Insurance Licensing Test - Life & Health

Income Replacement

Pays a benefit if the insured experiences a loss of income as a result of suffering a covered illness or injury. Reduction of income triggers payment

Additional Monthly Benefit Rider

Pays an additional benefit during the 6-12 months. Ususally for workers comp or other governement policies.

Budiness Overhead Expenses

Pays overhead expense that continue when the business owner is disabled.

Principal

Person whose behalf the agent. Principal is the agents boss. The insurer is the principal.

Hospital Income or Hospital indemity

Plan pays a flat dollar amount to the insured for each day that the insured is hospitalized as an inpatient.

Non-discrimination

Plans can't have better benefits for executives.

Entire Contract Clause

Policy + Copy of Application + Any Riders/Amendments

PPO

Preferred provider organization. Fee for service - open network.

IRA Withdrawls

Premature withdrawl (before age 59 1/2) may occur 10% penality tax in addition to income tax but is waived on the following reasons: Downpayment on first home, college education, health insuracne if unemployed.

Return of Premium Term

Premium higher than regular term policy. Premium paid by insured is paid back if insured alive at the end of the term.

Noncontributory

Premium paid by employer - 100% of eligible employees must enroll

Indivudal Life Insureance Tax treatment

Premiums - not tax deductible Cash values - tax deferred (not tax deductible as long as they remanin in policy) taxed if withdrawn Withdrawls are taxable to the extent of any gain (first in first out) Interest paid on loans is not tax deductible Death benefit - not taxable if paid in lump sum to beneficary, interest is taxable

Industrial Life Insurance

Premiums are due weekly and are collected in person by producers who go door to door. Face amount is small, often bought simply to help pay burial expenses.Only policy that has weekly premiums.

Apparent Authority

actions the agent does that a reasonable person would assume has the authority. ex: the ability to sign off that the agent works on behalf of insurer.

Reinsurance

An insurance company (the ceding company) paying another insurance company (reinsurer) to take some of the companies risk of catastrophic loss

Any Occupation

An insured is disabled if they are unable to preform the duties of any occupation.

Factors Determining a life annuity payment amount

Annuitants age, annuitants gender, payment guarantee, assumed interest rate.

Annuitizaiton

Annuity "Pay-out" phase, or distribution phase, where the annuitant starts getting payments. When annuitization period starts, the accumulated value no longer belongs to the annuity owner. Money belongs to unsurance company.

Accumulation

Annuity phase, "Pay-In" when principal and depositis grow with credited interest. Annuity value belongs to owner

Spendthrift Provision

(may be included in the policy) -Death benefit cannot be paid in a lump sum -Death benefits cannot be claimed by creditors before payment to beneficiary -Death benefits cannot be pledged by the beneficiary to a creditor -Death benefits cannot be used by the beneficiary as collateral for a loan

Surrender or Withdrawal

- 10% tax if withdrawn before 59 1/2. - surrender period - waiting period. - surrender fee - penalty for early withdrawal.

Fixed Period Option

.DB + Interest paid over a set amount of time. If interest earnigns are greater than the guaranteed rate, amount of final payment will be larger. Factors determining the amount benefciary recieves: Principal amount, Interest earned, the length of time payments are made.

Simplified Employee Pension (SEP)

Employer makes ocntribution on employees behalf, higher contribution limits than IRA, employees must be 100% vested.

Revocable

Beneficiary designations can be changed, or revoked without notice and without their knowledge or consent.

Participating

May pay dividends to policy owner, somehwat higher premium, can be issues by mutual or stock insurers.

Surplus-Lines Insurance Companies

An individual or business has an exceptionally large or specialized risk that no authorized insurer can or will cover.

Risk

Uncertainty about whether a loss will occur

Per Stirpes

"by the branch" it signifies that the children of the deceased class beneficiary are entitled to the beneficiary's share of the proceeds.

Per capita

"by the head" it divides the policy's death benefit equally among the surviving members of the class. Doesn't transfer death proceeds below a generational level.

Who can be a beneficiary?

- Individuals - Businesses - Trusts - 3 parties to a trust 1. Grantor - who sets up the trust 2. Trustee - party that manages trust according to grantors isntructions 3. Beneficiary - the person who recieves the benefits - Estates - pay debts - Charities - Minors - Classes (a group of people e.g. children of the insured)

profit sharing plan

- contributions are not mandatory - contributions are percentage of profits - contributions are tax deductible (as long as plan is in line with ERISA) - 100% taxable to employees at payout - Max contribution is 25% of of total employee payroll

Life Insurance Exclusions

-Suicide - the first 2 years of policy -Avaition - pilots - doesn't apply to commerical -War or Military -Hazardous Occupation or Hobby

With conditional reciepts, If the insured dies before a policy is used, one of these will occur:

1. If deceased insured meets the company's standard underwriting requirements and a policy would have been issued had they lived, the death benefit will be paid to beneficiary. 2. If the insured is found to be uninsurable or substandard risk, the premium that was collected with app

Self-Insurace

A business that pays it's own claims

Peril

A cause of loss, the insurer agrees to cover losses from a specific peril. Ex: death, accidents, or illnesses.

4 patries invloved in an annuity contract:

A contract owner, annuitant (must be individual) (usually contract owner), beneficairy, insurer.

Keogh Plan

A federally-approved, tax-deferred savings program for self-employed people, allowing them to set money aside for their retirement.

Workers Compensation

A form of insuracne providing wage replacement and medical beenfits to employees injured on the job. Medical treatment, rehabilitation, income lost due to disability, income lsot due to death.

Adverse Selection

A high-risk person is more likely to buy and keep insurance more than a person who represents an average level of risk.

Key Person Disability Insurance

A key person is an important memer of a business and their loss due to death or extended incapacity could cause a financial loss for the company. Pays monthly benefit to business when key person is disabled.

Direct Response

A marketing communications tool designed to communicate with consumers one-on-one and elicit a direct action either online or offline. No agent/producer involved.

ROTH IRA

A personal savings plan; contributions are not tax-deductible; earnings/withdrawls are tax-free. Must be age 59 1/2. Account open for 5 years.

Agency

A relationship in which one party (the principal) authorizes another party (the agent) to act as the principal's representative in dealing with third parties.

Long Term Care Rider

A type of accelerated benefit while insured is living which is used to pay long-term care costs. % of face amount each month, reduces death benefit.

Residual Market Insurance

A type of insurance owned by federal government that is not typically available from other private insurers.

AD&D (Accidental Death and Dismemberment)

AD&D Rider pays the principal sum, the full benefit, if the insured dies from accidental death. Capital sum - 1/2 of the principal sum is paid if the insured loses one limb or sight in one eye.

Accelerated Benefit Rider

Advances part of death benefit while the insured is still alive, but has a limited life expectancy and meets medical circumstances including: terminal illness, serious illness, etc.

Incontestability Provision

After policy has been in effect for over 2years, the company can't file a fraud claim that was made on the app.

401K Planns

Allow taxpayers a break on taxes on their deferred income. Employees can save and invest a peice of their paycheck before taxes are taken out. Employees make contibutions while employers will match contributions up to a certain percentage.

Facility of Payment Provision

Allows the insurer to apy all or part of the policy's death benefit to someone other than a designated beneficary if: minor, deceased, cant be found, someone else needs medical or funeral expenses paid for.

Relation of Earnings to Insurance

Allows the insurer to change policy benefit if insured's income has decreased.Portion of the premium will be refunded.

ACA

Also knows as PPACA, Obamacare, Health Care Reform. grandfathered policy - plans existing prior to ACA nongrandfathered policy - must comply with rules of ACA

ERISA (Employee Retirement Income Security Act)

An act for group insurance. Insurable interest is required at the time the policy is purchased. Protects participants in employee benefit plans. Qualified pension plans and group insurance. Reporting and disclosure information for plan participants.

Foreign Insurers

Any state or U.S. territory other than the sate where incorporated

Hazard

Anything that increases the chance that a loss will occur. Hazard's don't cause losses but they make losses more likely.

Reinstatement - Health Insurance

Application and reciept, must deny reinstatment application within 45 days after application or policy is in effect. Sickness claim covered 10 days after reinstatment.

Moral Hazard

Arise from individuals character. Ex: dishonesty is a morale hazard because it creates Morale Hazard problems.

Estate

Assets left behind after you die. Determine the amount of life insurance needed.

Residual Disability

Based off the reduction of income, paid wether insured is able to work full time or part time, pays as long as the reduction in income continues.

Group health insuracne premium

Based on experience rating - the claims history of the individaul group. Community rating - based on pooling groups (also used in rating indivudal service).

Physical Hazard

Can be seen or determined (dead trees around the house)

IRA Funds Invested options

Can invest in: bank accounts, premium annutites, beokerage accounts, mututal funds. Can't be invested in: life insurance, collectables, hard assets.

Dividend Options - CARPPO

Cash - insureer can send check to policyowner in the amount of dividend Accumulation at Interest - Can be left with insurer to earn interest. Not taxable, however the interest credited to the account is taxable. Reduce next premium amount Paid up additions - buy more insurance Paid up Insurance - not have to pay premium One year term insurance can be bought w dividends

Occupational

Covering disabilities that result from both non-job related and job related disabilites.

Non-occupational

Covering disabilities that result from non-job-related ilness or injuries.

Variable universal life

DB is adjustible, level, or increasing Premiums are flexible schedule, flexible amount Cash Values - varies with investment performance, no guaranteed minimum and at risk for loss

Increasing Term Policy

Death benefit begins near zero and grows over the term of coverage. Appropriate for financial obligations that increase steadily over time. Premiums increase.

Decreasing term policies

Death benefit declines over the coverage period until it reaches 0 at the end of the term. Appropriate coverage for financial obligations that decrease steadily over time, like mortgages/bank loans/financial obligations. Premiums are level.

Pension Plans

Defined benefit plans - retiremet benefit specified in the plan Defined contibution - retirement benefit not specified

Long-Term Disability Insurance

Designed to begin paying a benefit when the short term diability benefit ends. The elimination period of the long term plan is the same as the benfit period of the short term plan. Short term diability = 6-24 months Long term disability = 2 years to age 65.

Benefit period

Disability insurance that last a certain period of time, longer the benefit period, higher the premium.

Deferred Annutites

Do not start with income stream imediately. Bought with a single premium or flexible premium, has an accumulation period, owner decides annuitization at later time. Most likely to provide DB if insured dies during accumulation period.

Nonparticipating

Doesn't pay dividends, somewhat lower premium, issued by stock insures

Payment of Premium

Due in advance of the coverage period

ERISA

Employee Retirement Income Security Act - regulates employer plans. Protects employee and beneficiaries, applies to qualified pensions and also group insurance, requires that certian information be made avialble to plan participants, beenficaries, and the department of labor.

Contributory

Employer Plan group, the employee pays part of the premium. At least 75% of eligible employees must enroll. Employee pays part of premium.

Employee Sponsored Retirement Plans

Employer contributions tax deductible, Employee contributions are tax deducible.

Deferred Compensation Plan

Employer that agrees to pay an employee a stated amount of income beginning at retirement rather than paying the money now. Benefits the employee because money isn't taxable until employee receives it.

Employer Mandate

Employers with a 50 or more full-time employees or full-time equivalents must pay a 2K penalty for full-time employee if the employer doesn't offer health coverage.

Fraternal Benefit Societies

Exist for the benefit of their members and offer insurance as one of the benefits of membership.

Accidental Death benefit Rider

Extra benefit if the insured died as a result of an accident. Must die within 90 days of accident. Doubles or triples the face amount.

Whole life Policy

Fixed premium, Fixed and level death benefit, cash values. continuous premium whole life = required to pay until she dies or until she is 100.

Certificate of Insurance

For group insurance policies, the covered indivual recieves proof of coverage in the form of a certificate of insurance.

ERISA

Group Health Insurance Plans

Recurrent Disability

Happens again to you within 6 months,

Variable life insurance policies

Has a separate account instead of guaranteed cash value. DB can be level or variable, but can't decrease lower than the face amount. Variable life is whole life with a separate account, DB can increase but not decrease below face value.

Indivdual Mandate

Health Insurance is required, tax penalty if you don't have health insurance.

Perils

Health insurance definiton: a sickness or medial care not caused by an accident Life inuracne: and unintentional bodily injust caused by an unforseen event

Limited Policies

Health insurance policies that cover only specific accidents or diseases. ex: accident only, dread disease, cirtical illness, hopital indeminty, credit disability, vision, hearing, prescription drug, short term medical expense plan

Persistency

High persistance means low health insurance premiums

Health policies you are able to buy

Hspital/medical expense coverage helps pay doctor and hospital bills. Disability loss of income insurance Dental Insurance Long term Care Insuracne - provides coverae for mediacl and nonmedical care for individuals with illnesses or difficulties preforming ADL = bathing, eating, dressing, transferring, toileting, continence.

Policy loan provision

I the policyowner needs cash buy doesn't want to surrender their policy, they can access the cash value that is available using the policy loan provision. When policy loan and accumulated interest exceed the cash value of the policy, it lapses.

Misstatement of Age

If a deceased insured misrepresents their age, the face amount will be adjusted to an amount the premium would have purchased at the insured's correct age, at the time of the purchased policy. DB is adjusted to lower face amount.

Conversion

If employees decide to leave employeer, or not renew plan, then they can convert to individual policy. have 31 days once coverage is lost. Converted policy must be permanent, not term. The converted policy must provide same coverage as the individual had on group policy, premium based on insureds attained age and no proof of insurability required.

Uniform Simultaneous Death Act

If insured and beneficary die as a result of the same accident, must assume primary beneficiary dies first. proceeds are paid to contingent beneficary or insured's estate if none listed.

Suicide Clause

If insured commits suicide prior to having a policy for 2 years, only premium will be paid back. After 2 years, the full face amount will be paid.

Grace Period

If insured doesn't pay premiums on due date, policy will stay in force for 31 days before the cpolicy lapses. If insured dies during GP then DB is paid minus the premiums that were due.

Wavier of Premium rider

If policy owner becomes disabled, this rider will pay the premiums to the policyholder can continue to have coverage for the duration of the policy. Insured must be unable to work for a certain period (waiting period) which is usually 90-180 days. Insured and owner are the same person. Insured pays premiums during the waiting period, company pays premiums after the waiting period.

Automatic Premium Loan Provision

If the insured fails to pay the policy premium by the end of the grace period, then the insurer will pay the premium with a policy loan and will continue to do so until the cash value of the policy falls below the premium amount.

HIPPA

Imposes specific requirements on the disclosure of insured's health information by medical providers, insurers, and producers. Insurers must keep all medical information confidential and protect the applicatant's privacy.

Insurable Interest

In order to have a life insurance policy on someone's life, the applicant must have an insurable interest in that person for financial, emotional, or significant loss. Spouses don't automatically have insurable interest in each other. Individuals have insurable interest in their own life. Insurable interest also exists among businesses, employees, partners, etc. Insurable interest exists when lenders (creditors) and the people that owe them money (debtors). Insurable interest is only required at the time of the application.

Own Occupation

Inability to preform any or all of duties of insured's normal occupation

Human Life Value

Income replacement: Annual income x # of years until retirement

Alien Insurers

Incorporated in any country outside the USA

misrepresentation

Information given that is actually false. These do not void insurance contracts, to do so they must be material misrepresentations.

Aleatory

Insurance policies are aleatory contracts, the value received from the contract by each party may be unequal. The insurer's performance under the contract depends upon an uncertain event.

Conditional

Insurance policies are conditional because they require certain conditions to be fulfilled in order for performance under the contract to be enforced. Insured must pay the premium for coverage and file a claim if a loss occurs.

Adhesion

Insurance policies are contracts of adhesion - that is, their provisions are written only by one party to the contract, and the other party is required to adhere, or stick, to them.

Group Underwriting

Insurance underwriter focuses on the group as a whole, rather than singluar members. NO medical underwriting takes place.Premiums are based on the experience of the group, premiums fluctuate.

Insuring Clause/Agreement

Insurers promise to pay the benefits upon the insureds death.

Health Insuracne Exclusions

Intentional injury, war or act of war, elective cosmetic surgery, workers comp, felony

Moral Hazard

Intentionally seeking of risk for personal gain because you do not brea the cost of failure.

Interest Only (Leave on Deposit)

Interest is paid on the death benefit of regular intervals. Death benefit is paid at a later date, in addition to the benefit from his life insurance policy. Protected from creditors.

STROLI/IOLI

Investor Owned Life Insurance transactions are life insurance arrangements involve investors who persuade seniors to take out a life insurance policy, and put them as beneficiary. Banned in most states

insurance

Is a contract that transfers the risk of financial loss from an individual or business to an insurer.

Uses of annuities

Life Income Tax-favored savings Funding indiviudal retirements accounts (IRA) Education funds

Buy-Sell Agreement

Life Insurance Policy written on the business owners life. Also known as business continuation plans. EX: Cross-purchase plan, entity plan, stock redemption plan

Permanent Life Insurance

Living and death benefits, level premiums, and lifetime coverage.

Distributions at death of annuity

Lump sum - beneficary gets lump sum (gain is taxable) Five-year withdrawl period - the beneficary must withdrawl all proceeds within 5 years Annuity Paypout - part is taxed (gain) and part is not taxed Spousal Option - ownership may be transfered to spouse.

Cost of Living Rider

Matches increase in Consumer Price Index, increases enefit while reducing disability. Has to do with inflation.

Partial Disability

Means that the person can preform some, but not all, of the essential duties of his or her occupation, Return to work in reduced capactiy, usually pays 50% of total benefit, usally no longer than 3-6 months.

STARR

Methods of handling risk. Sharing - two people pay portion of loss Transferring - what happens when you get insurance Avoiding - eliminating risk by not participating in an activity. Reduction - lessen the chance that it will occur. ex: seatbelt Retention - the individual will pay for loss that occurs. ex: will need to pay for hospital bill without insurance

Disbaility Exclusions

Miliarty or war, attempted suicide or sel-infliced injury, non-commercial aviation, commission of a felony, living overseas.

Endorsements

Modifications can only be made by the company, owner can request a change.

Rollover

Movement of the money from your origional company's IRA is distributed to the owner and then they distribute it to the new companys IRA. Owner has 60 days after reciept to put money in IRA. If money coming from employer plan - 20% taxed.

Application form

Must be signed by the applicant and the producer/agent. Required signatures: Insured, Producer/agent, Applicant

Seven-pay test

Name of the test that is done on the life insurance policy to see if the premiums exceed those needed to fully pay up a death benefit with seven level annual payments.

Social Secuirty Disability

Need to pay SS payroll taxes to earn at least 6 credits during the last 13 quarters to be currently insured. Need a total of 40 redits to be fully insured.

Implied Authority

Not written in the agency contract, but is assumed to be granted to an agent in accordance with general business practices. Ex: agents contract doesn't say in writing that he can use their logo but uses it because it is necessary to conduct business.

Notice of Claim

Notice of Claim must be given to insurer within 20 days after occurrence. If continuing disability can only be required to provide proof every 6 months. Claim form must be furnished to insured within 15 days of notie of loss.Proof of loss is 90 days. Legal Action against inssurer - 60 days

Grace periods - Health Insurance

Number of days the policy is still enforced after the premium has not been paid - a loss that occurs during the grace period is covered. 7-days for weekly premium policies, 10-days for monthly premium policies, 31 days all other policies.

Disability Underwriting

Occupation is most important, the benefit limit doesn't exceed 65-70% of net income, or after tax earned income. 2 options for people uninsurable - charge addional premium, or attach impairment rider that eliminates coverage for a particular condition (ex: heart disease) we will cover you for everything besides you preexisting condition.

Unilateral Contract

One-sided contracts, because only one party is legally bound to perform under the contract. Insurance policies are unilateral because the insured has the right to stop paying premiums at any time. Insurance company PROMISES to pay for a covered loss, insured does NOT promise to pay the premium.

Pure risks

Only involve the POSSIBILITY of a loss, and they can be covered by insurance. Ex: The chance your house will burn down.

Medicare Part A and Part B is called

Origional Medicare

Individual Retirement Accounts IRAs

Owner must be under age 70 1/2 to make contibutions to IRA. Owner must have earned income. Flat dolar amount - tax law places limits on IRA contributions (if oyu have one through work), based on cost of living. Extra contributions - age 50 or older

The 3 application parts

Part 1 - General Information - SSN, martial status, income, occupation, etc. Part 2 - Health/medical Information - height/weight, medical issues/tobacco use, etc. Part 3 - Producers Report

Producer's Report

Part of the application that contains information regarding the producer's personal knowledge of the applicant, such as financial status, habits and character. Will only be signed by producer.

Life Only (Straight Life)

Payment ends even if the beneficary dies shortly after payments begin. Life expectancy is a factor used in calculating the size of the payment. Life income payments are smaller for younger beneficaires.

Joint life

Payments stop when first of two annuitants dies.

HMO

Prepaid through premiums, closed network, provides both health care service and health care finacing, while traditional health care insuracne only provide financing. Control overutilization of their services by using gatekeepers, managed care entities

Rehabilitation Benefit

Provides job training coverage to an insured with total disability so he can return to work.

Disability Income Rider

Provides the insured with a monthly benefit check if they become disabled. benefit amount 1% of face amount.

Insurers must not unfairly discriminate between individuals who are in the same risk class based on:

Race, Religion, National origin, Place of residence

General Agents

Recruits other agents in a certain area who actually sell the insurance to customer.

Policy loans

Reduce the cash value of the policy and can be used as collateral for the loan. Plicy loans reduce the DB, but loans can be repaid at any time. Loans are NOT taxable to policy owner, unless if policy is surrendered and if there is a gain. Interest paid on loans is not taxable.

Exclusive or Captive agents

Represent only ONE company. These agents are sometimes referred to as career agents working from career agencies. Compensated by commissions.

Health Benefit Exchanges/MarketPlaces

Required to offer, operated by state and federal government, annual open enrollment and special enrollment depending on qualifying events

Fair Credit Reporting ACT

Requires consumer reporting agencies to adopt reasonable procedures for exchanging information on credit. Reports on consumers are prohibited unless the consumer is made aware than an investigative consumer report may be made. Prohibits insurance companies from obtaining reports on applications from outside investigative agencies. Consumers have the rights and can dispute information in files.

Probationary Period

Requires new employees to wait for a certain period of time before they can enroll in a plan. During this period they are not covered by the plan. ranges 1-12 months

Reinstatment

Restoration of lapsed policy as originally purchased. Insured must submit an application for reinstatment within 3 years of lapse, pay all past premiums (with interest), priovide evidence of insurability (med examination).

indemnity

Restore to the insured's original pre-loss condition, no better, no worse.

Participation

Retirement employer-sposonerd plans must benefit all regular employees.

Speculative Risk

Risks that have a possibility of a loss or a possibility a gain. Not insurable. Ex: Burred Treasure/gambling/investing

Independent Insurance Agents

Sell the insurance products of several companies and work for themselves or other agents.

Life with Refund

Settlement option pays an income for as long as the beneficiary is alive, but also guarantees total payments will be at least the amount of the death benefit. If beneficary dies before total of apyments reaches the death benefit, the balance is paid to another person.

Health Care Tax Credit for Small Employers

Small employers can recieve a tax credit of 50% of premiums paid for smallbusiness meployers.

Consideration

Something of value - Insureds consideration - pay benefits at the time of claim. Insured's consideration - pay premiums on time and tell truth on app.

Classification of Risks

Standard - average rates of an average healthy person. the morality table was based upon standard risk. Preferred - rates represent excellent health - discounted rates Substandard - below average life expectancy, underlying conditions, high rates, if the applicant accepts the new rates, the effective ate of coverage is the date the policy was issued. Declined - insurers underwriting guidelines indicate that an applicant is not insurable at any price.

Warranty

Statement that is guaranteed to be true. Warranty is a promise made by insurance company and sometimes the insured.

Life Only

Straight Life option will pay the largest amount to the beneficiary for as long as they live.

Life only Anniuties

Straight life, Pure life, or life-no refund. Payments stop when the annuitant dies, regardless of when the death occurs. Beneficary gets largest monthly check from life options.

Estate Tax Treatment

Taxes are a % of the estates value. Taxes are due on transfer of wealth. Tax treatment on annuities depends on whether death occurs during the accumulation period or during the annuity period. Annuitization phase - present value of any pyments that will continure to beneficary.

Capital Sum

The amount of money paid by an AD&D rider if insured is disabled in an accident is referred to as the capital sum. Dismemberment = Severence of feet, etc, will pay 50% of principal

Metal Tiers

The amount that plans will spend on coverage Plaitnum - 90% Gold - 80% Silver- 70% Broze - 60%

Express Authority

The authority made explicit in a producers written agency agreement with the insurer. The wording in the contract telling them what they can and can't do.

Principal Sum

The benefit dollars received from accidental death.

Key Person Coverage

The business owns, pays for, and is the beneficiary of the policy on the key person's life who is important in the company.

Disability buy-sell agreement

The buy out agreement to buy out the interest of the biusiness owner. Need to prove the value of the diables business owners business. Elimination period is 1-2 years, at the end of the period the funds are available and are irreverseable.

Direct-writing companies

The company sells the insurance through salaried employees of the company.

Conditional Receipt

The date of the application or medical exam is the effective date. As long as the applicant is found to be insurable under the company's standard underwriting rules. If the insured dies before a policy is used, one of these will occur:

Utmost Good Faith

The insured and insurance company have a right to expect honest from each other.

Law of Large Numbers

The larger the group, the more accurate losses can be predicted. Insurance companies can be certain how many losses will occur from the group as a whole.

Blackout Period

The preretirement period, one of the distinct income needs periods. The Social Security Administration provides benefits for surviving spouses with children under the age of 16, but not during the preretirement period.

Exposure

The risks for which an insurance company would be liable for.

Domestic Insurers

The state where a company is incorporated

Life Insurance Premium Elements

These elements go into calculation of insurance premiums: Morality - the relative frequency of deaths in a specific population, death rate. Interest - earnings on premium dollars between the time they are collected and the time they are paid out as claims. Expenses - insurer operating costs, referred to as the expense load.

Enrollment Period

To avoid adverse selection, eligible employees must sign up within 31 days after the probationary period ends. Late enrollment may require underwriting.

Elements of a Legal Contract (CLOAC)

To form a valid contract these elements must be present: Consideration - exchange of value Legal Purpose - risk transfer doesn't violate law Offer - made by insured, counteroffer is made by insurer Acceptance - must be unconditional and unqualified Competent Parties

Qualified Health Plan

Under the Affordable Care Act, starting in 2014, an insurance plan that is certified by an Exchange, provides essential health benefits, follows established limits on cost-sharing (like deductibles, copayments, and out-of-pocket maximum amounts), and meets other requirements. A qualified health plan will have a certification by each Exchange in which it is sold.Only available on the exchange, only plan that provides tax credits and cost sharing.

Modified Endowment Contacts (MEC)

Universal Life contracts - a premium limit is set and referred to as a seven-pay limit or MEC limit. Based on the annual premium that would pay up the policy after the payment of seven annual premiums. 10% penality on interest if withdrawn beofre age 59 1/2 unless insured is disabled. Once a MEC always a MEC. Withdrawls are taxed on a last-in-first-out basis. The entire taxable portion of the cash value is considered to be withdrawn before the non-taxable cost basis.

Return of Premium Rider

Upon death or age 65, death benefit is paid + the aggregate of premiums paid to date (80%). Refund of premium after a stated time, benefits paid are subtracted.

Join Life policy/first to die policies

Usually covers two or more lives with the DB being paid when the first one dies.

Fixed Annuities

Values are guaranteed against loss. Value of fixed annuity will never be less than the amount paid into the annuity. General account. Guarantees minimum rate of return.

Vesting

When an employee owns the money in a retirement plan. Employees are always 100% invested in their own annuities.

Credit Diability Insurance

When retailers or lemders extent credit for a large purchase, they often require the consumer to have credit dsiability insuracne. If the consumer (debtor) becomes disabled, the policy's benefit is paid to the creditor (the lender) to pay off the loan. Credit disabiity (health) insurance covers the debtor.

partial Surrender

Withdraws is taxed only if withdraw exceeds premiums paid.

Consumer reports

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

IRA Tax deductability

You may deduct IRa contirbutions from taxable income taxes if: the indidivual or spouse is not covered throguh work, the adjusted gross income is under a certain limit.

Stock Insurer

a business owned by its stockholders/shareholders. The policies issued by stock insurers are called non-participating. Participating policies are issued by mutual insurers. Stock insurance companies don't pay dividends. Stock company is a non participating company.

Annuities

a fixed sum of money paid to someone each year, typically for the rest of their life. Annuinites can be used to: accumulate funds over a period of time, evenly distribute a fund over a period of time, or both accumulate and distribute it

Fiduciary

a person in position of financial trust. All premiums received by an agent are funds received and held in trust, The insured's premiums must be kept SEPARATE from the agent's personal funds.

Physical Hazard

a physical condition that increases the frequency or severity of loss. Ex: Heart condition

Morale Hazard

a state of mind or careless attitude. Ex: leaving car running and unlocked while going to the store.

representation

a statement that is believed to be true, to the best of one's knowledge at the time it was given. Statements given on an application from insured.

403(b) plan

a tax-deferred retirement plan funded by employees of government and nonprofit organizations (churches, public school systems, and hospitals.

Equity Indexed Annuities

a type of tax-deferred and fixed annuity who's credited interest is linked to an equity index. Value is guaranteed by comapny, interest earned can go up or down like the stock market, Interest tied into stock market index, no securites license required.

Dividends

return of premium, participating policies, not guarenteed.

Inconctestability Clause

after 2 years from the date of policy issue, no missstatements, except for fradulent missstatments made by the applicant in the applciation for the policy shall be used to void the policy or deny claim.

Section 1035 Exchanges

allows individuals to move cash values from one contract to another without having any gain taxed at that time. it applies to life insurance and annuities. Annuity to Life is PROHIBITED

Future Increase option rider

allows insured to increase policy benfits, no eveidence of insurability required, the insured's income must have increased. The rate will be based on insured's attained age.

Guaranteed Insurability Rider

allows the owner to purchase additional life insurance at specified intervals in the future for certain amounts without having to provide evidence of insurability. Options to purchase - you must be between ages 25-40. Need QLE toa pply

Accelerated Death Benefits

an advance of death benefits, will need proof of qualifying event that you are critically or terminally ill. Tax exempt.

Preexisting conditions

an illness or disease that ecvisted before an individuals health insruance went into effect. Pre-existing condition exclusoins are still allowed for disability policies, long-term care insuracne, Medicare supplements, and limited benefit policies.

Fraud

an intentional act designed to deceive and induce another party to part with something of value. Can involve misrepresentations, concealment, or both. Not all acts of misrepresentation or concealment are acts of fraud.

Cost of Living Rider

based on Consumer Price Index, as inflation increases so does the death benefit of the policy. But if it decreases, the insureds coverage is not reduced.

Irrevocable beneficiaries

beneficary designation can only be changed with their written consent.

Morale Hazard

carelessness or indifference to a loss because of the existence of insurance. Ex: leaving car unlocked

Waiver of cost life insurance

cash account deductions waived, waiting period & standard expiration

Presumptive disability

condition that automatically qualifies insureds for disability benefits. Ex: loss of or use of any two limbs, total loss of hearing in both ears, totoal loss of speech, total loss of sight in both eyes.

Joint-and-survivor life settlement option

continues paying a benefit for as long as either beneficiary lives. After the death of first beneficiary, the same or reduced payment amount is paid to the survivor. Pays two beneficiaries an income for life.

Juvenile life insurance

coverage written on the life of a child or minor. Death benefit increases when child reaches age 18.

Health care coverage through Medicaide

depends on: Income, employement status, if you have coverage through employer,.

Mutual insurer

does not have stock or stakeholders. It is owned by policy owners/policyholders. An insurer that distributes dividends to policy holders.

Waiver of premium

eliminates the need to pay premiums during any period of disabiltiy.

Agent Authority

express, implied, apparent

Material Misrepresentation

false information given that was stated on purpose. The insurer would of rejected or written insurance contract differently knowing this information. Should void coverage when finding out.

covertibility

feature allows a policyowner to convert a term insurance policy to a permanent type of policy without evidence of insurability and without having to submit an application.

Single premium whole life

has one payment made at the time of purchase.

Graded premium whole life policies

have lower initial premium than modified whole life policies.

Variable Annuities

have the potential to keep pace with inflation because they are supported by investments, values are not guarenteed against loss. Seprate account. FINRA = regulates variable annuities.

Premium mode

how frequently premiums are paid. Premiums may be paid annually, semi-annually, quarterly, or monthly. Annually is cheapest premiums, monthly is the most expensive.

nonforfeiture clause

in an insuracne policy allows for the insured to recieve all or a potion of the benefits for a partial refund on the premiums paid if the insured misses premium payment. Based on attained age. 3 options: Cash surrender - policy is cancelled and policyowner gets cash Reduced paid-up insurance - reduced DB is paid Extended Term - a term policy is bought with the same DB amount.

Return of premium rider

increasing term rider; the death benefit always equals the total of premiums paid for the rider and the underlying permanent policy. Doesn't return the premiums but pays an additional term insurance death benefit the equals the amount of premiums paid.

Navigators

individuals who help consumers fill out applications for health coverage through the Marketplace; they help determine if consumers qualify for programs to help lower their costs. Can't sell inurance or provide advice.

Concealment

intentional failure to disclose known facts.

defined benefit pension plan

it is designed to provide a specific benefit amount at retirement.

Modiefied Premium Whole Life

lower premiums during the first three to five years.

Medical Information Bureau

non-profit trade association that maintains medical information on applicants for life and health insurance. If insurance company find unfavorable information about an application during underwriting process, they report it to MIB. The purpose of the MIB is to reduce instances of misrepresentation and fraud.

Dividends

not taxable, considered a return of a portion of premium paid for the policy. Interest earned is taxed.

Accident-only policies

only cover accidents as a peril, and exclude any type of sickness or disease.

Equity Indexed Universal Life

permanent policy that allows policyholders to tie accumulation values to a stock market index.

Limited-payment whole life

policies allow for a lifetime of premiums to be paid in a shorter period of time. 10-pay or 20-pay, the premiums are payable in 10 or 20 level annual installments

Specifiec or dread disease

policies were originally developed to cover one or one type of catastrophic illness specifed in the policy such as cancer or heart disease.

Statement of good health

policy owner must sign attesting that their health is the same as when they applied for the policy. Required is no premium with application, if health changed agent can't deliver policy

Immediate annuity / Single Premium Immediate annuity

provides an individual with an income that may begin as soon as a month after purchase or may be delayed for up to one year. Must be single-premium annuity

Small business health options program (SHOP)

provides an online application for small employers can shop and compare a variety of health insurance plans. 50 or less full-time employees.

Third-Party ownership

refers to a situation where the policy is owned by someone other than the insured. Life Insurance.

Investigative consumer report

reports containing information obtained by interviewing individuals who know something about the consumer such as associates, friends, and neighbors.

Life Income

similar to an annuity, the policy beneficiary will be guaranteed to receive an income for the rest of their life, regardless of how long that may be. Straight life - Pure Life

Indeterminate premium whole life policy

similar to nonparticipating whole life policy except that it provides for adjustable premiums.

Savings Income Match Plans for Employees (SIMPLES)

simplified retirement plan for small employers with 100 or fewer employees. Employees can contribute, 100% immediate vesting for employer conttributions, all employees earning 5K or more a year must be eligigble. 25% early withdrawl penality

Certificate of Authority

state license for an insurance company - when a company is licensed it is called admitted or authorized. Some states allow companies to sell insurance to certain types of risks (called surplus) without having to have a license, these COMPANIES are then called non admitted, unauthorized, or non approved..

Joint-life-and-suvivor Life insurance annuity

the insureer promises to make payments until the last survivor of the two annuitants dies.

Payment of claims

the insurer will pay the death benefit promptly.

Transfers/Direct Transfers

the moeny from the origional IRA or qualified plan is distributed directly to the new carrier without coming into the owner's possession. No limits on the number of transfers, no money withheld and send to IRS.

Contingent/Second Beneficary

the next in line to recieve the policy's death benefit if primary beneficary dies before the insured.

Fixed Dollar Amount

the proceeds will be paid out in a fixed amount overtime until both the principal and interest have been completely paid to the beneficiary. Settlement option only pays the earnings on the death benefit.

Free look

the right to examine, provision gives the policyowner a period of time to return a policy for any reason, usually no fewer than 10 days.

Elimination Period or waiting period

the time period an insured must be disabled beofre benefits begin.

Exclusion Ratio

to determine the nontaxable portion of each monthly payment, Premium payments payed in / total of expected payments over annuities life expectancy = Percent of premium not taxed.

Assignment of Life insurance

transfer of owner's rights to another indivdual or entity. 2 types: Collateral assignment: doesn't change ownership of policy, pledge all or part of DB as collateral for a loan Absolute or permanent: tranfers all rights or ownership to another person or entity.

Interest Sensitive Whole Life

type of whole life insurance where cash value can increase beyond the stated guarantee if economic conditions warrant. Has a current interest rate, and guaranteed insterest rate.

Reciprocal Insurers

unincorporated groups of people that agree to insure each other's losses under a contract.

Backdating

up to 6 months. Backdating is done so that the premium can be based on an earlier age for the insured. If the application is backdated the policy becomes effective as of that date and the insured must pay premiums from that date.

Payor benefit Rider

usually found with juvenile policies. If the person responsible for the premiums become disabled or die before the child legally becomes an adult, the rest of the premiums are waived until the child reaches a stated age, usually 18 or 21.

Univeral Life Insurance

was designed for people who want flexible premiums, flexible coverage over the course of their lifetime.Premiums paid into a universal life policy accumulate as interest in the policy's cash value. The policy owner may increase or decrease its death benefit. Option A - a universal life policy provides a level death benefit equal to the policy's face amount. (Insurance amount only) Option B - increasing death benefit (insuracne amount plus cash account)

Renewability Feature

with term life insurance, guarantees that the policy will renew (extend) at the end of its term. The insured will not have to reapply at the end of coverage. Will be the same period of time the first policy was. Ex: 5-yeaar renewability term policy renews for another 5 years.