Texas Life and Health Exam - Master Study Guide

10%

Medical expenses including premium payments that exceed what percentage of the individual's adjusted gross income are tax deductible?

Fraternal Benefit Societies

Membership is based on religious, ethnic, or national lines, and the societies are noted primarily for social and charitable functions. Fraternal Benefit Societies are societies, orders, or supreme lodges with no capital stock. They may or may not be incorporated. These fraternal societies: are conducted solely for the benefit of members and their beneficiaries, and are not for profit. operate on a lodge system with ritualistic form of work. have a representative form of governing body. provide benefits in accordance with their charter. started offering life insurance for the benefit of their poorer members on an assessment basis but have expanded to operate the same as other insurers today, though they still offer insurance only to members and their families.

Named Peril

The perils specifically listed in the policy.

Assignments

The policy owner of a policy has the right to transfer partial or complete ownership to another person without consent of insurer. 2 types: 1: Absolute 2: Collateral

Home Service/Debit Insurers

These insurers specialize in individual and industrial insurance with low face amounts-normally $1,000 or less (but the benefit can be higher). Premiums are usually collected by agents on a weekly basis at the insured's home or place of employment. Home service agents work within a defined geographical territory and offer monthly debit life, health, and fire insurance products. Some products have premiums that are billed directly by the insurer. The home service market historically has been comprised of lower and lower middle income individuals and families.

Surplus/Excess Lines Insurers

These types of insurers provide insurance not offered through admitted insurers. The full amount or type of insurance must not be available through admitted insurers. Financial consideration cannot be a deciding factor. While a surplus lines insurer is selling insurance in a state, if the coverage is offered by an admitted insurer, the non-admitted insurer must stop selling insurance in the state, or apply to become an admitted insurer.

Elements of Insurable Risks

To be considered insurable, a risk must be: due to chance measurable/predictable based on a large enough pool that the law of large numbers allows for the accurate prediction of loss selected from a diverse, randomly selected pool of insurable risks. Insurance deals with financial and pure risks. Speculative risks are generally not insurable.

Non-assessable Mutual Insurers

charge a fixed premium and the policyholders cannot be assessed further. Reserves and surplus are maintained to provide payment of all claims.

Reciprocal Companies

consist of groups which exchange insurance on each other. An attorney is empowered to bind the members together and the members share in profits through lower premiums or losses by assessments.

Tricare

covers all active and retired military personnel and dependents unable to use government medical facilities because of distance, overcrowding or lack of necessary medical care, also retired military personnel and dependents not eligible for Medicare. Inpatient and outpatient care, hospitalization, medical supplies and health care centers (e.g. for drug and alcohol rehabilitation) are covered.

basic exclusions in most life insurance policies

death resulting from 1) War, 2) Dangerous occupation/recreation activities, 3) Health exclusions, 4) Suicide (within 2 years of policy issuance), 5) Commission of a Felony.

Adverse Selection

defined as the tendency of poorer risks to seek or continue insurance to a greater extent than normal risks. Normal risks may seek insurance elsewhere, possibly at a lower cost. If a person becomes sick, they may be unable to get insurance elsewhere and are therefore more likely to maintain their current coverage.

redlining

form of discrimination involving certain geographic areas and the refusal of an insurer to underwrite or the insurer's choice to increase the rates for those areas without actuarial reasons for doing so.

A Major Medical calendar year deductible

implies that there is only one deductible that the insured must pay each calendar year. Once that deductible has been met, the insurer pays the balance of any claims, up to policy limits. If a claim has expenses in more than one calendar year, the insured will likely need to pay a deductible again during the second calendar year.

Continuous premium/straight life

insurance stays in force until the insured dies or until age 100. If the insured reaches age 100, the cash value in the policy equals the policy's face amount and the policy "endows," meaning that the cash value is paid to the policy owner. level coverage level premiums cash value

Single Premium Policy

is one type of Limited Pay Whole Life Policy. There is only one premium payment and the policy remains in effect for life. Cash values grow to equal the face amount at policy maturity (endowing at age 100).

Coordination of benefits

is the comparing of benefits in different policies held by a policyholder at the time of a claim to avoid the overpayment of benefits.

the face amount

is the policy's death benefit-the sum of money that will be paid in the event of the insured's death or when the policy matures.

Consideration Clause.

part of the insurance policy contains information concerning the exchange of something of value between the insurance company and the insured i.e. the premium the insured must pay in exchange for the insurer's promise to insure?

social insurance supplement (SIS) policies.

policies that provide benefits that compliment those available from a specified government health insurance program, such as Social Security

On Behalf Of

refers to someone else beside the person experiencing the loss paying for that lost or cost in your stead. It is paid for you instead of you paying for it directly. An example might be where an insurance company makes a payment to the an entity that you were financially responsible to. This indemnifies them on your behalf rather than you paying them directly for it yourself.

Assessment Mutual Insurers

share losses among group members. In a pure assessment group, no premium is paid in advance, but losses are assessed to each member as they occur. In an advance premium assessment group, premiums are paid at the beginning of each assessment period and any claims are paid from these premiums. If there are more claims than premiums paid in, additional assessments are levied against each member. If money is left at the end of the period, the money is returned to the group members.

Premiums on group policies

tax deductible by the employer as a business expense, but employees are not taxed on received benefits unless benefits exceed actual expenses.

Level Premium Term Insurance

term insurance for which the premium remains the same throughout the life of the contract. The amount of a level premium is higher than needed for the protection afforded in the early years of the contract but less than needed for protection in the later years. It is a method of leveling off the cost of insurance so as not to have it increase each year until it becomes unaffordable.

Settlement Options

the alternative ways a beneficiary can receive life insurance benefits in the event that the insured person dies. Cash (automatic) Life Income Interest Only FIxed Period Fixed Amount

Executive Bonus Plan

the company pays the cost of a life insurance policy premium to the executive as a bonus and the employee makes the actual payment. The employee owns the policy and the death benefit will go to the policy's beneficiary on an income tax-free basis. If H had reached retirement age, he would have the option of keeping the policy in force, or cashing it in for the cash value which could supplement his retirement income.

Contract of Adhesion

A Contract of Adhesion is written and the terms are decided by one party only-the insurer. The insured can only accept or reject the terms of the policy. If there is a legal dispute, due to ambiguity, the courts usually decide against the preparer of the contract; in this case, the insurer.

Hazard

A condition that increases the chance for loss or the severity of loss.

Direct Physical Loss

A loss in which the covered peril is the immediate or proximate cause of damage to property, such as hail damage to the roof of a house.

National Association of Insurance Commissioners (NAIC)

All state insurance directors or commissioners are members of the NAIC. The group has no official legislative powers. The NAIC tries to standardize insurance laws throughout the country by recommending model legislation in each commissioner's home state.

Intervening Peril

An event that interrupts the chain of causation by providing an independent cause of the final result.

legal Insurance contract has...

An insurance policy is a legal contract and is both unilateral and aleatory. There must be an offer and acceptance.

Open Peril/ All Risk

An open peril policy protects against all physical loss risks, except perils specifically limited or excluded by the policy.

periodic disability income

Benefits paid in the form of periodic payments must pay at least $100/month through age 62, and $50/month from age 63 and after.

Common Disaster Provision

In life insurance, this clause is designed to alleviate the hardship that can result if the insured and primary beneficiary die at the same time or within a short period of time of each other. Usually, this clause provides that, if the primary beneficiary dies either before proof of the insured's death is submitted to the company, or within a stated period (usually 14-or-30 days after the insured's death), the proceeds will be paid to a contingent beneficiary. Added to a policy and designed to provide an alternative beneficiary in the event that the insured as well as the original beneficiary dies as a result of a common accident. The common disaster clause states that the primary beneficiary must survive the insured by (usually 30-90 days) or the benefit is automatically paid to the secondary beneficiary.

Retention

In this case, nothing is done about the risk; the individual will be totally responsible for paying losses. Retention is the most common method of handling risk.

Stock Companies

Insurers of this type are organized under the laws of the state in which they are incorporated. The stock company is owned by the shareholders who elect the officers and directors and share in profits through stock growth and dividends.

Dividend Options

1: Cash (tax-free) 2: Apply to future (reduced) premiums 3: Retained by Insurer @ interest 4: Buy Paid-up WL policy add-ons 5: Pay-up existing policy 6: Buy 1-yr. Term policy.

Reinstatement

Reinstatement is the restoration of a person or thing to a former position. Regarding insurance, reinstatement allows a previously terminated policy to resume effective coverage. In the case of nonpayment, the insurer may require evidence of eligibility, such as an updated medical examination for life insurance, and full payment of outstanding premiums. Maximum is 3 years. A surrendered policy cannot be reinstated.

Peril

The cause of possible loss, or the event insured against. E.g., fire, lightning, theft, etc.

Long Term Care

A broad range of medical, personal and environmental services designed to assist people who can no longer remain completely independent in the community. In-house or Nursing Home care are sub-sets of Long Term Care. One may be required at some times and the other at other times, depending on the degree of the individual's impairment.

Captive Insurance Companies

A captive insurer is a company whose business is primarily supplied and controlled by the one interest or group of related interests that set the company up to insure their assets and operations. In this type of situation, coverage can usually be provided at a lower cost than that which is available in the general insurance market. A captive insurance company may be a non-admitted, non-resident, or foreign insurer, and there are mainly two types: pure captive companies, which are wholly controlled by one parent group captive companies, which are insurers owned by a number of otherwise unaffiliated firms that are in the same type of business.

Corporation's minimum coverages

A corporation must have cash, marketable securities, or a bond available to pay up to $25,000, or an Error and Omissions policy of at least $100,000 with a deductible of $10,000 or less, or of at least $300,000 with a deductible of no more than $25,000 against any negligent act, error, or omission.

Grace Period

A grace period is a set length of time after the due date during which payment may be made without penalty. A grace period, typically of 30 days, is commonly included in mortgage loan and insurance contract.

inpatient care duration for childbirth

A health plan that provides maternity benefits must include inpatient care for both the mother and the newborn child for at least 48 hours following a normal delivery, or for 96 hours following an uncomplicated C-section delivery.

insurance commissioner/director

The insurance commissioner/director of each state has the authority to oversee the financial stability of each of the insurers in the state. (decides what to do in the event of an insurer insolvency)

Reduced Paid-Up Insurance

A life insurance nonforfeiture benefit that provides paid-up insurance for a lesser amount than the cash value of a policy that has lapsed because of premium nonpayment.

Indirect/Consequential Loss

A loss in which the covered peril is not the direct cause of damage. If a restaurant suffers a fire, for instance, the fire is the direct cause of the loss. The loss of income from the business while the restaurant is closed for repairs, is an indirect loss.

$25,000

A monetary penalty may not exceed ______ unless a law so stipulates for the given offense, depending on the seriousness of the violation, economic harm to the public, history of previous violations, the amount necessary to deter future violations, efforts to correct the violation, and whether the violation was intentional or unintentional.

Cash value provision

A policy owner may only take out a loan against the policy if there is sufficient cash value to back up the loan. The maximum loan the policy owner may take out is the cash value amount, minus interest.

Incontestability Clause

A provision stating that the insurer cannot dispute the validity of a policy after a specified period, usually 2 years even if there is a material misstatement of fact.

Life Policy Riders

A rider is an insurance policy provision that adds benefits to or amends the terms of a basic insurance policy. Riders provide insured parties with options such as additional coverage, or they may even restrict or limit coverage. There is an additional cost if a party decides to purchase a rider. Most are low because they involve very little underwriting. A rider is also referred to as an insurance endorsement. It can be added to policies that cover life, homes, autos, and rental units.

Speculative Risk

A risk for which it is uncertain whether the final outcome will be a gain or a loss. Gambling is a speculative risk. Speculative risks are generally not insurable.

children's portion in Family Policy

As each child reaches age 25, they can determine if they want to drop coverage or if they want to convert their family policy term insurance to individual insurance at up to five times the original amount of insurance, paying the extra premium according to the age of conversion.

Owner's Rights

The parties to the insurance contract are: insured, insurer, policyowner, beneficiary. Policyowner and insured may be same or diff persons. Only policy owner has rights under the policy. ownership rights include: name changing, changing the beneficiary, receiving the policy's living benefits, selecting a payment benefit options, and assigning the policy. policyowner has responsibility of paying the policy premiums, and is also the person who must have an insurable interest in the insured at the time of application for insurance.

Beneficiary

Can provide 3 levels of choice. 1: Primary 2: Contingent A: Revocable B: Irrevocable

Nonforfeiture Options

Cash value, reduced paid-up insurance, extended term insurance

Mutual Companies

Companies of this type have no capital stock and are owned by policyholders who share profits through dividends and who can attend and vote at company meetings. Mutual insurers are further divided into:

coverage for medicare

Coverage for Medicare Parts A and B become effective on the first day of the month that the individual turns age 65 unless Medicare Part B is refused at that time. If, however, the individual's birthday is the first of the month, then they could be covered the first of the prior month (June 1 birthdays are covered May 1)

Entire Contract

Entire Contract = policy, copy of application, riders and amendments

Exposure

Exposure is a measure of vulnerability to loss, usually expressed in dollars or units, to which an insurance rate is applied.

Reciprocal Companies

Groups that exchange insurance on each other are reciprocal companies. Members appoint and empower an attorney-in-fact that legally binds members to insure each other. Members share in any profits through lower premiums, or in any losses by assessments.

interest only annuity

If the proceeds are paid out as an interest only annuity, the face value of the policy will not be touched and will be left in total for the children after the death of the spouse.

four parts of the Entire Contract

(1) the application, (2) any supplemental applications, (3) the policy itself, and (4) any riders or endorsements.

Joint Life Insurance

A life insurance policy on the lives of two individuals. The death benefit is payable upon the death of the first to die. Uses include funding of business buy-sell agreements, or to make money available for the 2nd person when there is no estate to worry about.

Common Disaster Clause

A life insurance policy provision that states that the primary beneficiary must survive the insured by a specified period, such as 60-90 days, in order to receive the policy proceeds. Otherwise, the policy proceeds will be paid as though the primary beneficiary had died before the insured.

Legal Action

A life insurance policy may not have any provision which limits the time of legal action to less than two years after the event or claim.

Mammogram:

A mammogram is an x-ray of the breast used to detect breast cancer.

Participating vs Nonparticipating

A mutual life insurer may issue policies on both a participating (sharing in the profits of the company) and nonparticipating basis, provided that the right or absence of participation is related to the premium charged. The policy must clearly state whether it is participating or nonparticipating. (Also par/nonpar.).

Exclusive/Captive Agents

Agents appointed by an insurer to represent the company by selling and servicing policies on its behalf, representing only one company.

Independent Agents or Brokers

Agents that represent several insurers and can, therefore, offer various premiums to the customer.

Elements of a Legal Contract

1. Agreement - offer and acceptance 2. Consideration - premium 3. Competent parties - no minors, incompetence, or under drugs or alcohol 4. Legal purpose - Insurable interest If the applicant does not submit money with the application, it is not an offer, but it is an invitation to the insurer to make an offer, and the agent cannot bind coverage. No coverage is in place until payment of the premium by the insured.

Annuities Certain (Types)

1. Period Certain Annuity-The insurer pays the annuitant an income for a specified amount of time (five years, 10 years, 20 years, etc.). 2. Pure Life Annuity-No payments are made after the death of the annuitant (discussed earlier). 3. Life Annuity with Period Certain-Payments are made for the annuitant's lifetime, but will continue to a beneficiary if the insured dies before a certain number of years has passed (discussed earlier). 4. Life Annuity with Installment Refund-If the total annuitized funds have not been paid out, the remainder is paid to a beneficiary in installments. 5. Life Annuity with Cash Refund-This option is the same as #4, but the remainder is instead paid in a lump sum rather than in periodic installments.

Group Contract

A Group Contract (also known as a Master Contract) is held by a master policyholder or plan sponsor, and covers a group of people, usually 10 or more individuals (but may be fewer). This is a cost-saving measure. Administrative Capability There is a certain amount of work that needs to be done to maintain any insurance account. The bigger the group, the more the cost of required administrative work can be spread throughout the insured membership, thus decreasing costs per individual insured.

Reimbursement Plans/Health Reimbursement Arrangement (HRA)

A Health Reimbursement Arrangement, or HRA, is an IRS approved, employer-funded, tax advantaged employer health benefit plan that reimburses employees for out of pocket medical expenses and individual health insurance premiums. A health reimbursement arrangement is not health insurance.

Keogh Plan: Self-Employed Only (HR 10)

A Keogh (or HR 10) Plan is a tax-advantaged personal retirement program that can be established by a self-employed individual, or by an individual working for an unincorporated business. An individual can contribute up to 25% of their income with a maximum contribution as explained in the chart at the end of this chapter. The actual amount is a percentage of the income after the contribution has been made (an effective 20% of total income). If employees have worked for 3 years or more, the self-employed individual must contribute the same percent of the employee's income to the Keogh as he or she did for their own plan. The employees themselves can make additional contributions to their own account. Plans must be in place before the end of the calendar year for which contributions are made. Once established, the employer is required to make annual contributions to the Keogh plan unless there is an exceptionally bad year, but contributions must be made on a regular basis. Employees are immediately vested in the plan. Employees may not withdraw from the account before age 59½ without incurring a penalty, and withdrawals must begin before age 70½. IRAs and Keogh plans can be established through Banks, Government Bonds, Mutual Funds, Stock Brokerage firms, and Life Insurance Annuity plans.

The Long Term Care Annuity

A Long Term Care Annuity is a hybrid or linked policy. The product functions like a fixed annuity, but has a long term care multiplier built into the policy. There is no premium rider attached to this medically underwritten annuity policy. Instead, a portion of the internal return in the contract is used to pay for the long term care benefit. The Long Term Care coverage is calculated based on the amount of coverage selected when the policy is purchased. Long term care annuities, provide the option to receive long term care benefits only if they are needed. There is no separate long term care insurance policy, no premiums and generally little or no underwriting.

PAP Smear

A Pap test examines a female's cells from her cervix to detect infection, unhealthy cervical cells, or cervical cancer.

Self Funded

A Self Funded, or Self-Insured plan, is one in which the employer assumes the financial risk for providing health care benefits to its employees. Self-Insured employers pay for claims out-of-pocket as they are presented instead of paying a pre-determined premium to an insurance carrier for a Fully Insured plan. Typically, a self-insured employer will set up a special trust fund to earmark money (corporate and employee contributions) to pay incurred claims.

Buyer's Guide

A buyer's guide is a guide for consumers to help them make an informed life insurance purchase. The buyer's guide describes types of policies and information about replacement of policies, and has been recommended for use by the National Association of Insurance Commissioners (NAIC).

Captive/Exclusive Insurance Companies

A captive insurer is a company whose business is primarily supplied and controlled by the one interest or group of related interests that set the company up to insure their assets and operations. In this type of situation, coverage can usually be provided at a lower cost than that which is available in the general insurance market. A captive insurance company may be a non-admitted, nonresident, or foreign insurer, and there are mainly two types: pure captive companies, which are wholly controlled by one parent group captive companies, which are insurers owned by a number of otherwise unaffiliated firms that are in the same type of business.

Effective Date of Coverage

A conditional receipt is given to the applicant at time of application and receipt of initial premium acknowledging that the insurance is in force from the date of receipt or medical exam if a medical exam is required, assuming the applicant is insurable at standard rates. This is called an "Interim Insuring Agreement" or a "Temporary Insuring Agreement." The conditional receipt/interim insuring agreement/temporary insuring agreement is replaced later with a permanent policy once insurability has been determined. If the applicant would not be insurable with standard rates and dies before the policy is issued whether or not a counter offer is made by the insurer (to rate the policy, for instance) there would be no payment of death benefit. If the full initial premium is not collected at the time of application, no coverage will be effective until the policy is delivered and the insured signs a statement of continued good health and pays the initial premium.

Corporate-Owned Life Insurance

A corporation might purchase a life insurance policy to cover key people in order to indemnify the business against the loss of knowledge and experience, and to assist in financing the cost of employee benefit plans such as deferred compensation plans.

Survivorship Life/Last Survivor Insurance

A life insurance policy on the lives of two individuals. Death benefit is payable upon the death of the second to die (the reverse of Joint Life) Used to make money available for estate taxes that will be owed after the death of the second spouse. An individual who might have difficulty obtaining an insurance policy on his or her own life due to health reasons may have an easier time getting a Survivorship Life policy with another, healthier individual because the policy will only pay benefits after the second of the two individuals dies.

Defined Benefit Plans

A defined benefit plan requires the employer, not the employee, to contribute to the plan and has a set benefit (often an exact dollar amount or formula amount) that will be paid to employees upon retirement. The employer invests the funds and if the investment for the plan doesn't do well the employer makes up the difference to provide the benefit. A defined benefit plan is sometimes referred to as a fully funded pension plan. Monthly benefits could also be calculated through a formula that considers a participant's salary and service. A participant is generally not required to make contributions in a private sector fund but most public sector funds require employee contributions. Unlike defined contribution plans, the participant is not required to make investment decisions.

Defined Contribution Plans

A defined contribution plan provides an individual account for each participant. The employer contributes a certain amount to the plan but does not guarantee any certain payment at retirement. The retirement amount will be determined by the performance of the plan and the employee can often determine where funds will be invested within certain parameters. The benefits are based on the amount contributed and are also affected by income, expenses, gains and loses. Some examples of defined contribution plans include 401(K) plans, 403(b) plans, employee stock ownership plans and profit sharing plans.

Delivery Receipt

A delivery receipt is given to the applicant at the time of policy delivery for two reasons: to indicate if the insured needs to pay additional premium (due to policy alterations required by underwriting) to affirm that the policy was received in order to start the free-look period.

Disclosure to consumers for Viatical settlements

A disclosure statement must be given to each viator or insured before the individual is asked to sign any documents and at the time the viatical settlement is signed by all parties. The disclosure statement must be signed and contain the following: possible alternatives to a viatical settlement, including any accelerated death benefits or policy loans offered under the viator's life insurance policy. information that some or all of the proceeds of the viatical settlement may be taxed under federal income tax and state franchise and income taxes. unlike life insurance death benefits paid to beneficiaries, proceeds of the viatical settlement could be subject to the claims of creditors. receipt of the proceeds of a viatical settlement may adversely affect the viator's eligibility for Medicaid or other government benefits or entitlements. the viator may rescind a viatical settlement contract for 15 calendar days after receipt of the settlement (similar to a 15 day "free look" period). If the insured dies during this 15-day period the contract is considered to have been canceled. Any viatical settlement proceeds must be repaid along with any premiums, loans, and loan interest to the viatical settlement provider or viatical settlement purchaser. once the settlement provider receives notice that ownership interest has been transferred and a beneficiary designated, funds must be sent to the viator within three business days. entering into a viatical agreement may cause the insured to forfeit some of the life insurance policy provisions. a copy of the NAIC's brochure or similar brochure developed by the Commission describing the viatical settlement process must be given to the potential viator. The disclosure document must include the following: "All medical, financial, or personal information solicited or obtained by a viatical settlement provider or viatical settlement broker about an insured, including the insured's identity or the identity of family members, a spouse, or a significant other may be disclosed as necessary to effect the viatical settlement between the viator and the viatical settlement provider. If you are asked to provide this information, you will be asked to consent to the disclosure. The information may be provided to someone who buys the policy or provides funds for the purchase. You may be asked to renew your permission to share information every two years." What Must Be Disclosed Any affiliation between the viatical settlement provider and the issuer of the insurance policy to be viaticated The name, address, and telephone number of the viatical settlement provider The dollar amount of the current death benefit payable to the viatical settlement provider under the policy or certificate. Also, the availability of any additional guaranteed insurance benefits, the dollar amount of any accidental death and dismemberment benefits under the policy or certificate, and the viatical settlement provider's interest in those benefits. The name, business address, and telephone number of the independent third party escrow agent, and the fact that the viator or owner may inspect or receive copies of the relevant escrow or trust agreements or documents. That coverage on the lives of any other joint or additional insureds or family riders could be forfeited. Any change in ownership or beneficiary must be communicated by the provider to the insured within 20 days after the change.

Joint Lifetime/Joint Life Annuity

A fixed monthly pension covering the annuitant and a spouse or other beneficiary. Payment stops upon the death of the first to die.

Modified Fully-insured Plans

A group policy in which the employer pays the premium through some method other than the traditional method- through delayed payments or reinsurers.

Consideration Clause

A legal requirement that both parties to the policy, the insured as well as the insurance company, exchange something of value. The insured pays a premium; and selects the mode or frequency of payment, in exchange for which the company promises to pay benefits as stipulated in the policy. Premium Payment

Non-qualified Retirement Plans

A non-qualified deferred compensation plan is a written contract between a corporate employer and an employee covering employment and compensation to be provided in the future. The funds, usually paid out as annuities or in lump sums, are taxed when withdrawn at retirement. Non-qualified plans do not meet the IRS guidelines which would allow them to receive favorable tax treatment.

Contestable Period

A period (usually two years) after the policy is issued during which the company has the right to cancel the policy because of the insured's material misrepresentation, fraud, etc. The insurance company does not have the right to contest the policy's validity and refuse to pay benefits due to any misrepresentations in the application after the two-year period has passed.

Viatical Settlement Broker

A person that on behalf of another and for a fee, commission or other valuable consideration introduces viators to viatical settlement providers, or offers or attempts to negotiate viatical settlement contracts between a viator and one or more viatical settlement providers.

Viatical Settlement Purchaser

A person who gives money as consideration for a life insurance policy or an interest in the death benefits of a life insurance policy. A person who owns, acquires or is entitled to a beneficial interest in a trust that owns a viatical settlement contract or is the beneficiary of a life insurance policy that has been or will be the subject of a viatical settlement contract, for the purpose of deriving an economic benefit.

Viatical Settlement Provider

A person, other than a viator, that enters into or effectuates a viatical settlement contract.

Trustee Groups

A policy of group life insurance may be issued to a trust or to the trustee of a fund established by: two or more employers, one or more labor unions or similar employee organizations, one or more employers and one or more labor unions or similar employee organizations.

Discretionary Groups

A policy of group life insurance may be issued to any other group which, in the discretion of the Commissioner, may qualify for the issue of a group life insurance contract. No such policy or certificate of group life insurance may be renewed, delivered or issued for delivery in a state unless the Commissioner has approved the issue. The Commissioner will not grant his or her approval unless it is found that: the benefits of the policy are reasonable in relation to the premium charged the group to which the policy is issued is organized and operated in a fiscally sound manner.

Employment-related Groups

A policy of group life insurance may be issued to the following. The employer or group is considered the policyholder. The policyholder pays the premium out of their own or the members' funds. Members of the group must have a common affiliation of interests other than the purpose of obtaining insurance. Groups are usually 10 or more individuals and can consist of: employees of a single employer. members of a labor union. members of an association. members of a franchise (Not a true group policy. Separate policies are written on each covered member and are then administered by the sponsor who collects and remits premiums. Premiums are often discounted and groups too small to get an individual group policy may qualify for franchise insurance.) debtors of a single creditor. Generally, creditor group health/disability premiums are paid by the debtors, with the lender as the beneficiary of the policy. Multiple Employer Trusts [METs] or Multiple Employer Welfare Associations [MEWAs]. METs and MEWAs are health plans in which several small employers combine to purchase medical coverage for their employees.

Franchise Groups

A policy written for a franchise group is not a true group policy. Separate policies are written on each covered member and are then administered by the sponsor who collects and remits premiums. Premiums are often discounted and groups too small to get an individual group policy may qualify for franchise insurance.

Solicitation and Sales Presentations

A producer must state that he or she is a life insurance producer and provide the name of the company they represent, prior to commencing a life insurance sales presentation. Terms such as estate planner, financial planner, investment advisory, financial consultant, or financial counselor must not be used in such a way as to imply that the insurance producer is generally engaged in an advisory business in which compensation is unrelated to sale unless true. Any reference to policy dividends must include a statement that dividends are not guaranteed. Benefits must not display guaranteed and non-guaranteed benefits as a single sum, unless they are also shown separately in close proximity. The financial condition of the insurance company may not be misrepresented. Presentations which do not recognize the time value of money through the use of appropriate interest adjustments must not be used for comparing the cost of two or more life insurance policies. No analysis of a policy or the insurance company by a third party may be included without disclosing the payment made to the third party for its analysis. A life insurance cost index that reflects dividends or an equivalent level annual dividend must be accompanied by a statement that it is based on the company's current dividend scale and is not guaranteed. All sales proposals and sales presentations of individual life insurance products which fail to fully and fairly inform an applicant of future premium changes, benefits, and related options constitute a misrepresentation as to material facts.

Prospective Review

A prospective review is also known as prior authorization, prior approval, or pre-certification review. A prospective review is an authorization for the delivery of medical services (procedures, medications, etc.) that must be obtained prior to the delivery of those services, based on their assessment against health care management guidelines.

Prostate Exam

A prostate exam is used to detect prostate cancer in males.

Employee Stock Ownership Plans (ESOPS)

A qualified defined contribution plan in which benefits are given in the form of company stock. Because the value of the stock determines the performance of these plans, life insurance on the lives of key managers can be an important tool to provide funds for the search for replacements in event of the death of these managers.

Retrospective Review

A retrospective review is a review of services (including inpatient and outpatient treatments, office visits, medical equipment, and medications) performed after they have been provided to a patient to determine if they were actually medically appropriate and necessary.

Impairment/Exclusion Rider

A rider attached to a health insurance policy that excludes losses arising from certain pre-existing causes. For example, a heart attack might result in an exclusion for subsequent heart attacks. This limitation on pre-existing conditions is not allowed under the Affordable Care Act. (It is included here as it is still on the test outlines.)

Guaranteed Insurability Option

A rider to a policy allowing the purchase of additional insurance at specified ages (such as 18, 21, 25, 30, and 35) without evidence of insurability. Must be purchased at the time of application and will be taken into consideration during the underwriting process. When an insured chooses to exercise this option and purchases additional life insurance the premium rate for the additional insurance will be what the premium would be for the attained age of the insured at time of additional purchase.

Recurrent Disability

A second period of disability arising out of the same or a related cause of an initial disability after the initial disability appeared to have disappeared. If the insured has returned to work for less than a specified period of time after the initial disability (90 days - six months), then it is considered to be a recurrent disability and benefits continue as before. If at work longer than the specified period, then it is treated as a new disability and is subject to a new elimination period.

Surrender Fees

A sliding scale of charges, diminishing over time, that allows the insurance company to recoup expenses if surrenders or exchanges are made within a short time (usually 7 years or less) after the contract is made. For example, the fee may be 7% the first year of the contract, 6% the second year, and so on until the fee expires in the eighth year.

Definition of Small Employer

A small employer, for purposes of group health plan benefits, is generally defined as the following: One who employed an average of at least two but not more than 50 employees on business days during the preceding calendar year and who employs at least two employees on the first day of the plan year. If an employer was not in existence throughout the preceding calendar year, the determination of whether such employer is a small or large group employer shall be based on the average number of employees that it reasonably expects to employ on business days in the current calendar year.

Indeterminate Premium Whole Life

A specialty policy that has an initial period in which premiums are set at a guaranteed amount. After this period expires, the company can review its situation (investment earnings, expense costs, mortality costs, etc.) and adjust the premiums accordingly. The premium amount may rise, but never above a maximum limit stated in the policy.

Suicide Clause

A standard disclaimer excluding payment of benefits if death is the result of suicide. Most states limit this exclusion to a suicide occurring within the first two years of the policy's issue (MO is one year). If suicide occurs within the time limit, benefits paid are limited to the return of premiums paid. If suicide occurs after the time limit, the full death benefit must be paid.

Executive Bonus Plan

A tax-deductible way to reward key executives. The plan can be offered to specific employees. The company gives the executive a bonus equal to the cost of the life insurance policy premium. The executive owns the policy and pays the premium. Cash values build on a tax-deferred basis and accumulated cash value is available for retirement. Any death benefit is income tax-free.

Individual Retirement Account (IRA)

A tax-deferred, individual retirement plan that can be established by anyone with earned income. Interest grows on a tax-deferred basis, being taxed only when finally withdrawn. Contributions are deductible from earned income for the year contributed to the IRA If the individual is eligible for an employer sponsored retirement plan, contributions to the IRA may be only partially tax-deductible (part of a qualified plan) or not deductible at all (a non-qualified plan), depending on the amount of income.

temporary license holder

A temporary license holder may not obtain commission for a sale of insurance covering any of the following people: (1) the temporary license holder, (2) a person related to the temporary license holder by blood or marriage, (3) a person who is or has been the temporary license holder's employer during the past 6 months, or (4) a person who is or has been the temporary license holder's employee during the past 6 months.

co-insurance

A term that indicates a sharing of loss between the insured and the insurer. Typical co-insurance clauses may be 80/20 or 70/30, where the insurer pays the first percentage of the loss and the insured pays the second percentage up to a pre-determined set amount within a calendar or policy year.

Viatical Settlements

A terminally ill policyowner sells his or her life insurance policy at a discount for cash to a third party. The insured gains access to money for medical bills prior to death rather than the policy beneficiary getting the death benefit later. When the original owner dies, the third party receives the policy's entire death benefit. The new owner is actually investing in the death benefit of the policy.

Deductibles

A type of co-insurance where the insured pays an initial amount of a claim before the insurer begins payment.

Level Premium Term

A type of term life insurance for which the premiums remain the same throughout the duration of the contract. The premium paid on this type of policy will be higher at the beginning of its life but lower towards the end of its life as compared to term policies that have rising premium rates.

Variable Life

A variant of a whole life policy in which the policy's cash value may vary in relation to the investment experience of the stock or index fund(s) in which the cash value is being invested as selected by the policyowner. Death benefit and premiums are usually fixed throughout the policy, but may vary. Both a life insurance producer license and a FINRA securities representative license are required to sell Variable Life Insurance.

Viatical Settlement Contract

A written agreement entered into between a viatical settlement provider and a viator. The agreement must establish the terms under which the viatical settlement provider will pay compensation or anything of value, which compensation or value is less than the expected death benefit of the insurance policy or certificate, in return for the viator's assignment, transfer, sale, devise or bequest of the death benefit or ownership of all or a portion of the insurance policy or certificate of insurance to the viatical settlement provider.

Accelerated Living Benefit Provision/Rider

Accelerated benefit provisions allow for payment of partial policy benefits while the insured is yet alive. These benefits are generally added as optional riders to the policy and must have the approval of the policy owner and any irrevocable beneficiary before they can be used. Reduced benefits are later payable upon the insured's death. Conditions for Payment Insurers may include in their life insurance policies a provision for accelerated payment of benefits to the insured during the insured's lifetime, if a qualified health care provider or court determines that the insured: is no longer able to perform two of the following activities of daily living (ADLs): bathing dressing eating continence toileting transferring requires substantial supervision by another person for the safety of the insured or any other person. The proceeds from the policy, in these instances, would better serve the insured by helping to pay for necessary health care rather than being available to beneficiaries after death.

Renewability Clause

Accident and health insurance policies are purchased for a certain term, or period of time. At that time the insured or insurer must decide whether or not to renew the policy. This is partially determined by the renewable provision within the policy.

Accident-Only

Accident policies only pay if the insured suffers injury from an accident. These policies provide coverage, singularly or in combination, for the following: death, dismemberment, disability, and hospital and medical care.

claim forms

According to Required Uniform Policy Provision 6, Claim Forms, the insurer has 15 days from notification of loss by the insured to furnish appropriate claim forms to the insured. If forms are not made available to the insured within the 15-day window, the insured will be considered to have complied with the proof of loss provision of the policy.

advantages and disadvantages of adjustable life policies

Advantages Face amounts, protection periods, premium amounts, and premium payment periods may be increased or decreased by the policyholder (after the payment of the initial premium). Many options are available: policyholders can specify the desired face and premium amounts, and the company can formulate the best-fitting plan policyholders can choose the type of plan and coverage amount, and the company can calculate the necessary premium payments. Disadvantages Cash value may fluctuate depending on the amount and frequency of premium payments. Adjustable life insurance is more complex than term life or whole life policies. The death benefit is based on and depends on the cash value of the policy.

Avoiding Adverse Selection

Adverse selection is insuring too heavily those needing coverage the most (the sick and elderly) without the balanced insuring of those that do not need it as much (the young and healthy). It is a major part of the underwriter's job to avoid adverse selection and charge sufficient premium. If premiums are too high, healthy individuals will likely find coverage elsewhere leaving the sick and those using benefits as the only ones maintaining coverage, as their now pre-existing conditions preclude them from obtaining coverage elsewhere.

Advertising Regulations

Advertising, including the use of statistics and testimonials, cannot be misleading or deceptive. It must be truthful, clear, and complete. Words or phrases which require familiarity with insurance terminology must not be used. Regarding preexisting conditions: an advertisement must disclose the extent to which a loss is not covered if the cause of loss is traceable back to a condition existing prior to the policy's effective date. if a policy does not cover losses traceable back to preexisting conditions, no advertisement may state or imply that the issuance of the policy or the payment of a claim would not be affected by the applicant's physical condition or medical history; this limits the use of such phrases as "no medical examination required". An advertisement may not directly or indirectly make unfair or incomplete comparisons of policies or benefits. Also, no advertisement of an insurer may falsely disparage competitors or their policies, services, or business methods. It is illegal to make, publish, or circulate any advertisement or announcement containing any untrue, deceptive, or misleading representation or statement, with respect to the insurance business or any person in the insurance business. An advertisement may not state or imply that a particular insurer or policy has been approved or endorsed by any governmental agency. Advertisements are also prohibited from using symbols, trademarks, or names similar to a governmental agency. Any premium or benefit increases, decreases, or limitations must be prominently described. The source of statistics must be clearly stated and the statistics must be current, correct, and appropriate for the policy involved. Testimonials must be true and not taken out of context. All advertisements must contain the insurer's name and the policy's form number. Advertisements must not state or imply that prospective insureds become members of a group and are therefore entitled to special rates and privileges. Advertisements are prohibited from claiming that a policy represents an initial, introductory, or special offer, unless such is the fact. An insurer must maintain its advertisements on file for a period of four years. These files will be subject to periodic inspections by the Insurance Department.

Exclusions and Limitations

All types of insurance policies have certain exclusions and limitations and may exclude the insured person from cover in certain circumstances. The most common life insurance exclusions are: Suicide clause Dangerous activity Aviation exclusion Act of war exclusion

Cost of Living Adjustment (COLA) Rider

Allows Disability benefits to keep pace with inflation. Indexes the weekly or monthly disability benefit to the Consumer Price Index (CPI). When the disability ends, insured can keep policy benefits at the increased level with an increased premium, or let benefit amount return to original policy amount at the previous premium. Increased options include simple or compound interest with or without upper limits or "caps".

Future Increase Option (FIO) Rider

Allows the insured to increase the amount of disability benefit at a future date, subject to increases in income, within the same policy. Particularly beneficial as a starter plan for professionals who can only afford a small policy now, but know their income will significantly increase in the future.

Money Purchase Plans

Also called 401(a) Investment Plans. Eligibility These are defined contribution plans to which employer contributions are fixed. These plans are for businesses of any size, or individuals with self-employment income. Employers may contribute up to the lesser of 25% of employees' compensation or the amount shown in the chart at the end of the chapter. A participant's benefit is based on the amount of contributions to their account and the gains or losses associated with the account at time of retirement. Pros and Cons Employer contributions are tax-deductible Employer may exclude certain employees Employer may establish a vesting schedule Employer is required to fund annual contribution; excise tax applies if the minimum contribution requirement is not satisfied Possible to grow larger account balances than under some other arrangements Need to test that benefits do not discriminate in favor of the highly compensated employees Contributions and earnings are tax-deferred until withdrawn Participant loans are usually permitted, but withdrawals are not permitted

Accidental Death Benefit Rider

Also called multiple indemnity riders these pay an extra amount usually equal to the policy's face value if the insured dies under certain conditions as stipulated in the policy (double indemnity) Accidental death does not include any accident that is the result of any illness or physical disability that the insured may have, but only if death is the result of an external, violent and purely accidental cause. Coverage usually ends when the insured reaches a certain age, such as age 60 or 65 at which time any extra premium charge is also dropped from the premium.

Own Occupation

Also known as Your Occupation or Specific Occupation, the insured cannot perform the duties of his or her regular profession, or the profession in which he or she is engaged when the disability begins. There is usually a provision that the insured must be in a doctor's care.

Partial Surrender/Withdrawal

Also known as a withdrawal, unlike a policy loan, this is the payout of a partial amount of the cash value without the necessity of paying the money back. The face amount of the death benefit can be reduced or the premium may need to be increased to keep the policy in force. Tax consequence of partial surrender The contract has FIFO withdrawal status after 10 years (FIFO: first in, first out), meaning that withdrawals are treated as having come first from the cost basis in the contract. Once the cost basis is exhausted, the remainder of partial withdraws are taxed as ordinary income.

Insurance Services Representative (ISR)

Alternative to the general lines property and casualty license for individuals who are employed on a salaried basis in the office of a property and casualty agent. The ISR is authorized to: Explain insurance coverage, Describe an insurance product, Quote insurance premium rates, and Issue insurance binders.

Accidental Death and Dismemberment

An AD&D policy pays benefits only if, as the result of an accident, the insured dies or incurs permanent loss of: sight in one or both eyes, a hand at or above the wrist, an arm at or above the elbow, a foot at or above the ankle, OR a leg at or above the knee.

Employee Association

An Employee Association is an formal organization, other than a trade union, whose members comprise employees of a single employing organization. The aims of the association may be social, recreational, or professional. They may also apply to an insurance company for coverage under a group health insurance contract for the benefit of the association.

Capitation

An HMO program in which service providers are paid a fixed monthly fee for each member regardless of services.

Independent Practice Association:

An IPA is an organization providing health care by doctors who maintain their own offices and continue to see their own patients but agree to treat enrolled members of the organization for a negotiated lump sum payment or a fixed payment per member or per service provided. It is a type of HMO.

Traditional IRAs

An IRA can only be funded with cash or cash equivalents. Contributions paid into a qualified traditional IRA plan may be tax-deductible in the year paid in, depending on the contributor's tax filing status, adjusted gross income, and his or her eligibility for participation in an employer-sponsored tax-qualified retirement plan. During the accumulation phase (when money is being put into the account and the account has not been annuitized), interest grows income tax-deferred. These funds, along with the interest within the IRA, are taxed when withdrawn from the account. Taxes include those on all of the capital gains, interest, dividends, etc., that were earned over the past years.

Accident Insurance

An accident must be unforeseen, unintended, and result in an injury. Pays medical, hospital, and surgical bills that result from an accident, not an illness. May pay for loss of time or income to recover wages lost as the result of accident.

Law of Agency / Agents and Extended Liability of the Insurer

An agent's actions are regarded the same as if the company itself preformed the action. The agent is a representative of the insurer and acts for the insurer. As such, the insurer becomes partially liable for the actions of the agent. It is the insurer's responsibility to monitor the compliance of its agents in order to verify that they follow all required laws.

Medical Examination at the Time of Application

An applicant may undergo a medical examination at the time of the application, depending on his or her age and the type and amount of insurance applied for. The examination will usually include a basic physical, a urine specimen, blood work, and may include an EKG (an electrocardiogram, also known as an ECG, which records the electrical activity of the heart and is used to diagnose heart problems) and x-rays. Coverage will not be extended until there is satisfactory completion of the physica

Deferred Compensation Plans

An arrangement in which an employee agrees to defer some of their current income until a future date, such as retirement. The employer uses the deferred income to purchase cash value life insurance. The cash value of the insurance is used to help supplement the employee's retirement income, or if the employee dies before retirement his or her beneficiary will receive the death benefit. Deferred compensation plans are non-qualified plans for tax purposes (not tax- deductible) allowing companies to choose which employees can participate. These plans are usually reserved for the company's officers, executives, or other highly paid employees.

Trusts

An arrangement in which property is held by a person or corporation (the trustee) for the benefit of others (beneficiaries). The person establishing the trust (the grantor) gives the trustee title to the trust assets that are called the corpus, subject to the terms of the agreement. Trusts are often used when minor children are to be the beneficiaries of a life insurance policy. When a trust is named as the beneficiary of a life insurance policy the policy's death benefit is transferred to the trust by the insurer when the insured dies. If the trust is set up as an irrevocable trust (the insured cannot change the beneficiary), the death benefit is removed from the insured's estate and the policy will not be subject to probate or estate taxes.

Cost of living adjustment (COLA)

An increase in the policy's face amount is tied to the cost of living index on an annual basis and limited to a maximum, such as 5% in any one year. Premiums are adjusted at the time of coverage change. The insured does not need to provide proof of insurability at the time of increase.

Indemnity Plan Features

An indemnity-type plan allows the policyholder to use the service of any doctor or any other medical service provider. The insured or the provider forwards the bill to the insurer, and the insurer then reimburses the medical costs. The deductible has to be paid first before the insurer will pay. Most indemnity-type policies pay a percentage of the usual and customary charge reserved for covered medical services. If the rates of the medical service provider are in excess of the customary charges, one has to pay for excess cost and the coinsurance. Once the medical costs reach a given amount in a calendar year, the customary costs for benefits covered will be met in full by the insurance company, and the insured no longer pays the co-insurance. This feature is called the out-of-pocket maximum.

Credit Life

Issued through a lender to cover payment of a loan or installment purchase upon death Underwriting guidelines are usually not as strict as with individually bought policies, so they may be easier to obtain. Examples include coverage for mortgages, auto loans, or credit card balances.

Indexed Whole Life

An indexed whole life contract is tied to a market index such as the S & P 500 or the Dow Jones. The policy does not actually invest in securities, but instead follows the movement of the index. The policy credits interest when the market is up, and guarantees a minimum interest rate which insulates the contract during periods when the index is stagnant or goes down.

Insured Status

An individual must be insured under the Social Security program before retirement, survivors, or disability benefits can be paid to his or her family. Fully insured status: Usually 40 quarters or 10 years of Social Security-covered work Currently insured status: To be considered currently insured, the person had at least six Social Security credits during the full 13-quarter period ending with the calendar quarter in which he or she: died most recently became entitled to disability benefits became entitled to retirement benefits Currently insured status may be all that is needed to receive some types of benefits.

The Fiduciary Relationship

An insurance agent is an agent to a principal-the insurance company. As such, the agent holds a special position of trust, confidence and responsibility in his relationship to the insurer. This is called a fiduciary relationship. An agent also represents his or her client, though their first responsibility is to the insurer. As fiduciaries, agents are expected to be professional and to act ethically. Financial Responsibilities Money received in return for an insurance policy or binding of insurance coverage is held in a fiduciary capacity and may not be used by the agent for any other purpose. Many states require a producer to maintain a Premium Fund Trust Account (PFTA) if they hold premium money for any length of time before giving it to the insurer. The PFTA must be separate from personal or other business accounts.

Unfair Financial Planning Practices

An insurance producer, agent, broker or consultant may not: present himself or herself as a financial planner, investment adviser, or any other type of specialist engaged in the business of financial planning or giving financial advice if he or she is only certified to sell policies. do any kind of financial planning without disclosing to the client that he or she is also an insurance salesperson and that commissions for insurance sales will be received in addition to financial planning fees. charge fees, other than commissions, for financial planning unless the fees are set down in a written agreement that is signed by the client and details the services rendered, the fee structure, and that the client is not obligated to purchase any products.

Admitted (Authorized) Insurer

An insurer authorized by a state's insurance department to transact business in that state is an admitted insurer.

Consideration of Genetic Screening or Testing Results by Insurer

An insurer may consider the results of genetic screening or testing if the results are voluntarily submitted by an applicant or an individual seeking renewal of health care services coverage, and the results are favorable to the applicant or the individual. Different states have different laws pertaining to the use of genetic information in health insurance--see the law book for your state for specifics.

Medical Examination at the Time of a Claim

An insurer may examine an insured's body when and as often as it reasonably requires during the processing of a claim, and may perform an autopsy in case of death if it is reasonably necessary and not forbidden by law.

Alien Insurer

An insurer organized under the laws of a jurisdiction outside of the United States or its territories are called alien insurers.

Direct Writer

An insurer that deals directly with the insured through a salaried representative or captive/exclusive agent rather than through independent brokers.

Foreign Insurer

An insurer transacting business in a state but that is chartered under the laws of a different state or one of the U.S. territories are called foreign insurers.

Annuity Purchases and Taxation

Annuities can be bought on a stand-alone basis, or as part of a retirement program (Individual Retirement Annuities [IRA] or Self Employed/Simplified Employee Pension [SEP] plans). Interest accumulates on a tax-deferred basis until withdrawn. Annuities bought as stand alone investment vehicles are considered non-qualified plans; premiums are not tax-deductible. Annuities bought as part of an established retirement program are considered qualified plans; premiums can be deducted from taxes but there is a 10% tax penalty for withdrawal of cash prior to age 59½ on top of regular income tax that must be paid upon withdrawal of funds. Exceptions may apply that allow the insured to avoid the 10% penalty (see Qualified Plans)-- Disability, buying a first home and paying medical expenses that exceed 7.5% of your adjusted gross income. Taking the money out in "substantially equal payments" over the insured's lifetime--for the exception to apply, IRS rules require that the policy be annuitized and that at least one payment is made to the annuitant annually. The annuity distribution can be set up as a one-life annuity or a two-life annuity for married couples.

Interest Rate Guarantees (Min. vs Current)

Annuities have a guaranteed minimum interest rate that is set by the company and disclosed in the policy. A typical minimum rate is 3%. The current interest rate is linked to: the reserves and interest the insurer earns on its investments an external reference or index. Current interest rate is a combination of the guaranteed rate and any other interest amount (if any) called the bonus rate. The current rate is set and locked in, in most cases, for one year although some companies will lock in rates for multiple years.

Special Savings Plans

Distributions Distributions for qualified medical expenses are tax-free. If used for non-qualified medical expenses, they may have a 20% tax Owners can withdraw cash from accounts with some limitations Other Characteristics Interest is tax-free. It is portable; employees can take it with them if they change employers (if the new employer also offer an MSA). Accountholders must maintain records to show that they have spent distributions appropriately.

Life Insurance Dividends and Taxes

Dividends are not subject to income tax, but interest received on the dividends is subject to income tax.

Employer Sponsored Plans--Worksite Plans

As health care costs increase, some employers are offering voluntary group coverage plans where the premiums are paid by the enrollees. These worksite or voluntary group benefit plans enable employees to select their own level of protection. Worksite benefit plans may include: accident, dental, life, vision, short-term disability, cancer/specified-disease, hospital confinement indemnity, specified health event, hospital intensive care, hospital confinement sickness indemnity, etc.

Joint Life annuity

Payments are guaranteed to two or more annuitants and cease after the death of the first to die. One example of where it could be used is when the second individual will inherit or have another source of income after the death of the first to die.

Fraudulent Viatical Settlement Act

Because of widespread fraud in some segments of the viatical settlement industry, many states have developed Fraudulent Viatical Settlement Acts to detail the legal conduct of these types of policy contracts. Some provisions of the various Acts include: requiring and defining the licensing and conduct of viatical settlement brokers requiring disclosure of facts regarding viatical settlements, including the financial consequences of selling a life insurance policy in a viatical settlements possible alternatives to a viatical settlement making it unlawful to solicit or sell viatical settlement contracts using untrue facts or by engaging in any type of fraud regarding viatical settlement contracts.

Long-term Disability (LTD)

Benefit periods of two or five years, to age 65 or for life. If longer than two years, the definition of disability usually changes to an "any occupation" definition. Elimination periods of 30, 60, 90, or 180 days. Benefits are usually limited to about 60% of income.

Comprehensive Major Medical Policies

Comprehensive major medical plans cover nearly all medical expenses with a single policy, including: hospital charges, physician expenses, nursing care, medications, diagnostic and laboratory services. These types of policies generally incorporate deductibles and co-insurance, which help to keep the costs of premiums down by requiring the policyholder to help with the payment for services. However, some policies incorporate what is known as first dollar coverage, which means there is no

Conservation

Conservation is any attempt by the existing insurer or its agent to dissuade a policy owner from replacing the existing life insurance or annuity. The agent must: keep a notice regarding the replacement, the policy statement, and any ledger statements used must be kept for three years or until the next regular examination by the Department offer the applicant the right to return the policy or contract within 20 days of delivery and receive an unconditional full refund of all premiums or considerations paid.

Life Annuity, Period Certain

Payments are made for the annuitant's lifetime, but will continue to a beneficiary if the insured dies before a certain number of years has passed.

Single Life annuity

Payments are made in equal installments over the remainder of the annuitant's life, and then all payments cease.

Interest Earnings

Premium dollars are invested in various investments-stocks, mutual funds, real estate, etc.-and the returns on these investment, including earned interest, help to keep the overall cost of life insurance premiums down.

Use of Genetic Information

Definitions Genetic Information Genetic information includes information about genes, gene products, or inherited characteristics that may derive from an individual or a family member Genetic Testing or Screening This is a laboratory test of an individual's genes or chromosomes for abnormalities, defects, or deficiencies, including changes in the number, structure, or integrity of an individual's chromosomes or carrier status, that are linked to physical or mental disorders or impairments, indicate a susceptibility to illness, disease, or other disorders, or demonstrate genetic or chromosomal damage due to environmental factors.

Changes/Modifications in the Application

Any changes made in the application must be signed by both the applicant and the agent to signify that each is aware of the change. The insurance company may not make any changes to an application once it is received unless those changes are signed by the applicant. Any changes made to a policy before it is issued that are materially different from the policy for which the applicant applied must be explained to the applicant at the time of policy delivery and the policyowner's signature must be obtained to acknowledge the changes.

Reinstatement of Coverage for Military Personnel

Any employee who is called to active duty in the military services and then reapplies for coverage after release will be reinstated. This would include all of his or her family members and dependents previously covered without any clause or restriction because of pre-existing conditions.

Managing General Agent (MGA)

Any person, firm, or corporation who has supervisory responsibility for the local agency and field operations of an insurance company or carrier within this state, or any part thereof, or who is authorized by a company or carrier to accept or process in its behalf insurance policies produced and sold by other agents. The MGA may represent or act for one or more insurers; the license holder is not required to hold a separate license for each insurer the license holder represents. The MGA may at as an MGA in the lines of general Property and Casualty and also in Surplus lines. A managing general agent acting for an insurer may: Receive and pass on daily reports and monthly accounts; Receive and be responsible for agency balances; Handle the adjustment of losses; or Appoint or direct general property and casualty agents and personal lines property and casualty agents in this state.

Uninsurable/Declined

Applicants who are rejected or denied coverage due to excessive risk(s) that the insurance company does not want to accept.

Community Rating

Applying the same premium rate structure to certain groups of subscribers, regardless of their past or potential loss experience.

Community Rating

Applying the same premium rate structure to certain groups of subscribers, regardless of their past or potential loss experience. This is often used when an insurer is looking to insure a group with no prior experience to review.

Medicare part A Enrollment

As stated above, an individual who is 65 years of age and receives: Social Security benefits or Railroad Retirement Board benefits will be automatically enrolled for Medicare Part A. If a person is under age 65 and disabled, Part A enrollment will be automatic after he or she receives Social Security or Railroad Retirement Board benefits for 24 months. People with Amyotrophic Lateral Sclerosis (ALS, or Lou Gehrig's Disease) will automatically get Part A benefits the month that their disability benefits begin. Initial Enrollment Period--the seven-month period that includes the three months before the person's birth month, the birth month itself, and ends three months after a person's birth month for Part A and B General Enrollment Period--from January 1 to March 31 of each year to sign up for Part B if not previously elected. Special Enrollment Period--if a person (or that person's spouse) has been working and has group health coverage through his or her employer or union, enrollment can take place anytime during employment or during the eight-month period that begins the month the employment ends, or the group health plan coverage ends, whichever happens first for Parts A and B. Premium Costs and Deductibles Premium: $134/ month in 2018 (possibly more if the individual did not sign up when first eligible, and if the individual has an income greater than $85,000, or $170,000 for a couple.) Part B deductible $183 for 2018.

Assignment

Assignment is the transfer by the policyowner of all or some of the rights under and/or interest in the policy to another individual through written notice to the insurance company.

Conditional Receipt

At the time of the application and the receipt of the initial premium, a conditional receipt (also called an "Interim Insuring Agreement" or a "Temporary Insuring Agreement") is given to the applicant acknowledging that the insurance is in force from the date of receipt (or medical exam if a medical exam is required), assuming the applicant is insurable at standard rates. The conditional receipt is replaced later with a permanent policy once insurability has been determined.

Disclosures at the Point of Sale

At the time of the sale of an insurance policy, an agent is required to provide informational and disclosure items to the insured that may include: Medical Information Bureau information consumer reports medical record information insurance information practice disclosures HIPAA (Health Insurance Portability & Accountability Act) information and authorization HIV consent forms and information buyer's guides policy summaries

Facility of Payment Clause

At times it may be difficult for an insurer to clearly ascertain who the correct beneficiary is under a particular policy. The Facility of Payment Clause was developed to allow an insurer to pay benefits to someone other than the insured or a beneficiary under certain specified conditions in order to prevent potential litigation against the insurer.

Express Directive

Authority is expressly given the agent in his contract For example, selling policies, collecting initial premiums, etc.

Apparent Directive

Authority is neither expressly given nor implied, but exists because the agent has used it in the past without the insurer stopping him from doing so. For example, If the agent has paid minor claims in the past and been reimbursed by the insurer, it is apparent that he has the authority to do so.

Scheduled vs. Non-scheduled Plans

Basic (Scheduled) Dental Plans: Maximum benefits are lower than usual and customary charges, i.e., less than the going/average rate in that geographic area. Comprehensive (Nonscheduled) Dental Plans: Benefits are paid at the usual and customary rate (the average cost in a particular geographic area). Combination Dental Plans: These plans usually cover preventative and diagnostic services on a "usual and customary" cost basis, and other dental services on a basic/scheduled basis.

Basic Medical Insurance

Basic medical insurance consists of mono-line coverages, which means that only one type of medical expense is covered. It was the primary form of medical insurance sold for many years. Coverage is limited and set low (such as $10,000) for any given situation. When benefits are paid according to the amount listed on the schedule, the plan is called a scheduled plan. While there is usually no deductible or co-insurance amount, the basic/scheduled amount is generally less than the usual and customary charge for that service in that area, and the patient has to pay the difference themselves. The maximum dollar amount and the schedule are determined by the policy.

Spousal Impoverishment

Because nursing home care can rapidly deplete the savings of elderly couples, Congress enacted provisions to prevent a spouse still living at home from being left with little or no income or resources. Under these spousal impoverishment rules, a certain amount of the couple's combined resources and income is protected, setting a minimum threshold for monthly expenses such as housing.

Social Security

Benefits and Taxes A federal program started in 1935 to provide financial security for U.S. citizens upon their retirement or the premature death of the family breadwinner. About 95% of the workers in the USA are covered by Social Security. Pays $255 toward final expenses Pays some disability income in the case of complete disability. Surviving spouse receives income benefits until children reach age 16 (or 22 if the children are disabled). Children receive benefits until age 18 or until age 19 if still in high school. Insured Status An individual must be insured under the Social Security program before retirement, survivors, or disability benefits can be paid to his or her family. Fully insured status Usually 40 quarters or 10 years of Social Security-covered work Currently insured status To be considered currently insured, the person had at least six Social Security credits during the full 13-quarter period ending with the calendar quarter in which he or she: died most recently became entitled to disability benefits became entitled to retirement benefits Currently insured status may be all that is needed to receive some types of benefits. Blackout Period Under Social Security guidelines, it is the period of time between a surviving spouse's last child's benefit payment (at child's age 16) and the spouse's eligibility for their first retirement income check at the spouse's age 60. If the spouse elects to receive benefits at age 60, the amount of benefits will be less than if they wait until age 66, at which time they would receive the full spousal benefit.

Time of Payment of Claims

Benefits are payable immediately upon receipt of written proof of loss. Up to $1,000 may be paid by the insurer to any provider who appears entitled to it in order to make payments quicker. Any periodic benefit payments must be paid at least monthly.

Credit Disability

Benefits are used to pay creditors (installment loan debt) while the insured is disabled. Usually set up as group insurance with the creditor as the master policyholder May be a limit on the number of payments or the total dollar amount the policy will pay Waiting periods are often only 14-30 days

Change of Occupation

Benefits may be reduced if the insured changes occupations to one classified by the insurer as more hazardous or if accepting payment for performing anything in such an occupation. Benefits are then reduced to the proportion that the paid premium would have covered for that occupation. If the occupation change is to one less hazardous premiums must be lowered.

Skilled Nursing Facility:

Benefits pay for inpatient care after a hospitalization for the same treatment they are to receive in the nursing facility. Benefits pay up to 100 days. For days 1-20 there is no co-insurance or deductible For days 21-100 there is a co-insurance payment required.

Misstatement of Age or Sex

Benefits will be reduced to what the premium would have provided at the correct age or sex if it were discovered prior to payment of benefits that the insured's age was understated on the application. If insured's age is overstated, overpayment of premiums must be returned.

Blanket Policies

Blanket policies are a limited type of group policy that covers such things as teams, passengers, or students at the same school.

Conditional Contract

Both parties must perform certain duties to make the agreement enforceable. The insured pays premiums and follows certain policy conditions. The insurer pays claims according to policy terms.

Dental Insurance

Dental plans can be written on an individual or group basis, but are usually an optional coverage available for purchase under a group policy. The purpose of dental insurance is to cover the cost of dental care for the following practices: Prophylaxis Routine diagnostic and preventive care. Restorative Care Returning natural teeth to functionality (fillings and crowns). Periodontics Treatment of gum disease. Endodontics Treatment for root canals or dental pulp care (soft tissue substance in the center of the tooth). Prosthodontics Artificial replacement of teeth (dentures, bridgework). Orthodontics Correcting abnormally aligned teeth (braces). Oral Surgery Surgery performed in the oral cavity (wisdom teeth removal).

Benefit Categories of dental indemnity

Diagnostic/Preventive Services Preventive care is often more fully covered than other dental coverages, similar to an HMO type situation Basic Services Includes fillings, oral surgery (extractions and impacted teeth), denture and crown repair Major Services Inlays and crowns, dentures and bridgework, periodontal surgery, endodontics (root canals and pulpal therapy) and periodontics (treatment of gum disease).

Loss of Income from Disability

Disability insurance helps the policyholder in that it: pays up to a maximum of about 60% of income lost as the result of disability, reimburses for the loss of income while disabled.

Consumer Driven Health Plans (CDHPs)

CDHPs are health benefit plans that allow employees/participants to choose their own health care providers, manage their own health expenses, and improve their own health with respect to factors that they can control. Generally CDHPs involve : A three-tier structure of payment for health care: A tax-exempt health account that participants use to pay for health expenses up to a certain amount, e.g., HSA, MSA, FSA, or HRA A high-deductible health insurance policy that pays for expenses over the deductible A gap between those two in which the individual pays any health care expenses out of their own pocket Participants have the opportunity to save the money that they do not spend for health care expenses this year, for future years (or, in some plans, for withdrawal during retirement). Support systems (usually on the Internet) to help participants select good providers, get reasonable prices, track their health care expenses, and improve their health.

Individual Disability Plans

Can be long or short-term Usually do not coordinate with other group benefits the insured may have Premiums are not tax-deductible. Benefits are not subject to income tax and are a maximum of up to 60% of the individual's income.

Basic Total Disability Plan

Can be long- or short-term Usually does not coordinate with group benefits the insured may have. Premiums are not tax-deductible. Benefits are not subject to income tax and can be a maximum of up to 60% of the individual's income.

Cash Accumulation Options in Universal Life

Cash value growth on an interest sensitive basis-The premium payments above the cost of insurance are credited to the cash value. The interest, determined by the insurer and often pegged to a financial index, is credited each month to the cash value. Because only the amount of interest credited and not the cash value itself varies, UL policies offer a stable investment option. Tax-deferred growth-Investment earnings are tax-deferred while the policy is in force. Partial Surrenders-Taking part of the cash value from the policy. The face amount of the death benefit can be reduced or the premium may need to be increased to keep the policy in force. Tax consequence of partial surrender-FIFO withdrawal status after 10 years (FIFO: First In, First Out.) Withdrawals are treated as having come first from the cost basis in the contract. Once the cost basis is exhausted, the remainder is taxed as ordinary income. Policy Loans: Policy loans are available, but do lower cash value of the policy, the interest earnings, and the amount of face value death benefit that will be paid out upon the insured's death.

Cash Accumulation

Certain kinds of policies allow the owner to save money due to the cash value that accumulates.

Conformity with State Statutes

Changes in state laws occurring while the policy is in effect automatically change the policy to conform without the need of written notice.

Churning

Churning is a form of twisting and also involves taking 25% or more of the cash value from the existing policy to pay the premium on a new policy.

Payment of Claims

Claims for life insurance policies must be paid out in a timely fashion once the insurer receives satisfactory proof, such as a death certificate. The time frame for the payment is usually sixty days. The proceeds from the policy's death benefit will earn interest until payment is made.

Adjustable Life Insurance

Combines term and whole life into a single plan. The policy can be converted from term to whole life or whole life to term. Premiums and face amounts can be increased or decreased at the policyholder's request, subject to limitations as stated in the policy. Face amount increases may also be subject to proof of insurability. Changes do not have a retroactive effect on any policy provisions. Depending on changes made Adjustable Life can have cash value and other features of standard whole life. Premium increases are added to the cash value of the policy.

Waiver of Premium with Disability Income

Combines the disability waiver of premium and adds a monthly income benefit to the policyholder in the event he or she becomes disabled.

Continuation of Coverage Under the Consolidated Omnibus Budget Reconciliation Act (COBRA)

Continuation of Coverage Under COBRA The Consolidated Omnibus Budget Reconciliation Act (COBRA) was passed by Congress in 1985 and took effect in 1986. The law provides some employees, retirees, spouses, and dependent children the opportunity to temporarily (up to 18 months) continue group health coverage that would otherwise be terminated; it does not apply to life or disability insurance. However, these individuals are only able to continue coverage if specific qualifying events occur: loss of coverage due to the death of a covered employee termination, resignation, or a reduction in hours (due to discharge, layoff, strike, medical leave, or even a lull in business) that causes the covered employee to lose coverage eligibility divorce (which normally disqualifies the ex-spouse from eligibility) a dependent child reaches an age at which he or she is no longer eligible. Continuing coverage under COBRA is normally more expensive than regular health coverage for eligible employees (as the employer pays part of the premium). It is still usually less expensive than health coverage purchased as an individual. Terminated members of a group have 60 days to convert the group policy to individual coverage via COBRA, a federal law which allows covered members or their dependents to continue coverage under the group plan for up to 18 months of leaving the group at the same premium rate plus up to 2% of what it was with the group. If the person dies during this conversion period without electing coverage it will be assumed that he or she would have accepted conversion and benefits would be paid accordingly after the deduction of applicable premium costs.

Contributions and Contribution Limits for Roth IRAs

Contributions can be made to a Roth IRA, a traditional IRA, or a combination of the two. However, the limits apply whether contributing to a single fund or a combination of the two. Direct contributions to a Roth IRA are NOT tax-deductible. The important point of the Roth IRA is that distributions of both principal and interest are income tax-free if the Roth IRA is over five years old and the owner is 59½ or older when distributions are made.

Special Features of term life

Convertible A term policy is usually convertible to a whole life policy in an amount equal to or less than the current death benefit of the term policy. Premium rates will be higher than for the term policy, and would be the standard rate charged for the whole life policy at the insured's attained age when he or she makes the conversion. Renewable A renewable policy provides the right to renew at the end of the term(s) without evidence of insurability.

Reduced Paid-up Insurance

Coverage continues at a reduced face amount as determined by the policy's cash value. The cash value acts as a single premium payment to purchase a whole life policy. The new policy will grow cash values and develop dividends, as did the original policy.

Guaranteed Renewable

Coverage is guaranteed to a certain age as long as premiums are paid. The insurer may change premiums on an entire underwriting class, but not on an individual policy.

Individual vs Group Coverages

Coverages that are often included with group policies are excluded from individual policies and must be purchased as a separate policy. These coverages include: Dental care, Vision care, Short-Term Disability, Long-Term Disability, Accidental Death & Dismemberment.

MEDICAID

Covered Services and Benefits Medicaid is a joint state-federal government program that provides health care for U.S. citizens and resident aliens with low income. Medicaid provides such services as: nursing home care inpatient and outpatient hospital services laboratory services home health care nurse-practitioner services physical therapy prescription drugs hospice care. General Eligibility Requirements Because the program is regulated by the states, the eligibility requirements for Medicaid vary between states. In general, all applicants for Medicaid must have limited income and resources, and must be one of the following: a pregnant woman a child under the age of 18 (many states cover children up to age 21) OR aged 65 years or older, blind, or disabled. The Affordable Care Act of 2010 expanded Medicaid eligibility to 133% of the federal poverty level. This change went into effect in 2014.

Hospice Care

Covered in full for terminally ill patients, except for limited costs toward drugs and respite care.

Workers Retirement Benefits

Covered workers may retire at age 65 with a full Social Security benefit, or at age 62 with a permanently reduced benefit, or at an age older than 65 with a slightly higher income benefit. The retirement age has been recently indexed to increase depending on the birth year of the worker, gradually increasing to age 67 for those born after 1960. The primary insurance amount (PIA) is the benefit a person receives if they elect to begin receiving retirement benefits at their normal retirement age. Spouse's Old Age Benefit-The spouse (at the spouse's age 65) of a worker covered by Social Security is eligible for 50% of the working spouse's benefit, or for a reduced benefit if they file before what their full retirement age would be. The retirement age is on the same sliding scale as that of the working spouse.

CREDIT LIFE INSURANCE (INDIVIDUAL VS. GROUP)

Credit life insurance pays off the indebtedness of the policyholder if that person would happen to die during the term of the loan. Policies are usually sold as decreasing term contracts, with the specifics of the policy matching the life and balance of the loan. Individual credit life policies are usually purchased to pay off a mortgage. Group credit life is a policy issued to a creditor providing insurance coverage on the lives of debtors (the debtors pay for the policy). Group credit life usually lists the creditor as the beneficiary in order to pay off the debt. Individual credit life lists the individual as beneficiary who will be responsible for paying off the debt when the insured dies.

Fraud

Deceit, intentional misrepresentation, or the concealment of material facts with the intention of causing injury to another party. A deception deliberately practiced in order to secure unfair or unlawful gain, e.g., making false or misleading statements or concealing circumstances in relation to a claim or on an application.

IRA distributions

Early Withdrawal Individuals who withdraw money from a qualified plan before age 59½ must pay a 10% penalty as well as income tax on the withdrawn amount. Mandatory Withdrawal Withdrawals on a traditional IRA must begin by age 70½, and the withdrawals are taxed at that time. There is no mandatory withdrawal age for Roth IRAs. Beneficiary Unlike traditional IRAs, benefits paid to Roth IRA beneficiaries are not subject to income taxes or minimum distributions at 70½.

Collateral Assignment

Either the death benefit itself or the cash value within the policy can be used as security on a loan. Collateral assignment may be made with an individually owned or a business owned policy.

Emergency License

Emergency licenses may be granted for the following: General Lines- Property and Casualty (90 days) For the preservation of the agency assets of a deceased, disabled, or insolvent property & casualty agent. Emergency Managing General Agent (6 months) In the event of death or disability of a MGA or for other good cause satisfactory to the commissioner. Emergency Adjuster (90 days, possible 90 day extension) In the event of a catastrophe: Non-resident adjusters may act as a temporary substitute for a licensed adjuster for the adjustment of losses An emergency adjuster license may be issued to residents or non-residents of Texas who may or may not be otherwise licensed adjusters. The emergency license will remain in force for 90 days with an allowable 90 day extension. Emergency Adjusters not required to receive a Texas license before commencing work, but within five days of any applicant commencing work, the employer must submit an application for the emergency adjuster.

Emergency Care/Urgent Care

Emergency/urgent care must be obtained from a hospital, urgent care facility, or doctor within the HMO system, if within the geographic area of the plan. If outside the geographic area, the plan participant may obtain services from a provider outside the HMO.

Insurable Interest in a group policy

Employees If employers buy policies to insure the lives of their employees and employers are the policyholders but not the beneficiaries, the following apply: all of an employer's employees or all that meet certain conditions pertaining to their employment (number of hours worked, years of employment, etc...) must be eligible. the term, "employee" may include partners or proprietors, retired employees/dependents, or employees of the company's affiliates. an insurer may exclude or limit the coverage on any person for whom evidence of individual insurability is not satisfactory.

Conventional Fully-insured Plans

Employer pays full premiums by the due date. One portion of the premium is considered fully earned by the insurer, another portion is kept in a claim reserve by the insurer against future claims.

Eligibility for Workers Comp

Employers are required to provide Workers' Compensation benefits without employee contributions. Employers pay the full insurance premium or required benefits. Coverage is provided through state programs, through private insurers, or by the employer self-insuring against possible work related injuries or health problems. Injuries or illnesses caused as the result of the individuals' employment are covered not through their health insurance, but through Workers' Comp. Benefits can be denied to a worker who intentionally injures him or herself. The employer is responsible for implementing and paying for Workers' Compensation coverage and cannot require employees to participate in the cost. Workers' Compensation is regulated at the state level. Most states require coverage.

Endowment Policies

Endowment policies provide the death benefit if the insured dies before the policy's term or it pays the face amount to the policyowner if the insured lives until the end of the policy term. This type of policy is designed to mature or endow before the insured's 100th birthday. Examples are 20-year Endowment, or Endowment at age 55 or 65. Cash values then equal the face amount of the policy and would be paid to the policyowner. The insurance is then no longer in force. (Note-This is different than 20-Pay Life where premiums are paid for 20 years but the policy then remains in effect until age 100, with cash values also accruing until age 100.) This type of policy has higher premiums and a faster cash value growth rate than standard whole life so that the policy will endow earlier. Very few endowment policies are sold today because of IRS rulings that a life insurance policy must endow no sooner than age 59 ½ or suffer tax penalties.

Medicare Part B Enrollment

Enrollment is automatic unless the retiree elects not to enroll by notifying the Social Security Administration. General enrollment-the general enrollment period for Part B is from January 1 to March 31 of each year with coverage beginning on July 1; however, the cost of the Part B plan will go up 10% for each full 12-month period a person could have had Part B but didn't sign up for it unless he or she qualifies for the special enrollment period. Special enrollment--the general special enrollment period is similar to the Part A special enrollment period Special Enrollment Period for International Volunteers--a person can sign up outside the general or special enrollment periods if he or she waited to enroll in Part B because of volunteering in a foreign country

Estate Conservation

Estate conservation provides funds to pay taxes, probate fees, and other final expenses allowing the estate to pass fully to the heirs.

Estate Planning

Estate planning is the establishment of trusts or purchase of annuities to provide for continued long term income streams for dependents.

Federal Estate Tax

Estate tax is a tax by the federal and many state governments on a person's right to transfer property at death. Life insurance owned by one individual on the life of another that lists someone other than the insured as the beneficiary passes to the beneficiary without going through probate and is not subject to federal income tax. It is included in the estate for federal estate tax calculation purposes.

Exclusions from Coverage for major medical

Exclusions from Coverage Along with the Common Exclusions from Coverage discussed earlier in Section II, the following are also excluded from major medical insurance coverage: accident only, credit, dental, vision, Medicare supplement, long term care, or disability income insurance coverage issued as a supplement to liability insurance automobile medical payment insurance a specified disease policy issued as an individual policy a limited benefit health insurance policy issued as an individual policy a short term insurance plan that may not be renewed and has a duration of not more than 6 months a policy that provides a stipulated daily, weekly, or monthly payment to an insured during hospital confinement, without regard to the actual expense of the confinement Workers' Compensation or similar insurance a student health insurance policy.

Group and Individual Life Insurance Underwriting Differences

Exposure to claim payment is lowered per individual because the risk is spread over the group, usually resulting in a cost savings to the group because of this reduced adverse selection-everyone is insured. Underwriters look more closely at specific health history of an insured. Insurers cannot discriminate against an individual in the group who has poor health. People who might be declined individually may be included in a group policy as a condition of employment/membership in the group. Adverse Selection- Over time, health risks in the group change as people are added to or subtracted from the group and can lead to an uneven balance between older and unhealthy people compared to the number of younger and healthy individuals. Group credit life usually lists the creditor as the beneficiary in order to pay off the debt. Individual credit life lists the individual as beneficiary who will be responsible for paying off the debt when the insured dies.

Flexible Premium Deferred Annuities (FPDA)

FPDAs consist of a series of periodic payments. In both cases, benefits are paid out at some time in the future.

Flexible Spending Accounts (FSAs)

FSAs allow employees to be reimbursed tax-free for medical expenses that their regular health plans may not cover. Eligibility Requirements Employers must initiate an FSA for employees. No self-employers are eligible. Highly paid or key employees may or may not be eligible. Contributions (Money paid into the account) Employees decide at the beginning of the year how much they want to contribute. Contributions from employers may be deducted from employees' gross income. Under the Patient Protection and Affordable Care Act (PPACA), health care Flexible Spending Accounts (FSAs) have a $2,650 maximum contribution limit in 2018. Maximum contribution limits will be adjusted for inflation, or deflation, each tax year. Unused contributions are forfeited at the end of the year unless spent. Distributions (Payments out of the account) Are tax-free Employees can receive distributions equal to the full amount they plan to have deducted from their paychecks for the whole year, even if that amount is higher than the actual account balance. Employees cannot withdraw cash from the account. Only for qualified medical expenses that the IRS designates such as doctors' fees, prescription and non-prescription medicines, and necessary hospital services not paid for by insurance. Usually exclude LTC coverage and health insurance premiums Other Characteristics Usually funded through voluntary salary deductions No federal income taxes are deducted from contributions (tax-deductible). Withdrawals may be tax-free if used for qualified medical expenses. Can be combined with other health accounts or plans. Employees do not need to have a High Deductible Health Plan to participate. Policyholders must provide account administrators with statements from third parties showing that funds were used appropriately. It is not portable; employees cannot take the account with them if they change employers.

Deposit Term Insurance

First year premium is substantially higher than subsequent years, which have a lower level premium. A partial endowment is typically paid at the end of the term period. This endowment is often used to help purchase a new term or whole life policy.

Level Benefit Payment Amount

Fixed annuities offer the annuitant a lifetime payout with a guaranteed level benefit payment amount. However, because the amount is fixed, annuitants may find that the purchasing power of the payments diminish over time.

Refund Life Annuities

Full Cash Refund - Pays back the full purchase price as a guaranteed minimum benefit. If the annuitant dies before receiving benefits equal to the purchase price, the annuity beneficiary receives the difference. Installment Refund - Annuity payments are paid out in monthly installments rather than in one lump sum. Modified Cash Refund (MCR) - This is the normal benefit form for single individuals in a contributory pension plan. It provides monthly payments to client until death (similar to lifetime annuity) and ensures the participant's contributions are not lost by refunding the balance of the contributions made by the participant if he or she dies before that amount of benefit has been paid out.

Health Maintenance Organizations (HMOs)

General Characteristics HMOs provide the health care coverage as well as the medical care itself. They also must cover prescription medication. HMOs combine health care delivery and financing. HMO members are allowed to go to hospitals, physicians, or clinics that are part of the plan, or outside providers only on a referred basis after seeing the HMO physician, who is referred to as the gatekeeper physician. HMOs have both a limited service area as well as a limited choice of providers. An HMO has panels that are made up of physicians, hospitals and other health care providers who have contracts with the HMO. Closed panel: When an HMO limits the number of health care providers its subscribers can use; the HMO subscribers must receive their health care from those within this closed panel. Open panel: All providers that want to provide services for the HMO are allowed to do so, as long as they follow the HMO rules.

Preferred Provider Organizations (PPOs)

General Characteristics and Plan Features PPOs are insurance organizations that organize groups of hospitals, physicians and clinics to provide services at substantial discounts, below their regularly charged rates. PPOs may be open-panel or closed-panel, similar to HMOs. Open Panel or Closed Panel Open panel: Similar to the guidelines for HMOs, providers that want to provide services for the PPO are allowed to do so as long as they follow the PPO rules. Closed panel: PPO subscribers must receive their health care from the closed panel of available providers.

Group Disability Plans

Generally short-term plans which cover disability for a limited period of time, such as two years. Employee must return to work or lose income benefits. Coordinate with Workers Compensation or other group policy benefits. Premiums paid by the employer are tax-deductible to the employer. Benefits are subject to income tax and are for the actual income of the employee. Premiums paid by the employee are not tax-deductible. Benefits are not subject to income tax and the benefit amount can subsequently be up to a maximum of 60%.

Hospital Services

Generally, HMOs pay for hospital care only if it is provided in contract facilities and pre-certification has been obtained.

Persistency Factors

Generally, insurers look more favorably on insureds who stay with them over a period of time. The insurer will have collected premium for a period of time and the insurer's underwriters have a better understanding of the insured and their actual claims history. These insureds are generally considered a better risk. However, if the company stays with the insurer because they can no longer get insurance elsewhere, because of the growing loss ratio, the insurer may need to start raising premiums for the entire group.

Guaranteed Insurability Rider

Gives the insured the ability to buy additional amounts of disability income coverage in the future at pre-determined rates, without evidence of insurability. Increased benefits must remain within the insurer's normal insurance limits.

Short-term Disability (STD)

Group benefits are limited to periods of 13, 26, or 52 weeks but these benefits are always less than two years. Elimination periods are usually less than 15 or 30 days. Benefits paid weekly: 50 - 100% income. A short-term disability income benefit that pays a lump sum for specified injuries is called an elective indemnity benefit.

Participation Requirements in group policy

Group policies may be either non-contributory or contributory. Non-Contributory: The employer pays the full premium, all eligible members participate automatically by being part of the group. Contributory: The employee pays all or a portion of the cost. 75% of all eligible members must participate in a contributory plan. If participation drops below 75%, the employer must either drop the plan, decrease the amount of the employee contribution in order to encourage more members to join, or pay the entire cost itself and make the plan a non-contributory one.

Blanket Insurance

Groups that have a constantly changing number and composition may purchase a group blanket policy. Coverage can be obtained for all members of the group and usually consist of coverage for hospital, medical and surgical expenses. Examples would be a university that has a blanket policy for all students or teams, or passengers on a commercial carrier. The covered individuals are not listed by name, but by membership in the group.

Franchise Group Life Insurance

Groups too small to meet group policy requirements may purchase franchise life insurance. Characteristics of Franchise Group life insurance include: It is mass marketed Individual policies are issued. Individual evidence of insurance most likely required. An employer or other group administers the plan by collecting and remitting premiums.

HIPAA REQUIREMENTS (Health Insurance Portability and Accountability Act)

HIPAA REQUIREMENTS (Health Insurance Portability and Accountability Act) HIPPA is a federal law that requires health care providers and organizations to follow procedures that ensure the confidentiality and security of protected health information and provides the ability to transfer and continue health insurance coverage for employees and their families when they change or lose their jobs. Eligibility To be eligible the individual must meet all the following criteria: have at least 18 months of prior creditable coverage the most recent prior creditable coverage was under a group health plan, government health plan, or church plan which was not terminated for fraud or nonpayment be ineligible for Medicare A or B, Medicaid, or any other employer-sponsored plan have elected and exhausted any COBRA continuation or similar state extension of coverage.

HIPAA Guaranteed Renewability

HIPAA requires insurers guarantee renewability of group insurance except in cases of: nonpayment of premiums fraud violation of participation and contribution rules termination of plan movement outside service area association membership ceases. HIPAA applies to individual plans with the same exceptions. However, unless guaranteed renewability is coupled with other protections, i.e., limits on premium increases, consumers can be stranded with a policy they can no longer afford.

Health Reimbursement Accounts (HRAs)

HRAs are the newest kind of health accounts and can be used by large or small employers to pay for qualified health expenses of employees. They are not portable (cash stays with employer) but can be used for medical expenses after an employee retires. Eligibility Requirements Large and small employers may start HRAs for employees. May be offered with other health plans Contributions Contributions from employers are excluded from employees' gross income. Cannot be funded by voluntary salary deductions No limit on how much can be contributed; unused contributions carry over year after year until spent. Distributions Distributions for qualified medical expenses are tax-free up to a yearly maximum limit. Can be made to current and former employees, their spouses and dependents, and spouses/dependents of deceased employees No one can make cash withdrawals from the account.

Health Savings Accounts (HSAs)

HSAs are tax exempt accounts set up with a bank or insurer that reimburse certain medical expenses. MSAs can be rolled over into HSAs, but only once every year. Eligibility Requirements Employees or self-employers must have HDHPs to participate. No one may have Medicare or other health coverage (with the same exceptions as an MSA). Applicant cannot be claimed as another person's dependent. No one else may be able to claim an exemption on the applicant (whether they do or not). Spouses must have separate HSAs, but if one spouse has family coverage, both do.

Dependent Eligibility

Handicapped Children Handicapped children are eligible for coverage under a parent's plan as long as they are dependent on the parent for support. Adult Children Children may be covered under their parents policy until age 26 unless covered through their employer or the military. Maternity/Newborn Child Coverage Group health plans must provide maternity benefits, and may not restrict benefits for a hospital stay in connection with childbirth to less than 48 hours following a vaginal delivery or 96 hours following a delivery by cesarean section. The insured cannot be required to obtain pre-authorization in order to be covered.

Terminally Ill

Having an illness or sickness that can reasonably be expected to result in death in 24 months or less.

Business Continuation Insurance

Helps a business continue to operate when the death of the owner might otherwise cause the company to go out of business. Protects assets of the business from forced liquidation by making funds available to surviving family members and/or partners.

Rehabilitation Benefits

Helps the disabled insured return to work in his or her own occupation. Pays some of the expenses incurred when insured enrolls in an approved rehabilitation program. Paid in addition to other benefits the insured qualifies for under the policy.

ERISA Employee Association (Employee Retirement Income Security Act)

Historically , promoters and others have established and operated multiple employer welfare arrangements (MEWAs), also described as "multiple employer trusts" or "METs," as vehicles for marketing health and welfare benefits to employers for their employees. Promoters of MEWAs have typically represented to employers and state regulators that the MEWA is an employee benefit plan covered by the Employee Retirement Income Security Act (ERISA) and, therefore, exempt from state insurance regulation under ERISA's broad preemption provisions. By avoiding state insurance reserve, contribution and other requirements applicable to insurance companies, MEWAs are often able to market insurance coverage at rates substantially below those of regulated insurance companies, thus, in concept, making the MEWA an attractive alternative for those small businesses finding it difficult to obtain affordable health care coverage for their employees.

Hospital Indemnity (Income)

Hospital indemnity is supplemental health insurance that pays a predetermined daily, weekly, or monthly amount to an insured during a stay in the hospital. Benefits are paid for any purpose (many times to replace income), without regard to any actual hospital or medical expenses.

Individual Retirement Annuities (IRAs)

IRAs include the following characteristics: During the accumulation phase, interest grows income tax-deferred Premature distributions-if money is withdrawn before age 59½, there is a 10% penalty and current-year taxation of the withdrawn amount unless the money is rolled over to another qualified plan Tax is paid on both principal and interest once the IRA is annuitized Upon death, if the IRA has not yet been annuitized, values are included in the annuitant's estate for estate tax purposes Premiums paid into a qualified IRA plan are tax-deductible in the year paid in. These funds, along with the tax-deferred interest within the IRA, are taxed when withdrawn from the account.

Amounts Received by Beneficiary

If a beneficiary is named in the annuity contract the annuity is included in the deceased annuity owner's estate and not included in the beneficiary's estate for estate tax purposes, but distributions paid to the beneficiary are still subject to income tax. A spouse who inherits the IRA can elect to treat the IRA as his/her own IRA and can therefore continue to defer distribution until a later time.

Labor Unions in a group policy

If a labor union buys policies to insure the lives of its members and the union is the policyholder but not the beneficiary, the following apply: all members or all that meet certain conditions pertaining to membership must be eligible an insurer may exclude or limit the coverage on any person for whom evidence of individual insurability is not satisfactory.

Home Health Care

If certain conditions met, Part A covers full approved cost of covered services, with a 20% co-insurance for medical equipment such as a wheelchair or a walker.

Debtors in a group policy

If creditors buy policies to insure the lives of their debtors, the same rules apply as with employers and employees in addition to the following: the amount of any debtor's life insurance may not exceed the amount he owes the death benefits are payable to the policyholder (creditor). Such payment will be put toward the unpaid debt of the debtor.

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If group members apply on or before ___ days after meeting eligibility requirements, they cannot be denied coverage. After day____, pre-existing conditions may be taken into consideration or coverage may be denied.

Premature Distributions (including taxation issues)

If money is withdrawn before age 59½, there is a 10% penalty and current-year taxation of the withdrawn amount. There are exclusions to this 10% penalty rule, which include: the money is rolled over to another qualified plan withdrawal for a first-time home purchase (or a house was not owned by the qualified individual within the past 24 months) payment of medical expenses (in excess of 7.5% of the person's adjusted gross income) permanent disability or death of the annuity owner payment of medical insurance premiums during unemployment lasting 12 weeks or longer payment of qualifying post-secondary education costs payment of a federal tax levy. Exceptions If the money withdrawn from a qualified plan is rolled over to another qualified plan, there is no penalty.

Proration of Policies at same company:

If prorated, proportional shares are paid on each policy up to the actual amount of loss, there must be a corresponding return of excess premiums on each of the policies

Multiple Indemnity Rider

If someone dies under certain specified circumstances, AD&D policies with this rider will pay double (double indemnity) or triple (triple indemnity) the principal sum amount.

How Probation & Elimination Periods Work

If the insured becomes disabled within the probationary period there will be no coverage. If disabled any time after the probationary period, there will be coverage, but there will be no benefit payment during the elimination period. If the insured recovers and returns to work, but later becomes disabled from a new sickness or injury, there will be another elimination period for the new disability.

annual benefit limit

If the insured reaches the annual benefit limit for covered benefits, no more benefits will be paid for the rest of that calendar year. The full benefit limit will be restored on Jan 1st.

lifetime benefit limit

If the insured reaches the lifetime benefit limit for covered benefits coverage ends and no more benefits will be paid. The insured would need to purchase a new policy that would extend more benefits. It could be difficult for the individual to purchase new individual coverage as the new insurer would look at pre-existing conditions, which must obviously be fairly severe for the full coverage to have been used from the previous policy. This lifetime limit on medical claims is not allowed under the Affordable Care Act of 2010.

Physical Examination & Autopsy

If the insurer has a concern over the extent of injury or the method of death, and therefore of whether a claim should be paid, the insurer has the right at its own expense: to examine the insured as often as is reasonable pursuant to payment of benefits. to perform an autopsy where not forbidden by law in the event of death.

Waiver of Cost of Insurance

If the owner becomes disabled, the "waiver of cost of insurance rider" will pay only that portion of the premium that is for the cost of insurance, not any extra that was paid into the policy for investment purposes.

Distributions at Death of individually owned annuities

If the owner dies after annuitization has begun, the remaining payments must be paid out at least as rapidly as under the payout option selected by the owner. If the beneficiary receives the remaining payments under the payout option in effect at the owner's death, the taxable and nontaxable portions of such payments will continue to be determined by the original exclusion ratio.

Grace Period

If the policy owner is late with his or her premium payment, there is a time period allowed for premium payment during which the policy remains in force and the premium can be paid without loss of benefits. It is usually 30 days but is different depending on the premium payment mode: Weekly premium payment modes - 7 days Monthly - 10 days. All other payment modes - 30 days. Exception: If the insurer has delivered to or mailed to the insured's last known address a notice of intent not to renew at least five days prior to the premium due date.

Coordination with Social Security, Employee Benefit Plans, and Other Assets

If there are sources of available income, such as Social Security, an employee life insurance policy, pension payments, investments, etc., those amounts should be considered when computing the amount of a life insurance policy purchase. If those sources are not figured in, the policy amount could be inflated beyond what is actually necessary.

Legal Actions of claim payments

If there is a dispute regarding claim payment or if the insurer is not paying a claim in a timely fashion, the insured cannot try to recover benefits under the policy through legal action prior to 60 days, or after three years from the time written proof of loss has been given to the insurer in accordance with the policy terms.

Irrevocable Beneficiary

If there is an irrevocable beneficiary (a designation that cannot be changed without the beneficiary's permission or death), that person must agree in writing to any changes made, including beneficiary changes and policy assignments.

Expense-Incurred Basis

If there is other valid coverage on an expense incurred basis with another insurer which would provide benefits for the same loss, the insurers: will prorate benefits on the two policies so that the insured does not receive more than the actual amount of loss. will return a proportionate amount of premiums paid for the two policies. If Company A pays 60% of the claim expenses and Company B pays 40%, Company A would repay 40% of its premium and B would return 60% of its received premium, based on the proportion of the claim each company did not pay. Examples Benefits provided for insureds due to any benefit required by statute, including worker's comp or employer's liability statute, whether provided by a government agency or otherwise. Benefits that can't be considered include: Group insurance Benefits provided by union welfare plans or by employer or employee benefit organizations.

Governmental Insurance

If there is the potential for special, great, or catastrophic risks, those possibilities are usually indemnified by state and federal government. Social Security Medicare Flood insurance Federal crop and crime insurance.

Illustrations

Illustrations An illustration is a presentation or depiction that includes non-guaranteed elements of a policy of life insurance over a period of years and that is one of the three types defined below: Basic Illustration A proposal used in the sale of a life insurance policy that shows both guaranteed and non-guaranteed elements Supplemental Illustration An illustration furnished in addition to a basic illustration that meets the applicable requirements and that may be presented in a format differing from the basic illustration, but may only depict a scale of non-guaranteed elements that is permitted in a basic illustration In-Force Illustration An illustration furnished at any time after the policy is issued and has been in force for one year or more.

Partially Self-funded Plans

Instead of sending the fully conventional premium to the insurance company the employer pays a much smaller premium to a reinsurer to cover catastrophic claims over a certain benchmark amount. The employer purchases reinsurance or medical stop loss for protection, holds the remainder of the conventional funds (claim funds), invests them, segregates them if desired, or uses them for general business purposes until they are needed for the funding of claims. The employer retains and keeps the funds when claims do not materialize, hence making a profit.

Pre-Existing Conditions Clause

In a disability insurance policy, a pre-existing conditions clause excludes coverage for pre-existing conditions for up to 12 months after the effective coverage date. On an individual policy, the pre-existing condition could be excluded either for the 12 months, or permanantly with an impairment rider. Pre-Existing Condition A pre-existing condition is a medical condition (injury or illness) that required some kind of treatment or therapy during a specific period of time prior to the insured's effective coverage date. Sometimes, a pre-existing condition may include medical conditions that were known to the insured, even though there was no treatment or no therapy provided during the prescribed period. NOTE: The Affordable Care Act now prohibits health insurance companies from excluding pre-existing conditions from major medical coverage. Other forms of insurance, like Long Term Care, and Disability insurance, can exclude pre-existing conditions.

Executive Bonuses

In an executive bonus life insurance plan, the company pays the executive a bonus so that that individual can purchase cash value life insurance with him or her as the owner, insured, and designator of the beneficiary.

Tort

In common law jurisdictions, a tort is a civil wrong that unfairly causes someone else to suffer loss or harm resulting in legal liability for the person who commits the tortious act. Although crimes may be torts, the cause of legal action is not necessarily a crime, as the harm may be due to negligence which does not amount to criminal negligence. The victim of the harm can recover their loss as damages in a lawsuit. In order to prevail, the plaintiff in the lawsuit must show that the actions or lack of action was the legally recognizable cause of the harm. A person may be found not guilty in a criminal case, but can still be found guilty/ legally liable in a lawsuit.

Genetic Screening or Testing Results Prohibitions

In developing and asking questions regarding the medical history of an applicant for health care services coverage, an insurer may not ask for the results of genetic screening or testing. An insurer may not cancel, refuse to issue, refuse to renew, or refuse to enter into a contract for health care services coverage based on the results of genetic screening or testing. An insurer may not deliver, issue for delivery, renew, or execute a contract for health care services coverage that limits benefits or establishes premiums based on the results of genetic screening or testing.

Guaranty Association Disclosure

In most cases, it is prohibited for a producer to use a state's Life and Health Guaranty Association for the sale or solicitation of insurance.

Transfers and "Look-Back" Periods

In order to prevent people from giving away their assets to friends or relatives in order to qualify for Medicaid, the government imposes a "look-back" period. A look-back period refers to the number of months for which the government can look back to see whether or not an individual made a gift or transfer. The current look-back period, as established by the Deficit Reduction Act of 2005, is 60 months (or five years). Any person who gives away a gift during the look-back period will be subject to a period of ineligibility. The period of ineligibility is calculated by dividing the transfer amount by the average monthly cost of care (as determined by the government) in that person's state.

Non-admitted (Unauthorized) Insurer

Insurance companies that are not authorized to transact business in a state are non-admitted.They either did not seek admission to the state or failed to comply with state requirements.

Determination of Eligibility for Health Care Services

In processing an application for health care services coverage or in determining insurability for coverage, an insurer may not do any of the following: require an individual or any member of an individual's family seeking coverage to submit to genetic screening or testing. consider any information obtained from genetic screening or testing in a manner adverse to: an applicant or a member of an applicant's family OR an individual or a member of an individual's family covered by healthcare services coverage inquire into the results of genetic screening or testing or use such information to cancel, refuse to issue or renew, or limit benefits under health care services coverage make a decision adverse to an applicant or a member of an applicant's family based on entries related to the results of genetic testing or screening in medical records or other reports of genetic screening or testing.

Stranger/Investor-Owned Life Insurance (STOLI)/(IOLI)

In stranger originated life insurance a third party is involved who has no relation with the policy owner and initiates the purchase of the policy by paying the premiums and later buying the policy thereby profiting upon the death of the insured These STOLI plans should be regarded as very dangerous for consumers. Descriptions of STOLI arrangements vary. Some call them "zero premium life insurance," "estate maximization plans," or "no cost to the insured plans," while others refer to them as "new issue life settlements," "high net worth settlements," or "non-recourse premium finance transactions." STOLI arrangements are typically promoted to consumers between the ages of 65 and 85 and include: allowing someone to purchase life insurance on their life in exchange for an immediate lump sum payment of some amount; allowing someone to purchase insurance on their life in exchange for a partial payment of the policy's face value to their beneficiaries upon their death; purchasing a life insurance policy or entering into a contract for "free" or "no-cost" insurance on their life

Non-forfeiture for annuities

In the past, any excess premium payments and cash values were lost to the policyholder if a policy lapsed. The insurer kept all monies. Today, the Standard Non-forfeiture Law used by most states requires that all cash values or their equivalent must be made available to the policyholder if they cancel the policy or want to stop paying premiums.

Planning for Income Needs

Income needs would include a readjustment fund to maintain the family's lifestyle while adapting to life without the deceased, income during the period when children are dependents, and a source of income for the lifetime of the spouse.

Financial Solvency Status-Independent Rating Services

Independent evaluation services provide information on companies such as financial strength, management caliber, and efficiency of operation. They review underwriting results, management, adequacy of reserves for liabilities that are not discharged, adequacy of policyholder reserves to absorb shock losses, and soundness of investments. They publish guides of their analysis of the insurance companies. If properly used, they are effective in helping to avoid delinquent insurance companies. Ratings should be checked over a period of years to verify trends for the companies. A.M. Best, Standard and Poor, and Weiss Research are some of the companies that have guides available. These guides are often available through public libraries.

Conversions & Taxation Issues for Roth IRAs

Individuals can convert a traditional IRA to a Roth IRA if it is a qualified conversion. The rollover must meet the 60-day rollover time period and must not violate the "one-year" rollover rules. When the traditional IRA was originally used as a qualified plan, the investor was able to deduct the deposited amount from income taxes. Roth IRA contributions are not deducted from income tax. Funds converted from the traditional IRA-whether originally deposited funds or the interest thereon-will become subject to income taxation at the investor's normal tax rate. If, however, part of the funds from the prior IRA consisted of funds that were non-deductible contributions that portion will not be taxed again at the time of conversion. No Penalty- Because both are qualified plans, there is no 10% penalty for an early withdrawal from the traditional IRA account when rolling over to a Roth IRA.. "Rollover" contributions (from a traditional IRA to a Roth IRA) may subsequently be withdrawn tax free and penalty free after the "seasoning" period (currently 5 years). Earnings may be withdrawn tax free and penalty free after the seasoning period if the condition of age 59½ (or other qualifying condition) is also met. (This differs from a traditional IRA where all withdrawals are taxed as ordinary income, and a penalty applies for withdrawals before age 59½.)

Substandard Risks

Individuals with higher than average risk because of poorer health or hazardous occupation or hobbies. Results could be an exclusion or impairment rider or waiver attached to the policy, an extra premium charge, or the limitation of type of policy. A waiver, in this case, is the relinquishment by the insured to the right of coverage for the problem.

Medical Information

Information about the present health and the health history of the applicant is essential to the insurer's decision about policy issue. Family health history is also vital to the process. Depending on the type of policy and the policy amount, a medical examination may also be required.

Personal Contract

Insurance policies are personal contracts. They cover the insurable interest of the individual insured and cannot be transferred or assigned to another individual-the exception is life insurance.

Individual Tax Shelter Pension / Retirement Plans-Qualified Plans

Insurance-related policies can be useful investment vehicles for retirement. Individual tax shelter pensions are plans that meet certain guidelines set by Congress and allow tax advantages, usually tax-deferred growth. Contributions are tax-deductible and interest accumulates on a tax-deferred basis. Both the principal and interest are taxed when money is withdrawn from these qualified retirement funds. There are tax penalties for early withdrawal (prior to age 59½) or if disbursements don't begin before age 70½. Exceptions to avoid the 10% penalty (NEW vs old) Disability, buying a first home and paying medical expenses that exceed 7.5% of your adjusted gross income. Taking the money out in "substantially equal payments" over the insured's lifetime. For the exception to apply, IRS rules require that the policy be annuitized and that at least one payment is made to the annuitant annually. Catch-up Provisions Individuals over age 50 are allowed higher limits of deferral in various plans to help and encourage them to save more toward retirement.

In-Network and Out-of-Network Provider Access

Insureds can use non-PPO services, but are encouraged to use PPO-approved medical services through lower deductibles and lower co-insurance payments. Example: The insured may have a $100 deductible and a co-insurance of 80/20 for a PPO-approved doctor, but if they use a doctor outside of the PPO network, the deductible might be $250 and the co-insurance amount 70/30.

Preferred Risks

Insureds with better than average health who consequently may have lower premium rates.

Warranties

Insurer statements to the applicant or insured about the contract, its terms and conditions, premium, deductible. These are items that are the cut and dried facts about the policy that are true.

Selection Criteria and Unfair Discrimination

Insurers cannot: discriminate against individuals who are blind or partially blind refuse an insurance application on the basis of a genetic condition, developmental delay, or developmental disability. They cannot require the performance of a genetic test without first receiving the informed written consent of the test subject. discriminate against individuals based on information that they have been victims of abuse, nor may they seek information that a person has been an abuse victim.

Domestic Insurer

Insurers that transact business in the state where they are chartered are called domestic insurers.

Income Tax

Interest within a cash value policy accumulates on a tax-deferred basis. Income tax on the interest is payable at a future date when the money is effectively received by the owner, as is the case when a policy is canceled and the cash value is payed out before the insured's death. Taxation of death benefit proceeds varies depending on how premiums were paid. If premiums were paid with after-tax dollars, the proceeds of the insurance policy are income tax-free to the beneficiary upon the insured's death. If the premiums have been paid with pre-tax dollars, as is sometimes the case with business insurance, the proceeds of the policy are taxable. Insurance proceeds paid as a lump sum to the beneficiary are exempt from federal income tax. If another distribution method is chosen and proceeds are paid in installments, each installment will consist of both principal and interest. The interest portion of each payment is taxable as income.

Intestacy

Intestacy is the situation in which someone dies without a will and in which state laws determine disposition of property. The state decides the person meant to have his or her property disposed of by the laws of dissent (regarding land and buildings) and distribution (regarding personal property). Intestacy laws differ between states.

Flexible Enhanced Ordinary Life

Introduced to compete with Universal Life Involves complex combinations of whole life, term, and paid-up additions in proportions allowing favorable premium levels and adjustable face amounts Policy dividends, additional premiums and "dump-ins" are all used to purchase paid-up insurance that would offset the temporary term coverage.

Fixed Annuities

Investors make a deposit into the annuity, and the insurance company guarantees the principal along with any gains made over the life of the investment, similar to a bank certificate of deposit. The interest rate is set on a periodic (usually annual) basis and the investment will constantly have an increase in value. They generally have a lower interest rate than variable annuities in a strong market, but cannot lose principal or interest in a down market as can a variable annuity. The annuity's fixed payment may not keep up with inflation. An insurance producer license is needed to sell fixed annuities.

IRA catch-up contributions

Investors over the age of 50 may make catch-up contributions to their IRAs of $1,000 per year.

Pure Risk

Involves the probability or possibility of loss with no chance for gain. An example would be a homeowner who wants to guard against a possible house fire. Pure risks are generally insurable.

deductible carryover

It is a provision in a group health insurance contract that allows an insured to count payments made during the last quarter of one year as being made toward the deductible of the following calendar year if the deductible was not met during the first year. For example, assume you had no medical claims in the first part of the year. In November, you run up $350 worth of claims. If your deductible was $500, you would start the next year with $350 of your $500 deductible already met.

Fraudulent Acts & Prohibited Practices

It is prohibited to enter into a viatical settlement within two years of the insurance policy's issue unless: the policy was issued as the result of the viator's conversion from a group policy so that coverage has been in effect for 24 months or more. the insured has become terminally ill or disposes of ownership interests in a closely held corporation subject to terms of a buyout agreement in effect at the time the original life policy was issued.

increasing term rider

It is the face value that increases in an increasing term rider. The premium starts higher than that of a level term policy, but the premium does remain level. There is no cash value. The policy period remains constant.

Contract of Utmost Good Faith

It is understood that both parties bargain in good faith in forming the contract.

Juvenile Life Insurance

Juvenile life insurance is written on children up to 15 years old. A parent or guardian's signature is required. Usually written as a rider to the application of the child's parent or guardian Amount of insurance that can be written on a child is limited in some states until the child reaches a certain age such as five years, or even 15 years in some states The face amount can often be increased to 5x the original amount when the insured reaches age 21 (sometimes called a Jumping Juvenile Feature). Premium for new amount is on an attained age basis, but evidence of insurability is not required. Many insurers will not write juvenile insurance until the child is at least 15 days old.

Legal Hazard

Legal risks are created when legal authority in a certain situation is unclear or unsettled. These can arise from changes in the law or from court rulings. An example would be a change in the building code requiring new construction to use different materials.

Per Stirpes and Per Capita

Legal terms specifying how benefits will be distributed to a person's descendants. Per stirpes refers to "by branches," and proceeds designated to a particular named beneficiary on a per stirpes basis would be passed on in equal shares to that beneficiary's children if the beneficiary died before the insured. If the beneficiaries were named on a per capita basis, however, policy proceeds go only to beneficiaries named in the policy.

Characteristics of Whole Life

Level (Continuous) Coverage & Premiums The face value (coverage/death benefit) stays level throughout the policy, projected to be a permanent policy, ending upon the insured's death. A level and continuous premium is paid to age 100, at which time the policy matures or "endows," which means that the policy has built cash reserves equaling the policy face amount, and the cash value is paid out to the owner. At this point the insurance coverage ends. Premiums are split into two categories: Pure Insurance Costs Cash Values. Cash Value Cash fund within a permanent life insurance policy that is part of the death benefit and owned by the policy owner for purposes of cash surrender or policy loans. As long as the policy is in force, the insured may borrow against the cash value as a policy loan at the current policy loan interest rate. The amount of the guaranteed cash value depends on the kind of whole life policy, its size and how long the policy has been in force. The growth in cash values is tax-deferred under federal income tax law. Policy loans reduce the death benefit and cash surrender value Cash Surrender Value The amount payable in cash if the policy is terminated by its owner before payable at death or maturity. There is usually a seven to nine-year period in which early surrender of the policy has penalties associated with it that will cause the surrender value to be less than the actual cash value.

Partnerships and Corporations and Banks

Licenses can be issued to a partnership if: It is organized under the law of Texas or another state and approved by the Secretary of State It is authorized to act as an agent by its article of incorporation At least one officer or one active partner and everyone acting as agents on its behalf are individually licensed and meet all the requirements of individual agents It maintains the ability to pay a claim for a negligent act, error, or omission Each business location in Texas is registered separately Submits the application, appropriate fees, and any other required information to the Department

Life Expectancy Contract

Life expectancy is the average number of years of life remaining for individuals of a certain age according to a particular mortality table. While a whole life contract assumes all individuals die at age 100, an individual may choose to take out a life expectancy contract that will insure him or her only for a given term. In this case, it provides insurance until the individual is likely to die according to the mortality table in use. As with other term policies, no coverage is available once the person lives past the policy's term date.

Liquidity

Life insurance can be an excellent source of liquidity, because the proceeds from life insurance are paid in cash and are tax-free. This can be useful for paying off debts and providing cash to pay taxes when there are not enough liquid assets to do so.

Security

Life insurance can offer a certain amount of financial independence and freedom from doubt or anxiety over money issues for the survivors of the insured.

Industrial Insurance/Debit Insurance

Life insurance issued in amounts usually less than $1,000-$2,000 with premiums payable weekly or monthly. Premiums are usually collected at the insured's home or place of business by the agent. Newer policies allow for larger face amounts, up to $10,000.

Multiple Employer Welfare Arrangement (MEWA).

MEWAs include plans established by two or more employers to provide welfare benefits to their employees, including health care and pensions. They are most often found among employers that belong to a common trade, professional, or professional association. The main difference between a MET and a MEWA is that a MEWA is generally subject to the requirements of the Employee Retirement Income Security Act of 1974 (ERISA), which regulates pension plans of businesses with more than 25 employees and imposes penalties on employers for breaches of fiduciary duty.

Medical Savings Accounts (MSAs)

MSAs are tax-exempt accounts set up with a bank or insurer. They help policyholders save money for future medical expenses. Eligible Persons Self-employers Small employers (those with an average of 50 employees or less in either of the past two years), employees, or employees' spouses. Only employees with HDHPs (High Deductible Health Plans) No one with Medicare or other health coverage (except an HDHP, Workers Comp liability, property or tort liability, accident, disability, dental, vision, or LTC) may use an MSA. Contributions Contributions are tax-deductible. Must be made in cash (not stock or other property) Employers can contribute Employees can contribute only if their employer does not that year Employees and employers cannot both contribute in the same year Contributions are limited in one of two ways: 6% excise tax on excess contributions Annual Deductible Limit--up to 75% of employee's HDHP deductible (65% for self-only plans) Income Limit--up to 100% of employee's income from the employer that provides the HDHP Unused contributions carry over year after year until spent.

Supplemental Major Medical Policies

Major Medical may be added to a Basic Medical policy to form an even more comprehensive plan for the insured. In this situation the Basic Plan pays first, and then the Major Medical follows as supplemental coverage: The Major Medical plan begins coverage where the Basic plan stops. The supplementary Major Medical deductible is called the corridor deductible. The Basic Medical Expense policy pays benefits covered from dollar one until benefits are exhausted. The insured then pays the full deductible of the supplementary Major Medical plan, called the corridor deductible. The supplementary Major Medical plan then pays the percentage of benefits as described in the plan.

Managed Care

Managed health care is a system of delivering health care that provides for selectively contracting with efficient and effective health care professionals in the interest of controlling and managing plan costs. Also, managed care offers financial incentives for insureds to use plan providers, and puts an emphasis on disease prevention. Through contractual agreements with health care providers, managed care companies can offer to plan members: appropriate and necessary care that is also of the highest quality care that is the most cost-effective, thanks to its management and control lower co-payments, fees, and deductibles. HMOs, PPOs, and POS plans (all discussed earlier) are the most popular types of managed care plans.

Guaranteed or Fixed Cost Method

Many policies provide benefits on a more favorable basis than the minimum guaranteed basis in the policy by paying dividends, or by charging less than the maximum premium specified. Or, they may do this in other ways such as providing higher cash values or death benefits than the minimums guaranteed in the policy. For these types of policies, the policy performance may be shown by using both guaranteed and current performance. These are called currently illustrated basis cost comparison indexes.

Medicaid Estate Recovery Act (OBRA '93)

Medicaid imposes strict limits on income and assets of recipients, consistent with its mission to provide a health care safety net for the poor and for those whose personal resources are insufficient to pay the full cost of care. In order to fulfill this mission, Medicaid also recovers expenses paid on behalf of recipients from their estates under certain circumstances. Medicaid is the largest source of funds for institutional long-term care expenses. It pays nearly half of the total amount spent on nursing homes, followed, respectively, by out-of-pocket funds of long-term care consumers, Medicare, private long-term care insurance, and other public and private funding sources The Medicaid Estate Recovery Program (MERP) is required by the Omnibus Budget Reconciliation Act of 1993 (OBRA '93) to recover the costs paid by Medicaid for long-term care benefits received by certain Medicaid recipients. All states are federally mandated to implement the program. States must pursue recovering costs for medical assistance consisting of: nursing home or other long-term institutional services. home- and community-based services. hospital and prescription drug services provided while the recipient was receiving nursing facility or home- and community-based services. at state option, any other items covered by the Medicaid State Plan. At a minimum, states must recover from assets that pass through probate (which is governed by state law). At a maximum, states may recover any assets of the deceased recipient.

Workers Comp Coverages include

Medical and rehabilitation benefits Income benefits for either a total or a partial disability Scheduled benefits include: set payments for the loss of an eye, foot, etc., or for death. Death benefits Survivor benefits WC does not cover pain and suffering or punitive damages. Benefits are often increased for certain losses as a penalty to the employer for serious or willful acts of the employer, such as failure to provide safety equipment or not following safety regulations as required by law.

Medical Expense

Medical expense insurance policies allow people to transfer future, unforeseen medical expense risk to an insurance company. Benefits may be paid directly to the insured on a reimbursement basis, or the insured may assign benefits to be paid directly to the health care provider.

Medicare Part A - Hospital Insurance

Medicare Part A helps pay for medical care and services furnished by Medicare-certified hospitals, skilled nursing facilities, home health agencies, and hospices. Individual Eligibility Requirements To qualify for Medicare Part A, an individual must: be 65 years of age (if a person gets benefits from Social Security or the Railroad Retirement Board, he or she will automatically get Part A benefits at age 65) have paid Medicare taxes (or have a spouse who did) while working. People under age 65 are eligible if they have permanent kidney failure or certain other disabilities, or if they have received Social Security disability benefits for at least two years. If a person is not automatically eligible for Medicare Part A, he or she may be able to purchase it. Premium Costs and Deductibles Part A: No cost for those who paid Medicare taxes while working $422/month in 2018 for others (about 1% of total). Part A Deductible for 2018: $1,340 for inpatient stay.

Medicare Part B - Medical Insurance

Medicare Part B helps pay for doctor services, outpatient hospital services including emergency room visits, ambulance, diagnostic tests, lab services, some preventive care, outpatient therapy services, some medical equipment and supplies, and home health care services not covered by Part A. A monthly premium is deducted from the Social Security, Railroad Retirement Board, or Civil Service Retirement check. Premium rates and deductibles may change each year in January. Individual Eligibility Requirements Eligibility requirements for Part B are similar to those for Part A benefits. The Medicare card will come in the mail approximately three months before a person's 65th birthday or the 25th month of disability benefits. If a beneficiary does not want Part B, the card should be sent back. If the card is kept, Part B benefits will be received.

Medicare SELECT

Medicare SELECT policies are basically the same as any other Medicare supplement insurance policy. Difference: As with PPOs, each Medicare SELECT insurer has specific hospitals and often also has specific doctors that must be used except in an emergency in order to get full benefits, usually resulting in lower premiums. The program was initially approved by Congress on an experimental basis in 15 states, but is now approved in all states. If Congress were to decide not to renew Medicare SELECT, insurers will be required to honor all existing policies and insureds would be able to either keep the Medicare SELECT policy or replace it with another Medicare supplement policy offered by the same insurer.

Medicare and Employer Group Health Plans

Medicare has special rules that apply to individuals who have group health plan coverage through their own or their spouse's current employment. Group health plans of employers with 20 or more employees must offer these individuals the same health insurance benefits under the same conditions that younger workers and spouses receive. Disabled Employees: The group health plan insurer is the primary payer of claims for individuals under age 65 who have Medicare because of a disability and who are covered under a large group health plan (100 or more employees ) through their current employment or through the current employment of a family member. Medicare is the secondary payer of benefits. Employees with Kidney Failure: When an individual with kidney failure is covered by a group health plan, the group health plan pays at its regular level for the initial 30-month period. Since the individual usually can't get Medicare in the first three months, the group health plan is the only payer for health services. In the third month, Medicare begins to cover only that portion of health services not covered by the group health plan. At the end of the 30-month period, Medicare then becomes the primary payer of health insurance claims. Individuals Age 65 or Older: Some employer and union-provided health insurance policies continue to provide coverage for retired former employees and members. In these situation the group health insurer is the primary payer of benefits. Medicare would be the secondary payer if the expenses are Medicare eligible, and not covered by the group health plan.

LTC, Medicare, and Medicaid Compared

Medicare usually does not pay for long-term care. Medicare pays for medically necessary skilled nursing facilities or home health care when certain conditions are met. Most long-term care is provided to assist people with support services for activities of daily living (ADLs) like dressing, bathing, and using the bathroom. It may also include care that most people do for themselves, e.g., diabetes monitoring. Medicare doesn't pay for this non-skilled, "custodial care". Age is not a determining factor in needing long-term care. Medicaid pays for certain health services and nursing home care for older people with low incomes and limited assets. In most states, Medicaid also pays for some long-term care services, but does not cover long term care provided in a home setting. Who is eligible and what services are covered vary from state to state. Eligibility is based on income and assets.

Medicare-Aid

Medicare-Aid is a special program through Medicaid for people with limited income and resources. Under the Qualified Medicare Beneficiary (QMB) program, individuals or couples with low income receive help with Medicare Part A & B for premiums, co-pays, and deductibles. The Specified Low-Income Medicare Beneficiary (SLMB) program is similar except income qualification limits are slightly higher and it only helps pay for premiums under Medicare Part B.

Core Benefits of medigap plans

Medigap Plan A contains basic standard benefits which are intrinsic to, or the core of, all 10 Medigap plans and include the following: Payment of Part A co-insurance for days 61-90 in any Medicare benefit period. Payment of Part A covered expenses for each Medicare lifetime inpatient reserve day used. Coverage of eligible hospitalization expenses up to a maximum of an additional 365 days after Medicare coverage has been finished. Coverage for the reasonable cost of the first three pints of blood deductible for Parts A and B of Medicare. Coverage for the 20% co-insurance amount of Part B, regardless of the length of confinement, but subject to the annual deductible.

Association/Trustee Groups in a group policy

Members are the trustees of a fund that is comprised of an association, one or more trusts, and/or a combination of the two. If a group of trustees buys policies to insure the lives of its members or employees and the trustees are the policyholders but not the beneficiaries, the same rules apply as with employees and employers in addition to the following: at least 100 people must be covered at the time of policy issue group must have been organized and maintained in good faith for purposes other than that of obtaining insurance group must have been in active existence for at least two years group must have a constitution/bylaws that provide that the association(s) hold regular meetings at least annually to further purposes of the members that, except for credit unions, the association(s), collect dues or solicit contributions from members, and that the members have voting privileges and representation on the governing board and committees.

Turnover in group policies

Members joining or leaving the group. Members leaving the group may be eligible for continued coverage for up to 18 months under COBRA. Turnover is an important factor in the underwriting of group life insurance policies. It is guaranteed that there will be some percentage of turnover in a business' workforce of a business, but excess turnover may have an adverse effect on the insurability of a company.

Purpose and Eligibility Requirements for Group Policies

Members of the group must have a common affiliation of interests other than the purpose of obtaining insurance and must meet eligibility requirements (such as 90 days of employment). Groups that may be eligible for a group life insurance policy include employers, fraternal organizations, creditors (banks, credit unions, etc.), labor unions, trade associations, and so on. In the past, groups had to have a specified number of members to qualify for group plans (50 or more was a common threshold). Now, most companies do not set a minimum number (as recommended by the NAIC), offering plans to groups with as few as 10 (or fewer) affiliates.

Miller Trust

Miller trusts are trusts designed to help people meet Medicaid's income requirements. If a person's income exceeds the eligibility requirements, that person may place the money in a Miller trust to qualify for Medicaid. Miller trusts play a larger role in states that impose an income cap.

Misstatement of Age or Gender

Misstatement of age and/or gender is basically lying on the application. If an insured's age or sex was stated incorrectly on an application, the amount payable under the policy will be the amount which would have been purchased (and paid for through the premiums) for the correct age and sex of the applicant. It is one factor that is not subject to the contestable period clause in the policy and may be discovered at any time prior to the payment of benefits. If the insured's age was higher than originally stated, the death benefit will be recalculated as to what it would have been at the correct age for the paid premium and the payout will be changed accordingly. If the age is actually lower than that stated in the policy, there would be a return of excess premiums paid along with the policy death benefit. If the insured's gender misstatement is discovered before death the insurer will change the gender for the policy and adjust rates accordingly. If the misstatement is discovered after death but before payment of the death benefit, adjustments will be made as the insurer states in the policy.

Time Limit on Certain Defenses/Incontestability

Misstatements: Unless fraudulent, misstatements cannot be used by the insurance company to void the policy or deny or reduce benefits once the policy has been in effect for two years (sometimes 3 in some states). Pre-Existing Conditions: If a loss is incurred or a disability begins after the two-year policy anniversary date, benefit coverage cannot be denied due to conditions existing prior to policy issue.

Tax Treatment of MECs

Modified endowments are subject to more stringent tax regulations, similar to IRA accounts, such as penalties (10%) for cash value withdrawals prior to age 59 ½. If cash value accumulations are more than total premiums paid in, withdrawals will be considered as a withdrawal of earnings first and will be subject to income tax as well as the penalty (LIFO method of accounting--Last In, First Out). MECs do not pass the 7-Pay Test. Lifetime distributions from MECs are taxed on a less favorable "last in first out" or LIFO basis. This means that distributions from MECs are treated as first coming out of the value of the policy's gain portion (if any) and are taxable to the extent of any available gain. Loans from MECs are treated as distributions and thus taxable to the extent of any gain in the policy.

General Account vs. Separate Account

Money invested in a fixed policy goes into the general accounts of the company, and consequently the safety of such an investment may be affected by the stability and strength of the company. A separate account is held by an insurance company for the investments made through variable contracts. The general and separate accounts may not be co-mingled.

Moral Hazard

Moral hazards are created by the insured's habits, such as dishonesty or criminal activity. It is a situation in which one party gets involved in a risky event knowing that it is protected against the risk and the other party will incur the cost.

Morale Hazard

Morale hazards are created by the attitudes of the insured, such as indifference. An example would be not making sure doors and windows are locked before leaving home.

Life Income Joint & Survivor

Payments guaranteed for the lifetime of two or more annuitants. If either person dies, the payments continue at a predetermined arrangement-they may be at the full and original amount, or at some fraction of the full amount such as ¾, 2/3, or ½ of the original payout.

Critical Illness

Most critical illness policies provide for the payment of a lump sum if the policyholder is diagnosed as suffering from one of a number of specified terminal illnesses, such as cancer, heart attack, stroke, etc. A growing number of people who are diagnosed with these life-threatening conditions live many years after the diagnosis, and tend to have high, continuing expenses, not all of which are directly related to patient care, e.g., lost wages for a family member to accompany the patient to treatment facilities, transportation, food, and lodging expenses, someone to stay with the patient, etc. The payment of a lump sum, in amounts up to $100,000, during illness rather than upon death, can provide significant assistance in helping to pay for these associated expenses.

Taxation of endowment policies

Most endowment policies do not enjoy the same tax benefits as other life insurance products because: they many times are designed to endow before age 95 (or 100, depending on state and company) they may pay proceeds before age 59 ½ (the age mandated by tax regulations) and be subjected to the 10% penalty. If the endowment falls within these parameters, it may be treated like other cash value investments or insurance policies.

Presumptive (Total) Disability

Most insurance companies will automatically consider certain catastrophic losses/ailments to be totally disabling and the insured will be entitled to full benefits with no deductible. They will not need to meet the conditions normally required in order to be considered totally disabled. They will receive immediate benefits, and also continue to receive benefits even if able to return to work. These losses (which may be caused by injury or illness) can include loss of sight in both eyes, hearing in both ears, speech, the use of both hands, the use of both feet, and the use of one hand and one foot.

Surplus Lines Agent

Most surplus lines insurance is written in the commercial market for businesses that need unique policies to cover unusual risks, such as liability coverage for special events, oil and gas refineries, and hazardous material transportation. Texas law allows some companies, called surplus lines insurers, to cover risks that licensed companies in the standard market aren't able or willing to insure. An agent desiring to place policies through eligible non-admitted surplus carriers must hold a General Lines Agent, Property and Casualty Agent, or MGA license.

Fully Self-funded (Self-administered) Plans Characteristics

Must have a common employment-related bond. These plans require the employer to have sufficient funds to pay for all administrative and claims costs. The employer itself invests the monies and pays out of their general funds as claims arise. Only large employers can responsibly consider using such plans because the law of large numbers allows predictability of losses and allows for sufficient money to cover expenses.

Load Expense Charges

Mutual funds are usually sold through a financial advisor. The load is a sales charge, or commission, that compensates the advisor for his or her services, including fund selection advice when you buy shares of the fund and throughout the course of the investment. There are two general categories of mutual fund costs: sales charges and annual expenses Front end load A sales charge at the time the investor/insured buys the shares. Also called A shares. Rear end load Sales charge at the time the investor/insured sells the shares. Also called B shares. Level load When funds have a level load, the investor pays an annual sales charge. A level load may be lower than a front- or back-end load, he/ she may pay more if the shares are owned for many years. Shares that have a level load are referred to as C shares.

Joint and Survivor annuity

Payments guaranteed for the lifetime of two or more annuitants. If either person dies, the payments continue at the predetermined arrangement. They may be at the full and original amount, or at some fraction of the full amount such as ¾ or 2/3 of the original payout.

Point-of-Service (POS) Plans

Nature and Purpose A point-of-service plan is a type of managed care plan that combines features of HMOs and PPOs. Insured can decide at the time medical services are needed whether to go to a network provider and pay a flat dollar amount or to an out-of-network provider and pay a deductible and/or co-insurance amount. Like an HMO, the insured has a primary care physician. When members receive services from the primary care physician, or as a referral from the PCP, the services are covered as "in-plan" or "in-network". Using services outside the network or without a referral from the PCP, th

Enrollment Period for group policies

New group members must meet eligibility requirements and then have 31 days to apply for coverage without health questions and cannot be denied coverage during this period. If they do not enroll during this period health questions could be asked and coverage denied at a later date.

Enrollment Period for Employer Group Heath Insurance

New members joining a group must meet eligibility requirements (such as 90 days of employment). The open enrollment period is a 31-day period during which they can enroll in the group plan and not be denied coverage for health reasons. There is generally also an annual enrollment. If the member enrolls after the open enrollment period, health questions may be asked and coverage denied.

standard risk

Normal risks with standard premium rates.

Lloyd's Associations/Syndicate Insurers

Not really insurance companies, syndicates provide a place for members to meet and transact the business of insurance individually or as groups (through a syndicate manager) Characteristics include: Assistance provided in gathering underwriting information and in handling claims and disputes among syndicate members. Members individually and wholly liable for all risks No limitations on liability.

Claim Procedures

Notice of Claim Written notice of a claim must be given within 20 days of the commencement of any loss covered by the policy (or as soon as is reasonably possible). Other requirements include: Notice of a claim with enough information to identify the insured may be delivered to the insurer or to any agent of the insurer. If benefit coverage may be payable for at least two years (as in the case of disability income), the insured must give notice of continued disability every six months unless legally incapacitated. Claim Forms The insurer has 15 days from notification of loss by the insured to furnish appropriate claim forms to the insured. If forms are not made available to the insured within the 15-day window, the insured will be considered to have complied with the proof of loss provision of the policy.

Uniform Simultaneous Death Act

Often called the Common Disaster Clause, the Uniform Simultaneous Death Act is a statute enacted in some states to alleviate the problem of simultaneous death when the will doesn't specify what to do upon a simultaneous death. The Act specifies that if two persons die within 120 hours of one another, each is considered to have predeceased the other. The purpose of this provision of the Uniform Simultaneous Death Act is to save the heirs of the estate time and money. The statute prevents the inheritance from being transferred and taxed multiple times. The Uniform Simultaneous Death Act applies not only to estates, but also to life insurance. The Act provides that if an insured and a beneficiary of a life insurance policy die at the same, the insured will be presumed to have outlived the beneficiary, unless otherwise provided. The policy proceeds would go to the alternate beneficiary, or to the insured's estate if there is no alternate beneficiary named. Also, to make the wording clearer, each spouse would be treated by the Act as though he or she were the survivor. With the other spouse presumed to be already dead, nothing would go from one dead parent to another. If there is no will, property is distributed according to the state laws of intestacy. The Uniform Act does not specify who gets what; it pertains only to the order of death. Once that is determined, state law or the Will takes over to control the actual distribution of property.

credit life policy

On a credit life policy, the creditor is the beneficiary of the policy. Texas law requires that the amount of insurance available under a credit life policy may never exceed the amount of outstanding debt. The value of the credit life policy at Peter's death, therefore, is $130,000, and the bank receives the full amount.

Life Income

Payments are made in equal installments over the remainder of the annuitant's life, and then all payments cease. Also Fixed Amount (Annuity Certain), or Lifetime Annuity, is a fixed monthly pension covering the annuitant alone and ends when the annuitant dies. If the annuitant dies two or three months after payouts begin, that's it, and the insurer keeps the remaining money. Because of the higher risk (not knowing when the annuitant will die) this form of payout option usually yields the highest periodic payment to the annuitant.

Capital Liquidation

Payments come from part of the principal plus the interest.

Injury vs. Sickness

Once probationary and elimination periods have been met, disability policies are designed to pay for loss of income due to either injury or sickness. Benefits are coordinated if the individual is both injured and sick. They will not be paid for both.

Single Premium Whole Life

One lump sum payment at the time of application funds the entire policy in this type of whole life insurance

Unilateral Contract

Only one party is legally bound to perform any duties once premium is paid. In an insurance contract, only the insurer makes any legally enforceable promises. The insured does not make a promise but pays a premium, which constitutes his or her part of the consideration.

death benefits in Universal Life

Option #1-Level Death Benefit A level death benefit equal to the Basic Amount of life insurance. Option #2-Increasing Death Benefit A death benefit that varies with the policy account value. The death benefit is the amount of life insurance plus the policy's Account Value. This option allows the policy to always meet the TAMRA guidelines so the policy does not become a MEC (modified endowment contract).

Other Basic Services HMOs may also offer

Other Basic Services HMOs may also offer the following services, often for an additional fee: prescription drugs vision care dental care home health care nursing services long-term care mental health care substance abuse services.

Out-of-network Provider Access (Open-Ended HMO)

Out-of-network provider access is furnished through open-ended provider access, or an open-ended HMO, which is typically another name for a point-of-service plan. It is a type of managed care which covers care obtained both in and outside of a network of health care providers. There is generally a higher level of benefits for in-network care and the care obtained in the network must be coordinated through a primary care physician. This model provides freedom of choice at higher co-payments and deductibles.

HMO versus PPO

PPO subscribers can use physicians and services outside the network. PPO services are paid on a fee-for-service basis. Some HMOs pay on a capitation (fixed monthly fee, regardless of service) basis.

Part C-Medicare Advantage Plans (Formerly Medicare Plus Choice)

Part C plans are available if Medicare beneficiaries have the option of enrolling in a Medicare Advantage plan instead of the traditional Medicare Plan. To enroll: Participants must notify Medicare that they choose this option. They must be enrolled in both Parts A and B of Medicare prior to electing a Part C plan. They must pay the Part B premium. If the Medicare beneficiary has End Stage Renal Disease, (permanent kidney failure), he or she is not eligible for enrollment in a Medicare Advantage plan. Types of Medicare Advantage plans permitted include Medical Savings Accounts, private fee-for-service plans, religious fraternal beneficiary plans, and several types of managed care plans. Availability and cost of service vary between plans.

At-work Benefits

Partial and Residual disability benefits are considered to be "at-work" benefits. "At-work" benefits allow an employee to stay at work or return to work on a part-time basis while still receiving partial disability benefits. Benefits will be payable if the amount the employee earns from working is less than or equal to 80% of the employee's original salary.

Eligibility for qualified plans

Participation- Employees are legally eligible to participate if they are at or over the age of 21 years, and have worked for the company for one year (defined as 1,000 hours or more.) Retirement Age-There are normal and early retirement age considerations. Vesting Provisions-ERISA requires that pension plan sponsors must either: have 100% vesting of employer's contributions in defined contribution plans after a certain number of years, OR vest incrementally by 20% annually after 2 years of service so that there is 40% vested after three years the employee is 60% vested after four years there is 80% vested after five years full vesting occurs in the sixth year. The vestment is applicable even if employees leave the company. Contribution Limits-Because of the tax ramifications of qualified plans, each has limits as to the amount of allowed annual contributions. Funding Requirements-Funds that are to be contributed to the retirement plan must legally be separated from other company funds and accounts.

Qualified Condition Rider

Payment of up to 25% of the policy's face amount for certain illnesses that are specified in the policy such as stroke, heart attack, Alzheimer's Disease, life threatening cancer, or kidney failure.

Medicare Part B Coverage and Cost-Sharing Amounts

Pays 80% of approved charges for most covered services Insured will incur additional charges if the doctor does not accept assignment of Medicare approved charge for services Exclusions Part B usually does not cover most prescription drugs, routine exams, services not related to treatment of illness or injury, dental, vision, or cosmetic surgery. Neither Part A nor Part B of Medicare pay for treatment outside the USA (except for limited cases in Canada or Mexico).

Disability Income Rider

Pays a monthly income benefit to the insured in the event he or she becomes disabled. Pays benefits for life or until a disability ends once a waiting period has passed from the date of the insured's disability.

Terminal Illness Rider

Pays a partial benefit if the insured is diagnosed with a terminal illness as specified in the policy

Inpatient Hospital Care:

Pays for 90 days in each benefit period. If an individual is in the hospital longer than 90 days in a benefit period, there are 60 lifetime reserve days that can be used at any time, but no coverage beyond the benefit period when these reserve days are exhausted.(There are deductibles and coinsurance for inpatient hospital care.)

Limited Payment Whole Life

Permanent life insurance in which premiums are payable for only a specified number of years, or end after the insured reaches a certain age. Cash values grow to equal the face amount at policy maturity (endowing at age 100). Premiums will be higher than for standard whole life policies, because they are paid for a shorter period.

Physical Hazard

Physical hazards are created by the use, condition, or occupancy of property, such as damaged steps or worn auto tires.

Service Organizations/Producers' Cooperatives (Blue Plans--Blue Cross/Blue Shield, etc.)

Physicians and/or hospitals (called "producers") provide insurance to plan members. Covered individuals are "subscribers" rather than "insureds." Initially started to guarantee payment to the physicians and hospitals, these are not reimbursement plans. Rather, benefits are paid directly to the producer (health care provider) rather than to the subscriber. Blue Cross started as a producer cooperative for hospitals. Blue Shield was started as a cooperative for physicians and surgeons. They have now merged in most states and are a nationwide network.

Service Contracts

Plans where the service provider (doctor or hospital) is directly compensated by the insurer, e.g., Blue Cross and Blue Shield Contracts which provide protection for specific products and situations; e.g., extended service contracts may be purchased for cars after the expiration of the factory warranty, or when buying or selling a home. A service contract is not an insurance policy--some states require that the contractual obligations of all service contracts sold must be guaranteed by a reimbursement insurance policy.

Direct Mail/Direct Response

Policies are marketed directly from the company's home office rather than through agents. Marketing is done through direct mail, internet, newspapers, magazines, radio, or TV.

Policy delivery

Policy Review An agent needs to review the reasons the policy was originally purchased, what type of policy it is, and other riders/benefits that are included in the policy. Explanation of Changes Required Signatures on the Application Statement of Continuing Good Health Collection of Earned Premium

Medical Reimbursement Benefit (Non-disabling Injury)

Policy pays physician fees or medical care for non-disabling injuries(do not result in loss of work time or income) up to the maximum amount as stated in the policy.

Pre-admission Certification

Pre-admission Certification (PAC) and Continued Stay Review (CSR) refer to the process used to certify the medical need and length of a hospital confinement when an insured requires treatment in a hospital: as a registered bed patient for a partial hospitalization for the treatment of mental health or substance abuse for mental health or substance abuse residential treatment services. PAC should be requested prior to any non-emergency treatment in a hospital described above. In the case of an emergency admission, the insurer should be contacted within after the admission, generally within 48 hours.

Exclusions and Limitations of Individual Disability Income Insurance

Pre-existing Conditions: Medical history prior to making application. Self-Inflicted Injuries: Intentional self-inflicted injuries are not covered Mental & Nervous Disorders: Usually a two-year maximum benefit period for mental and nervous disorders including, stress, anxiety, depression, dementia, or any other mental or nervous disorder Alcohol and Drugs: Usually a one-year maximum benefit period. Crimes: Common exclusion: If disabled while committing a felony, the disability insurance policy will not pay a claim. Acts of War: Some policies will not pay claims for disabilities that are a result of an act of war

Pre-Existing Conditions

Pre-exiting conditions are health conditions the applicant has at the time of policy application. Health conditions that the insured has had may affect whether a policy will be issued with exclusion riders for those conditions or if the application will be declined.

Tax Treatment of Group Life Insurance

Premiums Group hospital, medical, and disability insurance premiums may be deducted from taxes by the employer as business expenses. If premiums are paid by the employer and the value of the policy is: $50,000 or less--the employee does not have to report the paid premiums as income more than $50,000--the employee must report the excess premiums (even though they are paid by the employer) as taxable income. Proceeds If the payout goes to the employee's beneficiary as a lump sum, the proceeds are not taxed. If, however, the proceeds are paid under some other settlement option (as an annuity, in installments, etc.), the principal is tax-exempt but the interest is subject to taxation.

Modified Premium

Premiums are low initially and increase after a period of three or five years, staying level after this initial increase. Variations of Whole Life Insurance As with other whole life policies, coverage stays level throughout the insured's life and cash values accrue to equal the face value when the policy endows at maturity. will have a larger final premium than a straight life policy.

Life Payable to Age 65

Premiums are paid only until age 65, but the policy remains in effect.

Graded Premium/Stepped Premium

Premiums increase periodically (every three to five years) for a longer period of time (i.e., up to 15 years). Variations of Whole Life Insurance As with other whole life policies, coverage stays level throughout the insured's life and cash values accrue to equal the face value when the policy endows at maturity. will have a larger final premium than a straight life policy.

Medicare Part D-Prescription Drug Coverage

Prescription drug coverage may be obtained in one of two ways: Add the coverage to other Medicare coverage through a stand-alone prescription drug plan (Medicare Part D). This coverage is provided through private insurers approved by Medicare, and is available to recipients of Original Medicare. Obtain the drug coverage as well as other Medicare coverage through a Medicare Advantage plan. This can be done by choosing an HMO or PPO that offers Medicare prescription drug coverage. Medicare also works with employer sponsored retiree health plans to help offer prescription drug coverage. Medicare Drug Plans Medicare Drug Coverage is offered by private insurers, and there is a monthly premium. While all plans have to provide at least the standard plan, some plans may offer more coverage than others and premiums may differ from one company to another. An individual covered by a Medicare Advantage of Medicare Cost plan will usually have an increase in premium if Prescription Drug coverage is added to the plan. Premium is not affected by health or amount of prescriptions needed. Plans have a formulary, or list of drugs covered by the plan. Insurers must give insureds at least 60 days written notice of any changes in the plan's formulary or fees associated with coverage.

Fixed Amount Option

Principal plus interest are paid to the beneficiary at regular intervals in fixed installments under the fixed amount option. The length of time that payments are made is dependent upon the amount of money that exists to be paid out-single payment amounts are equal, and when the funds are depleted the payments end.

Probate

Probate is the process of determining the validity of a will in court and carrying out its provisions under court guidance. Probate situations need to be taken into consideration when deciding ownership of life insurance policies. All of a deceased person's assets including life insurance policies owned by the insured go through probate and could be tied up for years before heirs can use them. Probate records are a matter of public record and anyone can see what is involved in the estate. Insurance polices on the life of the insured bypass probate, and death benefits are paid directly to the policy beneficiaries even if not owned by the insured themselves

Key Employee Life Insurance

Protects the business owner when an individual or a small group of people is essential for the business' continued operation. Employer buys life insurance on the life of the key employee, usually equal to one to two years' salary. The employer is the beneficiary and owner of the policy, and if the key employee dies, the business can use the death proceeds to hunt for and hire someone to take the place of the deceased key employee.

Family Policy

Provides insurance on all or several family members in one contract. Generally, whole life is on the principal insured, and smaller amounts of term insurance are on the spouse and children ages 15 days and older, including those born after the policy is issued. Children born or adopted after the policy is purchased are automatically covered. If the primary insured dies, the death benefit is paid, and the term portion of the policy on the spouse is paid up until the insured would have been age 65. If either spouse dies, the children's portion is paid up until each child reaches age 25. There is no difference in premium for either one or more children. Children's coverage is convertible to up to five times the face amount of original coverage.

Reserve-reduction Arrangements

Similar to premium-delay arrangements, the employer is allowed to keep that portion of the premium that is usually kept in the claim reserve fund. This arrangement is usually allowed only after the policy's first year when a claim history has begun to be established.

Waiver of Premium and Monthly Deduction Rider

Provides that premiums no longer need to be paid if the policyowner becomes permanently disabled. Permanent disability is usually one lasting longer than six months. Premiums are payable through the 6-month "waiting period" from the date of disability, but premiums paid during the 6-month period are refunded. Variable or Universal policies have only the actual insurance portion of the premium waived; the insurer does not continue any additional investment funding. This rider is usually dropped at age 60 or 65, at which time the cost of the rider is also dropped, unless the insured has been totally disabled for the previous five years, in which case the waiver will continue.

Extended Term Option

Purchases term insurance in a face amount equal to the original policy's face amount. The term policy's length is the time bought by the original policy's cash value. This is the automatic option if a policy lapses without the owner selecting an option.

NON-FORFEITURE OPTIONS

Purpose Historically, if a policy lapsed any excess premium payments and cash values were lost to the policyholder. The insurer kept all monies. Laws have since been passed to protect the consumer's rights to the cash value within the policy. Used by most states today, Standard Non-forfeiture Law requires that all cash values or their equivalent must be made available to the policyholder if they cancel the policy or want to stop paying premiums. The policyowner may elect one of the following three options

MEDICARE SUPPLEMENT POLICIES (MSPs)

Purpose Medicare Supplement policies are offered by private insurance companies. They help pay Medicare co-insurance amounts, deductibles, and other out-of-pocket health care costs. Open Enrollment Period Open for six months after the individual is first enrolled in Medicare Part B, during which the person cannot be refused or charged extra for health reasons. After this open enrollment period, the individual could be refused or surcharged.

Relation of Earnings/Average Earnings (Participation Limit)

Purpose is to avoid giving a disincentive for the insured to return to work in the event of disability. Provides that benefits under any and all Disability Income policies owned by the insured will not exceed the current monthly earnings or the average monthly earnings of the last two years, whichever is greater. Also known as a participation limit.

Rebating

Rebating is the reduction in premium charged or the return of part of the required premium. It is a form of discrimination allowing one individual to purchase insurance at a lower cost than another with no actuarial purpose. It can also fall into the area of paying commissions to an individual who does not have a license. Many states classify rebating as a misdemeanor, and both the agent and the insured may be subject to fines and the agent's license could be suspended. Rebating can involve: reducing premiums barter offering of an incentive only if the person buys a policy.

The Fair Credit Reporting Act of 1970

Regulates the collection and distribution of credit and inspection report information Deals with the accuracy, obsolescence, and limited uses of information, and the right of the individual to access and contest the information contained in the reports Applicant has the right to the name and address of the inspecting company if a policy is rated or rejected as a result of the report and can file his or her opinion on the issue with the reporting company Applicant has the right to have medical information sent to his own physician. Many companies will not send medical information directly to the insured but require that it be sent to the insured's doctor. Medical information will most likely NOT be given to the agent to deliver to the applicant. Consumer reports cannot contain information about bankruptcies over 10 years old or other adverse information (i.e., arrests, liens or lawsuits) that is 7 years old. There is no time limit for information relating to life insurance or credit transactions of $150,000 or more, or for jobs paying more than $75,000.

Reinsurance

Reinsurers insure other insurance companies against catastrophic losses such as earthquakes. The company transferring some of their loss potential to the reinsurer is called the "ceding" company. There are four types of reinsurance treaties, which include the following: Facultative-The ceding insurer offers individual risks to a reinsurer, who may choose to accept or reject each risk. Automatic-The insurer cedes those parts of a specified class of risks in excess of the retention limits set by contract (treaty) with the reinsurer. The reinsurer must accept all risks ceded to it. Excess of Loss: Reinsurer must pay only when losses exceed a certain maximum amount.* Proportional: Reinsurer must pay a share for every reinsured loss.* *3 & 4 apply mainly to Property/Casualty, but must be known for all exams.

Replacement

Replacement refers to when a new policy or contract takes the place of an existing contract that is or will be: lapsed, forfeited, surrendered, or otherwise terminated. converted to reduced paid-up insurance, continued as extended term, or otherwise reduced in value (benefits or term of coverage). reissued with any reduction in cash value. used in a financed purchase. The purpose of replacement regulation is to protect the interests of life insurance and annuity purchasers by establishing minimum standards of conduct to: assure that a purchaser receives information to make a decision in their own best interest. reduce the opportunity for misrepresentation and incomplete disclosures. establish penalties for failure to comply with the requirements.

Exemptions to Replacement Policies

Replacement regulations do not apply to: group life policies, including credit life and pension, profit sharing, group annuities, and other plans with tax-deductible premiums. variable life policies. proposed policy changes with the same insurer; for example, exercising a conversion option. life binders or conditional receipts with the same insurer. registered contracts, provided that the premium or contract contribution amounts and the prospectus or offering circular are furnished in place of a policy summary.

Representations/Misrepresentations

Representations are statements made by one party that are believed to be true. The insured's misrepresentation will not affect the insurance contract or policy unless it affects the conditions under which the policy would be issued or not-it is material to risk. An agent's misrepresentation, whether intended or not, is likely to void a policy. For example, an agent may falsely represent that certain coverage is contained in the policy when in fact it is not.

Individual Retirement Annuities

Require the individual to pay all monies into the fund by himself or herself. The owner invests funds in the investment vehicles of his or her choice within the funds operated by the investment company.

Changing the Beneficiary

Right to Change The insured has the right to change the beneficiary of the policy benefits at any time without the knowledge or consent of previous beneficiaries. Exceptions: 1. When there is an irrevocable beneficiary in place 2. When the policy has been pledged for collateral on a loan. Methods: Filing vs Endorsement The insured may change the beneficiary by: 1. Filing- sending a letter or a phone call to the insurer requesting the change; the insurer then sends notice of the policy change to the insured. 2. Endorsement- The insured sends the policy to the insurer, which then endorses the change in the policy and returns the policy to the insured.

Simplified Employee Pensions (SEPs)

SEPs are employer-sponsored IRAs that allow corporations to establish retirement plans for eligible employees. SEP plans may be set up until April 15 of the following year (the date of reporting to the IRS). Any employees who have been employed for three years or more of the past five years and who are age 21 or older must be included in the plan.The employer must invest the same percentage that he invests of his own income on his own behalf for each employee's income into a SEP on their behalf. Employer contributions into the employee's SEP are not included in the employee's gross income. Unlike Keogh plans, an employer is not required to make a set plan contribution each year, and may skip making contributions any given year or years.

SIMPLE (Savings Incentive Match Plan for Employees) plans

SIMPLE Plans Introduced by the Small Business Job Protection Act of 1996, SIMPLE (Savings Incentive Match Plan for Employees) plans were first available in 1997. These plans target businesses with 100 or fewer employees. All employees with compensation of $5,000 or more can participate. Eligible employees must include those with one year of service and who are over 21. Part-time employees may be excluded. Participants are immediately 100% vested. Employers using a SIMPLE plan may not also contribute to or accrue benefits from a qualified plan during the same year. The employee can elect to defer a percentage of compensation (see chart at the end of the chapter), and set it aside into a SIMPLE IRA. Every W-2 individual employee, including husbands, wives and children can also contribute to the plan. Highly compensated employees should talk to their HR department to understand the limits that apply to them. Employees are not taxed on amounts deferred in this manner until they are withdrawn. Early withdrawals are subject to a 10% penalty, or a 25% penalty if the withdrawal is made during the first two years. Employers must make a matching contribution up to 3% of the eligible employee's compensation, or a flat 2% of compensation on a non-participating basis (whether the employee contributes or not). SIMPLE 401(k) plans are part of a qualified plan, but if an employer makes contributions to a SIMPLE 401(k) plan, they are considered to have met the qualification rules of a qualified plan. They are not subject to qualified plan rules that prohibit plan discrimination against lower-income individuals.

Transfer

Shifting the risk from one party (the insured) to another (the insurer) for a consideration or premium is risk transfer.

Variable Universal Life

Similar to Universal Life, but the policyowner selects investment options (stocks, money market, etc.), where the cash value funds are invested. Cash value varies as investments incur profits or losses. Both the death benefit and premium may be changed by the owner but premiums must be equal to or more than a minimum amount to cover the basic insurance or mortality costs of the policy. A life insurance producer license and a FINRA securities representative license are both required for a producer to sell Variable Universal Life.

Stop-loss Coverage

Similar to a reinsurance program, with a stop-loss plan, the self-employed employer pays all claims to their employees, but another insurer will reimburse payments above a certain level of expected claims. This can help mitigate severe losses due to catastrophes.

Family Maintenance Policy

Similar to the Family Income plan, Family Maintenance policies have a level term policy that provides an income payment for the specified number of years from the date of the insured's death, with the whole life policy's death benefit paid out after the specified term period has ended.

Premium Payment Options in Universal life

Single Premium UL is paid for by a single, substantial, initial payment. The policy remains in force as long as the cost of insurance (COI) charges do not deplete the account. Fixed Premium UL is paid for by periodic premium payments. Generally these payments will be for a shorter period of time than the policy is in force; for example payments may be made for 10 years, with the intention that thereafter the policy is paid-up. If the plan does not do as well as expected, the account value at the end of the premium period may not be adequate to continue the policy as originally written. In this case, the policyholder may: leave the policy alone, and let it potentially expire early (if COI charges deplete the account) make additional or higher premium payments, to keep the death benefit level lower the death benefit. Flexible Premium UL allows the policyholder to determine how much they wish to pay each time the premium is due. Policyholders frequently buy Flexible Premium UL with a large initial deposit, thereafter making payments irregularly.

Individual policies

Single policies written on or for a particular individual who receives a copy of the policy. The policy can be one of a great number of types.

Benefits and Taxes of Social Security

Social Security is a federal program started in 1935 to provide financial security for U.S. citizens upon their retirement or the premature death of the family breadwinner. About 95% of the workers in the USA are covered by Social Security. Pays $255 toward final expenses Pays some disability income in the case of complete disability Surviving spouse receives income benefits until children reach age 16 (or 22 if disabled) Children receive benefits until age 18 or until age 19 if still in high school

Cash Values and Policy Loans

Some of the money paid into a whole life policy accumulates as guaranteed cash values. Upon surrender of the policy, these guaranteed cash values are available to the insured. As long as the policy is in force, the insured may borrow against the cash value as a policy loan at the current policy loan interest rate (the interest rate will be found in the policy summary). The amount of the guaranteed cash value depends on the kind of whole life policy, its size and how long the policy has been in force. The growth in cash values is tax-deferred under federal income tax law. Unpaid policy loans reduce the death benefit and cash surrender value.

Military Suspense Provision

Some policies may contain a military service exclusion or a provision suspending coverage during military service. If premiums are reduced or refunded for the period of military service, it must be clearly stated in the policy.

Understanding Riders

Some policyholders have specific needs not covered by standard insurance policies, so riders help them create insurance products that meet those needs. Insurance companies offer supplemental insurance riders to customize policies by adding varying types of additional coverage. The benefits of insurance riders include increased savings from not purchasing a separate policy and the option to buy different coverage at a later date.

Backdating of Policies

Some states do not allow backdating. For those that do insurers may compute premiums back to an applicant's previous birthday (six months), resulting in a slightly lower premium. If a policy is backdated, premiums must be collected from the date at which the policy is backdated to, and that date then becomes the anniversary of the policy.

Specified (Dread) Disease

Specified (dread) disease policies, such as a Cancer Policy, provides coverages for each insured person for a specifically named disease(s) with a predetermined deductible and total maximum benefit amounts. Coverages may include: hospitalization benefits, physician and surgical coverages, nursing expenses, blood and plasma, medications, and other benefits.

Modes

Stipulates when the premiums are due, how often they are paid and to whom. Policyholders select their mode of premium when they sign their policy. It is common practice to make your first premium payment to activate the coverage on your policy. The insurance agent should highlight the possible frequency of premium payments before you sign your policy.

Subrogation

Subrogation is the process an insurance company uses to seek reimbursement from a responsible party for a claim it has paid. Example: you are in a car accident and the other driver caused the accident. Your insurance company may pay your claim, then seek reimbursement from the other party. This would depend on the circumstances surrounding the loss, the laws in your state, and your policy provisions. You may sue the other party for damages, but if you win you will need to reimburse your insurer for the money it paid to you as your insurer can no longer go after the at-fault party if they have already paid you. Anything over the amount owed your insurer will be yours.

Distributions of MECs

Tax penalties (10%) apply to cash value withdrawals prior to age 59 ½. If cash value accumulations are more than total premiums paid in, withdrawals will be considered as a withdrawal of earnings first and will be subject to income tax as well as the penalty (LIFO method of accounting-Last In, First Out).

term life insurance

Term insurance is purchased for a specific term, or time period. There is no cash value in the policy. Higher amounts of insurance can be purchased for less initial premium because no money goes toward the cash value. This feature makes term insurance an attractive alternative for young families with the need for large amounts of coverage but without the money needed to fund a whole life policy.

Period of Time for Renewal

Term or nonrenewable contracts are health insurance policies written for a specific period of time. These policies are usually for a specific purpose, such as for a person between jobs or coverage for a student during the academic year; and the policies range from one day to one year depending on the intended purpose. The insured must have time allowed as a grace period after the last day of policy coverage during which he or she can pay the policy premium and keep the policy in force. On an annual or monthly pay program, this period is 30 days. See "Grace period" under Required Policy Provisions for more information.

requirements for the Commissioner

Texas residency for at least one year prior to appointment Have 10 years administrative or professional experience Have training or experience in insurance or insurance regulation post a $50,000 surety bond with the state of Texas.

Free Look

The "free look" or "right to examine" is the contractual right of the insurance applicant to examine the policy after delivery for a given period of time, usually 10 days, and return it for a full return of premium if dissatisfied. In most states there is a 20-day free look if the policy is replacing another policy.

403(b) Tax-Sheltered Annuities (TSAs)

The 403(b) Tax-Sheltered Annuity (TSA) plan is a tax-advantaged retirement savings plan available to public education organizations, self-employed ministers, and some non-profit organizations (501C(3) Corporations). Examples of qualifying organizations include old-age homes, parent-teacher associations, charitable hospitals, alumni associations, schools, chapters of the Red Cross or Salvation Army, Boys' or Girl's clubs, and churches.. Tax treatment is similar to that of 401(k) plans. Employees make contributions before taxes are paid. No tax is paid on contributions or on growth until distribution (tax-deferred growth). Not technically a qualified plan, but operates similarly to them. The employee can withdraw contributions from the account made by the employer before age 59 ½ without an early withdrawal penalty if the person is: Age 59 ½ if allowed in school plan. Separated form service during, or after, the year in which you turn age 55. (If returned to work as an employee in the same district, you may not qualify.) Separated from service before age 55 and take substantially equal payments for a minimum of five years or age 59 ½, which ever is later. Totally and permanently disabled. The beneficiaries of the account. TDAs and TSAs can be used in conjunction with or in lieu of other retirement plans. Combined employer and employee contribution are limited to up to 100% of the employee's income with a maximum contribution of the lesser of the employee's income or the amount shown in the chart at the end of the section.

Accidental Death and Dismemberment

The AD&D policy can be a separate contract on its own or can be an optional rider to a life policy. Provides payment of additional amount usually equal to the policy face value (called double indemnity) if the insured is killed or dismembered in an accident. Dismemberment benefit pays a set percentage for the loss of eyesight or loss of hands or feet above the wrist or ankle. Principle Sum-The amount payable as a death benefit (the policy face amount). Multiple Indemnity-Some policies pay twice (double indemnity) or three times the face amount (triple indemnity) if the insured dies accidentally. Capital Sum-The amount payable as a dismemberment benefit

High Deductible Health Plan (HDHP)

The HDHP features higher annual deductibles than traditional health plans. The major advantages of HDHPs are that they will: make insurance premiums more affordable lower health care costs by causing patients to be more cost-conscious. HDHPs can be paired with an HSA or HRA to provide comprehensive coverage for high-cost medical events and a tax-advantaged way to build savings for future medical expenses.

HIPAA Privacy Issues

The HIPAA privacy rule is intended to protect the privacy of all individually identifiable health information. The main standards of the act: give and disclose to patients rights to: access their medical records. restrict access to those records by others. request changes. to learn how the records have been accessed. provide that all patients are formally notified of privacy practices. restrict most disclosures of protected health information to the minimum needed for treatment and business operations. enable patients to decide if they will authorize disclosure of protected health information for uses other than treatment or business operations.

National Association of Securities Dealers (NASD)

The NASD was the self-regulatory organization for the Nasdaq stock market and the over-the-counter market. It was the association of broker/dealers that supervised and regulated the trading and the conduct of its member organizations and the licensed brokers who worked for those member organizations. The NASD was created under the Securities and Exchange Act of 1934. Even though it is not a government organization, it worked closely with state and federal securities regulators.

7-Pay Test

The TAMRA 7-Pay Test looks at the premiums that have been paid in on a life insurance policy. The payment of level premiums over a seven-year period exemplifies a traditional life insurance contract. However, if the total premiums paid in the first seven years exceed the premiums that would have been paid on a level-premium basis, then the life insurance policy becomes an MEC.

Agent Report

The agent report details the agent's observations about: the character and condition of the applicant the means of contact (mail solicitation, contact of the agent by the insured, etc.) the purpose of the sale any policy replacement information. One of the most important responsibilities of an agent is to aid the customer in fully and accurately completing the applications.

Principal Sum

The amount payable as the death benefit. If two or more bodily losses are suffered at the same time, e.g., the insured has both hands severed, the policy will usually pay the Principal Sum. The total amount paid for multiple losses in an accident will not exceed the Principal Sum.

Capital Sum

The amount payable as the result of lost sight or dismemberment. It is usually determined as a percentage of the principal sum.

Tax Deferred Annuities (TDA) or Tax Sheltered Annuities (TSA)

are tax favored vehicles for deferring compensation exclusively for employees of public schools or non-profit organizations such as churches or hospitals that are exempt from taxes under Internal Revenue Code sections 501(c)(3) or 403(b).

Benefit Period

The benefit period is the maximum period of time, beginning at the end of the elimination period, during which benefits are payable during an insured's disability.

Change of Insured Provision

The change of insured provision allows a company to maintain a key person policy for a succeeding key person if the original individual leaves the company, without the need to cancel the policy and issue a new one.

Company Retention Method

The company retention method is a method in which the present value of premiums, cash values, and dividends is calculated by weighting each item each year by the probability that it will be paid.

Creditable Coverage

The concept of creditable coverage is that individuals should be given credit for previous health coverage when moving from one employer group health plan to another, from an employer group health plan to an individual policy, or from certain kinds of individual coverage to an employer group plan.

HIPAA Creditable Coverage

The concept of creditable coverage is that individuals should be given credit for previous health coverage when moving from one employer group health plan to another, from an employer group health plan to an individual policy, or from certain kinds of individual coverage to an employer group plan.

Currently Illustrated Method

The currently illustrated basis shows the company's current scale of dividends, premiums or benefits. This scale can be changed after the policy is issued, so that the actual dividends, premiums or benefits over the years can be higher or lower than those assumed in the indexes on the currently illustrated basis.

Taxation on universal life

The death benefit is income tax-free if premiums are paid with after-tax dollars Tax-free policy loans (non-MEC policies) The cash values would be available on a tax-free basis in the form of refunds of premiums paid in and policy loans (which would be paid off on death by the death benefit.)

Examinations, Record Retention, Investigations

The department may examine or investigate any person or business that is necessary or material to the examination of a licensee. Records must be kept for five years Any costs incurred during an exam of a provider or broker will be charged to the provider/broker.

cost comparison methods

The different formulas that insurance companies use to show prospects the cost of various insurance policies Insureds should compare index numbers only for similar policies-those that provide essentially the same benefits with premiums payable for the same length of time, and properly calculated for the insured's age and health status. No single company offers the lowest cost at all ages for all kinds and amounts of insurance. Generally, a policy with smaller index numbers generally is a better buy than a similar policy with larger index numbers.

Face Value versus Death Benefit

The face value is the policy amount outlined in the contract, representing the actual amount of insurance purchased. The death benefit is the actual amount to be paid out in the event of the insured's death-there is usually a guaranteed policy minimum that the benefit will not fall below, but the death benefit may exceed the face value if the policy has very good investment returns.

Family Income Policy

The family income policy combines ordinary whole life with decreasing term insurance. The whole life insurance portion of the policy is usually payable upon the death of the insured, but is sometimes held until the end of the term insurance payout. The term insurance is sold as monthly income benefits in units of $10 or more, payable to the beneficiary each month from the insured's death until the end of the term period, with the term period beginning at the time of policy inception. Commuted Value is the amount of insurance available at any time during the selected term period of a family income policy; it is the combined value of the whole life and the remainder of the term insurance. Some companies allow the beneficiary to take the monthly income as a lump sum payment..

Immediate Annuity/Single Premium Immediate Annuity (SPIA)

The first payment of the annuity commences one payment period after the initial payment of funds to purchase the annuity from the insurance company, or at least within one year of payment to the insurer. Since most annuities pay on a monthly basis, the typical SPIA begins payment one month after its purchase.

Fixed Period Option

The fixed period option guarantees the payment of level installment amounts at patterned intervals over a fixed period of years (usually five to 20 years), and after that time payments stop. Payments include the annuity proceeds and also any earned interest. The amount of each payment is determined by the specified period of payment-the longer the period, the smaller the payments, and vice-versa. If the annuitant dies before the period elapses, future payments (or their value in a lump sum) will go to the beneficiary.

10 or 20 Pay Life

The full policy premium is paid in the first 10 or 20 years and the policy remains in effect for life, increasing in interest and cash value until endowment.

grace period for annual renewable policy

The grace period of a policy allows an insured 31 days (for an annually renewable policy) past the premium due date to pay the premium. If the insured dies during this period without paying the premium, the premium will be deducted from the death benefit payout.

Loss

The happening of the event for which insurance pays. Loss is the unintentional decline in, or disappearance of value due to a contingency.

Accidental Means:

The injury must be the result of something outside the insured's control, or that which the insured did not intend to do.

Accidental Results

The injury must be the unintended result of an action of the insured.

Retrospective-rating Arrangements

The insurance company charges the employer an initial premium that is 5-10% less than what would be justified by the expected claims for the year. If claims plus the insurance company's retention exceed the initial premium, the employer must pay an additional amount at the end of the policy year. The advantage of a retrospective-rating arrangement is that even though the employer will most likely need to pay additional premium at year end, the employer can use these funds during the year. This potential additional premium is subject to a maximum amount based on some percentage of expected claims.

Single Policy Benefits

The insured or beneficiary can pick under which single policy benefits will be paid, and premiums will be returned for the policy which is not used. An example of this would be if the insured had both a "Your Occupation" and a "Specialist Occupation" policy. The extent of the disability might determine which single policy the insured would elect to receive payments. If they could no longer function as either a neurosurgeon or any other type of doctor, for instance, the better route to go might be the "Your Occupation" policy because benefits will be paid through the policy with a less expensive premium and premiums for the more expensive policy would be returned.

Long-Term Care Accelerated Benefit Rider

The insured receives monthly income benefits for payment of long-term nursing care expenses. This decreases the policy's death benefit.

Income Benefits (Monthly Indemnity)

The insured under a Disability Income policy is an individual who has earned income. The purpose of disability income insurance is to provide income to an individual who is unable to work because of a disabling injury or illness. The insurance company will pay benefits as required in the policy, but does not want to pay any more benefits than required both in amount and in time. For this reason the insurer does not want to provide any encouragement for the insured to stay away from work any longer than is absolutely necessary. If the insured paid premiums with after-tax dollars, benefits are available up to 66% of income and income tax does not need to be paid. If premiums were paid before taxes, benefits are usually available up to 66%, but the payments would be subject to income tax.

Cancelable (Nonrenewable, Term)

The insurer can cancel the policy at any time simply by notifying the insured and refunding any advance premiums that have been paid.

Non-Cancelable

The insurer cannot cancel the policy except for non-payment of premium and cannot increase the premium, but gains the right to do so at a certain age, such as 60, 65, or 70. Renewability and premiums are guaranteed.

Cancellation

The insurer may cancel the policy at any time by written notice directly delivered to or mailed to the insured: giving the insured at least 15 day's notice. If the insurance company cancels the policy during the policy period, premiums must be on a pro-rata basis, or the exact percentage of premiums for time the policy is out of force. If the insured cancels, the insurer may short-rate the premium returned, or charge a surcharge for early cancellation.

Requirement to Be Under Physician Care

The insurer may require the insured to be under a physician's care to continue receiving benefits under a disability policy. The physician is generally one that the employer or insurer chooses to verify the original and continuing disability status.

Interest-Adjusted Net Cost/Surrender Cost Index Method (IANC)

The interest-adjusted net cost (IANC) or Surrender Cost Index 100 method weights dividends and cash values according to how far into the future the various amounts are payable. Under this method, three amounts are calculated: the interest-adjusted cost, the interest-adjusted payment, and the equivalent level annual dividend.

Mortality

The likelihood of death among members of a group. Life insurance policies deal with mortality. Mortality tables use individual health factors along with age and sex to help predict longevity. Example-An overweight person's life expectancy may be less than that of the same person with a normal weight, and could be moved to the rate of an individual of an older age.

Morbidity

The likelihood of illness or accident happening within a particular group of people. Accident and health insurance policies are concerned with morbidity and actuarial tables help to show that morbidity. These statistics are then used to help determine the premium for health and accident policies for different groups.

Long-Term Care Expense

The main reasons for purchasing long-term care insurance are to avoid the depletion of assets that would otherwise be needed to pay for the care, and to ensure that those who benefit from the insurance will definitely receive the care they need.

Family Deductible

The maximum deductible paid for all family members on a family policy, usually two to three times the individual deductible maximum. A family of five with a $500 individual co-insurance maximum would need to pay only $1,000 or $1,500 for all family members combined. Coverage is provided as a supplement to Basic Medical Expense plans or as a stand-alone Comprehensive Major Medical policy. The family deductible is a "stop-loss" feature for the insured

Any Occupation

The most strict definition of total disability--the insured cannot perform duties of any occupation for which his or education, training, or experience makes him or her reasonably suited.

Policy Owner's Rights

The owner of a life insurance policy is entitled to the following rights: assign or transfer ownership of the policy. choose and change beneficiaries. select and change the payment schedule. choose a settlement option. receive cash values and dividends and borrow against those values.

Viatical Loan Borrower

The owner of a life insurance policy or the certificate holder under a group life insurance contract insuring the life of a person with a catastrophic, life-threatening or chronic illness or condition who enters into a viatical loan contract with a viatical loan provider.

cease and desist order

The penalty for violating a cease and desist order is $50, or $500 if the violation is a willful one The subject of a cease and desist order issued by the Commissioner must file a written request for a hearing within 30 days of receiving the order. The Commissioner must hold the hearing within 10 days of receiving the request.

per cause maximum benefits limit

The per cause maximum benefits limit is the maximum benefit that applies separately to each accident or illness incurred by the insured. Policies with a per cause maximum limit do not have a maximum policy benefit limit. This limit is not allowed under the Affordable Acre Act of 2010.

Grace Period

The period of time, usually 30 days, following the premium due date during which the insurance remains at full benefit and payment of the premium may be made without penalty. If the insured dies during this period, the premium will be deducted from the death benefit payout. Weekly premium payment modes--7 days Monthly--10 days.

decreasing term

The policy face value decreases each year over a stated period of time. Premiums are low and remain level over the duration of the policy. Purchased as a single contract or as a rider to another type of policy. Not renewable, though it may be convertible to a permanent plan up to the value of the current death benefit.

Conditionally Renewable

The policy is renewable as long as the insured continues to meet certain qualifications outlined in the policy.

Estate Tax

These are taxes by the federal and many state governments on a person's right to transfer property at death. If an insured owns a life insurance policy on his own life, the proceeds will be included in his estate and incur estate taxes before benefits are paid to a beneficiary. If the policy is not owned by the insured, death proceeds are payable directly to the beneficiary with no estate taxes.

Reinstatement

The policy, unless surrendered for its cash value, may be reinstated at any time within 3 years after the date of default because of premium non-payment. If any renewal premium is not paid within the time the insurer grants for payment, the policy may still be reinstated if past due premium is paid. The insurer may or may not require an application for reinstatement, but if it does require an application and issues a conditional receipt for the premium paid, the policy will be reinstated when the application is approved or 45 days after the conditional receipt is issued. The reinstated policy will cover only loss for accidents after the date of reinstatement and loss due to sickness that begins more than 10 days after such date. The policyholder must show evidence of insurability and pay past due premiums and loans balances with interest. When reinstated, new suicide and incontestability periods apply.

Cash Surrender Value Option

The policyholder receives the policy's cash value or cash accumulation as a lump sum. Any outstanding policy loans are deducted from the cash payout.

Estoppel

The precept that, when a fact has been admitted to be true by a previous action, it can no longer be denied to be true.

Primary Care Physician (PCP)or (Gatekeeper) vs. Referral (Specialty) Physician

The primary care physician (PCP) is called the "gatekeeper". They must authorize all specialist referrals. This gatekeeper physician refers to specialty physicians only if he cannot handle the situation himself.

Risk

The probability or uncertainty that a loss will occur.

Experience Rating/Experience Modification on Group Policies

The process of using a group's own premium and claims experience to calculate premium rates. If the previous years' experience was favorable the premium rates for the coming year could be reduced. Rates can be increased, if the results were unfavorable.

Responsibilities to the Applicant/Insured

The producer has responsibilities that are owed to applicants and/or insureds. He or she will: act only in the best interests of his or her clients only provide accurate and up-to-date information and advice to customers about policies and coverages aid with the accurate completion of applications and any other accompanying documentation service policies as necessary and according to the desires of the insured process any coverage changes or cancellations act only within the scope of authority that has been given them by the insurer.

Guaranteed Convertible Option

The promise that a policy may continue at the current face value under another form of insurance at the current premium for the attained age of the new policy, without underwriting by the company.

Preventive Care Services

The purpose of HMOs is to manage health care and its costs through a program emphasizing prevention and early treatment as opposed to the traditional insurance basis of reimbursement for expenses incurred after an illness or injury.

Dental Expense

The purpose of dental insurance is to cover the cost of dental care for routine preventive care, treatment of gum disease, fillings and crowns, treatment for root canals, artificial replacement of teeth, braces, and oral surgery.

Contribution to Surplus/Policy Reserves

These are the liquid cash reserves insurers must maintain to meet expected death benefit payments and cash value payouts from canceled policies. A certain amount of each premium payment must go toward the build-up of the monetary reserves set aside for claim payments. The amount of insurance that can be issued is based on this reserve, or surplus amount.

Rollovers and transfers for IRAs

The rollover is tax-free if: the funds are deposited into a newly-opened (non-existing) IRA the qualified rollovers must be from one trustee (fund) to another-if the proceeds pass from trustee to the owner and then to another trustee, the proceeds are subject to a 20% tax, which the first trustee withholds from the payment. the deposit of the distributed funds into the new account takes place within 60 days there are no other rollovers during the next 12 months. A transfer is the direct passing of funds between retirement plans and IRAs without the involvement of the account's owner. Unlike a rollover, there is no limit to the number of transfers annually, and there is no 60-day deposit requirement and no 20% withholding.

Signatures

The signature of all insureds is required on the application unless the insured is a minor child, in which case the child's parent or guardian's signature is required. State laws usually require that all adults that are to be insured must sign the application, and many companies require any child 15 years of age or older to sign an application if they are to be insured. It must be the insured's own signature. An agent or another individual who signs another person's name on the application is guilty of forgery and, possibly, fraud.

Spouse's Old Age Benefit

The spouse (at the spouse's age 65) of a worker covered by Social Security is eligible for 50% of the working spouse's benefit, or for a reduced benefit if they file before what their full retirement age would be. The retirement age is on the same sliding scale as that of the working spouse.

exclusion ratio.

The taxable and non-taxable portions of the payments are determined by an exclusion ratio. Determined by dividing the investment in the contract by the total number of expected payments. Once the total amount of the investment in the contract is recovered using the exclusion ratio, the annuity payments are fully taxable.

Concurrent Review

The term concurrent review refers to the monitoring and evaluation process that attempts to insure that the patient's stay in the hospital is adequate for treatment but of the shortest duration possible. The review determines whether there will need to be a new certification request, prior to the expiration of the current certified number of days/visits/treatments.

Policy Provisions

The term or conditions of an insurance policy as contained in the policy clauses.

Usual, Reasonable, and Customary (URC) Charges

The usual, customary and reasonable charge is the typical amount for each specific service in a specific geographic area. Non-scheduled indemnity is found most often in major medical and comprehensive policies.

Waiver

The voluntary abandonment of a known or legal right or advantage

Concealment

The willful failure to disclose facts that are material to the risk. An applicant's concealment of information from the insurance company could affect the insurer's decision whether or not to insure the property and could void the policy. (Property insurance example: The insured states a garage is used only for autos, knowing that it is actually used for storing a hot air balloon and tanks, which are an obvious different risk.)

Dividend Uses

There are a variety of methods a policyholder may choose to use the dividends. Cash Payment The dividends can be paid out as cash or perhaps even go to pay down the premium of the policy for the next year. Reduction of the Next Year's Premium Dividends can be automatically used to pay down the premium of the policy for the next year. Accumulation at Interest Dividends are kept by the insurer and the funds accumulate interest for the policyholder. One-Year Term Insurance The insured may purchase a one-year term policy with a death benefit up to an amount equal to the policy's cash value. Paid-Up Additions These are units of single premium insurance purchased with dividends of participating policies. They will develop cash value and future dividends. This is the automatic dividend option if the owner fails to select one himself. NOTE-Any insurance purchased with dividends is bought on an "attained age" basis, or at the price for the insured's age at the time of additional purchase.

Premium-delay Arrangements

These arrangements allow employers to delay paying the premium for up to 60 or 90 days past the due date, effectively lengthening the policy's grace period. This allows the employer to keep funds longer, but when the policy finally does terminate the employer is responsible for all past due premiums.

Short-Term Medical

There are five important points regarding short-term medical insurance: Short-term plans don't qualify under the Affordable Care Act; people will still have to pay a penalty for lack of coverage. Such policies tend to only cover major health crises. They're only available from 3 months to one year. Pre-existing conditions can be excluded, so a person can be denied based on medical history. They are less expensive, but come with fewer benefits than a major medical. People who failed to apply for coverage during the Affordable Care Act's enrollment period, often go for gap coverage if they decide they want some form of health insurance after all before the next enrollment period, as do individuals who don't qualify for the law's premium subsidy or Medicaid. A majority of short-term applicants were between the ages of 18 and 34. These short-term (gap) policies often do not cover maternity or prescription drugs.

Entire Contract

There are four parts to a life insurance policy that constitute what is called the entire contract: the policy itself the application any supplemental applications (such as additional insureds) any riders and endorsements No changes to the policy are valid unless signed by an officer of the company. The agent is not allowed to make changes to the contract.

Group policy converting to individual

There is a 31 day conversion period when an individual leaves a group during which they can use the conversion privilege.

Termination and Conversion Privileges in group policies

There is a 31-day conversion period when an individual leaves a group during which they can convert the group coverage to a personal policy. Conversion amount can be up to the face amount of the group benefit. If the individual dies during the conversion period without having made a decision to convert the policy benefits will be paid minus the cost of the premium, as if they had chosen conversion. The individual may choose any current, permanent (not term) policy of the insurer subject to the insurer's policy requirements for the insured's age and policy face amounts. If the entire group's policy is terminated and the individual was covered for at least 5 years, an individual policy up to the group policy's face amount or $10,000, whichever is less, can be purchased. If the terminated insureds die before they are able to convert to an individual policy, they will still be entitled to whatever benefits such an individual policy would have provided if they had applied to convert to one.

Reinstatement for health

There is a 45-day waiting period for coverage to be resumed if a policy lapses due to late premium payment if accepted by the insurer (not the agent), unless the insured has been notified in writing it will not be reinstated. Evidence of Continued Good Health required. Resumption of Coverage for accidental injury is on or after the date of policy reinstatement; for illness, coverage must begin 10 days after the policy is reinstated. Premiums accepted in connection with policy reinstatement are applied to the period for which premiums had not been paid, but for no more than 60 days.

Level Term

There is a level or constant face value from date of issue to date of expiration. Premiums often increase each year or period of years because of increased probability of death. Often renewable to a certain age, such as age 60 or age 65. Usually convertible to a permanent policy up to the value of the level term policy's face value.

death benefits and taxes

There is no income tax on the death benefit of a life insurance policy if it is received as a lump sum. However, if the funds are converted to an annuity, as in this case, and the funds are paid out over time, each payment has 2 parts-the death benefit and the interest. B only needs to pay income tax on the interest portion of the payments she receives.

Single Premium Deferred Annuity (SPDA)

There is only one premium payment made by the owner, and it is at the beginning of the contract.

Two-Tiered Annuities

These annuities were sold primarily from the early 1980s to the mid-1990s. Called "two-tiered" because there is a permanent difference in the amount received if the product is annuitized instead of transferred to another account Annuity owners are paid one rate during the build-up phase of the annuity and a second when annuitized. Problem- Once the policy is annuitized the company can set an interest rate much lower than the rate they have been paying. Most companies have stopped selling these policies because of abuses and pressure from regulators.

Buy-Sell Agreements/Cross-Purchase Plans

These are arrangements between partners or associates in which surviving members agree to purchase the ownership interest in the company from the deceased owner's estate at a pre-determined price. Life insurance is the funding vehicle. A licensed attorney draws up the actual agreement binding the owners contractually to carry out the purchase upon the death of the other.

Group Retirement Annuities

These are defined contribution retirement plans designed for employees in the education field as well as other non-profit organizations such as hospitals. These plans are administered by the employer and can be paid for in whole or in part by the employer with additional investment by the employee. GRAs can be allocated (the individual employee chooses in which investment vehicle funds will be invested) or unallocated (all funds are invested by the employer or investment company without input from the individual employee).

Prearrangements/Pre-Need Plans

These are life insurance plans that provide for payment of funeral and burial expenses through life insurance. These plans are often sold through funeral homes or cemetery associations, with the association named as the beneficiary of the policy.

Level Premium Annuities

These are purchased like regular life insurance policies with monthly, quarterly, semi-annual, or annual payments of consistent amounts.

Estate Recovery

When a person receiving Medicaid benefits dies, the state may file a claim against that person's estate in order to recover the costs of providing assistance. This is called estate recovery.

Deferred Compensation Tax Deferred Annuities (TDA) or Tax Sheltered Annuities (TSA)

These contracts are tax-favored vehicles for deferring compensation exclusively for employees of public schools or non-profit organizations such as churches or hospitals that are exempt from taxes under Internal Revenue Code sections 501(c)(3) or 403(b). As with the 401(k) plan, employees can defer tax on income by contributing to the TDA account. Deferrals are in the form of a salary reduction chosen by the employee or a retirement payment made by the employer. TDAs and TSAs can be used in conjunction with or in lieu of other retirement plans. Combined employer and employee contribution are limited to 100% of the employee's income with a maximum contribution level as explained later. These plans can ONLY be purchased through a life insurance company.

Special Risk Policies

These differ from limited risk policies in that the Special Risk policy covers unusual hazards not normally covered under ordinary health or accident policies. Examples would include a pilot who takes out a policy before test flying an experimental plane or an actress who insures her legs.

Risk Retention Groups

These groups are types of mutual companies that insure people in the same profession, business, or occupation.

Self-Insurers

These insurers do not transfer their share of a loss to an insurance company, but instead establish their own pool of reserves to cover losses that may arise.

Equity Indexed Annuities

These investments are tied to a stock index and will gain or lose according to that index. They are fixed annuity with interest rates linked to an index like the S&P 500 or the Dow Jones average. Principal and accumulated interest are typically protected against index declines-there may be a minimum interest rate.

Variable Annuities

These investments are tied to the stock and bond market and will gain or lose according to the market's performance. They are akin to mutual funds, as they invest in a variety of instruments. A separate account is held by an insurance company for the investments made through variable annuities. They should keep up with or be in advance of inflation, but could lose substantial value (possibly the entire invested amount) if the market they have invested in takes a downturn. Insurance producer and FINRA Securities Representative licenses are both required for selling variable annuities.

10 Standard Medigap Plans

These plans have been approved by the National Association of Insurance Commissioners and by most states (except Massachusetts, Minnesota, and Wisconsin). These plans cannot be changed by individual insurance companies, but each company fixes it's own premium for the plans.

Pure Loss of Income (Income Replacement Contracts)

These policies are designed to replace the income lost due by the disability. Therefore, the benefit amount is reduced proportionally if the insured earns some income while disabled or receives benefits from Workers Compensation or other disability coverage. These policies have lower premiums.

Equity-Indexed Universal Life

These policies include interest credits that are a combination of a guaranteed interest rate and an interest rate based on a percentage of the increase in an equity index, such as the S&P 500.

Market Value Adjusted Annuities

These provide a guaranteed interest rate for a specific period of time. If withdrawals are made or the contract is surrendered before the end of the guaranteed period, a market value adjustment (positive or negative) is applied to the cash value of the contract.

Additional Monthly Benefit (AMB) Rider

These riders are added to disability income policies to provide additional benefits during the first year of a claim, while the insured is waiting for Social Security benefits to begin.

Premium Fund Trust Account (PFTA)

They hold premium money for any length of time before giving it to the insurer. The PFTA must be separate from personal or other business accounts.

Consumer Information Privacy Act

This act requires any companies that compile consumer lists and that subsequently sell those lists to other companies for marketing purposes to so notify the consumer about whom the information is collected. The consumer must be given the opportunity to opt out of, or refuse to be included in, the sold mailing list

Split-Dollar Life Insurance

This allows employees to buy life insurance at reduced costs, "splitting" premium costs with employers. The employer pays the cost of the insurance that will be applied to the cash value of the policy. The policy's cash value can be entered as an asset on the company's balance sheet. The employee pays the cost of the actual insurance proceeds benefit. Upon the employee's death, the employer is paid the greater of the premiums paid or the cash value of the policy. The employee's beneficiary is paid the death benefit minus the amount paid to the employer.

Spendthrift Clause / Trust

This clause protects the proceeds received by a beneficiary from being confiscated by any creditors to whom the beneficiary owes money. The clause imposes legally binding restraints on transfers-voluntary or involuntary-of assets from the trust so that only the beneficiary receives the assets. The beneficiaries cannot voluntarily transfer or alienate their interests; the beneficiaries' creditors or creditors of the individual transferring assets to the trust cannot invade or attach to the trust and its assets. If it is a large enough estate, a spendthrift trust can provide financial security for more than one generation of the same family. When the trust is terminated assets may be bequeathed or disbursed to a qualified charity. The Spendthrift Trust can also protect trust assets from being raided by a spouse or child.

Valued Contract

This contract requires the insurer to pay the insured the full face value of the policy in the event of total loss, regardless of the actual value of the lost property.

increasing term

This coverage is usually sold as a rider to another policy rather than as a separate policy itself. The policy has a death benefit that increases over time-the increases may be made on a straight line, in increments, or according to some index (such as the Consumer Price Index) to counter inflation. Premiums for an increasing term policy are higher than for a policy that does not increase the death benefit.

Specialist Occupational Disability

This is a tighter definition of the "your occupation" definition. This applies when the insured is highly trained in a specific field and cannot do those demanding skills, even though he can still do much less complicated work but would suffer a reduction in income. A neurosurgeon might lose the intricate dexterity needed to perform that specialty's duties but could perform as a family physician. The more specific the definition of what constitutes a total disability, the more expensive the policy.

Chronically Ill

This is defined as: being unable to perform at least two activities of daily living, or ADLs, (eating, toileting, transferring, bathing, dressing, or continence) requiring substantial supervision by another person to protect the individual from threats to health and safety due to severe cognitive impairment.

Universal Life

This is permanent life insurance in which the timing and amount of premiums as well as the death benefit can be changed by the policyowner. Premiums are put into the policy account. Mortality charges are deducted and interest is credited to the balance at a variable future rate, becoming the policy's cash value. Designed as an insured investment vehicle and accrues large amounts of cash value if properly funded. The insurer decides the investment vehicles. If the owner puts in only the minimum amount of premium, the policy could run out of cash value and be canceled because of decreases in the interest rate. Universal Life policies endow at age 95.

Elimination Period

This is the period of time between the onset of disability and the beginning of benefit payments. There is an elimination period every time there is a new onset of disability.

Probationary/ Qualification/ Waiting Period

This is the period of time between the policy inception and the point at which coverage begins. There is only one probationary period during a policy. A probationary period can be 15, 30, or up to 60 days for a long-term policy.

Experience Rating/Experience Modification

This is the process of using a group's own premium and claims experience to calculate premium rates. If the previous year's experience was favorable, premium rates for the coming year could be reduced,or increased, if the results were unfavorable. This is used with renewing, when experience or loss illustrations are available.

Prescription Drugs

This is usually a supplementary benefit or optionally purchased coverage under an individual, group or Medigap policy with a co-payment required for each prescription.

Vision Care

This is usually, an optionally purchased coverage under a group policy. Coverage typically includes vision testing, contact lenses or prescription lenses, and some coverage for frames. Co-payments are usually required.

General information

This part of the application records simple informational items about the applicant, including: name address date of birth age sex marital status occupation income. There are also basic details about the policy- the type of policy, the amount of insurance, beneficiary information, and other insurance the applicant owns or has applied for that is of the same type.

Disability Reducing Term Policy

This policy is designed to protect the financial obligation and the assets that could be lost in case of default. The business can purchase a disability reducing term policy which provides a monthly benefit to cover loan obligations in the case of total disability. The business purchases and owns the policy, the owner is the insured person, and the business is the beneficiary of the monthly benefit. Premiums are not tax-deductible to the business, but benefits are received tax-free. The phrase reducing term refers to the fact that the full monthly benefit is payable only for the remaining term of indebtedness or obligation.

Insuring Clause/Agreement

This portion of the policy states the insurance company's promise to pay, along with: the individual(s) covered property and/or locations covered perils covered the policy's inception and termination dates.

Stop-Loss Feature

This provision (also known as an out-of-pocket limit) places a dollar limit on the insured's yearly out-of-pocket expenses. After the deductible and co-insurance payments reach the stop-loss amount, the insurer pays for covered expenses up to the policy's maximum or unlimited benefit amount. The higher the stop-loss amount, the lower the premium.

Relation of Earnings to Insurance

This provision allows the insurer to limit the benefit amount, or their proportional benefit amount if there is more than one liable insurer, to the average monthly earnings for the period of two years immediately preceding the disability.

Incontestability

This provision, also known as the "Time Limit on Lawsuits" clause, prevents the insurer from declaring a policy invalid or refusing to pay a claim due to misstatement or concealment in the application after a set time period the policy has been in force, usually two (2) years

Children's Term Rider

This rider covers the children in the family.Once the rider is effective, newborn children, newly adopted children and new stepchildren are automatically insured when they become 15 days old, as long as they are not hospitalized. There is no additional premium.

Spouse/Other-Insured Term Rider

This rider covers the spouse or some other designated individual such as a business partner.

Family Term Rider

This rider provides the coverage for all other family members other than the insured.

Optionally Renewable

This type is similar to a cancelable policy in that the insurer may elect not to renew for any reason, but can only do so on the policy due date.

Waiver of Premium

This waiver provides that premiums no longer need to be paid if the policyowner becomes permanently disabled. Permanent disability is usually one lasting longer than six months. Premiums are payable through the 6-month "waiting period" from the date of disability, but premiums paid during the 6-month period are refunded.

Insurable/Uninsurable Risk

Three important considerations in determining an applicant's insurability are: the insured's physical condition any moral hazards that may exist the probability of disability from occupation or hazardous recreational activities. After a review of the information from various reports, the underwriter will decide if the applicant is insurable, uninsurable, or insurable with certain conditions or stipulations.

Risk Classification

Three important considerations in determining an applicant's insurability are: the insured's physical condition any moral hazards that may exist the probability of disability from occupation or hazardous recreational activities. After a review of the information from various reports, the underwriter will decide if the applicant is insurable, uninsurable, or insurable with certain conditions or stipulations. Insurance applicants are classified in one of the following four ways:

treatment for substance abuse

Treatment for chemical dependency (alcohol/drugs) or toxic inhalant (aerosol/glue) cannot be less favorable than for other physical illnesses, though the insurer may set separate limits if they are sufficient for treatment. Coverage stops when the insured is discharged from the treatment facility or program, or if the insured does not comply with the treatment program for a period of 30 days.

Mortgage Insurance

Typically a decreasing term policy Can be purchased as a stand-alone policy or as a rider to a whole life policy. Death benefit is the outstanding balance of the insured's mortgage. Bought from either a commercial insurer or through a mortgage institution. If bought through a mortgage institution, it is similar to a credit life policy and the premium is less expensive, but there is no portability. If the insured sells the house or takes a mortgage elsewhere, the coverage stops with the mortgage payoff. Lender listed as the beneficiary and will pay off loan when the insured dies. If the policy is bought through a commercial insurer the individual owns the policy, can take it with them if the house is sold, and lists the beneficiary of his or her choice. The beneficiary can choose to pay off the loan or use some of the money for other purposes (such as burial or education) and continue making the loan payments.

Medicare Carve-out Policies

Under Medicare Carve-out policies, Medicare is the primary insurer. These policies are adaptations to a complete major medical insurance policy. The policies calculate the benefits the plan would pay if it were the subscriber's only insurance and subtract (or carves out) whatever Medicare pays, and then pays the difference.

Blackout Period

Under Social Security guidelines, it is the period of time between a surviving spouse's last child's benefit payment (at child's age 16) and the spouse's eligibility for their first retirement income check at the spouse's age 60.

Co-payment

Under a co-payment or co-pay provision, the insured usually is required to pay a set or fixed dollar amount (e.g., $10, $20, or $30) each time a particular medical service is used, e.g., for each office visit, or each time a prescription is filled. Co-pay provisions are frequently found in medical plans offered by health maintenance organizations (HMOs).

Group Risk Selection

Underwriters look more closely at the specific health history of an individual policyholder than at the collective statistics of a large group. Also, exposure to claim payments is lowered per individual because the risk is spread over the group, usually resulting in a cost savings to the group.

Underwriting

Underwriting is the process by which insurers analyze risks to decide if they want to insure them, and at what rates they will insure them. Four questions must be answered regarding every applicant: Is there insurable interest? Is the amount of insurance applied for reasonable? Is the applicant insurable? If the applicant is insurable, what should the premium be?

Consequences of Incomplete Applications

Underwriting requires information from the applicant, gained through either the agent or a mailed questionnaire. The policy may be held up and possibly even declined if not returned within the prescribed time frame. If an application is incomplete, the insurer will return it to the applicant who will have to furnish further information, or initial areas that are actually correct.

Aleatory Contract

Unequal amounts of money are exchanged. The premium that the insured pays is less than the potential benefit he or she will receive in the event of a loss.

Annual Management Fee

Unlike the fixed insurance policy premiums, these fees are applied to the total investment account, or separate account value, and reduce the total net return of the policy. These fees can be several percent per year and must be stated in every policy.

Implied Directive

Unwritten authority assumed to perform incidental acts that the public assumes the agent will do. For exmaple, get business cards made with the company name, collect renewal premiums, etc.

Veteran's Group Life Insurance (VGLI)

Upon release from the military, the individual has a 120-day free extension during which they can convert their SGLI coverage to an individual 5-year renewable term VGLI policy without evidence of insurability, or to a permanent plan with a participating commercial insurance company.

Waiver of Premium Feature (Individual Disability Income Insurance)

Used with Disability Income and (LTC) Policies. Insured does not pay premiums (they are waived) for the duration of disability, usually with a three to six month waiting period. Premiums paid during the waiting period are reimbursed to the insured if he or she is still disabled at the end of the waiting period. Rider terminates and coverage stops at insured's age 60 or 65. Additional premium paid for the waiver is also removed from the premium cost. If an insured is disabled before the rider has been removed from the policy, the premium will be waived for life or until the insured is no longer disabled.

Partial Disability

Usually defined in terms of ability to perform duties as well as the amount of time the insured can work on a part-time basis only, or cannot perform all of the major duties of his or her occupation. Benefits are usually paid only for a limited time, such as six months.

Utilization Review

Utilization review (or case management) is the evaluation of the medical necessity, appropriateness and efficiency of health care services, procedures and facilities. It includes pre-certification of patients, concurrent review, second opinions, whether hospitalization is necessary and appropriate length of stay.

Variable annuities

Variable annuities are tied to a stock market index and are designed to keep up with or in advance of inflation. The annuity value will decrease if the market index it follows drops- and it can decrease substantially.

Administrative-services Only (ASO) Arrangements 501(c)(9) Trust

Voluntary Employees Beneficiary Association (VEBA) are funding vehicles for the benefits provided for association members. Contributions are made to a trust and deducted from income taxes. Many small business used these programs as a tax dodge by over-funding the plans; more restrictions have been placed on the plans, making them less attractive for these employers.

Death of Payor Rider/Payor Death Benefit Rider/Payor Benefit Clause

Waives premiums on a juvenile policy until the insured reaches age 25 if the premium payor dies before the insured's 25th birthday, at which time the insured may take over payment of the premium or surrender the policy.

Policy Exclusions

War Exclusion-This clause is usually included if the country is at war at time of policy issue and, if included, excludes death by act of war. Dangerous Occupation/Recreational Activities Exclusion-Insurers either charge higher premiums or exclude coverage altogether if the insured is involved in certain hobbies and occupations that involve more risk than the average person is exposed to. Example: An aviation exclusion might exclude coverage for a pilot if he were to die as the result of a plane crash on other than a commercial airline. Insureds are covered if flying as a fare-paying passenger on a scheduled commercial flight. Excluded activities include recreational flying, crop dusting, on-demand air taxi services (because they are not regularly scheduled), hang gliding, and parachuting. However, if an insured truthfully states they do not engage in any of the asked about activities, but then does so after the policy has been issued, there is no effect on the policy. Continuing the example, if the insured does not start flying until after the policy was issued, there would be no exclusion. Health Exclusions-These involve individuals with physical impairments that could reduce their life expectancy, and in such cases the insurer may exclude any coverage or impose a surcharge on top of the regular premium. Suicide-Usually limited to two years, some states do not allow suicide to be excluded, requiring the insurer to prove the insured intended to commit suicide when the policy was originally purchased. (Missouri is one such example.) Commission of a Felony-If death occurs during the commission of a felony, the policy is not obligated to pay.

Consent

When an applicant buys insurance on the life of another, the other person must sign the application to show his or her consent for coverage to be purchased on his or her life. Consent is also permission or approval, via a signed form by an insured or applicant, allowing identifiable data to be used in the underwriting process, e.g., information from doctors or test results.

Free Look Period

When an insured receives the policy from the agent, the insured has a period of time known as the Free Look Period to examine the policy and determine if they want to keep it. If they decide not to keep the policy, they can return the policy to the agent or company and receive a full refund of all premiums paid. The free look period is usually 10 days, but is extended to 20 days in most states if the policy is replacing another policy.

The Conversion Privilege

When available, this provision allows an employee insured under a group policy to convert the coverage to an individual policy through the same insurer. There is no need for proof of insurability if he or she is no longer eligible under the group plan. In most cases, the request for conversion must be made within 31 days of becoming ineligible.

Annuity Phase Benefit Payments

When money is distributed (after age 59½, and the distribution must start by age 70), both the principal and the interest will be taxed at the annuitant's normal income tax rate at the time of withdrawal.

Profit-Sharing and 401(k) Plans

When the CODA (Cash Or Deferred Arrangement) option appears in either a profit sharing or stock bonus plan, the plan is usually referred to as a 401(k) plan, after the section of the tax code in which it is found. The plan allows a participant to elect to defer taxation on portions of current salaries or bonuses by placing the money in the plan. Interest on the money in the plan accumulates on a tax-deferred basis. Money put into the plan is 100% vested immediately. It cannot be forfeited due to employment termination or any other reason. Withdrawals are only allowed for retirement, death, disability, separation from service, attainment of age 59½, or for hardship cases (heavy financial need of the employee, such as medical expenses). There is a 10% penalty for early withdrawal.

Cash surrender value.

While health insurance policies do not have a build up of cash value, the cash surrender value of such a policy is the amount of money the policy owner will receive if the policy owner cancels the coverage and surrenders the policy to the company.

Employee Retirement Income Security Act of 1974 (ERISA)

Who is Covered Most private sector employee benefit plans must comply with ERISA provisions. General exclusions are: plans established or maintained by governmental entities or churches for their employees. plans maintained solely to comply with applicable Workers Compensation, unemployment or disability laws. plans maintained outside the U.S. primarily for the benefit of non-resident aliens or unfunded excess benefit plans. Fiduciary Standards ERISA sets uniform minimum standards to assure that employee benefit plans are established and maintained in a fair and financially sound manner. Persons and entities who manage and control plans must: manage plans for the exclusive benefit of participants and beneficiaries. carry out duties prudently and refrain from conflict of interest transactions. comply with limitations on certain plans' investments in employer securities and properties. fund benefits in accordance with the law and plan rules. report and disclose information on the operations and financial condition of plans to the government and participants. provide documents required in investigations to assure compliance with the law.

Systematic Distribution Option

With this option an annuitant will receive payments of a fixed amount until the account is depleted.

Interest Only (Capital Conservation)

With this option the death benefit is deposited into an annuity and the interest from the annuity is the only thing the beneficiary receives. This method keeps the full principle amount intact forever, as no money is taken from the principle. Long-term trusts may be set up with a life insurance endowment perpetually funding the trust through an "interest-only" settlement option.

Workers' Compensation (Workers' Comp or WC)

Workers' Compensation (Workers' Comp or WC) policies provide mandatory benefits to employees for work related injuries, illness, occupational disease, or death. An injured employee is automatically allowed certain rights and does not have to challenge his employer in court to collect benefits from job-related injuries. This coverage is included under Casualty Insurance.

Group policies

Written on a group of people under a single master policy usually issued to their employer or another trustee. Individual group members are usually issued certificates of coverage rather than copies of the policy. The master policyholder or sponsor assists in the plan's administration. Coverage is generally term life but can be permanent insurance. If the employer is the master policyholder and pays the premiums, the costs on policies with a face amount of up to $50,000 are income tax-deductible for the employer.

Proof of Loss

Written proof of loss must be given the insurer within 90 days of notice of loss, or within 90 days of termination of the period for which the insurer was liable for benefits under the policy. Coverage is still allowed if it was not reasonably possible to furnish such proof within the 90-day period, for up to a period of one year from the date of loss, unless there is an absence of legal capacity on the part of the insured.

If a group converts to a new health insurance plan

all members must be transferable to the new plan. If any single insured member is not acceptable by the new company or plan, the entire group cannot change coverage

Indemnity

an be thought of as pure and simple protection from a loss by being reimbursed or paid a sum to make you whole after you incurred a cost or experienced a loss.

fiduciary

an individual who holds a position of public trust and confidence. When an agent collects premium money from customers, they act as fiduciaries to both the companies they represent and their clients and must handle that money according to strict rules.

Insurable Interest

an underwriting test for an application of insurance that demonstrates the person purchasing a policy has a legal interest in the continued longevity of the insured. In life insurance, the owner must have insurable interest in the insured at the time of application, and examples of this would be a: spouse parent child someone with a business relationship with the insured, such as a partner or employer. However, insurable interest is not required at the time of the insured's death.

Modified Endowment Contracts (MECs)

are the result of the Technical and Miscellaneous Revenue Act of 1988 (TAMRA), which changed the definition of a life insurance contract with regard to tax purposes. This was done primarily to discourage the use of life insurance policies as tax shelters.

Current Assumption Whole Life Insurance (Interest Sensitive)

cash value amounts are invested in variable investment vehicles such as mutual funds, or tied to indexes that can make the face and cash values of the policy fluctuate. Cash values are not guaranteed and can disappear altogether.

Combined Policy with Side/Auxiliary Funds

combine life insurance with a fund called a side fund or auxiliary fund to increase the funds available for a pension or annuity in the future.

Combined Policy

combine term and permanent insurance plans to offer higher amounts of insurance at lower costs than whole life insurance for the same amount of death benefit

Basic Physician Expense

covers non-surgical physician expenses such as a doctor's hospital visit(s). Non-doctor expenses such as x-rays or drugs are generally excluded.

Effect of Non-payment of Premium

f the insured does not pay the premium when due, and after any grace periods expire, the policy is canceled and the insured no longer has insurance. In some policies, however, a method is built in to avoid policy cancellation.: Whole life and other cash value policies can have an automatic premium loan, which pays the premium from the policy's cash value. With a Universal Life policy, the premium will come out of the cash account in the policy if the insured misses a payment. If there is no cash left in the account, the policy will cancel. Care must be taken to ensure the insured knows that decreases in interest will cause more money to be paid in premium to cover these decreases. The insured should take particular caution if paying premiums through auto bank deduction. If he/she changes banks, he/she will need to note the change with the insurer.

Determining Lump-Sum Needs

funds for last expenses-funeral costs, applicable taxes, outstanding debts, medical costs, etc. an emergency fund to help with unexpected expenses, especially in the period immediately following the death of the insured educational needs of the family mortgage and other payment funds.

fixed life insurance policy

has a set, guaranteed interest rate. The cash value within the fixed product will always increase at a pre-determined rate

variable Life Insurance policy

has an interest rate that changes along with a set of mutual funds or other stock market indicator. When the stock market performs well the cash value in the variable products increases. If the value of the stocks, mutual funds, or other indicators decreases, the cash value in the variable product will also decrease. Since there is more risk with the variable policy there is a chance for greater return on the cash value (as well as the chance for loss).

Interest sensitive insurance products

have cash value amounts that are: based on the insurer's current mortality, investment and expense experience invested in variable investment vehicles such as mutual funds, or tied to indexes that can make the face and cash values of the policy fluctuate. Care must be given to ensure the policyholder is aware of this fluctuation and that the cash values are not guaranteed. Cash values can disappear altogether similar to whole life insurance with a few exceptions: Interest rates and cash value amounts of the policy may vary but there is a guaranteed minimum cash value. Premium rates may vary, but there is a guaranteed maximum premium the insurer may charge, also known as the premium cap.

Single Premium Deferred Annuities (SPDA)

have only one payment made by the owner at the beginning of the contract and then collect interest until the policy is annuitized, at least one year or longer after the annuity policy is started

Fee-for-service

health plans provide that health service providers receive payment for the service provided, either from the insured, who is then reimbursed by the plan, or directly from the plan insurer itself.

Survivor Protection

his provides income for spouses, children, and other dependents after the death of the insured.

Types of Information Gathered in Needs approach

identify the needs that arise or continue to exist after the death of the insured identify any existing available resources (savings, employer life insurance, Social Security, etc.) calculate the difference between the needs and the available resources. This figure will represent the household's unmet needs, and is the amount to be covered by a life insurance policy.

Hospitalization Income Indemnity Insurance

is supplemental insurance that is in addition to other coverages. It pays a stated benefit amount such as $100 each day the insured is confined to a hospital, and benefits are paid directly to the insured and can be used for any purpose (not only medical expenses).

pure life annuity (also known as a life annuity or straight life annuity)

provides the annuitant with a guaranteed income for life. When the annuitant dies, no other payments are made-if the annuitant dies only one month after annuitizing, the insurance company keeps the remainder of the money. A pure life annuity usually allows for the largest periodic payment to the annuitant. While this type of annuity assures the annuitant of a lifetime of payments, but if that person dies shortly after payments begin, he or she may not get what was invested out of the annuity.

Basic Hospital Expense

reimburses the insured for the cost of daily room and board and other miscellaneous expenses while hospitalized. Benefit periods can be as short as 30 days or as long as 365 days.

The Financial Industry Regulatory Authority (FINRA)

largest non-governmental regulator for all securities firms doing business in the United States. All told, FINRA oversees nearly 5,000 brokerage firms, about 173,000 branch offices and approximately 677,000 registered securities representatives. Created in July 2007 through the consolidation of NASD and the member regulation, enforcement and arbitration functions of the New York Stock Exchange, FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business, from registering and educating industry participants to examining securities firms; writing rules; enforcing those rules and the federal securities laws; informing and educating the investing public; providing trade reporting and other industry utilities; and administering the largest dispute resolution forum for investors and registered firms. It also performs market regulation under contract for The NASDAQ Stock Market, the American Stock Exchange, the International Securities Exchange and the Chicago Climate Exchange. The purpose of FINRA is to modernize investor protection and market integrity by streamlining processes and integrating regulation in the complexity and competitiveness of today's global capital markets. One of FINRA's goals is to increase investor education and knowledge of markets and basic principles of saving and investing. FINRA is a trusted advocate for investors, dedicated to keeping the markets fair, ensuring investor choice and proactively addressing emerging regulatory issues before they harm investors or the markets.

Technical and Miscellaneous Revenue Act of 1988 (TAMRA)

major provisions for individual taxpayers. (Technical and Miscellaneous Revenue Act of 1988) Abstract- The Technical and Miscellaneous Revenue Act of 1988 (TAMRA) makes corrections to aspects of the Tax Reform Act of 1986 and the Revenue Act of 1987.

Specified/limited

medical insurance consists of mono-line coverages, covering only one type or group of medical expenses, e.g., heart attack, cancer, dental or vision.

Permanent life

offers a death benefit and the accumulation of cash value, three examples of which are whole, universal, and variable life policies. Permanent insurance protection More expensive to own Builds cash value Loans are permitted against the policy Favorable tax treatment of policy earnings Level premiums

Term life insurance

offers coverage for a specific and predetermined period of time, and its only benefit is a death benefit. Temporary insurance protection Low cost No cash value Usually renewable Conversion (depending on the policy) to permanent life insurance

life with guaranteed minimum (also known as life with period certain)

option pays income for the annuitant's life as does the pure life annuity, but also allows payments to be guaranteed for a certain number of years even if the annuitant dies. The beneficiary would then begin receiving payments until the end of the prescribed period. However, if the annuitant lives past the end of the specified time, he or she will continue to receive payments until death but no payments will be made to the beneficiary after the annuitant's death.

Basic Surgical Expense

pays the cost of surgeon services whether in or out of the hospital. Other professional fees associated with the surgery, such as an anesthesiologist, are generally also included. Benefits are usually paid on a Relative Value Schedule, in which a particular type of surgery is assigned a value that is then multiplied by the dollar unit value to determine the amount the policy will pay for that procedure.

Ordinary life insurance

policies normally have face value amounts of more than $1,000, and have a variety of structures and benefi

Advertisement

printed material and descriptive literature produced by an insurer to be used in newspapers, magazines, radio and television scripts, billboards, and other publications and displays. sales aids of all types produced by an insurer for presentations to the public, including circulars, leaflets, booklets, illustrations, form letters, and others. prepared sales presentations and presentation material for use by agents, brokers, and other representatives of insurers.

Life and Health Guaranty Association

protects insureds against an insurer's inability to meet contractual obligations due to impairment or insolvency. The Association provides coverage for people with direct, non-group life, health, or annuity policies by: providing payment of covered claims under certain insurance policies avoiding excessive delays in payment minimizing financial loss to claimants assisting in the detection and prevention of insurer insolvencies providing an association to assess the cost of this protection among insurers. All insurers, as a condition of their ability to write insurance, are required to be members of the Fund.

Prepaid plans

provide that health care is provided in exchange for a fixed, monthly premium paid in advance of the delivery of medical care.

Multiple Employer Trust (MET)

self-funded insurance plans where several employers fund the program to provide benefits for their employees. Employees often pay the entire premium, but the association is able to qualify for group benefits whereas the businesses individually could not qualify. The main purpose of a MET is to give entrepreneurs and small business owners a tax-friendly way to provide life insurance benefits for themselves and their key employees. Under ordinary circumstances, life insurance is tax deductible for the employer in the current year, but any amounts that could be considered "bonus" life insurance must be reported as taxable income by the employee. Larger businesses are often able to get around this problem by funding life insurance benefits as part of a qualified retirement or profit-sharing plan. The main difference between a MET and a MEWA is that a MEWA is generally subject to the requirements of the Employee Retirement Income Security Act of 1974 (ERISA), which regulates pension plans of businesses with more than 25 employees and imposes penalties on employers for breaches of fiduciary duty.

Industrial life policies (Home Service)

simple policies with: benefits of $1,000 or less (but may be more) premiums that are collected at the insured's home on a weekly or monthly basis.

Section 303 Stock Redemption

takes place when a corporation buys its own stock from the estate of a stockholder to pay death taxes, funeral expenses and the cost of estate administration. The sale is income tax free to the estate. Its purpose is to keep the stock of a closely held company from being sold to outsiders upon the death of one of the shareholders. To be eligible for this stock redemption, the stock must be included in the stockholder's gross estate for estate tax purposes, and the value of the stock must comprise more than 35% of the adjusted gross estate. The corporation must redeem the stock out of corporate surplus and the redemption must generally occur within four years after death. Life insurance makes it possible to assure cash will be available to the corporation when it is needed to pay for the stock buy back without raiding corporate cash reserves. The business is the owner and beneficiary of the policy. It should be noted that both a securities license and a life insurance producer license are needed to sell and set up stock redemption plans.

Servicemembers Group Life Insurance ( SGLI)

this program allows service men and women to purchase life insurance. Active military personnel cannot purchase life insurance through regular means. The federal government purchases a $400,000 5-year term policy when an individual enters the military and automatically deducts the premium from the insured's payroll. Service Death Gratuity of $100,000 for active-duty servicemembers; therefore have $500,000 of life insurance coverage The amount may be decreased in $50,000 increments by the insured. The policy can be canceled upon written request Policies are underwritten by private insurance companies.