Life insurance policy
Written contract to transfer risk of premature death from one party to another; pays stated sum upon death; creates instant estate.
Valid life insurance contracts must identify:
1: parties to contract; 2: insured party or life; 3: insurable interest, if 3rd party; 4: risks insured against; 5: policy period (term); 6: premium & mode.
Insurable interest
Financial interest in insured party that must exist @ time of application OR policy issuance. Requires consent (except minors).
Indemnify
To "make whole again" w/out benefit or detriment; neither monetary profit nor loss.
Adverse selection
Tendency of poorer risks to seek insurance.
Peril vs. Hazard
Peril is the CAUSE of loss. Hazard is a condition that increases LIKELIHOOD of loss.
Pure risk vs. Speculative risk
Pure risk involves chance of loss ONLY (accident or misfortune). Speculative risk involves chance of loss OR gain (gambling, stock investment).
Risk management
Treating or mitigating loss exposures through 1: avoidance; 2: retention (deductibles); 3: sharing; 4: reduction; or 5: transfer.
Mortality vs. Morbidity tables
Mortality is the statistical possibility of death @ each age. Morbidity is the statistical possibility & extent of disability @ each age.
Loss exposure
Potential circumstance that could cause a loss; measured in dollars.
Law of Large Numbers
Mathematical law stating the larger # of occurrences, the more predictable the losses; used to calculate premiums.
Types of hazards
Physical - slippery floor; Moral - dishonest acts; Morale - carelessness or recklessness.
Factors that determine premium
1: mortality probability charge; 2: Insurer's investment return; 3: expenses (admin costs, commissions). 1 - 2 = net; 1 - 2 + 3 = gross.
Rate (as defined by CIC)
Price of insurance per exposure unit.
Premium modes
Monthly; Quarterly; Semi-annually; Annually (cheapest due to less admin cost).
Earned vs. Unearned premium
Earned premium is $ paid for coverage to date. Unearned premium is $ paid & returnable due to coverage not provided.
Insurer (as defined by CIC)
Any person, assoc., org., partnership, business trust, LLC, or corp. capable of making an insurance contract.
Departments of an Insurer
Underwriting - determines insurability; Marketing/Sales - determines products; Actuarial - determines rates; Claims - investigates/pays claims.
Types of Insurers (by domicile)
Domestic - within home state; Foreign - outside home state; Alien - outside home country.
Types of Insurers (by ownership)
Policyholders - Mutual (participating) co., may pay dividends; Stockholders - Stock (non-participating) co., no dividends.
Types of Insurers (by authorization)
Authorized (admitted) - can conduct business in state; Unauthorized (non-admitted) - cannot conduct business in state (w/ one exception).
Types of Insurers (by sector)
Private sector (Commercial) - provides LA&H, P&C, & LTC; Public sector (Gov't) - provides flood, work. comp., Medicare/Medicaid, Group Life (SGLI/FEGLI).
Types of Insurers (miscellaneous)
Fraternal - non-profit, members only; Reciprocal - unincorp'd org., members insure each other; Lloyd's Assoc. - groups sharing risks; Surplus lines - special market risks.
Types of Licensed Producers
Agents - represent Insurer; Brokers - represent themselves & Insured; Solicitors - represent one agent to solicit leads.
Errors & Omissions (E&O)
An unintentional mistake committed by an insurance representative; may be covered by E&O insurance.
Types of Agency Authority
Actual/Expressed - written powers; Implied - unwritten but customary practices; Apparent - perceived powers.
Elements to contract
Agreement - Offer & acceptance; Consideration - application + premium; Legal capacity - licensed &/or competent; Legal purpose - public good.
Insurance contract characteristics (1 of 2)
Unilateral - Insurer provides contract; Adhesion - parties must adhere to terms; Aleatory - benefits may not inure equally.
Insurance contract characteristics (2 of 2)
Conditional - coverage is conditional; Personal - parties are people; Good faith - honesty/integrity; Fiduciary - req's financial trust.
Applicant Representations vs. Warranties
Representation - oral or written statement made to best of knowledge or belief; Warranty - statement guaranteed/presumed/understood to be true.
Concealment
Intentional OR unintentional failure to disclose material underwriting facts that should have been disclosed; grounds for policy rescission.
Concealment exceptions
Info already known; Info that should have been known; Waived info; Irrelevant info.
Rescission
Voiding an insurance contract based on fraud, concealment or material misrepresentation; premiums returned; policy treated as never existing.
Fraud
Intentional deception; grounds for rescission.
Estoppel
Process which prevents claim denial as a result of false statement or promise (made by Insurer), which was relied upon by Insured.
Parole Pardon Rule
Written policy terms supersede oral statements made prior to policy issue.
Reinsurance
Insurance purchased by other Insurer(s) to spread or diversify risk; promotes industry stability.
Types of reinsurance
Facultative - case by case agreements; Automatic/Treaty - automatic acceptance of risk percentage per previous agreement.
Retrocession
Process whereby a reinsurer reinsures w/ another reinsurer.
Trial Application (aka Request for Offer)
Application submitted w/out premium; no coverage until submission of full consideration & completed Statement of Continued Good Health.
Insurability Type Conditional receipt
Receipt whereby coverage incepts conditionally upon submission of full consideration and that all underwriting reqs. are met.
Approval Type Conditional receipt
Receipt whereby coverage incepts ONLY after underwriting approval.
Binding receipt (aka Temporary Insurance Agreement)
Receipt whereby coverage incepts immediately upon submission of full consideration, unless declined & premium refunded.
Human Life Value approach
Death benefit determined by Insured's projected lost earnings potential.
Needs approach (most common)
Death benefit determined by Insured's financial goals & needs (minus assets).
AIDS/HIV discrimination
Prohibited w/ regard to testing for people of same class; test results must remain confidential; coverage may be declined (once discovered).
Penalties for violating AIDS/HIV privacy laws
Unintentional - up to $1,000 + legal $; Intentional - $1,000-5,000 + legal $; If harmful - misdemeanor + up to 1 yr. prison + up to $10,000.
Underwriting risk categories
Preferred or Preferred Smoker; Standard or Standard Smoker; Substandard; Denied.
Policy delivery
Must be delivered in person or by certified, registered or 1st-class mail w/ signature, unless waived by Insurance Commissioner.
Free Look provision
Generally 10 days after policy delivery to cancel policy w/ full refund, except 30 days for seniors or for replacement policies.
Entire Contract provision
Policy must be delivered w/ original (or copy of same) application attached.
Incontestability clause/provision
Insurer has right to rescind policy & return premium if material misrepresentation in application is found w/in 1st 2 yrs.
Term Life policy
Temp. coverage for set duration w/ death benefit ONLY (no cash value), offers largest $ for lowest premium; renewable; convertible.
Types of Term Life policies
Level - fixed death benefit, premium fixed until renewal; Decreasing - death benefit decreases over term, premium fixed until renewal; Increasing - death benefit increases over term, premium fixed until renewal.
Renewability provision
Allows for Term policy renewal @ higher premium w/out medical exam; guarantees insurability; based on actual/attained age.
Convertibility provision
Allows Term policy conversion to Permanent policy w/out medical exam; must be identical or lower death benefit; based on either attained OR original age.
Whole (aka Permanent or Straight) Life policy
Pays death benefit until age 100 or death; builds equity (cash value); may be transferred or sold; generally level premium.
Cash value
After 2-3 yrs., Whole Life policy equity builds tax-deferred @ fixed interest rate until it equals death benefit; borrowable but taxable.
Policy loans
Available for any reason up to full cash value @ fixed (max 8%) OR variable interest rate; loan $ + interest deducted from benefit @ death.
Limited Pay Whole Life policy
Same as WL but can be "paid-up" early by paying larger premium for shorter payment period (i.e. 10 Pay Life, 20 Pay Life).
Single Pay Whole Life policy
Extreme form of Limited Pay Whole Life whereby entire premium is paid in a single payment.
Modified Premium Whole Life policy
Same as WL but premium low for 1st 3-5 yrs., THEN has one-time premium increase.
Graded Premium Whole Life policy
Same as WL but premium low for 1st 5 yrs., THEN has annual premium increases for set # yrs., THEN level premium.
Enhanced Ordinary (aka Extraordinary) Whole Life policy
Same as WL but death benefit decreases each yr. w/ dividends paid annually to offset decrease.
Indeterminate Premium Whole Life policy
Same as WL but premium low for set # yrs., THEN premiums vary (+ or -) based on Insurer's investment returns, w/ Gmax.
Current Assumption (aka Interest-Sensitive) Whole Life policy
Same as WL but cash value increases @ current interest rates (not set); premium can start low or high & may change.
Equity Index Whole Life policy
Same as WL but death benefit increases annually, linked to Consumer Price Index; premium increases annually OR is set high from start.
Endowment Life policy
Same as Term Life but provides living benefit (endowment) to policy owner if Insured survives entire term.
Adjustable Whole Life policy
Same as WL but policy owner can adjust death benefit w/ corresponding premium adjustments; mostly obsolete.
Universal (aka Flexible Premium Adjustable) Life policy (1 of 4)
Same as WL but w/ adjustable death benefit (& corresponding premium) & over-fund option but w/ annually renewable term (ART).
Universal (aka Flexible Premium Adjustable) Life policy (2 of 4)
Premiums determined by target cash values or death benefit; partial cash value w/drawals allowed; transparent policy w/ unbundled premium.
Universal (aka Flexible Premium Adjustable) Life policy (3 of 4)
Guaranteed min. interest rate on cash value buildup but possible higher rate if short-term investment returns higher than expected.
Universal (aka Flexible Premium Adjustable) Life policy (4 of 4)
Two death benefit options - Option A: death benefit ONLY; Option B: death benefit + cash value; death benefit NOT guaranteed.
Variable Life policy (1 of 2)
Same as WL but cash value put in investment vehicles chosen by policy owner (stocks, bonds, munis.); cash value NOT guaranteed.
Variable Life policy (2 of 2)
Fixed premium w/ guaranteed min. death benefit that may increase due to higher than expected investment returns.
Variable Universal Life policy
Same as Universal Life but cash value put in investment vehicles chosen by policy owner (stocks, bonds, munis.); cash value NOT guaranteed.
Requirements to sell variable life products
Life license + NASD (FINRA) Series 6 or 7.
Family Income policy
Same as WL but w/ Decreasing Term rider; upon death, pays monthly income for REMAINING term AFTER which pays full death benefit.
Family Maintenance policy
Same as WL but w/ Level Term rider; upon death, pays monthly income for FULL term AFTER which pays full death benefit.
Family policy
Covers entire family w/ WL for breadwinner & (convertible) Level Term for spouse & children (until certain age).
Joint Life (aka "First to die") policy
WL policy covering 2 or more Insureds but payable upon death of FIRST Insured, after which policy ends.
Survivorship (aka "Last to die") policy
WL policy covering 2 or more Insureds but ONLY payable upon death of LAST Insured, generally low premium but high death benefit.
Juvenile Life (aka Jumping Juvenile) policy
Policy covering minor child; premium fixed but death benefit increases by 5 times @ age 18 or 21.
Credit Life policy
Term Life policy w/ decreasing death benefit; usually used to secure credit (loan) w/ lender as beneficiary & borrower as Insured.
Payment of Premium provision
Policy owner has right to determine mode of premium payment but Insurer can charge admin. fee if not annual.
Grace Period provision
Coverage remains in effect for 31 days past premium due date; benefits paid during grace period would be deducted from sum.
Reinstatement provision
A lapsed policy may be reinstated if not longer than 3-5 yrs., & proof of insurability re-established, & back premiums + interest paid.
Misstatement of Age/Sex provision
Insurer has right to adjust (+ or -) death benefit if age or sex is misstated but normally doesn't void policy.
Common Life Exclusions
War - 2 types; Suicide (1st 2 yrs.); Aviation (non-commercial); Hazardous hobbies; Criminal acts; Alcohol/Drug influenced.
Beneficiary provisions
Primary - if 2 or more, equally shared; Contingent (Secondary) - only if primary dead; Tertiary - only if both primary & secondary dead. If none listed, goes to estate.
Revocable vs. Irrevocable beneficiary
Revocable - changeable anytime w/ Change of Beneficiary Form; Irrevocable - not changeable w/out beneficiary permission.
Common Disaster (Simultaneous Death Act) clause/provision
If Insured & primary beneficiary die due to same act (w/in 14 days), primary assumed 1st to die & contingent beneficiary paid death benefit.
Spendthrift provision
Beneficiary has right to leave death benefits / Insurer to protect $ from creditors; interest (taxable) paid on retained funds.
Trusts
Responsible adult trustee designated to manage death benefits for minor child beneficiary until adulthood.
Insuring clause/provision (aka Insuring Agreement)
Summary of coverage including premium & mode of payment, death benefit, beneficiary(ies), exclusions, & promise to pay.
Suicide clause/provision
Excludes coverage for suicide during 1st 2 yrs. ONLY but, if it does, all premiums must be returned to beneficiary.
Automatic Premium Loan (APL) provision
No-cost provision that authorizes Insurer to borrow from cash value to pay unpaid premiums after grace period; must ask for @ app. time.
Non-forfeiture options for WL policy
1: Surrender for cash value (taxable); 2: Buy equal-benefit paid-up Level Term policy; 3: Buy reduced-benefit paid-up WL policy.
Dividends
Periodic return of premium to policy owners from Mutual (Par) Companies; not guaranteed & not taxable as income; may be used in 6 ways.
Dividend options
1: Cash (tax-free); 2: Apply to future premiums; 3: Retained by Insurer @ interest; 4: Buy Paid-up WL policy add-ons; 5: Pay-up existing policy; 6: Buy 1-yr. Term policy.
Settlement options for Life policy (1 of 2)
1: Tax-free lump sum; 2: Monthly pay-outs for fixed time; 3: Fixed monthly payments until depleted.
Settlement options for Life policy (2 of 2)
4: Funds retained by Insurer until w/drawn, interest ONLY paid monthly (taxable); 5: Paid-up immediate annuity.
Waiver of Premium (Waiver of Cost of Insurance) rider
Waives premium upon disability of Insured until return to work; disability must persist for 6 mths. or longer. Cash value & dividends not affected.
Accelerated Benefits (aka Terminal Illness or Living Benefits) rider
Allows policy owner to w/draw set % of death benefit upon verification of terminal illness w/ expectancy 12-24 mths.; generally tax-free.
Family or Dependents rider
Expands individual WL policy to include Term Life for dependents (spouse, children, etc.).
Accidental Death (aka Multiple Indemnity) rider
Provides increased death benefit if death occurs w/in 90 days & as result of accident; relatively INexpensive add-on.
Accidental Death & Dismemberment (AD&D) Life policy
Provides accidental death benefit @ full $ of "principal sum". Dismemberment is paid only @ 50% principal sum ("capital sum").
Guaranteed Insurability Life rider
Allows Insured to increase death benefit w/out medical exam (subject to age max.) w/ additional premium rate determined @ attained age.
Cost of Living Adjustment (COLA) Life rider
Death benefits & premium automatically increase annually based on inflationary index (i.e. Consumer Price Index).
Return of Premium rider
Upon death, death benefit is paid + the aggregate of premiums paid to date; add-on to Term policy ONLY.
Return of Cash Value rider
Upon death, death benefit is paid + the aggregate of cash value accumulated to date; add-on to WL policy ONLY.
Payor (aka Waiver of Payor's Premium) rider
Waives premium on Life policy for minor child until age 21 in event premium payor dies or becomes disabled.
Viatical Settlement Provider (VSP)
A company providing lump sum buyout (50-90% of total) of Life policy; becomes owner & beneficiary & assumes premium payments; usually terminally ill viator.
Annuity
Written contract that provides INCOME @ high interest rate for fixed period OR for annuitant's lifetime w/ possible death benefit.
Phases of an annuity
Accumulation or "pay-in" - contributions & interest earned are tax-deferred; Annuity or "pay-out" - monthly annuity (taxable) paid.
Annuity Classifications (1 of 5): How premium is paid
1: Single (lump sum) premium; 2: Periodic premiums - can be level (fixed $) OR flexible from mth. to mth. (w/ req. min.)
Annuity Classifications (2 of 5): When benefits begin
1: Immediate benefits rec'd w/in 30 days but premium must be paid by lump sum; 2: Deferred - usually until retirement.
Annuity Classifications (3 of 5): Source of income
1: Fixed - guaranteed fixed monthly income & fixed interest rate; 2: Variable - unguaranteed; monthly income varies based on stocks/bond returns.
Annuity Classifications (4 of 5): Disposition "pay-out" of proceeds
1: Straight aka Pure Life - lifetime income but no survivorship refund; 2: Life w/ Period Certain - lifetime income w/ death benefit of monthly annuity for remaining predetermined term.
Annuity Classifications (4 of 5): Disposition "pay-out" of proceeds (continued)
3: Annuity Certain - monthly income paid for predetermined term ONLY (not lifetime) w/ death benefit of monthly annuity for remaining term.
Annuity Classifications (5 of 5): # of lives
1: Individual; 2: Joint - multiple annuitants paid until 1st dies; 3: Joint & Survivor - multiple annuitants paid until 1st dies THEN survivors paid but @ reduced $.
Annuity surrender charges
No-charge annuity w/drawals allowed up to 10% of total, THEN penalized on sliding scale based on # policy yrs.; conditionally waived.
Equity Indexed annuity
Grows @ fixed min. interest rate but w/ possible higher rate tied to equity index (i.e S&P Equity Index) appreciation; gains shared w/ Insurer.
Market Value Adjusted (aka Modified Guaranteed) annuity
Grows @ fixed interest rate for set term but cash value may adjust to prevailing rate (+ or -) if fully surrendered before term ends; % w/drawal ok.
Tax implications of Death Benefit & Cash Value
Death benefit is NOT taxable. Cash value grows tax-deferred but cost basis (base premium) is not taxable, only interest is.
Tax implications of Dividends, Loans & Interest
Dividends are NOT taxable but interest is. Loan interest is NOT tax-deductible. Interest paid by Insurer on retained funds is taxable.
Tax implications of an Estate
Although death benefit is tax-free, it is included in gross estate value so federal &/or state taxes may apply to a portion in excess of fixed federal limit.
Modified Endowment Contract (MEC)
An irrevocable IRS classification of a policy (determined by the 7 Pay Test) whereby tax advantages are lost for all distributions ONLY.
7 Pay Test
If total premiums paid w/in 1st 7 yrs. exceed net level premium that should have been paid, policy is an MEC.
Tax implications of an Annuity (1 of 2)
Qualified Annuity - Tax-deductible contributions & tax-deferred growth but fully taxable w/drawals.
Tax implications of an Annuity (1 of 2)
Non-qualified Annuity - Non-deductible contributions & tax-deferred growth. At pay-out, tax-free principal but taxable growth.
IRS Penalties for Annuities
Annuity distributions prior to age 59 1/2 incur a 10% IRS penalty EXCEPT for death, disability, immediate annuity, or rollover.
1035 Exchange
IRS allows tax-free transfer of cash values between 2 LIKE policies (i.e. Life to Life, Annuity to Annuity, or Life to Annuity).
Key Employee policy
Compensates business for loss due to death or disability of key employee; premiums not deductible but benefits tax-free.
Business Continuation (aka Buy-Sell) policy
Provides for continued operation of business if partner dies, by allowing surviving partner(s) to buy deceased partner's interest in business.
Split Dollar Plan
Funding mechanism whereby employer & employee share cost of premium. Upon death, benefit is shared between employer & beneficiary.
Cross Purchase Plan
Business continuation funding plan whereby each partner agrees to buy Life policies on each other, but not themselves.
Types of Accident & Health insurance
A&H, A&S, Sickness only; Medical; Disability; Accident only; Travel accident; LTC; Medicare supplement; AD&D; Dental/Vision/Prescription; Limited.
Considerations in replacing Health insurance
Pre-existing illness/injury; Waiting period; Elimination period; Probationary period; Benefits, Exclusions, Limitations; Underwriting reqs.
Types of Accident & Health (A&H) providers
Commercial (private) companies; HMOs; PPOs; Blue Cross/Blue Shield; Employer-sponsored plans; Government.
Health Maintenance Organization (HMO)
Prepaid med. benefits for members ONLY w/ approved primary care M.D. (HMO employee); focus on preventative care; low co-pay.
Preferred Provider Organization (PPO)
Prepaid med. benefits for members w/ approved primary care M.D. (independent); low co-pay; non-PPO M.D. can be used at higher cost.
Blue Cross/Blue Shield
Prepaid med. benefits for "subscribers" @ approved facilities; many non-profit; Blue Cross - Hospital stays; Blue Shield - M.D. costs.
Point of Service plan
Hybrid of HMO & PPO w/ greater flexibility on choosing specialists outside network w/ benefits still provided but @ higher co-pay.
Employer-Administered plan
Group plan initially self-funded by employer (like SIR); after which, group plan Insurer covers (up to policy limit); requires TPA.
Multiple Employer Trust (MET) aka Multiple Employer Welfare Association (MEWA)
Multiple small employers w/ common affiliation (trade assoc. OR Chamber of Commerce) band together to purchase group plan.
CHAMPUS (aka TriCare)
Gov't. organization providing health care benefits for dependents of military personnel.
Consolidated Omnibus Budget Reconciliation Act (COBRA)
Federal law allows employees/their dependents to continue group benefits w/in 60 days after termination (if employer has 20+ employees); Insured pays premium @ 102% of group cost.
COBRA Time Limitations
Time extension of benefits based on "qualifying" event. 18 mth. extension if laid off or fired; 36 mth. extension if death, divorce or child leaves home.
Disability Income policy
Provides % of monthly income benefit if Insured becomes disabled due to illness or accident.
Loss of Earnings Test
Disability income is based on "earned income" (salary, bonus, commission), not unearned income (interest, investment, rents).
Total disability (as commonly defined)
The inability to perform your OWN normal occupation or daily duties".
Total disability (more restrictive definition)
The inability to perform ANY reasonable occupation based on education, training or experience".
Total disability (any-occupational definition)
The inability to perform ANY gainful occupation".
Presumptive disability
Permanent disability due to total loss of sight, hearing, speech or use of 2 + limbs; benefits paid even while continuing to work.
Partial disability rider
Disability policy rider covering "the inability to perform some, but not all of your duties"; pays max. 50% of disability benefit for up to 6 mths.
Residual disability rider
Type of partial disability rider, which pays fluctuating % of lost income w/out time limit.
Permanent vs. Temporary disability
Permanent - not recoverable (spinal cord injury); Temporary - recoverable (temp. illness/injury, broken limb).
Recurrent disability clause/provision
Reappearance of disability w/in 6 mth. period after "recovery" from same disability is considered recurrence, not new disability.
Elimination (aka Waiting) period
Time period preceding each disability during which benefits are not paid; longer elimination periods = cheaper premium.
Group Disability plan
Taxable income (unlike individual plans); can be either short-term - 13-52 wks. max. or long-term - longer than 52 wks.
Waiver of Premium provision
Waives premium upon disability of Insured until return to work; disability must persist for 90 days or longer; 1st 90 day premiums refunded after 90 days.
Occupational Disability policy
Covers disabilities occurring both "on" AND "off" job; "on" job benefits paid in addition to work. comp., if applicable (i.e. individual plan).
Non-Occupational Disability policy
Covers disabilities occurring ONLY "off" job; benefits do not overlap work. comp. (i.e. Group plan).
Tax implications of Disability policy (1 of 2)
Both Contributory & Non-contributory Group policies are deductible to employer (not employee) but benefits are taxable.
Tax implications of Disability policy (2 of 2)
Individual policy premium is NOT deductible but benefit is received tax-free.
Common Disability Exclusions
War/Military; Intentional self-inflicted; Aviation (non-commercial); Foreign country; Loss of professional license; Illegal activity; Mental disorders (after 1-2 yrs.).
Guaranteed Insurability (aka Additional Purchase or Future Increase) Disability rider
Allows Insured to increase benefit w/out medical exam (subject to age max.) w/ additional premium rate determined @ attained age; must prove income increase.
Accidental Death & Dismemberment (AD&D) Disability rider
Provides accidental death benefit @ full $ of "principal sum". Dismemberment is paid only @ 50% principal sum ("capital sum").
Cost of Living Adjustment (COLA) Disability rider
Benefits automatically increase annually based on inflationary index (i.e. Consumer Price Index) OR flat rate (5% max.).
Social Security Benefit (Supplement) rider
Provides benefit during Social Security "black-out" period, up to 1 yr.
Rehabilitation rider
Provides professional services, rehabilitation, training/re-training & related costs to assist Insured in returning to work.
Return of Premium rider
Refund of 50-80% of premium (minus claims paid) every 5-10 yrs. OR age 65; expensive!
Transplant/Cosmetic Surgery rider
Provides disability income during surgery recovery from life-threatening condition (& sometimes cosmetic surgery).
Impairment (Exclusion) rider
Excludes coverage for specific injury/illness either temporarily or permanently in order to eliminate pre-existing condition.
Business Overhead Expense (BOE) Disability policy
Provides usual & customary business expenses (rent, utilities, salaries, mortgage) if owner becomes disabled; premiums deductible, benefits taxable.
Key Employee Disability policy
Compensates business for loss due to disability of key employee; premiums not deductible but benefits tax-free.
Business Continuation (aka Buy-Sell) Disability policy
Provides for continued operation of business if partner becomes disabled, by allowing other partner(s) to buy disabled partner's interest in business.
Workers' Compensation insurance (1 of 2)
Mandatory 100% employer-funded coverage for injuries/illnesses occurring "on" job; full-time employees only; exclusive remedy.
Workers' Compensation insurance (2 of 2)
Provides: 1: unlimited medical benefit; 2: survivor income replacement & funeral ($5,000 max.); 3: disability benefit @ 66 2/3%; 4: rehabilitation.
Exclusions to Work. Comp. insurance (1 of 3)
No coverage for injuries while: 1: @ voluntary social event; 2: self-inflicted (intentional); 3: under alcohol/drug influence;
Exclusions to Work. Comp. insurance (2 of 3)
4: committing criminal act; 5: aggressor in workplace fight; 6: participating in athletic event (non-pro. athletes);
Exclusions to Work. Comp. insurance (3 of 3)
7: part-time domestic help; 8: unpaid volunteering for non-profit; 9: laid off/terminated (except proven work-caused injury or psych. care).
CA Work. Comp. Statutes
1: Req., unless self-employed; 2: 7-day wait for disability benefits; 3: Premium based on ex-mod; 4: Rates approved by CDI; 5: to sell, must satisfy education reqs.
Employer Liability
Req. by CA statute & may provide workers coverage for action-over claims.
24 Hour Coverage (CA)
Provides 24 hr. health coverage both "on" & "off" job, but may cause coverage duplication & coordination challenges.
Types of Medical Plans
Basic Medical; Major Medical; Comprehensive Major Medical
Basic Medical plan
No deductible coverage for: daily room/board; ancillary costs; surgeon &/or physician expense (for added premium).
Major Medical plan
Coverage for catastrophic loss w/ high limits, front end deductible; co-insurance (80/20%); blanket coverage; stop loss max.
Exclusions for Major Medical plan
War; elective cosmetic surgery; routine dental; work. comp.-covered claims; self-inflicted (intentional); gov't. facility treatment; LTC; private nursing.
Comprehensive Major Medical plan
Combination of Basic Medical & Major Medical in one policy; Basic pays 1st, then Major Medical w/ corridor deductible.
Supplemental Major Medical plan
Same as Comprehensive Major Medical but w/ integrated deductible; much more expensive.
Dependent coverage
Dependent children are covered until 19 or 23 (full-time student only) or until self-sufficient (if handicapped).
Tax implications of medical plans
Benefits NOT taxable; employer-paid premiums deductible to employer; individual plans not deductible unless over 7 1/2% of adjusted gross income, then excess deductible.
Dental Plan
Specialized policy covering diagnostic & preventative dental care; often no deductible; co-insurance; expensive; may be included w/ medical plan.
Dread Disease policy
Provides coverage for specific disease(s), such as cancer or leukemia.
Medical cost containment (aka Managed care)
An attempt to contain costs by employing various strategies, including wellness programs, preventative testing, outpatient & alternative procedures.
Palliative vs. Curative care
Palliative - treatment to manage pain; Curative - treatment to cure illness/condition.
Experience vs. Community rating in Group Health plan
Experience - rates impacted by actual prior claim experience of actual group; Community - identical rates used for entire community, regardless of experience.
Doctrine of Comity
The state in which the contract is accepted or delivered is the state that possesses regulatory jurisdiction over Group plan.
Small Employer Medical Expense plan
Employer w/ 25 or less employees must offer all eligible employees @ least 2 medical plan options where pre-existing conditions can't be excluded more than 1 yr.
Employee Retirement Income Security Act (ERISA)
Federal law to protect Federal employees' (& their beneficiaries') pension, group insurance, & welfare benefits.
Age Discrimination in Employment Act (ADEA)
Federal law which prohibits companies w/ 20+ employees from denying work & medical benefits to employees due to age.
Civil Rights/Pregnancy Discrimination Act
Federal law which prohibits companies w/ 15+ employees from decreasing coverage benefits for women affected by pregnancy or childbirth.
Health Insurance Portability and Accountability Act (HIPAA)
Federal law which allows health coverage portability when changing jobs, so long as previous coverage was in effect 63+ days; allows some tax deductibility for LTC.
Medical Savings Account (MSA) & Health Savings Account (HSA)
Savings account for medical expenses; Tax-deductible contributions; tax-deferred growth; tax-free for qualified use; taxable for non-qualified use.
Flexible Spending Account (FSA)
Part of IRS Section 125 cafeteria plan, which allows pre-tax payroll deductions for qualified medical expenses or child/dependent care.
Health Reimbursement Account (HRA)
PURELY employer-funded account to reimburse employees for qualified medical expenses not covered by group health plan.
Social Security (aka Old Age Survivors Disability Health Insurance or OASDHI) (1 of 3)
Federal program financed by payroll taxes provided equally by both employer & employee OR entirely by individual (if self-employed).
Social Security (aka Old Age Survivors Disability Health Insurance or OASDHI) (2 of 3)
Provides benefits for: Medicare @ age 65+; retirement; $255 lump sum death benefit; (limited) disability; survivors; dependents (until age 18).
Social Security (aka Old Age Survivors Disability Health Insurance or OASDHI) (3 of 3)
Benefits vary on # of yrs. of FICA contribution; fully insured after 40 quarters (ten yrs.).
Primary Insurance Amount (PIA)
Mathematical calculation based on overall FICA contributions used to determine retirement/disability/survivorship benefit.
Blackout Period
Period of time following any children's survivor benefit & before benefits are provided to employee's widow/widower.
Medicare
Federally-sponsored health care for individuals 65+ &/or w/ certain disabilities; may run concurrent w/ group plan but group plan would act primary, THEN Medicare.
Medicare Part A (aka Hospital Insurance or HI)
Provides hospital insurance automatically @ age 65 (if FICA qualified) @ no fee but may have deductible & co-pay.
Medicare Part B (aka Supplemental Medical Insurance or SMI)
Provides supplemental coverage for physician/surgeon fees if enrolled (during enrollment period ONLY) & pay monthly premium w/ deductible and co-insurance.
Medicare Part A & B "Gaps
Part A - Inpatient hospital deductibles vary on # of days; limited reserve days; finite benefit; 1st 3 pints blood; Part B - 20% co-payment.
Medicare Supplement or Medigap policy
Privately-sold policies to provide benefits not covered by Medicare; divided into 12 plans listed alphabetically A - L; 30-day free look; guaranteed renewable.
Plans A-L of Medical Supplement or Medigap
Plan A is the CORE benefit & is least expensive; All other plans include Plan A + additional benefits. Plans F & J are high deductible. K & L are both deductible & co-pay plans.
Medicare Part C (aka Medicare Advantage)
Allows for use of HMO/PPO or other private carrier to provide expanded benefits @ additional premium & if enrolled in BOTH Parts A & B.
Medicare Part D
Privately-provided or Medicare-provided (if no private carrier) prescription drug plans for qualified individuals but w/ premium, deductible & co-pay.
Long Term Care (LTC) policy (1 of 2)
Provides medical & personal services for people needing extended assistance w/ Activities of Daily Living (ADL).
Long Term Care (LTC) policy (2 of 2)
Other benefits include: assisted living care; respite care; hospice care; adult day care.
Levels of Long Term Care provided
1: Skilled nursing care; 2: Intermediate care; 3: Custodial care; 4: Home health care.
Medicaid/Medi-Cal
Federally-funded but state-run program for truly indigent individuals & families providing medical care at Federal clinic.
Medi-Cal Share Cost plan
Partially state-funded benefits for low-income people whereby cost of care is shared between state & recipient, based on income.
Notice of Claim provision
Policy owner must notify Insurer of loss either in writing, in person or by phone w/in 20 days.
Claim Form (aka Proof of Loss Form) provision
Upon notice, Insurer must provide Claim Form (Proof of Loss Form) to Insured w/in 15 days.
Proof of Loss provision
Policy owner has 90 days from date of loss to submit proof of loss to Insurer; valid claim must be paid immediately upon receipt.
Legal Action provision
Insured can seek legal action against Insurer for denial of claim only after 60 days and up to 3 yrs. after providing proof of loss.
Time Limit on Certain Defenses provision
Identical to Incontestable Clause in Life policy.
Change of Occupation provision
If Insured changes to: more hazardous job - benefits reduced; less hazardous job - premiums reduce.
Relation of Earnings to Insurance provision
Prevents overinsuring in order to profit from disability by coordinating benefits between Insurers.
Conformity with State Statute provision
Policy provisions must conform to state regulations where policy is sold.
Common Accident provision
If 2 or more family members are injured in the same accident, only payment of a single deductible is required.
Types of Renewability provisions
1: Non-cancelable; 2: Guaranteed renewable; 3: Cancelable; 4: Conditionally renewable; 5: Optionally renewable.