Co-insurance
The policy provision which requires the insurer and the insured to share in the cost of services rendered
Exclusion ratio
The formula which is used by the IRS to determine how much is taxable to an annuitant during the pay out period.
Occupational policy
When a disability income policy provides coverage for injuries which occur on and off the job
Most disability income policies are non occupational, meaning
They only cover the insured if they become disabled while away from work.
Self employed individuals doesn't have
workers compensation coverage. They need coverage both on and off the job (occupational).
A life agent who offers for sale or sells any financial product on the basis of its treatment under the MediCal Program must provide
The Notice Regarding Standards for Medi-Cal Eligibility. Must be signed by applicant.
A widow or widower without any children is eligible for social security survivors benefits at age
60
A surviving spouse is eligible for social security survivor's benefits at age
60
An authorized, or admitted carrier (insurer)
one which is under compliance with the California Insurance Code (CIC) and can operate legally in California
Which type of life insurance utilizes the "level premium concept
Traditional whole life
Disability income policy proceeds must be paid out at least
monthly
What life insurance rider will pay a monthly benefit to the insured when they become disabled
The disability income rider. It is a type of health (disability) insurance
Dread (Specified) Disease policies, such as cancer insurance, covers
Treatment for one specific disease
The benefit paid out for a residual disability in a disability income policy is based upon
a loss of a minimum of 20% of income
Agent may be either
Captive (Exclusive) or independent
Captive agents
agents who agree by contract to represent only one insurer in the sale of insurance
Independent agents
usually self-employed and often represent several insurance companies
Under state law, agents must have at least
one appointment in order to keep their license active
Agents are prohibited from engaging in any of the following activities
1. using a business name that implies that they are an insurer
2. advertising on behalf of a non-admitted insurer
3. offering free insurance as an inducement to purchase or sale
Under a group insurance plan a certificate of insurance is issued to
the participants, usually employees. The policy owner, usually employer, gets the master policy
Domestic insurer
one that domiciled (organized) in this state
Foreign insurer
one that organized in another state
Alien insurer
one that organized in another country.
All insurers need to obtain
a Certificate of Authority from the Commissioner in order to be admitted to transact insurance in this state, except for Surplus Line insurers
Indemnity plans allow
the insured to select any provider they wish.
Traditional indemnity plan
the insured generally is supposed to submit their claims directly to an insurer, in reality an "assignment of benefits" form is utilized and the medical care provider submits the claim on the insured's behalf
Participants in a managed care indemnity plan
select a provider and submits claims to the insurer
When an insurer wants to have the applicant complete an HIV test, they must do
1) Have the applicant sign a consent form
2) Find out which doctor they should provide the results to
3) Provide information on where they can receive counseling
When an insurer wants to have the applicant complete an HIV test, they do not need to
go over a privacy notice
75% of all eligible employees must enroll in a contributory plan. All eligible employees are required to enroll in a
non contributory plan
Loss exposure
a situation which presents the possibility of loss
Deductibles, co-payments and co-insurance are all features of health insurance which are called
cost sharing
Life insurance death benefit policy proceeds paid from an insurer are
Federal tax free when paid to a beneficiary
When an insured with a cash value elects to take the reduced paid-up non-forfeiture option, the cash value will be
used to buy him a new hole life policy with a reduced face amount that is paid-up for life
The traditional net cost method of evaluating the true cost of insurance does not take into consideration
the time value of money
The primary difference between using the interest adjusted net cost method and the net cost method when evaluating the true cost of a life insurance policy
time value of money
Dividends may never be
guaranteed
All are true about "stock" insurance companies
1) Dividends are taxable
2) The stockholders own the company
3) They may pay dividends to share holders out of divisible surplus
4) they issue non-participating policies
Under the Family and Medical Leave Act, how many weeks of leave must be provided per year for a qualifying person
12 weeks
ESOP invest in
Stock of the employer
Riders may be added to a policy at issue for an additional premium charge. Examples of riders
1) accidental Death benefit
2) Cost of living
3) Waiver of Premium
as used in the CIC the word "shall" is mandatory and the word "may" is
permissive
Agents own a policyholder or a prospective policyholder a duty of
honesty, good faith, and fair dealing
Insurance underwriters are responsible for
risk selection and classification.
The goal of the underwriter is to make sure that
the insurer makes a reasonable underwriting profit at the premium rate charged for the risk accepted
Long Term Care insurance include
Skilled nursing, custodial care, home health care
but not convalescent care
Medicare claim, the first step in the process is
the individual's provider files the claim with a local Medicare carrier
In the original Medicare program, it is the provider which is responsible for
submitting the claim
403(b) are available to
employees of public educational institutions and certain non-profit charitable or religious organizations. Contributions are made in before tax dollars on a payroll deduction basis
Renewable term has a level death benefit and
increasing premium. Each time the policy renews, the premium will go up
The automatic premium loan rider will go into effect at the end of
the grace period. It can only be added to a cash value policy and was created to keep the policy in force if the insured forgets to pay their premium
HMOs are required to cover all of the following
preventive services, physician services, emergency services.
Except prescription drugs
Insurance contracts must identify 6 required specifications
1) the parties between whom the contract is made
2) the property or life insured
3) the interest of the insured in the property insured
4) the risks (perils) insured against
5) the policy period
6) the premium
Primary (also known as "ceding") insurers who elect to offer insurance coverage for high risk exposures, such as earthquake, often buy reinsurance from larger reinsurance companies (reinsurers) in an effort to lower their exposure to
catastrophic risk.
Under the CIC, an insured may cover a child attending an educational institutional as a dependent on their group life insurance policy through
age 24
What does a deferred annuity have that an immediate annuity does not?
an accumulation period
Standard levels of care provided by LTC insurance does not include
Medical expenses
Part A of Medicare covers
Hospital services. For example, Hospitalization, Hospice care, home health care
Part B of Medicare covers
Physician services
Life annuity
a product that will pay out every year for the rest of a person's life
To be considered as disability for social security
a person must be total disability
Flexible premium variable life
also known as variable universal life. Allows the insured to pay a flexible premium and direct the case value into a varying selection of investments
Distributions taken from modified endowment contracts (MECs) are subject to a
10% IRS penalty
Eligibility of Social Security is based upon
the total number of quarters worked. 40 quarters is needed for fully insured status
Under a 7 year graded vesting schedule, the IRS requires that employer contributions to the plan be
vested (owned by the employee) at least 40% after 4 years, 60% after 5 years, 80% after 6 years and 100% after 7 years
Three types of ordinary life insurance
WET
Whole life
Endowment
Term
A disability recurs within 90 days, the insurer will waive waiting (elimination) period. Nonetheless, since the disability recurs 6 months later, a new
elimination (waiting) period and benefit period will apply. A new policy need not be written
If an employee is receiving benefits under a policy and still able to work, they have a
partial disability
A guaranteed renewable disability policy is one where the insurer
has the right to change the premiums, but may not change any of the policy terms
Accidental death benefit rider
Double indemnity
If the owner of the policy has named on irrevocable beneficiary, they cannot
assign the policy without their consent
underwriting risk classification
preferred, standard, non-standard
Frequency pricing principle
Determining how frequently or how often a loss will occur within a group of individuals, how these loses will effect rates
Non medical life insurance applications
usually buy low amount of coverage, need not take a physical exam, usually young.
but they have to answer medical questions on the application
If a person returns a variable annuity invested in mutual funds during the free look, they will receive a return of
the value of the account on the date of cancellation
In an insurance contract, a representation qualifies as
an implied warranty
If a whole life policy is being kept in-force by the Waiver of Premium rider
the cash value will continue to increase as if the insured paid the premium
Roth IRA
Contributions are not tax deductible, qualified distributions are not taxable
A qualified distribution for Roth IRA is
one made to a participant who has been participating in the Roth for at least 5 years and is at least age 59 and a half
When a disability income policy provides occupational coverage and the insured has 2 jobs, the insurer will base the premium on
the most hazardous job
AD&D (Accidental Death and Dismemberment) insurance
is not a life insurance
AD&D (Accidental Death and Dismemberment) insurance
has both a Capital and Principal sum.
Principal sum pays a lump sum for accidental death. Capital Sum pays a lump sum for accidental dismemberment
Principle of indemnity
the insured should not profit from a loss or damage but should be returned (as near as possible) to the same financial position that existed before the loss or damaged occurred
Managing General Agents (MGA)
Fire and Casualty broker/ agent or a life agent who represents one or more admitted insurers and manages the transaction of insurance by those insurers in a specific territory
Surplus Lines Broker
a person licensed by the Commissioner to solicit and place insurance with non-admitted insurers when the insurance cannot be procured from admitted insurers
Proof of loss
must be provided in order to collect on a valid claim
In Group Health insurance, the period of time that starts when a new employee is hired and ends on the date they become eligible for the employer's Group Health plan
Probationary period
Disability income policy covers
only loss of income due to disability, not medical expenses.
Medical expense policies exclude coverage for losses resulting at work in order to reinforce the principle of indemnity, which states
the insured cannot recover more than they actually lost
Equity indexed annuity
an annuity that has a fixed guaranteed minimum rate of return but has an excess rate of return which could also keep up with the performance of stock market
Variable annuity
the owner of an annuity has to multiply the value of accumulation unit held in the separate account by the number of accumulation units owned
In regards to an organizational license, what occurs when a corporation is dissolved
it is terminated
Under the CIC, if a person refuses to submit books and records to the commissioner they would be guilty of
misdemeanor
Characteristics of Ideally insurable risk
Loss must not be catastrophic in nature, must create economic hardship, must be definable. EXCEPT loss must be certain. Death is certain but it is okay because time of death is uncertain
Coordination of benefits
the provision that applies in group insurance when an insured has coverage under multiple plans at one time
Industrial life insurance has a face amount of
2000 or less
Industrial life is sold by
debit insurance agents who call the clients in person on a weekly basis. Policies accrue a cash value. Premiums are paid weekly, the grace period is 28 days
a supplementary benefit in a dread disease policy
Treatment, travel and lodging expenses when treatment is far from home, and normal living expenses such as a car payment, mortgage/rent and utility bills
Medicare Supplement insurance policies
Insurers may offer plans that contain only the "core" benefits. (Plan A)
There are 12 standardized Medicare Supplement policies, identified as
Plans A through L
Medicare Supplements are sold by private insurers to supplement Medicare, which is generally only available to those who are at least age
65
In disability income insurance in order for bodily injury to be classife3d as accidental
the cause may be intentional but the result must be accidental
Which of the following best illustrates the Principle of Indemnity
Insurable Interest
Factors used to underwrite group medical expense insurance policies
the location of the group, term of the probationary period, the age and gender of those making up the group
morbidity
the likelihood of illness or injury
The minimum number of employees which must be covered in a group life insurance plan in California is
2
Persistency
the continued existence of a policy being in force.
At what point in time may a representation be altered or withdrawn
Prior to the insurance going into effect only
During the waiting (elimination period)
the insured is not eligible for benefits. They have to wait after becoming totally disabled before receiving any benefits
Concealment
The failure to disclose a material fact that a party knows and ought to communicate
Concealment, whether intentional or not, entitles
the injured party to rescind (void) the contract
A material fact is on that is important to the
underwriter
Fraud
1) claims forms must contain a warning that false representations are subject to a penalty of perjury
2) requires the intent to deceive
3) every admitted insurer must maintain a fraud unit to investigate possible fraudulent claims
An agent can only provide this statement during a tax qualified Long Tern Care insurance policy presentation
The plan may receive federal and state tax advantages
The Doctrine of Utmost Good Faith
All parties, including the insurer, the agent and the insured, are honest and acting in good faith.
The Doctrine of Adhesion
since the insurer wrote the contract, any vague language will be construed in favor of the insured, since they had no choice when they bought it.
The Doctrine of Reasonable Expectations reinforces
the Doctrine of Adhesion.
Waiver and Estoppel are legal doctrines that state
once an insurer gives up the right to deny a claim (a waiver), they can no longer deny it (estoppel)
An insurer who provides for all of its liabilities and purchases reinsurance on all of its outstanding risks is considered to be
Insolvent
On a fully contributory group disability income policy, the benefits payable to disabled employees are
not taxable
On what type of Life insurance is the beneficiary also the policyholder
Credit Life
Survivorship life
Policies pays a death benefit when the second insured person dies
Equity Indexed Annuity
an annuity with a fixed minimum rate of return with the potential for excess stock market like returns
Required duties regarding the organizational license of a co-partnership whose membership has changed
1) pay the required fees
2) must file within 30 days an application for registering the change in membership signed by a general partner
3) at least one person authorized to exercise the agency powers of the original partnership must continue with the sur
When membership has changed in a co-partnership for the organizational license
they do not need to return the old license with the signatures of all the original member to the co-partnership to the commissioner
Joint Life
Policies pays a death benefit when the first insured person dies
Incontestability
the provision which keeps a policy which has been in force for two years from being rescinded by the insurer
A difference between group and individual life insurance plans
Insurers use experience rating for group life policies
Cost of Living rider
increase coverage relative to cost of living changes in the economy. Once an upward adjustment occurs, coverage will never be decreased.
If the face amount is adjusted up, the premium will increase
It is the materiality of the concealment which will ultimately determine the importance of a
representation
the insurer require what when an applicant reveals conditions that require more information
Attending physicians statement
The elimination period in a disability income policy is most similar to
deductible in a medical expense policy
if there is a loan outstanding at the time of death, and the Fixed period settlement option by the beneficiary, what effect will it have on payout
it will reduce the value of the payments made only
An avocation is a another name for
a hobby
The Facility of Payment clause in a group life policy allows the policy proceeds to be paid to
The guardian of a child who is the beneficiary
The Facility of Payment clause
allows the insurer to elect to choose who to pay the policy proceeds to if the beneficiary named in the policy is a minor, or is deceased
Features of major medical insurance
Deductibles, co-insurance, high lifetime limits
Capitation fee
also known as a per head fee. A fee that some HMO's pay their providers to service their subscribers
Under the CIC, if an agent receives a notice of claim, they are supposed to
send the insured proper forms
A stock insurer
owned by stockholders who have the right to any dividends declared and also have the right vote for the board of directors
CLHIGA (California Life and Health Insurance Guarantee Association) covers
disability income policies, group term insurance, individual annuities.
Not self funded employer plans
Best ethical behavior
always putting the best interests of clients and policyholders first
If a corporation uses life insurance to buy shares under a buy-sell agreement, this is true regarding taxation
The IRS will treat the sale of the shares as a loss or gain depending on the purchase and sale price, if the stock is common.
COBRA
federal law that enable employees covered by group health insurance to continue their group coverage by paying their own premiums, generally for up to 18 months.
Job termination for gross misconduct cause no eligibility
for COBRA
Mortality tables
the annual probability of death
Group stop-loss plans does not covered by
the Life and Health Insurance Guaranty Fund
The commissioner may deny an application for an agent's license, without hearing if
the applicant has had a previously issued license revoked with the past 5 years
The underwriting department
responsible for the evaluation, distribution and selection of risks
Annual mode of premium payment has the lowest
overall cost for the customer
The guaranteed insurability rider
allows the insured to purchase additional amounts of life insurance at specific points in the future without having to prove insurability
Under the CIC an insured may cover an unmarried child as a dependent on their group life insurance policy up to
age 21
Variable annuity premiums may be invested in
mutual funds, money markets, fixed income investments
Worker Compensation
1) it covers occupational injury or sickness
2) it requires that employers be responsible for their employees
3) there are no time or dollar limits on covered expenses
Under the California Insurance Code, anyone who diverts or appropriates customer funds while acting in a fiduciary capacity to their own use is guilty of
theft
Fiduciary
the trust that is placed in an agent with regard to the handling of funds in a capable responsible and honest manner
Foreign company
An insurance company domiciled in another state but transacting business in California
A person may not transact insurance without a valid license from the Commissioner. To do so would be
a misdemeanor
Miscellaneous insurance
insurance written to indemnify the producer of any motion picture, television, theatrical, sporting event or exhibition against loss by reason of interruption, postponement, or cancellation due to death, accidental injury, or sickness that prevents a perf
For insurance purposes, it is "unfair" to discriminate
race, religion, national origin, etc.
For insurance purposes, it is "fair" to justify rate differentials between
young and old, sick and healthy, male and female
Lowest to highest premiums in the early year
Modified life, Traditional life, single premium life
Mortgage redemption
a Life insurance policy that will always provide enough protection to pay off your mortgage
Medical Information Bureau (MIB) members must report
Health conditions discovered during the underwriting process
State Guarantee Fund
1) Up to certain limits, it protects the customers of insolvent (bankruptcy) insurers
2) Funded by assessments on member insurers
3) All admitted insurers are required to participate
Vesting means
ownership
Insured
The person upon whose life a Life insurance policy
Probationary period
(also known as the preexisting condition clause)
there is no coverage if a pre-existing sickness that the insured was treated for during a specified time prior to the new policy's effective date reoccurs within a specified time after the new policy was issued.
Optometrist
is not a physician
Social Security "black-out" period affect
Surviving spouse
On a Major Medical Expense policy, the purpose of co-insurance is to
require that the insured and the insurer share the claim after the deductible has been paid
Currently insured under Social Security means
a worker must have at least 6 quarters of coverage paid in out of the last 13-quarter period ending with the quarter resulting in their death, disability or retirement. They only currently insured status, they are eligible for only certain reduced benefit
Fully insured status means
a person has paid in 40 quarters of coverage. They are eligible for all Social Security benefits.
An application for life insurance become part of the Entire Contract
when attached to the policy at issue
Coordination of Benefits (COB) provision
Protect against over insurance.
COB
If you are covered by more than one Group Medical Expense policies, the one that covers you as an employee is primary and the one that covers you as a dependent is excess
A license renewal application
filed on or before the last day of the current license period entitles the applicant to continue operating for 60 days after expiration
Case value Life insurance policies allow the policy owner to select their choice of 3 non-forfeiture options any time the policy lapses
cash surrender, reduced paid up, or extended term.
The Federal law COBRA applies to employers with a minimum of
20 employees
The purpose of a 75% participation requirement on a contributory Group Health insurance plan is
to prevent adverse selection
If non-contributory, meaning the employer pays it all, then
100% of those eligible must enroll in the group insurance plan
Buy-Sell Agreement
When a corporation enters into an agreement with their shareholders to buy their shares back in the event of their death
A life Agent represents
Insurance Company
Hospital Confinement Indemnity
A policy that will pay the insured a flat daily rate for each day they are hospitalized
Speculative risk
it has a chance for gain or loss
Defined benefits plans (money purchase plans)
qualified corporate pension plans usually set up by large employers.
Conditional Receipts
No coverage is in effect until the applicant has satisfied all the conditions and the underwriter has approved the application
Binding Receipts
used by some insurers to provide the applicant with a small amount of coverage while the results of the physical exam and underwriting process are pending. Neither type of receipt may be given out unless the applicant has paid the premium.
Medicare is part of Social Security and beneficiaries
Part A hospital Insurance at age 65 at no premium charge.
Part B is designed to cover Physicians and related services for an additional premium charge
Long Term Care insurance covers custodial nursing which is not covered by
Medicare or Medicare Supplement insurance policy
Low income Californians may obtain custodial care through
Medi-Cal if they fail an income/asset test.
Medi-cal
Taxpayer funded public assistance program
Medi-Cal is
California's version of Medicaid
A qualified Employee Benefit plan that gives employees part ownership in the company for which they work
Employee Stock Ownership plan
Medicare covers
medical expenses
Long Term Care covers
custodial care in a nursing home
After a 5 month waiting period, Social Security provide
disability income benefits for those whose disability is expected to last at least 12 months or result in their death and are incapable of performing the duties of any occupation
Medical Information Bureau (MIB) members consist of
Life and Health insurers
Hospice care
coverage for the care and counseling of the terminally ill. Include in Part A of Medicare
An agent must report a change of address to the state Department of Insurance
Immediately
Agents who sell LTC must meet the following LTC continuing education requirements in California
8 hours every year for the first 4 years, then 8 hours each licensing period
Nolo contendere
leaving the determination of guilt up to the opinion of the Commissioner
Non-contributory employee group insurance premiums paid by employers on behalf of their employees are
tax deductible for the employer and tax free to the employee
An insurance company owned by policyholders is
mutual company
The Rehabilitation Benefit under Disability Income insurance is designed to
pay for necessary vocational training to help the insured resume his normal occupation or prepare for a new career
Implied authority
the authority an agent needs to carry out his duties, even though they are not expressed in the contract
Express authority
the authority written down in an agent's contract
Apparent authority
the authority that a customer believes that an agent has, whether they actually have it or not
Waiver of premium
Life insurance rider that will pay the premium if the insured becomes disabled for a specific period of time
Self-fund or self insure for Group Medical Expense works only
Losses are predictable
A life insurance policy which will allow the insured to self direct the case value into different sub-account
Variable life
California Insurance Guarantee Association (CIGA) does not include
Life and annuity. California Life and Health Insurance Guarantee Association covers it.
an optional Health coverage that is generally available only to persons age 65 or more
Medicare part B
Life settlements are accomplished through
absolute assignment
Multiple Employer Trust (MET)
an entity that allows small employers to obtain the advantages of group coverage when they would otherwise not be eligible
One unit of life insurance is
1000 dollars of coverage
Retirement benefits under Social Security are based primarily upon
average monthly wages
The primary Insurance Amount
Term insurance
less expensive than whole life at issue because it is pure protection and has no cash value.
Employee Retirement Income Security Act (ERISA) of 1974 was passed to protect
plan participants and beneficiaries
A deferred compensation plan
a non-qualified plan
Aleatory means
have an unequal exhange
% they are vested right the way in 401 k is
100%
Which of the Life insurance conversions are permitted
Term Life to Whole Life
On group coverage, Tax implications of Disability Income insurance
premiums are deductible and benefits are taxed
On individual disability income insurance, Tax implication is
insured cannot deduct the premiums paid, but benefits are deductible.
Non-contributory employee group insurance premiums paid by employers on behalf of their employees
tax deductible for the employer and tax free to employee
Morbidity table
The actuarial table used by insurers to determine product benefits and pricing
A dividend option
paid-up additions
Employers may obtain the coverage of Worker Compensation from
the competitive State Compensation Fund, elect to self insure, any insurer admitted to sell it
Part A Medicare covers
Hospital
Part B Medicare covers
Physicians and related services with additional premium charge
Defined benefit
type of qualified retirement plan that tied to length of service and salary level