Producer Life Exam
annuities certain (types)
Life with period certain-income for the life they live. Choose period such as 10 or 20 years, annuity will pay beneficiary if annuiant dies within that period
spendthrift clause
death benefit cannot be paid in a lump sum, cannot be claimed be creditors before payement to beneficiary, benefits cannot be pledged to creditor, cannot be used as collateral for a loan
fixed period installments
death benefit+guaranteed interest over a set time,if interest is greater than the guaranteed rate, the final payment will be larger
Transfer
insurance agrees to pay if individual or business has a loss, individual of biz has cost in the form of a premium payment. Compared to loss premium is a much smaller uncertainty
Admitted Versus Non-admitted Insurers
insurance company that has met the legal and financial requirements to operate within a state
Reinsurance
insurance for insurers, transfers risk from one insurer to the other. company reducing risk is ceding insurer, company assuming risk is called reinsurer. facultive considers each risk, treaty is a contract covering all types of insurance
assignability
insurers assign rating based on analysis
Unlicensed persons compensation
intentional violation fine is anywhere between $50-500,
tax deferred growth
interest earnings are credited to life insurance cash values are tax deferred -not taxable as long as they remain inside the policy, policyowner is taxed if gain is withdrawn
Cease and Desist Order
$10,000 for violating comissioners cease and desist order
"
31 days following the due date, death benefit paid minus premiums due
Continuing Ed Requirements
60 hours for first 36 month initial renewal, and 45 hours after each subsequent renewal
specialized joint life (first to die)
A joint life policy usually covers two or more lives with the death benefit being paid when the first insured dies. For this reason, they are also called first-to-die policies. Once the death benefit is paid out, the policy ends.
Needs Approach
A method for determining how much insurance protection a person should have by analyzing a family's or business neeeds and objectives should the insured die, become disabled, or retire. Measured by cash needs and incoeme needs
specialized survivorship (2nd to die)
A survivorship life policy insures two individuals and will pay the death benefit when the last insured dies. Survivorship policies are also called second-to-die or last-to-die policies. A survivorship policy costs less than purchasing two individual policies. is policy can provide money to pay estate settlement costs and related expenses upon the death of a second spouse.
whole life graded premium
Graded premium whole life policies have an even lower initial premium than modi ed whole life policies. e graded premium starts out lower than other types of whole life policies and increases every year for ve to ten years until leveling o for as long as the policy remains in force.
tax non-qualified-Roth IRAs (Contribution limits, distributions)
Introduced in 1997, contributions are never tax dedcutible and qualified distributions are tax free if act has been open for 5 years and distribution is after age 59 1/2, contribution limits are the same as for a traditional IRA
Estate Conservation
Life insurance can ensure the estate is conserved and kept intact for the heirs as the individual intended
whole life modified life
Modified premium whole life policies, sometimes called modified whole life policies, have lower premiums during the first three to five years. Compared to a continuous premium whole life policy, in those early years, modified whole life policies have a lower cost similar to term insurance. However, after the initial period, premiums increase to a certain amount and then are level for the life of the policy, making them higher in cost than a continuous premium whole life policy.
ERISA
Protects employee and beneficiaries, applies to qualified pensions and group insurance, requires that certain information such as summary plans, form 5500, annual report be available to plan beneficiaries, participants, department of labor and IRS
Survivor Protection
Risk of death makes survivng members financially vulnerable, deceased party's income ends upon their death and for a one income family the income ends. The surviors can be a spouse and children or loved ones. Life insurance protects survivors
Ambiguities on Contract of Adhesion
Takes side of insured
deferred annuities
bought with a single premium deferred annuity SPDA or flexible premium deferred annuity FPDA, has an accumulation period, owner decides annuitization at a later time
Self-Insurance Groups
a business that pays its own claims
fixed amount installments
a fixed amount is paid, interest earnings will effect the payment period timeframe
Assumed Names
a producer must report a legal name change within 30 days
premium collection
an offer to buy the insurance exists when the first premium is submitted with the life insurance application. If no premium is submitted with the life insurance application, coverage is delayed until the premium is paid for the issued policy
retirement income
annuity premiums are not tax deductible unless the contract is held in a qualified retirement plan
Selection criteria and unfair discrimination
any of the following is considered unfair discrimination: race, religon, national origin, place of residence, etc.
Hazard
anything that increases the chance that a loss will occur
Medical Information Bureau
application can not be denied solely from information from MIB, insured must be informed of MIB, MIB gets its information from insurance companies
Executive Bonuses
business pays the premiums on a life insurance policy which the employee owns. During life, the employee has full access to the living benefits, and at death the procceeds are paid to the beneficiary named by the employee
Key Person
businesses can protect themselves against financial harm that would result in the dealth of such an employee with key person coverage.
Express
authority made explicit in producer's written agency agreement with the insurer, ie. Wording in a contract
Exclusions
aviation (minus commercial), war or military, hazardous occurpation or hobby, death by suicide not covered before two years
disability riders-waiver of premium/waiver of stipulated premium (universal life)
if the policyholder becomes disabled, the waiver of premium will pay the premiums so a policyholder can continue to have coverage for the duration of the policy. The policy stays in force during the epriod of diability, and the scheduled cash values continue to be credited
Individual Beneficiary
individual or class of persons can be beneficiaries, my children or siblings is classes
Retention
individual will pay for loss if it occurs
Buyer's Guide
informational consumer guide books that explain insurance policies and insurance concepts, in many states they are required to be given to applicants when certain types of coverage are being considered
interest only
insurer holds the death benefit pays interest to beneficiary at regular intervals, death benefit paid at a later date
Expense-life
insurer operating costs, referred to as expense load. Adding expense element to premium is called loading
Fair Credit Reporting Act
insurer/producer have an obligation to let insured know if they have been denied coverage due to information from a third party source (credit report), and they have the right to deny any adverse information. insured also has to be notified before the credit report is completed, the producer must give insured this notice as well as a receipt
seven pay test
to determine if a contract is an MEC, a premium limit is set and is referred to as the seven-pay limit or MEC limit. Based on annual premium that would pay-up the policy after payment of seven annual level premiums. Created by IRS to avoid MEC status
Delivery Reciept Requirement
when the first premium is collected at the time of application, the producer must rovide the applicant with a receipt, the effective date of coverage will depend on the type of receipt issued.
policy loan & withdrawal- withdrawal and partial surrenders
withdrawals or partial surrenders are allowed on UL policies but not whole life policies. A withdrawal will result in a reduction of cash value, and the death benefit amount.
403b tax sheltered accounts (TSAs)
work a lot like 401k plans but they are for employee non-profit organizations such as public school systems, churches or hospitalsss, employee and employer contributions limits are generally the same as a 401k
Financial Status'
Component to producer/agents report, information pertains to proposed insured
Warranties
Promise always made by insurance company-if promise to pay is brokencompany could be sued by insured. Guaranteed to be true
Public Insurance Adjustor
To be a PIA you must be 21 years of age,be a resident of MA or of a reciprocal state, two years of experience with property losses, file a written application, with two photos taken within 60 days of the application, etc. MUST DO 15 HOURS OF CONTINUING EDUCATION WHEN RENEWING LICENSE.
Risk Retention & Purchasing Groups
a group of businesses from the same industry joining together to buy liability insurance from an insurance company. rpg is not the insurance company
Address Change
a producer must report within 30 days
Stock Companies
owned by stockholders/shareholders, if company makes money, portion of taxable dividends may be payable to stock holders/shareholders. Issue non-par policies
Exposure
risk assumed by insurer, and the amount the insurer is responsible to pay out at any given time
Legal Purpose
risk transfer doesn't violate the law
Utmost Good Faith
the insured and insurance company have a right to expect honesty from eachother
Non-Resident Producers
A non-resident producer will receive a license if the person is licensed as a resident and is in good standing in home state, has submitted appropriate forms, A NON-RESIDENT PRODUCER TRAVELING FROM STATE TO STATE MUST PROVIDE A CHANGE OF ADDRESS TO THE NEW RESIDENT STATE WITHIN 90 DAYS
Insurer as Principal
Agency is a relationship in which one person is authorized to represnet and act for another person or corporation. The person authorized to act on behalf of the other is the agent, the person whose behalf the agent acts is called the principal
Responsibilities of Applicant/Insured
Agents have a fiduciary responsibility to applicants and insureds, a fiduciary is a person in a place of financial trust. All premiums received by agent are funds received and held intrust, failure to do this can result in commingling-mixing personal funds with insured funds. suitability considerations- an agent has the responsibility to make/purchase reccomendations at the appropriate/suitable light of a clients particular needs.
Private Versus Governement Insurers
commercial insurers compete for biz in private sector, government insurers provide insurance to eligible individuals mandated by law
Hearings
commissioner must give 21 days notice of a hearing
Misrepresentation
fine of $1000, imprisionment for no more than 6 months. no company will make written or verbal misrepresentation that is misleading (also known as twisting)
Competent Parties
for a contract to be binding, both authorities must have the legalcapacity to make a contract. The insured must be of legal age (usually 18), and be mentally competent to make an insurance contract
Impersonation
fradulently represening oneself as a licensed producer, will face a fine between $10-100
Unfair Claims Settlement Practice
misrepresenting pertinent facts in insurance policy relating to coverages at issue, failing to acknowlege or act reasonably with claims arising under insurance contracts
Policy Forms
no policy form may be delivered or issued for delivery to more than 50 policyholders in the commonwealth until a copy of the policy form has been on file with the commissioner for 30 days,unless approved before the expiration of the 30 days
Solvency
organization might be supervised by the commissioner if continuation of business is hazardous to policy holders or general public,insurer's business gives consent, or business is being conducted fraudulently
Unfair Discrimination
permitting unfair discrimination between individuals of same class and equal expectation in the rates of insurance
flexible premium universal life
"Designed for people that want flexible coverages throughout their life, UL premiums are flexible, not fixed like whole life. Premiums paid into a UL policy accumulate as interest in the policy's cash value. Cost of insurance withdrawn from cash account monthly Fees withdrawn monthly either at guaranteed or current interest Option A (1) level death benefit Option B (2) increasing death benefit (insurance amount + cash amount)"
Group versus Individual
"Group life the cost is based upon the group, policy is issued to employer or group sponsor, employer determines amount of insurance.
Ordinary versus Industrial (Home Service)
"Industrial insurance is for people with limited means to obtain some benefits of life insurance. The face amounts are small, usually $2000 or less and are bought usually to cover/pay burial expenses, payments collected weekly by producers coming door to door Home service policies are sold by industrial or home service producers in the neighborhoods where they collect premiums at the houses of industrial life policyholders. Policies are usually $10k-25k, policyowners are encouraged to pay premiums through a monthly debit plan or by mail, so producers do not have to collect them personally"
tax non-qualified-values included in annuitants estate
"Life Insurance Estate: estate taxes are owed if an estates value exceeds a certain value at the time of the individuals death, the taxes are a percentage of the estates value. Taxes are due on the transfer of wealth, life insurance death benefits are included as the insured gross estate if: the insured owns the policy at the time of death, payable to the insureds estate,insured transferred ownership within 3 years of death Annuity Estate: annuities are included in gross estate if death occurs during accumulation, entire value including cost is included, or if death occurs during annuitization, present value of future payments is included"
Fixed versus variable Life Insurance & Annuties
"Life Insurance: can be used to create an estate, protects against dying too soon,uses a series of payements to guarantee lump sum of monet upon death Annuities: can be used to liquidate an estate, protects against living too young, uses a lump sum of accumulated money to guarantee a series of income payments while living"
section 1035 exchange
"Life to life Annuity to annuity annuity to life does not qualify, gain becomes taxable"
Participating vs Non Participating
"Particpating- may pay dividends to the policyowner,somewhat higher premium, can be issued by mutual or stock insurers Non-participating-does not pay dividends, somewhat lower premium, issued by stock insurers"
Permanent Versus Term
"Permanent life has living and death benefits, level premiums, lifetime coverage with no expiration, protection continues through advanced ages.
Profit sharing and 401k plans
"Profit sharing: contributions made by employer, based on company profits, contributions not made every year, maxiumum contribution is 25% of employee payroll 401k-employee makes contributions-salary (ekective deferral), employers match contributions up to a specified percentage"
simplified employee pensions (SEPs)
"Qualified pension plans may be either defined benefit or defined contribution plans, pension plans require employers to make funding contributions to the plan every year, have a defined benefit which is specified in plan and defined contribution,retirment benefit is not specified but contribution is specified SEPs have significantly less paper work and easier admin than qualified retirement plans. Each employee sets up an IRA and the employer makes contributions on the employees behalf. Contribution limits for employer are might higher than usual IRA limits. Employees must be 100% vested in employer contributions made under an SEP "
group life plan sponsors
"Single Employer sponsored • Multiple Employer Trust (MET) • Trust formed by group of small employers in same or similar industries • Labor union • Taft Hartley Trust • Professional or trade association • Group credit life • Lender automatically the beneficiary • Insurance cannot exceed the debt • Employer Sponsored Group Life • Employer is the policyowner • Employee receives a certifcate of insurance and also names the bene ciary"
Whole Life Continuous Premium (Straight Life)
"Traditional whole life has fixed premium, a fixed and level death benefit, cash values with guaranteed interest that endows at age 100, may be surrendered or borrowed. The death benefit is the amount at risk to the company,plus cash values.
flexible premium variable life
"VL Whole: has a separate account rather than guaranteed cash value, also called variable whole life or variable fixed premium life. VL policies have two options like death benefit policies, Option A (1) or Option 2 (B). Death benefit can never decrease below original face amount. VL UL: is whole life with a separate account. also called flexible premium variable life. no guaranteed death benefit"
specialized juvenile life
"Written on the life of a child or minor, most often permanent insurance. benefit of locking low premium for the child's entire life guarantees the child has life insurance if their health changes in the future face amount in some juvenile policies will jump when the insured turns 18 or 21 with no increase in premium these are called jumping juvenile policies"
Annuity principles and concepts: accumulation versus annuity period
"accumulation period is when annuity is being funded,befoe a pyout begins. Life insurance companies issue these contracts and the money paid into the annuity is called a premium annitization period is the ""pay-out"" phase of the contract, money in the contract is converted into a series of egular payments that can continue for life, or a stated period of time"
federal tax considerations- tax advantages for employers and employers
"employer contirbutions are tax-deductible to business, empoyer contributions are tax deductible to employee, niether employee nor employer contributions are tax deductible as current income to employees, all except Roth 401k feature earnings grow tax-deferred"
tax non-qualified annuity phase and exclusion ratio
"exclusion ratio is used to determine the non-taxable portion of each monthly payment to find the portion that is excludable from gross income. = premiums paid/total of expected payments over annuiants life expectancy"
tax-settlement options
"full surrenders: life policy is surrendered any gain in the cash value is taxable. The gain is the cash value minus the policys cost basis; the sum of all premiums paid, so cash value accumulations are tax deferred but not nexesarily tax free withdrawal/partialsurrender: taxable to the extent of any gain withdrawals are taxed on a FIFO bassis, money withdrawn is considered to come from the premiums paid (cost basis)first and the cost basis withdrawals are not taxable. death benefit is reduced by a withdrawal of cash value"
group vs individual annuities
"group annuities are funded by employer contributions, distributions are determined by employer, employee sponsored retirement plans might be funded with group annuities. The retirement plan owns the group annuity and the retirement plan document describes the benefits to which the employee is entitled
annuity benefit payment options
"life annuities-which have a payment that is guaranteed to last for at least as long as the annuiant lives and temporary annuities- which do not"
tax non qualified-distributions at death
"lump sum: beneficiary can take the proceeds all at once, the gain (ttl value-cost basis is taxable) 5 yr withdrawal period: beneficiary must withdraw all proceeds within 5 years, these withdrawals are taxed the same as withdrawals during the owners life, interest paid out first- no 10% penalty annuity payments:taxed according to exclusion ratio, option must be choosen within one year from the date of the owners death if spouse is beneficiary: transfer ownership to spouse wihtout tax consequences"
Net Single Premium-life
"net premium is the premium before loading the mortality minus the interest element. The net single premium will fund a policy's benefit with one premium payment. Net premium=mortality-interest "
nonforeiture- cash surrender
"nonforfeiture allows the insured to receive all or a portion of the benefits or a partial refund on premiums paid if the insured misses premium payments which would cause the policy to lapse cash surrender-the policy is cancelled and the policyowner recieves current cash value"
Annuity owner, annuiant, and beneficiary
"owner has the right to change the annuiant, change beneficiary,choose payout option, add more money or take withdrawals, and surrender or terminate the agreement annuiant is simmilar to the insured, owner and annuiant are frequently the same person beneficiary has no voice in the control or management of the annuity, and only benfits upon the death of the annuiant"
IRAs (individual retirement accounts)
"owner must be under 70 1/2 to make contributions must have earned income non-working spouse can make contributions based upon earned income of spouse (spousal IRA) IRA contributions: up to 100% of earned income subject to annual maximums, can make extra contributions at 50 and over deductions: phase out deduction based upon adjustable gross income, no deduction if income is above max AGI. You can deduct contributions from your taxes minimum distributions: must make minimum distributions at age 70 1/2, can be delayed until April 1 of the next year. 50% penalty on taxes owed if minimum dist not taken"
qualified plans-general requirements
"participation- plans must benefit all regular employees non-discrimination- plans may not provide benefits to executives vesting-determines when employees own the money in their plan, employees must become 100% vested in 6 years reporting and disclosure-each particpant must recieve in writing when they enroll a summary of the plan description natification of any changes and an annual report fiduciary-anyone with control over the plan or its assets are fiduciaries. They must manage plan in interest of participants"
revocable vs irrevocable beneficiary
"revocable-can be changed by the owner at any time irrevocable-can't be changed without beneficiary consent, loan or cash withdrawal requires permission of beneficiary"
tax non qualified-rollover & transfer
"rollover: money is withdrawn snd sent to owner, owner has 60 days after receipt to put money in IRA, if money is coming from emploer sponsored plan, 20% is witheld and sent to IRS, limited to one rollover ever 12 months transfer: money is sent directly from one plan to another, no limit on # of transfers, no money is withheld and sent to IRS"
tax non qualified-accumulation phase (tax issues related to withdrawals)
"simmilar to life insurance, interest earnings credited to individual annuities accumulate tax deferred, they become taxable when they are paid out, earnings on annuities owned by corporations are taxable when they are credited. Distributions from annuity during accumulation period recieve the same tax treatment as a MEC. LIFO taxation, the entire taxable gain is recieved before any non-taxable cost basis. a 10% penalty tax must be paid in addition to the regular tax due to any taxable amount recieved and being younger than 591/2 . penalty does not apply if owner is disabled"
modified endowment contract
"special type of life insurance under federal income tax law. The law perscribes a test intended to differentiate between policies that are purchased primarily for certain tax advantages, versus policies purchased for death protection. MECs are still life insurance and offer tax free death benefits and tax free cash value accumulation, if a policy becomes a MEC, no distributions are taken from that policy during the insureds lifetime, they will not experience adverse tax implications due to the contracts MEC status"
Penalties and Fines
"unfair or deceptive trade practices, $1000 penalty per violation , punitive damages up to 25% of a claim. Information privacy protection fines are $1000 per violation with a $10,000 max for an insurance representative, and a $50,000 limit for an insurance institution or support organization
Effective Date of Coverage
"when the first premium is collected at the time of application for a policy, the effective date of coverage is the date of application, or the date of the medical exam if it was required. Three steps; 1.terms of conditional receipt issued 2.substandard and pays additional premium date of policy issue 3.no receipt-policy issue date if premium paid at delivery"
defferred annuities- surrender and withdrawal charge
10% tax if withdrawn before age 59 1/2 surrender period is waiting period, and surrender fee is penality for early withdrawal
Medicial Examinations (HIV)
AIDS testing can be required, but you need the insureds consent. the insured must be informed about the test, and that the results will be disclosed to insurer.
Producer Report
Also called producers statement, the producer records information pertains to the proposed insured, not seen by client. Includes information about financial status, habits, and character. Not attached to policy at issue
Estate Creation
An individuals estate are the assets that they leave behind at death, for people in their working years, life insurance can create an estate if pre-mature death prevents them from doing so themselves
Elements of Insurable Risks
Calculatable, insurable, non-catastrophic, homogeneous, accidental, measurable
Decreasing Term
Death benefit decreases, premium remains level. Appropriate for decreasing finances like a mortgage, student loan, and any other obligations that require periodic payments
Increasing Term
Death benefit increases, and premium increases. Appropriate for financial obligation that increase over time, keeps death benefit current with inflation
Producer/Insurer Relationship
In insurance thte insurer is the principal, and the sales representative or producer is the agent
Buy-Sell Funding
Provide for the sale of a business interest at the death or diasbility of an owner. Often referred to as biz coninuation plan. There are two types of buy-sell plans, a entity plan, the purchaser of a deceased owners business interest is the business entity itself. A cross-purchase plan, the surviving owners purchase the deceased owner's interest in the business.
Aleatory Contract
Value received from the contract by each party might be unequal. In insurance, the receipt of unequal value arises
group credit life insurance
a lendor, creditor, may sponsor a group life insurance plan for its group of debtors. lendor is automatically the beneficiary, insurance cannot exceed the death
Standard Risk
a person who according to a company's underwriting standards is entitled to insurance protection withoutextra rating or insurance restrictions
Preferred Risk
a risk whose physical condition, occupation, mode of living and other characteristics indicate a prospect for longevity, for unimpaired lives of the same age
deferred annuities--death benefits
accumulated contract value is paid to a selected beneficiary if the annuity owner dies during the accumulation period, amount paid as a death benefit is greater of: the accumulated value of the annuity;or the total premiums paid to that point minus withsdrawals
long term care riders
advance of death benefits while insured is living, percentage of face amount each month, may pay for home acre, assisted living, and nursing home care, reduces death benefit payable upon death
Insurance Information and Privacy Protection
adverse underwriting decision (insuring the more risky at higher rates), consumer report(credit score), investigative consumer report(more detailed ask family and friends about person), pretext interview( someone impersonating an individual)
federal tax considerations-taxation of related distributions
all except for the Roth 401k feature distributions from employer sponsored qualified plans are taxable because they come from deductible contributions and tax deferred earnings
faculty of payment clause
allows insurer to pay all or part of the policy's death benefit to someone other than the designated beneficiary if: the beneifciary is a minor, deceased, cannot be found, or someone other than the beneficiary incurred the funeral or mdeical expenses
guaranteed insurability rider
also called guar ins. Option or benefit, may be attached to a permanent life insurance policy and allows the owner to purchase additional life insurance at specified intervals in the future for cetain amounts without having to provide evidence of insurability
whole life interest sensitive
also known as current assumption whole life, where the cash value can increase beyond the stated guarantee if economic conditions warrant, policy has two interest rates, current and guaranteed. Fixed and level death benefit, and premium in scheduled payments
Annuity: insurance aspects of annuities
can be used to liquidate an estate, protects against living too long, uses a lump sum of accumulated money to guarantee a series of income payments while living
life income joint and survivor
continues to pay a benefit for as long as either beneficiary lives, this option is often used when a married couple will be receiving the payments. Pays two beneficiaries an income for life, the survivor recieves wither the same or a reduced payment (100-75, etc)
group life conversion
conversion occurs if employement is terminated, employer stops plan, 31 days to convert to individual permanent policy, cost based upon attained age, no medical questions, death during conversion is covered
family term rider
covers both spouse and children, can be converted to permanent coverage during the effective period of the rider
tax-amounts recieved by beneficiary
death benefits are not taxed if paid in a lump sum to the named beneficiary (individual or business), interest is taxable, if paid over time, part of the payment is taxed and part of it is not taxed. Accel death benegit follow same tax treatment as regular death benefit
deferred annuities-premium payment options
deferred annuities can be purchased with a single premium, or ongoing premium payments, the premium payment options are simmilar to life insurance, monthly,quarterly,etc.
dividend options-reduction of premium payment
dividend can be applied and reduce the next premium due
dividend options-accumulation at interest
dividend can be left with the insurer to earn interest in a savings account, the dividend is not taxable but this interest is taxable
dividend options-cash payment
dividends are a refund of the portion of premium, cash payment will send a check to policyowner in the amount of the dividend
tax-dividends
dividends are not raxable, for tax purposes, dividends are considered to be a return of a portion of the premium paid for a policy, if they are left to accumulate at interest, the interest is taxable
fixed annuities-guaranteed interest rates
during a fixed annuity accumulation period, accumulated values earn a current rate of interest that is competitive with prevailing rates on other interest bearing investments. The current rate is generally declared at the beginning of a year and then is guaranteed for that year, interest rate will never be less than a minimum that is stated in the contract
Policy Review
during the delivery appointment, the producer will review with the policyowner the policy, the riders, exclusions, and other detials to make sure they understand it. The producer should also answer any pertinent questions the policy owner has about the policy
Interest-life
earnings on premium dollars between the time they are collected, and the time they are paid out as claims
accelerated benefit rider
enables policyowner to apply for an advance on the death benefit proceeds uring the lifetime of the insured, must have terminal illness with death expected in 24 months
Level term
equals the face amount of the policy throughout the term of the coverage, premium also remains level during this term. coverage can be referenced in years, or be a specified age
Life & Health Insurance Guaranty Association
established by each state to support insurers and protect consumers in the case of insurer insolvency, guarty associations are funded by insurers through assessments
estate beneficiary
estate may be designated as beneficiary and may be used to pay off debts and the cost of legally closing the estate
common disaster clause
expands on the uniform silmotaneous death act by providing a more lenient timespan between the death of the insured and the primary beneficiary when in a common accident, always assumes primary beneficiary dies first
nonforfeiture-extended term
extended term- the net cash surrender value is used to buy a term insurance policy with a death benefit the same as the original whole life policy and based on the insureds attained age
cost of living rider
extra coverage to keep up with inflation based on consumer price index. As inflation increases, so does the death benefit of the policy, premium based on attained age, and do not need proof of insurability
general account assets-fixed annuities
fixed annuities are supported by the general account, the investment risk is borne by the insurer, assets in the general account are conservatively invested that will provide a steady return
fixed annuities, level benefit payment amount
fixed annuities provide a level payment amount. Annuiants can count on getting a specified dollar amount of income on a regular basis
fixed annuities
fixed annuity values are guaranteed against loss, aside from surrender charges that may apply, the value of a fixed annuity will never be less than the amount paid in the contract
SIMPLE Plans
for employers with 100 employees or less, employees can conribute, 100% immediate vesting for employer contributions, all employees earning more than $5000 or more a year must be allowed to participate. 25% withdrawal penalty for first two years of participation
flexible premium adjustable life
gives policyowner the option to adjust the facevalues/death benefit, the premium, length of coverage, without having to change policies. It also offers the ability to have term and whole life coverage in one policy.
Gross Annual Premium-life
gross premium is the net preium plus the expense element, referred to as the loaded premium. the gross annual premium is the amount a policyholder pays for a policy
Solicitation & Sales Presentations
gross premium= mortality-interest + expenses
Whole life single premium
has one payment made at the time of purchase,the amount of this single premium plus interest earnings will cover the future costs of maintaining the policy. Single premium creates immediate cash value
variable annuities
have a separate account, no guarantees by company, owner assumes risk, premium buys accumulation units, if annuitized money buys accumulation units, value can go up or down, must be licensed by state and security regulators SEC & FINRA
Application
if a correction is made by the application, the applicant can place their initials next to the correction, sometimes producer initials are required
Missstatement of Age
if a deceased misrepresented their age, the face amount of the policy will be adjusted to the amount of premium that would have been purchased at the insureds correct age at the time of policy purchase
policy loan & withdrawal- automatic premium loans
if insured fails to pay policy premium by the end of the grace period, then the insurer will pay the policy premium with the policy loan until the cash value falls below the premium amount. If person dies while loan is outstanding the insurance proceeds are reduced by the amount of the loan outstanding plus interest
policy loan & withdrawal- cash loans
if policyowner needs cash but does not want to surrender their policy, they can access the cash value available using the policy loan provision
life contingency options-single life vs. multiple life
joint life and survivor- insurer promises to make payments until the last survivor of the two annuiants dies. If two annuiants were a married couple, and the husband died first, the payments would continue to the spouse for the rest of her life. Payments to survivor will either be the same or 1/2 2/3 less, etc.
Reinstatement and Renewal
lapsed liceses can be renewed up to a year after previous renewal date, producer and insurance adjustors need to renew every 3 years
trust beneficiary
legal entity that can hold the title to property while it is managed for the beneefit of others, grantor sets up the trust, trustee manages trust, bebeficiary recieves trust
Reduction
lessening the chance that a loss will occur, or lessening the extent of a loss
entire contract
life insurance policy and copy of the original application constiture the entire contract
Notice of Information Practices
life insurance producer must comply with the requirements about notifying applicants about the insurers privacy policy as it related to the personal information collected during the application process and how it will be used
lump-sum settlements-annuities
lump sum is not taxable, but the interest is taxable, if paid over time part of the payment is not taxed and part is taxed
Defamation of Insurer
making,publishing,circulating any oral written statement that is false or maliciously critical of the financials of any person
group life plan characteristics
master policy issued to the sponsoring group, and the applicant is the policyowner/policyholder. Individual is not a party to the group insurance contract. Instead of getting a copy of the master policy, they recieve a certificate of insurance as evidence of their coverage under the master policy. Employee/certificate holder has the right to name their beneficiary
minor beneficiary
minor can be named beneficiary but has to recieve proceeds when minor is legal age (18)
False Advertising
no company can isssue or circulate misrepresentation of benefits
modifications
or endorsements made to the contract must be made in writing and agreed to by both the insurer and policy owner. amendment must be signed by executive officer of the company and cannot be authorized by agent or producer
single premium immediate annuities (SPIAs)
or immediate annuity provides an individual with an income that may beginas a soon as a month after purchase, or may be delayed for up to one year. Funds accumulate on a tax deferred basis
ownership
ownership rights: choose bebeficiary, select sttlement options, cancel policy, recieve cash values, transfer ownership of policy, change premium payment mode, recieve policy proceeds upon maturity of endowment
accedental death benefit rider
pays an extra benefit if the insured dies as a result of the accident,the rider is referred to as double or triple indemnity because the death benefit is twice or three times the face amount of the policy
life income
pays beneficiary income for life, guarantees payments at least equal to the death benefit, balance paid to someone else if beneificary doesn't live long enough
Life income single life
pays beneficiary, but doesn't carry over to someone else if they die
flexible premium indexed life
permanent life insurance policy that allows policyholders to tie accumulation in the stock market index such as the S&P 500 . Typically includes a guaranteed interest rate along with indexed account option, cash value can go down but is guaranteed to never go below 0
Substandard Risk
person who is considered an under average or impaired risk because of physical condition, family or personal history.
tax-policy loans
policy loans reduce the cash value of the policy and can be used as collateral for the loan, policy loans reduce the death benefit, however, the loans can be repaid at any time which restores the cash valie and death benefit, interest paid on policy loans is not tax deductible
tax-general rule & execptions
premiums paid are not tax deductible, interest on cash values is taxable
spouse/other insured term rider
provide convertible term insurance for a spouse or immediate family member of the primary insured, called spouse or children's rider, is often convertible to permanent coverage during the effective period of the rider
disability riders-disability income benefit
provides insured with a monthly benefit check if they become disabled, benefit amount based on the life insurance policy death benefit and an industry standard is 1% of the face value, the length of time the income payments will continue depends on the definition of disability in the policy
life contingency options-pure life w/ guaranteed minimum
pure life income, payments stop when annuiant dies regardless ofwhen that occurs; one month or 20 years, advntage is that it pays the highest monthly income amount because there are no other contingencies and only the annuiants life expectancy was considered to determine the payout
self-employed plans (HR10 & Keogh Plans)
qualified retirment plans set up by self-employed persons and non-incorporated businesses such as sole preoprietorships (individuals) and partnerships.
Premium Payment Mode
reflects how frequently premiums come due
Mortality-life
relative frequency of deaths in a specific population
Investigative Consumer Report
reports containing information obtained by interviewing individuals that know something about the consumer, such as associates, friends and neighbors. consumers must be notified and give their consent to having such reports done
Statement of Good Health
required if no premium given with application, if health has changed agent cant deliver policy
Reinstatement
restoration of a lapsed policy, as originally purchased. must submit an application within thre years of lapse, pay al past due premiums with interest and provides evidence of insurabaility (medical exam)
right to examine (free look)
right to examine (free look) 10 days free look life insurance can choose to cancel and void policy, 20 days for free look replacement law insurance
market value adjusted annuities (modified guaranteed annuities)
single premium deferred annuities, interest rate is guaranteed for a fixed number of years, early surrender has withdrawal penalty, interest penalty might be higher or lower, not a variable product no securities license required
Rebating
splitting comissions with insureds, no person may accept or recieve from any company
group life underwriting requirements
stability of group, persistency of group, existence of group, UW writes the group not individual insureds, no medical questions or exams
Use and disclosure of Insurance Information
state laws require that applicants be given advance written notice stating who is authorized to disclose personal information, and t he kind of information that may be disclosed, and the reason it is being colletcted. By signing the dosclosure form, the insured is giving consent.
payment of premiums
states that premiums are due in advance on or before the date that the next period of coverage begins
tax-surrenders
taxable if there is a gain, taxed only if withdrawls exceed premiums paid, only the gain if any is taxed
mimumum standards/conditions for payment of living benefits
terminal illness, serious illness such as cancer, long term care due to the inability to preform the activities of daily living, being admitted to hospice, organ transplant etc.
Application Procedures & Backdating
the date of the application is the effective date of the conditional receipt, as long as the applicant is found to be insurable under the company's standard underwriting rules. Most conditional receipts are the effective date of the application, or the date of a required medical examination, whichever is later of these two events. MUST BE STANDARD OR PREFERRED RISK
Annual Renewable Term
the payment of higher premium at each renewal is what results in a step rate premium. Policy automatically renews every year,but the renewal premium increases every year as the insured ages. Called an Annual Reneral Term Contract,
Attending Physician Statement
the underwriter may ask the insureds doctor for an APS to find out about the applicants current condition and medical history with physician. the udnerwriter may ask for copies of medical records. insurance pays for exams conducted during underwriting process
equity indexed annuities
type of tax deferred annuity that whose credited interest is linked to an equity index, typically the S&P 500. it guarantees a minimum interest rate, typically between 1-3% if held to the end of the surrender term and protects against a loss of principal
nonforfeiture-reduced paid up
under this option, the policyowner obtains a reduced amount of paid-up whole life insurance based on the insured's attained age and amount of guaranteed cash value available to buy a single premium policy, policy will pay death benefit when insured dies
dividend options-paid up additions
uses each annual dividend to purchase an additional amount of life insurance, each paid-up addition builds its own cash value and also earns dividends
Incontestability
usually after two years policy can't be taken away even if material misrepresentation or fraud
disability riders-payor benefit (juvenile insurance(
usually found in juvenile policies provision states that if the person responsible for the premiums for example the childs parents become disabled or die, the rest of the premiums are waived before the child legally becomes an adult
Regulation of Variable Products-life
variable life insurance is a product that contains an investment element. For this reason, both the securities industry and state insurance commisioners regulate these policies. Agents selling variable life must have a valid life insurance license, to sell investment products agents must register with the SEC & FINRA
Waiver & Estoppel
waiver- voluntarily giving up a right, estoppel-actions reasonably relied on by one party can't be denied by the party that accepted the same previously
Delivery
when a policy is issued, it must be delivered to the policyowner. It can be mailed, but in most copanies, it is the producers responsibility to deliver it in person. In some states, producers must obtain a receipt from the policyholder acknowleging the policy was delivered and the date
Producer Appointments
15 days to file notice of appointment after the agency contract is executed or the first insurance application is submitted
Human Life Value Approach
An individuals economic worth measured by the sum of the indivudals future earnings that is devoted to the individuals family
Comissioners General Duties & Powers
Comissioner will file examination with companies every 5 years
Conditional Contract
Insurance policies are conditional contracts because they require certain cnditions to be fulfilled in order for performance under the contract to be enforced. For example, the contract may require certain documents to be submitted to prove that a loss had ocurred. In the case of life insurance the death certificate must be filed
Fraud/Financial Statements
Intentional act to cheat another, fraud and false statements will lead to fiens or imprisionment (10-15 years), embezzlement included
Insurance Fraud Regulation
a person commits fraud if he knowingly with the attempt to defraud, by filing false incomplete or misleading information with the government
Domestic, Foriegn, Alien Insurers
domestic (home state), foriegn (US Out of state) , Alien (not US)
Avoidance
eliminating a particular risk by not engaging in a certain activity
Boycott, Coercion, Intimidation
entering into any agreement in the act to boycott or intimidation resulting in the restraint, or monopoly in business insurance
False Financial Statements
filing incorrect information with a public official
Larceny
insurance producer acting in negociating or renewing a policy of insurance or annuity contract issued by a company lawfully doing business in the commonwealth and recieved premium from insured is deemed to be held in a trust for the company. If this is not done, company will be convicted of larceny
Mutual Companies
owned by policy owners, board of directors appoints officer that operates the company. funds that remain after claims can be paid to policyholders as dividends. non-taxable return of premium, issue par policies given to policyowners
Law of Large Numbers
principle that the larger number of individual risk combined into one group, the more certainty there will be in predicting the loss incurred
Loss
reduction in the value of an asset
Adverse Selection
tendency for higher risk individuals to buy more insurance than lower risk individuals
Contract of Adhesion
their provisions are written by one party to contract, and the other party is require to adhere or stick to them. If terms of contract of ambiguous, court will take side of insured
Sharing
two or more individuals agree to pay a protion of any loss incurred by any member of the group, shareholders in a corporation share the risk of profit or loss
Special Insurance Broker
Commissioner might issue a special broker license to negotiate , continue, or renew contracts of insurance on property interest on this commonwealth in foreign (out of state) companies not authorized to transact business in massachusetts
Producers
Commissioner must find that the individual is 18 years of age, not committed any acts ground for revocation of license, has completed pre-licensing course if required by commissioner, paid required fees, and successfully passed exam
Life Settlement Act
Contracts effective after June 1, 2013, subsumes viatical settlement act. A person licensed as a viatical settlement broker is now deemed to be qualified for licensture of a life settlement. Settlements involve third party sales of existing life settlements. Must complete 15 hours of continuing ed.
Marketing Distribution Systems
In direct reponse marketing, there is no producer/agent. Policies are sold directly to the public by the insurer, conducted through mail, advirtisements in papers or magazines, or on the internet
Personal Contract
Not life and health insurance
Implied
Not written in agency contract, but it is assumed to be granted to an agent in accordance with general business practices. Ie. Agent's contract might not say he can print out business cards, but this authority is implied to work on the insurer's behalf
Liquidity
Refers to how easily an asset can be turned into cash without loss of value, examples are bank savings, life insurance proceeds. If estate doesn't have enough cash, other assets must be liquidated to get it If those assets are illiquid, or if the stock market happens to be down when securities must be sold, assets cannot be sold for full value.
Reporting of Actions
a non-resident producer must report crime within 30 days
Apparent
authoritity that others believe the agent has, if the insurers name is on the sign at the agents place of business, and the agent takes applications for the insurers policies that the agent apparently has the authority to conduct the insurer's business as far as the public is concerned
Peril
cause of loss
Examination of Books & Records
comissioner requires that domestic companies keep readily available records, and must pay expenses of examination within 30 days of notification, report will be issued 60 days after examination is completed
Penalties and Fines
"unfair or deceptive trade practices, $1000 penalty per violation , punitive damages up to 25% of a claim. Information privacy protection fines are $1000 per violation with a $10,000 max for an insurance represenative, and a $50,000 limit foran insurnace institution or support organization
Rates
Rates must be filed with the commissioner 15 days before their effective date
Cash Accumulation
Another personal use of life insurance is to accumulate cash, permanent life insurance policies have a cash value component that grows over yime. The life insurance cash value is called the policies living benefit. Can use for emergencies, opportunities (starting biz), education fund, retirement income
Reinsurance Intermediaries
Any person other than an officer or employee of the ceding insurance firm, association, or corporation at solicits, negotiates, or places reinsurance cessions on behalf of the ceding insurance without power to bind reinsurance on behalf of the insurer. At least 30 days before the re-insurer assumes or cedes business through the reinsurance intermediary manager a copy of the contract must be filed w/ commissioner. Must notify commissioner within 30 days of contract termination
Termination of Producer Appointments
Comissioner must be notified 15 days after termination date, producer must recieve notice within 15 days after notifying commissioner
Certificate of Authority
Commissioner determines that company is qualified under the laws of the commonweath to transact business.Before granting COA to company, commissioner will require an affdavit to be filed by the DOI that is signed by officers of the company and states the amount of expenses incurred by the company has no outstanding liabilities except organization expenses.
Offer & Acceptance
Proposal made by one of the potential parties to the contract, an applicant who submits a comleted application to insurer along with a payment for the first premium is making an offer to become the insured by the insurer. If policy is issued as applied for, the applicant accepts the offer who must accept unconditial and unqualified
Fraternal Benefit Societies
Provide social activities, organized under a lodge system, and recieve income tax advantages. operate programs under a special section of state code. Policy called certificate, and members who have a policy are called certificate holders
Representations/Misrepresentations
Representation believed to be true, misrepresentation isformation given that is not true but will not affect the insurance companies decision,material misrepresentation- information givene that is not true but the information DOES affect the insurers decision
Temporary
The commissioner might issue a temporary license producer license that will not exceed 180 days if, the producer is deceased and has a representative,the member of a biz entity's representative, licensed producer entering active service in US military. The commissioner might ask that the representative have a sponsor that has an active producer license
Fraud and False Statements Including- 1033 Waiver
a person convicted of a felony invlolving breach of trust, dishonesty, or insurance crimes in usc1033 is prohibited in participating in insurance activities unless granted permission from comissioner. 1-15 years in prison
Risk
uncertainty about whether a loss will occue, pure-hurricane, speculative-casino
Business Entity Producers
A business entity acting as a producer is required to obtain a producer license. Before approving application, the commissioner must find that the business entity has paid the fees prescribed, and the business entity has designated a licensed producer responsible for regulation w/ the commonwealth.
Consideration
Exchange of value, think of money. Each party to the contract must give something valuble to the other. In an insurance contract the applicant provides consideration in the form of representations in the application premium payment, and the insurer provides consideration in the form of a promise to pay if certain loss occurs
Concealment
Failure to disclose, if intentional and the information is material (important)- coverage could be vioded. If not intentional- coverage cannot be vioded
Failure to Maintain Complaint Record
Failure to maintain record of all compaints recieved since last date of examination, commissioner might ask for complaints by line of insurance
Adviser
Insurance adviser is someone that has passed their examination and renews their license every 3 years, for the purpose of giving advice, council, etc.
Indemnity
Insurance policies are contracts of indemnity meaning that the contract is intended to restore the insured to the financial state he or she enjoyed before the loss, no more no less
