Life & Health Insurance Key Terms

Waiver of Premium

Waiver of premium is a rider that will pay the premium on behalf of a disable insured, after a short waiting period, until the insured either recovers or dies. The waiver of premium rider does not pay a cash benefit to the insured.

Probationary Period

Different from the time limit on certain defenses provision (incontestability); the maximum probationary period is usually 12 months and the incontestability provision is usually 2 years.

Decreasing Term

Used to provide credit life insurance.

Medicare

Certain persons under the age 65, who are disable or who have suffered kidney failure are also eligible for Medicare. On Medicare, the difference between what the doctor bills and what Medicare pays is called the excess charge. Part A of Medicare covers hospitals and Part B covers doctors.

Survivorship Life Insurance

Commonly used in estate planning so the death benefit of the policy can be used to pay estate taxes when due. Pays when the surviving insured dies.

Unfair Practices and Fraud Coercion

Considered to be a restraint of trade and is illegal.

Insurance Policies

Considered to be unilateral contracts, in that only one party makes an enforceable promise the insurer.

Convertible Term

Convertible term is convertible based on current or attained age of the insured.

Disability Buy/Sell Policy

Could be structured to pay a monthly benefit to a corporation for up to 1 year while waiting to see if a disabled partner recovers. If not, then a lump sim is paid as a partnership buyout.

Occupational Coverage

Covers both on-and-off-the-job injuries only (for those covered by workers compensation).

Immediate Estate

Created by buying a life insurance policy.

The Human Life Value Approach

Created to establish what a family would lose in income upon the death of the sole or chief income provider.

Taxation of Personal Life insurance

Death benefits paid to beneficiaries are tax free on all life insurance. Dividends which are paid out by mutual insurers are not taxable to the policyowner because they are considered to be a return of the premium paid by the policyowner. Dividends received by the owner of stock in a stock company are taxable as ordinary income. Dividends are NEVER taxed as capital gains. A cash surrender where the amount received is more than amount paid in in premiums would cause a taxable event. Surrendering a life insurance policy for cash and using the proceeds to buy a new life insurance policy from a different insurer is a tax-deferred 1035 exchange. On cash surrender of a life insurance policy, amounts received in excess of premiums paid in are taxable. In group life insurance, benefits are NOT taxable to the beneficiary should the employee die. Premiums paid for individual life insurance are NOT tax deductible, nor are the benefits taxed. This is true of key person life insurance as well. Life insurance policyowners who gift their policies to charity are entitled to a tax deduction in the year of the gift.

Mortgage Redemption Insurance

Decreasing Term is the type of life insurance provided in mortgage redemption insurance.

Warranty

Defined as a sworn statement of truth, guaranteed ti be true. A breach of warranty may void a contract.

Concealment

Defined as failure to disclose a material fact.

Unfair Practices and Fraud Defamation

Defined as making oral or written statements that are false maliciously critical of the financial condition of an insurer or agent.

Representation

Defined as the truth to the best of one's knowledge.

Eligibility for Coverage

Dependents are eligible to enroll in a group plan when an employee becomes eligible to enroll. Employees remain eligible for group coverage even after attaining age 65. Employers who have 20 or more employees are required to offer the same health benefits to employees and their spouses who are age 65 or older that they offer to younger employees.

Company Underwriter

Determines the final rating classification, not the producer. A preferred risk is likely to receive a premium discount.

Universal Life Insurance Policy

Different from whole life because it has a premium that is flexible. Permit their owners to take partial surrenders. Also known as interest sensitive whole life. Universal life is a combination 1-year renewable term and a cash value account. Offers flexible premiums and a minimum guaranteed rate of return. Loans are allowed on this type of policy.

Annuity Table

Different than mortality tables since there is no insurance protection.

The Needs Approach

Does not consider future earnings.

Uses of Annuities

Employers may use annuities to fund deferred compensation plans, but not corporate pension plans. Lottery payouts and structured settlements are often funded by annuities. A self-employed person cannot use an annuity to fund a 403(b) tax-sheltered annuity (TSA). A 403(b) tax-sheltered annuity (TSA) is funded by making voluntary before-tax contributions. 403(b) TSAs are owned by the employee, not the employer. A corporation cannot use an annuity to build tax-deferred growth on corporate assets. Only individuals are entitled to tax deferred annuity earnings. Most immediate annuities are purchased by those who wish to supplement their retirement income. Most annuities are used for retirement purposes and are considered to be long-term investments. One purpose of an annuity is to keep customers from outliving their savings. When recommending a variable annuity, the agent should inquire about the applicant's tax status. Producers selling annuities must have reasonable grounds for believing that the transaction is suitable based upon a customer's financial status, tax status, and investment objectives.

Endowments

Endowments provide life insurance protection. Annuities do not.

Third-Party Policyownership

Examples include key person and partnership insurance, as well as a policy written on the life of a spouse or minor child.

Uniform Required Provisions

Except for fraud, health insurance policies are incontestable after they have been in force for 2 years. If a reinstatement application is required, an insured is reinstated when the company says or after 45 days, whichever comes first. When an insured is reinstated, a 10-day probationary period starts for sickness only. If no reinstatement application is required, an insured is reinstated effective upon payment of the late premium to either the company or the producer.

Insurable Interest

Exists if someone would benefit if another person continues to live. Must exist at the time of application, but not necessarily at the time of a claim. May be based on economics or family relationships.

Policy Loan and Withdrawal Options

Failure to repay a loan will have a permanent effect on cash value accumulation. The annual interest on a life insurance loan is added to the amount of the loan as it accrues. If an outstanding policy loan, plus interest, exceeds the cash value of the policy, the policy will lapse. A loan may be taken from a whole life policy as soon as it develops a cash value. The automatic premium loan rider can be added to a whole life policy, but not to a term or credit life policy. Partial surrenders are usually allowed in annuities, universal life, and variable life policies.

Experience Rating

For large groups only. Rates are based on claims experience of the group.

Unfair Practices and Fraud Rebating

Giving part of your commission to a client as an inducement to a sale.

Characteristics of Group Insurance

Groups may not be formed just to buy insurance, they must exist for another reason. On noncontributory group plans, 100% of the eligible employees must enroll. On contributory group plans, 75% of the eligible employees must enroll. Group participation requirements are designed to help prevent adverse selection. A group insurance contract is between the employer and the insurance company. In group insurance, the employer is issued a master policy and employees are issued individual certificates of insurance. The state in which a group contract is delivered to the policyholder is generally held to have jurisdiction over all certificates of insurance issued un the contract. Group underwriting takes into consideration the average age of the group, the health of the group and persistency factors. Group coverage must be written for the benefit of employees and cannot discriminate in favor of highly paid workers. Although there are strict regulatory requirements related to what an insurer can and can't do in regard to small group insurance, an insurer CAN legally nonrenew or cancel a small group plan if the employer stops paying the premium.

Flexible Premium Fixed Deferred Annuity

Has a flexible premium, minimum guaranteed rate of return and a death benefit equal to its cash value.

Association Group Insurance

Has higher administrative costs than other types of group health insurance and is more subject to adverse selection.

Refund Annuity

Has the least amount of risk.

Speculative Risk

Has the possibility for gain or loss. (Not Insurable)

Foreign Company

Has their home office in another state.

Short-Term Disability Policies

Have a shorter elimination and benefit periods than long-term disability. If a disability income policy has a 7-day elimination period and the insured is sick for 15 days, the insured would receive benefits for 8 days. The probationary period starts when the policy is first issued.

Underwriters

Health insurance underwriters may discriminate based on an applicant's health history. An application must be in writing and will become part of the policy, when issued. If an application is approved and a policy is issued, the producer must collect the premium along with a statement of continued good health. Health insurance underwriters often order an attending physician's report in order to determine an applicant's current medical condition. Issuing a conditional receipt starts coverage right away if all conditions have been satisfied.

Total Disability

The typical definition of total disability on a disability income policy states that the injured is considered to be totally disable if the insured cannot perform his or her own job for the first 2 years, and any job that the insured is suited to do thereafter.

Cancellable Health Insurance Policy

This policy may be canceled by either the insurer or the insured. Cancellation will have no effect on a pending claim.

Managed Care

This term includes medical services provided by HMOs, PPOs and POS (point-of-service) plans, but does not include indemnity plans.

Disability Income Insurance

Those collecting disability income insurance benefits may be required to take a physical exam every 6 months at the insurer's expense in order to prove that they are still disabled. Those who suffer from presumptive disabilities, such as loss of eyesight, are not required to take a physical exam in order to prove that they are still disabled. The primary purpose of disability income insurance is the replacement of lost wages, should the insured become disable. The most important factor to consider when writing disability income insurance is the amount of wages that could be lost. On a disability income policy, a longer examination (waiting) period will reduce the premium. The waiting period is like a deductible, except it is stated in terms of time rather than in dollars. The waiting period starts at the onset of an insured's disability.

Medicare Part C Medicare Advantage

Those who enroll in Part C do not need to purchase a Medicare supplement. Part C is the part of Medicare that provides managed care.

Continuation of Coverage under COBRA

Under COBRA, employers with 20 or more employees must allow terminated employees and their dependents to continue their group coverage by paying 102% of the group rate. When an employee elects COBRA, the coverage is exactly the same as it was in the group, it is not reduced in any way. The maximum period of coverage continuation for termination of employment or a reduction in hours of employment is 18 months. The dependent of a deceased or disabled employee may continue group coverage for another 36 months. The phrase qualifying events includes death, disability or termination of employment. If an employee elects to continue group coverage under COBRA, the employee may still convert to an individual policy without a physical exam when COBRA coverage ends.

Section 1035 Exchanges

Under Section 1035 of the Internal Revenue Code, an annuity may be exchanged for another annuity, but not for life insurance. Taxes may be deferred when exchanging one life insurance contract for another under Section 1035 of the Internal Revenue Code. Although IRC Section 1035 exchanges defer taxes, they do not avoid them.

Executive Bonus

Under an executive bonus, the premium paid to the employee as a bonus is deductible by the business and the amount paid to or for the employee is reportable as taxable income to the employee. When life insurance is purchased as an executive bonus for a corporate employee, the policy belongs to the employee.

Common Disaster Provision

Under the common disaster provision, it is assumed that the insured died last.

Legal Actions Provision

Under the legal actions provision, if a claim is not paid immediately, the claimant must wait at least 60 days before filing a lawsuit for failure to pay. Such suits must be filed within 3 years of the original loss.

Misstatement of Age Clause

Under the misstatement of age clause, it is the benefits that are adjusted, not the premiums.

Business Disability Insurance Partnership Disability Buy/Sell

Under the terms of a partnership disability buy/sell agreement, the proceeds of the policy are paid to the owner of the policy, who uses the money to buy out the disable business partner.

Class Designation

When a policyowner lists a group of people as beneficiaries.

Waiver

When an insurer voluntarily gives up the right to obtain information that they were entitled to, they have made a waiver.

Estate Conservation

When life insurance is used to pay estate taxes.

Collateral Assignment

When the owner of a life insurance policy temporarily assign their life insurance policy to a bank as collateral for a loan.

Absolute Assignment

When the owner of a life insurance policy transfers his or her ownership to another person.

Reduced Paid-Up Nonforfeiture Option

When the reduced paid-up nonforfeiture option is selected, the amount of coverage in the new policy is reduced from that of the original policy. The reduced paid-up nonforfeiture option may be taken any time there is a cash value. The reduced paid-up nonforfeiture option will provide coverage for life.

Business Overhead Insurance

Will cover the ongoing business expenses of a self-employed person, such as rent or salaries, while the sole proprietor is disabled. Premiums are tax deductible, but benefits are taxable.

Credit Disability Insurance

Will pay an insured's car payments if the insured is sick or injured and cannot work.

Accelerated Benefits Rider

Will pay proceeds prior to death for those with a terminal illness.

AD&D Policy

Will pay the capital sum for loss of a limb, in addition to any medical expense insurance coverage that may apply. Limited health insurance policies (like AD&D) only cover limited perils and amounts.

LTC Return of Premium Rider

Will refund some or all of the insured's premiums to the insured's estate or beneficiary if the insured dies prior to age 65.

Hospital Indemnity Policy

Would pay a stated amount (in addition to any other insurance the insured may have) when the insured is confined in the hospital. AD&D and hospital indemnity policies do not follow the principle of indemnity. They pay in addition to other policies the insured may have.

Group Disability Income

Written to cover only a percentage of an employee's gross earned income.

Individual Disability Income

Written to only cover a percentage of an insured's net (after-tax) earned income.

State Regulations

insurance laws are not required to be uniform from one state to another. Everyone transacting insurance comes under the jurisdiction of the Insurance Code. Transacting insurance includes collecting premiums and handling claims. Transacting insurance includes both buying and selling insurance. Any premium paid that is properly addressed and mailed on or before the date the premium is due is considered to be a timely payment as of the date shown on the postmark. An insurance company with a certificate of authority in this state is know as an authorized (or admitted) insurer. Commissions may be shared with producers who have like licenses. Records must be shown to the director upon request. A producer's place of business must display his or her license and all records must be kept there. A producer's place of business could also be his or her residence. Producers must keep records for at least 3 years.

Disability Income Policy

If a disability policy contains an accidental means clause, there is no coverage if an insured is injured doing something he or she meant to do. If the policy contains an accidental bodily injury clause, coverage applies as long as the injury was unintentional and unforeseen.

Optionally Renewable Policy

If a health insurance policy can be nonrenewed by the insurer at the end of any policy period, the policy is considered to be optionally renewable.

Return of Premium Rider

If a person purchases a whole life policy and adds a return of premium rider, they will have level coverage from the whole life policy, and increasing coverage from the rider. The return of premium rider and the return of cash value rider are both types of increasing term coverage.

Blanket Disability Policy

May be written to cover passengers on a common carrier, an employee group, a student group, a debtor group, or a sports team. Blanket policies do not require individual applications, nor are certificates of insurance issued to those covered.

Single Premium Policy

May buy a policy that is paid up for life. Has an immediate cash value.

Stock Insurer

May pay dividends to its shareholders, but they may not be guaranteed.

C-O-A-L

The elements of a legal contract can be remembered by this acronym. (Consideration, Offer, Acceptance, Legal purpose & Legal capacity)

Alien Company

An insurer incorporated outside of the U.S. who sells in the U.S..

Equity-Indexed Annuities

(EIAs) have little purchasing power (or inflation) risk since their rate of return is based in part on an equity (stock) index, such as the S&P 500. An annuity which has a rate of return that is based on an index of equity products is an equity-indexed annuity.

Level Term Policy

In a level term policy, the premium and the amount of coverage are level throughout the term.

Peril

A cause of loss. Ex: A fire.

Reciprocal Insurance Company

Managed by an attorney-in-fact.

20-Pay Life

The cash value will equal the face amount at maturity.

Noncontributory Group Life Plan

(Employer pays total premium), 100% of all eligible employees must participate. Individual policies are usually more expensive than group.

FINRA

(Financial Industry Regulatory Authority) is an association that regulates its own members.

Health Care Service Organization

(HCSO) may be used in place of the term health maintenance organization (HMO). An HMO primary care physician makes referrals, authorizes treatment, provides general care and acts as the gatekeeper between HMO members and their health care providers. HCSOs stress preventative care. HCSOs pay reimbursements to their providers directly, not to their insureds. When a doctor works in an independent group clinic on behalf of an HCSO, it is know as a group practice model. HMO primary care physicians may include those in family practice, pediatrics, obstetrics and gynecology, but not internists. HMOs usually don't cover adult hearing exams as a preventative care service. Except for emergencies, HMO services must be provided in-network. HMOs cover out-of-network emergency treatment without pre-authorization, although providers must notify the HMO after treatment has been rendered.

Long-Term Care Insurance

(LTC) Needed when an insured needs care, but not 24-hour care supervised by a doctor. Have a 30-day free-look period. Underwritten based upon the applicant's ability to perform the activities of daily living (ADLs). ADLs include mobility, dressing oneself, bathing, toileting, and eating. LTC must cover Alzheimer's disease. LTC insurance does not cover acute care. Policies may not condition benefits on a prior hospital stay. LTC home health care services include coverage for physical therapy, nursing care, home health aides and homemaker services. LTC policies usually pay a fixed amount per day while an insured is confined to a custodial nursing home. Insurers who write LTC insurance are usually required by state law to allow the insured to name a third party who the insurance company would contact if the insured forgets to pay the premium. Insurers must include coverage for inflation protection unless the applicant rejects it in writing. LTC policies may exclude pre-existing illness, acute care, mental disorders, alcoholism, drug addiction, war related illness and self-inflicted injuries, but may not exclude Alzheimer's. On qualified LTC policies, insureds may add a nonforfeiture benefit.

Modified Endowment Contracts

(MECs) lose their favored tax treatment as life insurance since the IRS considers them to be investments. MECs are classified that way for the life of the contract. A modified endowment contract that is classified as life insurance but fails the 7-pay test would have taxable loans and withdrawals. Making material change to a cash value life insurance policy may cause the 7-pay test to be applied again and could cause the policy to be classified as a modified endowment contract. Modified endowment contracts have a 10% IRS penalty for premature distributions.

Multiple Employer Trusts

(METs) offer group coverage for employers in the same industry.

The SEC

(Securities and Exchange Commission) is a federal agency that regulates securities.

Consumer Driven Plans HRA

(health reimbursement account), participants have high deductible group medical expense insurance coverage, the the HRA is partially funded by their employer.

Immediate Annuity

Begins paying out immediately after the initial premium is paid. The premium for a $100,000 immediate annuity is $100,000, regardless of the annuitant's age, health or gender. It is the payout that depends on these factors.

Consumer Driven Plans HSAs

(health savings accounts) are available to any employer or individual who has high deductible health plan (HDHP). HSA contributions are made with before-tax dollars, account earnings grow on a tax deferred basis, and distributions used to pay qualified medical expenses are tax free. Employer contributions to an employee's HSA are excludable from the employee's federal gross income, up to the maximum contribution limit for that employee. Although the employee cannot deduct the employer's HSA contributions, the contributions are not federally taxable to the employee nor are they subject to withholding from wages for federal income tax or other employment taxes. HAS contributions by employers are considered a type of benefit, and are therefore, tax deductible for the employer. HSAa are not subject to year end tax penalties. Contributions to an HSA cannot exceed the participant's deductible, and are subject to maximum limits.

Contributory Group Life Insurance

75% eligible employees must enroll.

Peril

A cause of loss. Health insurance covers two perils: accidents and sickness.

Types of Licenses

A clerical person who occasionally writes up a new application, but does not receive any commission, does not need a license. Unlicensed clerical employees cannot make coverage change recommendations. Title insurance agents must be licensed by the Director upon filing an application and paying proper fees. No exam is required. Producers represent the insurer. Agents are also referred to as producers on the state exam. Even after the exam is passed, an agent cannot sell insurance until his or her license is actually issued. Based upon reciprocal agreements between states, applicants for an Arizona nonresident producer license need not take the Arizona exam if they are properly licensed in the home state. It is not unlawful to sell insurance out of state with a nonresident license. A person may go to jail for filing false financial statements with regulators, the embezzlement of insurer funds or writing threatening letters to regulators, but not for selling insurance out of state with a nonresident license.

Family Policy

A combination policy that automatically covers all family members, including newborn children (after a short waiting period) at no extra premium charge.

Exposure

A condition that could result in a loss.

Contingent Beneficiary

A contingent beneficiary will receive the policy proceeds if the primary beneficiary dies before the insured.

Life Settlement Contract

A contract between the life insurance policyowner and a third party.

Annuity

A contract that will pay a specified indemnity to its owner over a period of time. Annuities are the opposite of life insurance. Life insurance creates an estate. Annuities systematically liquidate an estate over a period of time. All annuities are insurance products, although often sold by bankers with Life insurance licenses. Annuities are often used as life insurance settlement options. If an insured dies during the accumulation period of annuity, the account value will be paid to the insured's beneficiary, who is responsible for taxes on interest earned. The rights of ownership on an annuity become effective as of the contract date.

Stock Redemption

A corporation may buy a policy on a shareholder to provide for stock redemption in the event of the shareholders death.

Disciplinary Action

A license cannot be suspended or revoked without the opportunity for a hearing. Hearings are held at the Insurance Department, not in a court of law. A producer must wait at least one year before applying to reinstate a revoked license. A license cannot be suspended or revoked for declaring bankruptcy. The maximum license suspension is 12 months.

Juvenile Life Insurance Policy

A life insurance policy written on the life of a minor.

Variable Universal Life

A life policy that has an investment component.

Viator

A person who seeks to sell his or her life insurance policy in a viatical settlement.

Variable Life

A policy that invests its cash values in equities.

Business Continuation

A policy that provides for business continuation in the event that a business partner dies is based upon a cross-purchase buy/sell agreement.

Reinsurance

Bought by the insurers to protect themselves in the event of a catastrophic loss.

Insurers

Cannot enforce a contract that they enter into with a minor, but the minor can enforce the contract against the insurer.

Life Insurance Free Look

A policyowner who returns their policy 5 days after delivery will receive a full refund since the free look is commonly 10 days. A polocyowner may exercise the free look provision without giving any reason. The free look period (usually 10 days) starts upon policy delivery. If the policy is mailed to the applicant by the company, the free looks starts on the date of mailing. This is called constructive delivery.

Recurrent Disability

A prior injury that reoccurs again, The elimination (waiting) period is waived.

Binding Authority

A producer's binding authority (if any) is expressed (written down) in the producer's contract with the insurer the producer represents.

Rated Policy

A rated policy is one issued to a substandard risk with dangerous hobbies or health problems.

Valid Contract

A requirement for a valid contract is offer and acceptance, or mutual agreement.

Offer

A specific and definite proposal to enter into a contract. Advertising the availability of insurance is not considered to be an offer.

Standard Risk

A standard risk is one with an average life span. Most applicants are a standard risk.

Adult Daycare

Adult daycare is an LTC coverage which covers meals, meaningful activities, and general supervision of adults in a professionally staffed non-residential facility.

Illegal Occupations Provision

Allows an insurer to deny coverage if the insured became injured or died while committing a felony.

The law of large numbers

Allows insurers to predict claims more accurately. Applies to groups of people, not individuals. The more people in the group, the more accurate the predictions are.

Time Payment of Claims Provision

Allows the claims department time to investigate (maximum of 60 days). Health insurers should pay individual claims as soon as possible, as specified in a provision known as timely payment of claims. Claims may be denied if they occur after policy expiration. Insurers do not have to pay unsubstantiated claims. After receipt of notice claim, the insurer must send out claim forms. If claims forms are not provided by the insurer within the time frame required, the insured can submit proof of loss in writing.

Variable Whole Life

Allows the insured to self-direct the cash value investment. Variable products have no guarantees and are not backed by the guaranty fund. Investing in variable products is considered a hedge against inflation. An agent must be registered with FINRA in order to sell a variable product.

Change of Occupation Provision

Allows the insurer to change the benefit amount or premium should the insured change occupations during the coverage period.

Single Premium Immediate Annuities

Also known as (SPIAs) are often purchases with a lump sum upon retirement.

Agents (Producers)

Also known as field underwriters.

Guaranteed Insurability Rider

Also known as the guaranteed purchase benefit. Allows the insured to increase coverage periodically without a physical examination.

Life Insurance Policy Provisions

Although producers must sign the application, they are not a party to the contract. It is the responsibility of the producer to explain the policy provisions, riders, and exclusions to the applicant. Producers may not make changes to a policy. Policy modifications must be in writing and signed by a company officer.

Respite Care

An LTC coverage that allows family members a reprieve or break from their caregiving responsibilities.

Unfair Practices and Fraud

An agent showing competitor information to a client is not a violation of the unfair trade practices regulation. Misrepresenting facts or policy provisions is an example of an unfair trade practice. It is not misrepresentation to point out that a competitor's policy is different than the one an agent is selling. Any person who knowingly makes an misrepresentation in the sale of insurance is guilty of a class 5 felony. Life insurance may not be referred to as an investment or as a security. It is legal to advertise honest differences in insurance contracts. False advertising is a form of misleading advertising. The availability or amount of coverage may not be denied or reduced based upon marital status. Producers may give gifts to clients of value up to $25. A producer or insurer may charge a fee for services not customarily provided in the transaction of insurance if the fee is filed with the Director and the specific services for which the charge is made are disclosed and agreed to in writing by the insured.

Stock Redemption Plan

An agreement whereby a corporation agrees to buy back the stock of a deceased shareholder.

Increasing Term Policy

An increasing term policy's limits increase each year. An increasing term policy is sometimes called a return-of-premium policy.

Reciprocal Insurer

An unincorporated association of individuals who insure each other.

Life Insurance Application

Applicants may backdate a life insurance application for up to a specified number of months (Usually 6 months) in order to obtain a lower premium. An incomplete application is usually returned. However, should the underwriter approve it, coverage begins and the company has waived its ability to contest a claim. May discriminate based upon physical hazards (age and health) of the applicant.

Industrial Life Insurance Policies

Are written with low policy limits or face amounts.

Medicaid Eligibility

Based upon financial need. There is no age limit. Funded by state, local, and federal monies. It is medical welfare, available to low-income individuals and families.

Insurance Contracts

Because insurance contracts are contracts of adhesion, policy ambiguities always favor the insured.

Guaranteed Renewable Policy

If a policy is noncancellable and guaranteed renewable, the company cannot change anything and it must offer renewal. The insurance company cannot change the coverage, but it can change the rates by class (not individually). A guaranteed renewable policy is renewable at the option of the insured (by paying the premium) up to a certain specified age (usually 65), but the insurer may change rates by class.

Conditional Receipts

If a producer gives an applicant a conditional receipt and an underwriter rejects the application, there is no coverage. Conditional or binding receipts are used in life and health insurance. Binders are used in property and casualty insurance. A conditional receipt is not given to an applicant unless the initial premium has been paid.

Unpaid Premium Provision

If an insured has a claim in the grace period, the insurer may subtract the overdue premium from the amount of the claim paid.

Lapsed Health Insurance Policy

If an insured pays the overdue premium on a lapsed health insurance policy and does not hear from the insurer, the insured is automatically reinstated in 45 days.

Policy Reinstatement

If an insured whose policy has lapsed wants it back, the insured can apply for reinstatement. Upon policy reinstatement, the incontestability and suicide clauses start over. A life insurance policy that has been surrendered for cash may not be reinstated. Life insurance policies are incontestable after they have been in force for 2 years. New life insurance policies are contestable for material misrepresentation for the first 2 years.

Dividend Options (Interest Option)

If an insured with a life insurance policy issued by a mutual insurer allows the insurer to keep the dividends but mail the insured a monthly check.

Irrevocable Beneficiary

If the insured names an individual as their irrevocable beneficiary, the insured cannot change this designation without the beneficiary's consent. An irrevocable beneficiary has a vested interest in the policy.

Settlement Options

If the insured/owner of a life policy does not designate a settlement option prior to death, the beneficiary may choose whichever option he or she wants. Most choose cash, which is not taxable. If the interest settlement option is selected, the interest paid is subject to taxes. When a beneficiary selects the interest only settlement option, interest payments (which are taxable) will vary, but the beneficiary may withdraw the principal at any time. For estate conservation purposes, a beneficiary should select the interest only settlement option. A life insurance beneficiary who elects to take the proceeds payable upon the death of the insured over a period of time has selected the fixed period settlement option.

Annuity (Benefit) Payment

If the owner of a life income annuity with a 10-year period certain dies 13 years after he or she annuitized the contract, the beneficiary will receive nothing. An annuitant would select the period certain annuity pay-out option if the annuitant wanted payments to continue to a beneficiary after the annuitant's death. If an annuitant selects a pay-out option that will pay for a specified period of time, the annuitant has selected the fixed-period option.

Payor Benefit

If the parent paying the premium on a child's life insurance policy dies, the provision that allows the premium to be waived is known as payor or benefit, not waiver of premium. If the payor benefit rider is attached to the policy, an insured will not have to worry about premiums being paid if the policy owner dies or becomes disabled.

Spendthrift Clause

If the policy proceeds are paid out in a lump sum, the spendthrift clause will not apple.

Dental Insurance

In dental insurance, it would create an adverse selection situation for an insurer to offer more than one person enrollment period during the year. To prevent adverse selection, most dental insurance is written on a group basis. Dental insurance has no deductible on diagnostic or preventative care. Dental insurance covers restorative care, such as fillings, inlays and crowns. Dental insurance endodontics services, such as root canals. Also covers the treatment of gum problems, which is known as periodontics. Under dental insurance, prosthodontics includes bridgework. Basic dental insurance plans have first-dollar coverage, without a deductible or coinsurance. May also be written as a prepaid service plan in the same manner as an HMO. Most dental insurance plans do not cover cosmetic dentistry.

Single Premium Deferred Annuity

In order to be considered for a single-premium deferred annuity, there must be a period longer than one benefit payment interval before payments begin.

Medicare Part D Prescription Drug Insurance

In order to be eligible for Part D, one must be enrolled in Medicare Part A or in Parts A and B.

Traditional Whole Life

In traditional whole life policy premiums are due until the insured dies or reaches age 100. Will pay the face amount upon death or age 100.

Utilization Management

In utilization management, pre-certification is different than a concurrent review because pre-certification is done prior to treatment.

Optional LTC Coverage

Includes home health care, adult day care and hospice care.

Key Person Disability Insurance

Indemnifies the business for the loss of services of a key employee due to disability.

Insured's Funds

Insureds' funds invested in a variable life contract or variable annuity must be kept in the insurance company's separate account, which is similar to a mutual fund.

Guaranteed Purchase Option

Is a rider that allows the insured to purchase additional coverage at certain intervals, regardless of health. The cost of living rider on a disability income policy is designed to keep the policy limit up with the rate of inflation.

Residual Disability

Is one that never goes away. Residual coverage pays the difference between what you used to make before your disability and what you can make now.

Unfair Claims Settlement Practices

It is not unfair to deny a claim that occurred after coverage terminated. Refusing to pay claims without conducting a reasonable investigation is an example of an unfair claim practice. The insurance company attempting to use arbitration to settle the claim is not an example of an unfair claim practice. Settling claims on the basis on an altered application is an unfair claims practice.

Decreasing Term Policy

It is the face amount that decreases, not the premium.

Business Disability Insurance

Key person disability insurance indemnifies the business for the loss of services of a key employee due to disability. Premiums are not tax deductible, but benefits are not taxed.

Mortality Tables

Life insurance mortality tables are based upon people and time. A 60 year old male has a higher mortality rate than a 60 year old female.

Life Insurance Premiums

Life insurance premiums are based upon mortality plus company expenses minus interest earned on company investments.

Beneficiaries

Life insurance proceeds create an immediate estate for the beneficiary. The beneficiary does not have to be of the age of majority (18 or 21, depending upon the state) in order to receive policy proceeds; however, proceeds cannot be directly paid to a minor chuld since they cannot sign the release.

Family Deductible

Limits the total amount the family must pay during the year no matter how many family members become sick or injured.

To be insurable

Losses must be calculable.

Medical Plan Concepts

Major medical insurance is considered to be a comprehensive insurance plan. The purpose of pre admission certification is to eliminate unnecessary treatment, thereby lowering premiums (cost saving). Medical expense policies are required to cover the insured's newborn child from the moment of birth. On medical expense insurance, the scheduled benefit limit shown is the most that the insurer will pay.

Unfair Practices and Fraud Twisting

Making incomplete or misleading policy comparisons in order to induce the replacement of life insurance is an unfair trade practice.

Revocable Beneficiary

May be changed at any time by the policyowner. A revocable beneficiary has no vested rights under a life policy.

Producer

May be personally liable when violating the producer's contract. Producers represent the insurance company not the insured. Have express, implied, and apparent authority.

Adjustable Whole Life Policy

May be suitable for someone with fluctuating income. Adjusting the premium will affect the face amount, and vice versa.

Changing of an Insured Rider

May be utilized by an employer who wants to transfer a key person life insurance policy from one key person to another.

Dental Indemnity Plan

May be written as either scheduled (basic) or non-scheduled (comprehensive).

Medical Expense Policies

Medical expense claims are often paid on a fee-for-service basis. Major medical expense policies often have a comprehensive calendar year deductible. Basic medical expense plans cover in-hospital only, with first dollar coverage. There is no deductible or coinsurance, but coverage is subject to inside (maximum) limits. Major medical and comprehensive major medical plans have deductibles and coinsurance requirements. The stop loss feature on a major medical policy applies after the insured first pays the deductible. It limits that amount of coinsurance the insured has to pay on a large claim. Medical expense policies are usually written as cancellable, which means the company can cancel at any time as long as it gives advance notice. Medical expense policies usually contain a probationary period that applies to pre-existing conditions, meaning they won't be covered if they occur during this period.

Consumer Drive Plans MSAs

Medical savings accounts (MSAs) may be set up only by small employers or individuals. Contributions to an MSA made by an eligible individual are limited to a percentage of the annual deductible.

Unearned Premiums

Must be refunded to an insured who was canceled midterm. A pro rata refund is sent when the company cancels. A short-rate refund is sent when the insured cancels.

Conditionally Renewable Policy

Must be renewed if the insured meets the specified conditions.

Whole Life Policies

Must contain a table showing their guaranteed cash value at the end of each year (anniversary date) for the first 20 years. It is shown per unit (per thousand). Benefits are bundled (packaged). Universal life benefits are transparent (stand-alone). Whole life and limited pay life both reach maturity at the same time (age 100).

License Maintenance and Duration

New insurance licenses are issued for a period of 4 years. The Director must be notified promptly (within 30 days) upon change of address. A producer must give up his or her Arizona resident license if the agent moves out of state. The licensee is responsible for keeping his or her address up to date with the director. A producer must file a report of action with the director within 30 days of the final disposition of any administrative action taken against him or her in this or any other jurisdiction. Arizona resident producers must complete 48 hours of continuing education to renew their Arizona license, 6 of which must be related to ethics.

Insurance Laws

Not required to be uniform from one state to another.

Social Security

OASDHI (Old Age, Survivors, Disability, and Health Insurance) is an acronym for Social Security.

Government Insurance

Offers insurance primarily based upon socials needs, such as flood insurance and workers compensation, but does not offer insurance for the purpose of preventing fraud.

Market Value Adjusted Annuity

On a market value adjusted, the contract will pay the specified interest rate if it is held for a specific period of time. Adjustments are only made if the contract is surrendered early.

Dividend Options (1-year Term Dividend)

On a participating life insurance policy, if the policyowner selects the 1-year term dividend option, the dividend may be used to buy term insurance.

Term Life Rider

On a term life rider added to a parent's policy to cover the life of a child, the child's coverage terminates when the child reaches 18, unless the child converts the rider to permanent coverage. When adding a children's term rider to a life insurance policy, all of the insured's children are covered for a single, flat premium charge, no matter how many. A level term rider may be added to a parent's life policy in order to insure a child.

Employer Group Health Insurance

On group disability income insurance, if the employer pays 60% of the premiums, 60% of the benefits payable would be taxable to employees. If and employees pays 100% of the premium for group disability income insurance, none of the benefits paid are taxable. Premiums paid by an employer for a group health policy (such as medical expense or disability income) are tax deductible, since these are fringe benefits for employees. On group accidental death and dismemberment (AD&D) insurance, benefits are not taxable, regardless of who paid the premiums.

Cost Containment in Health Care Delivery

On medical expense plans, a mandatory second option requirement will result in fewer claims. A carry-over deductible applies to claims that occur during the last 3 months of the calendar year. They carry over and apply to next year's deductible. If an insurer wants to stress preventative care, they should waive the deductible for office visits.

Term Life Insurance

On term life insurance, the re-entry option is contingent on the insured passing a physical examination.

Life Income Annuity

One cannot outlive the income from a life annuity. A life income annuity (straight or pure life annuity) has no beneficiary, and is the riskiest choice. Does not start making payments at death. Payments stop at death.

Life Insurance Grace Period

Ordinary life insurance has a grace period of 30 days. A life insurance policy provision that allows coverage to continue even if the premium is not paid on time is known as the grace period. If a terminated employee dies within the grace period of his or her employer provided group life without converting, the full death benefit will be pad to the beneficiary. When an insured dies in the grace period without paying the premium due, the face amount will be paid to the beneficiary, less the overdue premium.

Independent Producers

Own their own accounts and are not insurance company employees.

Medicare Part B Medical Insurance

Part B (medical insurance) Partially funded by user premiums. Part B (physician's services) has coinsurance (80/20) and a deductible. The coinsurance is calculated as a percentage of Medicare's approved amount, not the amount the doctor charges. Has a premium, coinsurance, and a deductible which have amounts that are set annually. The amount paid by Social Security is dependent upon the primary insurance amount (PIA) of the insured.

Joint Life Annuity

Payments stop when the first annuitant dies.

Joint Life Policy

Pays only when the first insured dies. A joint and survivor life policy pays only when the second insured dies.

Personally Owned Health Insurance

Premiums for individual disability or AD&D policies are not tax deductible. Premiums paid on an individual disability income policy are not tax deductible, but benefits paid are not taxable. A self employed sole proprietor may tax deduct 100% of the premiums paid for medical expense insurance. Individual health insurance benefits are not taxable. Premiums paid for individual medical expense and qualified LTC insurance are tax deductible to the extent that they exceed 10% of an individual's adjusted gross income.

Whole Life Policies

Premiums used to purchase whole life policies and fixed annuities are kept in the insurance company's general account, which is invested more conservatively.

Proceeds of a Life Insurance Policy

Proceeds of a life insurance policy, left with an insurer, for the benefit of a beneficiary, may NOT be attached by creditors. Proceeds cannot be directly paid to a minor child since a minor can't sign a release. If the insured dies in an accident, the insurer may order an autopsy to determine that death was not the result of a suicide. In most states, suicide is covered after 2 years. If an insured commits suicide within a specified period of time after policy issue (usually the first 2 years), no benefit is payable, but all premiums are refunded to the beneficiary. If an insured buys a life insurance policy and dies one month later, the insurer must pay the claim.

Fair Credit Reporting Act

Protects consumer privacy. The FCRA is a federal law that regulates investigative consumer reports. Under this act a lawsuit is not required to be filed to get incorrect data corrected. Reporting agencies mist make a report available to anyone whose insurance was denied as a result of information contained in the report. Reporting agencies are not required to send a credit report to anyone requests it, but may furnish reports to persons entitled to receive them in connection with banking, insurance underwriting or employment. Applicants must be given prior notice at the time of application if the insurer is going to gather information about them from other than public records.

Incontestability Clause

Protects the insurance company. Under this clause, the company may contest a claim for the first 2 years, but not thereafter unless it can prove fraud. Companies are reluctant to charge fraud, however, since it requires proof of intent to deceive and is difficult to prove. The time limit on certain defenses clause is another name for the incontestability clause (generally up to 2 years, except for fraud).

Medicare Part A Hospital Insurance

Provides hospital insurance. Only pays for up to 190 days of inpatient psychiatric hospital services during the beneficiary's lifetime. Also covers a skilled nursing facility for up to 100 days in each benefit period. Covers skilled nursing facility care after a 3-day minimum hospital stay, but not custodial care in a nursing home.

Deferred Annuity

Purchased by making periodic payments over a period of time. Can only be surrendered for cash during its accumulation (pay-in) period.

Comprehensive Dental Plan

Similar to major medical expense plans, with a deductible and coinsurance.

Social Security Disability

Social Security disability income benefits are harder to obtain than benefits provided by private disability income insurers. To have fully insured status under Social Security for disability benefits, a worker must have contributed to Social Security for at least 40 quarters (10 years). A disable person must have fully-insured status in order to be eligible for Social Security disability benefits. The waiting period for Social Security disability benefits is 5 months. Social Security disability benefits require that a disabled person cannot work ANY job, and that the disability is expected to last at least 1 year or result in death.

Coverage

The earliest that coverage can start would be the day of the application, assuming the applicant paid the first premium, had no conditions to fulfill, and had not lied on the application. Coverage can NEVER begin unless the premium has been paid.

Medicare Supplements

Sold by private insurance companies and their agents. There is a 6 month open enrollment period for buying Medigap policy. Persons age 65 or older cannot be denied Medigap coverage for health problems during open enrollment. Medicare supplement plans are not required to be approved by Medicare. Only standardized Medigap plans may be offered. Medicare supplements are required to cover Medicare's Part A and Part B coinsurance and the first 3 pints of a blood transfusion as basic or core benefits. It is unlawful to sell someone more than one Medigap policy. The maximum probationary period on Medicare supplements policies is 6 months. When selling agents must give out an Outline of Coverage no later than the time of application and must obtain a signed receipt from the applicant. Have a 30-day free-look period. Although selling someone more than one Medicare supplement is prohibited, replacing one Medicare supplement policy with another is permitted as long as it is not detrimental to the insured. These policies do not have to contain guidelines for Medicare eligibility.

Consideration Clause

Something of value must be exchanged.

Hazard

Something that increases the chance of loss. The presence of a physical hazard increases the chance of loss occurring.

Principle of Utmost Good Faith

States that all parties to an insurance transaction are honest.

The Misstatement of Age Provision

States that if an insurer discovers that an insured has misstated his or her age on the policy application, the insurer will adjust the premiums and benefits according to the correct age of the insured. The misstatement of age provision runs for the duration of the policy. If the insured understates his or her age, it is the face amount that is reduced.

Principle of Indemnity

States the purpose of insurance is to restore the insured to the same position as before the loss occurred. To reinforce the principle of indemnity by preventing an insured from collecting more than they actually lost, most disability income policies contain an insurance with other insurers clause, which requires insurers to share a claim proportionately.

Business Uses of Life Insurance

Stockholders in small, privately held closed corporations often enter into buy/sell agreements with the corporations that are funded by life policies.

Mandatory Provisions

Such as the grace period, protect the insured. Optional provisions, such as probationary periods, protect the insurance company.

Nonforfeiture Options

Surrender charges levied by some insurers on annuities and universal life will reduce the amount a policyowner will receive upon cash surrender. The extended term option is a nonforfeiture option. If a policy with a cash value lapses for nonpayment, the insured has 60 days form the premium due date to select a nonforfeiture option. Extended term is the automatic nonforfeiture option.

Partial Surrender

Taking a partial surrender on a universal life policy allows the policyowner to withdraw some of the cash value without paying tax on the interest.

Term Insurance

Term insurance is renewable without a physical examination, up to a certain age. May be converted to whole life, but not the reverse. Conversion is based on insureds' current age.

Department of Insurance

The Director may audit (examine) a company's books as often as necessary. The Director must audit domestic companies at least once every 5 years. The Director is responsible for determining if an insurance company is insolvent.

HIV Consent Form

The HIV consent form states that the results of an HIV test will only be shared with certain individuals, such as the underwriter.

Assignment of Benefits Provision

The assignment of benefits provision on medical expense insurance facilitates claims handling by allowing the insurer to pay benefits directly to the provider. When calculating how much the company will pay on a claim, always subtract the deductible, first then apply the coinsurance percentage. PPO subscribers who go out of network for services will receive reduced benefits. To encourage an insured who is covered by a point-of-service (POS) plan to seek coverage in network, out-of-network coverage is often subject to higher deductibles.

Express Authority

The authority a producer has that is written in his or her contract.

Implied Authority

The authority not expressly (written) granted, but is actual authority the producer has to transact normal business activities.

Pure Risk

The chance of loss without any chance of gain. (Insurable)

Risk

The chance of loss. (Speculative or Pure Risk)

Consideration

The consideration on a policy need not be equal. A policy may not be voided due to unequal consideration.

Group Credit Life Insurance

The creditor is both the policyholder and the beneficiary. The policy limits on credit life cannot exceed the amount of the loan. Although it is a type of decreasing term, credit life is usually not used for mortgage protection.

Integrated Medical/Dental Plan

The deductible may be satisfied by either medical or dental expenses.

Group Life Insurance

The employees receive a certificate of insurance that summarizes coverage and lists the employee's beneficiary. The policyowner, usually an employer, is issued the master policy. The employer may require an employee to pay the premium for dependent's coverage. A group cannot be formed just to buy insurance. Participation requirements help to avoid adverse selection. Conversion from a group life policy to an individual policy when employment is terminated is permitted for 31 days, regardless of health.

Mortgage Protection Life Insurance Policy

The face amount will decrease at the same rate the mortgage balance declines.

Noncancellable Policy

The insurance company cannot change the coverage or the rates, but it does not have to offer renewal.

Owner of an Annuity

The owner of annuity is responsible for paying the premium. When a policyowner surrenders an annuity for cash, they have exercised a nonforfeiture option. During the surrender period of an annuity, the surrender value is lass than the contract's cash value. The surrender charge on an annuity is sometimes referred to as a back-end load. Annuities waive surrender charges for death or disability. The death benefit on an annuity during the accumulation period is equal to its cash value.

Owner's Rights

The owner's rights section of a life policy states who has the right to change the beneficiary, who can take a loan, and who can take cash surrender.

Annuitant

The party whose life the benefits are based upon. Insurers take the money from annuitants who die to soon and pay it to those who live too long. Although annuity benefits paid to a beneficiary are usually taxable upon the death of the owner/annuitant, beneficiaries who are spouses may continue the contract on a tax deferred basis as the contingent owner.

Benefit Period

The period of time that a long-term care policy will provide custodial care in a nursing home.

Policy Loan

The policy is the sole collateral for a policy loan. Policy loans are not taxable.

Annual Renewable Level Term Policy

The premium will increase every year, although the face amount will remain the same.

Business Disability Insurance Buy-Out Policy

The premiums are not tax deductible, but the benefits are not taxed.

Limited Pay Whole Life Insurance

The premiums are payed for a shorter amount of time. Has limits that pertain either to the number of years payments must be paid, such as 20 pay-life, or the age by which all premiums must be paid, such as life paid-up at 65. Though paid-up earlier, does not reach maturity until the insured reaches 100.

Fixed Annuities

The primary challenge faced by those who purchase fixed annuities is purchasing power risk, since the rate of return is fixed. The rate of return that an insurer pays on a fixed annuity might not keep up with inflation. Fixed annuities guarantee a fixed rate of return and are backed by the state guaranty fund. Also backed by the insurer's general account. Fixed annuities usually pay an interest rate that is similar to other types of conservative investments.

Telemarketing Sales Rule

The purpose of adding one's name to the DNC registry is to prevent telemarketing. To add someone to the DNC registry, his or her phone number is required, but not the social security number. The DNC registry includes the telephone number of individuals. Telephone solicitations may only occur between the hours of 8 am and 9 pm of the time zone where the customer is located.

Insurance

The transfer of pure risk to the insurance company in consideration for a premium.

Orthodontics

The treatment of problems related to the growth and development of the jaw using fabricated appliances, most often braces.