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
