Other Life Topics

What are the two options when an underwriter requires a medical examination of the insured?

1. The insurer may only request a paramedical report, which is completed nu a paramedic or a registered nurse 2. The underwriter may require an attending physicians statement (APS) from a medical practitioner who treated the applicant for a prior medical problem

What are the consequences of withdrawing money from a traditional IRA prior to 59.5 years old?

10% penalty

Gross Income

A person's income before taxes or other deductions

In insurance, an offer is usually made when what?

An applicant submits an application to the insurer

Explain how the cash value of a life insurance policy can be taxed

Annual increases in cash value are not taxed since it accumulates on a tax-deferred basis. However, upon withdrawal the amount of cash value that exceeds the sum of the premiums paid will be taxed to the policy owner as ordinary income

What type of life insurance would partners in a business enter into?

Any form of life insurance

How is group insurance written?

As annually renewable term insurance

All of the following statements are correct regarding credit life insurance except what?

Benefits are paid to the borrow's beneficiary

Who is required to sign the insurance application?

Both the agent and the proposed insured (usually the applicant) must sign the application.

A tax-sheltered annuity is a special tax-favored retirement plan available to who?

Certain groups of employees only (non-profit, educational, religious, and other 501(c) organizations, including all employees in public education

Pre-tax contributions

Contribution made before federal and/or state taxes are deducted from earnings

What is the most important difference between a Traditional IRA and a Roth IRA?

Contributions to a traditional IRA are with pre-tax dollars (tax deductible), whereas contributions to a Roth ITA are with after-tax dollars (NOT tax-deductible) *Traditional IRA distributions are taxable; Roth IRA distributions are NOT taxable.

Which is the following is true regarding taxation of dividends in participating policies?

Dividends are not taxable

Surrender

Early termination of a policy by the policy owner

What type of insurance is group life insurance?

Group insurance is typically wtiyyen as annually renewable term insurance

What is the difference between contributory and noncontributory group life insurance plans?

In a noncontributory plan an employer pays 100% of the prey, (employees are not contributing). In a contributory plan, the premiums are shared between the employer and the employees

Policy Proceeds

In life insurance, the death benefit

Aleatory

Insurance contracts are aleatory, which mens there is an exchange of unequal amounts or values. The premium paid by the insured is small in relation to the amount the will be paid by the insurer in the event of loss

Who is the master contract for in group insurance?

It is for the employer, and certificates of insurance are for individuals

Indemnity (*know this)

It means that insures cannot recover more than their loss

What is the purpose of Key Person insurance?

Key person insurance allows a business to insure a key person or officer in an organization whose death would cause financial hardship for the organization.

Which part of the insurance application would contain information regarding the cause of death of the applicants deceased relatives?

Medical Information - includes info on the prospective insured's medical background, present health, any medical visits in recent years, medical status of living relatives, and causes of death of deceased relatives

Are policy loans from the cash value income taxable?

No

Are premiums tax deductible as a business expense for key-person life insurance policy?

No

Can credit life insurance pay out more than the balance of the debt?

No

Is evidence of insurability required when converting from group life to individual life insurance?

No

Who are 403(b) plans for? What are they limited to?

Non-profits and public-school systems They are limited to a maximum amount (established by the IRS)

FIFO (first in, first out)

Principle under which it is assumed that the funds paid into the policy first will be paid out first

What type of Tax-Qualified Retirement Plans have tax advantages?

Qualified plans have tax advntages

How is Social Security funded?

Social Security is funded by the taxes imposed on a work's earned income

Representations (*Know this)

Statements believed to be true. Insured's statements on a life insurance application are considered representations.

The policy owner must have insurable interest in the life of who? (*Know this)

The insured

What could prevent Traditional IRA contributions from being tax deductible?

The owner's income exceeding a certain level

Rollover

Withdrawal of the money from one qualified plan and placing It into another plan

In life insurance policies, are cash value increases tax deferred?

Yes

Disclosure Authorization Notice

states the insurers practice regarding the collection of personal information

What are some differences between being fully insured and partially insured?

-A person who is fully insured has met the Quarter of Coverage standards and is eligible for receive Social Security Retirement, Medicare, and Survivor Benefits. -A partially insured person qualifies for certain benefits and has earned 6 credits during the 13-quarter period ending with the quarter in which the insured dies or becomes entitled to disability insurance or old-age insurance benefits

Simplified Employee Pension plan (SEP)

-Benefit plan designed to be provided by a small employer for the benefit of the employees -Allow the employer to make annual tax deductible contributions up to 25% of an employee's earned income -Have a higher tax deductible contribution limit than an IRA -Employer contributions are not included in the employee's gross income -Not suitable for large companies

Insurable Interest

-Must be proved during time of application

What does representation mean, and how does it differ from a warranty?

-Representations are statements belied to be true to the best of one's knowledge. -A warranty is an absolutely true statement upon which the validity of the insurance policy demands

Name three instances in which insurable interest exists

1. A policy owner is insuring his or her own life 2. Or the life of a family 3. Or the life of a business partner, key employee, or someone who has a financial obligation to the applicant

What are the 4 essential elements that make insurance contracts legally binding?

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

What are the 3 recognized areas in which insurable interest exists?

1. Policy owner insuring their own life 2. The life of a family member 3. The life of a business partner or key employee

What are some of the group characteristics that an underwriter would look at?

1. Purpose 2. Size 3. Turnover 4. Financial Strength of the Group

In order to qualify for conversion from a group life policy that has been terminated to an individual policy of the same coverage, a person must have been insured under the group plan for how many years?

5 years

Aleatory Contract

A contract in which unequal amounts or values are exchanged. The amount of premium the insured pays is much less than the potential loss assumed by the insurer

Medical Information Bureau (MIB)

An information database that stores the health histories of individuals who have applied for insurance in the past. Most insurance companies subscribe to this database for underwriting purposes.

Nonprofit Organization

An organization that uses its surplus to fulfill its purpose instead of distributing the surplus to its owners or members

Contract of Adhesion

Any contract in which one party must either accept the agreement as written by the other party or reject it.

When must insurable interest exist? (*Know this)

At the time of application

Why is it difficult to qualify for Social Security Disability benefits?

Because they require the covered worker to be unable to engage in any substantial, gainful employement

What describes the aleatory nature of an insurance contract?

Exchange of unequal values

Medical information and consumer reports

For policies with higher amounts of coverage or if the application raised additional questions concerning the prospective insured' health, the underwriter may require a medical examination of the insured.

How are income payments from a 403(b) plan taxed?

Funds contributed are excluded from the employees current taxable income, but are taxable upon withdrawal

What is the official name for the social security program?

Old Age Survivors Disability Insurance

LIFO (last in, last out)

Principle applied to asset management in life insurance products, under which it is assumed that the funds paid into the policy last will be paid out first

Conditional Contract

Requires that certain conditions must be met by the policy owner and the company in order for the contract to be executed, and before each party fulfills its obligations. -For example, the insured must pay the premium and provide proof of loss in order for the insurer to cover a claim.

HIPAA

The Health Insurance Portability and Accountability Act, a federal law protecting the privacy of patient-specific health care information and providing the patient with control over how this information is used and distributed.

Who owns a group life contract? Who are the parties to the contract? What does the insured receive?

The actual policy (master policy/contract) is issued to the sponsor of the group, which is often an employer. The employees are the insured who are issued certificates of insurance.

The initial amount of credit life insurance may NOT exceed what?

The amount to be repaid under the contract

Who is the owner and who is the beneficiary on a key person life insurance policy

The employer is the owner and the beneficiary

What is the key source underwriters use for information about the applicant?

The insurance application

What requirements must be met in order for a retirement plan to be qualified?

The plan must be for the exclusive benefit of the employees and their beneficiaries and be formally written and communicated to the employees. Te plan's benefit or contribution formula cannot discriminate in the favor of he "prohibited group," or be geared exclusively to the prohibited group. The plan must be permanent, be approved by the IRS, and have a vesting requirement

Agent' Report

allows the agent to communicate with the underwriter and provide information about the applicant known by the agent that may assist in the underwriting process

If the insured intentionally answers any questions on the application for insurance untruthfully, and the information is material to the insurance, what type of statements are these? Can they void a contract?

If the insured intentionally answers any of the questions untruthfully, the statements are considered misrepresentations, and could void the contract

If a person takes benefits at age 62, what is the impact on his or her retirement benefits?

They are reduced to about 80% of what would have been paid at age 65

Which of the following is true regarding taxation of accelerated benefits under a life insurance policy?

They are tax free to terminally ill insured

What does indemnify mean?

To "restore" an insured to the same financial status as before the loss

Who is eligible to be covered under a Keogh Plan?

To be covered under a Keogh Retirement Plan, the person must be self-employed or a partner working part of full-time who owns at least 10% of the business. User eligibility requirements, any individual who is at least 21 years of age, has worked for a self employed person for one year or more, and worked at least 1,000 hours per year (full-time) must be included in the plan

What is the purpose of key person insurance?

To lessen the risk of financial loss because of the death of a key employee

What is the key rule to qualifying for group life insurance?

In order for a small group to qualify for group life insurance, it must be for a purpose other than attaining life insurance

Unilateral Contract

Only one of the parties to the contract is legally bound to do anything. The insured makes no legally binding promises. How, an insurer is legally bound to pay losses covered by a policy in force.

Application (2 parts)

1. General 2. Medical

Regarding Social Security, what does the term "Fully Insured" mean?

If it refers to someone who has earned 40 quarters of overage and is therefore entitled to receive Social Security retirement, Medicare, and Survivor Benefits

What is the purpose of the agent's (producer's) report?

The agent's report (is used by the agent to discuss his or her personal observations concerning the proposed insured.

Conditional Receipt

The applicant may be covered as early as the date of the application

Field Underwriter (*Know this)

The company' life insurance producer

At what point does coverage begin when an agent issues a conditional receipt?

The conditional receipt says that a coverage will be effective either on the date of the application or the date of the medical exa, whichever occurs last

Who is the owner of a credit life insurance policy?

The creditor - the creditor is the owner and the beneficiary of the policy, although the premiums are generally paid by the borrower (or the debtor)

What is the key feature of converting group term to whole life insurance? What is consistent and what changes, face amount or premium?

The employee has the right to confer to an individual whole life policy without proving insurability at a standard rate, based on the individuals attained age. The face amount or death benefit will be equal to the group term face amount but the premium will be higher

If a policy is a Modified Endowment Contract, how are the withdrawals taxed?

The first dollars that are received by the policy owner are considered to be the excess amount of cash value over premiums (gain) and are immediately taxed. This is referred to as "interest-first rule" or LIFO (Last In, First Out)

When must insurable interest exist in a life insurance policy

At the time of application

When it comes to an individual life policy, when must taxes be paid?

Either upon contribution or upon distribution, NOT both. If taxed on one end, you will not be taxed on the other.

Describe the differences between Part 1 & Part 2 of the application

Part 1 of the application includes the general questions about the applicant, including name, age, address, birth date, gender, income, marital status, and occupation. Part 2 includes medical information about the prospective insured.

Which type of retirement account does not require the owner to start taking distributions at age 73?

Roth IRA

Concealment

The legal term for the intentional withholding of information of a material fact that is crucial in making a decision. In insurance, it is the withholding of info by the applicant that will result in an imprecise underwriting decision. Concealment may void a policy

If an insurer issued a policy based on the application that had unanswered questions, which of the following will be TRUE?

The policy will be interpreted as if the insurer waived its right to have an answer on the application

In settlement options, what is tax free, and what is taxable?

The principle is tax free, but the interest is taxable

Whose responsibility is it to make certain that an application for insurance is filled out completely and correctly?

The producer (the agent)

Insurer's Consideration (*Know this)

The promise to pay for losses; insured's consideration is the payment of premium and statements on the application

Vesting

The right of a participant in a retirement plan to retain part or all of the benefits

Traditional IRAs and Roth IRAs are for individuals with what?

They are for individuals with earned income

What is underwriting?

Underwriting is the risk selection and classification process

The contract element due to which the insured is not legally bound to any particular action in the insurance contract, but the insurer is legally obligated to pay losses covered by the policy

Unilateral contract.

When is a policy delivered?

When the insurer relinquishes control of the policy by mailing it to the policy owner, legally the policy is conferred delivered.

When are life policy proceeds tax free for the beneficiary?

When they are paid in lump-sum cash payment of life policy proceeds

What is the employer's role in key-person coverage?

With key-person coverage, the business (the employer) is the applicant, owner, premium payer, and beneficiary

Investigative Consumer Report (Inspection)

to supplement the information on the application, the underwriter may order an inspection report on the applicant from an independent investigating firm or credit agency which covers financial and moral information