Provides a single beneficiary income for the rest of his/her life

Own Occupation Policy

Provides benefits when the insured is unable to perform any duties of his/her occupation because of sickness or accident. It's usually limited to the first 24 months after the commencement of a loss

Spouse/Other-Insured Term Rider

Provides coverage for one or more family members other than the insured, usually level term insurance

Pap Smear Screening

Provides for a pap smear to screen for cervical cancer once every 2 years

Medical Reimbursement Benefit (Nondisabling injury)

Provides for the payment of medical expenses incurred due to an accidental bodily injury when the insured is not disabled

Long Term Care Coverage

Provides for the payment of part of the death benefit (accelerated benefits) in order to take care of the insured's health care expenses

Return of Premium Rider

Provides that at death prior to a given age, not only is the original face amount payable, but an amount equal to all premiums previously paid is payable to the beneficiary

Agent's (Producer's) Report

Provides the agent's personal observations concerning the proposed insured

Life Income

Provides the beneficiary with an income that he or she cannot outlive. The payments are guaranteed for as long as the recipient lives, regardless of the date of death

Legal Purpose

Purpose of the contract must be legal and not against public policy

Fully Insured

Refers to someone who has earned 40 quarters of coverage (the equivalent of 10 years of work), and is therefore entitled to receive social security retirement, medicare, and survivor benefits

Employee Eligibility

Requires that to be eligible for coverage an employee must be a full time employee (30 hours per week), working in a covered classification, and must be actively at work

Connecticut Insurance Information and Privacy Protection Act

Requires that, during the course of acquiring information, insurers must follow certain procedures to protect the privacy of applicants. The act guarantees to individuals their rights to privacy as they apply to the insurance. • Insurers are required to disclose to applicants the nature of information that they will seek from any entity other than the applicant directly or from public records. Notice is required only once within a 2 year period. • Anyone who obtains information concerning an individual from an insurance institution or agent under false pretenses may be fined a penalty of up to $20,000

Continuing Education Requirements

Resident producers must mee the continuing education requirements of Connecticut: • A minimum of 24 hours of continuing education credits every 2 years • 3 of these hours must be in courses related to state regulations or ethics • A minimum of 6 credit hours must be completed for each line of authority • Property and Casualty or Personal Lines producers must complete a one-time 3 hours course on Federal Flood requirements • Credit hours may not be carried over to the next 2 year compliance period • Producers who obtain their licenses within the last 12 months of a biennium are exempt from meeting continuing ed requirements for that biennium • If a producer fails to satisfy the continuing education requirements by the last day of the 2 year period, the producer's license will not be renewed. Producers will be given 30 days notice prior to such action

One-Sum Cash Surrenders

Results in immediate taxation of the interest earned

Advertising

See rules on site

Market Value Adjusted Annuities

Single premium deferred annuities that allow the owner to lock in a guaranteed interest rate over a specified maturity period, anywhere between 3 to 10 years

Renewability of Small Health Plans

Small employer health plans must be renewable at the employer's options, except for one of the following reasons: • Nonpayment of a required premium when due • Fraud or misrepresentation with respect to coverage of an insured individual • Fraud or misrepresentation by the insured individual • Non compliance with plan provisions • The number of employees covered under the plan is less that the number or percentage of eligible employees required by percentage requirements under the plan • The small employer has left the business that it was engaged in on the plan's effective date

Medical Expense Coverage for Sole Proprietors and Partners

Sole proprietors and partners may deduct 100% of the cost of a medical expense plan provided to them and their families

Liquidity

Some life insurance policies have a cash accumulation feature that can be borrowed against at any time

Benefit Schedule

Specifically states exactly what is covered in the plan and for how much

Disability Buy-Sell Policy

Specifies how the business will pass between owners when one of the owners dies or becomes disabled

Recurrent Disability

Specifies the period of time (usually within 3-6) months, during which the recurrence of an injury or illness will be considered as a continuation of a prior period of disability

Provisions

Stipulate the rights and obligations of an insurance contract and are fairly universal from one policy to the next

Tax-Deferred Accumulation

Taxes are deferred during the accumulation period

Commissioner's General Duties or Powers

The Insurance Commissioner is appointed by the Governor of Connecticut and cannot be a director, officer, or agent of an insurance company. The duties are: • See that all laws are faithfully executed • Administer and enforce provisions of Insurance Code • Recommend to General Assembly changes to insurance laws • Adopt further regulations in order to implement provisions of Insurance Code • Develop a program of periodic review • Establish a program to reduce costs and increase efficiency

Actual Charge

The amount a physician or supplier actually bills for a particular service or supply

Approved Amount

The amount medicare determines to be reasonable for a service that is covered under Part B of Medicare

Deductible

The amount of expense a beneficiary must first incur before Medicare begins payment for covered services

Life With Period Certain (Another Life Contingency Payout Option)

The annuity payments are guaranteed for the lifetime of the annuitant, and for a specified period of time for the beneficiary

Accidental Bodily Injury

The damage to the body is unexpected and unintended

Cash Refund

When the annuitant dies, the beneficiary receives a lump sum refund of the principal minus benefit payments already made to the annuitant. Cash refund option does not guarantee to pay any interest

Installment Refund

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

Conditional Receipt

The applicant is covered by the insurance as of the date of the application providing that the insurer subsequently determines the applicant to be insurable at the rating for which the policy was applied

Values Included in Insured's Estate

The death benefit may be included in the insured's taxable estate at death in 3 situations: 1. Incidents of Ownership - right to cash value, right to change beneficiary, right to assign the policy 2. Estate as Beneficiary - if the insured's estate is the designated beneficiary, the face amount will be included in the taxable estate 3. Transfer of Ownership - if the insured assigns/transfers ownership of policy within 3 years of death, the face amount is included in the taxable estate

Excess Charge

The difference between the Medicare approved amount for a service or supply and the actual charge

Paid Up Additions

The dividends are used to purchase a single premium policy in addition to the face amount of the permanent policy. Each small single premium payment will increase the death benefit of the original policy

Waiting Period

The elimination period for social security disability benefits is 5 months. Benefits begin at the 6th month and are not retroactive to the beginning of the disability

Employer Sponsored Group

The employer (partnership, corporation, or sole proprietorship) provides group coverage to its employees

Entire Contract: Changes

The entire contract includes: • The health insurance policy • Copy of signed application • Attached riders and amendments

Misrepresentation

The illegal issuance, publishing, or circulation of any illustration or sales material that is false, misleading, or deceptive as to policy benefits or terms, the payment of dividends, etc. (refers to oral statements too)

Disability

The inability to engage in any substantially gainful activity by reason of a medically determinable physical or mental impairment that has lasted or is expected to last 12 months or result in an early death

Accumulation at Interest Dividend

The insurance company keeps the dividend in an account where it accumulates interest (the interest on the dividends is taxable)

Interest Only

The insurance company retains the policy proceeds and pays interest on the proceeds to the beneficiary at regular intervals

One Year Term Option Dividend

The insurance company uses the dividend to purchase additional insurance in the form of one-year term insurance that increases the overall policy death benefit

Usual/Reasonable/Customary Charges

The insurance company will pay an amount for a given procedure based upon the average charge for that procedure in that specific geographic area

Legal Actions

The insured must wait 60 days, but no later than 3 years, after proof of loss before legal action can be brought against the company

Renewable at Option of Insurer

The insurer may cancel the policy for any reason, on certain homogenous classes (not individuals within a class)

Conditionally Renewable

The insurer may terminate the contract only at renewal for certain conditions that are stipulated in the contract

Extended Term Option

The insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy

Insuring Clause

The insuring clause is located on the first page of the policy and is a general statement that identifies the basic agreement between the insurance company and the insured. It identifies the insured and the insurance company and states what kind of loss is covered

Tax Base Portion of Annuity

The interest earned on the principal is taxable

Benefit Period

The length of time over which the monthly disability benefit payments will last for each disability after the elimination period has been satisfied

Pure Life

The life annuity will pay a specific amount for the remainder of the annuitant's life. With pure life, Payment ceases at the annuitant's death. This option provides the highest monthly benefits for an annuitant

Limiting Charge

The maximum amount a physician may charge a medicare beneficiary for a covered service if the physician does not accept assignment

Gross Annual Premium

The one year cost for mortality, plus expense loading. Loading includes commissions, taxes, advertising, etc. Gross Annual Premium = Cost of 1 Year of Mortality + (Commissions + Taxes + Advertising + Profit Margin)

Owner

The owner of the policy who may seek to enter into a life settlement contract (not a insurance provider, qualified institutional buyer, etc.)

Grace Period

The period of time after the premium due date that the policyowner has to pay the premium before the policy lapses

Assignment

The physician or a medical supplier agrees to accept the medicare approved amount as full payment for the covered services

Entire Contract Provision

The policy and a copy of the application, along with any riders/amendments, constitute the entire contract

Reduced Paid Up Insurance

The policy cash value is used by the insurer as a single premium to purchase a completely paid-up permanent policy that has a reduced face amount from that of the former policy

Irrevocable Designation of Beneficiary

The policy owner may not change an irrevocable designation without the written consent of the beneficiary, and cannot borrow against the policy's cash value

Right to Examine (Free Look)

The policyowner has 10 days from receipt to look over the policy and return it for a full refund of the premium. 10 days start after policyowner receives the policy

Cash Surrender Value

The policyowner simply surrenders the policy for the current cash value at a time when coverage is no longer needed or affordable

Revocable Designation of Beneficiary

The policyowner, without the consent/knowledge of the beneficiary, may change a revocable designation at any time

Coinsurance

The portion of medicare's approved amount that the beneficiary is responsible for paying

Cost Base Portion of Annuity

The portion of the annuity benefit payment that is nontaxable is the anticipated return of the principal paid in

Estate Creation

The purchase of life insurance creates an immediate estate (helps young families)

Risk

The uncertainty or chance of a loss occurring. The two types of risks are pure and speculative - only pure risk is insurable

Premium Receipt

Whenever the agent collects premiums, the agent should issue a premium receipt.

Transfer

Transfer the loss to another party (usually to an insurance company). Purchasing insurance will relieve the insured of the financial losses these risks bring

Orthodontics

Treatment of natural teeth to prevent and/or correct dental anomalies with braces or appliances

Endodontics

Treatment of the dental pulp within natural teeth such as root canal

Periodontics

Treatment of the surrounding and supporting tissue of the teeth such as treatment for gum disease

Prosthodontics

Treatment of the surrounding and supporting tissue of the teeth such as treatment for gum disease

Restorative Care

Treatments which restore functional use to natural teeth such as fillings or crowns

Business Overhead Expense Insurance

Unique policy sold to small business owners who must continue to meet overhead expenses such as rent, utilities, employee salaries, installment purchases, leased equipments, etc. following a disability

Withdrawals/Partial Surrenders

Universal life policies allow the partial withdrawal of the policy cash value, but there are limits as to how much and how often

Coverage: Clinical Laboratory Services

Unlimited if medically necessary, medicare generally pays 100% of approved amount

Coverage: Outpatient Hospital Treatment

Unlimited if medically necessary, medicare payment to hospital is based on hospital cost

Coverage: Blood

Unlimited if medically necessary, medicare pays 80% of approved amount after the deductible after the third pint

Blood

Unlimited if medically necessary, medicare pays all but first 3 pints per calendar year

Exclusion Ratio

Used to determine the annuity amounts to be excluded from taxes. The annuitant is only able to recover the cost basis nontaxable. The cost basis is the principal amount, which is excluded from taxes. The rest of each annuity payment is interest that is taxable

Payor Benefit

Used with juvenile policies and functions like the waiver of premium rider if the policyowner (parent) is disabled for at least 6 months

Elimination Period

Waiting period that is imposed on the insured from the onset of disability until benefit payments commence. It is a deductible measured in days, instead of dollars

Waiver of Premium

Waives the premium for the policy if the insured becomes totally disable. Coverage remains until the insured is able to return to work.

Surrenders

When a policyowner surrenders a policy for cash value, any cash value in excess of premiums paid is taxable as ordinary income

Benefit Payment

When an annuity is used to fund a traditional IRA, distributions are fully taxable if contributions were made with pretax dollars. If there are no distributions at the required age, or distributions aren't large enough, the penalty is 50% of the shortfall from the required annual amount

Conversion Privilege

When an employer ceases doing business, terminated employees whose group coverage was discontinued on or before the date of termination of employment and who were not notified of coverage termination, are eligible, within 90 days, to purchase an individual comprehensive health care plan from the former insurer (required in CT)

Withdrawal of Interset and Principal

When money is withdrawn from the annuity during the accumulation phase, the amounts are taxed on a LIFO basis. So, all withdrawals are taxable until the owner's cost basis is reached. After all of the interest is received and taxed, the principal will be received with no tax consequences

Senior Protection in Annuity Transactions

When recommending the purchase of an annuity to a senior consumer, or the change of an annuity that results in other insurance transactions, a producer or insurer must have a reasonable belief that the recommendation is suitable

Riders

Written modifications attached to a policy that may add or delete benefits. Riders can result in additional or reduced premiums

Individual Life Insurance

Written on a single life. The rate and coverage is based upon the underwriting of that individual

Buy-Sell Plicy

Written to cover partners or corporate officer of a closely held business. The policy provides funds for the business organization to purchase the business interest of a disable partner. Premiums are not deductible, but the benefits are income tax free

Noncontributory Plan

• 100% of the eligible employees must be included, and the participants do not pay part of the premium. The employer pays the entire premium. • The reason is to guard the insurer against adverse selection and to reduce administrative costs

Right of Return

• 30 day free look period • Agent must provide "Notice Regarding Replacement"

Grace Period

• 7 days for weekly premiums • 10 days for monthly premiums • 31 days for all other premiums

Part A Eligibility Requirements

• A citizen or legal resident of US over age 65 and qualified for Social Security or Railroad retirement benefits • 65 years old or over and entitled to monthly social security benefits based upon the spouse's work record, and the spouse is at least 62 • Is younger than 65 but has been entitled to social security disability benefits for 24 months • Has End Stage Renal Disease • Has ALS (or Lou Gehrig's Disease)

Class of Beneficiaries

• A class of beneficiary is using a designation such as "my children" • Two types: - Per Capita - by the head (divided between beneficiaries) - Per Stirpes - by the bloodline (benefit paid to a dead beneficiary is split between his/her children)

Annuity

• A contract that provides income for a specified period of years, or for life • It protects a person against outliving his or her money • Annuities are NOT life insurance, but rather a vehicle for the accumulation of money and the liquidation of an estate • Annuities do NOT pay a face amount upon the death of the annuitant. In most caces, the payments stop upon the death of the annuitant

Medicaid

• A federal and state funded program for those whose income and resources are insufficient to meet the cost of necessary medical care. The federal government provides about 56 cents for every medicaid dollar spent and the states provide the balance • Eligibility - low income, blind/disabled/pregnant/over 65/caring for children receiving welfare

Permanent Life Insurance

• A general term used to refer to various forms of life insurance policies that build cash value and remain in effect for the entire life of the insured (or until age 100) as long as the premium is paid • The most common type of permanent insurance is whole life

Permanent Life Insurance

• A general term used to refer to various forms of whole life insurance policies that remain in effect to age 100, as long as the premium is paid. • Permanent insurance provides lifetime protection, and includes a savings element (or cash value)

Association Group

• A group of at least 100 members that must be organized for a reason other than buying insurance, have been active for at least 2 years, have a constitution, by-laws, and must hold at least annual group meetings • They may be either contributory or noncontributory

Connecticut Children's Health Insurance Plan (HUSKY)

• A health insurance program to help all children (up to age 19) who do not have health insurance • HUSKY Part A- services included under the traditional Medicaid program • HUSKY Part B - health services for children in higher income families • HUSKY Plus - coverage option for children who have intensive physical/behavioral health needs • Under Part A - no deductibles, copayments, or lifetime maximum limit • Under Part B - possibly requires cost sharing in the forms of premiums and copayments • Family income between 185-300% of federal poverty level are eligible for Part B

Connecticut Insurance Guaranty Association

• A nonprofit unincorporated legal entity. All insurers are members of the Association as a condition of their authority to transact insurance in the state • The Association is divided into 3 separate accounts: 1) Workers compensation 2) Automobile insurance account 3) An account for all other classes of insurance

Violating Fair Credit Reporting Act

• A person who knowingly and willfully obtains information on a consumer from a consumer reporting agency under false pretenses may also be fined and/or imprisoned for up to 2 years • An individual who unknowingly violates the Fair Credit Reporting Act is liable in the amount equal to the loss to the consumer • An individual who willfully violates this Act enough to constitute a general pattern or business practice will be subject to a penalty of up to $2,500 • Consumer reports cannot contain certain types of information if the report is requested in connection with a life insurance policy or credit transaction of less than $150,000. The prohibited info includes bankruptcies more than 10 years old, civil suits, records of arrest or convictions of crimes, or any other negative information that is more than 7 years old

Illustration

• A presentation or depiction that includes non-guaranteed elements of a policy of individual or group life insurance over a period of years

Social Insurance Supplements (SIS)

• A rider which will pay a benefit in the approximate amount that social security would pay, but if social security does in fact pay, the social insurance supplement benefit is reduced dollar for dollar by the social security benefit payment • It's used to supplement/replace benefits that might be payable under social security disability in 3 situations: - When the insured is elegible for social security but before the benefits begin - If the insured has been denied coverage under social security - When the amount payable under social security is less than the amount payable under the rider (only the difference will be paid)

Joint Life

• A single policy that is designed to insure two or more lives. They can be either term or permanent. The premium is less than it would be for the same type of coverage on the same individuals • The premium is based on a joint average age that is between the ages of the insureds • The death benefit is paid upon the first death only (ex: married couple)

Automatic Premium Loans

• A special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium. • If a loan and interest are not repaid and the insured dies, then it will be subtracted from the death benefit

Small Employer Medical Plans

• A state with small employers, every small employer is required to actively offer to small employers at least 2 health benefit plans (a basic health benefit plan and a standard health benefit plan) • Small Employer - any person or entity actively engaged in business or self employment for at least 3 consecutive months that employs no more than 50 eligible employees on 50% of business days during the preceding 12 months (includes self employed individuals) • The premiums must be such that the anticipated loss ratio is at least 75% of the premium

Simplified Employee Pensions (SEPs)

• A type of qualified plan suited for the small employer or self employed • In an SEP, an employee establishes and maintains an individual retirement account to which the employer contributes. Employee contributions are not included in the employee's gross income • You can contribute a much larger amount to an SEP than an IRA - $50,000 per year or 25% of the employee's compensation, whichever is less

Policy Summary

• A written statement describing features and elements of the policy being issued

403(b) Tax-Sheltered Annuities (TSAs)

• AKA tax deferred annuity, is a qualified plan available to employees of certain nonprofit organizations and to employees of public school systems

Types of Limited Policies

• Accident-only • Travel Accident • Specified (Dread) Disease • Hospital Indemnity (Income) • Credit Disability • Blanket Insurance • Prescription Drugs • Dental • Vision Care

2 Types of Perils

• Accidental Injury • Sickness

Distributions

• Accumulations are tax deferred • Any distributions are taxable, including withdrawals and policy loans • Distributions are taxed on LIFO basis • Distributions before age 59.5 are subject to 10% penalty

Penalties and Fines

• After a hearing, the commissioner may impose a fine up to $1,000 per violation for a producer that unknowingly engaged in an unfair method of competition or an unfair or deceptive practice. The aggregate amount cannot exceed $10,000 • If the producer willingly committed these acts, the penalty will be $5,000 per violation with a maximum aggregate amount of $50,000 in any 6 month period • A producer that violates a cease and desist order may be fined up to $10,000 per violation • A licensee who negotiates, continues or renews insurance contracts in any unauthorized company and neglects to file the required affidavits and statements will be fined up to $500, be imprisoned for 6 years, or both, and have a suspended license

Newborn Child Coverage

• All health insurance policies that include coverage for a family member must also provide coverage for a newborn child from the moment of birth • Notification of birth must be given within 61 days after date of birth

Reinstatement

• Allows a lapsed policy to be put back in force, with a time limit of usually 3 years after policy lapsed • Policyowner must pay back all premiums plus interest, but gets the original policy (all values from the insured's issue age)

Guaranteed Insurability Rider (Future Increase Option Rider)

• Allows an insured to increase the benefit level to a specific predetermined amount at certain times or on certain occasions without proof of insurability. Benefits may be increased usually at ages 25, 28, 31, 34, 37, and 40 or at marriage/birth of child

Individual Retirement Account (IRA)

• Allows individuals to make contributions with pretax dollars until the age of 70.5. Individuals who are age 50 or older are entitled to make additional catch-up contributions. Married couples double the individual amount, even if one person has earned income • Withdrawals may begin at age 59.5, but no later than age 70.5

Relation of Earnings to Insurance

• Allows the insurance company to limit the insured's benefits to his/her average income over the last 24 months. • If total monthly amount of loss of time benefits exceeds the monthly earnings of the insured at time of disability, or average monthly earnings for previous 2 years (whichever is greater), the insurer will only be liable for a proportionate amount of benefits

Executive Bonuses

• An arrangement where the employer offers to give the employee a wage increase in the amount of the premium on a new life insurance policy on the employee

Juvenile Life

• Any life insurance written on the life of a minor • The face amount increases at a predetermined age, usually 21, but the premium remains level

Information Sources for Underwriting

• Application • Producer Report - the agent's report • Attending Physician Statement - a statement from the applicant's physician • Investigative Consumer (Inspection) Report - report from an independent investigating firm or credit agency • Medical Information Bureau - nonprofit trade organization providing medical information • Medical Exams and Lab Tests (Including HIV)

ConnMAP

• Assures CT's lower income medicare part b enrollees that health care providers who agree to treat them will not charge more than medicare approved rates for services covered by medicare part B • People aged 65 or older and people disabled and over the age of 18 are eligible

SIMPLE Plans

• Available to small businesses that employ not more than 100 employees receiving at least $5,000 per year

Continuous Premium (Straight Life) Whole Life

• Basic whole life policy where the policyowner pays the premium from issuance until death or age 100 • Premium payments are the same throughout

Disciplinary Actions

• Before a hearing is held, the commissioner will issue and serve to the accused a statement of charges and notice of hearing to be held no less than 30 days from the date of notice • If, after a hearing, the commissioner determines that a person has engaged in an unfair method of competition or an unfair act of practice, the commissioner can issue a cease and desist order.

Workers Compensation

• Benefit offered and regulated by the states • To be eligible a worker must work in an occupation covered by workers comp • It provides four types of benefits: - Medical benefits - Income benefits - Death benefits - Rehabilitation benefits

Connecticut Minimum Benefit Standards

• Benefits payable after an insured's age 62 that are reduced solely on the basis of age must be at least 50% of the amount payable prior to age 62 • Elimination periods may not exceed the greater of 90 days in policies with a benefit period of 1 year or less, 180 days in policies with a benefit period between 1 and 2 years, and 365 days for policies with a benefit period of 2 years or more • The benefit period must be at least 6 months • Once benefits commence, no reductions in the benefit amount may be made in response to an increase in social security benefits

Managerial System

• Branch manager (supervises agents) • Salaried • Agents can be insurer's employees or independent contractors

Adjustable Life

• Can assume the form of either term or permanent insurance • The policyowner can increase/decrease the premium or premium-paying period, increase or decrease the face amount, or change the period of protection. • The policyowner can also convert from term to whole life or vice versa • The cash value of the policy only develops when the premiums paid are more than the cost of the policy

Settlement Options

• Cash Payment • Interest Only • Fixed Period Installments • Fixed Amount Installments • Life Income • Single Life • Joint and Survivor

Cash Value Increases

• Cash values grow tax deferred • Upon surrender, any cash value in excess of premium payments is taxable as ordinary income • Death benefits are generally paid income tax free

Optional Provisions

• Change of Occupation • Misstatement of Age • Other Insurance with this Insurer • Right to Examine (Free Look) • Insuring Clause • Consideration Clause • Renewability Clause • Noncancellable • Guaranteed Renewable • Conditionally Renewable • Renewable at Option of Insurer • Nonrenewable

Utilization Management

• Consists of an evaluation of the appropriateness, necessity, and quality of health care. Three types: • Prospective Review - physician submits claim information prio to providing treatment • Retrospective Review - employers/insurers evaluate the utilization review process and the effectiveness of the professionals involved in large claims • Concurrent Review - insurance company will monitor the insured's hospital stay to make sure that everything is proceeding according to schedule

Qualified Retirement Plan

• Contributions are currently tax deductible (creates tax benefits) • Plan approved by the IRS • Plan cannot discriminate • Earnings grow tax deferred • All withdrawals are taxed

Roth IRAs

• Contributions are not tax deductible • Excess contributions are subject toa 6% tax penalty • Grows tax free (if account opened for more than 5 yrs) • Distributions are not taxable and cannot occur until account is opened for 5 years and owner is 59.5 • Payouts don't have to begin by 70.5

Nonqualified Retirement Plan

• Contributions not currently tax deductible (no tax benefits) • Plan does not need IRS approval • Plan can discriminate • Earnings grow tax deferred • All withdrawals in excess over cost basis are taxed

Credit Life Insurance

• Coverage written to insure the life of the debtor and pay off the balance of a loan in the event of the death of the debtor • The creditor is the owner and beneficiary of the policy

Partial Disability

• Covers a partial loss of income when the insured is disabled to the point that he or she can still report to work, but is not able to perform all of the regular duties of the job (benefit is usually 50% of total disability benefit and is limited to a period of time)

Medicare Supplement Plan A Benefits

• Days 1-60 - coinsurance • Days 61-90 - the insured's share of hospital costs under medicare part a • After day 90 - lifetime reserve day up to 60 days over your lifetime • All costs for each day after the lifetime reserve days • The first 3 pints of blood • Part b coinsurance amout of 20%

Diagnostic/Preventive Treatment

• Dental insurance plans include diagnostic and preventive care (periodic teeth cleaning, fluoride treatments)

Events that Terminate Coverage For Dependents

• Dependent fails to meet the definition of a dependent • Date the overall maximum benefit for major medical benefits is received • End of the last period for which the employee has made the required premium for dependent coverage passes

Limited Payment Whole Life

• Designed so that the premiums for coverage will be completely paid up well before age 100 • Common versions are 20-pay life, where you pay the full coverage over 20 years, and life paid-up at 65, where you pay up until age 65

Employer Group Health Plans

• Disabled employees must be covered by large group health plans (100 members or more) • Employees with kidney failure must be covered for 30 months

Unfair Discrimination

• Discriminating solely because of a physical or mental impairment • Discrimination due to blindness or partial blindness • Investigating as part of the underwriting process a proposed insured's sexual orientation

Nonparticipating (Stock) Insurance

• Does not pay dividends to policyowners; however, taxable dividends are paid to stockholders • The safety margin is narrower because the cost of the insurance to the policyholder cannot be adjusted at a later time. The premium charged must reflect the actual cost of providing the insurance

Contributory Plan

• Eligible employees contribute to payment of the premium (both employee and employer pay part of the premium) • At least 75% of all eligible employees must participate in the plan

Events that Terminate Coverage For Employees

• Employment terminates • Employee ceases to be eligible • At the date the overall maximum benefit for major medical benefits is received • At end of the last period for which the employee has made the required premium payments comes about • Master contract is terminated

Modified Endowment Contracts (MECs)

• Endowment life insurance policies promise to pay the face amount if the insured survives until the end of a specified period, and if the insured dies within the same specified period • Endowments require premiums far in excess of the amount required to fund the death benefit

Fair Credit Reporting Act

• Establishes procedures that consumer reporting agencies must follow in order to ensure that records are confidential, accurate, relevant, and properly used. The law also protects consumers against the circulation of inaccurate or obsolete information • Two types of additional reports: Consumer Reports and Investigative Consumer Reports • If a policy is declined or modified because of info contained in either a consumer or investigative report, the consumer has the right to know what was in the report and who received a copy • If a report is found to be inaccurate, the agency must correct the info and send it to all parties who had reported the inaccurate information within the last 2 years

Uniform Individual Accident and Sickness Policy Provisions Law

• Establishes standard provisions that are to be included in all individual health insurance policies. • Defines the rights and duties of both the insurer and the policyholder

Temporary Insurance Producer

• Expire after 180 days unless temporary producer passes a license examination • For a license to be issued, it must be deemed necessary by the Commissioner in the following cases: - Surviving spouse or court appointed personal representative of a licensed insurance producer who dies or becomes mentally/physically disabled - To a member or employee of a business entity licensed as an insurance producer, upon death of an individual licensed insurance producer entering active service in the US armed forces - Any circumstance where Commissioner deems that the public interest will be best served by issuing the license Rules Concerning Temporary Licenses: • Commissioner may limit the authority of the licensee in any way • Commissioner may require licensee to have a suitable sponsor • Commissioner may revoke temporary license • Temporary license may not continue after the owner disposes of the business

Disqualifying Events for COBRA Benefits

• Failure to make premium payment • Becoming covered under another group plan • Becoming eligible for Medicare • If the employer terminates all group health plans

Decreasing Term

• Feature a level premium and a death benefit that decreases each year over the duration of the policy term • It's used most when the amount of needed protection is time sensitive (ex: covering mortgage payments in case of death)

Skilled Nursing Facility Care

• First 20 days - medicare pays 100% of approved amount • Days 21-100 - medicare pays all but daily deductible • Beyond 100 days - you pay everything

Hospitalization Coverage

• First 60 days - medicare pays all but deductible • Days 61-90 - medicare pays all but daily deductible • After day 90 (up to 60 days) - medicare pays all but daily deductible • After lifetime reserve days - you pay all costs

Annuity Investment Options

• Fixed Annuities • Variable Annuities

Interest Sensitive Whole Life

• Fixed premium whole life policy that provides a guaranteed death benefit to age 100. • It credits the cash value with the current interest rate that is comparable to money market rates, meaning you may have greater cash value accumulation or a shorter premium-paying period

Home Health Care

• For as long as you meet medicare requirements, medicare pays 100% of approved amount and 80% of the approved amount for durable medical equipment

Medicare Secondary Rules

• For individuals who are age 65 or older, currently employed (or insured under a working spouse's group plan), working for an employer who has 20 or more employees - Group plan is primary and medicare is secondary • For individuals who are age 65 or older, currently employed (or insured under a working spouse's group plan), working for an employer who has fewer than 20 employees - Group plan is secondary and medicare is primary • For individuals who are under age 65 and disabled, currently employed (or insured under a working spouse's group plan), working for an employer who has 100 or more employees - Group plan is primary and medicare is secondary • For individuals who are eligible for medicare due to end-stage renal disease (ESRD) - Group plan is primary for the first 30 months and medicare is secondary afterwards

Coordination of Benefits Provision (COB)

• Found only in group health plans, the purpose is to avoid duplication of benefit payments and overinsurance when an individual is covered under multiple group health insurance plans • It limits the total amount of claims paid from all insurers covering the patient to no more than the total allowable medical expenses • COB provision establishes which plan is the primary plan. Once the primary plan has paid its full promised benefit, the insured submits the claim to secondary, or excess, provider for any additional benefits payable

Policy Loan Option

• Found only in policies that contain cash value • The policyowner is entitled to borrow an amount equal to the available cash value

Producer's Responsibilities in Using Illustrations

• General Rules and Disclosures - a producer may use only the illustrations of an insurer that have been approved and may not change them in any way • Not Part of a Contract - an illustration must clearly state that it is not part of the contract • Values Not Guaranteed - a producer cannot use or describe non-guaranteed elements in a misleading manner • Delivery of Illustrations - a producer cannot provide an applicant with an incomplete illustration • Penalties - any insurer or producer who violates a requirement of this regulation may be found in violation of other State laws or regulations

Regulatory Jurisdiction

• Group insurance can provide coverage for employees in more than one state • The state in which the coverage was delivered would have jurisdiction. Multi-state policies are acceptable if the policy is approved by the issuing state, written in substantial compliance with the laws of the delivery state, and if the laws governing group insurance are substantially similar between the issuing state and the delivery state

Physically/Mentally Handicapped Dependents

• Group or individual policies that provide for termination of a dependent child's coverage at a specified age cannot terminate if the child is incapable of self supporting employment because of m ental or physical handicap and is chiefly dependent upon policyholder • Proof of incapacity and dependency must be submitted within 31 days of child's attainment of limiting age

Continuation of Coverage

• In cases of a layoff, termination of employment, reduction of hours, or leave of absence, continuation of coverage must be provided according to the federal regulations established by COBRA • Upon an employee's death, continuation of coverage must be available to the covered dependents • During an employee's absence due to an illness or injury, continuation of coverage must be available for 12 months from the beginning of such absence

Group vs. Individual Plans

• Group plans specify the benefits based on a percentage of the worker's income, while individual policies usually specify a flat amount • Short term grou plans provide maximum benefit periods of 13 to 26 weeks, with weekly benefits of 50% to 100% of the individual's income. Individual short term plance have maximum benefit periods of 6 months to 2 years • Group long term plans provide maximum benefit periods of more than 2 years, with monthly benefits usually limited to 60% of the individual's income • Group plans have minimum participation requirements. The employee usually must have worked for 30 to 90 days prior to being eligible • Group plans usually make benefits supplemental to benefits received under workers comp • Some group disability plans limit coverage to only nonoccupational disabilities

Corporate Owned Annuities

• Growth in the annuity is not tax deferred • Interest income is taxed annually unless the corporation owns a group annuity for its employees and each employee receives a certificate of participation

HIPAA Regulations for Switching from Group Plan to Individual Policy

• Have 18 months of continuos creditable health coverage • Have been covered under a group plan in most recent insurance • Have used up any COBRA or state continuation coverage • Not eligible for Medicare/Medicaid • Not have any other health insurance • Apply for individual health insurance within 63 days of losing prior coverage

Responsibilities of Field Underwriter

• Helping prevent adverse selection • The proper solicitation of applicants • Completing the application • Obtaining the required signatures • Collecting the initial premium and issuing the receipt, if needed • Delivering the policy

Surrender Charges

• Helps compensate the company for loss of the investment value due to an early surrender of a deferred annuity. A surrender charge is levied against the cash value, and is usually a percentage that reduces over time • At surrender, the owner gets the premium, plus interest (the value of the annuity), minus the surrender charge

Cost of Living Adjustment (COLA) Rider

• Helps protect against inflation • The insured's monthly benefit will be increased automatically, once claim payments have begun

COB Order of Payments

• If a married couple both have group coverage in which they are each named as dependents on the other's policy, the the person's own group coverage will be considered primary • If both parents name their children as dependents under their group policies, then the order of payment is determined by the birthday rule (older parent's birthday is considered primary). Occasionally, gender rule applies and father's coverage is primary • If parents are divorced/separated, the policy of the parent who has custody of the children will be considered primary

Reporting of Actions

• If any administrative action is taken against a producer, and if this occurs in another jurisdiction or by another governmental agency in this state, the producer must notify the Commissioner no later than 30 days after the final disposition of the matter. • The report must include a copy of the order, consent to order, or other relevant legal documents • No later than 30 days after the initial pretrial hearing date, a producer must report to the Commissioner any criminal prosecution taken against the producer in any jurisdiction

Change of Occupation

• If insured makes a change to a more hazardous occupation, benefits will be reduced to that which premiums paid would have purchased assuming the more hazardous occupation • If change is to less hazardous occupation, insured is entitled to apply for a rate reduction

Amounts Received by Beneficiary

• If owner dies before distributions have begun, the entire interest must be distributed in full on or before December 31 of calendar year that contains the 5th anniversary of the owners death, unless the owner named a beneficiary • If a beneficiary is named, the interest payable may be distributed over the life of the beneficiary beginning no later than Dec 31 of the year following the owner's death • If the beneficiary is the owner's spouse, he/she may choose to receive distributions by Dec 31 of year following owner's death or leave the money in the tax-deferred account until the calendar year when owner would have reached age 70.5

Life with Guaranteed Premium (Refund Life)

• If the annuitant dies before the principal amount has been paid, the remainder of the principal will be refunded to the beneficiary. It guarantees that the entire principal will be paid out. • Two Types: - Cash Refund - Installment Refund

Effective Date of Coverage

• If the initial premium is not paid with the application, the agent will be required to collect the premium at the time of policy delivery. The policy does not go into effect until the premium has been collected • If the full premium was submitted with the application and the policy was issued as requested, the policy coverage would generally coincide with the date of application

2 Payment Options (Timing)

• Immediate Annuity - purchased with a single lump sum payment and provides income payments that start within one year from date of purchase • Deferred Annuity - income payments begin sometime after one year from the date of purchase. Deferred annuities can be funded with either a single lump sum or through periodic payments

Preferred Provider Organizations (PPOs) and Point of Service Plans (POS)

• In PPOs, physicians are paid fees for their services rather than a salary • In a POS, doctors are paid a set amount regardless of the amount of services performed • Open Panel feature - when a medical caregiver provides service to its members but also can treat non members • Closed Panel feature - medical caregiver only treats its members • PPO and POS plans allow for out-of-network provider access but it's more expensive • In PPOs, the insured does not have to select a primary care physician. In POSs, the participants usually have access to a provider network controlled by a primary care physician, but they have the option to seek care outside the network

"Donut Hole"

• In Part D • You have to pay a monthly premium and deductible. After the deductible is paid, the plan would provide 75% of prescription drug costs until a benefit limit is reached. Once this limit is reached, a gap called a donut hole occurs, in which the beneficiary is responsible for a portion of prescription drug costs

Acting as an Agent

• In order to transact insurance as a representative of an insurance company, an insurance producer must be appointed by that insurer • The insurer must file a notice of appointment with the Insurance Department within 15 days of when the agency contract is executed or the first insurance application is submitted to the insurer by that producer • Upon receiving the notice of appointment, the Commissioner has 30 days to verify that the producer is eligible for appointment. If the producer is determined ineligible, the Commissioner must notify the insurer no later than 5 days after the determination

Part A Enrollment Options

• Initial enrollment period - when an individual first becomes eligible for medicare (starting 3 months before turning age 65, ending 3 months after the 65th birthday) • General enrollment period - between January 1st and March 31st each year • Special enrollment period - at any time during the year if the individual or his/her spouse is still employed and covered under a group health plan

Commissions

• Insurance companies and producer cannot pay a commission, service fee, brokerage, or other valuable consideration to a person for selling/soliciting/negotiating insurance in this state if the person is required to be licensed but is not • Persons cannot accept a commission/service fee/brokerage/etc. for selling/soliciting/negotiating insurance in this state if the person is required to be licensed but is not • Renewal or other deferred commissions may be paid to a person for selling/soliciting/negotiating (or who doesn't) insurance in this state if the person was licensed at the time (unless payment violates state laws) • An individual found in violation will be subject to a fine (between $250 and $2,500), imprisonment (between 30 and 90 days), or both

Group Life Insurance

• Insurance written on a group of individuals • Two features that distinguish group from individual insurance: - Evidence of insurability is usually not required - Insureds under the plan do not a receive a policy because they do not own/control the policy - instead they receive a certificate of insurance • A master policy/contract is issued to the sponsor of the group (employer)

No-Loss/No-Gain Statutes

• Involve the theory of indemnification and the concept of placing the insured in the same economic position after a loss as the insured was in prior to a loss • When changing health insurance, benefits must be paid for ongoing claims regardless of pre-existing conditions

Key Person Insurance

• Key Person - Someone who has specialized knowledge, skills or business contacts • With this coverage, the key employee is the insured, and the business is the applicant, policyowner, premium payer, and beneficiary

Patient Protection and Affordable Care Act (PPACA)

• Law passed in 2010 that will be fully effective in 2018 • Mandates increased preventive, educational, and community based health care services and helps lower cost of health insurance • Sets up new competitive private health insurance market • Keeps premium low • Stabilizes budget/economy • Extend dependent children coverage to age 26 • Eligibility - citizen of US, uninsured for at least last 6 months, have a pre-existing condition or have been denied coverage because of condition

Key Characteristics of Whole Life Insurance

• Level Premium - the premium for whole life policies is based on the issue age, so it's the same throughout the life of the policy • Death Benefit - the death benefit is guaranteed and also remains level for life • Cash Value - the cash value of the accumulation of premium equals the face amount of policy at age 100 • Living Benefits - the policyowner can borrow against the cash value while the policy is in effect, or can receive the cash value when the policy is surrendered

Variable Life Insurance

• Level, fixed premium, investment based product. It is a combination of decreasing term insurance and an investment fund. The cash value is not guaranteed and fluctuates with the performance of the portfolio in which the premiums have been invested by the insurer

Limited vs. Comprehensive Policies

• Limited Policies - Only cover specific accidents or diseases • Comprehensive Policies - Covers all sickness or accidents that are not specifically excluded

Types of Plans

• Major Medical Insurance (Indemnity Plans) • Health Maintenance Organizations (HMOs) • Preferred Provider Organizations (PPOs) • Point of Service Plans (POS) • Connecticut Children's Health Insurance Plan (HUSKY) • High Deductible Health Plans (HDHPs)

HSA Contribution Limits

• Minimum deductibles - $1,150 for singles and $2,300 for families

Unfair Claim Settlement Practices

• Misrepresenting pertinent facts or insurance policy provisions relating to coverages • Failing to address issues related to claims within a reasonable period of time • Failing to implement reasonable standards for the prompt investigation of claims ETC.

Premium Payment Mode

• Mode refers to the frequency the policyowner pays the premium • Higher frequency --> higher premium, because the company has to pay charges to bill the premium • Monthly > Quarterly > Semi-Annual > Annual

Policy Loans

• Money borrowed against the cash value is not income taxable, but the insurance company charges interest on outstanding policy loans

Net and Gross Premium Formulas

• Mortality - Interest = Net Premium • Net Premium + Expense (loading) = Gross Premium • Mortality - Interest + Expense (loading) = Gross Premium

Factors in Premium Determination

• Mortality - the rate of death (determined by mortality tables) • Interest - insurance companies invest the premiums they receive in order to lower the premium rate • Expense

Level Term

• Most common type of term insurance • The death benefit does not change throughout the life of the policy

Variable Annuities

• Serve as a hedge against inflation, are variable from the standpoint that the annuitant may receive different rates of return on the funds that are paid into the annuity

Outlines of Coverage

• Must be provided to applicants for health insurance at the time of application or at the time of policy delivery • Must describe the following policy features: - The terms and benefits provided by the policy - The policy's exclusions, reductions or limitations of coverage - Renewal provisions - A statement that says that this is only a summary and does not represent the actual policy • It does NOT outline the policy's premium

Time Limit on Certain Defenses

• No statement or misstatement (except fraudulent misstatements) made in the application at the time of issue will be used to deny a claim after the policy has been in force for 2 years • Also, if a pre-existing condition exists, coverage will not be afforded during the first 2 years

Connecticut HIPAA Alternative Health Reinsurance Association

• Nonprofit legal entity that includes all insurers, health care centers, and self insurers authorized to transact business in this sate

Dividends

• Not considered income for tax purposes • Dividends left to the insurer to accumulate interest are taxed on the accumulated interest only

Claim Procedures

• Notice by the insured to the insurer is required within 20 days of the loss • Claimant must submit proof of loss within 90 days of the loss

Occupational vs. Nonoccupational Coverage

• Occupational Coverage - provides benefits for illness, injury or disability resulting from accidents/sicknesses that occur on or off the job • Nonoccupational Coverage - only covers claims that result from accidents or sicknesses off the job (it's assumed accidents on the job will be covered by worker's compensation)

High Deductible Health Plan (HDHPs)

• Often used in coordination with MSAs, HSAs, or HRAs. • Features higher annual deductibles and out of pocket limits than traditional health plans, which means lower premiums • Except for preventive care, the annual deductible must be met before the plan will pay benefits

4 Parts of Medicare

• Part A - Hospital Insurance, financed through a portion of the payroll tax • Part B - Medical Insurance, financed from monthly premiums paid by insureds and from the general revenues of the federal government • Part C - allows people to receive all of their health care services through available provider organizations • Part D - prescription drug coverage

Part B - Medical Insurance

• Part B pays for doctor's services and a variety of other medical services and supplies that are not covered by hospital insurance. Most of the services needed by people with permanent kidney failure are covered only by medical insurance • Part B is optional and offered to everyone who enrolls in Part A. IT is funded by monthly premiums and from the general revenues of the federal government

Accidental Death and Dismemberment

• Pays for accidental losses only, so it's considered a pure form of accident insurance • Principal sum is paid for accidental death • In case of accidental dismemberment or loss of sight in one eye, a percentage of that principal sum will be paid by the policy, aka the capital sum

Key Person Disability Income

• Person's economic value to the business is determined in terms of the potential loss of business income which could occur as well as the expense of hiring and training a replacement for the key person. • The contract is owned by the business, the premium is paid by the business, and the business is the beneficiary

Medigap Plan Benefits

• Plan B - core benefits plus medicare part a deductible • Plan C - core benefits, medicare part a deductible, skilled nursing facility coinsurance, medicare part b deductible and the foreign travel benefit • Plan D - core benefits, medicare part a deductible, skilled nursing facility coinsurance, and the foreign travel benefit • Plan F - core benefits, medicare part a deductible, skilled nursing facility coinsurance, medicare part b deductible, 100% of medicare part b excess charges and the foreign travel benefit • Plan G - core benefits, medicare part a deductible, skilled nursing facility coinsurance, 100% of medicare part b excess charges, and the foreign travel limit. It must pay for services of activities of daily living medicare doesn't cover • Plan K - 50% of the medicare part A deductible and 50% of skilled nursing facility coinsurance • Plan L - 75% of medicare part a deductible and 75% of skilled nursing facility coinsurance • Plans M and N - provide benefits similar to plan D, but the copays and deductibles might be different

Medigap

• Policies issued by private insurance companies that are designed to fill in some of the gaps of medicare (deductibles, copayment requirements, and benefit periods) • They are sold by private insurers and HMOs • It has open enrollment of a 6 month period that guarantees the applicant the right to buy medigap once they sign up for medicare part b

Requirements at Delivery of Policy

• Policy review • Statement of good health (statement testifying the insured's continued good health)

Modified Whole Life

• Policy that charges a lower premium in the first few policy years, usually first 3 to 5 years, and then a higher level premium for the remainder of the insured's life • Designed to be more attractive to young individuals

HIPAA Pre-Existing conditions

• Pre-existing condition - employee sought medical help within previous 6 months • Grou plans can impose 12 month waiting period before pre-existing conditions can be covered

Considerations in Replacing Accident and Health Insurance

• Pre-existing conditions (excluding: pregnancies, routine follow ups, generic information cannot be treated as a condition if there is no diagnosis) • Credit for previously satisfied pre-existing condition exclusion • Benefits, limitations, and exclusions • Underwriting requirements

Classification of Risk

• Preferred Risks - those who meet certain requirements and qualify for lower premiums than standard risk • Standard Risks - persons who are entitled to insurance protection without extra rating or special restrictions • Substandard Risks - applicants who are not acceptable at standard rates because of physical condition, personal or family history of disease, occupation, or dangerous habits. They may be issued with the premium rated-up, meaning a higher premium

Civil Rights Act/Pregnancy Discrimination Act Applicability

• Pregnancy, childbirth and any related medical conditions must be covered to the same extent as any other medical condition under the policy. The act applies to employers with 15 or more employees. • The law outlines regulations for employers to prevent pregnancy discrimination: - A woman cannot be fired just because she is or may become pregnant - An employer cannot refuse to hire a woman simply because she is or may become pregnant - An employer cannot force a woman to stop working and take pregnancy leave if she is still willing and able to work - In most cases, an employer cannot hire or fire a woman because she has had or is considering an abortion

Group Long-Term Care

• Premiums - deductible for employer • Benefits - not taxable

Group Medical

• Premiums - deductible for employer • Benefits - not taxable

Group Medicare Supplement

• Premiums - deductible for employer • Benefits - not taxable

Group Disability Income

• Premiums - deductible for employer • Benefits - taxable • Noncontributory - the employer pays the entire cost, so the income benefits are included in the employee's gross income and taxed as ordinary income • Fully Contributory - the employee pays the entire cost, so the income benefits are received income tax free by the employees • Partially Contributory - the cost is paid partially by the employer and partially by the employee. The portion paid by the employee is received income tax free and the portion paid by the employer is included in the employee's gross income and taxed as ordinary income • Short term disability plans usually have a benefit period of less than 2 years, while long term group plans usually pay benefits for 2 years or longer

Buy-Sell

• Premiums - not deductible • Benefits - not taxable

Individual Disability Income

• Premiums - not deductible • Benefits - not taxable

Key Person

• Premiums - not deductible • Benefits - not taxable

HSAs

• Premiums - not deductible • Benefits - not taxable when used for medical expenses. It's taxable plus 10% penalty under 65, no penalty over 65 for non-medical use

**Tax Considerations for Life Insurance and Annuities

• Premiums - not deductible • Death benefit - not income taxable (Except for interest) • Cash Value Increases - not taxable (as long as policy in force) • Cash Value Gains - taxed at surrender • Dividends - not taxable (interest is taxable, however) • Accumulations - interest taxable • Policy Loans - not income taxable • Surrenders - surrender value - past premium = amount taxable • Partial Surrenders - FIFO • Settlement Options - death benefit spread evenly over income period. Interest payments in excess of death benefit portion are taxable • Estate Tax - if insured owns the policy, it's included for estate tax purposes. If policy given away and insured dies within 3 years, the death benefit is included in the estate

Individual Long-Term Care

• Premiums - not deductible, unless combined premiums and unreimbursed medical expenses exceed 7.5% of adjusted gross income, and subject to the tax-qualified limitations • Benefits - not taxable

Individual Medical

• Premiums - not deductible, unless combined premiums and unreimbursed medical expenses exceed 7.5% of adjusted gross income, and subject to the tax-qualified limitations • Benefits - not taxable

Individual Medicare Supplement

• Premiums - not deductible, unless combined premiums and unreimbursed medical expenses exceed 7.5% of adjusted gross income, and subject to the tax-qualified limitations • Benefits - not taxable

Tax Treatment of Features

• Premiums - not tax deductible • Cash value exceeding premiums paid - taxable at surrender • Policy loans - not income taxable • Policy dividends - not taxable • Dividend interest - taxable in the year earned • Lump-sum death benefit - not income taxable

Taxation of Personal Life Insurance

• Premiums - not tax deductible • Death Benefit - tax free if taken as a lump sum distribution to a named beneficiary • Death Benefit Paid in Installments - principal is tax free, interest is taxable

Experience Rating

• Premiums are determined by the experience of this particular group as a whole

Graded Premium Whole Life

• Premiums start out low then gradually increase each year for around 5 to ten years then level off

Uses of Annuities

• Principal use: retirement • Lump Sum Settlements (managing lump sums) • Qualified Retirement Plans • Education Funds

Renewal of License

• Producer's license continues in force until it is suspended, cancelled, or revoked • License will expire every 2 years on the producer's birthday. The commissioner will notify the producer of the expiration date at least 30 days before the license expires • A producer who has allowed his/her license to lapse may reinstate the license no later than 12 months after the due date of the renewal fee without being required to pass a written exam. The payments double after the due date, however • A license issued to a certified insurance consultant remains in force until September 30th of each odd-numbered year unless revoked or suspended sooner

Profit Sharing and 401(k) Plans

• Profit sharing plans are qualified plans where a portion of the company's profit is contributed to the plan and shared with employees • A 401(k) allows employees to take a reduction in their current salaries by deferring amounts into a retirement plan, which the company then matches (either dollar for dollar or on a percentage basis) • Employer contributions must be systematic and substantial • A 401(k) may be arranged as: 1) Pure salary reduction plan 2) Bonus plan 3) Thrift plan

Investigative Consumer Reports

• Provide information on the consumer's character, reputation, and habits. The primary difference is that the information is obtained through an investigation and interviews with associates, friends and neighbors of the consumer. • These reports cannot be made unless the consumer is advised in writing about the report within 3 days of the date the report was requested. • The consumers must be advised that they have a right to request additional information concerning the report, and the insurer or reporting agency has 5 days to provide customer with the information

Level Premium Term

• Provides a level death benefit and level premium during the policy term

Buyer's Guide

• Provides basic, generic information about life insurance policies that contains, and is limited to, language approved by the Department of Insurance

Residual Disability Benefit

• Provides benefits for loss of income when a person returns to work after a total disability, but is still not able to work as long or at the same level he/she worked before becoming disabled. • If person can only work part time or at a lesser paying position, the benefit pays the difference of what they were earning prior to disability

Health Maintenance Organizations (HMOs)

• Provides benefits in the form of services rather than in the form of reimbursement for services • HMO provides both the financing and patient care for its members • Its services are limited to those living within specific geographic boundaries • HMOs limit the choice of providers • Copayments are required at each visit • HMOs are on a prepaid basis, meaning it's a prepaid medical plan • Individuals must choose their primary care physician (gatekeeper), who is then regularly compensated for being responsible for that individual • Emergency care is provided in or out of the HMOs service area

Franchise Insurance

• Provides health coverage for small groups whose numbers are too small to qualify for true group insurance. • Individual underwriting is done for each person • Premiums are generally less than for an individual policy, but more than group coverage

Whole Life Insurance

• Provides lifetime protection, and includes a savings element. • The cash value created by the accumulation of premium equals the face amount of the policy at age 100

Major Medical Insurance (Indemnity Plans)

• Provides protection against catastrophic loss. • It has high maximum limits, blanket coverage, coinsurance, and a deductible. Dollar deductibles are paid up front and the coinsurance, or sharing of the cost, is paid after the deductible is met and the claim is submitted. • Exclusions from Coverage: Injuries caused by war, self-inflicted injuries, injuries covered by workers comp, cosmetic surgery, etc. • Stop Loss Feature - When the insured's out of pocket expenses reach the stop loss amount, the insurance company then provides coverage at 100% • Usually has maximum benefits (lifetime)

Term Life Insurance

• Provides pure death protection over a period of time: - If the insured dies during this term, the policy pays the death benefit to the beneficiary - If the policy is canceled or expires prior to the insured's death, nothing is payable at the end of the term - There is no cash value or other living benefits • There are three types: Level, Increasing, and Decreasing

Life Contingency Options

• Pure Life • Life with Guaranteed Minimum

Annually Renewable Term

• Purest form of term insurance • The death benefit remains level, and the policy may be guaranteed to be renewable each year without proof of insurability, but the premium increases annually according to the attained age, as the probability of death increases

Characteristics of Group Plans

• Purpose of the group - the group must be created for a purpose other than obtaining insurance • Size of the group - the larger the group, the more accurate the projects of future loss • Turnover of the group - a group should have steady turnover, lower risk employees enter the group as high risk older employees leave • Financial strength of the group - the underwriter should consider whether the group can afford the premiums or be able to renew coverage • If an employee terminates membership in the group, the employee has the right to convert to an individual whole life policy without proving insurability at a standard rate (coverage also lasts for 31 days after leaving the group)

Participating (Mutual) Life Insurance

• Refers to any policy that distributes its non-taxable dividends to policyowners by cash payments, reduced premiums, units of paid up insurance, a savings program, or by the purchase of term insurance • The participating concept permits the insurer to establish a more generous margin in the form of an overchange on premiums, which will be returned to the policyholder if not needed

Consolidated Omnibus Budget Reconciliation Act (COBRA)

• Requires any employer with 20 or more employees to extend group health coverage to terminated employees and their families after a qualifying event • Qualifying events: - Voluntary termination for employment - Termination of employment for reasons other than gross misconduct (e.g. employee downsizing) - Employment status change: from full time to part time • For these qualifying events, coverage is extended up to 18 months • Employee must exercise extension benefits within 60 days of separation from employment • The employer is permitted to collect a premium from the employee at a rate of no more than 102% of the individual's group premium rate (to cover employer's administrative costs) • For events such as death of the employee, divorce/legal separation, the period is 36 months for the dependents

Types of Licensees

• Resident Producers • Nonresident Producers • Certified Insurance Consultants • Temporary Insurance Producers

Rollovers and Transfers (IRAs and Qualified Plans)

• Rollover - a tax free distribution of cash from one retirement plan to another. Rollovers must be completed within 60 days from the time the money is taken out of the first plan. (Direct rollovers are when transfer is made to trustee/administrator of new IRA plan) • Transfer - tax free transfer of funds from one retirement program to a traditional IRA or a transfer of interest in a traditional IRA from one trustee directly to another

Common Situations for Errors/Omissions

• Sales interview • Policy delivery

Survivorship Life (Second-to-die)

• Same as joint life but it pays on the last death rather than upon the first death

Annuities Certain

• Short-term annuities that limit the amounts paid to a certain fixed period or until a certain fixed amount is liquidated • Two Types: - Fixed-Period Installments - pays for a specified period of time only, whether or not the annuitant is living - Fixed-Amount Installments - pays a specific amount until funds are exhausted, whether or not the annuitant is living

2 Payment Options (Amount)

• Single payment (lump sum) • Periodic payments - can be either level premiums (fixed installment) or flexible premiums (amount and frequency varies)

Qualifications for Disability Benefits

• Social security uses the Quarter of coverage system to determine if you're qualified for benefits. The type/amount of benefits is determined by the amount of credits or QCs a worker has earned

Policy Issue Process

• Solicitation and Sales Presentations --> • --> Underwriting • --> Premium Determination • --> Policy Issue and Delivery

Taxation of Traditional IRAs

• Tax deductible contributions for the year of the contribution • Contributions must be made in "cash" in order to be tax deductible • Tax deferred accumulation • Distributions are subject to income taxation, but a 10% penalty may also apply Companies can waive the 10% penalty for early withdrawals if: • Participant is age 59.5 • Participant is totally disabled • Money is used to make the down payment on a home • Withdrawals are for post-secondary education • Withdrawals are for catastrophic medical expenses or upon death

Term Life Insurance

• Temporary life insurance provided for a specific period of time (AKA pure life insurance)

Fixed Annuities

• The annuitant knows the exact amount of each payment received from the annuity during the annuity period • Disadvantage: inflation may erode purchasing power over time

Benefit Limits

• The benefit must be large enough to allow the insured to maintain a lifestyle similar to that prior to the disability • The benefit may not exceed the amount earned by the insured prior to the disability

Equity Indexed Whole Life

• The cash value is dependent upon the performance of the equity index although a minimum cash value is guaranteed. • The premium is fixed, and the death benefit is guaranteed

Increasing Death Benefit Option

• The death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases • The pure insurance remains level for life, so expenses are much greater than for level death benefit options

Level Death Benefit Option

• The death benefit remains level while the cash value gradually increases, thus lowering the pure insurance in later years. • The pure insurance decreases over time, lowering expenses, and allowing for greater cash value in older years

Guaranteed Renewable

• The insurance company cannot cancel a noncancellable policy, but the insurance company can increase the premium • The insured has the right to renew the policy for the life of the contrac • The insurer may increase premiums on a class basis only and not on an individual policy • The guarantee to renew coverage only applies until the insured reaches 65

Noncancellable

• The insurance company cannot cancel a noncancellable policy, nor can the premium be increased beyond what is stated in the policy • The insured has the right to renew the policy for the life of the contract, the insurer cannot increase the premium • The guarantee to renew coverage only applies until the insured reaches 65

Accumulation (Pay-In) Period

• The period of time over which the annuitant makes payments (premiums) into an annuity and the payments earn interest on a tax deferred basis

Beneficiary

• The person who receives annuity assets if the annuitant dies during the accumulation period

Annuitant

• The person who receives benefits or payments from the annuity, whose life expectancy is taken into consideration, and for whom the annuity is written • The annuitant and the owner do not need to be the same person • The annuitant MUST be a natural person

Single Premium Whole Life

• The policy is completely paid up after a one-time, lump sum payment that generates immediate cash

Assignment

• The policyowner can transfer the ownership of the policy to another person without consent of the insurer and it will not change the insured or amount of coverage • Two types of policy assignment - Absolute Assignment - Collateral Assignment

Universal Life

• The policyowner has the flexibility to increase the amount of premium going paid into the policy and later decrease it, or even skip paying a premium as long as there's enough cash value to deduct the payment • Policyowner has two choices of premiums: - Minimum Premium - the amount needed to keep the policy in force for the current year - Target Premium - amount that needs to be paid to keep the policy in force throughout its lifetime • Universal Life is interest sensitive, meaning the policyowner may get the current interest rate • Universal Life has two components: an insurance component and a cash account. The insurance component is always annually renewable term insurance

Owner of Annuity

• The purchaser of the annuity contract, but doesn't necessarily receive the benefits • The owner has all of the rights, and may be a corporation, trust, or other legal entity

Underwriting

• The risk selection and classification process. It involves a careful analysis of many different factors to determine the acceptability of applicants for insurance. • Essentially, it's the process to determine whether or not an applicant is insurable. • The agent is the field underwriter

Application (2 Parts)

• The starting point and basic source of information used by the company in the risk selection process • Part 1: General Information - includes the general questions about the applicant, such as name, age, address, birth date, gender, income, marital status, and occupation. Identifies policy type and amount of coverage • Part 2: Medical Information - includes information on the prospective insured's medical background, present health, any medical visits in recent years, medical status of living relatives, and causes of death of deceased relatives

Annuity (Annuitization/Liquidation/Pay-Out) Period

• The time during which the sum that has been accumulated during the accumulation period is converted into a stream of income payments to the annuitant ( may last for the lifetime of the annuitant or a specified period)

Exclusions

• The types of risks the policy will not cover. For example, exclusions are aviation, hazardous occupation, and war and military service • Suicide provision will not pay death benefits if suicide is committed within 2 years following the policy effective date • War Service: - Status Clause - excludes all causes of death wile insured is on active duty - Results Clause - excludes the death benefit if the insured is killed as a result of an act of war

Part C - Medicare Advantage

• To be eligible, beneficiaries must also be enrolled in medicare parts a and b • • It is medicare provided by an approved health maintenance organization or preferred provider organization • It also provides more focused and specialized health care for specific groups of people (people in nursing home, chronic conditions)

Three Main Characteristics of Variable Annuities

• Underlying Investment - the payments that the annuitant invests into the variable annuity are invested in the insurer's separate account, not their general account (not subjected to restrictions) • Interest Rate - no guarantee of a minimum interest rate • License Requirements - variable annuities are considered securities and are regulated by the SEC

Insurer Underwriting Criteria

• Underwriter evaluates the group as a whole rather than each individual member. The group's risk profile determines whether the group will be accepted or rejected • The following are considered: - Certificates are guaranteed issue with no individual underwriting - Premiums are determined by age, sex, and occupation of entire group - Reasons for forming the group are other than purchasing insurance - Certain participation level must be maintained - There's a flow of new members through the group - There's an automatic determination of benefits which is not discriminatory

Required Provisions

• Uniform Individual Accident and Sickness Policy Provisions Law • Entire Contract: Changes • Time Limit on Certain Defenses • Grace Period • Reinstatement • Claim Procedures • Physical Examination and Autopsy • Legal Actions • Change of Beneficiary

Seven-Pay Test

• Used to determine if an insurance policy is overfunded • The cumulative premiums paid during the first 7 years of the policy must not exceed the total amount of net level premiums that would be required to pay the policy up using guaranteed mortality costs and interest

Disability Riders

• Waiver of Premium • Waiver of Cost of Insurance • Disability Income • Accelerated Benefit

Common Exclusions from Coverage

• War or act of war • Intentionally self-inflicted injuries • Pre-existing conditions • Elective cosmetic surgery • Conditions covered by workers compensation • Government plans • Participation in criminal activity

HIPAA Creditable Coverage

• When person leaves employment, he/she gets certificate of creditable coverage

General Account

• Where fixed annuity premiums are deposited. It's comprised mostly of conservative investments like bonds

Group Life Insurance

• Written as a master policy, issues to the sponsoring organization, covering the lives of more than one individual member of that group. • Individuals do not receive a policy, but a certificate of insurance from the master policy • The rate and coverage are based upon group underwriting with all individuals covered for the same amount and rate

Estoppel

A legal process that can be used to prevent a party to a contract from re-asserting a right or privilege after that right or privilege has been waived. Estoppel is a legal consequence of a waiver

Risk Retention Group

A liability insurance company owned by its members. The members are exposed to similar liability risks by virtue of being in the same business or industry. The purpose is to assume and spread all or part of the liability of its group members

Sharing

A method of dealing with risk for a group of individual persons or businesses with the same or similar exposure to loss to share the losses that occur within the group

Exposure

A unit of measure used to determine rates charged for insurance coverage. In life insurance, all of the following factors are considered in determining rates: • The age of the insured • Medical history • Occupation • Sex

Business of a Life Settlement

Any activity relating to the solicitation and sale of a life settlement contract to a third party who has no insurable interest in the insured

Physical Hazards

Individual characteristics that increase the chances of the cause of loss. They exist because of a physical condition, past medical history, or a condition at birth

Aleatory Contract

Insurance contracts are aleatory, meaning there is an exchange of unequal amounts or values. The premium paid by the insured is small in relation to the amount that will be paid by the insurer in the event of loss

Speculative Risk

Involves the opportunity for either loss or gain. These risks are not insurable (Ex: gambling)

Reasonable Expectations

It is not always practical or necessary to state every direct and indirect provision or coverage offered by an insurance policy. If an agent implies through advertising, sales literature or statements that these provisions exist, an insured could reasonably expect coverage

Cash Accumulation

Life insurance may accumulate specific amount of monies for specific needs with guarantees that the money will be available when needed

2 Year Prohibition

Life settlements are not allowed in the first 2 years after issuance of a life insurance policy although the exceptions are: • Owner/insured is terminally/chronically ill or physically/mentally disabled • Owner/insured disposes of ownership interests in a closely held corporation • Death of a spouse • Divorce • Retirement from full-time employment • Owner becomes bankrupt or insolvent • Any other condition that the Dept. of Insurance determines to be extraordinary circumstance for the owner

Lloyd's Associations

Lloyd's is not an insurance company. Lloyd's provides support facilities for underwriters or groups of individuals that accept insurance risk. They are a group of individuals who each assumes a part of risk. Each individual promises to pay a specified amount in the event that the contingency insured against occurs.

Unilateral Contract

Only one of the parties to the contract is legally bound to do anything. The insured makes no legally binding promises. However, an insurer is legally bound to pay losses covered by a policy in force

Mutual Companies

Owned by the policyowners and issue participating policies. With participating policies, policyowners are entitled to dividends, which are a return of excess premiums and are nontaxable. Dividends are generated when the premiums and the earnings combined exceed the actual costs of providing coverage, creating a surplus. Dividends aren't guaranteed.

Stock Companies

Owned by the stockholders who provide the capital necessary to establish and operate the insurance company and who share in any profits or losses. Traditionally, stock companies issue nonparticipating policies, in which policyowners do not share in profits or losses nor receive dividends. Stockholders, however, receive taxable dividends

Prerequisites to a Life Settlement Contract

Prior to entering into a life settlement contract with a policyowner, a provider must obtain the following documents: • A written statement from a licensed attending physician that the owner is of a sound mind (if the insured is the policyowner) • The insured's consent to the release of the insured's medical records to a provider or broker if the policy was issued less than 2 years prior to the date of the life settlement contract application

Survivor Protection

Protecting from the death of the primary wage-earner

Pure Risk

Refers to situations that can only result in a loss or no change. There is no opportunity for financial gain. Pure risk is the only type insurance companies are willing to accept

Conditional Contract

Requires that certain conditions must be met by the policyowner and the company in order for the contract to be executed, and before each party fulfills its obligations.

Morale Hazards

Similar to moral hazards, except that they arise from a state of mind that causes indifference to loss, such as carelessness. Actions taken without forethought may cause physical injuries (Ex: not spending money for a flu shot because the insurance will pay for your care)

Consideration

Something of value that each party gives to the other. The consideration of the insured is the payment of premium and the representations made in the application. The consideration on the part of the insurer is the promise to pay in the event of loss

Moral Hazards

Tendencies towards increased risk. They involve evaluating character and reputation of the proposed insured. (Ex: applicants who may lie on an insurance application, have submitted fraudulent claims against an insurer)

Apparent Authority

The assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created

Reduction

The attempt to lessen the possibility or severity of a loss (ex: installing smoke detectors, having annual physicals)

Express Authority

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

Law of Large Numbers

The basis of insurance is sharing risk among a large pool of people with a similar exposure to loss. The law of large number states that the larger the number of people with a similar exposure to loss, the more predictable actual losses will be. This law forms the basis for statistical prediction of loss upon which insurance rates are calculated

Perils

The causes of loss insured against an insurance policy • Life insurance insures against the financial loss cause by the premature death of the insured • Health insurance insures against the medical expenses and/or loss of income cause by the insured's sickness or accidental injury • Property insurance insures against the loss of physical property or the loss of its income-producing abilities • Casualty insurance insures against the loss and/or damage of property and resulting liabilities

Insurer as Principal

The insurer is the principal. The acts of an agent or producer who is acting within the scope of his/her authority are the acts of the insurer

Fraud

The intentional misrepresentation or intentional concealment of a material fact used to induce another party to make or refrain from making a contract, or to deceive or cheat a party. Fraud is grounds for voiding an insurance contract

Concealment

The legal term for the intentional withholding of information of a material fact that is crucial in making a decision. Concealment is the withholding of information by the applicant that will result in an imprecise underwriting decision. Concealment may void a policy

Competent Parties

The parties must be capable of entering into a contract in the eyes of the law (legal age, mentally competent, not under the influence of drugs/alcohol)

Insured

The person covered under the policy that is considered for sale in a life settlement contract

Retention

The planned assumption of risk by an insured through the use of deductibles, co-payments, or self insurance o Purpose of Retention: • To reduce expenses and improve cash flow • To increase control of claim reserving and claims settlements • To fund for losses that cannot be insured

Insurable Interest

The policyowner must face the possibility of losing money or something of value in the event of the loss. In life insurance, insurable interest must exist between the policyowner and the insured at the time of the application

Utmost Good Faith

The principle that implies that there will be no fraud, misrepresentation or concealment between the parties. Both the insurer and insured must be able to rely on the other for relevant and accurate information

Loss

The reduction, decrease, or disappearance of value of the person or property insured in a policy, caused by a named peril. Insurance provides a means to transfer loss

Waiver

The voluntary act of relinquishing a legal right, claim, or privilege

Offer and Acceptance

There must be a definite offer by one party, and the other party must accept this offer in its exact terms. The applicant usually makes the offer, and acceptance takes place when an insurer's underwriter approves the application and issues a policy

Insurance

Transfers the risk of loss from an individual or business entity to an insurance company, which in turn spreads the costs of unexpected losses to many individuals.

Estate Conservation

You can use life insurance proceeds to pay estate taxes or inheritance taxes

The following would not constitute a life settlement contract:

o A policy loan issued by a life insurance company o A loan made by a bank or a lender o A collateral assignment of a life insurance policy by the owner o An agreement between closely related parties (by blood or law) o A bone fide business succession arrangement o Employer-owned life insurance on key employees o An agreement between a service recipient and a service provider o Any other form specified by the Commissioner

Exclusive Agency System/Captive Agents

• 1 agent represents 1 company • Exclusive • Commissions on personal sales • Renewals can only be placed with the appointing insurer

Independent Agency System/American Agency System

• 1 independent agent represents several companies • Nonexclusive • Commissions on personal sales • Business renewal with any company

Buy-Sell Funding

• A buy-sell agreement is a legal contract that determines what will be done with a business in the event that an owner dies or becomes disabled. this is also referred to as a business continuation agreement

Producer/Insurer Relationship

• An agent/producer will always be deemed to represent the insurer, not the insured • If the agent is working within the conditions of his/her contract, the company is fully responsible • The agent is responsible to the insurer when completing applications for insurance, submitting the application for underwriting, and when issued, delivering the policy to the policyowner and explaining the contract

Licensing Requirements

• Before acting as a life settlement provider/broker, a person must be properly licensed. If a person has been a life insurance producer for at least 1 year, he or she is deemed to have me the licensing requirements for life settlement brokers. • A licensed attorney, CPA, or accredited financial planner has the authority to negotiate life settlement contracts without a license

Business Uses of Life Insurance

• Businesses use life insurance for the same reason as individuals- it creates an immediate payment upon the death of the insured • The most common use of life insurance by businesses is as an employee benefit

Types of Buy-Sell Funding

• Cross Purchase Method - used in partnerships when each partner buys a policy on the other • Entity Purchase Method - used when the partnership buys the policies on the partners • Stock Purchase Method - used by privately owned corporations when each stockholder buys a policy on each of the others • Stock Redemption Method - used when the corporation buys one policy on each shareholder

Reinsurance

A contract under which one insurance company (the reinsurer) indemnifies another insurance company for part or all of its liabilities. The purpose of reinsurance is to protect insurers against catastrophic losses • Ceding Insurer - originating company that gives the risk to the reinsurer • Assuming Insurer - the company that takes the risk (reinsurer)

Homogenous

A large number of units having the same or similar exposure

Life Settlement Broker

A person who, for compensation, solicits, negotiates, or offers to negotiate a life settlement contract. They represent only the policyowners, and have a fiduciary duty to the owners to act according to their instructions and in their best interest

Indemnity (Reimbursement)

A provision in an insurance policy that states that in the event of loss, an insured or a beneficiary is permitted to collect only to the extent of the financial loss and is not allowed to gain financially because of the existence of an insurance contract

Foreign Insurer

An insurance company that is incorporated in another state or territorial possession (ex: a company chartered in California would be a foreign company in the state of New York)

Domestic Insurer

An insurance company that is incorporated in this state. In most cases, the company's home office is in the state in which it was formed - the company's domicile.

Alien Insurer

An insurance company that is incorporated outside the US

Insurer

Any person or company engaged as the principal party in the business of entering into insurance contracts

Implied Authority

The authority that is not expressed or written into the contract, but which the agent is assumed to have in order to transact the business of insurance for the principal

Financial Status (Independent Rating Services)

• AM Best • Fitch • Standard and Poor's • Moody's • Weiss

Admitted vs. Non-Admitted Insurers

• Before insurers may transact business in a specific state, they must apply for a license or Certificate of Authority from the state department of insurance and meet any financial requirements by the state. Those who meet these standards are considered authorized or admitted into the state as a legal insurer • Those who have not been approved to do business in the state are considered unauthorized or non-admitted

General Agency System

• General agent-entrepreneur represents 1 company • Exclusive • Compensation and commissions • Appoints subagents

Direct Response Marketing System

• No agents • Company advertises directly to consumers (through mail, internet, TV, etc.) • Consumers apply directly to the company

Private vs. Government Insurers

• Private - companies that may offer many lines of insurance. They may be formed as stock, reciprocals or fraternals, and they must be authorized to transact insurance by the state insurance department • Government - provides insurance in the areas where private insurers either cannot, or will not, write insurance (aka "social insurance"). These programs are commonly called social insurance, such as Medicare, Social Security, etc.

Right of Rescission Disclosure

• The owner may rescind a life settlement contract within 15 days after the receipt of the life settlement proceeds. If the owner has received the proceeds and rescinds the contract, all proceeds and premiums must be repaid to the provider

Types of Insurers

- Stock Companies - Mutual Companies - Fraternal Benefit Society - Lloyd's Associations - Risk Retention Group

Personal Uses of Life Insurance

- Survivor Protection - Estate Creation - Cash Accumulation - Liquidity - Estate Conservation - Life Settlements

Distinct Characteristics of an Insurance Contract

- Contract of Adhesion - Aleatory Contract - Personal Contract - Unilateral Contract - Conditional Contract

3 Types of Agent Authority

- Express - Implied - Apparent

Marketing (Distribution) Systems

- Independent Agency System/American Agency System - Exclusive Agency System/Captive Agents - General Agency System - Managerial System - Direct Response Marketing System

Disclosures

- Owners Disclosures - Insured Disclosures - Right of Rescission Disclosure

Representations/Misrepresentations

- Statements believed to be true to the best of one's knowledge, but they are not guaranteed to be true. - Representations are the answers the insured gives to the questions on the insurance application. Untrue statements on the application are considered misrepresentations and could void the contract. - A material misrepresentation is a statement that, if discovered, would alter the underwriting decision of the insurance company. If material misrepresentations are intentional, they would be considered fraud

Elements of Insurable Risks

• Due to chance - a loss outside the insured's control • Definite and measurable - a loss specific as to the cause, time, place and amount. An insurer must be able to determine how much the benefit will be and when it becomes payable • Statistically predictable - insurers must be able to estimate the average frequency and severity of future losses and set appropriate premium rates • Not catastrophic - insurers need to be reasonably certain their losses will not exceed specific limits (ex: don't cover loss caused by war or nuclear events) • Randomly selected and large loss exposure - there must be a sufficiently large pool of the insured that represents a random selection of risks in terms of age, gender, occupation, health, economic status, and geographic location

2 Approaches to Determining Amount of Personal Life Insurance

• Human Life Value Approach • Needs Approach

Three factors that may determine insurable interest for the policyowner

• Insuring one's own life • Insuring the life of a family member (relative or spouse) • Insuring the life of a business partner, key employee, or someone who has financial obligation to them

Owners Disclosures

• To help the owner understand the benefits and consequences of a life settlement transaction, at a minimum, the following information must be included in the disclosure: