LwE What

A business owner buys a life policy on their own life. They may be all of the following, except: A Beneficiary B Applicant C Insured D Owner

A The insured may not be the beneficiary of their own policy. The owner and the applicant may also be the insured.

Moral v Morale

A hazard is something that increases the risk or severity of a loss. Types of hazards include the following: Physical Hazard A physical condition that increases the probability of loss. Example: Pre-existing health conditions increase the probability of a future loss. Moral Hazard A disposition to be dishonest which increases the chance of a loss. The character and reputation of the insured may increase the chance of a loss. Example: Giving false information on an application or filing a false claim. Morale Hazard Indifference to loss, or the failure to take proper care. Morale hazard and moral hazard are very similar, but can usually be distinguished by contrasting the tendency to take an action resulting in loss (moral hazard) with the tendency to fail to take an action that would have prevented a loss. Failing to take precautions regarding one's own health and safety is generally considered to be a morale, not moral, hazard. Example: Smoking or failure to wear seat belts.

Indemnity Contract

An agreement to pay on behalf of another party under specified circumstances, such as when a loss occurs. Under the principle of indemnity, insurance will only restore the insured to the same financial condition that existed before the loss. The insured cannot profit from the loss.

Exclusive Agency

An exclusive or Captive Agent is a person under agreement to represent a single insurer, or a group of insurers, having common ownership. The insurer retains the rights to the business written by the agent. If the agent leaves the insurer, the book of business is kept by the insurer. The insurer normally provides services to its exclusive agents, such as providing office space and clerical support, preparing contracts, and mailing renewals.

Viatical /Life Settlements

An individual selling an owned insurance policy to a third party for less than the death benefit but more than the cash values in order to obtain funds when no other sources are readily available.

CLAC

1. Competent Parties Parties to a contract must have the legal capacity to enter into a contract. Parties are assumed to be competent unless they are any of the following: Minors - For purposes of insurance, a minor is a person under age 16. Mentally incompetent Under the influence of drugs or alcohol 2. Legal Purpose Insurance may not be issued for an illegal activity or an act contrary to public policy. Every insured must have an insurable interest. 3. Agreement (Offer and Acceptance) A person makes the offer by submitting an application for insurance. Acceptance takes the form of the issued policy or binder, which is the insurer's promise to pay. 4. Consideration Consideration is the exchange of value between the parties that makes a contract binding. The insured's consideration is the payment of the first premium, plus an agreement to abide by the conditions of the contract. The insurer's promise to indemnify in the event of a loss is its consideration.

Broker

A Broker is a person acting as an intermediary between an insurer and a purchaser on the purchaser's behalf to help the client obtain the best price, terms, and conditions on insurance coverage other than life, disability, and health insurance. Brokers may be independent or transact on behalf of a broker organization. A broker must have a written agreement with an insured if they receive directly from that insured any compensation, commission, or fees for services. This agreement is called a Brokers Service Contract. The contract must state the services to be provided and the charge for each. Only brokers may charge fees, not agents.

Family Income

A Family Income policy combines Whole Life insurance with a Decreasing Term Rider. The length of the rider is based on the number of years until the youngest child is no longer a dependent, such as age 21. If the insured dies while the rider is in force, the death benefit of the rider is paid in equal monthly installments (including interest) for the remaining number of years the rider would have been in effect. This benefit is in addition to the face amount of the Whole Life policy. If the insured is still living at the end of the decreasing term, the rider drops and the premium decreases. Example An insured owns a Family Income policy with a $100,000 20-year Decreasing Term Rider. If the insured dies with 5 years left to expiration, the rider would provide monthly income (60 installments) based on the decreasing benefit for the remaining 5 years. The face amount of the underlying Whole Life policy will be paid in a lump sum at the end of the installments unless the beneficiary chooses to receive it at the time of death.

Nonparticipating Policy

A Nonparticipating Policy is marketed by a stock insurer. A stock insurer is a company under the control of the stockholders who would receive a share of any profits in the form of a corporate dividend, as opposed to a policy dividend. Stock dividends are treated as ordinary income for tax purposes. A policyholder does not have to be a stockholder.

Participating Policy

A Participating Policy is class of policy marketed by a mutually owned company. The word participating means a dividend may be paid to the policyowner when it is declared by the board of directors. The company is not required to issue only participating policies, but only participating policies will be eligible for dividends. Participating policy dividends are treated as a refund of premium for tax purposes initially. However, once all premiums have been recovered, any further dividends are taxable.

Producer

A Producer is an agent, broker, or solicitor who submits insurance applications to the insurer.

There are certain requirements and individual must meet before obtaining a life settlement broker license:

A life insurance producer licensed as a life agent for at least 1 year or as a licensed nonresident producer meets the licensing requirements and is permitted to operate as a life settlement broker by notifying the Commissioner and paying the life settlement broker license fee Individuals who have not been licensed life agents for at least 1 year who intend to transact life settlements must first complete at least 15 hours of education on life settlement transactions, complete and submit an application, and pay the life settlement broker license fee. A person licensed to act as a viatical settlement broker or provider is qualified for licensure as a broker or provider A life settlement broker license is not required for a licensed attorney, certified public accountant, or accredited financial planner who represents the owner and whose compensation is not paid directly or indirectly by the life settlement provider The Commissioner has the power to suspend or revoke a life settlement broker license for cause after the appropriate hearing procedure. If, for any reason, a licensee intends to discontinue transacting life settlements, the Commissioner must be notified and the license surrendered.

Life Settlement Broker

A life settlement broker, for a fee or commission, offers to negotiate Life Settlement contracts between an owner and providers. A life settlement broker represents only the owner and owes a fiduciary duty to the owner to act in the best interest according to the owner's instructions, regardless of the manner in which the broker is compensated.

Mutual Insurance Company Structure

A mutual company is owned by policyholders (who may be referred to as members). A board of trustees or directors is elected by policyholders to manage the company. Members may receive nontaxable dividends as a return of any divisible surplus when and if declared by the board of directors/trustees. Traditionally, mutual insurers issue participating policies. Most mutual companies are nonassessable, meaning they cannot charge members a pro rata share of loss and expense at the end of the policy period.

What is a partial withdrawal of a universal policy considered?

A partial withdrawal of cash value is permitted in a Universal or a Variable Universal Life policy. A partial withdrawal is considered a partial surrender of the policy. A partial surrender is actually paid from the policy value and reduces both the amount of the death benefit and the amount of cash value in the policy. Any amount withdrawn in excess of the premium is subject to taxation. There may be a surrender or withdrawal charge associated with the withdrawal. The insurer may limit the number of withdrawals that can be made annually or the amount of the withdrawal by specifying minimums and maximums.

peril

A peril is the cause of a loss that a policy insures against. Examples of perils include fire, wind, sickness, disability, or death. Loss Exposure Loss exposure is the condition of being at risk for a loss as a result of a peril. To an insurance company, each insured person represents the risk of loss and the value of each potential claim is a known loss exposure. A loss exposure is also used as a measurement of rating units to determine the premium base of a risk. Adverse Selection Adverse selection is the principle that those more likely to experience a possible loss tend to seek insurance to a greater extent. For example, persons with known health conditions are more likely to apply for life or health insurance.

Policy Loans Provision

A policy loan may be made in a cash value policy once there is sufficient cash value to borrow against. A cash value policy must have some cash value not later than the end of the third policy year. A loan against the cash value does not necessarily reduce the cash value in a policy. The cash value is used as collateral against a loan. Interest will be charged annually, and if unpaid, will be added to the balance of the unpaid loan. Interest charged may be fixed or variable. The insurer may defer granting a loan for up to 6 months unless the loan is intended to repay any premium, such as an automatic premium loan. Failing to repay a loan or interest will not void the policy until the total amount of the outstanding loan and unpaid interest equals or exceeds the policy's total cash surrender value. Any outstanding loans along with any interest due will be deducted from the face amount at time of claim or from the cash values upon surrender.

A broker or agent may not use a senior designation unless all the following conditions have been met:

A senior designation means any degree, title, credential, certificate, or approval that expresses or implies that a broker or agent possesses expertise, training, competence, honesty, or reliability with regard to advising seniors in particular on finance, insurance, or risk management. A broker or agent may not use a senior designation unless all the following conditions have been met: The broker or agent has been granted the right to use the senior designation by the organization that issues the designation and the broker or agent is currently authorized to use the designation The senior designation has been approved by the Commissioner for use by brokers and agents in the sale of insurance for seniors The broker or agent has been licensed for at least 4 years in any state or territory to sell the types of insurance with which the designation is used Violation of these requirements will be grounds for suspension or revocation of their license. This violation will be grounds for a cease and desist order and a monetary penalty as if the broker or agent had acted in a capacity for which a license was required but not possessed.

Stock Insurance Company Structure

A stock company is owned by stockholders or shareholders. Directors and officers are elected by stockholders and carry out the company's mission. Stockholders may receive taxable corporate dividends as a divisible surplus based on the company's profit when and if declared by the directors. Traditionally, stock insurers issue nonparticipating policies.

Warranties

A warranty is either express or implied. An express warranty is a statement stipulated in the policy relating to the insured risk that is considered fact. Every express warranty made at or before the execution of a policy must be contained in the policy itself and signed by the insured. A warranty may relate to the past, present, or future. A statement in a policy showing an intent to do something which materially affects a risk is a warranty or promise made by the insured in the contract, such as "the insured will maintain an anti-theft device." Failure to comply with a warranty breaches the contract. A violation of a material warranty allows the other party to rescind the contract.

Insurers are composed of key departments:

Actuarial - Gathers and interprets statistical information to aid in rate-making/setting Underwriting - Responsible for risk selection Marketing/Sales - Responsible for advertising and selling insurance policies Claims - Provides service to the policyholder in the event of a loss

If a client chooses to pay premiums other than annually, what can they expect?

Additional charges to offset lost interest, earnings, and increased administrative costs

What is meant when a life insurance policy becomes incontestable?

After 2 years, the insurer will not refuse to pay a death claim based on misinformation in the original application for insurance Incontestability means that the insurance company cannot use the statements in the original application for insurance as a reason to avoid paying a death claim. The policy becomes incontestable after 2 years in California.

Elements of a Legal Contract

All insurance contracts must include these 6 requirements or specifications: The parties between whom the contract is made The property or life insured The interest of the insured in the property insured, if they are not the absolute owner The risks insured against The period during which the insurance is to continue A statement of the premium, or a statement of the basis and rates upon which the final premium is to be determined and paid

To sell Variable Life policies you must

All variable products are subject to SEC regulation. Variable Life is considered a security and can only be sold by individuals with a life insurance license and a FINRA securities registration, Series 6 or 7, and Series 63. A prospectus, which describes the separate account, must be provided prior to the sale of a variable policy, and there are suitability requirements that must be met before a variable policy can be sold. Policy loans are available from either the general account or the separate account. Typically 75-90% of the cash value can be borrowed. Partial surrenders are not allowed from a variable Whole Life policy.

Independent Agent

An Independent Agent is a person who enters into an agency agreement with more than one insurer. The independent agent has ownership of the business written, pays the cost of office space, clerical support, marketing, and the collection of renewal information.

An Insurance Agent is a person who transacts insurance—other than what types?

An Insurance Agent is a person who transacts insurance—other than life, disability, or health insurance—on behalf of an admitted insurance company. A Life Agent is authorized to transact life insurance and disability and health insurance.

Insurance Broker

An Insurance Broker is a person who, for compensation and on behalf of another person, transacts insurance (other than life, disability, or health insurance) with, but not on behalf of, an insurance company. A broker must have a written agreement with an insured to receive any compensation or fees, for services directly from the insured. This agreement is called a Brokers Service Contract. The contract must state the services to be provided and the charge for each, and must be agreed upon in advance of the contract. It must also include if the broker will receive commission from the insurance company. A licensed broker-agent is considered to be an agent representing an insurer when a notice of appointment for that licensee has been filed with the Commissioner. There is no such license as a life broker or health broker.

Insurance Solicitor

An Insurance Solicitor is a natural person licensed to transact insurance who is employed by a property and casualty agent or broker to assist in transacting lines of insurance other than life insurance, disability, or health. There is no such license as a life solicitor or health solicitor. The solicitor license must be for the same line or lines of insurance held by the agent or broker who employs them, and a solicitor may be employed by only one agent or broker at any one time.

What can Annuities be used for?

Annuities can be used to accumulate funds for education and retirement plans. Annuities can also be used to convert a lump sum of money into a temporary or lifetime income payment benefit. Annuities are used primarily to provide a steady stream of income to an individual typically upon retirement. In theory, an annuity is designed to protect against outliving an individual's retirement income by providing lifetime income. One of the primary functions of an annuity is to liquidate an estate, or to pay benefits until the death of an annuitant. In direct comparison to life insurance, an annuity could be referred to as the opposite of a life insurance policy. Annuities are funded and sold through life insurance companies and require at least a life insurance license to sell. Annuities are insurance products based on a mortality table.

Conservation

Conservation includes any attempt by the existing insurer or agent to deter a policyowner from the replacement of an existing life insurance policy or annuity contract. This does not include late payment reminders or reinstatement offers.

Constructive or legal delivery

Constructive or legal delivery occurs only if the premium was paid at the time of application. Once the insurer issues the policy, a legal contract has been formed since the policy becomes the acceptance. Once the insurer mails the policy to the producer, it is considered constructively or legally delivered by the insurer. It is still the producer's responsibility to obtain delivery signatures and explain policy benefits to the policyowner/insured.

There are two legal employer-employee plans:

Contributory - Employees will be required to pay up to 100% of the premium payments, and at least 75% of all eligible employees must participate. Noncontributory - Employer pays the entire premium, and 100% of the eligible employees must be covered. The percentage participation requirements are used to reduce adverse selection.

Eligible employee groups in California must have the following characteristics:

Covers not less than 2 public or private employees and will terminate if coverage falls below 2 lives Issued to the employer with premiums being paid by the employer, employee, or jointly Insures either all employees or all classes of employees as determined by conditions pertaining to employment Written for the benefit of someone other than the employer, such as a trustee representing the employees and dependents When written on a contributory basis, the benefits must be offered to all eligible employees May be issued with or without a medical examination Cannot provide for the employer to be named as beneficiary of the employee's policy

Replacement does not apply to:

Credit Life insurance Group life insurance or annuities Conversion of an existing policy Proposed life insurance that is to replace life insurance issued by the same insurer Replacement Any transaction in which new life insurance or an annuity is to be purchased and it is known that the existing contract will be: Lapsed, forfeited, surrendered, or terminated Converted to reduced paid-up insurance, continued as extended term insurance, or otherwise reduced in value by the use of nonforfeiture benefits or other policy values Amended to reduce the benefit or term in which the coverage would remain in force Reissued with a reduction in cash value Pledged as collateral or subjected to borrowing for amounts in the aggregate exceeding 25% of the loan value set forth in the policy Every life insurer must inform its field representatives or other personnel responsible for compliance with the replacement requirements and require a statement indicating whether replacement is involved with each completed application for life insurance or annuity.

Demutualization

Demutualization is the process where a domestic incorporated mutual life insurer, or life and disability insurer, issuing nonassessable policies on a reserve basis may be converted into an incorporated stock insurer.

The entire contract consists of

Entire Contract Clause This provision describes the parts of the life insurance contract. The entire contract consists of the policy, riders (endorsements), amendments, and a copy of the application. All statements made in the application are, in the absence of fraud, deemed to be representations and not warranties. All parts to the contract must be attached and in writing. Nothing can be incorporated by reference.

Notice regarding replacement

Every life insurer must inform its field representatives or other personnel responsible for compliance with the replacement requirements and require a statement indicating whether replacement is involved with each completed application for life insurance or annuity. Each agent who accepts an application for life insurance or annuity that involves replacement of any existing life or annuity policy must submit to the insurer a Notice regarding replacement, which must include: A statement signed by the applicant as to whether replacement of existing life insurance or annuity is involved in the transaction A signed statement as to whether or not the agent knows if replacement is involved If a replacement is involved, the replacing agent must: Present to the applicant at the time of application a Notice Regarding Replacement which must be signed by both the agent and the applicant Collect and provide a list of life insurance policies or annuities to be replaced along with the names of the insurers and contract numbers Leave with the applicant the originals or copies of all written or printed communication used for presentation—including sales proposals and comparisons of policies

Exclusions

Exclusions are conditions stipulated in the contract for which the insurer will not provide coverage. The insurer cannot add or alter any of the exclusions after the policy has been issued. Such exclusions are normally limited to the following: Aviation - The exclusion does not apply to fare-paying passengers on regularly scheduled commercial flights. This exclusion applies most specifically to student pilots or those with a newly issued pilot's license with a limited number of hours of flying experience. Military Status Clause - No coverage for individuals with military status since these individuals are provided coverage through the government. War Clause - No coverage if death is the result of war, declared or undeclared. If death occurs during the period of war, only the premiums are refunded. Illegal Activity - No coverage for losses resulting from illegal activity. Hazardous Occupation - No coverage if death is related to a hazardous occupation as stated in the policy, such as stunt drivers or auto racers. Hazardous Hobbies or Avocation - No coverage if death is related to a hazardous hobby as stated in the policy, such as sky diving or hot air ballooning.Hazardous hobbies or occupations may result in the exclusion of certain causes of death by endorsement, as opposed to the insurer denying coverage. This would result in a refund of premiums paid. Suicide - If suicide is committed within the first 2 years the policy is in force, the insurer's liability is limited to a refund of premium. If the insured's death is a result of suicide after the first 2 years, then the insurer pays the full face amount (death benefit) of the policy.

Insurers

Insurers (insurance companies or carriers) manufacture and sell insurance coverage by way of insurance policies or contracts. In California, any person capable of making a contract may be an insurer, subject to the restrictions imposed by the insurance code. In this case, a person is defined as any individual (natural person), association, organization, partnership, business trust, limited liability company, or corporation.

Express v Implied v Apparent Authority

Express Authority is written into the producer's agency contract. It details specific activity regarding the producer's ability to transact business on behalf of the principal. An example would be the producer's authority to solicit, negotiate, and sell insurance contracts on behalf of the principal. The agent may also have the express authority to bind coverage. Implied Authority is not specifically stated in the contract, but it is necessary, reasonable, and usual for the producer to perform stated duties. Since not all duties can be spelled out in the contract, incidental duties are assumed by the agent as appropriate to carry out the express authority granted by the principal. An example would be the use of the company logo on business cards or letterhead, implying the agent has authority to represent the principal when finding new clients in the process of soliciting and selling insurance. This also includes accepting applications and collecting premiums. Apparent Authority is created when the producer exceeds the authority expressed in the agency contract. It is authority the public (or a third-party) is falsely led to believe the agent has and the principal does nothing to counter the public impression that such authority exists. An example would be the producer's acceptance of premiums on a lapsed policy.

The most common methods of determining group insurance benefits are:

Flat benefit (all employees receive the same insurance amounts) Based on a percentage of income (employees receive 100%, 150%, or 200% of their annual base wage, subject to imputed income) Based on one's position in the company (the employer may establish different benefits for specific classes of employees, but may not discriminate between employees in the same class)

Senior Free Look and Cancellation Period

For ethical practices regarding free look and cancellation of annuity contracts in California, a senior citizen is defined as an individual who is 60 years of age or older on the date of purchase of the policy. Persons who are 60 years of age or older must be given a 30-day cancellation and free look period. This allows additional time to seek the counsel of others to assist in the decision to keep or cancel the new policy. Every individual life insurance and annuity contract delivered or issued for delivery to a senior citizen in California must include a notice in 12-point bold print that the policy may be returned within 30 days after receipt of the policy by the owner for a full refund by returning it to the insurance company or agent who sold the policy. The notice must include that, if returned after 30 days, cancellation may result in a substantial penalty, known as a surrender charge, unless those penalties or charges do not apply. During the 30-day cancellation period, the premium for variable annuities may be invested only in fixed-income investments and money—market funds, unless the owner specifically directs that the premium be invested in the mutual funds underlying the variable contract. If the policyowner has not directed that the premium be invested in mutual funds, cancellation will void the policy from the beginning and all premiums will be refunded within 30 days. If the owner has directed that the premium be invested in mutual funds, cancellation entitles the owner to a refund of the account value within 30 days. Disclosures of the investment requirement/option and return of premium/fees in case of cancellation must be in 12-point bold print and displayed on the policy cover page. If the insurer fails to refund all the premiums paid in a timely manner during the 30-day free look period, the applicant is entitled to receive interest on the unreturned premium from the date the insurer the returned contract.

Fraternal societies

Fraternal societies are primarily social organizations that engage in charitable and benevolent activities that provide insurance (primarily life insurance) to their members. They are usually organized on a nonprofit basis. Membership is typically drawn from members of a given religious denomination or lodge, order, or society.

Characteristics of Group Insurance Plans

Group insurance is a contract between the sponsor and the insurance company. In a group insurance plan, the insurer issues a Master Policy to the Plan Sponsor and each participant receives a Certificate of Insurance covering the participant and (if offered) their spouse and dependents. Participants in the plan do not have personal control of the policy or policy changes as with an individual policy. Group life insurance is available to employee groups as small as 2 persons, and California defines a number of specific groups that are eligible for group life insurance, such as elementary and secondary school teachers, employees of the state colleges and universities, and members of the National Guard. These larger groups must have at least 25 members.

Ultimately it is up to the whom to determine if the proposed insured is an acceptable risk?

Home office underwriter

Human Life Value

Human Life Value This approach is a measure of the projected future earnings and services of a person at risk in the event of a premature death. The objective is to provide the proper amount of coverage as determined by the value of the individual to their dependents using the following factors: The individual's age and gender The individual's occupation The individual's annual wage The individual's planned retirement age Inflation

The Life Insurance Surrender Cost Index v The Life Insurance Net Payment Cost Index

If an agent or insurer makes a presentation comparing the cost of life insurance which does not recognize the time value of money, the agent must present the Life Insurance Surrender Cost Index and the Life Insurance Net Payment Cost Index. The Life Insurance Surrender Cost Index is used to compare the cost of similar policies based on determining the guaranteed cash surrender value, if any, available at the end of the 10th and 20th policy years. The Life Insurance Net Payment Cost Index is also used to compare similar policies, however this index shows the cost based on the death benefit payable after a surrender period of 10 or 20 years rather than the cash surrender value. The presentation of these indexes must be accompanied by an explanation that these are measures of the relative cost of similar plans of insurance and that a low index number represents a lower cost than a higher index number.

Trial Application

If an application is submitted without a premium, it is a Trial Application. The policy would not take effect until the policy is issued by the insurer, delivered by the agent, and the premium is paid.

Suicide Clause

If the insured commits suicide within 2 years from the issue date, the insurer's liability is limited to a refund of premium. If the insured commits suicide after the Suicide Clause has expired, the insurer must pay out the death benefit to the named beneficiary. The intent of this clause is to discourage individuals from purchasing an insurance policy while contemplating suicide.

Decreasing Term

In a Decreasing Term policy, the death benefit decreases, but premiums remain level for the policy term. Often such policies are sold as mortgage protection with the amount of insurance decreasing as the balance of the mortgage is paid by the insured. If the insured dies, the proceeds of the policy can be used to pay off the mortgage. The premiums paid for Decreasing Term are lower than the premiums payable for level term since the benefit decreases throughout the term of the policy. Credit Life insurance is a special form of Decreasing Term. Unlike the standard Decreasing Term policy, Credit Life automatically names the creditor as the beneficiary. The policy cannot be written for more than the outstanding debt, since that is the limit of the creditor's insurable interest. Once the loan is paid, the policy ends. Credit Life is usually sold on a group basis to a creditor, such as a bank, finance company, or a company selling high-priced items on the installment plan. The policy generally pays the outstanding balance of the debt at the time of the borrower's death, subject to policy maximums.

Endow (Mature)

In a cash value policy, the date on which the contract ends. A Whole Life policy is expected to have cash value equal to the face amount (if no loans are taken and all premiums are paid) on the endowment date, and the policy value is paid to the owner.

The following information does not need to be communicated in an insurance contract:

Information already known by both parties Information that should be known by both parties Information for which a party waives communication Information that is not material to a risk The financial rating of an insurance company Neither party to a contract of insurance is bound to communicate, even upon inquiry, information of their own judgment upon the matters in question

Insurable Interest

Insurable Interest The policyowner must have a potential for financial hardship in the event of a loss. Insurable interest must exist between the policyowner and the insured or the contract is void. In property and casualty insurance, insurable interest must exist when the insurance takes effect, and when the loss occurs, but need not exist in the meantime; an interest in the life or health of a person insured must exist when the insurance takes effect, but need not exist thereafter. Coverage is determined based on the possibility of an economic or financial loss due to an accident, sickness, or death of the insured. A mere contingent or expectant interest not founded on an actual right to the item in question, nor upon any valid contract for it, is not insurable. For example, failing to receive an expected inheritance is not an insurable loss.

Producers

Insurance Agents or Producers are licensed individuals authorized, by and on behalf of an insurer, to transact insurance through an admitted insurance company.

Indemnify

Insurance is a contract permitting one party to indemnify another against loss, damage, or liability arising from a contingent event. Indemnify means to make one whole or restore a person to the same financial condition as before the loss. Insurance is a social device for spreading risk. There is an exchange of a small certain expense (premium) for a large uncertain loss (possible claim). Insurance transfers the risk and protects against uncertainty. Insurance Policy The policy is the written instrument (document) setting forth a contract of insurance. Principle of Indemnity To indemnify means to restore a person, in whole or in part, to the same physical or financial condition which existed prior to a loss, but without profit or gain. In life and health insurance, it may not be possible to truly indemnify a person for all losses. Instead, indemnity takes the form of cash (a death or disability income benefit) or payments to physicians or hospitals for care and services provided to an insured who is injured or ill.

Declarations Page

Insuring Clause The Insuring Clause is found on the first page, also called the title page or the Declarations Page, of the policy and is considered the most important clause in the policy. It identifies the parties to the contract and the perils or conditions in which it will pay. The Insuring Clause is the insurance company's promise to pay the policy's death benefit to the named beneficiary, after receiving due proof of death of the insured, as long as the insured died while the policy was in force. It provides all the basic information the policyowner needs to know: The Insuring Clause The name and address of the insurance company Information about the issuing agent The named insured Amount of insurance Amount and frequency (mode) of premium payment Effective date of coverage The Declarations page is not proof of insurance.

Joint Life vs Joint Survivorship Life

Joint Life (First to Die) Joint Life is a Whole Life policy that is written to cover 2 or more lives. The death benefit is paid upon the first insured to die, and the policy terminates. Premiums are based upon a joint issue age which is obtained by an average of both insureds' ages resulting in a lower premium than 2 separate policies. This policy is designed to provide income protection for the surviving spouse when both have earned income. Joint Survivorship Life (Last to Die) This Whole Life policy is written to cover 2 or more lives, and the death benefit is not paid until the last insured dies. Premiums are based upon a joint issue age which is obtained by an average of both insureds' ages resulting in a lower premium than 2 separate policies. This policy is often purchased to provide a lump sum benefit to pay estate taxes once the second spouse dies.

Annuities vs Life Insurance

Life Insurance Annuities LI-Provides a benefit upon death of the insured A-Provides steady income until death of the annuitant LI-Creates an estate A-Liquidates an estate LI-Pays a death benefit A-Pays a living benefit LI-Protects against premature death A-Protects against living too long LI-Owner, insured, beneficiary A-Owner, annuitant, beneficiary LI-Policy A-Contract

There are two riders that provide Accelerated Death Benefits:

Living Needs Accelerated Benefit Rider - Allows the early payment of a portion of the face amount before death should the insured become terminally ill with less than 24 months to live. This rider is not designed to provide services to the insured. Long-Term Care Rider - Provides up to 100% of the policy benefits if the insured qualifies for long-term care benefits based on being chronically ill as defined in the rider. Any payout is an acceleration of the life insurance death benefit, meaning it will reduce the ultimate death benefit payable to the beneficiary. The amount of protection is determined at the time of policy purchase. Long-term care benefits are paid income tax free after the insured meets the qualifying requirements. Accelerated Death Benefits provide for an early payment of a portion of the face amount prior to death. This rider provides tax free access to policy benefits based on an insured qualifying as terminally ill or chronically ill.

In what situations will insurers request a medical examination?

Medical examinations are usually requested by the insurer after determining if the amount of coverage, age of applicant, or their health history warrants the examination. Premium has nothing to do with it.

Mode

Mode is the frequency of payment. Premium payments are made either monthly, quarterly, semiannually, or annually. Payment modes other than annual may result in higher premiums to offset the lost interest earnings and increased administration costs. For this reason, an annual mode results in the lowest premium outlay while monthly premiums result in the highest. The more frequently premiums are paid, the more expensive the mode of payment.

How are you doing with getting the documents needed for your Robinhood accounts?

Money accumulated in a permanent Whole Life policy that is considered a living benefit that the policyowner may borrow against or receive if the policy is surrendered before the insured dies.

Conditional Receipt

Provides that coverage is effective as of the date of application or date of completed medical exam (if required), whichever is later, as long as the insurer would have issued the policy as standard or better. This receipt provides conditional coverage even if the underwriting process has not been completed. If an applicant is a substandard risk, there is no conditional coverage.

Mortgage Life v Credit Life

Mortgage Life Mortgage Life is a type of decreasing Term Life insurance that can pay off or reduce the balance owed on a primary or refinanced mortgage. The decreasing death benefit tracks with the balance due on the loan. Coverage may be provided through a creditor on a group basis or through a licensed agent on an individual basis. Credit Life Credit Life policies are a type of group Term Life insurance marketed through creditors that can pay off or reduce the balance of a consumer loan, or loan for the purchase of consumer goods, in the event of the insured's death. The decreasing or reducing death benefit tracks with the outstanding loan balance to be paid off upon the insured's death.

The application consists of two parts:

Part 1 contains general questions about the applicant, such as sex/gender, marital status, residence, date of birth, occupation, and past and present life insurance. Part 2 contains questions pertaining to medical background, past and present health, any medical visits, medications, height/weight, hospitalizations/surgeries in recent years, and the medical status of immediate family members (includes ages, causes of death, etc.).

Methods of Premium Payment

Premium methods can vary depending on the type of policy issued. All of the following are types of premium payment methods: Single Premium - The entire cost of the policy is paid in a lump sum at the time of purchase Limited Payment - The premium is payable for a specified time, such as 20-pay, 30-pay or to age 65 Modified Premium - The premium is payable for the first few years of the policy (3-5) and is lower than an ordinary Whole Life policy to make it more affordable Level (Guaranteed) Premium - The premium remains level for the duration of the contract Fixed Premium - The premium amount is determined by the insurance company. Fixed premiums do not have to be level, but cannot be changed by the policyowner. Adjustable Premium - The premium can be increased or decreased by the policyowner on an annual basis. Premiums must be paid and adjusting the premium will affect other features of the policy. Flexible Premium - The premium can fluctuate at the policyowner's discretion. It can be increased, decreased, or even skipped at any premium due date. Universal and Variable Universal have flexible premium. Initial and Guaranteed Maximum Premium - The initial premium will be guaranteed but only for the first year, then the premium may increase due to the mortality costs. A guaranteed maximum premium table must be included in the policy showing projections of future maximum premiums.

When calculating premium rates, life insurers assume that all:

Premiums are paid annually in advance of the period of coverage Premiums will be invested and earn interest Claims will be paid on the last day of the year

Reinsurance. What is it? How many people are involved? What are they called? What are the types?

Reinsurance is a device used by insurers to transfer or share in a risk with a third party. Reinsurance takes place to limit the loss an insurer will face if a very large claim becomes payable. At least two insurers are involved: the primary insurer originating the application (ceding company), and the reinsurance insurer who shares in the risk (the third party). Reinsurance is what makes insurance affordable. No single insurance company is exposed to 100% of the losses it insures. When claims are paid by the insurer to the policyowner, the funds may come from both the insurer and its reinsurer, but the policyowner will not know how much came from each. Types of reinsurance include: Treaty Agreements - Reinsurance agreement that covers all risks contained in the subject lines of the business automatically. Facultative Agreements - Reinsurance agreement that allows ceding and reinsurance companies the opportunity to negotiate coverage for individual risks.

Rescission

Rescission is the termination of a contract from the beginning as if it had never existed. An insurer is entitled by law to rescind a policy in the case of: Material concealment, whether intentional or unintentional An intentional and fraudulent omission of matters proving the falsity of a warranty Material misrepresentation Violation of a warranty

Pure v Speculative

Risk Risk is the uncertainty concerning a loss. The two types of risk are: Speculative Risk - A possibility of loss, no loss, or gain. Pure Risk - A possibility of loss or no loss. There is no possibility for gain. Pure risks are insurable, but speculative risks are not. Loss Reduction, decrease, or disappearance of value. The basis of a claim under the terms of an insurance policy.

Risk classifications include:

Standard Risks - Individuals who have the same health, habits, sex/gender, and occupational characteristics as those reflected in the mortality table. Individuals in this category have an average life expectancy. Preferred Risks - Individuals who meet certain requirements and qualify for lower premiums because of ideal health, height, and weight. Individuals in this category have a longer than average life expectancy. Substandard Risks (Higher Risk Exposure) - Individuals who are not acceptable at standard rates because of poor health, bad habits, or occupational hazards. Individuals in this category are issued "rated policies" as follows:Graded (Lien) Plan - A graded death benefit usually provides 50% of the face amount to start and increases to the full face amount over 1-2 years. The substandard premium does not change. This is generally used with senior life insurance plans to provide minimal benefits without a medical examination.Rated-Up Age - The premium for a "rated-up" policy is that of a standard risk, but for an insured 5 to 10 or more years older than the actual age of the proposed insured.Flat Rate - A flat additional premium may be assessed on a temporary (1 to 5 years) or permanent basis.Tabular Rate - A surcharge is calculated by adding 25% of the base rate to the standard premium for each "Table" number based on the condition causing the substandard rating. There are 10 standard tables used. Declined - This is not a rating classification, but a decision that the risk is one for which the insurer refuses to issue insurance. In this case, the applicant is deem

Surplus Line coverage

Surplus Line Insurance Surplus Line coverage includes those types of insurance that cannot be obtained from admitted insurers, usually because the risk is too great, or too difficult to underwrite. The insurance may not be placed with a nonadmitted insurer solely to receive financial advantages that would not be available by placing the business with an admitted carrier. Surplus Line Broker A person licensed to write insurance coverage with nonadmitted insurers when such coverage cannot be placed with an admitted insurer.

Term Life insurance

Term Life insurance has the lowest of initial premium outlay and is designed for someone with a large insurance need, but with limited cash flow. This coverage is often referred to as temporary, as it is usually written to cover a specified time period. Premiums increase based on the insured's attained age when the policy renews, which could be annually. This policy does not build cash values or have surrender values. Most Term policies provide a fixed level benefit or decrease benefit depending on the type of policy. It is typically used to cover mortgages, short term obligations, or for younger couples.

What is term insurance considered?

Term insurance is considered Pure Insurance and provides a Pure Death Benefit. Term insurance does not offer any cash value benefits. For this reason, Term insurance policies are less expensive in the early years as compared to permanent forms of insurance. Coverage can be written separately or with other types of insurance (as a rider) to suit individual needs. Rates charged are based upon underwriting class, the age and gender of the insured, and upon the length of time protection is provided. The longer the term's length, the higher the rates will be. For example, rates are higher for a 10-Year Level Term than for a 5-Year Level Term.

NAIC Buyer's Guide to Life Insurance

The Buyer's Guide provides basic information concerning life insurance, the different types of policies which are sold, and the comparative costs of each. California law requires a life insurer provide a copy of the NAIC Buyer's Guide to Life Insurance to all prospective insureds prior to accepting the applicant's initial premium. If the policy being applied for contains an unconditional refund provision (free look) of at least 10 days, the Buyer's Guide must be delivered prior to or at the time of policy delivery. Most individual life insurance policies issued in California are required to contain a free look period.

Common Disaster Clause

The Common Disaster Clause provides that, if an insured and primary beneficiary die as a result of the same event, the primary beneficiary must survive the insured by a specific period of time (usually 90 days) or the insurance company will assume the insured died last (the primary beneficiary died first). This provision is designed to pay the benefits to either the contingent beneficiary or the insured/policyowner's estate if no contingent beneficiary has been designated.

Spendthrift Clause

The Spendthrift Clause denies the beneficiary the right to assign their interest in the policy proceeds. The purpose is to prevent creditors of the insured and/or the beneficiary from claiming any benefits payable to the beneficiary before they are actually received. This clause does not protect the beneficiary if the benefits are payable in a lump sum, only when the proceeds are held by the insurance company under a settlement option.

What is the agent responsible for?

The agent is responsible for presenting, modifying, affecting, or terminating the business contracts of the insurer. After submitting an application, the agent should report any material facts that may affect the underwriting of a policy to the insurer. An agent is not required to emphasize profitable policies. At the time of the application, the agent has the responsibility to obtain information that may affect underwriting and insurability, as well as the suitability of coverage for an insured. This includes information about an applicant's risk profile, as well as in-depth knowledge of policy coverages, provisions, and limits. The purpose, duties, and authority of a producer or agency include: Completing the application and submitting to the insurer for further underwriting Delivering the policy once the insurer has accepted the application Gathering information and updating the policy at renewal

Expense Loading

The amount charged to cover each policy's share of expenses of operation (salaries, commission, premium taxes, and cost of doing business) is called Expense Loading. This can vary from company to company based on its operations and efficiency.

Life Income Period Certain

The annuity is payable for life or for a specified period of time, whichever is longer. If the annuitant lives beyond the stated period, benefits continue for life of the annuitant. If the annuitant dies prior to the end of the period certain, a beneficiary receives the balance of the payments for the remaining time period.

Life Income with Refund (Installment or Cash Refund)

The annuity is payable for the lifetime of annuitant. Upon death, if an annuitant has not received an amount equal to the total of all payments made into the annuity (not the growth), the balance is refunded to the beneficiary as a lump sum, cash refund, or in installments, sometimes referred to as the installment refund.

Face Amount or Limit of Liability

The death benefit amount payable or coverage provided on a life insurance policy. This is also referred to as the limit of liability.

Aleatory Contract

The exchange of value is unequal. Insured's premium payment is less than the potential benefit to be received in the event of a loss. The insurer's payment in the event of a loss may be much greater, or much less (for example, $0 in the event a loss doesn't occur), than the insured's premium payment.

Assignment is the transfer of ownership. There are 2 types of assignments.

The first is an Absolute Assignment. The original owner, the assignor, will name a new owner, the assignee, of the policy. Since a new owner is named, this is considered a permanent assignment. The full amount of the policy is assigned, and this is referred to as a transfer of ownership. STOLI arrangements and life settlements are both effected through absolute assignments. The second type is a Collateral Assignment which does not cause a permanent change in ownership. However, the rights of the owner will be subject to the assignment. A collateral assignment is typically used when an insurance policy is used as collateral for a loan. This is a temporary assignment until the debt is paid in full. In this case, the assignor is the original owner and the assignee is the creditor. This assignment takes precedence over any beneficiary designation. It can reduce the dollar amount of the beneficiary's claim at the time of the insured's death because the assignee has a priority claim against the policy and must be paid first. No assignment of the policy will be binding on the insurer unless it is in writing and received at the insurer's home office. The insurer is not responsible for determining the validity of the assignment

_____ is the source of the authority in which the agent must abide, as stipulated in the agency contract.

The insurer is the source of the authority in which the agent must abide, as stipulated in the agency contract. This means that the insurer is responsible for the agent's acts, as long as they remain in the bounds of the contract. When the agent exceeds this authority, the agent may become personally liable for their actions or inadvertently obligate the insurer to provide coverage or performance it did not intend to offer, as a consequence of apparent authority.

All insurance contracts must include these 6 requirements or specifications:

The parties between whom the contract is made The property or life insured The interest of the insured in the property insured, if they are not the absolute owner The risks insured against The period during which the insurance is to continue A statement of the premium, or a statement of the basis and rates upon which the final premium is to be determined and paid

Indeterminate Premium Term

The premium may fluctuate between the current charge and a maximum rate stated in the policy based on the insurer's mortality, expenses, and investment returns. In a Level Term policy, the death benefits remain level during the entire policy. This means that the death benefit will not change throughout the life of the policy. There are three types of level term policies, which are identified by the premium differences.

Medical examinations are usually requested by the insurer after determining if the amount of coverage, age of applicant, or their health history warrants the examination. Premium has nothing to do with it.

The producer's name and business address

Convertible Wrt Term Insurance Special Features

The right to convert the existing Term policy to a Permanent policy without evidence of insurability during the conversion period specified in the contract. The premium can be based upon either attained age or original (issue) age. The premiums will be higher than the original policy since the Permanent policy will provide a cash value and coverage can last to age 100 or beyond. If the conversion is based on the issue or original age, back premiums plus interest will be required to be paid at the time of conversion. There is usually a premium increase associated with adding these special features to a policy. A renewable and convertible Term policy will cost more than a Level Term policy.

An annuity may not be sold to a senior if:

The senior's purpose in purchasing the annuity is to affect Medi-Cal eligibility and either of the following are true:The purchaser's assets are equal to or less than the community spouse resource allowance established annually by the State Department of Health Services pursuant to the Medi-Cal ActThe senior would otherwise qualify for Medi-Cal The senior's purpose in purchasing the annuity is to affect Medi-Cal eligibility and, after the purchase of the annuity, the senior or the senior's spouse would not qualify for Medi-Cal Any broker or agent who violates the prohibition against selling annuities to qualify a senior for Medi-Cal is liable for an administrative penalty of $1,000 for the first violation, $5,000 up to $50,000 for subsequent violations, and possible suspension of the agent or broker license by the Commissioner.

California requires long-term care training before an agent can transact accelerated death benefits or riders that require personal care services to a chronically ill insured, such as a Long-Term Care Rider. What are the requirements?

The training requirements include 8 hours of LTC training: Prior to soliciting individual consumers for the sale of LTC insurance In each of the first 4 years of licensing Every 2-year license term beginning with the fifth year of licensing

The underwriter's greatest concern when underwriting a group plan is

The underwriter's greatest concern when underwriting a group plan is adverse selection. To help protect against pre-existing conditions and immediate claims, group plans have a probationary period set by the group sponsor. This is a waiting period between when an individual joins the group they can enroll in the group plan. As long as the individual enrolls during their initial eligibility period (usually the first 30 days of employment), coverage is guaranteed and evidence of insurability is not required. Individuals who do not enroll during the initial enrollment period are considered late enrollees and may be required to provide proof of insurability or be forced to wait until the next annual open enrollment period. Open enrollment periods are offered on an annual basis which allows individuals to enroll without evidence of insurability or to make changes. An individual can make changes at any time if they have a change in status, such as adding an eligible dependent or change in employment status, such as going from full- to part-time employment. The cost of the plan is determined by the average age, size, industrial classification (nature of the work involved), experience rating (the group's claims), and the personnel turnover history of the group. These factors are more important than the actual overall health of the group.

In California, every person has an insurable interest in the life and health of:

Their own life Any person on whom they depend wholly or in part for education or support Any person under a legal obligation to them for the payment of money or respecting property or services, of which death or illness might delay or prevent the performance Any person upon whose life any estate or interest vested in them depends

Needs Analysis Approach

This approach determines a need for coverage upon the premature death of an individual. It always assumes the death of the individual to be immediate and factors the following steps into arriving at the proper amount of coverage needed: Calculate all financial needs caused by an immediate death, including debts, medical bills, and final expenses Provide lifetime income to the spouse Pay off a mortgage or other debt Provide funds for children's education An Emergency Reserve Fund may be part of the calculation to provide for unexpected emergencies the family might encounter immediately after the death of the insured Subtracts any assets available to fund financial needs after death (such as retirement plan assets, other insurance, liquid investments, separate savings)

Return of Premium Term

This policy provides for a full refund of premiums if the insured is still living at the end of the term. These policies charge a higher premium than level term insurance. The additional premium paid for this benefit provides a nonforfeiture value which will offer a nominal return of premiums paid if the policy is not held to the end of term.

Tort Law

Tort Law pertains to injuries suffered by one party as a result of another party's actions or negligence in the absence of a contract. A tort is a civil wrong other than a crime or a breach of contract. Liability insurance is concerned with torts. An individual committing a tort is referred to as a "tortfeasor."

Partial Withdrawal v Loan (UL Policy)

UL policies give the policyowner the option to take a policy loan or a partial withdrawal from the cash value without terminating the contract. Partial withdrawals are different than loans. A loan is taken against cash value remaining in the policy. The cash value secures the loan and cannot be used for other purposes, but it remains in the policy. The loan itself neither decreases the total cash value nor the face amount. The cash value is collateral if the loan is not paid back before the insured dies or the policy terminates and the unpaid loan balance and loan interest is deducted from a death claim or surrender. A partial withdrawal is a permanent deduction of the cash value and cannot be reversed. The withdrawal may also be taxable.

General Account

Universal Life cash accumulation is held in the insurer's General Account, and may be invested as reserves according to the requirements of the Insurance Code. When the insurance company obtains higher than expected interest, it may credit excess interest credits in the form of a "current" interest rate which is higher than the policy's "guaranteed minimum" interest rate (typically 3% to 4%). When premiums are paid, the amount is credited to the policy's cash accumulation. Each month, interest is credited on the prior month's cash value, and all expense and cost of insurance amounts are deducted. The cash value will rise or fall accordingly. To remain in force, the policy must always have a positive cash value after all monthly deductions are taken.