12-29-IA CREDIT
Agency
The legal relationship which exists when one party acts on the behalf of another party.
Beneficiary
The party that will receive the benefits form an insurance policy. Lender= creditor beneficiary in all 8 products.
Gross Indebtedness
The total amount owed under closed-end credit. It included principal, interest and insurance premiums.
Premium Refund
The unearned portion of the original insurance premium that is repaid to the borrower when credit-related insurance is terminated prior to the schedule maturity date of the loan obligation. Eg- Rule of 78 or Pro Rata
Joint Decreasing Life Coverage
This insures 2 individuals on the loan, but only provides 1 death benefit which allows the 2nd signer to be insured for much less that the first borrower. One one benefit is paid- even if they die at the same time.
Single Decreasing Life Coverage
This insures the primary debtor only.
28.14(2) Readability
Total readability score of 40 or more on the Flesch scale is required= needs to be a high school graduate.
Apparent Authority
Type of authority the public perceives the producer to have based upon his actions.
Second Beneficiary
Typically the estate. Paid after the creditor beneficiary is satisfied (loan is paid).
28.3(2) Substitution
When a creditor requires credit life insurance, credit accident and health insurance, or both, as an additional security for an indebtedness, the debtor shall be given the option of furnishing the required amount of insurance through existing policies of insurance owned or controlled by the debtor or by procuring and finishing the requiring coverage through any insurer authorized to transact insurance business in this state.
Benefits of Credit Life and Disability
-Protects customers savings -Protects their assets and investments -Immediate coverage when a customer leaves -No physical or lengthy application required -With group insurance, everyone pays the same -many more
Contestable Period
2 year period following the effective date of the insurance during which a misrepresentation made by the insured in an application for insurance may be used as a reason to deny a claim. After the contestable period, a valid claim may not be denied because of misrepresentation, except in the case of fraud. Established by the state insurance department.
Balloon Loan
A credit obligation consisting of a series of installment payments and one final larger payment.
Own Occupation Disability
A disability that causes a claimant to be unable to perform the essential duties of the claimants usual occupation at the time of the claim. For 12 months, then any occupation is applied.
Temporary Permit
A license issued to a non licensed individual for up to 6 months. A temp permit allows the non licensed individual the opportunity to operate the insurance business while securing an insurance license.
Consumer Credit Insurance Association
A national organization of insurance companies providing life, disability, unemployment and property insurance in connection with consumer credit obligation.
Insurable Interest
A relationship which exists between 2 parties whereby 1 party- the beneficiary-stands to sustain financial loss due to the untimely death of the 2nd party- the insured.
Co-Borrower
A second borrower who is obligated to repay a credit loan.
Disability Insurance
A type of accident and health insurance in which there is a loss of income that provides a benefit in the even of total disability due the term of the policy. Can be retroactive or non-retroactive (elimination). Pays the monthly loan payments in the event insured/debtor becomes disabled due to injury or sickness. Debtor required to be working 30 hours per week to be eligible. This pays in addition to any other coverages. A form of accident and health insurance that provides a monthly income benefit in the event of total disability during the term of insurance.
28.3(3) Evidence of Coverage
A. All credit insurance shall be evidenced by an individual policy or in the case of group insurance by a certificate of insurance, which individual policy or group certificate of insurance shall be delivered to the debtor at the time the indebtedness is incurred, except as provided in the following- if the individual policy or group certificate of insurance is not delivered to the debtor at the time the indebtedness is incurred, a copy of the application for the policy or a notice of proposed insurance shall be delivered to the debtor at the time the indebtedness is incurred. Upon acceptance of the insurance by the insurer and within 30 days of the date upon which the indebtedness is incurred, the insurer shall cause the individual policy or group certificate of insurance to be delivered to the debtor. B. Each individual policy or group certificate of credit insurance delivered or issued for delivery in this state shall, in addition to the other requirements of law, set forth: (1) Name and home office address of the insurer (2) Identity of the insured debtor by name or any other reasonable alternative method of identification approved by the insurance commissioner, (3) the amount of premium or identifiable insurance charge to the debtor, separately for the credit life insurance and credit accident and health insurance; (4) a description of the coverage including the amount and term thereof; (5) any exceptions, limitations and restrictions; (6) a statement that the benefits will be paid to the creditor to reduce or extinguish the indebtedness, and any excess shall be paid to a beneficiary, other than the creditor, named by the debtor or to the debtors estate. C. A policy, certificate of credit insurance or notice of proposed insurance shall not contain provisions which would encourage misrepresentation or which are unjust, unfair, inequitable, misleading, deceptive or contrary to law or to the public policy of this state. D. A credit life insurance or credit accident and health insurance policy violated paragraph "c" if it provides an amount of insurance less than the amount necessary to discharge the indebtedness, when it does not set fourth clearly the information of the insured debtors policy or certificate in not less than 10 point bold faced type or in some other prominent method approved by the commissioner. E. A notice of proposed insurance or a copy of the application for the policy, when delivered pursuant to paragraph "a" as evidence of coverage, violated paragraph "c" above, if it does not set forth the name and home office of the insurer; the name or names of the debtor; the premium or amount of payment by the debtor, separately for credit life or credit accident and health insurance; the amount, term, and a bread description of the coverage provided.
Iowa Life and Health Insurance Guaranty Association
Act which protects policyholders of admitted life, accident and health insurance companies in the event of insurer insolvency. Also referred to as Guarantee Fund.
Underwriting Guidelines
Age: The age that a person is eligible always starts at 18, but the oldest age of a policyholder varies company to company. Usually stops at 66. Good health statement questionnaire: Form of underwriting where the borrower signs a statement saying they are in good health to the nest of his or her knowledge. There is a list of sicknesses or injuries that excluded a customer from buying the policy if one of these conditions has occurred in a predetermined time. Employment requirement: In to order to quippy for disability, an insured must be working as a full time employee, usually defined at 30 hours per week.
28.4(3) Issuance of Policies
All policies can only be issued in the state by someone who is authoized.
Level Life Term Coverage
Amount of insurance stays the same over the term of the loan.
Borrower
An individual who enters into a loan obligation by receiving cash or by purchasing a product.
Admitted or Authorized Company
An insurance company which is authorized by the insurance division to conduct business. Must file detailed financial document and are under the jurisdiction of the insurance division.
Joint Coverage
An insurance policy covering 2 borrowers who are both obligated under the law.
Master Policy
An insurance policy issued to the producer that covers a group of borrowers who receive certificates of insurance as evidence of insurance under the policy. Ex- Bankiowa has a master policy, I will issue certificate of insurance under that policy.
Deductible Principle
Applied in credit insurance through waiting periods.. (In disability insurance). 14 days or 30 days.
Consideration
Bargaining elements of a contract. Insureds consideration is the premium payment and statements contained in application. Insurers consideration is the promise to pay claims in accordance with the policy provisions.
Cash Credit
Cash amount received by the borrower for the purchase of products or for other expenditures in return for entering into a credit obligation.
Adhesion
Characteristic of an insurance contract requiring ambiguous policy language to be interpreted in favor of insured.
Principal of Indemnity
Concept of restoring or reimbursing one to the extent of their loss. Utilized extensively in the underwriting and adjusting of disability, health, and property casualty policies. Does not apply to life insurance claims.
Hazard
Condition or exposure that increases the possibility loss (overweight, excessive alcohol use)
Indemnity Contracts
Contract which restores or reimburses one to the extent of their loss. Utilized extensively in the underwriting and adjusting of disability, health and property casualty policies.
Actively-at-work
Credit Accident and Health, mortgage disability and IUI provision requiring the insured/borrower to have worked at least 30 hours per week in order to qualify for benefits.
Closed-End Credit
Credit for a specified amount and a fixed term. the amount borrowed cannot be increased.
Net Payoff Coverage
Credit life insurance that covers the outstanding net indebtedness. Used to cover credit cards or credit line obligations.
Rebating
Illegal practice of giving back to an insured a part of the policy commission or other consideration as an inducement to purchase insurance.
Credit Life Insurance on Open-End Credit
Death benefit equal to the outstanding balance of the loan on the date of death.
Credit Life Insurance on an Installment Loan
Death benefit equal to the scheduled indebtedness of the loan.
Decreasing Term Life Coverage
Death benefit that decreases during the life of the loan. Can be a single or joint policy. A type of coverage whereby the death benefit declines with the unpaid balance of a particular installment loan. Always write decreasing life on installments.
Truncated Life Coverage
Decreasing life insurance with a term of the insurance less than the term of the credit.
Critical Period Coverage
Disability insurance and involuntary unemployment insurance for a stated number of months which is shorter than the full term of the loan.
28.14(1) Disclosure
Disclosures must be given at time of application. The creditor shall also disclose the optional nature of the coverage, premium or identifiable charge separately by type of coverage, eligibility requirements, and policy limitations and exclusions. Disclosures must be made prominently above the space for the signature indicating election to obtain coverage. May be made in conjunction with truth in lending disclosure, or notice of proposed insurance, or insurance policy or certificate.
Producer of License
Document issued by insurance division of evidence authority to sell insurance.
Agents License
Document issued by some Insurance Departments indicating the agents powers. Individual only in Iowa.
Risk
Exposure to or uncertainty of loss. It can classified as either pure risk or speculative risk. Pure= we can insure Speculative= Can not insure
Concealment
Failure to disclose a fact. If the concealment is material to the application, coverage may be voided.
Consumer Credit
Financial transaction in which a borrower is advanced cash or purchases a product and agrees to repay the creditor.
Creditor Beneficiary
First beneficiary of the policy (the bank)
Arthur J Morris
Formed the first credit insurance company in 1917
28.3(7) Renewal or Refinancing of the Indebtedness
IF the indebtedness is discharged due to renewal or refinancing prior to the scheduled maturity date, the insurance in force shall be terminated before any new insurance may be issued in connection with the renewed or refinanced indebtedness. In all cased of termination prior to schedule maturity, a refund shall be paid or credited to the debtor as provided in rule 28.8(509). In any renewal or refinancing of the indebtedness, the effective date of the coverage as respects any policy provision shall be deemed to be the first date on which the debtor became insured under the policy covering the indebtedness which was renewed or refinanced, at least to the extent of the amount and term of the indebtedness outstanding at the time or renewal and refinancing of the debt.
28.3(1) Multiple Plans of Insurance
If a creditor gas available to the debtors more than one plan of credit life insurance or more than one plan of credit accident and health insurance, the debtors must be informed of all plans applicable to the credit transaction.
Twisting
Illegal practice of misrepresenting policy provisions, or the making of incomplete comparison as an inducement to terminate, lapse, forfeit or surrender ones policy for another of similar risk. Replacement of ones insurance policy t the detriment of the insured.
Disability
Inability to perform all or part of ones occupational duties in which the debtor is reasonably fitted by education, training, or experience. Must be on scheduled payments.
Evidence of Insurance
Individual insurance policy or certificate of insurance presented to the insured indicating the amount of insurance, premium, term, description of coverage, exceptions, etc. Must be delivered within 30 days of inception of loan. On day 31, estoppal kicks in.
Agent
Individual, partnership, or corporation authorized by a company to solicit risks, collect premiums or countersign policies. An agent represents a company.
Contributory Premium
Insurance for which the debtor is charged in identifiable premium.
Mortgage Guaranty Insurance
Insurance protection or banks, savings & loans, and similar financial institutions in the event a debtor defaults on a mortgage, deed of trust, or investment.
Non-Contributory Premium
Insurance where the creditor pays the premium on credit related insurance for the debtor (ex. Credit unions)
Credit Involuntary Unemployment Insurance
Involuntary unemployment insurance that pays insured/debtors monthly loan payments in the event the insured/ debtor becomes involuntarily unemployed.
Credit Life Insurance
Life insurance that pays the insured/debtors loan balance in the event the insured/ debtor dies.
Involuntary Unemployment Insurance (IUI)
Loss of income insurance that provides a benefit in the event of involuntary unemployment during the term of the insurance. Ex- layoff, firing, lockout, strike.
Debtor
Means a borrower of money or a purchaser or lessee of goods, services, property, rights or privileges for which payment is arranged through a credit transaction.
Lender-agent
Means a creditor under an agreement in which: 1. the creditor reasonable contemplates repeated transactions; 2. the creditor imposes a finance charge from time to time on an outstanding unpaid balance; and 3. the amount of credit that may be extended to the debtor during the term of the agreement (up to any limit set by the creditor) is generally made available to the extend that any outstanding balance is repaid.
Person
Means any natural person, partnership, corporation or other business entity.
Credit Transaction
Means any transaction by the terms of which the repayment of money loaned or loan commitment made, or payment for goods, services or properties sold or leased, is to be made at a future date or dates.
Credit Insurance
Means both credit life and credit accident and health insurance (disability)
Credit Accident and Health Insurance
Means insurance on a debtor or debtors to provide indemnity for payments becoming due on a specific loan or other credit transaction while the debtor is disabled as defined in the policy.
Creditor
Means the lender of money or vendor or lessor of goods, services or property, rights or privileges, for which payment is arranged through a credit transaction, or any successor to the right, title or interest of any lender, vendor, or lessor, and an affiliate, associate or subsidiary of any of the or any director, officer or employee of any of them or any other period in any way associated with any of them. Entity that lends money or a distributor of products that offers financing.
Indebtedness
Means total amount repayable including principal, interest and finance charges. The amount owed by debtor to creditor.
Pro Rata Refund
Method for computing unearned premium for level term credit life insurance contracts and GAP.
Rule of 78 aka Sum of Digits
Method used for computing unearned premium (refund amounts) for decreasing term credit life and disability insurance, also applies to net pay, truncated and critical pay. Not level life or GAP.
Retroactive
Once an insured has met the waiting period, the company will go back and pay from the 1st day. Customer will receive 1/30th of their monthly payment for each consecutive day they are disabled. Ex- Customer has a 14 day waiting period. They are disabled and unable to work 15 days, they will get paid all 15 days. If their payment is $300 a month, they will get paid $150 as a benefit. ($300 payment/30=$10 per day. $10 x 15 days = $150 benefit.)
Non-retroactive (elimination)
Once an insured has met the waiting period, the company will pay starting after that date. Customer will receive 1/30th of their monthly payment for each consecutive day they are disabled. Ex- Customer has a 14 day waiting period. They are disabled and unable to work 15 days, they will get paid 1 day (15 days- 14 day waiting period=1). If their payment is $300 a month, they will get paid $10 as a benefit. ($300 payment/30=$10 per day. $10 x 1 day= $10.)
Guaranteed Auto Protection (GAP)
Optional protection that pays the difference between the amount you owe on your vehicle and the amount you receive from your insurance company if the vehicle is stolen or destroyed before you have satisfied your credit obligation.In 1999, Reg Z (Truth in Lending Act) was updated to specify how GAP would be disclosed on a finance contract. Most GAP policies cover all or a portion of the customers deductible. In IA, requires the business manager to have a Credit Insurance license to sell it. Insurance protection that voters shortage between an auto loan and amount that I paid by an automobile insurance policy.
Producer
Organization or individuals appointed by an issuer to sell credit life & credit accident and health insurance. Required to be licenses by the insurance division.
Agency Billed Policy
Policy billed by the agency to the insured. Under this method of premium collection, the agency subtracts commission from the gross premium and remits the net amount to the insurance company.
Free Look Provision
Policy provision that permits the borrower to purchase insurance, think about it for 15 days, and if not satisfied, cancel the policy and receive a full refund of all premiums. 15 credit life + disability, 30 day for involuntary unemployment, 60 days for GAP.
Truncated Coverage
Policy where the terms are less than the term of the loan. This can happen of the insured meets maximum age requirements OR when the maximum payment insured is less than the actual payment for disability insurance. For life, it is when the maximum amount of the insurance is less than the loan amount for net pay or total payments for gross pay.
Moral Hazards
Practices or behavior patterns which increase risk. generally against public policy (fraud, malingering)
Morale Hazards
Practive or behavior patterns which increase risk such as carelessness or absentmindedness (I don't care attitude). Generally not against public policy.
Cash Advance
Principal amount of the credit or cash amount borrowed.
6 x 6 Exclusion
Requirement suggesting that if a policyholder has a sickness or injury in the first 6 months of the contract, which resulted from treatment 6 months prior to the effective date of the policy, the claim can be denied. Ex- I fell off a roof in January, got my policy in March, then became disabled in April due to my knee injury from falling off the roof.
Consumer Credit Transaction
Same definition as set out in Iowa Code section 537.1301(11) to (14)
Guarantee Fund
State fund which protects policyholders of admitted life, accident and health insurance companies in the event of insurer insolvency. Properly known as the Iowa Life & Health Insurance Guaranty Association Act. $300> Mortgage $200> Credit Life $2,000/mo> Disability
Credit Insurance
State regulated group rate master policy or individual policy. Includes decreasing term life, level life term, disability and can be truncated. Must have 3 parties- debtor/insured, creditor/beneficiary, insurer.
Misrepresentations
Statements made by an applicant or insured which are not true. If a misrepresentation is material, coverage may be voided.
Exclusions
Stipulated by the Iowa Insurance Department: Life-Suicide within the 1st 6 months of policy or misstatement of age (actually over 65 on date of loan) Disability- Self inflicted injury (stabbing self), normal pregnancy, or pre existing conditions (6x6)
Initial Net Indebtedness
Sum of the principal plus the insurance premium
Adverse Selection
Tendency of poorer risks to seek insurance. A risk which has a greater bias to an exposure than the average risk.
Coercion
The act of requiring a borrower to purchase insurance from a particular source precedent to a loan or credit transaction.
Net Indebtedness
The amount due under a credit obligation.
Commission
The amount of money paid to the producer fir selling insurance to consumers.
Certificate
The document issued by Master Policyholders (account) to each of the insured customers. The certificate is used to confirm the insurance coverage.
Certificate of Insurance
The document, issued to the insured borrower by the producer or insurer under a group of master policy. It is evidence of insurance coverage.
Amount Financed
The dollar amount on which interest charges are calculated. Credit insurance is included, but not in the finance charge.
Annual Percentage Rate (APR)
The effective annual interest rate of a credit obligation.
Any Occupation Disability
The inability of the insured to perform the duties of any occupation for which the insured is reasonably fitted by education, training or experience.
