Fl Life, Health and Annuities Licensing 2-15

Consideration

in exchange for a member's premium the insurer promises to pay when there is a loss.

Medical information bureau

A non profit data collection agency supported by over 700 insurance companies. - reliable source of applicant information - keeps members from concealing or lying about their health

Perils, hazard, risk

A peril is the cause of a risk. A peril is the immediate specific event causing loss and giving rise to risk. When a building burns, fire is the peril. A hazard is the source of danger. The hazard is the underlying factor behind the peril that leads to the probability of a particular loss to the insurer. It is the active ingredient that could create a peril, which could then lead to a particular loss event

Fiduciary

A person who holds a position of special trust and confidence. Example: when they accept premium payments on behalf of the insurer that person is a fiduciary.

Acute illness

A serious condition such as pneumonia or influenza from which the body can fully recover with proper medical attention

Representation

A statement made by the applicant that they believe to be true

Joint and full survivor annuity payments

A two person annuity. - one person dies survivor gets income payments. - last person dies, benefit payments cease

Equity indexed annuities

A type of fixed annuity. - higher returns than a fixed annuity, but still guaranteed money returned. - tied to the S & P 500 composite stock price index

Agent vs broker

Both are known as producers. Agent: tied to an insurance company. Broker: represents the buyer and can sell many insurance carriers

Captive or career agent

Can only sell one companies insurance policies

Sliding

Selling an ancillary product by saying it is required when purchasing insurance, or that it is free when there is actually a premium.

Minimum age in Florida to sign life insurance application

15

Under NAIC uniform policy provision, how long does insured have to notify insurer of claim?

20 days

Maximum death benefit from social security

$255

3 incompetent applicant possibilities for a contract

- minors - mentally infirm - drunk or high

The fair credit reporting act of 1970

- protects an individual's right to privacy - law requires fair and accurate reporting of information about consumers - insurance must inform applicants about any investigations - if something is used to deny or charge higher rates, applicant must be given the name of the reporting agency

Nonforfeiture option

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Three elements of an insurance contract to make it legal

1. Consideration 2. Legal purpose 3. Have competent parties

Three situations where incontestable Claus doesn't apply

1. Impersonation 2. No insurable interest 3. Intent to murder

In Florida an agent is required to deliver the applicant what?

1. Life insurance buyers guide. 2. Policy summary. Usually given before the first premium payment

three factors that are considered when computing premiums for life insurance

1. Mortality - accurate prediction of mortality 2. Interest - premiums are invested 3. Expense factor

Two key formulas to remember for life insurance premiums

1. Net single premium = Mortality Cost - Interest 2. Gross Premium = Net Single Premium + expenses

Two things that are the foundation of an effective sales presentation

1. Uncover the needs of the prospect. 2. Help them solve financial problems.

Applicants have how many days to inspect a delivered application?

10

If agent doesn't notify the state within 60 days of a change, they are fined:

$500 for subsequent offenses

Under the Unfair Trade Practices act, insurers must pay claim within this time frame if not contesting

45 days

How long does a company have to provide a summary of information used to make an adverse determination?

5 days.

The statute of limitations to sue an insurer after providing proof of loss

5 years

Age to withdraw from annuity without 10% tax

59.5

Agents have how long to notify the state of a change in address, name, etc

60

Incontestability Clause

A clause in most life insurance policies that prevents the provider from voiding coverage due to a misstatement by the insured after a specific amount of time has passed. A typical incontestability clause specifies that a contract will not be voidable after two or three years due to a misstatement.

Aleatory contract

A contract that: - there is an element of chance for both parties - dollar values exchanged may not be equal. Ex: member pays premium but may not receive benefit for a long time.

The annuity rule

A fraction of the death payment made monthly is considered a return of principal and not taxable - interest made off of balance is taxed

Cliff vesting

After 5 years an employee is 100% vested

First dollar insurance

Aka basic medical expense insurance. Pays benefits up from without the patient having to first pay deductible.

Cash values for whole life

Aka cash surrender value - the amount of money the pH will get if the policy is canceled

Participating companies

Aka mutual insurance companies - policyholders are both customer and owner - money left over after cost of business is partially refunded

Single premium immediate annuities (SPIAs)

Annuitant makes a one time payment, with first payout to start one month later. ! Annuities cannot both accept premiums and payout income at the same time!

Adjustable life

As financial needs change, pH can make coverage adjustments 1. Increase or decrease premium 2. ditto - the face amount 3. Ditto - the period of protection

Financial Services Modernization Act of 1999

Banks, retail brokerages, and insurance companies can now enter each others line of business

Endowment life policies

Cash values grow at a rapid pace so that policy matures on a specified date

Independent agents

Cell all plans, Blue Cross Blue Shield, Humana, etc

Conditional receipt

Certain conditions must be met in order for insurance to go into effect - given following payment of the first premium by the insured

Graded premium whole life

Cheap premiums to start off, gradually get more expensive until it plateaus

Chronic condition

Conditions such as arthritis heart disease or hypertension that are treatable but not curable

The McCarron - Ferguson Act of 1945

Continued regulation of insurance by the states is in our best interest. Result: each state revised its insurance laws to conform to federal law

Policy true effective date

Date the insurer accepts an offer by the applicant as written

Universal life death benefit: option 2

Death benefit = Face amount + cash value

Life insurance described as investment

Do not imply this! Life insurance is a means of protection not investment.

Increasing term insurance

Dollar amount paid out after death increase over time

Decreasing term insurance

Dollar amounts paid out after death decrease over time.

Fixed annuity

Dollar premiums are invested in conservative long term securities. - guaranteed rate of return - interest rate is set and guaranteed to be no less then a minimum rate Downside: fixed dollar amount paid out losers buying power due to inflation

A complete review of an HMO is done how often

Every 5 years

Flexible premium deferred vs single premium deferred annuities

FPDA : premiums are paid periodically SPDA : premiums are paid in one lump sum Both payout in a future date

FICA

Federal Insurance Contributions act

FAIFA

Florida association of insurance and financial advisors. Oversees all life agents.

What is FIGA

Florida insurance guaranty association

Legal purpose

For a contract to be enforceable in court the object of it and its intent must be legal.

Deferred annuity bailout provision

I can cash out my annuity without penalty if the interest drops below a certain point.

Per stirpes distribution

If a beneficiary of a policy dies, the original policy proceeds will be passed down to the beneficiaries living kids

Assessment mutual company

If premiums don't cover cost of losses, co. Can assign further premium charges. Two types that are based on how premiums are charged - pure assessment company: Premium is only paid when loss occurs - advanced premium company: premium is paid at start of policy, money left over is refunded after insurer adjusts for cost of business

Uniform simultaneous Death Act

If the insured and primary beneficiary are killed in the same accident and there is not sufficient evidence to show who died first: 1. Then benefits are to be distributed as if the insured died last

Joint life policy

Life insurance covering two or more people - survivors after someone dies have the option of purchasing individual insurance - ages of the people are averaged and one premium is charged per person

7 pay test

If the total amount paid by pH into a life contract during its first years exceeds Bassam of the net level premiums that would have been payable to get paid up future benefits in 7 years then the policy is a modified endowment contract Ex: member has $100,000 life policy 1. Yearly premium set at $7500 2. Member pays that amount the first year 3. Second year member pays $10,000

Cash surrender nonforfeiture options

Immediate cash payment of the cash value of plan - insurers must allow after 3 years for whole life and five for industrial insurance

Warranty

In insurance a warranty is a statement made by the applicant that is guaranteed to be true. - if found to be untrue can cause a contract to be terminated

Level premium funding method

In the early years of life insurance policy, Premium is higher. Later in life, the fixed premium is lower. ! Averages out!

Reinsurers

Insurance for an insurance company

Grace period provision

Insured has 30 days past due date to pay premiums

The USA vs the southeastern underwriting associations of 1944

Involving the US Supreme Court, which ruled that selling insurance is interstate commerce - did not strip state power to regulate, what did align state laws with federal law

Paul verses virginia 1868

Involving the US Supreme Court. - ruling: sale of insurance is not interstate commerce, therefore states rights to regulate insurance was upheld

Modified endowment contract

Life policy that meets the 7 pay test - any amount withdrawn or loan from the life policy is taxed - first as normal income - second as return of premium, if there is any game in the contract over premiums paid

Loan vs withdrawal

Loan: can be paid back or deducted out of death benefits Withdrawal: deducted immediately out of death benefits, generally only allowed with universal life and vul policies

Variable life

Long term life insurance, money is kept in a separate account with insurance Co 1. Money is invested in riskier assets than whole life 2. Cash value rises or falls based on investments 3. Minimum benefit still guaranteed

Modified whole health

Lower premiums during first few years typically 5, then higher after that - makes initial purchase sexy and good for individuals with less money

Multiple Employer Welfare Arrangement

MEWA. An employee welfare benefit plan that provides one of more insurance plans to employees of two or more employers.

ERISA Savings Clause Provision

Makes clear that the federal erisa law doesn't supercede state laws

Level term insurance

Member must die within a specified period of time to get death benefits Ex: a 10 year level term pays out if member dies in those 10 years. If not, policy expires and member gets nothing

Option to convert

Member option to go from term to permanent aka whole life plan

Conditional receipt

Member pays the initial premium, on the condition that they will make it through enrollment and are eligible. - it is the ethical responsibility of the agent to explain this.

mutualization vs demutualization

Mutual: going from stock insurance company to Mutual Insurance Company. De mutual: the opposite

NAIC

National Association of Insurance Commissioners objectives: 1. to encourage uniformity in state laws and regulations 2. To assist in the administration of those laws and regulations by promoting efficiency 3. To protect the interests of policyholders and consumers. 4. To preserve state regulation of insurance business

Erisa Deemed Clause

No employee benefit plan shall be deemed as an insurance company or be in the business of insurance.

3 ways insurance contracts are different than other legally binding documents

Number one. They are aleatory. Meaning the insured pays a premium but may not receive anything back. Number 2. They are contracts of adhesion meaning the contract was prepared by one party. number 3. They are unilateral meaning only the insurance company promises anything in the contract

Group life insurance

Offered through employer and underwriting is done based on group not the individual

Flexible premiums

Once the initial premium has been paid additional premiums in the future are flexible or optional. Never imply that after first premium the policy will fund itself!

Single premium whole life

One time huge premium payment

Living benefits

PH can use the cash value of their whole life plan, withdraw with taxes and use for life expenses - cash value can be used as collateral or security for a loan

Accelerated benefits provision

Partial payment for terminally ill policyholder - the remaining amount is payable on death to beneficiary

Indemnity contract

Pay the amount of the loss only, by paying the amount necessary to return the insured back to previous condition

Multiple protection policies

Pays 2x or 3x the normal amount if death occurs during a specified period - if not, benefactor gets normal payout

Straight life income annuity payment

Pays guaranteed amount until the person dies. - no further amount paid after that. - balance left over is forfeited

Life with period certain option annuity payment

Pays the annuitant income for life, but guarantees a minimum period of payments. Ex: person has 10 year guarantee. - person dies in 6 years - beneficiary gets payment for 4 more years

Deferred annuity surrender charge

Penalty when you liquidate deferred annuity in the early years of the contract. - covers the cost of selling, issuing, and liquidating investments that were involved - typically first 5 to 8 years of contract

Cash refund annuity payment

Periodic dollar amount pay out to the annuitant. - when person dies, remaining amount is paid to beneficiary in lump sum

Installment refund annuity payment

Periodic dollar amount payout to the annuitant. - when person dies, remaining dollars paid in periodic payments to benificiary.

Straight whole health

Permanent level of protection, with level premiums for life of plan

Variable universal life

Policy blends whole, universal and variable life - minimum premium, once paid policyholder can pay whatever premium they want Key features: 1. Flexible premium 2. Cash value investment control 3. Death benefit flexibility

Florida lookback provision

Policy owners have 14 days to return the policy for full premium refund

Variable annuity

Premiums paid go into the insurance companies separate account with no guaranteed interest. - riskier than fixed annuity - must be registered with the Financial Industry Regulatory Authority to sell - annuity payments also fluctuate

annuities: funding methods

Premiums: - single lump sum payment or periodic payments over time - cashing out life insurance to make a one-time annuity premium payment

Reinstatement provision

Reinstatement after policy lapses due to nonpayment of premiums, must be done within 3 years Rules: 1. all back premiums must be paid 2. Any back interest must be paid 3. Any outstanding loans must be paid 4. May have to be underwritten

Representation vs warranty

Representation: during life insurance application, statements made by applicant are true to their best knowledge Warranties: statements made are considered to be 100% true - any wrong information is cause for void of policy

Vanishing premiums

Should never use this term! Used in the past to imply guaranteed vanishing. - crazy high requirements meant it never happened. - never state or imply that premiums will vanish or end.

Industrial life insurance

Small issue amounts, like $1000 - premiums are collected weekly or monthly by the agent at the pH house - very rare

Who governs workers comp laws

State government

Stoli

Stranger originated life insurance - investor persuades pH to take out insurance plan and name them the benefactor

Fully funded MEWA

Subject to all state laws

Self Funded MEWA

Subject to state laws that are identical to ERISA unless exempted by the US department of labor.

N a I c unfair trade practices act

The State Department of Insurance CFO has the power to investigate insurance and producers to issue cease and desist orders and to impose penalties - has been adopted by many states

Concealment

The failure of the applicant to disclose a known material fact when applying for insurance

Insurance contract is conditional in that...

The insurance company agrees to pay benefits only when there is a loss

Valued contract

The insurer pays a specified amount of money to or on behalf of the insured upon the occurrence of a defined loss. the money amount is not related to the extent of the loss. Ex: a life insurance policy is an example of a valued contract.

Express authority

The intended power given by the principal to the agent. Granted by the agency contract. Ex: agent has the express authority to solicit applications for insurance on behalf of the company.

Ordinary life insurance

The main types of life insurance in the USA. - includes many types of temporary or term and permanent insurance. - premiums are paid monthly, quarterly, semi annually or annually

Participation rates

The percentage of the interest growth that is credited back to the insured.

Revocable beneficiary

The policyholder may change benefactor whenever needed or wanted - policyholder is in control, benefactor can't force change

Net single premium

The single amount needed today to find the future benefit - the premium plus interest to pay for the death benefit - one time premium

Legal Reserve for Life Insurance company

The sum of money, along with any future expected premiums, plus assumed interest from investments that will cover cost of all their plans maturing.

Insurable interest must exist at:

The time of application

Comutative contract

There is no element of chance because dollar amount exchanged is equal Ex: real estate contract states the dollar amount to buy which is equal to the selling amount

Tax treatment of life insurance premiums

They are considered personal expenses and not deductible from gross income. Exceptions: 1. When paid by charity 2. Paid by an ex spouse as part of alimony 3. Paid by a business creditor for life insurance purchased as collateral for a debt 4. Paid by an employer for employee group life insurance

HMOs are distinct because of what?

They provide the insurance and the health care itself.

Universal Whole life

Type of whole life insurance, very flexible 1. PH can determine the dollar and frequency of premiums and upgrade or downgrade policy 2. Each month a mortality charge is taken from the cash value to cover cost of insurance 3. Can make partial withdrawals from the cash value

How long life insurance has to challenge the validity of a contract due to fraud

Typically 2 years. Can't contest- after if found out fraud occurred during application.

Extended term option nonforfeiture

Use the whole life insurance policy's cash value to purchase an extended term insurance policy in an amount equal to the current plan

Spendthrift trust clause

Used for life insurance, any proceeds paid out following a death in installments is protected from creditors

Variable annuity units

When the plan finally pays out, members accumulation units convert to annuity units. - when converted, the number of annuity units remain the same for the life of payout. - however, value of the unit can vary

Mutual insurance company as corporation?

Yes. Legally required to be incorporated to write business.

Variable annuities: accumulation units

earned during the accumulation period of the annuity. - premiums - expenses equal accumulation units. ex: in 2014 A.U. are valued at $10. - person makes payment of $200. - person has purchased 20 A.U.

Limited pay whole health

level premiums are paid for a period of time, then no premiums at all

Life insurance conversion provision

life insurance through employer, you leave an employer, in the state of Florida you can convert group plan to individual plan - guaranteed issue

Prospectus

required when presenting variable life plans - created by the Insurance Co - contains info about the nature and purpose of the plan

Viatical settlement

terminally ill life insured sells their policy 28 viatical company. -NAIC has fair pay guidelines ensuring the insured gets between 50 percent to 80 percent of the policy face value

SEC Intervention

the issue was variable annuities. Question: are these to be state or federally regulated. Ruling : federal securities laws apply to these insurers, thus they must conform to both sec and state regulations.

FTC intervention of 1958

they sought to control advertisements and sales literature The US Supreme Court held that the McCarron - Ferguson Act made that illegal