Insurance Exam 3

Group Life Insurance Policy Provisions: Settlement Options

-if offered, normally the same found in individual policies -if the "life income" option is selected, there is normally a minimum death benefit requirement

Group Insurance Policy Provisions: Grace Period

-if termination occurs group policy holder is responsible for the overdue premium

Group Insurance Underwriting

-individual evidence of insurability normally not required -characteristics of the group are evaluated instead of individual -group is classified to avoid adverse selection and insurance is priced accordingly Risk characteristics evaluated: -reason for group's existence -size of the grou -flow of new members into group -stability of group -participation levels -activities of group

Certificate of Insurance

-individuals making up group do not receive a copy of the master insurance contract -individuals receive "certificate of insurance" which describes their coverage & rights -individuals referred to as "Certificate Holders" (some states call them policyholders)

Incontestability - Annuity Contract Provisions

-insurer cannot contest validity of the contract after it has been in force for 2 years

8. An insurer using a method to calculate premium rates for a group insurance plan which bases the rates on a combination of the group's prior claims and expense experience and the insurer's own experience with similar groups is using which kind of method?

Blended rating (using both manual and experience)

5. During the funding period, the contributions made to a variable annuity plan are used to purchase:

accumulation units -customers purchase units which represent shares in the marketplace

6. Brad funded a life annuity through installment payments. At age 60, he decided to elect an annuity settlement option and to begin to receive payments. Which of the following life income options will provide Brad with the highest monthly income?

life annuity (no refund) The gambler - customer is confident he/she will live longer than expected.

Contributory Group Insurance

members of plan must contribute some or all of the premiums

Noncontributory Group Insurance

members of plan not required to contribute any part of premium to be covered

Annuitant, payee and owner

normally same person annuitant designated to receive payments from annuity

Life annuity with period certain

pays income until death of annuitant and guarantees payments to a beneficiary for an agreed upon number of years

liquidation period

period when income payments are made to annuitant -can also be called paid out period or income period

accumulation period

period when premiums are paid into the annuity and account is building can also be called pay in period

Fundamental purpose of annuity

provide lifetime income that cannot be outlived

Joint and Survivor annuity payout

provides for payments to be made until last survivor dies

11. An annuity purchased with one payment is called ?

single premium annuity (can be fixed or variable)

3. Group underwriting guidelines require that the composition of the group remain relatively

stable

Group Insurance Policy Provisions: Termination

termination of group insurance policy: -can terminate at any time giving insurer advance notice -insurer can cancel at any premium due date with advance notice to policyholder. Cancellation could be for unacceptable participation levels. termination of group insured's coverage -can terminate if insured: --ceases to be a member of class of persons eligible --terminates employment or membership --stops making premium payments

annuity period

time span between each payment (usually monthly, sometimes annually etc)

Flexible premium annuity

varying premium payments allowed as long as total falls between minimum and maximum requirements can pay in at different times

Annuity Charges - back end load

also called surrender charges -charges made when owner withdraws cash or surrenders. Known as Contingent Deferred Sales Charge in Variable Annuities.

Factors affecting period payments:

amount of principal: -premiums increase principal, withdrawals decrease it time principal invested: - longer accumulation greater earnings interest rates: -greater interest rate greater return number & timing of periodic payments: -longer expected lifespan, smaller periodic payment

5. The requirement that an eligible group member must be present on the the date insurance coverage becomes effective in order to be covered under the contract is known as:

an actively-at-work requirement

Dividend Provisions - Annuity Contract Provisions

annuities can also be "participating" meaning the owner has a right to share in the insurers success

Surrender Values : Annuity Contract Provisions

annuities can be cancelled and the owner is entitled to the "surrender value"; the annuity value less any applicable surrender charges

Assignment - Annuity Contract Provisions

contract can be assigned unless the annuity is part of a qualified retirement plan

Deferred annuity

exercising the right to begin receiving payments is known as "annuitization" or "annuitizing the contract" payments begin at some future designated date

Group Insurance Policy Provisions: Eligibility Requirements

full time employee salary occupation length of service dependent coverage offered Actively at work: employee cannot be on leave when sign up Probationary period: must work normally 1-6 months before being eligible for coverage -eligibility period follows probationary period for contributory plans; usually 31 days

6. The grace period provision in a group insurance policy specifies that if the policy terminates at the end of the grace period for nonpayment premiums, then any coverage provided during the grace period is the responsibility of the:

group policyholder (company representative)

Annuity taxation

interest earnings are tax deferred while accumulating -payouts out of an annuity consist of 1 portion principal and 1 portion interest earnings -therefore, 1 portion is taxable, and 1 portion is not -calculate with exclusion ratio (investment in contract principal/expected return total value)

8. Insurers offering variable annuities charge a number of expenses. One category of expenses is to pay the fund manager and to pay brokerage fees. This expense is the :

investment management charge

10. A group member insured under a group insurance contract is called a

Certificate Holder

2. A document that describes 1) coverage that a group insurance contract provides and 2) the group insured's rights under the contract

Certificate of Insurance

A Life with Refund Annuity

-provides for either full payment of purchase price through installments or lump sum

Group Plan Administration: Self-Administered Plan

-records maintained by group policyholder Note: Insurer always receives updated information no matter what type of plan

Group life insurance accounts for more than ________ of all the life insurance in the US

40%

4. Group underwriting guidelines set limits as to the minimum percentage of eligible group members who must be covered by a group plan. Insurers generally require what percentage eligible group members to participate in a contributory plan?

75%

Group Life Insurance Policy Provisions: Benefit Amounts

-determined by "benefit schedules" -standard amount provided -multiples of salary can be provided -combination of 2 provided -job classification determines amount of benefit provided

Qualified Retirement Plan

-for exclusive benefit of employee and beneficiaries -must be in writing -cannot discriminate -participation cannot be for exclusive group -must be permanent and approved by IRS -need vesting requirements ***

Group Life Insurance Policy Provisions: Beneficiary Designations

-each insured group member has the right to SELECT and CHANGE beneficiary -often the insured group member is the beneficiary on any dependent coverage's provided -"preference beneficiary" and "facility of payment" clauses allow insurance companies to pay proceeds to a relative if no beneficiary is named

Employee Retirement Income Security Act (ERISA)

-established certain minimum requirements within any Welfare Benefit Plan Welfare Plans described as any plan an employer designs to provide benefits for employees and their beneficiaries

Payout/Settlement Options

-can take cash in lump sum or installments - "commutation right" -life annuity or straight life annuity: --payments made until death and no refund due heirs. Pays highest monthly benefit! gambling -fixed period or period certain: --payments made for a defined period -fixed amount: --payments made for a certain amount for as long as the accumulated value will support

Annuity Charges - Front End Load

-charges made at time of initial payment - covers commission and other acquisition costs

Guaranteed Minimum Accumulation : Annuity Contract Provisions

*** guarantees a return of premiums paid if the contract is held for a specified period of time

Guaranteed Minimum Income Benefit : Annuity Contract Provisions

*** Guarantees a minimum level of income payments will be maintained even if poor performance occurs

Guaranteed Minimum Withdrawal : Annuity Contract Provisions

*** Guarantees a percentage of premiums paid will always be available for withdrawals

Guaranteed Minimum Death Benefit: Annuity Contract Provisions

*** Guarantees a return of at least the premiums paid into the contract should the owner die before income payments begin

Roth IRA

-contributions are not tax deductible -investment income accumulates tax free -qualified distributions after 5 yrs made for any of the following reasons are not taxable: --age 59 and 1/2 or older --disability contributions after age 70 and 1/2 are allowed and distribution rules do not apply

2. In offering life annuities, what risk is the insurer pooling?

Excessive longevity (you living for a long time)

9. An insurer would most likely use which of the following methods to set the premium rates for a large group that is currently insured by another insurance company?

Experience rating

3 Basic Kinds of Annuities

Fixed Annuity: -payments and interest guaranteed and fixed Variable Annuity: -monies invested in the stock market. Provides a hedge against inflation Equity Index/Market Adjusted: -fixed annuity providing participation in stock market with protection against loss of principal and interest earnings if annuity held to term

13. An amount charged to an annuity contract owner at the time the contract is purchased

Front-end load

4. Which of the following statements is (are) true with respect to a joint-and-survivor annuity?

I. No payments are made after the last annuitant has died. II. No payments are made after the first annuitant has died. Answer: I.

1. A group insurance plan in which insured group members are not required to contribute any part of the premium for coverage

Noncontributory Plan

10. Which of the following statement is true regarding Roth IRAs?

Roth IRA investment income accumulates income-tax free

Chapter 10 Article: Equity Indexed or Fixed Annuities

The allure of index annuities is that like traditional fixed annuities, they protect principal and offer a guaranteed return by investing in fixed-income securities. But index product writers who use a small portion of premium to buy stock index options. If the market index falls, the options are worthless, and the product writer lets them expire. But if the market index rises, the company exercises the options and credits money to policies. Market conditions make all the difference. Overall, it appears people are becoming more conservative and much more realistic about how they're going to live longer, and are therefore becoming more open to different investment ideas and strategies. The stock market is being viewed as uncertain and many people are becoming keen to avoid financial setbacks.

Group Life Insurance Plans

-Group Term Life Insurance -Accidental Death and Dismemberment -Group Cash Value Life Insurance

3. Margaret paid an insurance company $50,000 when she was 50. At age 62, Margaret plans to begin to receive payments from the insurer. Based on the description provided, this annuity can be described as a(n):

Deferred annuity

14. An annuity under which periodic income payments are scheduled to begin more than one annuity period after the date on which annuity was purchased is referred to as a:

Deferred annuity (Immediate is if they want it within 30 days)

1. Which of the following statements is (are) true with respect to annuities?

I. Annuities are the opposite of life insurance II. The fundamental purpose of annuities is to replace lost income in case of premature death Answer: I. Annuities designed so you don't outlive your money. Life insurance designed to provide for survivors.

12. A fee charged to cover the services provided by a professional investment manager are called:

Investment management fee

NAIC

most states have enacted laws based on the directions laid out bye national association of insurance commissioners has no authoritative defined powers to enforce laws strictly recommend

Federal Regulations that govern Group Life Insurance for Employee/Employers

1. Age Discrimination in Employment Act (ADEA) 2. Americans with Disabilities Act (ADA) 3. Employee Retirement Income Security Act (ERISA)

Group Life Insurance Policy Provisions

1. Benefit Amounts 2. Beneficiary Designations 3. Conversion 4. Misstatement of Age 5. Settlement Options

Traditional IRA

-provides deductible tax contributions -investment earnings are tax deferred -distributions prior to age 59 and 1/2 subject to tax penalty -distributions not taken prior to age 70 and 1/2 subject to 50% tax penalty. Can rollover to avoid taxes but must be processed within 60 days.

Group Life Insurance Plans: Accidental Death and Dismemberment

-usually provided as part of the group or health plan -normally provides for double the coverage amount if death occurs by accident -travel accident benefits may also be included (for business travel accidents)

Entire Contract - Annuity Contract Provisions

-application; if attached. Annuity Contract and any attached riders

Group Creditor Life Insurance

-insurance for creditors (banks) on the life of debtors -beneficiary (bank) designated when policy issued -amount of insurance equals the amount of the outstanding loan -premiums normally paid by debtor but either party can pay -most states impose limits on MAX insurance rates that can be charged -debtors may be forced to purchase as a condition of loan but must have right to purchase on their own

Group Plan Administration: Insurer-Administered Plan

-insurer maintains records such as individual insured's names, amount of insurance on each individual, and beneficiaries

Most Common Types Funding Vehicles: Separate Account Contracts

-investments in separate account -sponsor chooses sub-accounts -sometimes established as riders to other funding vehicles -no guarantees on returns and even preservation of principal (stock market) -at retirement sponsor can purchase annuity - not required -unallocated vehicle used for both defined benefit or defined contribution plans

Americans with Disabilities Act (ADA)

-protects disabled workers to ensure they can obtain life and health benefits from certain employers -allows for a limit on benefits provided but not denial based solely on having a disability

Age Discrimination Employment Act (ADEA)

-protects older workers from being discriminated against due to age -benefits for older employees can be reduced but employer contributions must remain

Group Insurance Policy Provisions: Inconvestability

-2 years but rarely used in group insurance (weren't underwritten to begin with) -if individual underwriting took place & an insured made a material misrepresentation the validity of the contract can be contested

Types of Qualified Employer Sponsored Retirement Plans: Pension Plans

-a plan designed to provide employees with a lifetime monthly income at retirement -employer promises some funding (used to promise ALL funding) -actually lifetime annuity

Chapter 10 Article: Annuity "Living Benefits"

-a variable annuity is a financial retirement product that combines tax-deferred savings with insurance benefits, including guaranteed lifetime income payments. It allows individuals to invest in a variety of underlying fixed, equity and other funds, and provides returns based on the performance of these funds. -living benefits build upon this foundation by providing specific income, withdrawal and accumulation guarantees, further protecting individuals living in or planning for retirement against downside market risk -the landscape for retirees now is very different than it was for previous retirees. Living benefit guarantees are now meeting the needs of a wide range of americans who might not have previously considered a variable annuity as a part of their retirement plan. -living benefits allow individuals to participate in historically higher returns of the equity markets with the assurance that their investment is protected. These features can be especially valuable to baby boomers who have not prepared adequately for retirement and are less likely to build their nest eggs fast enough through more conservative investments

Group Plan Administration

-administrative insurance are lower than individual -specific savings areas: --underwriting --policy issuance --sales costs --clerical duties

Group Life Insurance Policy Provisions: Conversion

-allows conversion of group insurance to individual insurance without proof of insurability 2 Major reasons for terminations include: 1. Group member ceases to be eligible for coverage (terminates employment, leaves group or moves out of eligible class) 2. Group life policy is terminated (each group member must be allowed to convert to an individual policy if they were covered under the plan for 5 YEARS. Entitled to the lesser of 10k or the amount of coverage under the group plan minus the amount the insured becomes entitled to within 31 days of termination) -group members still insured during 31 day grace period -in event of death the amount due the beneficiary is the amount of insurance the individual was entitled to convert to individual coverage

Most Common Types Funding Vehicles: Individual Policy Pension Trusts

-also known as 412(I) plan -allocated funding vehicle used for small pension plans -this vehicle also supports a defined benefit plan

Death Benefits : Annuity Contract Provisions

-annuities normally provide a provision which gives the beneficiary the annuity value if the annuitant should die during the accumulation period

Components of a Retirement Plan: Funding Vehicles

-arrangement for investing the plans assets allocated & unallocated Allocated: -provides participants with legally enforceable claim to the benefits immediately -life insurance companies are the only providers able to provide this type of funding Unallocated: -some assets may be unassigned until participant begins withdrawals -sponsors contributions are credited to a pooled account -normally used in defined benefit plans

Group Insurance Underwriting Risk Characteristic Evaluated: Activities of Group

-assigned risk classifications: --standard --substandard --declined -occupations indicate likelihood of increased risk or death rates

Misstatement of Age or Sex - Annuity Contract Provisions

-can adjust benefits paid if age or sex misrepresented

Group Life Insurance Plans: Universal or Variable Universal Life Plans

-can continue for employee's life -normally used as savings plan also -individual underwriting may be required depending on coverage amounts requested -mortality charges may be assessed on group's experience (coverage cost) -coverage normally portable -variable plans allow for different investment options

Group Life Insurance Plans: Group Paid up Plans

-combines paid-up whole life and decreasing term insurance plans -contributory (employee) -employee's contribution buys the paid-up whole life insurance -employer's contribution used to buy decreasing term insurance -employer's receive favorable tax treatment -employee's do not receive favorable tax treatment but can hold coverage for life

Government Sponsored Retirement Plans: Social Insurance

-compulsory government programs with characteristics distinguishing them from private insurance Reasons for social insurance: -to solve complex problems, came after Great Depression -certain risks difficult to insurer (unemployment) -base of economic security to population (unemployment, Old Age)

Characteristics of Social Insurance

-compulsory programs: mandatory and floor of income achieved and adverse selection reduced -floor of income: amount of benefits that should be paid to provide a comfortable standard of living -emphasis on social adequacy rather than individual equity ***: benefits provide a certain standard of living for all contributors & lower income favored -benefits loosely related to earnings -benefits prescribed by law -no means test -full funding unnecessary -financially self-supporting

Components of a Retirement Plan: Plan Administration

-employee named by sponsor or employer or committee -responsible for maintaining employee service records -records needed to monitor eligibility, calculate benefit payments -often outside professionals may be needed

Small Business and Self-Employed Retirement Plans: Simplified Employee Pensions (SEP)

-employer can contribute to an employee's IRA -contributions cannot exceed lesser of 25% of salary up to $205,000 or $41,000 -employer gets tax deduction and deposits not taxable to employee -earnings are tax deferred -no penalties for withdrawals after 59 & 1/2 and total amount is taxable

Types of Qualified Employer Sponsored Retirement Plans: Savings Plan

-employer can make deposits for employee, if employee contributes -employee contributions have statutory limitations -employee contributions are not tax deductible -401K's allow pre-tax contributions and are a salary reduction plan (would all be taxable when it comes out)

Types of Qualified Employer Sponsored Retirement Plans: Stock Bonus

-employer contributes stock on employee's behalf -these plans do not promise to provide a monthly retirement income

Regulations - Federal Income Tax Treatment of Contribution and Earnings to Qualified Plans

-employer contributions are tax deductible -employer contributions on an employees behalf are not taxable to the employee when they are contributed -employees can make non taxable or taxable contributions -earnings on all contributions are taxable when received by the participant

Group Insurance Premiums: Premium Refunds

-fewer claims and/or lower administrative costs than expected can result in "dividend" or "experience refund" -the group policyholder is entitled to the refund

Most Common Types Funding Vehicles: Group Annuity Contract

-functions like an immediate participation guarantee contract with a separate account -unallocated account that offers allocated type services in order to accommodate individual participant record keeping

Types of Qualified Employer Sponsored Retirement Plans: Profit Sharing Plans

-funded mainly by employer's -profits and contributions vary year to year -retirement income not guaranteed -contributions must be substantial and recurring and not unduly benefit the highly paid

Free Look - Annuity Contract Provisions

-gives the owner the right to review the contract and return it for a full refund within 10 days

Withdrawal Provisions - Annuity Contract Provisions

-govern an owner's right to withdraw cash during the accumulation period. Normally minimum and maximum requirements. Charges for excess withdrawals are assessed.

Group Insurance Underwriting Risk Characteristic Evaluated: Reason for Group's Existence

-group must be formed for a reason other than obtaining insurance Eligible groups: single employer labor unions: (insurance provided by trustee of a trust who manage group insurance) multiple employers (2 or more employers, 2 or more labor unions or 1 of each) associations (group shares common bond, serving an industry, college associations) debtor-creditor (ppl who have borrowed funds from a lending institution, also called credit life or creditor group insurance, policyholder is the creditor)

Group Insurance Underwriting Risk Characteristic Evaluated: Stability of group

-group must remain stable over period of time -seasonal and /or temporary workers are normally not eligible for groups

Most Common Types Funding Vehicles: Immediate Participation Guarantee Contracts

-in general account of insurer -normally no guarantees -sponsor shares in gains or losses experienced by insurer -loss guarantees are established -at retirement an annuity or direct payment can be made - unallocated vehicles normally used for defined benefit plans

Regulations on Group Life Insurance

-income tax law incentives exist that provide economic benefit to employers and employees -***meeting ERISA requirements establishes a "Qualified Plan"

Chapter 11 Article: Judge Gives Walmart Reprieve on Benefits

-judge struck down Maryland law that was aimed at Wal-Mart. -Judge ruled that federal law governing employee benefits takes precedence over state law -State law would have required companies with 10,000 or more workers to spend at least 8% of their payroll on health insurance, or pay the difference into a state Medicaid fund -Judge ruled that Maryland law was preempted by the federal Employee Income Security Act, or ERISA --defeat for states trying to control how group health benefits are handled --how should we handled employers trying to avoid having to provide benefits?

Group Life Insurance Plans: Level Premium Whole Life Plans

-limited pay level premium whole life insurance plans -cash values used for retirement income plans for employees -noncontributory plans: employees rights not vested -coverage ceases on termination and cash value kept by employer -contributory plans: employee vested up to their premium contributions

Group Insurance Underwriting Risk Characteristic Evaluated: Participation Levels

-minimum levels set to avoid adverse selection -specified levels are set dependent on type of plan, --100% for noncontributory (if employer paying for all of plan, need to offer it to all employees) normally 75% for contributory (offered to 75% of people)

Group Insurance Underwriting Risk Characteristic Evaluated: Special Notes

-most state laws require employers to pay some of the premium in "employer-employee" groups -underwriting is stricter for voluntary groups versus employer-employee groups

Group Life Insurance Plans: Group Term Life Insurance

-no cash values -insurer can increase rates yearly -up to 50,000 in insurance can be paid for by the employee with no tax liability -survivor income benefits paid from Group Yearly Renewable Term insurance -percent of income benefit varies according to number of dependents

Regulations - Requirements on ERISA Qualified Plans

-no discrimination -minimum vesting requirements must exist (usually 1-5 yrs) -insurance company or trustee must hold assets -provisions information must be reported to government and plan participants -fiduciaries must comply with statutory guidelines

Most Common Types Funding Vehicles: Deposit Administration Contracts

-no longer popular but some remain in force -assets in insurers general account -upon retirement insurer establishes immediate annuity -insurer guarantees solvency and minimum rate of return*** -these are unallocated vehicles normally used with defined benefit plans

Group Insurance Underwriting Risk Characteristic Evaluated: Determination of Benefit Levels

-normally based on salary, occupation or length of service -method incorporated in master group contract -method set to avoid adverse selection

Group Insurance Premiums: Premium Amounts

-normally payable monthly -normally expressed as a rate per 1000 of coverage -premiums will change monthly resulting from deletions or additions to staff (reinsurance administration)

Group Life Insurance Plans: Group Cash Value Life Insurance

-not as popular as term plans -provided to give employees coverage after retirement -offered as supplemental coverage with term plans

Group Savings and Retirement Plans

-often funded and administered by life insurance companies -subject to governmental regulations -employers receive favorable tax treatment in many cases

Chapter 12 Article: The Great Spend Down

-on the positive side, Limra's research shows that, at least on a cognitive basis, consumers want and need advice. "At least on the surface, there appears to be quite an opportunity." Baranoff said. Also the concepts of new kinds of products resonate with consumers when distributors explain that they protect against investment risk and outliving one's money, so long as the distributors avoid using the words "annuity" or "annuitization". - a value demonstration would take into account the basis of a client's current financial situation, what he or she wants or needs, and a realistic reflection of all risks, including inflation, investment risk, longevity, and the potential expense of health care and long-term care. Most platforms today factor in inflation and investment risk, and they calculate the odds of not running out of money at life expectancy or at another chosen age. That is where insurers can substitute guarantees of protection for calculated probabilities of success.

Chapter 11 Article: Surgeon General: Secondhand Smoke Kills

-one of the fastest growing groups of lung cancer patients are individuals in their early 40s who are non-smokers -culprit for lung cancer is exposure to an environmental risk factor such as secondhand smoke. All cancer is genetic but there must be an environmental exposure to trigger it. -Secondhand smoke is a key lung cancer catalyst -evaluation of group benefits could change, amount of risks with certain groups could change

Group Life Insurance Policy Provisions: Misstatement of Age

-only age, not sex in group contracts -premiums are retroactively adjusted and the coverage amount remains unaffected ( unlike individual policies where coverage is adjusted, not premiums***)

Group Insurance Underwriting Risk Characteristic Evaluated: Size of the group

-original requirement was at least 50 members, now small groups are allowed -the larger the group the more predictable the losses (law of large numbers) -insurers pool small similar groups to predict losses

Variable Annuity

-owners payments purchase "accumulation units" -these units represent ownership of subaccounts of the "separate account" -owner receives "annuity units" from the insurer when the payout period begins -can still get a fixed amount, or get it fluctuating with investment experience OR some combination of fixed & variable

Components of a Retirement Plan: The Plan

-plan documents establishes existence of plan and rights of parties to the plan -describes benefits provided, how plan will be funded, and procedures to amend -summary must be provided to each participant -has 2 parts: coverage, eligibility and participation requirements. Describes which members are covered. Must specify which members are eligible. Start dates usually are the 1st day of the month after the month eligibility is completed. Participation automatic or voluntary. -noncontributory -voluntary plans normally are contributory -benefit formulas describe calculations of sponsor's obligations to plan participants

Government Sponsored Retirement Plans: Old Age, Survivor, Disability & Health Insurance Act (OASDHI) or Social Security

-provides monthly income benefits to those who have retired and are over age 62 -contributions mandatory from covered workers and employers -employers contribute an amount equal to the workers contribution -self employed persons contribute more than an individual -amount of benefits received depends on wages earned during the contribution period -benefits increased periodically to reflect increases in the cost of living (based on CPI) Fully insured: 40 quarters or 10 yrs of work Currently Insured; 6 quarters or 1.5 yrs of work during last 13 quarters Disability Insured

Most Common Types Funding Vehicles: Group Deferred Annuity Contracts

-provides participants annuities upon retirement -each year sponsor uses their contributions made on an employee's behalf to purchase a single premium deferred annuity -programs are an allocated funding vehicle

Group Insurance Underwriting Risk Characteristic Evaluated: Flow of new members into group

-required in order to keep size of group maintained & age distributions of group stable (managed via "participation requirements" have 500 employees, request they have a 40% participation rate)

Formation of Group Insurance Contracts

-requirements are very similar to those on an individual basis except the last requirement; "forming the contract for a legal purpose", which is met by "insurable interest" on an individual basis, and is automatic in group since policy holder is purchasing insurance for a group

Employer-Employee Laws

-since group is often provided by employers as a benefit to employees; organizations must also comply with employer-employee laws which are normally designed to ensure all employees are treated fairly

Components of a Retirement Plan: The Plan : Defined Benefit

-specifies the amount of benefit a sponsor promises to pay each participant -all defined plans are pension plans -these are the only plans that provide a specified and guaranteed lifetime income benefit at retirement -(really lifetime annuity)

Components of a Retirement Plan: The Plan : Defined Contribution

-specifies the level of contributions the sponsor promises to make -benefits a participant will receive are dependent on the performance of the plan -most popular type because employer knows what funding costs will be & there are less complex ERISA requirements

Most Common Types Funding Vehicles: Guaranteed Investment Contracts

-sponsor makes one single or monthly payments for a specified time to the insurer -insurer guarantees maturity date plus interest, less withdrawals -specified interest rate guaranteed -at retirement, sponsor can choose to buy annuity or deduct directly -unallocated funding vehicle used mostly for defined benefit plans

Chapter 12 Article: New Paradigm Needed for Retirement Planning

-studies already have shown that income annuities reduce both investment risk and longevity risk. The new paradigm will further open doors for insurers, both in product design and insurer skills. For example, buyers of income annuities today expect to live on average to age 95, but new underwritten annuities could provide higher periodic payments to those not likely to live that long. -also to come into vogue are "mortality kickers," annuities that don't provide income until the owner reaches a certain age and "mortality covered calls" There is also more demand for underwritten annuities tied to life and long term care insurance, more piecemeal purchase of income annuities using a laddering strategy so that retirees can see their income streams gradually grow; and hybrid products involving life and long term care policies.

7. Most group insurance contracts specify the conditions under which a group insured's coverage will terminate without terminating the group contract. These conditions include:

-termination of the group insured's membership in the class of person's eligible for coverage -termination of the group insured's employment or group membership -the group insured's failure to make a required contribution to the premium

Chapter 12 Article: Growth of Employer Sponsored Group Life Insurance Pt III

-the solicitor's opinion stated employer contributions to group life insurance could not be counted as employee's personal income because the death benefit is paid to the beneficiary, not the employee. The Revenue Act of 1964 altered this ruling somewhat through section 79 of the IRS code. States the employer's share of the premium used to purchase coverage exceeding 50K shall be included as income taxable to the employee, unless the employee contributes more than 50% of the premium's total cost -flexible benefits plans allow employees the option of tailoring their benefits packages to meet their individual needs. Typically, the employer sets aside money for each employee. The employee then selects from a menu of benefit options and "pays" for each choice with the employer's contribution. For example, the employer may provide the employee with a choice of three levels of coverage in both health and life insurance. The employee then makes a selection based on individual need and affordability.

Chapter 12 Article: Growth of Employer Sponsored Group Life Insurance

-two important characteristics that distinguish group life insurance from more traditional individual term life coverage -A group contract allows all of the participants covered by the policy to benefit from coverage while placing the burden of financing the plan either partly or entirely on the employer -group policies also enable a larger population to participate in a plan at a lower cost than if each person had to purchase individual coverage. This is because participation permits risk-sharing and reduces administrative expenses incurred by the insurance underwriter by spreading them over a greater number of policyholders. -several factors led to creation of employer-sponsored group life insurance policies. In the increasingly industrialized environment of the later 1800's, families became more dependent on workers' wages as a major source of household income. With this dependence came the need to protect the family against a potential loss of wages. For some employees, these needs were met by mutual benefit associations. -mutual benefit associations, which arose during the 1870's as organizations of workers within a company or industry, served as vehicles for providing members with protection against the financial risks of death, illness or disability. They were financed by employees, employers, or both parties together, and operated in much the same fashion as do self-insured benefit plans today. -membership dues or employer contributions were pooled and used to provide benefits to members. Aside from providing financial assistance, mutual benefit associations also served as social and athletic outlets for employees and their families

Chapter 12 Article: Growth of Employer Sponsored Group Life Insurance Pt 4

A single worker with no dependents might wish to decline life insurance coverage, while a worker with a spouse and several children may choose to maximize insurance protection. Flexible benefits plans, which were offered to 9 percent of all workers in the 1989 Employee Benefits Survey, included a choice of life insurance options 9 out of 10 times.

Chapter 12 Article: Enhancements to Group Term Life Plans

Aetna's offering will provide access to new benefits and services during policy holders' lives to help promote and maintain healthy, fulfilling lifestyles while offering critical care and support resources for those overlooked health care needs during the end of our lives. These benefits will also provide access to financial and legal tools members need at different stages. Grouped these into 3 Types: 1. Financial: access to financial counseling and advice, as well as enhanced accessibility to benefit payments under the accelerated death benefit feature during an end of life stage. 2. Legal: access to an introduction of free online basic will preparation services, living wills, healthcare directives, and an identity theft action kit as well as in-office attorney estate planning 3. Physical: discounts for fitness centers, vision and hearing, and medical case management and medical care advocacy services through a dedicated care support team. 4. Emotional: end of life information and bereavement

5. The premium rate for converted insurance coverage is the standard premium rate that applies to which of the insured's ages?

Attained (age you're at)

7. Group life policies normally provide a schedule that defines the amount of life insurance the policy provides each insured. This is known as:

Benefit Schedule

15. A type of retirement plan funding vehicle in which a plan sponsor deposits plan assets with an insurance company, and the insurer places those assets in a general account:

Immediate participation guarantee contract

4. A federal regulation designed to ensure that certain minimum plan requirements are contained in employee welfare benefit plans is which of the following?

ERISA Employee Retirement Income Security Act

Chapter 12 Article: Growth of Employer Sponsored Group Life Insurance Pt II

Employer-provided group life insurance also made good economic sense for businesses. While some companies provided a fixed lump-sum benefit to the deceased employee's family or made contributions to the "pass-the-hat" effort, such payments often came directly from company operating funds and could strain a firm's finances. Group life insurance, on the other hand, permitted the employer to fix this cost in advance while keeping it at a manageable level. In addition, as the practice of providing group life insurance to employees began to spread, employers may have felt some pressure to keep their compensation packages on a par with those of their competitors. The provision of a group life insurance package may have helped to attract and maintain a quality work force. One other advantage of providing group life insurance coverage came about with the imposition of the modern Federal income tax on corporations in 1909. The US Internal Revenue Code states that an employer's cost incurred in the funding of a group plan is a tax-deductible business expense. This write-off may have played a significant role in the rapid early growth of employer-provided life insurance.

Group Life Insurance Plans 3 Kinds

Group Paid up Plans Level Premium Whole Life Plans Universal or Variable Universal Life Plans

Keogh Plans

HR 10 Plan -for self-employed, sole proprietorship and partnership -employer contributions tax deductible, not included in employees current income, and earnings are tax deferred -withdrawals taxable, may begin after 59 and 1/2 and must begin by age 70 and 1/2

12. A qualified retirement plan set up by a small business or self-employed individual is?

Keogh Plan (for self-employed small businesses)

6. Employers often use which of the following plans to provide retirement income benefits for employees?

Level Premium Whole Life

Group Insurance Premiums: Rating Methods Used to Determine Premiums

Manual Rating: insurance companies own experience and/or industry used to calculate rates Experience rating: insurance company uses groups prior claims and expenses to determine future premiums. Blended Rating: a combination of manual and experience rating methods Additional considerations: expenses and claims vary widely. Insurance companies must look at each of these items in depth to calculate accurate premium

10. In order to qualify for favorable tax treatment in the US, a retirement plan must meet requirements imposed by US federal tax law and the ERISA. ERISA requirements include:

Nondiscrimination requirements & Reporting requirements

Group Insurance Premiums

Normally guaranteed for 1 yr and recalculated yearly Major considerations: 1. Providing promised benefits 2. Administration expenses

9. Which of the following statements is (are) true regarding the taxation of distributions from individual annuities?

Once the annuitant has recovered the premiums he or she paid for the annuity the entire annuity distribution is taxable.

3. If an insurer discovers that a group insured misstated her age in an application for insurance then the insurer will adjust which of the following to reflect the insured's correct age?

Premium Ended at 1:24:41

9. A United States retirement plan that meets the legal requirements to receive favorable income tax treatment is called a :

Qualified plan

14. A written plan that allows an employer to make contributions for each participating employee to an IRA owned by the employee:

Simplified employee pension

8. "Survivor Income Plans" are established to benefit which of the following?

Specified dependents

1. Most group life insurance policies are which of the following?

Term Insurance

13. What is true about the characteristics of social insurance programs?

The amount of benefit is loosely related to a worker's earnings.

16. An arrangement for investing retirement plan assets in which some or all contributions are pooled together and not assigned to individual participants until they begin to take benefits:

Unallocated funding vehicle

2. Which of the following plans allow an insured employee who leaves the group to continue coverage under the group plan?

Universal

11. Under U.S. federal tax laws, investment earnings in their retirement plans:

accrue on a tax-deferred basis, and participants pay taxes on earnings when benefits are paid

Types of Qualified Employer Sponsored Retirement Plans: Savings Incentive Math Plans for Employees (Simple)

can be established as IRA or 401K IRA: -for companies with less than 100 employees -percentage salary reduction plan -deposits made into simple IRA -employer must match contributions up to 3% OR contribute 2% of compensation for employees 401k: -for companies with less than 100 employees -salary reduction plan where both employer and employee contribute -both contributions excluded from employee's current income -employer receives tax deduction and earnings tax deferred for employee

7. Bridget started to fund a variable annuity. Three years later, she experienced financial difficulty. She called her agent and cancelled the contract. The insurer returned all but 4 percent of the account balance. The 4 percent withheld is:

surrender charge