Louisiana Life, Accident & Health Insurnace

Title Page

'Declaration Page' the first page of any insurance policy; lists the insured's personal information (including name and address, as well as the unique policy number), the policy's issue date, the amount and premium mode; it also lists any benefit limits placed on the policy by the insurer

Mortality Rate

'death rate' the rate at which death occurs within a given population, and is a factor when determining LIFE insurance premiums

Competent Parties

1 of 4 elements of a legal contract all parties in a contract must be of a 'legal capacity' and be able to understand the purpose and requirements for such contract a contract is considered void if: -applicant is a minor -applicant is mentally unfit to enter into a contract -applicant is under the influence of alcohol or drugs

Consideration

1 of 4 elements of a legal contract defined in the insurance industry as the initial monetary premium that the applicant pays to the insurer in exchange for the promise of benefits provided by the insurer this element is fulfilled at the time the applicant submits both the application and initial premium to the insurer for acceptance

Legal Purpose

1 of 4 elements of a legal contract in order for an insurance contract to be legally binding, it must have a legal purpose to provide financial protection to one party in exchange for regular premium payment to the other party

Utmost Good Faith

1 of 5 characteristics unique to insurance contracts an insurance policy is created with the intent that both parties will act with 'utmost good faith,' meaning that neither party will attempt to conceal or defraud the other party

Aleatory

1 of 5 characteristics unique to insurance contracts dependent on chance or an uncertain outcome, where one party may receive more value than the other party based on uncertain future circumstances

Conditional Contract

1 of 5 characteristics unique to insurance contracts insurance contracts include conditions that must be satisfied in order for benefits to be paid to the insured; like paying premiums

Contract of Adhesion

1 of 5 characteristics unique to insurance contracts meaning that only one party, the insurer, defines and prepares the insurance contract, which is non-negotiable by the other party

Unilateral

1 of 5 characteristics unique to insurance contracts only one party makes promises to the other party; the insurer is required to follow through on any promise it makes in the contract regarding the policy's schedule of benefits

Elements of Insurable Risk

1. any outcome of the risk must result by accident and produce a loss (Pure Risk) 2. insurable 'interest' must exist between two parties where the loss of one party results in an economic hardship for the other party 3. the insurer must by able to calculate the risk and the amount of loss incurred (Risk Pooling) 4. there must be a large enough number of similar risks being insured (Law of Large Numbers) 5. the risk cannot be catastrophic as to not be able to be fully funded by the insurance company while still maintaining a profit 6. the risk cannot be 'adversely' selected

Third-Party Ownership

Characteristics of group plans the right of ownership of an insurance contract by someone other than the insured, a policy can be purchased by someone other than the insured (parent, spouse, employer, etc.) as long as insurable interest is present at the time of application (a group policy must be established for the benefit of the insured members and their dependents, and not the group's master contract holder)

Stock Insurance Company

Non-Participating or 'Non-Par' a private insurance company that is established to provide insurance to policyowners and to make a profit for its stockholders the insured policyowners do not own the company, nor do they receive any dividends that to company returns stock insurers do not issue participating policies; therefore, two groups exist: shareholders and policyowners - though a shareholder could also be a policyowner

Agreement

Offer & Acceptance 1 of 4 elements of a legal contract

Mutual Insurance Company

Participating or 'Par' a private insurance company that is established to provide insurance to policyowners who are also the company's stockholders (owners) it issues 'participating policies' in which policyowners share in the company's ownership and receive dividends from the earned surplus of the company's profits

Conditional Receipt

a 'receipt of submission,' this provides the applicant with important protection against any event that may occur after the submission of the application and before its approval a conditional receipt represents that the application will be reviewed in a timely manner and legally binds the insurer to cover future medical expenses, as long as the applicant is accepted by the insurer upon completion of underwriting Application + Initial Premium = Consideration

Financial Privacy Rule

a FI must disclose to consumers in advance of any contractual agreement between the consumer and FI that it intents to collect and retain both public and private information on the consumer as part of the contractual agreement between the FI and consumer; mandated by the GLBA (federal regulation)

Voidable Contract

a contract is considered legally binding unless one of the parties involved in the contract decides to reject the contract based on Voidable Actions, as prescribed in the contract or for other reasons acceptable by law example: a life insurance policy can become voidable if the policyowner breaks the contractual agreement by discontinuing paying premiums to the insurer

Valued Contract

a contract that pays a stated sum, regardless of the amount of loss that has occurred; the stated sum is the insurer's Limit of Liability life insurance, disability insurance, and AD&D policies are all examples of 'valued' contracts

Indemnity Contract

a contract that pays out benefits that are equal to the actual loss incurred, up to the policy's stated limits, in order to make the insured 'whole' again a health insurance contact is an example because it pays an insured's medical expenses, according to the policy's 'schedule of benefits'

Parol (Oral) Evidence Rule

a court ruling stating that once an insurance contract, including its provisions and riders, is constructed and provided in written form to the insured, it cannot be modified by any oral, or verbal, statements made by EITHER party

Insurance Code

a group of laws that determine insurance regulation in a given state; each state has its own Insurance Code, and any entity conducting business within a given state must follow the state's Insurance Code

Agent

an individual authorized by an INSURANCE COMPANY to solicit and negotiate insurance products on their behalf represents the insurer

General Policy Exclusions

an insurance policy also include specific 'hazards' specified in the contract for which the insurer will not provide coverage; like acts of war, hazardous occupations, and personal avocations like skydiving or auto racing

Non-Medical Application

an insurance policy issued solely based on the medical information gathered from the application that is submitted by the applicant to the insurer

Concealment

an omission, or an attempt to avoid disclosing a fact in order to deceive or mislead the other party in a contract example: applicant concealing a medical condition, or an agent concealing a specific limitation because it could negate a sale

Written Contracts

any handwritten or typed material that is added to an insurance policy by the insurer after the original printed contract is formed (legal interpretations affecting contracts)

Pre-texting

attempts to obtain non-public personal information from consumers and customers under false pretenses; regulated under the GLBA (federal regulation)

Preferred Risk

classification of risk applicants who are in good health, based on age, height, weight, and smoking status, as well as occupation and hobbies, and even good credit

Substandard Risk

classification of risk applicants with preexisting conditions that are within the risk acceptance levels of the insurer, and can include higher premium payment to offset the increased risk can also exclude certain benefits of the policy, or types of medical conditions from receiving coverage in order to prevent abnormal loss to the insurance company commonly in poor health, has already manifested a preexisting condition, or might engage in a dangerous hobby or occupation

Standard Risk

classification of risk average classification for the majority of applicants

Declined Risk

classification of risk un-insurable risk, can include specific life-threatening conditions, a combination of multiple conditions, or even an applicant's extreme weight limit all insurance companies have their own underwriting guidelines, so just because an applicant receives a 'declined risk' rating with one insurer doesn't mean they would with all insurers

Controlled Business

defined as selling insurance to oneself and immediate family members, friends or business acquaintances controlled business is permissible by almost all insurers, but each insurer 'controls,' or sets its own limits on the amount of insurance business an agent may write in controlled business expressed as a percentage of overall annual sales volume

Express Authority

defined as the contractual agreement to market and sell the insurer's products, it is clearly defined in words through the company's contract, or appointment, with the agent

Implied Authority

defined as the general business practices that an agent could perform that is not necessarily part of the agent's contract, but could be acceptable by the insurer

Underwriting

defined as the process of reviewing an application where an insurance company determines an applicant's eligibility and premium amount based on the total overall risk, and how it is classified according to the company's risk limits and standards

Expense Ratio

defined as the ratio between annual company operating expenses and company annual revenue; calculated by dividing operating expenses by total premiums received

Loss Ratio

defined as the ratio between company losses (annual claims) and company revenue (annual collected premium), and is calculated by dividing the losses by the total premiums received loss ratios are regulated by the federal government & state insurance departments to ensure that a large percentage of ins. company's revenues are maintained to cover annual claims

Morale Hazard

defined by a TEMPORARY lapse in judgement that leads to a brief indifference in attitude toward risk (ex.) a driver might fail to stop at a stop light because the driver was texting, the carelessness of running a red light is considered a morale hazard; however, the act of texting while driving is considered a moral hazard primary difference is INTENTION

Moral Hazard

defined by human behavior, actions, habits, and lifestyles such as smoking, eating an unhealthy diet, drug abuse, texting while driving, and drunk driving, all of which increase the risk of a peril dishonesty, bad credit, intentionally filing false insurance claims, abusing credit cards, and suing for the sole purpose of the potential for gain are also examples of moral hazards

Physical Hazard

defined by physical conditions which have the potential to lead to loss, such as unsafe working conditions (blocked fire exists, exposed electrical wiring, damaged or unsafe tools) diseases and medical conditions that can lead to loss, such as cancer, are also considered to be physical hazards

Insuring Agreement

defines the scope of the coverage and all promises of insurance coverage made by the insurer in exchange for premium life and health policies are considered to be 'all-risk coverage,' meaning that all losses incurred by the insured are covered by the policy, except for any losses that are intentionally excluded from coverage, as defined on the policy's declaration page (title page)

Policy Conditions

every insurance policy contains certain conditions and obligation that must be met by the insured in order to receive benefits; like filing a proof of loss form and submitting it to the insurer in a timely manner in order for them to process the claim

Paramedical Exam

generally includes: -recording the applicant's height & weight -conducting a verbal questionnaire regarding the applicant's medical history and lifestyle -checking the applicant's blood pressure and pulse rate -collecting blood and urine for analysis

Master Contract

in a group policy, a master contract is created between the insurer and the plan sponsor, who is in control of the contract

Producer

individuals licensed by their home STATE to solicit insurance, collect premium, and deliver policies to newly insured individuals

Hazard

is the factor, or underlying condition, that gives rise to a peril there are 3 types: Physical, Moral, and Morale

Transferring Risk

method of handling risk

Reducing Risk

method of handling risk actions taken to help reduce risk, like wearing a helmet and the correct clothing while riding a motorcycle, or having a fire extinguisher available in the house in case of emergency

Retaining Risk

method of handling risk defined as accepting and managing risk with it occurs, such as having reserve funds available in the event of an accident or illness

Risk Avoidance

method of handling risk risk can be avoided in a given situation by not participating; impractical

Risk Sharing

method of handling risk self-insurance, sharing of risk between the company and an insurer by retaining and managing small risks through company funds, while transferring larger, more costly risks to an insurance company

Insurable Interest

must be present at the time of application in order to obtain insurance, an 'interest' must exist between two parties where one party has the potential to suffer a loss in the event that a particular negative outcome occurs to the other party involved in the policy

Void Contract

never truly a contract, and is considered to never have been legally binding example: purchasing life insurance with the intent to murder the insured is an example of a void contract

Policyholder

pertains to HEALTH insurance, the policyholder pays the premiums for health insurance on the policy's insured, most often being the same person a 'personal contract'

Policyowner

pertains to LIFE insurance, the policyowner pays the policy's premiums and owns the life policy

Definitions Page

policy terms are defined to clarity interpretation by the insured

National Association of Insurance Commissioners (NAIC), 1871

promotes uniformity in business standards and practices throughout the insurance industry by establishing various 'models' for which states can choose to implement, based on each state's legislature; bring uniformity between the Federal Government and the various state insurance laws the NAIC is NOT a federal or state legislative body, nor does it regulate insurance law, even though its members are the insurance commissioners of each state in the U.S. (including District of Columbia and surrounding U.S. territories)

Certificate of Insurance

proof of coverage under a group insurance policy; the certificate summarizes the type and amount of insurance provided to members, as well as their rights under the policy, it also explains specific benefits, effective date, age limits, notice of claim, proof of loss, right to convert, etc. given to the insured member by the plan sponsor

Certificate of Authority

provided to an insurance company as proof of licensure within the state, once certified by the state, the insurer is considered Admitted and is authorized to conduct business within the state

Indemnity

refers to the insurance proceeds that are paid to the insured or beneficiary in the event of a loss

Subrogation

refers to the process in which an insurer pursues reimbursement from another insurer for indemnifying an insured when the insurer is ultimately not responsible for paying such claim

Dividend

reimbursement of excess premium that remains after the company has set aside its needed reserves and has deducted the necessary amount to cover annual claims and other company expenses paid out on an annual basis to policyowners of a Mutual Insurance policy

Representation

statements made by an applicant on an insurance application are considered to represent the applicant to the best of their knowledge, including answers to medical questions that are reviewed by an insurer during the underwriting process an insurer is required to prove that a misstatement was intentionally made by the applicant to defraud the insurer before it can rescind an insurance contract

Actuary

statistical analysts, hired by insurers, to analyze and predict potential loss in order to set and maintain premium pricing for the insurer's products

Grounds for Rescission: Misrepresentation

the act by either party in a contact of promoting false information in an attempt to mislead the other party example: an agent who promotes false benefits or terms of services to induce a sale, or an applicant who misrepresents their age to obtain a lower premium rate

Risk Pooling

the combining of similar 'exposure units' to spread specific risk, or the exposure of a specific loss, across a sizable number of individuals instead of bearing all costs on the individual person

Entire Contract Clause

the entire contact includes the application submitted by the applicant, declarations page, insuring agreement, conditions and exclusions page and any policy endorsements (legal interpretations affecting contracts)

Company Reserves

the federal government and state insurance departments require that in order for an insurer to be considered solvent, the insurer must carry reserves, or funds that are maintained by the insurance company to pay the future claims of its policyowners

Premium Mode

the frequency in which a policyowner pays their premium

Pure Risk

the only type of insurable risk, in which there is only a chance of loss and not gain

Policy Assignment

the policyowner of a life insurance contract has the right to transfer the rights of the policy to anyone he or she wishes, this person would then receive the full benefits of policy ownership

Gross Annual Premium

the premium amount determined after expense loading is added and is the total annual cost of the policy that the insured pays

Expense Loading

the process of adding premium dollars to a policy to cover company expenses associated with the issuance of a policy (underwriting & administrative costs) 'net premium' is the premium amount before expense loading is added 'interest' a large percentage of the insurance premium paid by policyowners is invested by the insurance company to earn interest

Morbidity Rate

the rate of incidence in which disability due to accident or illness occurs in a given population, and is a factor when determining HEALTH insurance premiums

Self-Insurance

the retention of risk by providing funding for smaller, specified loss from within company reserves retaining risk is only used in circumstances where a large enough group of similar (homogeneous) exposure units exist, and the business has the necessary amount of capital available on reserve to cover the potential loss

Reinsurance

the sharing of risk between an insurance company and a re-insurance company, known as a Reinsurer, to provide additional insurance coverage for risks that are too large for the single insurer to adequately cover

Peril

the specific event that causes, or is the grounds, for loss in an example of a house being destroyed by a fire, the fire is the peril

Policy Rescission

under state insurance law, either intentional or unintentional concealment entitles an injured party to rescission of a contract; policy rescission is the lawful separation of two parties by cancelling the contract from its inception, essentially making it a 'void' contract once rescinded, neither party is contractually obligated to the other and typically any value or property held by the opposing party is returned

Sliding

unethical insurance method charging an applicant for ancillary (supplemental) coverage without their knowledge or advising that such additional coverage is required by law with the purchase of insurance

Boycott, coercion, & intimidation

unethical insurance method it is illegal to commit an act of boycott, coercion, or intimidation that results in unreasonable restraint of, or monopoly in, the insurance business

Misrepresentation

unethical insurance method lying to a customer regarding covered benefits or the terms of the policy, or guaranteeing insurance is illegal and grounds for license revocation this includes false or deceptive advertising as well as defamation of an insurer, promising dividend returns or company profits as an inducement to a sale is also prohibited

Churning

unethical insurance method similar to twisting, it is the act of depleting the funds of one insurance policy to purchase another policy within the same company for no purpose other than to generate a new commission from an existing customer

Twisting

unethical insurance method the practice of inducing a policyowner through misrepresentation to forfeit or change insurance from one company to another in order to gain commission for an agent or agency

Rebating & Fraud

unethical insurance method the practice of rebating, or offering anything of value (including personal favors) to a customer as an inducement to purchase an insurance contract

Unfair Discrimination

unethical insurance method unlawfully discriminating between individuals of the same class or insurance risk by charging different rates of premium, offering different benefits, or charging extra fees based on residence, race, religion, or national origin

Broker

works on behalf of a consumer to negotiate and transact insurance with one or more insurers represents the consumer

Occurrence E&O Policy

Errors and Omissions insurance an occurrence policy provides an agent with liability coverage against any current or future claims that result from negligent errors or omissions that occur during the period of time in which the E&O policy is in-force under an occurrence policy, an agent continues to be covered for incidents that occurred while the policy was in-force that are claimed after the policy has terminated essentially, the agent is permanently covered for their actions during which time he or she was covered under the occurrence policy, without regard to when a lawsuit is filed against the agent

Claims-Made E&O Policy

Errors and Omissions insurance insures against any claims of current or prior incidents that occurred, as long as the agent is insured under the claims-made policy

Fair Credit Reporting Act (1970)

Federal regulation states that all consumers have the right to keep personal financial information private between the collecting party and the consumer; this Act was created to ensure that correct information is obtained regarding a consumer and that a consumer's privacy is not at risk Federal law mandates: 1) Consumer must be notified within 3 days a credit report as been requested, provide a summary report within 5 days if requested by the consumer 2) Consumer has the right to know the identity of who is questioned regarding a credit report 3) If consumer is rejected due to findings in a report, info regarding the consumer reporting agency must be provided to the consumer 4) The reporting agency must disclose any info if a consumer requests it; HOWEVER, an insurance company is NOT obligated to disclose such info to an applicant 5) If consumer disagrees with agency's report, they have the right to file a statement to the insurer that better clarifies any negative issues presented by the insurer

Gramm-Leach-Bliley Act (GLBA or GLB Act) 1999

Federal regulation (Financial Services Modernization Act) changed the way in which financial institutions such as commercial banks, investment companies, and insurance carriers conduct business by allowing these various institutions to merge together into what are commonly called 'financial supermarkets,' providing consumers with a larger, more centralized and more diverse selection of financial products regulation of financial institutions is based on the type of product or services marketed instead of on the type of company selling the product; meaning that a FI can become a conglomerate of banking, securities, and insurance products, all marketed under the same company's name Pre-texting, Financial Privacy Rule, 'Opting-Out'/'Opting-In', Safeguards Rule

United States vs. Southeastern Underwriters Association (1944)

Supreme Court case that overturned Paul v. Virginia (1868) and placed the regulation of insurance within the authority of the federal government by defining insurance as a form of interstate commerce; later (sort of) amended by the McCarran-Ferguson Act of 1945-state regulation of insurance made the most sense from a consumer's standpoint; therefore the business of insurance is primarily regulated by the states, though allowing the federal government to regulate in addition to, but not supersede state insurance laws (like with US v. SUA)

Appointment

a legal contract between an insurance company and a licensed agent by which the insurer gives an agent the contractual permission, or 'express authority' to conduct insurance business on behalf of the insurer in exchange for compensation, referred to as commission

Group Insurance

a single policy that is issued to the administrator, or 'plan sponsor,' of an eligible group (such as an employer, association, union, trust, etc.) that meets the requirements set forth under state law for group life or health insurance (i.e. cannot form for the sole purpose of obtaining insurance; must be a 'Natural Group' as defined by the NAIC)

Warranty

a statement of material fact within an insurance contract that promises a certain outcome based on specific conditions; made by the insurer that promises, or 'warrants,' insurance coverage, as written in the insurance contract, to indemnify the insured in the event of loss warranties are considered part of the insurance contract, while representations influence the acceptance or denial of an applicant by the insurer

Reciprocals (Inter-insurance)

a type of risk retention between members, known as subscribers, consisting of individual business owners, corporations, or municipalities subscribers 'reciprocate' in sharing risks and participate in indemnifying members who encounter loss as a type of insurance, each member can absorb larger loss by sharing it and through its participation in the reciprocal; it pays a lesser amount of loss since it is shared by the other subscribers in the reciprocal

Waiver

a voluntary relinquishment of a given right or privilege; if an insurer waives its right and allows the insured to continuously carry out something that is not within the contract, the insurer cannot deny a claim down the road due to this irregularity Estoppel is the legal action and enforcement of a waiver, if a waiver is enforced, it is considered by a court of law as 'estopped,' in other words, this rule prevents an individual or party from denying what has already been stated

Endorsements

added policy riders; optional additional benefits that can be added to an insurance policy for additional premium; like 'return of premium' rider benefit the insured

Captive Agent

agent's who market only one insurer's products

Exclusionary Riders

allowance for the exclusion of certain preexisting conditions based on each insurer's ability to absorb risk; each insurer follows its own underwriting guidelines in determining if any exclusions are to be added to a policy above general exclusions benefit the insurer