Life Insurance For MA
Ceding Company
Buys or purchases reinsurance
Elements of Contract Law
Consideration, Legal Purpose, Offer and Acceptance, and Competent Parties
Term Life Insurance
Coverage is determined for a period or "term" of your life. After designated term(s) expire, rates are subject to change. Higher coverage with lower premiums. Cannot be used for cash value as the policy does not build equity.
Substandard Risk
Represents higher risk to the company and extra premium will be charged. This may be a person that has multiple physical or lifestyle concerns.
Mutual Insurers
The Policyholders own the company. Usually classified as participating companies, and if there is any surplus at the end of each year, a policyholder dividend (refund) will be paid to each policyholder. The main objective is to provide insurance to its policyowners at the lowest possible net cost.
Interest option
The amount of the death benefit remains with the insurance company, and the company pays the interest to the beneficiary on a regular basis. The company will allow you to withdraw the principal under certain conditions.
Joint and survivor
The company pays death benefits for two lives, rather than one. Joint and survivor settlement is a common option for married couples and business partners. When the first person dies, the surviving person receives a death benefit. When the second spouse dies, the beneficiary receives a death benefit. The amount of a joint and survivor payment is determined by the age and health factors of both spouses or partners.
Fixed period
The company pays the death benefit at regular intervals, with interest, over a chosen period of time.
Life refund
The insurance company pays a set monthly amount to the beneficiary for the remainder of his or her lifetime. Under this option, it's possible for the beneficiary to receive more than the policy's stated death benefit if he or she lives longer than expected.
Uninsurable Risk
The insurance company will not take the risk of insuring this individual. The application will be declined, and if any premium was paid, it will be returned.
Fair Credit Reporting Act of 1970
This is a federal law which mandates fair and accurate reporting of information on consumers by reporting agencies.
Aleatory
This means the consideration passed between the two parties is not equal and/or that the contract is based on future performance. The insured never makes any enforceable promise to the insurance company.
Fraternal Benefit Society
This type of insurer sells insurance only to its members. They are usually operated by religious or charitable organizations.
Simplified Issue
When an insurance company does not require a physical or para-physical exam, the company issues the policy on the basis of the representations on the application
Rated Policy
When an insurance company encounters a substandard risk, which is still insurable, it is most likely to charge an extra premium.
Insurable Interest
a financial or emotional tie to the insured and it must exist at the time of application or formation of the insurance contract.
Lloyds of London
a group of investors who assume risk on behalf of syndicates to which they belong. Individuals pledge their assets against risks of loss. Enjoys a reputation as an insurer of the unusual risk, it also maintains a leadership position throughout the world of insurance in areas such as Maritime, Aviation and Reinsurance. Most closely resemble alien reinsurers.
indemnity
a provision that states that in the event of a loss, an insured is only permitted to collect to the extent of the financial loss and cannot gain financially. It brings the insured to their previous financial position prior to the loss. For example, in the event of a minor car accident where a rear bumper is damaged, the company will pay the amount to repair the bumper so the car can remain at the same value it had prior to the accident.
Reinsurance
a transaction between insurance companies in which the "ceding" company purchases and transfers some or all of its risk to the "Assuming" company, which then becomes a "backup" against catastrophic losses.
Domestic Stock Insurer
an insurance company organized in this state with its capital divided into shares and owned by its stockholders
Stock Insurers
an insurance company which is owned by its Stockholders who share in its profits and losses
General Agencies
entrepreneur who is empowered within a territory to sell insurance and hire sub-agents who can receive an override of commissions. General Agents own agencies.
Utmost Good Faith
exists between the insurer and the insured in that each party must be able to rely on the other for valid critical information.
Fraud
intentional misrepresentation of a fact to induce someone to make or refrain from making a contract, or to deceive or cheat a party
Concealment
intentional withholding of a material fact that is critical in making a decision. It will result in a bad underwriting decision.
Treaty Reinsurance
involves reinsuring groups or similar risks automatically as the ceding insurer insures them. A specific criterion is established by the assuming reinsurer as to which risks are acceptable and are automatically reinsured, up to an aggregate limit specified in the agreement.
Specific Reinsurance
involves reinsuring one risk at a time
Subrogation
legal process by which an insurance company seeks recovery of the amount paid to the insured from a third party that may have caused the loss. In the event of a claim the insurer acquires the insureds right to take legal action against the negligent third party
Estoppel
legal process that is used to prevent a party from re-asserting a right or privilege that has been waived. A company that waived its right to an exam cannot use the fact that no exam was given as a defense in the future.
Only way policy can be canceled
nonpayment of premium.
Implied Authority
not expressed in the contract, but it is what the agent is assumed to have in order to transact business. Since every single detail cannot be spelled out in writing, implied authority gives the agent power while working within the conditions of his/her contract. The company is fully responsible for the agent's actions.
Adverse Selection
occurs when an insurance company receives an inordinately large number of poor risks than anticipated. Occurs when people who know that losses will occur try to insure them.
Unilateral
only enforceable by the insured. Only one party (insured) can enforce an insurance contract. Once an insurance company has underwritten and accepted a policy, the only person that can cancel it is the insured by simply no longer paying the premium.
Credit Report
ordered to determine the financial background of a prospective insured.
Medical Information Bureau (MIB)
organization which accumulates medical data on individuals from its member insurers.
Alien Insurance Company
organized in a Country other than the United States or its possessions
Foreign Insurance Company
organized in a state or territory of the United States (Puerto Rico, Guam) other than the one it is operating.
Buyer's Guide
policy summary and outline of coverage with each life and/or health policy issue. A generic publication that explains the contract in a way that the average consumer can understand. It is an overview of the industry in general, and it teaches a customer a little about each insurance term, but never addresses the specific product or policy being sold
RISK
possibility or uncertainty of a loss.
Binding or Temporary Receipt (interim receipt)
provide guaranteed coverage for a specific period of time, such as 30 days, whether or not the underwriter accepts the risk. It is also referred to as a temporary insurance agreement.
Independent Agencies
represent multiple companies and are non-exclusive. Independent agents own the expiration and renewals of the policies they sell.
EXCLUSIVE OR CAPTIVE AGENCIES
represent only one company. In this case, the company owns and controls the renewals of the policies sold.
Adhesion
the author of the contract is responsible for the intent and meaning of the words. Since the insurance company is the author of the contract, the courts have held that any ambiguity in the contract should be interpreted in the favor of the insured. This is sometimes referred to as the "take it or leave it" doctrine because the only recourse an insured has if they disagree with the wording is to not purchase it.
Express Authority
the authority specifically granted in the written agency contract to the agent
Waiver
the intentional relinquishing of a known right or privilege. For example, in the event a company waives its right to a physical or para medical exam, they must live with the consequences of that decision.
Underwriting
the process by which the insurance company selects risks by requiring inspections and medical reports before they assume the risk, avoiding Adverse Selection (getting insurance when you already know you are sick).
Assuming Company
the reinsurance company and sells reinsurance
Facultative Reinsurance
the same as Specific Reinsurance, but done on a risk-by-risk basis
Non-Participating Companies
typically stock companies that issue common stock of the company. Dividends are paid to the stockholders as a profit of investment.
Career Agencies
work for one insurance company, sell only that companies policies and focus on building a sales staff within a specific geographical location.
Underwriting Classifications
Preferred, Standard, Substandard, and Uninsurable risks
Another name for Treaty Reinsurance
Automatic
Standard Risk
Average to good risk to the company.
Whole Life Insurance
Permanent - protection follows you for your whole life rather than a set term. Policy can build equity and cash value. Premiums are higher than those of a Term Life but, coverage can be more valuable in the long-term.
Part Three of Application
Physician and Agent's Report
Policy Summary
Addresses a specific product/policy and identifies the insurer, the agent, the policy and any additional features and riders. It includes information about premium, dividends, cash values, policy loans and interest rates. May illustrate dividend projections provided it states that dividends are not guaranteed.
Contract Types
Aleatory, Unilateral or Adhesion
Representations
Answers to questions on insurance applications which are supposed to be true. Since insurance companies get most of their information from the applicant, these are expected to be true to the best of your knowledge and belief.
Insurance Policy Components
Declarations, insuring agreement or clause, conditions and exclusions
Outline of Coverage
Describes features, benefits and costs of a policy. It is required to be given to consumers when certain types of coverage's are being considered, such as long term care or Medicare supplement coverage
Participating Companies
Dividend payments to policyholder, as a refund of excess premium, because they share in ownership of the company; these are typically mutual companies. The policyholder receives dividend as a refund of excess premium.
Powers of Agents
Express or Implied authority
Warrentees
Facts and guaranteed to be true by the applicant.
Three Types of Reinsurance
Facultative, Treaty and Specific
Also known as " The Privacy Act"
Fair Credit Reporting Act of 1970
Inspection Reports
Gathered by utilizing national investigative agencies. General character and reputation, finance, mode of living and exposure to abnormal hazards. Might include personal interviews of the insured and his or her friends and relatives. This might sometimes include a pre-text interview. These types of personal or pre-text interviews can be used to avoid fraud in the application process.
Part One of Application
General Information
Preferred Risk
Low risk to the company and the premium will be lower. This may be a person who has a very healthy lifestyle and a long life expectancy.
Part Two of Application
Medical Information
