Michigan Variable

pure risks

only involve posibility of a loss, no gain

morale hazards

personality traits rather than character defects. tendency to be careless

risk

uncertainty whether a loss will occur

administration charge

under an insurance or annuity contract, the charge the insurance company makes to compensate for maintaining records, accounting and reports generation

loss

unintentional decline or disappearnace of value

underwriting

used to avoid adverse selection.

law of large numbers

used to predict how many losses will occur in a group

direct-writing companies

usually pay salaries to employees whose job function is to sell the company's insurance products

maintenance and duration of license

will remain in effect as long as the continuing education requirements are met by the due date

investment management fee

with a variable life insurance or variable annuity contract, this is the amount paid to an investment advisor for providing professional investment advice for an insurer separate account

elements of a legal contract

1. Agreement - offer and acceptance 2. Consideration 3. Competent parties 4. Legal purpose

continuing education

24 hours of continuing education every two years 3 hours must be devoted to ethics

penalty for failing to comply with CE requirements

90 days to complete CE

domestic insurers

A company is a domestic insurer in the state in which it is incorporated.

insurance

contract that transfers risk of financial loss from an individual to insurer. insurer agrees to cover individual for certain losses as long as premium paid

alien insurers

Alien insurers are companies incorporated in a country other than the United States, the District of Columbia, or any US territorial possession.

annuity unit

An accounting measure used to determine the amount of each payment during an annuity's distribution stage. The calculation takes into account the value of each accumulation unit and such other factors as assumed interest rate and mortality risk.

elements of insurable risk

Calculable-prior loss statistics available Affordable-premiums must be affordable to the average consumer Non-catastrophic-no coverage for earthquakes, war, terrorism Homogeneous-large number of people have similar risk exposure. spreading teh risk over many people Accidental-losses must be unintentional Measurable-loss must ahve monetary value

expense guarantee

a guarantee made by an insurer that expenses for a variable product will not exceed certain maximum levels

fraternal benefit societies

Knights fo columbus

boycott, coercion, and intimidaiton

Prohibited

rebating

an inducement to buy insurance that is designed to entice a person to purchase insurance

methods of handling risk

Sharing: pooling the risk Transfer: insurance Avoidance Retention: accepting the possibility of a loss yourself. deductible Reduction

apparent authority

The appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created.

mortality guarantee

a basic settlement option guarantee, which promises the insurer will continue annuitized payments for as long as the annuitant live, even beyond mortality data life expectancy

annuity

a contract in which the insurer agrees, for a price, to make regular payments to an individual for life or some fixed period

single payment deferred annuity SPDA

a deferred annuity created witha single purchase payment

flexible premium deferred annuity FPDA

a deferred annuity purchased with a series of payments, which may be irregular as to amount or timing

prospectus

a detailed summary of the SEC registration statement for a security, which must be provided to the prospect for any variable product sale. An agent is required to provide this material prior to, or concurrently with, any sales presentation

investment company act of 1940

a federal statute requiring insurer separate accounts to be registered as investment companies with teh securities industry

variable life insurance

a permanent life insurance policy type where the cash values are maintained in a separate account in which portfolio choices are made by the owner of the policy. There is no minimum rate of return, and investment risk is retained by the policyowner. a minimum death benefit may be guaranteed if premiums are maintained

annuitant

a person who receives the distribution from an annuity contract

universal life insurance

a type of life insurance characterized by flexible premiums, an adjustable death benefit and cash values, which may be accumulated on either a fixed or variable basis. mortality charges will be based on annual term. contracts may allow loans, partial withdrawals, or both.

flexible premium variable life

a type of life insurance, also known as variable universal life, which is characterized by flexible premiums, adjustable death benefit, and the ability of the owner to make partial surrenders

twisting

act of inducing a person to drop existing insurance coverage and purchase new insurance with a new producer or company. max $1000 fine per violation

Authorized Insurer

admitted insurer, an insurance company that has been approved by the department of insurance and financial services

suitability requirement

an NASD principle requiring the agent in a variable products presentation to make a conscientious inquiry into the prospect's insurance product needs, financial circumstances, objectives and investment attitudes before consummating the sale

accumulation unit

an accounting measure, similar to a mutual fund share, used to determine an annuitant's proportionate interest in the insurer's separate account during the accumulation phase of a variable annuity. Both the number an value of these units will change during the accumulation phase

implied authority

an agent's authority to do things not specifically authorized in order to carry out express authority

death benefit guarantee (VA)

an amount equal to the higher of the separate account balance or the sum of the purchase payments, which is paid to the beneficiary of a variable annuitant in the event of their death during the accumulation phase

nonforfeiture guarantee

an annuity and cash value life insurance guarantee that the contract owner will not lose the surrender value of the contract should they stop making payments prior to annuitization or death

variable annuity

an annuity contract in which teh account value is maintained in a separate account in which portfolio choices are made by teh owner fo the annuity. there is no minimum rate of return, and investment risk is retained by teh annuity owner. annuity payments from a variable annuity will vary according to the performance of the separate account

deferred annutiy

an annuity in which payments begin more than one payment period (one month to one year) after the purchase date

combined ("balanced") annuity

an annuity providing for payments that derive from both fixed and variable annuity accounts

fixed annuity

an annuity providing that the insurer will pay the annuitant a guaranteed, fixed amount during the annuity phase

tax-sheltered annuity TSA

an annuity used in an IRS qualified retirement plan such as the 403b plan for employees of public schools, public hospitals, church organizations and other not for profit organizations. In such a plan, both employer and employee contributions are made on a pre tax basis and accumulate tax deferred. all withdrawals are tehn taxed as ordinary income

immediate annuity

an annuity, purhcased with a single premium payment, in which annuity payments begin the next period (one month to one year) after purchase

indirect method

an approach to managing a variable products separate account that uses a unit investment trust contract with an investment company external to the insurer

direct method

an approach to managing a variable products separate account that utilizes an open ended investment company (similar to a mutual fund family) created inside the structure of an insurer

assumed interest rate AIR

an assumption, built into variable annuity contracts, of the minimum rate of return the insurer expects to receive and that forms the basis for an initial annuity payment as well as a "floor" from which to measure gain

life income with period certain

an insurance and annuity settlement option in which payments continue to the longer of the life of the annuitant or the selected certain period. Payments are made to a named beneficiary if the annuitant dies before the expiry of the selected period

reinsurance

an insurance company transfers a portion of a risk it has assumed to another insurer

fixed amount option

an insurance or annuity settlement option in which a chosen amount is paid out for an approximate length of time when principal and interest are exhausted

fixed period option

an insurance or annuity settlement option in which an approximate amount is paid out fo ra chosen length of time when principal and interest are exhausted

life income

an insurance or annuity settlement option in which payments are based on mortality and interest calculations and continue for as long as the annuitant lives

joint life income

an insurance or annuity settlement option in which payments continue for a s long as both of two annuitants are living

joint and survivor life income

an insurance or annuity settlement option in which payments continue fora s long as either fo the two annuitants are living

refund option

an insurance or annuity settlement option in which payments continue to the longer of the life of the annuitant or until the original principal is paid out. With an installment refund, the payments are continued to a named beneficiary. Otherwise, a lump sum payment of any remaining balance is made to the beneficiary at the annuitant's death

interest only option

an insurance or annuity settlement option in which the insurer holds the principal and pays interest to the beneficiary with a guaranteed minimum rate

income

an investemnt objective that focuses on dividends and interest to produce income rather than capital appreciation

diversification

an investing technique characterized by buying a variety of different investments the market risk is spread out and reduced

growth

an investment objective that focuses on long-term capital appreciation rather than immediate income

subaccount

an investment portfolio, often similar to a mutual fund, within the separate account. The purchaser of a variable product may be offered a dozen or more of these portfolios among which to direct their investments

hazard

anything that increases the chance that a peril will occur

moral hazards

arise froma n individual's character. dishonesty

peril

cause of a loss

exposure

degree of risk assumed by an insurer

penalty for fraudulent insurance acts

felony. imprisonment for up to 4 years or a $50,000 fine or both

Producer responsibilities

fiduciary responsibilities commission sharing

valuation

for variable products, the valuations of the separate account must be performed daily, excepting weekends and national holidays, and must be based on the market value of the underlying securities in the account

insurance fraud false claims

guilty of a misdemeanor fine up to $1000 or imprisonment for 3 months

physical hazard

heart condition

general agents or managing general agents

hire supervise train other career agents within a certain geographic area

controlled business

insurance a producer places on his own life or property or taht of his employees, employer, or business associates. Can't exceed 15% of total premiums collected for that year

direct response

insurer sells directly to the consumer by television or some other media

disciplinary actions

license termination, revocation or suspension

foreign insurers

licensed to conduct business in states other than the one in which it is incorporated

misrepresentations

lying or distorting the truth about the terms, benefits, and privileges, advantages, or conditions of an insurance policy

defamation

making an oral or written statement that is false, malicious, or derogatory regarding the financial or personal conditon of a person engaged in the business of insurance

stock insurance companies

may issue non- participating policies, stockholder does not have to be policy owner.

risk retention group

mutual insurance company formed to insure people in teh same business, occupation, or profession. pharmacists dentists engineers

mutual insurance companies

nonprofit corporations owned by the policyowners. funds that remain after paing claims and operating expenses are a surplus and may be returned to the policy owner in form of a dividend

Lloyd's of London

not an insurer, but a society of members who underwrite insurance in syndicates. an association of individuals and companies taht individually underwrite insurance

may refuse to issue a license or levy a fine for

providing incorrect or materially untrue information on a license application violating an insurance law, regulation, or oder of teh commissioner obtaining a license through misrepresentation or fraud improperly withholding or misappropriating money received while transacting insurance intentionally misrepresenting the terms of an insurance policy or application being convicted of a felony committing any unfair trade practice or fraud using fraudulent, coercive, or dishonest practices or demonstrating incompetence or financial irresponsibility in teh conduct of business having an insurance producer license denied, suspended, or revoked in another state forging a name to any document related to an insurance transaction improperly using notes or other materials to complete the insurance licensing exam knowingly accepting insurance business from an unlicensed individual failing to comply with a court order to pay child support failing to pay teh single business tax or the michigan business tax

exclusive or captive agents

represent only one company, career agents

types of licenses

resident producer business entity counselor nonresident producer

speculative risk

risks individuals enter into wilingly with the hope of making a gain. gambling

consumer privacy

scope of regulations: state protects nonpublic personal financial info privacy notice:must give notice of privacy practices and policies at the time of the establishment of relationship notice and opt out requirement exception: confidentiality in investigations and proceedings; FRAUDULENT STATEMENTS

independednt insurance agents

sell products of several companies

exemptions to continuing education requirements

severe hardship, military service, licensed to write only limited line credit insurance, only sell travel or baggage insurance policies and employed for other reasons than selling such policies

adverse selection

tendency for higher-risk individuals to get and keep insurance rather than indiviudals that represent an average level of risk

separate account

the account containing the investments supporting any variable annuity or variable life insurance contracts of an insurer. This account is segregated by federal securities law from the other assets, such as the general account, of the insurer

general account

the account that holds all o fthe assets of an insurer other than those in the separate accounts. the general account holds the premiums for all fixed life and annuity products and is typically conservatively invested in bonds and commercial real estate to produce a relatively stable return

express authority

the authority of an agent, stated in the document or agreement creating the agency

minimum guaranteed death benefit (VLI)

the initial face amount of a variable life policy that is guaranteeed to be paid to a named beneficiary so long as teh scheduled premiums are paid regardless of the performance of the separate account

accumulation phase

the period during which contributions are made to an annuity

annuity phase

the period, after annuitization, during which annuity payments are made to an annuitant

dual licensure

the requirement that a person who sells variable life or variable annuities must be state licensed to sell life insurance, and also federally licensed as a registered representative of an NASD member to sell variable products

variable death benefit

with fixed premium variable life insurance, this is an additional death benefit, which may result from the positive performance of the separate account, and which is paid to the beneficiary on teh death of the insured in addition to the Minimum Guaranteed Death Benefit

target (guideline) premiums

with flexible-premium products (UL and VUL), this is the premium calculated by the insurer's actuaries, which will maintain the death benefit for the entire life of the insured