Indiana Life License Exam

Agreement (Offer and Acceptance)

An offer, followed by an acceptance. The application and initial premium, if collected from the proposed insured is the offer, and the insurance company approving the application and issuing a policy is the acceptance.

Unfair Discrimination (Unfair Competition Law Violations)

Neither the producer nor the insurance company may write or issue any policy that unfairly discriminates between two individuals of the same insuring class.

Premium Mode

Once the premiums for the policy are calculated, the Policy-owner may choose the frequency of payments

Joint Life Insurance (First to Die)

One policy that covers two or more people. Pays out the death benefit upon the death of the FIRST person. Less expensive than individual policies.

Sharing Commissions (Unfair Competition Law Violations)

Sharing commissions with anyone not licensed in the same line of business is considered rebating.

Sharing (Risk)

Sharing potential loss with someone

Mis-Representation

False Statement

To be insurable you must have (5 things)

1. Must be a large number of similar risks to pool and share 2. Must be measurable (a definite value must be placed on the loss 3. Must be uncertain (loss due to chance) 4. Must cause economic hardship (the loss must be significant) 5. Cannot be catastrophic (the loss cannot be too great to insure against)

Legal Contracts

A contract is a legally binding agreement between two or more legally competent parties to form a valid contract.

How Long is the Replacement Free Look Period?

20 days.

Irrevocable

A beneficiary designation in which the policy-owner may NOT change the beneficiary, NOR surrender the policy, take out a policy loan or exercise other policy features without the consent of this beneficiary.

Revocable

A beneficiary designation that may be changed - Without the consent of the beneficiary.

Family (Protection) Policy

A combination of whole life on the primary (breadwinner) and term insurance on the spouse and/or children. Children are covered with convertible term insurance which may be converted to an individual whole life policy at a predetermined age without proof of insurability. Newborn children are automatically covered (either at birth or up to two weeks after birth depending on the company) with no proof of insurability and no increase in premium. Adopted children are also covered from the date of the adoption with no increase in premiums.

Alien (Insurance Companies)

A company that originates in any country other than the US.

Foreign (Insurance Companies)

A company that originates in any state other than the state you are doing business.

Domestic (Insurance Companies)

A company that originates within the state.

Disclosure Statements

A form required by law that the agent must verify that he has given the applicant. It authorizes the insurer to obtain medical and, credit information and also information from investigative agencies. The agent must verify by signature that the disclosure form was given to the client.

Purpose of the Group (Group Underwriting)

A group CANNOT exist for the sole purpose of purchasing insurance. Groups created to purchase cheap insurance would present higher risks.

Cash (Settlement)

A lump sum payment. Default option on most policies.

Grace Period Clause

A period of time (usually 30 or 31 days) after the premium is due during which a policy remains in force; if death occurs during the grace period, the death benefit will be paid minus the overdue premium and any interest due.

Loss

A reduction in the quantity or value of something

Representations

A statement believed to be true to the best of one's knowledge

Warranties

A statement guaranteed to be true (the absolute truth)

No Discrimination (Group Underwriting)

All employees and members within the group must be eligible for coverage. No one can be picked out from the group and denied coverage.

Keogh (HR-10) Plans

Allows self-employed individuals, partnerships and un-incorporated individuals to establish tax favored retirement accounts. All employees who are 21 years and older, who have worked for one year or more, and work at least 1000 hours a year must be covered. Contributions grow tax deferred.

Buy and Sell Agreement

An agreement that states that if one business partner dies, the remaining partner(s) have the right to buy the deceased partner's share at a specified price. This agreement can keep a company running by providing needed cash when a partner dies.

Standard Risk

An applicant who is of standard risk; does not require additional premium to cover risk; most people fall into this category.

Preferred Risk

An applicant whose health and lifestyle indicate a longer life span; charged lowest rates.

Substandard (Rated) Risk

An applicant whose risk is below the standard or average risk; pays higher premium.

Assignment Clause

An authorized transfer of ownership of a policy or its benefits from the policy-holder to another person; this can be temporary as in a collateral assignment or permanent as in an absolute assignment.

Savings Incentive Match Plan for Employees (SIMPLE)

An employee makes contributions through qualified salary deduction. Employer contribution may be dollar for dollar match of deduction (up to 3%) for non-elective 2% contribution to each eligible employee. All contributions are nonforfeitable and vested immediately. There is a 25% premature distribution penalty on withdrawals made during the first 2 years of participation.

Simplified Employee Pensions (SEPs)

An employer sponsored IRA. The employer makes the contributions. Employer's contributions are not taxable and are capped at 25% of employee compensation.

Methods of Settlement

An insurance company is prohibited from paying less than the amount of the death benefit, except in the case of outstanding loans. If the company has not started payment of the death benefits within the 30 days, the company must begin paying interest at a specified rate.

Medical Exams and History

An insurer can request an attending Physician statement in addition to the medical exam. This concerns the details of the insured's medical history

Four Premium Modes

Annual, Semi-annual, Quarterly, and Monthly The rate for annual is the least expensive and the monthly is the most expensive due to administrative costs for billing and premium application.

Advertising

Any communications to the public, broadcast, telecast, written or spoken.

Cash Surrender Value

Any outstanding loans and interest would be subtracted from the cash value. A policy surrendered for cash CANNOT be reinstated.

Seven Pay Test (Continue)

Any withdrawals or loans taken from a modified Endowment policy are taken as taxable dollars first and then return of premiums (already taxed). There is a 10% tax penalty in addition to any taxes due on withdrawals made prior to age 59 1/2.

Who must be Licensed?

Anyone who solicits, negotiates or sells contracts of insurance. Business entities licensed as producers must pay a fee and designate an individual who holds a producer's license to be responsible for compliance with the insurance companies.

Rebating (Unfair Competition Law Violations)

Anything of value, including a portion of the commission, that is given to the client as inducement to purchase insurance from that agent.

Declined Risk

Applicants who are rejected because risk is too high.

Dividends

Are a refund of overcharged premiums.

Viatical Settlements

Are companies that buy insurance policies at a discounted rate (less than the death benefit) in order to pay cash benefits to the policy-owner in the event of a terminal illness. The company is the new owner of the policy, pays the premiums and receives the death benefit when the insured dies.

Insurers

Are companies that sell insurance. They may be private or Government. There are several types but the most common are Stock and Mutual Insurers

Stock Insurers (Companies)

Are made up of stock holders who have shares in the company and receive dividends based on company profits. The dividends received from stock insurers ARE taxable

Mutual Insurers (Companies)

Are owned by policy-holders and dividends received from mutual insurers are based on a return of excess premium and are therefore NOT taxable

Settlement Options

Are the options available at the maturity (death / age 100) of the policy, either to the policy-owner or the the beneficiary upon the death of the policy-owner. The types are similar to the annuity payment options.

Nonforfeiture Options

Are the options the policy owner is given when the policy is surrendered for the cash value.

Nonresident (Types of Licenses)

Be a licensed producer, in a good standing, in your state of residence.

Retention (Risk)

Be self-insured or set up a savings fund to offset the cost of potential loss

401(k) Plans

Company sponsored jointly funded defined contribution plans. The employee chooses a pre-tax percentage of their pay to be contributed. The employer may match either dollar for dollar or a certain percentage.

Key Person Insurance

Can be described as an insurance policy taken out by a business to compensate the business for financial losses from the death of the member of the business specified on the policy. The aim is to compensate the business for losses and facilitate business stability.

Immediate Annuity

Can only be purchased with a lump sum premium. Provides a benefits payment beginning one payment period after the premium payment; payment must begin within one year.

Reduced Paid Up Insurance

Cash value is used to purchase a paid up policy of the same type as the original policy at the insured's attained age. CAN or HAVE to right to reinstate.

Foreign Insurer

Chartered in another state, US territory, or District of Columbia

Domestic Insurer

Chartered or incorporated within the state

Alien Insurer

Chartered outside of the US, US Territories, or District of Columbia

Non-Admitted (Admission of Insurance Companies)

Companies are NOT authorized by the state insurance department to do business in Indiana.

Admitted (Admission of Insurance Companies)

Companies are authorized by the state insurance department to do business in Indiana.

AIDS, ARC, and HIV Disclosure

Companies may seek medical information regarding AIDS and HIV as an under-writing criteria. The insurer must tell the applicant how the test will be used. Company pays for the test. CANNOT ask questions about sexual orientation. CANNOT use sexual orientation to determine insurability. The test must be kept confidential.

The Producer's Role

Conduct a reasonable investigation as to whether replacement will take place. Present the applicant with a signed copy of the Important Notice Regarding Replacement of Life Insurance as well as copies of all sales proposals. The producer must forward signed copies of all documents to the insurer. The replacing company must notify the existing company within 3 working days. The existing company will try to keep their policy in force through conversation.

Traditional Individual Retirement Account (IRA)

Contributions are from pre-tax dollars up to a limited amount per year. Contributions grow tax deferred until withdrawn. Withdrawals must begin by age 70 1/2. Early withdrawals (under age 59 1/2) are generally subject to a 10% penalty and taxed.

ROTH IRAs

Contributions made from after tax dollars. Contributions can continue past age 70 1/2. Qualified distributions can be made at any time as long as the account has been open for 5 years. Early withdrawals are subject to tax on earning and a 10% penalty.

If NO receipt is used

Coverage begins on the date of the policy is delivered and the first premium is paid.

Annunities

Creates an estate usually through contributing funds into an annuity account. It is a policy against retirement death (living longer than your savings will last). It is a way of saving for retirement, liquidating an estate or providing income for life.

Ownership Clause

Defines the person who may make changes, name and change beneficiaries, select options available under the policy and receive and financial benefits from the policy.

The Practice of Back Dating

Dating the policy back up to 6 months to the applicants last birthday, in order to lower the premium.

Defined Contribution

Determine how much an employee can contribute to a plan (money in)

Defined Benefit

Determine how much an employee will receive at retirement (money out).

Accumulate at Interest (Dividend)

Dividend left with insurer as savings. May result in current income tax liability on interest amount.

One-Year Term (Dividend)

Dividend used to purchase enough one year term to cover any outstanding loan amount.

Deferred Annuity

Does NOT pay the annuitant until a specific age or until the expiration of a fixed number of years. All premiums must be paid in before payment can begin.

Annuity Certain (Pay Out Option)

Either payments for a Fixed Period of time or payments for a fixed amount per payment.

Rule 38.1 Indiana State Insurance Regulations (Conversion)

Employee covered by a small employer's group plan, has the right to convert coverage within 30 days of termination. The conversion provision enables an insured to change policy to a permanent life policy WITHOUT providing evidence of insurability.

Guaranteed Insurability Rider

Enables a policy-owner to purchase additional insurance at specific ages or specific events without having to show evidence of insurability.

Single Premium

Entire premium amount paid in one lump sum.

Decreasing Term

Face amount DECREASES and premiums remain level. Commonly used for mortgages.

Increasing Term

Face amount INCREASES and premiums remain level. Most commonly used as a rider on a life policy to increase the death benefit.

Level Term

Face amount and premiums remain level

Concealment

Failure to disclose a known fact

Fixed Dollar (Conventional) Annuity

General Account. Company assumes the risk of the investment. General account invests in bonds and mortgages. Guarantees minimum interest rate earned.

Three Parts to the Application

General Information The medical Information Agent's report

Buyer's Guide

General Information that explains insurance for the consumer to aid their decision making regarding insurance. Information provided to the applicant about the different types of policies to assist in making informed and appropriate choices about buying life insurance.

Free Look Provision

Gives the policy-owner the right to return a policy to the insurance company within a stated period of time, usually 10 days, for a full refund.

Pure Risk

Has a chance of loss only

Speculative Risk

Has a chance of loss or gain (gambling)

Commissioner of Insurance

Has many duties such as attaining records that insurers are required by law to submit, examining applications for licenses, investigate possible violations and preparing annual reports for the governor.

Competent Parties

Have legal capacity to enter into a contract. Parties to a contract must be legal age, sane, sober of sound mind.

Enforcement of the Unfair Competition Law

If a violation has taken place, the Commission will hold a hearing. The Producer will be given notice at least five days in advance of the hearing. The Commissioner can subpoena and examine witnesses and records relevant to the case. The Commissioner can issue a cease and desist order to stop the producer from doing what they were doing and/or a fine (up to $25,000 per violation). If the producer has knowingly committed the violation he/she can be fined (up to $50,000) and his/her license can be revoked.

Agent Collection of Premiums and When Coverage Begins

If an applicant pays the initial policy premium with the application, then a conditional receipt is given to the applicant. If the applicant does NOT submit the initial policy premium with the application then NO receipt is given.

Estate

If no beneficiary is named, the death benefit is paid to the insured's estate.

Common Disaster Clause

If the beneficiary dies within a stated period of time (30 to 90 days) after the insured, the insurance company will act as if the insured outlived the beneficiary.

Uniform Simultaneous Death Act

If the insured and the sole beneficiary die at the same time, the benefits will be paid as of the insured outlived the beneficiary.

Minor (children) as Beneficiaries

In order for children to receive death benefits, a guardian must be named or the court will appoint one.

Producers or agents are

Individuals who solicit applications for life insurance. They represent the insurer.

Place of Origin

Insurers are also classified by their place of origin which means where they conduct business.

Fraud

Intentional act designed to deceive and induce (a lie for financial gain)

Accelerated Death Benefit Premiums

Interest and cost must be fully disclosed to the applicant.

Modified Endowment Contracts (MEC)

Is a class of insurance that was created when federal law passed the TAMRA act (Technical and Miscellaneous Revenue Act) was passed.

A Certificate of Authority

Is an insurance license that gives a company (insurer) the authority to do business in the state of Indiana.

Seven Pay Test

Is given to a life insurance policy that has had cumulative premium payments made during the first seven years. These payments must not exceed a limit defined in the tax code, if it exceeds the limit the policy is classified as a MEC and losses most, if not all, of its tax advantages. (Definition is from Tax Reform Act of 1984).

Whole Life Insurance (Permanent Protection)

Is insurance to age 100. Builds guaranteed cash value that is specified in the policy. Matures (expires) at age 100 and the face value is given to the policy-owner. Also matures (expires) at the death of the insured. If a whole life policy is surrendered, the policy owner only pays taxes on the interest (growth) of the cash value greater than the premiums paid. Whole life policies premiums are more expensive than those for a term life policy.

Universal Life (UL)

Is pure protection plus cash value. Premiums are not fixed and can change, or be skipped entirely. Death benefit is term insurance (ART) to age 100. Cash value grows on an interest sensitive basis. Partial surrenders (taking part of your money) can be made and not paid back.

The main difference between whole life and universal life

Is that the premium and cash value are flexible.

Risk

Is the possibility that a loss may occur

Under-writing

Is the process of selecting and categorizing risks into similar groups and assigning the appropriate premium amount to each group

Adverse Selection

Is the tendency for those who are more prone to loss to purchase insurance. It is the tendency for the people in poor health to buy or seek to buy insurance more than other risks (healthy individuals)

Equity Indexed Life

Is tied to a security (stock market) index such as the S&P 500.

Replacement

Is when a new life insurance policy is purchased and it replaces an existing policy. Is highly regulated in most states since most insurance policies increase in value over time. The policy value is either significantly diminished or disturbed in some way.

Master Contract

Issued to employer or association.

Certificates of Insurance

Issued to individuals covered under one policy.

Reasons to buy Life Insurance

It creates immediate estate, upon the death of the insured It can pay for doctor's bills and funeral costs It can pay for estate taxes or pay off debts It can also pay for education and help with retirement needs for the spouse

Is Replacement Illegal?

It is NOT

Policy Delivery

It is important for the agent to deliver the policy for several reasons: 1. Reviewing the policy 2. Explaining coverage and provisions 3. Enhance the agent client relationship 4. Explain any need for additional coverage

Twisting (Unfair Competition Law Violations)

Knowingly making misleading or fraudulent statements about another insurance company in order to convince a potential client to allow a current policy to lapse, forfeit, surrender or convert a policy to another insurance company.

Application of State Law

Law governing the policy will be enforced in the state where the policy is delivered and not in the home state of the insurance company.

Producer's License Maintenance

License must be renewed every 2 years. Must complete 20 hours of continuing education requirements every 2 years. Indiana license renewals are done through the Sircon website database. Sircon is a licensing and renewal service used by insurance companies and state insurance departments to process and track licensing information.

Reduction (Risk)

Live a healthy life style to reduce risk (wear your seat belt)

Resident (Types of Licenses)

Live in or have primary business location in Indiana.

Accelerated Death Benefits (Continued)

May be a rider or included in the policy contract. Qualifying events for accelerated death benefit are dread disease, terminal illness and nursing home; disability does not qualify. Maximum benefit is a percentage of the face value (i.e. 50% or 75%)

A Non-Qualified Retirement Plan

May discriminate in favor of highly compensated employees.

Eligibility for a License is...

Must be 18 years old. Pass State exam. Receive a Pre-licensing Certificate of Completion dated no more than 6 months prior to the license application date. Complete the state license application. Pay the licensing fee.

Are Dividends taxable?

No. They are not taxable since they are a return of premium.

The Medical Information Bureau (MIB)

Non-profit member funded association that collects and tracks under-writing information on applicants for life and health insurance. Will only have general medical information on a n applicant if that person has previously applied for coverage with an associated insurance company. The MIB does not have specific medical history and information on all applicants

Implied Authority

Not written in the producer's contract but granted to do actual business (collecting initial premium)

Survivor-ship Life Insurance (Last to Die)

One policy that covers two or more people. Pays out the death benefit upon the death of the last person. Less expensive than individual policies.

Life Annuity (Pay Out Option)

Payments for the rest of the of the annuitant's life calculated on age and gender at the time the pay out period begins. A Life Annuity offers protection against the risk of living longer than anticipated. Once the annuitant begins receiving payments, changes cannot be made to annuity.

Multiple Indemnity/Accidental Death Benefit Rider

Pays a stated amount (usually 2 times the death benefit) in the event of an accidental death or dismemberment. NOTE: This is accident-only coverage - and it does NOT pay a benefit for losses due to illness or disease.

Straight Life (or Life Only) Annuity

Pays throughout the life of the annuitant and ceases payment at the death of the annuitant.

Life Annuity with Period Certain

Pays throughout the lifetime of the annuitant and guarantees if the annuitant dies during the payout period, the benefits will go to his/her beneficiary for a predetermined number of years.

Refund Life Annuity

Pays throughout the lifetime of the annuitant and guarantees if the annuitant dies too soon, any undistributed principal (or cost) will go to his/her beneficiary.

Joint and Survivor Life Annuity

Pays throughout the lifetime of the annuitant and upon death and provides continued level or reduced (such as 2/3rds) benefits for the lifetime of the survivor.

Apparent Authority

Perceived by the public as a result of the producer's actions

Renewable Term

Policy is guaranteed to renew but premiums are based on ATTAINED age (current age) and will increase at each renewal. Does NOT require proof of insurability.

Interest Only (Settlement)

Policy proceeds remain with the company and the interest earned is paid to the beneficiary. This is the most flexible of the settlement options because the beneficiary can also take part of the benefits as well as the interest or take the lump sum at any time.

Proceeds on Life Insurance (Tax Considerations)

Premium payments are NOT tax deductible. Death benefits from a life insurance policy are NOT taxable to a named beneficiary when paid in a lump sum. Installment payments are partially taxable. The principle amount is NOT taxable but any interest earned IS taxable. Cash surrender value for Whole Life policies are only taxable for the amount that exceeds the premiums paid on the policy. Policy loans are not taxable. They are considered a debt against the policy and should be paid back. If the loans are not paid back the policy proceeds is reduced because the amount of the loan during the claim process. Policy Dividends are a return of an over-payment of premium and are not taxable.

Limited Pay (Paid-Up Early)

Premiums are limited to a specified number of years or to a specified age of the insured (for example, for 15 years until age 65).

Continuous Premium

Premiums are paid until the end of the policy or to age 100.

Incontestable Clause

Prohibits the insurance company from denying or contesting the payment of a death claim on the basis of statements made on the application after a specified period of time, usually two years (as long as premiums are kept current).

Insuring Clause

Promise by the insurer to pay (consideration) the beneficiary upon the proof of death of the insured.

Cost of Living Rider

Protects against inflation by offering increasing amounts of insurance protection without requiring the insured to provide evidence of insurability.

Life Insurnace

Protects against loss

Group Insurance

Provides coverage for a large number of people under ONE policy. Examples of eligible groups are: - Single Employers - Labor Unions - Associations - Credit Unions - Creditors (Credit Life Insurance) - Multiple Employer Trusts (METs)

Variable Universal Life (VUL)

Provides flexible premiums that accumulate cash value and pays a death benefit, which the policy-owner may increase. It combines investment choices with a form of term insurance. All investments funds must be kept in a separate account by the insurer. A Securities license issued by FINRA is required to sell Variable Universal Life (in addition to a producers license)

Convertible Term

Provides term coverage that may be converted to permanent coverage. No evidence of insurability is required. Premiums will increase when a policy is converted to whole life.

Term Life Insurance

Provides the highest amount of protection for the lowest cost for a temporary period of time. Term does not accumulate cash value and only pays a death benefit if the insured dies during the term of the policy.

Limited Lines (Types of Licenses)

Sells specific lines of insurance such as flight (short term life), baggage (short term property), title, credit, and funeral director.

Variable Annuity

Separate Account (FINRA license required). Interest rate not guaranteed. Annuitant assumes risk of the investment and tries to beat the rate of inflation. Death benefit is treated as a return of principal and the gain, if any, is taxable to the beneficiary.

Qualified Retirement Plan

Receive favorable tax benefits. There are yearly dollar and percentage amount limits to contributions. Contributions are usually tax deductible. Proceeds are usually tax deferred until paid out. Amount paid out are almost always taxed because no taxes have been paid on contributions or earnings. Proceeds cannot be withdrawn until age 59 1/2. Payout must usually begin by age 70 1/2. Premature withdrawals usually result in a 10% tax penalty. Excess contributions are subject to a 6% penalty.

Signatures are

Required from the agent, the applicant and the insured once the application is completed.

403(B) Tax Sheltered Annuities (TSAs)

Retirement plan for not-for-profit organizations (501c3-ie churches, school and hospitals.

Accelerated Death Benefits (A Living Benefit)

Rule 48. (Optional to know) Pay a portion (usually up to 50%) of a policy's face amount to the policy-owner or insured PRIOR to the death of the insured.

The Steps to issuing a policy are

Sales Presentations Taking the application Under-writing the risk Accepting or declining the risk Issuing and delivering the policy

Agent's Report

Some companies require an agent statement to be submitted with the application, which usually includes general information about how long the agent has known the applicant and if the coverage applying for will replace another insurance policy. The agent must sign this section.

Policy Summary

Specific Information on the policy that is being sold to the consumer. It must include information on premiums, dividends, benefits and cash values. It must identify the agent, insurer, the policy and each rider.

Payor Benefit Rider

Specifies when premiums can be waived for a life insurance policy on a child in the event that the policy-owner dies or becomes disabled. Waiver in effect until the child reaches 21.

Life Insurance Replacement

Spells out the duties of the companies and their producers to ensure that consumers have adequate information to decide whether or not replacement is the right thing for them. Any violation of RULE 16.1 is considered to be a violation of the Unfair Competition Statute (Unfair Trade Practices Act).

Reinstatement Clause

States that a lapsed policy can be reinstated within a specified period of time (usually 3 years). The policy-owner must pay the overdue premiums plus interest, repay any outstanding policy loans, and provide proof of insurability. A policy which has been surrendered for its cash value cannot be reinstated.

Misstatement of Age and Sex (or Gender) Clause

States the procedure to be followed by an insurance company when an insured misstate his/her age on the application and the policy has been issued at the misstated age. The face amount is adjusted to the amount the premium would have paid at the correct age or gender. NOTE: When an insured misstates age on an application, the insurance company will adjust the amount of coverage to the amount that the premium would have purchased at the insured's correct age.

Avoidance (Risk)

Stay away from a risky situation or action (no sky diving)

Life Insurance Advertising

Stipulated that a company CANNOT imply that a policy owner has equity (ownership) in the insurance company. The applicant must be told that the sole subject of the sale is insurance.

Premium Payment Clause

Stipulates that all premiums paid after the initial premium are paid in advance and to whom the premiums are paid.

Loan Value and Automatic Premium Loan (APL) Provision

Stipulates the policy-owner has the right to borrow the cash value from a policy, but the company will charge the interest specified in the policy. The policy cannot be canceled if the loan is not repaid, but interest will continue to be charged on the outstanding loan amount, even if the policy-owner continues to pay premiums. The company can also use cash value to pay the outstanding premiums on a policy and function much the same way the policy loan.

Replacement way include these actions (5)

Surrender - forfeit or lapsing a policy. Exercising a non-forfeiture option (extended term or reduced paid up.) Amending a policy to reduce value or term. Reissuing a policy with a reduced cash value. Borrowing more than 25% of the cash value.

Maturity

Term products mature when the death benefit is paid out (the insured dies). Term product expires when they reach the end of the term.

The Health Insurance Portability and Accountability Act (HIPAA)

That requires health providers to protect the confidentiality of medical information

Credit and Investigative Consumer Reports

The Fair Credit Reporting Act made it law that an applicant for insurance must be notified in writing that a credit report is being made. These reports may be oral or written and can include information on credit history, reputation and character. A company might use one of these reports to look at an applicant's financial history and spending habits to determine moral risks. Violators of the Fair Credit Reporting act may face fines and/or imprisonment.

Who is the Indiana Commissioner of Insurance Appointed by?

The Governor. The commissioner serves at the pleasure of the governor (commissioner may be dismissed at any time)

Judicial Review

The process of having a judge review the Commissioner's decision on a violation.

Legal Purposes

The purpose of an insurance contract must be legal

Rollovers

The ability to move money from one tax-qualified plan to another. The check must be put into the new plan within 60 days of receipt to avoid a tax penalty.

If a conditional receipt is given

The agent issues the conditional receipt to the applicant on the date of the application is taken; the agent must explain that the coverage is only effective if the application is approved exactly as applied for - Coverage begins either on the date the application or on the date of the medical exam, which ever is later

The Accumulation Period (Pay In) (First Phase)

The annuity owner is in control during accumulation. Changes can only be made by the owner during accumulation. Cash Value grows tax deferred. Withdrawals made prior to age 59 1/2 are subject to surrender charges, taxes on interest earned and a 10% penalty. If the annuitant Dies during the accumulation phase, the beneficiary would receive the contract's cash value and any amounts not previously taxed are taxable (i.e. $10,000 premiums paid, $25,000 cash value, $15,000 taxable).

The Annuitization Period (Pay Out) (Second Phase)

The company takes control of the annuity. Taxable amounts (interest) are withdrawn first and then premiums. Exception may apply to systematic withdrawals over 5 years or more. Withdrawals from an annuity before age 59 1/2 are subject to a 10% plus taxes.

Consideration

The exchange of something of value for a service for a service, such as the exchange of premiums for insurance coverage.

Hazard

The factor that gives rise to a peril

Primary

The first person(s) to whom the proceeds of a policy are payable upon the death of the insured.

Peril

The immediate event causing a loss (fire and death)

Waiver of Premium Rider

The insured must be totally and permanently disable for the waiver to be applied. A specific time period of disability must pass before the wavier is applied (usually 6 months). The benefit remains in full effect until recovery from the disability. The insurer will continue to pay dividends on the policy.

Premiums

The insurer uses morality, interest and expense to calculate life insurance premium rates.

The law of large numbers

The larger the number of similar risks, the more accurate the prediction of future loss. This is important because insurance rates and premiums are based on these numbers.

Take the Money (Pay Out Option)

The option to take the entire lump sum.

Entire Contract/Changes Clause

The policy and the application comprise the entire agreement. All statements are deemed to be representations. Only an executive officer of the insurer can make changes to the policy. Whole life premiums are guaranteed never to increase. An insurance company cannot use change of occupation as a justification for a premium increase.

Automatic Premium Loan Rider

The policy-owner gives the insurer the right to borrow against the policy's cash value to pay any past due premiums. This will reduce the death benefit amount and create an outstanding loan against the cash value.

Cash (Dividend)

The policy-owner receives a check

Contingent

The secondary person(s) to whom proceeds of a policy are payable if the primary beneficiary dies before the insured.

Reduced Adverse Selection (Group Underwriting)

The tendency for more healthy people to buy group insurance than would buy individual coverage since part of the cost is covered by the employer.

Technical and Miscellaneous Revenue Act (TAMRA)

This act discouraged the use of insurance as a Tax shelter by classifying any life policy that grows cash value faster than a Seven Pay Whole Life policy as a MEC and therefore loses its tax favorable status.

Equity Indexed Annuity

Tied to an index such as the S&P 500 index.

Time Limit on Lawsuits

Time limit placed on a policy-owner or beneficiary to file a lawsuit after the cause of legal action occurs; is three years.

Waiver

To intentionally give up a known right

Transfer (Risk)

Transfer the risk to another party, (insurance company)

Reduction of Premium (Dividend)

Use dividend to buy paid up coverage at attained age. Default for most policies.

Extended Term

Used to purchase pre-paid term for the same amount as the original policy for as long as the amount will pay. Policy MAY be reinstated, not available on rated options.

Paid-Up Life (Dividend)

Using the dividend to pay the premiums on a limited pay policy so that it endows more quickly.

Expressed Authoirty

Written in the producer's contract what they can and cannot do

Transferring risk is

a basic principle of insurance