Insurance

Long term care policies will cover 3 levels of care

1. Skilled Nursing Care 2. Intermediate Care 3. Custodial Care

Government insurance programs are offered through?

1. Social Security 2. Medicare 3. Medicaid

Per Stirpes

Means by the bloodline, distributes benefits of the beneficiary who died before the insured to the beneficiaries heirs

Per Capita

Means by the head, evenly distributes benefits among the living named beneficiaries

Key Person Insurance

- A business can lose business because of the death of a key employee - A business can lower the risk of such loss by the use of key person insurance - With Key Person Insurance, the key employee is the insured and the business is the policy owner and would receive the death benefit

Disability Income Benefits

- Amount of benefits that insurance company will pay is based upon the applicant's net earned income - Most companies will set a max percentage of applicant's earned income, such as 65% for higher incomes or 85% for lower incomes + Benefit amount must be large enough to allow insured to maintain a lifestyle similar to that prior to the disability + Benefit may not exceed the amount earned by insured prior to the disability

Renewability Provisions

- Cancellable policies - Optionally renewable policies - Conditionally renewable policies - Guaranteed renewable policies - Non-cancellable policies

Types of Buy-Sell Agreements

- Cross Purchase Method - Entity Purchase Method - Stock Purchase Method - Stock Redemption Method

Relative Value Scale

- Each surgical procedure will be assigned a number of points that are relative to the number of points assigned to the maximum benefit - The maximum points are usually assigned to major surgical procedures, such as open-heart surgery

Qualified Plans Features

- Employer contributions are tax-deductible as a business expense and not treated as taxable income to the employee - Employee contributions are made with pretax dollars - Interest earned on both employer and employee contributions is tax-deferred, until withdrawn upon retirement - Employees only pay taxes on the amounts withdrawn and withdrawals by employee are treated as taxable income + Withdrawals by the employee made prior to age 59.5 are assessed an additional 10% penalty tax + Withdrawals are mandatory as age 70.5 and failure to take the required withdrawal results in a 50% tax penalty on those funds

Factors considered by the Needs Approach

- Final Expenses - Income - Mortgage - Education

Group Life Certificate must contain...

- Group policy number - Description of the insurance protection - Names of the insured, beneficiaries, and dependents - Rights and conditions

Examples of Limited Benefit Policies

- Limited Risk (Dread Disease) Provides a variety of benefits for a specific disease such as cancer or heart disease - Critical Illness Policy: Pays a lump sum to the insured upon the diagnosis and survival of a critical illness; The policy owner must survive the illness for a certain period time typically 30 - 90 days - Dental Expense Insurance: Covers treatment, care, and prevention of dental disease and injury to insured teeth; Important feature is they cover diagnosis and preventive care such as teeth cleaning and fluoride treatment ^^^^^ These benefits many be paid on a reimbursement or indemnity basis

Primary Premium Factors

- Morbidity Rates: Indicate the average number of people in an given group who can expect to become disabled due to accident or sickness - Interest: Helps reduce premium payments - Expenses: Covers the cost of salaries, commissions, supplies, and other administrative cost

Requirements to starting an HMO include:

- Obtain a certificate of authority - Obtain a valid healthcare provider certificate - Meet capital and surplus minimum requirements - Make a deposit of $10,000 to the rehabilitation administrative expense fund - Become a member of the State's health maintenance organization consumer assistance plan

Licensed agents may not submit applications to an insurance company without the following?

- The Insurance companies name on the first page - The agents license number + Info must be legible and a copy of application must be provided to the applicant

Nonqualified Plans Features

- They do not need to be approved by the IRS - They can discriminate in favor of certain employees - Contributions are not tax-deductible - Interest earned on contributions is tax-deferred until withdrawn upon retirement

How do PPOs differ from HMOs?

- They do not provide care on a prepaid basis - Subscriber are not required to use physicians or facilities that have contracts with the PPO

Common Health Insurance Exclusions or Restrictions

- War or Act of War Injuries - Intentionally Self-Inflicted Injuries - Maternity Benefits

Notice of Replacement

- When a life agent makes a life insurance proposal and knows or should know that the purchase of such policy will replace an existing life insurance policy, the replacement rule applies - Replacement means any transaction in which new life insurance or a new annuity is purchased and, as a result, the existing life insurance or annuities will be replaced

The 11 optional provisions that may be a part of all health insurance contracts

1. Change of occupations 2. Misstatement of age 3. Conformity with state statutes 4. Other insurance in this insurer 5. Insurance with other insurer 6. Insurance with other insurers 7. Relations of earnings to insurance 8. Unpaid premiums 9. Cancellation 10. Illegal occupations 11. Intoxicant and Narcotics

Two Types of Vesting Rules

1. Cliff vesting 2. Graded vesting

Three types of disability income policies used for business

1. Disability Buy-Sell Agreement: A legal agreement that specifies how a business will pass btw owners when one of the owners dies or becomes disabled 2. Business Overhead Expense Insurance: Sold to small business owners who must continue to meet overhead expenses such as rent, utilities and payroll when owner is totally disabled - however it does not reimburse the business owner for their salary 3. Disability Buy-Out: Specifies who will purchase a disabled partner's interest and legally obligates that person or party to purchase the business interest of the disabled partner

The 12 mandatory provisions that are required to be a part of all health insurance contracts

1. Entire Contacts 2. Time limit on certain defenses (incontestable) 3. Grace period 4. Reinstatement 5. Notice of claim 6. Claim forms 7. Proof of loss 8. Time Payment of claims 9. Payment claims 10. Physical examinations and Autopsy 11. Legal Actions 12. Change of beneficiary

Two basic approaches to determine the needed amount of protection by insurance companies

1. Human Life Value Approach: Gives the insured an estimate of what would be lost to the family in the event of the premature death of the insured + It calculates an individual's life value by looking at the insured's wages, inflation, and the number of years to retirement 2. The Needs Approach: Based on the predicted needs of a family after the premature death of the insured

Three categories of Health Coverage

1. Medical Expense Insurance: (Standard health care insurance) Includes plans that cover hospital care, surgical expenses, doctor visits, and outpatient care, along with most of your other basic medical expenses 2. Disability Income Insurance: Provides replacement income when wages are lost due to a disability + It does not cover medical expenses associated with a disability but provides a guaranteed flow of income while the person is disabled 3. Accidental Death and Dismemberment Insurance: Provides a beneficiary with a lump sum death benefit in the event of accidental death of the insured + It will also pay a living benefit for dismemberment

Medicare is divided into four parts

1. Medicare Part A: Helps pay for inpatient hospital care, inpatient care in a skilled nursing facility, home healthcare and hospital care 2. Medicare Part B: Pays for doctors services and a variety of other medical services and supplies that are not covered by hospital insurance 3. Medicare Part C: Medicare Choice/Adventage - To be eligible, enrollees must also enrolled in Medicare A and B 4. Medicare Part D: Optional coverage that provides access to private prescription drug plans that contract with Medicare

Three primary factors used in determining premiums

1. Mortality: The rate of death; Mortality tables help insurance companies predict life expectancy and the probability of death for a given group 2. Interest 3. Expense: Insurance companies have operating expenses; These expenses are factored into the premium rates, also known as the loading charge

Two most popular Defined Contribution Plans:

1. Profit-Sharing 2. Stock Bonus or Money Purchase Plans

Two Common Types of Major Medical Policies

1. Supplemental Major Medical Policies: Used to supplement the coverage payable under a basic medical expense policy 2. Comprehensive Major Medical Policies: A combination of basic expense coverage and major medical coverage, sold as one policy

Income periods that most insureds are exposed to are:

1. Viatical Settlements: Allow someone living with a life threatening condition to sell their existing life insurance policy and use the proceeds, before their death + Viators, the owners of the original insurance policy, usually receive a percentage of the policy's face value from a third party that purchases the policy 2. Business uses for Life Insurance: The most common use of life insurance by businesses is as an employee benefit, which serves as a protection for employees and their beneficiary (Key Person Insurance and Buy Sell Plans)

Medicaid

A Federal and State funded program for those whose income and resources are insufficient to meet the cost of necessary medical care + The federal gov't provides about 56 cents for every Medicaid dollar spent and the state gov't provides the balance

Medicare

A federal program of health insurance for persons 65 years of age and older + Benefits are also available to anyone regardless of age who has been entitled to disability income benefits for 2 years or has a chronic kidney disease or end-stage renal disease + Its administered by the Center for Medicare and Medicaid services, which is a division of the US Department of Health and Human Services

PPO

A group of physicians and hospitals that contract with employers, insurers, or third party organizations to provide medical care services at a reduced fee

Buy Sell Plans/Agreement

A legal contract that determines what will be done with a business in the event that an owner dies or becomes disabled + Also referred to as a Business Continuation Agreement

Split Dollar Plan

A life insurance plan in which an employer and employee share the cost of insurance premiums + Intended to give the employee an incentive to remain with the employer

Unilateral (Special Features of Insurance Contracts)

A one sided agreement. In which only one party, the insurance company, is legally bound to do anything The policy owner is under no legally binding promise to pay premiums. However, the insurance company is legally bound to pay losses covered by the policy. PLEASE NOTE: If the policy owner does not pay their premiums, the insurance company does have the right to terminate the insurance policy.

Annuity Taxes

A portion of each annuity benefit payment is taxable and a portion is not. The portion that is nontaxable is the anticipated return of the principal paid in. This is known as the Cost Base The Portion that is taxable is the interest earned on the principal. This is known as the Tax Base

Coinsurance

A requirement found in major medical policies that require the insured to participate in the payment of some of the expenses + Typically, the percentage of payment required by the insured is 20% and the insurance company pays 80%

Probationary Period

A waiting, often 10 to 30 days, from the policy issue date during which benefits will not be paid for illness related disabilities + Applies only to sickness, not accidents or injury disabilities

Spouse Benefits (Survivor Benefits)

Allow a spouse and dependent children to receive benefits from a deceased worker.

Traditional IRA's

Allow for an individual to contribute a limited amount of money per year, and the interest earned is tax-deferred until withdrawal + Contributions limits are indexed annually + Withdrawals made prior to age 59.5 are assessed an additional 10% tax penalty + Withdrawals are mandatory at age 70.5 and failure to take the required withdrawal results in a 50% tax penalty

Free Look Provision

Allows an insured a specified number of days from the delivery date of the policy to look over a new policy and return it for a full refund if dissatisfied for any reason

Guaranteed Insurability Rider

Allows an insured to increase the benefit level to a specific predetermined amount at certain times or on certain occasions without proof of insurability + Times benefit may be increased are generally at ages 25, 28, 31, 34, 37, and 40 or at one's marriage or birth of a child

Misstatement of Age or Sex Provision

Allows the insurance company to adjust the policy at any time due to misstatement of age or gender + In the event of a claim the insurance company is allowed to adjust the death benefit or the premium to the correct age or gender

Deferred Annuity

An annuity in which the income payments begin sometime after one year from the date of purchase + They can be funded either with a single lump sum or through periodic payments

Pre-Existing Conditions

An individual may be excluded from group coverage for up to a year for any conditions in which the individual sought treatment 6 months prior to the enrollment date

Maternity Benefits

Any policy of health insurance that provides coverage for maternity care must also cover the services of certified nurse-midwives, and services of licensed birth centers + In addition the insurance company cannot limit the length of stay for maternity or new borns that are less than medically necessary

Keogh Plans (HR-10)

Are for self-employed persons, such as doctors, farmers, lawyers, or other sole proprietors + May be defined contribution or defined benefit plans + Contributions are tax-deductible, and interest and dividends are tax-deferred

Deferred Compensation Plan

Arrangement in which the employer agrees to make future payments to an employee after retirement

Accumulation Units

As variable annuity premiums are invested and begin to grow this is known as the accumulation of units

Saving Incentive Match Plan for Employees (SIMPLE)

Available to small business with less than 100 employees The employer makes tax-deductible contributions equal to 2% of the eligible employees compensation or matching the employee's contribution up to 3% + Contributions are fully vested immediately + Early withdrawals are subject to a 25% penalty

Contributory Plan

Both the employer and the employee contribute toward the premium; 75% of all eligible employees must participate

1035 Exchange of the Internal Revenue Code

Certain exchanges of life insurance policies and annuities may occur in a nontaxable exchange + When a cash value life insurance policy is exchanged for another cash value life insurance policy or an annuity for an annuity there will be no income tax on these transactions

Automatic Premium Loan Provision

Commonly added to contracts with cash value at no additional charge + This is a special type of loan that prevents unintentional lapse of a policy due to the nonpayment of premiums Example: If a policy owner misses a premium payment the payment is automatically paid using the policies cash value

Taxation of Benefits

Contributions made with taxed dollars are not taxed upon withdrawal. Tax deferred interest is taxable income upon withdrawal

Hospital Expense Coverage

Covers hospital room and board and miscellaneous hospital expenses, such as lab and x-ray charges, medicines, use of operating room and supplies, while the insured is confined in a hospital + No deductible and the limits on room and board are set at a specified dollar amount per day up to a max number of days

Joint Life Policy

Covers two or more lives and provides for the payment of the proceeds at the death of the first among those insured, at which time the policy automatically terminates.

Roth IRA's

Designed so that withdrawals are tax-free Contributions to Roth IRA's are subject to the same limits as traditional IRA's but are not tax-deductible + Interest on contributions is not taxable as long as the withdrawal is a qualified distribution + Qualified distributions must occur after 5 years in the event of death or disability of the individual, first-time homebuyers, or at the age of 59.5 + Individuals with higher incomes may not contribute to a Roth IRA

Health Savings Account (HSA)

Designed to help individuals save for qualified medical expenses + They are tax deductible - Individuals can make a tax deductible contribution to an HSA and use it to pay out of pocket medical expenses

Vesting Rules

Determine how participants achieve ownership of contributions made by employers

Defined Contribution Plan

Do not specify the exact benefit amount until distribution begins

Employee Retirement Income Security Act (ERISA)

Enacted to provide minimum benefit standards for pension and employee benefit plans, including fiduciary responsibility, reporting and disclosure practices and vesting rules

Individual Retirement Plans (IRA's)

Established by an individual to save for retirement

COBRA

Federal law that requires employers with 20 or more employees to include a continuation of benefits provisions for former employees and their dependents + Guarantees that the participants can continue the group coverage (at their own expense) at group rates if their participation in the group plan is terminated because of a qualifying event

Social Security (Old Age Survivors Disability Insurance)

Federal program designed to protect eligible workers and their dependents against financial loss due to old age, disability or death + Expected to last for a continuous period of 12 months

Health Insurance Premium Factors

Health insurance is funded by regular premium payments Premiums can be paid annually, semi-annually, quarterly, or monthly

Cost-of-living adjustment Rider (COLA)

Helps protect against Inflation; Insured monthly benefit will be increased automatically once claim payments have begun

Consumer Reports

Include written and/or oral information regarding a consumer's credit, character, reputation, or habits collected by a reporting agency from employment records, credit reports, and other public sources.

Delayed Disability

Individual is not disabled immediately but as time passes the person becomes totally disabled

Why are insurance contracts, personal contract?

Insurance contracts are personal contracts btw an individual and the insurance company, and cannot transfer ownership without the insurance company's written consent.

Adhesion (Special Features of Insurance Contracts)

Known as "take it or leave it" agreements, because they're prepared by only one party, the insurance company. They are accepted or rejected by the other party, the applicant, with no negotiations or changes.

State Partnership Programs

LTC partnerships allow those who have exhausted or at least used some of their private LTC benefits to apply for Medicaid coverage without having to meet the same means-testing requirements. The partnership between LTC coverage and Medicaid works by disregarding some or all assets of applicants for Medicaid who have exhausted private LTC benefits.

Conversion Privilege

Members of a group have the ability to convert their policy to an individual plan

Office of Insurance Regulation

Mission is to ensure that insurance companies licensed to do business in a state are financially viable, operate within the laws and regulations of the insurance industry and offer insurance policy products at fair and adequate rates which do now unfairly discriminate against the buying public

HMOs

Most HMOs operate exclusively through a group enrollment system Each member of the group pays a premium, whether or not the person uses the services of the HMO

Stop Loss

Most major medical policies contain a stop-loss feature to limit the amount of expense the insured may be exposed to in a policy year

Immediate Annuity

One that is purchased with a single lump sum payment and provides income payments that start within one year from the date of purchase

National Association of Insurance Commissioners (NAIC)

Organization composed of insurance commissioners from all 50 states, DC, and the four US territories; responsible for resolving insurance regulatory problems and they are active in the formation and recommendation of insurance legislation designed to bring uniformity from state to state and simplify the marketing of insurance

Blue Cross/Blue Shield

Organizations have a contractual agreement with physicians and hospitals + Uses experience rating for large groups and community rating for small groups and individuals

Defined Benefit Plan

Pay a specified benefit amount upon the employee's retirement The benefit is based on the employee's length of service and earnings + The maximum benefit is the employee's average annual salary, not to exceed $195,000 + Mostly funded by individual and group deferred annuities

Major Medical Expense Insurance

Pays most of the costs exceeding those covered by the hospital, surgical, physician expense, miscellaneous expense, catastrophic medical expense protection, benefits for prolonged injury or illness + These policies usually carry deductibles, coinsurance requirements, and large benefit maxiumums

Medicare supplement policy (Medigap)

Policies issued by private insurance companies that are designed to fill in some of the gaps in Medicare - Not administered through Federal Social Security but instead sold and serviced by private insurers and HMOs

Suicide Provision

Protects insurance companies against people using suicide for a quick payment of the death benefit + In the insured commits suicide within the first two years, the insurance company will not pay the death benefit - They will only return the premiums that have been paid

Fixed Annuities

Provide a fixed guaranteed payout, payments that do not vary from one payment to another and guaranteed minimum rate of interest

Long-Term Care Insurance

Provide coverage for individual who are no longer able to live an independent lifestyle and require living assistance at home or in a nursing home facility + Premium payments are deductible as a medical expense to the extent that when added to all other unreimbursed medical expenses, the total exceeds 7.5% of the taxpayer's adjusted gross income; however, there is a limit on the amount of premium that can be deducted depending on the age of the insured, the taxpayer, at the end of the year

Old Age Benefits

Provides a lifetime benefit starting at age 65 or a reduced benefit at age 62 + The amount of the benefit is based on the workers averaged earnings during their working years

hospital indemnity policy (Fixed Rate Policy)

Provides a specific amount on a daily, weekly, or monthly basis while the insured is confined to a hospital

Buyer's Guide

Provides basic info about life insurance policies + Explains how a buyer should choose amount and type of insurance and how buyer can save money by comparing the cost of similar policies + Insured MUST provide a buyer's guide along with a Policy Summary before accepting the applicant's initial premium or upon the clients request

Basic Medical Expense Insurance (Physicians Nonsurgical Expense)

Provides coverage for nonsurgical services a physician provides + Benefits are usually limited to visits to patients confined in the hospital + Covers Emergency Accident Benefits, Maternity Benefits, Mental and Nervous Disorder Care, Hospice Care, Home Health Care, Outpatient Care, and Nurses Expenses

Medical Expense Insurance

Provides financial protection against the cost of medical care for accidents and illness

Franchise Health Plans

Provides health coverage for small groups whose numbers are too small to qualify for true group insurance

Uniform Individual Accident and Sickness Policy Provisions Law

Purpose is to define the rights and duties of both the insurance company and the policyholder - Established standard provisions that are to be included in all individual health insurance policies - Developed by the National Association of Insurance Commissioners (NAIC) has been adopted in all states

Elimination Period

Purpose is to eliminate coverage for short term disabilities in which the insured will be able to return to work in a relatively short period of time + Ranges from 30 to 180 days

Simplified Employee Pension (SEP)

Qualified plan for small employers. A mix of an IRA and profit-sharing plan + Each employee has his own IRA + The employer makes contributions into the employees IRA + An employer may deduct up to 25% of the total contributions made to all employees

Service Providers

Receive premium payments from a subscriber in return for providing benefits, including services provided by hospitals and physicians

Health Insurance

Refers to the broad field of insurance plans that provides protection against the financial consequences of illness, accident; injury and disability

COBRA

Requires employers with 20 or more employees to extend group health coverage to terminated employees and their families

Qualified Plans

Retirement plans for the exclusive benefit of employees and beneficiaries; provide tax benefits and must be approved by the IRS + Plans must be permanent and in writing, communicated to all employees, can be defined contributions or benefits, and cannot favor highly paid employees, executives, or stockholders

Rollovers

Rollovers are a transfer of funds from one IRA or qualified plan to another. Rollovers are taxable at 20%, unless the funds are deposited into a new IRA or qualified plan within 60 days of distribution.

Variable Annuities

Serves as a hedge against inflation, and is variable because there is not a guarantee of payout + Payments can vary from one payment to another and there is not a set rate of interest + Variable annuity is considered a security and is regulated by the Securities and Exchange Commission (SEC) + Agents selling variable annuities must also have a securities license in addition to their Life Insurance License

Representation

Statements believed to be true, to the best of one's knowledge, but they are not guaranteed to be true for insurance purposes The Answers the applicants for insurance gives to the questions on the insurance application

Managed Care

Strategy used by some health insurance companies in an attempt to contain rising health care cost by influencing which and how health care is used by policy owners or subscribers + If person need to go to the hospital, managed care may require that the person receives approval before being admitted and allow the plan to determine if hospitalization is necessary or if alternate treatments might be appropriate

How are government programs funded?

Taxes and serve national and state social purposes

Life with Period Certain

The annuity payments are guaranteed for the lifetime of the annuitant and for a specified period of time for the beneficiary + Annuity payout that is contingent on the annuitant dying

Non-Contributory Plan

The employer pays the entire premium and 100% of the employees must participate

Interest Only Option

The insurance company retains the policy proceeds and pays interest on the proceeds to the recipient beneficiary at regular intervals + The insurer usually guarantees a certain rate of interest and will often pay interest in excess of the guaranteed rate

Annuity Units

The payout phase of the Variable Annuity

Irrevocable

The policy owner may not change the beneficiary without written consent of the beneficiary The policy owner also cannot borrow against the policy's cash value

Revocable

The policyowner may change a revocable beneficiary at any time and without the knowledge or consent of the beneficiary

Taxation of Group Life Plans

The premiums that an employer pays for life insurance on their employees are tax deductible to the employer as a business expense Any time a business is the named beneficiary of a life insurance policy or has a beneficial interest in the policy, any premiums that the business pays for such insurance are not tax deductible

Annuity Period (Annuitization Period, Liquidation Period, Pay-Out Period)

The time during which the money that has accumulated during the accumulation period is converted into income payments to the annuitant NOTE: If the annuitant dies during the accumulation period, the beneficiary will receive the cash value or total premium paid whichever is greater

Recurrent Disability

This provision specifies the period of time, usually within 3-6 months, during which the recurrence of an injury or illness, will be considered as a continuation of a prior period of disability.

Exclusions The most common exclusions in life insurance are...

Types of risks that an insurance policy will not cover - War - Aviation - Non-Commercial Pilot - Commission of a Felony - Suicide

Insurable Interest

To purchase insurance, the policy owner must face the possibility of losing money or something of value when a loss happens PLEASE NOTE: Insurable interest only needs to exist at the time of the original application, but does not need to exist throughout the remainder of the policy

Lump-Sum Cash Option

Upon the death of the insured the policy is designed to pay the proceeds in cash called a lump sum + As a rule this lump sum is not taxable as income

Blue Plans

Voluntary not for profit health care organizations + They are not an insurance company + They are considered a Prepaid Plan because each subscriber pays a set fee in order to receive services + They are also considered a service plan because benefits are paid to the physician and hospital instead of the insured

Waiver of Premium Rider

Waives the premium for the policy if the insured becomes totally disabled Coverage remains in force until the insured is able to return to work + If insured is never able to return to work, the premiums will continue to be waived by insurance company + Most insurers impose a 6 month waiting period from the time of the disability until the first premium is waived + This rider usualy expired when the insured reaches age 65

Straight Life Income Option (Pure Life)

Will pay a specific amount for the remainder of the annuitant's life + This option provides the highest monthly benefit for an individual annuity + Although the annuity payments are guaranteed for the lifetime of the annuitant there is no guarantee that all the proceeds will be fully paid out because the payments stop after the annuitant's death

Salary Continuation Plan

Works the same as Deferred Compensation Plan except that the employee must continue to work for the company until retirement

Cost-Of-Living Rider

addresses the inflation factor by automatically increasing the amount of insurance without evidence of insurability from the insured The face value of the policy may increase by the cost-of-living factor tied to an inflation index such as the Consumer Price Index

If the employer pays all premiums for a group life policy...

all employees must be included in the plan, unless they are individually uninsurable according to the insurer or they refuse coverage in writing

Free Look Provision

allows the policy owner, a free look at the policy for a specific number of days + The Free Look period starts when the policy owner receives the policy from the insurance company in the mail, or is delivered by an insurance agent

State Guarantee Associations

protect policy owners in the event of any insurance company going out of business, becoming insolvent, or the in ability to pay claims

Waiver

the act of voluntarily giving up a legal right, claim or privilege

Benefit Period

the length of time over which the monthly disability benefit payments will last for each disability after the elimination period has been satisfied + Most policies offer benefits periods of 1 year, 2 years, 5 years, and to age 65 + Some offer lifetime benefits; the longer the benefit period, the higher the premium

Group Life Characteristics

- Evidence of insurability is usually not required of each participant unless he/she is enrolling for coverage outside the normal enrollment period - The cost of the coverage is based on the average age of the group and the ratio of men to women

Underwriting Application Basic Components

- General Information: Name, Age, Address, Birth Date, Gender, Income, Marital Status, and Occupation - Medical Information: Medical background, present health, recent medical visits, medical status of living relatives, and causes of death of relatives - The Agent's Report: Agent's personal observations concerning the applicant - Not part of the contract but is part of the application

Commercial Insures: Stock Companies

- Is organized and incorporated under state law - Owned by the stockholder, who get paid a share of the company's profit through dividends - Also referred to as a nonparticipating or non-par

When a business pays the premiums for any of the following arrangements, the premiums are not deductible:

- Key Employee Insurance - Stock Redemption or Entity Purchase Agreement - Split Dollar Insurance

Commercial Insures: Mutual Companies

- Organized and incorporated under state laws - No Stockholders, instead the policyholder own the company - Owners get paid a share of the company's profits through dividends - Also known as participating or par companies because the policy owners do participate in being paid dividends

Most term (pure) policies are...

- Renewable: Allows the policy owner the right to renew coverage at the expiration date without evidence of insurability + The premium for the new term policy will be based only on the insured's current attained age - Convertible: Allows the policy owner the right to convert the coverage to a permanent whole life insurance policy without evidence of insurability + The premium for the new whole life permanent policy will be based only on the insured's current attained age - Renewable and Convertible

Two Types of Policy Assignments (Rights of Ownership)

1. Absolute Assignment: Involves transferring all rights of ownership to another person or entity + It's a permanent and total transfer of all the policy rights - The new policy owner does not need to have an insurable interest in the insured 2. Collateral Assignment: Involves a transfer of partial rights to another person; this is usually done in order to secure a loan + Collateral Assignment is a Temporary Assignment - Once the debt or loan is repaid the rights are returned to the policy owner

Three types of agent Authority (When acting on behalf of insurance company (Principal))

1. Express: Authority as written in the agency contract 2. Implied: Not written into agent contract but agent is assumed to have 3. Apparent: Appearance or assumption of authority given based on actions or words of the principal + Example: Insurance company furnished agent with a rate book, applications and sales literature, company cannot later deny that a relationship existed

Key characteristics of Whole Life Insurance

1. Level Premium: Based on the age of the individual, when originally purchased - Therefore the premiums remain the same through the entire life of the policy 2. Death Benefit: Guaranteed and remains level for the entire lifetime of the policy 3. Cash Value: Created by the accumulation of premium is scheduled to equal the face amount of the policy when the insured reaches age 100 4. Living Benefits: A policy owner can borrow against the cash value while the policy is in effect, or can receive the cash value when the policy is surrendered ***Cash Value is also referred to as Nonforfeiture Values

Three Basic Types of Term (Pure) Coverage

1. Level Term Insurance: Most common type of temporary protection - "Level" refers to the death benefit that does not change throughout the life of the policy 2. Increasing Term Insurance: Policies feature level premiums and a death benefit that increases each year - The amount of increase is usually set at a specific amount or percentage 3. Decreasing Term Insurance: Policies feature a level premium and a death benefit that decreases each year + Primarily used when the amount of protection needs to decrease over a period of time + The most common use for a decreasing term is to insure the payments of a mortgage - The policy amount decreases as the outstanding mortgage loan balance decreases each year + The death benefit will be zero dollars at the end of the policy term

Types of Beneficiaries

1. Primary Beneficiary: Has first claim to the policy proceeds following the death of the insured + Policy owner may name more than one primary beneficiary and how proceeds are divided 2. Secondary Beneficiary: (Contingent/Tertiary Beneficiary) Has second claim in the event the primary beneficiary dies before the insured + Do not receive anything if the primary beneficiary is still living at the time of the insured's death

Three Risk Classifications

1. Standard: Entitled to insurance protection without extra rating or special restrictions (Average Risk). 2. Substandard: Not accepted as Standard because of a physical condition, personal or family history of disease, occupation, or dangerous habits + Referred to as "rated" because they could be rated up, resulting in higher premium 3. Preferred: Applicants are in superior physical condition, with healthy lifestyles and habits - Qualify for lower premiums

Three Basic Types of Whole Life Insurance:

1. Straight Whole Life (Continuous Premium Whole Life): Policy owner pays a fixed premium for the time the policy is issued until the insured's death or age 100 2. Limited Pay Whole Life: Designed so that the premiums for the coverage will be completely paid up well before age 100 + Most versions of Limited Pay Life are 20 years pay. Whereby coverage is completely paid for in 20 years + Or life paid up at 65 whereby the coverage is completely paid up by the insured at age 65 3. Single Premium Whole Life: A onetime lump sum payment is made, which will provide a level death benefit to the insured at age 100 + The policy is completely paid up and will generate cash value immediately

Contract law defines a contract as

A legally binding agreement btw two or more parties, where a promise of benefits is exchanged for a consideration

Group Life Insurance

A plan that provides coverage to more than one person, under one policy + Usually written for employee-employer groups and annually, renewable term insurance + Evidence of insurability is usually not required if participants enrolls during the open enrollment period, and participants under the plan do not receive a policy, nor do they own or control the policy - Instead they receive certificates, indication they are included in the coverage

What do annuities provide?

A stream of income by making a series of payments over a certain period of time

Term (Pure) Life Insurance

A temporary life insurance provided for a specific period of time Temporary protection because it only provides coverage for a specific period of time + Term policies provide for the greatest amount of coverage for the lowest premiums + Provides what is known as pure death protection; If the insured dies during the policy term, the policy pays a death benefit to the beneficiary + If the policy is canceled or expires prior to the insured's death, nothing is payable + With term policies, there is no cash value or any living benefits available

Group Credit Life

A type of decreasing term insurance issued to creditors to cover the lives of people who have outstanding loans

Policy Riders

Added to a policy and ride along, on the basic life insurance policy Only have value when attached to a policy. They have no independent value - They are added to help people customize their insurance policies for their individual needs + Unlike Policy Provisions, Policy Riders are not free; their cost is added to the life insurance policy premiums

Reinstatement Provision

Allows a lapsed policy to be put back in force. + If policy owner elects to reinstate the policy, they will have to provide evidence of insurability, pay all back premiums with interest and may be required to repay any outstanding loans.

Guaranteed Insurability Rider

Allows the insured to purchase additional coverage at specific future dates, without the evidence of insurability, the new premiums will be calculated only on the person's attained age.

What are private companies? How are they funded?

Also known as commercial insurance companies Through premiums and sell insurance for a profit

Estoppel

Legal process used to prevent a party from reclaiming a right or privilege that was already waived. legal consequence of the waiver.

Valued (Life Insurance) vs. Indemnity (Health Insurance)

Life Insurance is a valued contract, which pays a stated amount, regardless of the actual loss incurred Health Insurance is an indemnity contract. It only pays the amount equal to the loss (You're not allowed to make a profit).

Aleatory (Special Features of Insurance Contracts)

Means that there is not an equal exchange of value The premiums paid by the applicant is small in relation to the amount that will be paid by the insurance company in the event of a loss. Example; applicant purchases a life insurance policy worth $100,000 and payments were $50 per month, you die 3 months later. Applicant only paid $150 but they give your beneficiary $100,000

Death Benefit Proceed (Settlement Options)

Methods used to pay the death benefit to a beneficiary upon the insured's death + Policy owner may select a settlement options at the time of the policy application and may also change that option at any time during the life of the insured + Once selected by the policy owner, the settlement option cannot be changed by the beneficiary

Dividends Five Options when receiving Dividends

Paid only on participating policies; When the policy owner purchases the policy from a participating insurance company, they are eligible to receive dividends 1. Take Dividends in Cash 2. Apply Dividends against premium payments 3. Allow Dividends to accumulate interest 4. Buy Paid Up Additions - (Which is a Whole Life Policy) 5. Purchase one year term insurance

Fixed Amount Option

Pays a fixed specific amount in installments until the proceeds are exhausted

Consideration Clause

Policy owners promise to make premium payments

Parol Evidence Rule

Prevents parties from changing the meaning of a written contract by trying to introduce oral or written statements made before the formation of the contract.

Spendthrift Trust Clause

Prevents the beneficiaries reckless spending of benefits by requiring that the benefits be paid in fixed installments

Incontestable Clause

Prevents the insurance company from denying a claim because of incorrect information or a concealment of facts after the policy has been in force for two years.

Purpose of Underwriting

Process in which an insurance company determines whether or not a particular applicant is insurable, and if so, what premiums to charge + The main things and underwriter will use includes the applicant's health, both current and past occupation, lifestyle, hobbies, and habits

Annuity

Provides income for a specific number of years or for life + Protects a person against outliving their money + Not life insurance but a way of accumulating money and liquidating an estate

Life Income Option

Provides the recipient with an income that he or she cannot outlive + Installment payments are guaranteed for as long as the recipient lives + The amount of each installment is based on the recipient's life expectancy

Independent Credit Rating Agencies + These agencies provide the insurance industry with which ratings?

Rate and grade the financial strength and stability of insurance companies Rating are based on claims, reserves and company profits + AM Best + Standard and Poor's + Moody's + Fitch

Reinsurers + Ceding company

Reinsurers are a specialized branch of the insurance industry that insures other insurance company's risk Reinsurance is an arrangement by which an insurance company transfers a portion of a risk it has assumed to another insurance company. + The insurance company transferring the risk * Reinsurer = Company assuming the risk

Service Provider + Most Common?

Service providers offer benefits to the subscribers in return for the payment of a premium + Health Maintenance Organizations (HMOs) + Preferred Provider Organizations (PPOs)

Investigative Consumer Report

Similar to consumer reports in that they also provide information on the consumer's character, reputation, and habits but the information is obtained through an investigation and interviews with associates, friends, and neighbors

Group Life Policies must contain a conversion provision...

This allows individual insured members to convert to an individual plan without evidence of insurability + Most group conversion provisions require that the conversion be made to a whole life policy, as opposed to a term policy

Waiver of Premium Rider

Waives the premium for the policy if the insured becomes totally disabled + Most insurance companies impose a six-month waiting period from the time of disability + The coverage remains in force until the insured is able to return to work + If the insured is never able to return to work, the premiums will continue to be waived by the insurance company + The Waiver usually expires when the insured reaches age 65

Accumulation Period (Pay-in Period)

period of time over which the annuitant makes payments (premiums) into an annuity; also the time that the premium payments earn interest on tax-deferred basis

1970 Fair Credit Reporting Act

provides individuals privacy protection and fair and accurate credit reporting Insurance companies are required to notify applicants of the credit check that will be made on them and allow them to access and notification on anything that may be found

Backdating

sometimes it's possible to lower the premium rate by backdating an application for insurance; if applicant chooses to do this, the policy may be backdated for no more than 6 months before the date of application or medical exam - only allowable reason that application may be backdated is to affect a lower premium

Insuring Clause

the insurance company's agreement and promise to pay the death benefit

Group life insurance plans may be sponsored by:

- Employers - Labor Unions - Credit Unions - Associations - Any other organization formed for a reason other than purchasing insurance + Insurance companies may establish a required minimum number of persons to be insured under a group plan

Non-contributory vs. Contributory

- When an employer pays all of the premiums + Require that 100% of the eligible employees be included in the plan - When the premiums for group insurance are shared btw the employer and employees + Require that 75% of eligible employees be included in the plan

In order for an insurance contract to be legally binding it must have 4 essential elements;

1. Offer and Acceptance: (Offer accepted after it has been approved by the insurance company's underwriters) 2. Consideration 3. Legal Purpose 4. Competent Parties

Two ways to fund an Annuity

1. Single Payment (Lump Sum) 2. Periodic payments, in which premiums are paid in installments over a period of time

Medical Information Bureau (MIB)

A nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals

Lloyd's of London

An association formed to underwrite and issue insurance like coverage on certain items and areas that might otherwise be uninsurable

beneficiary

The person to which the policy proceeds will be paid upon the death of the insured

Captive Agents Independent Agents

They work for and represent only one insurance company They represent several different insurance companies

Fixed Period Option (Period Certain)

proceeds will be paid out in equal installments over a specified period of years

Conditional Receipt

The applicant is covered by the insurance company as of the date of the application, providing that the insurance company approves them for insurance. Example: If agent collects the initial premium from an applicant and gives applicant a conditional receipt and applicant dies next day, the underwriting process will proceed as through the applicant were still alive + If the insurance company approves coverage, applicant's beneficiary will receive the death benefit + If insurer determines that applicant is not an acceptable risk and declines coverage, the premium will be refunded to the beneficiary

Rights of Ownership

The assignment provision specifies the policy owner's right to transfer ownership of the policy.

Blanket Life Insurance

Covers groups of people exposed to a common hazard, such as passengers on an airplane or students of a school. + No one is specifically named on the policy and there is not a certificate of coverage given out. + Individuals are only covered for the common specific hazard stated in the policy

Policy Loan Provision

Found only in policies that contain cash value - Policy owner is allowed to borrow an amount equal to the available cash value + If there are any outstanding loans at the time of the insured's death, the death benefit will be reduced by the amount of the outstanding loan

Franchise Life Insurance

Generally written for groups too small to qualify for regular group coverage

Home Service Insurers

Home service insurance is industrial insurance sold by home service or debit insurance companies. Face amounts are small; usually $1,000 to $2,000 and premiums are paid weekly. The premiums are collected weekly, door to door, by agents

Non Forfeiture Options The Three Options:

If a whole life policy has cash value and the policy owner wants to surrender the policy, because he does not want it anymore, he must make a decision on what he would like to do with his cash value 1. Cash Surrender: Take the Cash 2. Reduce Paid-Up: Cash Value is used to purchase a paid up whole life policy + The new Whole life Policy will have a smaller or reduced face amount from the original policy but there will not be anymore premium payments due and it will continue to gain cash value 3. Extended Term: Cash Value is used to purchase a term policy + The new term policy will have the same face value amount as the original Whole Life Policy and will last for a set period of time based on the amount the cash value available used and there will not be any additional premium payment due

Fair Credit Reporting Act

If someone applying for insurance is declined or modified because of info contained in either a consumer or investigative report, person has right to know what as in the report and will be provided with name and address of reporting agency

Warranties

Statements that are guaranteed to be true and are part of the legal contract. Breach of warranty is grounds for voiding an insurance contract.

1954 McCarran and Ferguson Act

States that, while the federal government has authority to regulate the insurance industry, it would not exercise that right if the insurance industry was run effectively and adequately by the states

Entire Contract Provision

Stipulates that the policy and a copy of the application, along with any riders or amendments, make up the entire contract

Uniform Simultaneous Death Act

The law will assume that the primary beneficiary died first in a common disaster. This is done to make sure the contingent beneficiary receives the death benefit proceeds.

Grace Period Provision

The period of time after the premium payment is due + The Grace Period is usually 30 days + Purpose: To protect the policyholder against an unintentional lapse of the policy + If the insured dies during this period the benefit is payable, however any past due premiums will be deducted from the death benefit

Annuitant

The person who receives the payments from the annuity

Demutualization

The process of a mutual company is converted into a stock company

Mutualization

The process of a stock company being to converted into a mutual company

Concealment

The withholding of known facts which, if material, can void a contract.

whole (permanent) life insurance

There are policies that remain in effect to age 100 as long as the premium is paid Provides lifetime protection and includes a savings element known as cash value + Whole life policies endow at the age 100, which means the cash value created by the payment of premiums is scheduled to equal the face amount of the policy at age 100 + Premiums for whole life policies usually are higher than those for term insurance