Basic principles of life and health insurance and annuities, legal concepts

the role of insurance

the primary reason for purchasing life insurance is to provide death benefits. the role of insurance is to transfer the risk of financial loss from an individual or business to an insurance company. Insurance pressed the cost of the unexpected Financial l

Reserves

accounting measurements of an insurer's future obligation to its policyholders

liquidity

indicates a company's ability to make unpredictable payouts to policyowners

companies that sell more than one line of insurance

multi-line insurers

stock companies - non-participating

a stock company is referred to as a non-participating company because policyholders do not participate in dividends resulting from stock ownership

Mutual companies- participating

votes for members of the board of directors. by issuing participating policies that pay policy dividends Mutual insurers allow their policy owners to share in any company earnings divisible Surplus

reinsurers

contract between two insurance companies is called (Treaty )reinsurance which involves an automatic sharing of the risk assumed

fraternal benefit Society

An organization formed to provide insurance benefits for members of an affiliated lodge, religious organization, or fraternal organization with a representative form of government.( fraternal must be formed for reasons other than obtaining insurance

Fair Credit Reporting Act 1970

Authority that requires fair and accurate reporting of information about consumers including application for insurance insures must inform applicants about any investigation that are being made

the Mccarran-Ferguson ACT 1945

this act LED each state to revise its insurance laws to confirm to the federal laws today the insurance industry is considered to be the state-regulated. a fine of $10,000 or up one year in jail is the penalty for any person who violates the mccarran-ferg

rating service

determine the financial strength of the company being rated

buyer's guide

A booklet that describes insurance policies and concepts, and provides general information to help an applicant make an informed decision.

National Association of insurance commissioners (NAIC)

An organization made up of all the insurance commissioners of the various states designed to provide a way to exchange information and work toward uniformity of insurance regulation among the states. However, insurance laws are still far from uniform.

State Guaranty Association

protect policy owners in the event of any insurance company going out of business, becoming insolvent, or the in ability to pay claims

insolvent

unable to pay debts owed

Home Service insurers

home service insurance is industrial insurance sold by home service or debit
life insurance companies. Face amounts are small; usually $1,000 to $2,000 and premiums are paid weekly.

adhesion contract

A take-it-or-leave-it offer made by a party who holds most of the power in a bargaining session

cancellation

the voluntary Act of terminating an insurance contract

offer and acceptance

a definite unqualified proposal(offer) meeting of the minds( when an offer is answered by a counter-offer the first offer is void)

consideration

consideration is given by the applicant in exchange for the insurer promise to pay benefits( consideration clause also contains information such as schedule and amount of premium payments)

legal purpose

The purpose of the contract must be legal and not against public policy.

not competent

miners, the mentally infirm, those under the influence of alcohol or narcotics

Aleatory Contract

a contract where the values exchanged may not be equal but depend on an uncertain event( both insurance and gambling contracts are typically considered a aleatory contracts)

Unilateral Contract

means that only one party the (insurer) makes any kind of enforceable promise

Valued Contract

A contract that pays a stated amount in the event of a loss (disability insurance/life insurance).

indemnity contract:

contract that pays amount equal to loss

utmost good faith

A principle of insurance which states that the insurance company must be able to rely on the honesty and cooperation of the insured, and the insured must rely on the company to fulfill its obligations in good faith.

warranty

a confirmation of the quality or performance of a good or service( guaranteed to be true in every respect)

representation

consider to be true and accurate to the best of the applicant's belief

concealment

failure by the applicant to disclose a known material fact when applying for insurance

insurable interest

Any financial interest in life or property such that, if the life or property were lost or harmed, the insured would suffer financially.( insurable interest must only exist at the time of the application)

stranger originated life INSURANCE (STOLI)

naming the investor as beneficiary this is sometimes called investor originated life insurance (IOLI)these arrangements are used to circumvent State insurable interest statues

the law of agency

1. describing the company insurance policies to prospect of buyers and explaining the conditions under which the policies may be obtained
2. soliciting applicants for insurance
3. collecting premiums from policy owners
4. rendering service to prospects an

principles of agency law

- The acts of the agents are the same as the company
- Contracted completed by the agent is same as company doing it
- Payment made to an agent is same as paying the company
- Knowledge of the agent is the same as the company knowing it

Agent Authority

A relationship in which one person is authorized to represent and act for another person or company is established through the law of agency.
( Authority is what's given by an insurer to a licensee to transact Insurance on their behalf)

expressed Authority

Authority that arises from specific statements made by the principal (employer) to the agent (employee)

implied Authority

Authority that is not expressed or written into the contract, but which the agent is assumed to have in order to transact the business of insurance for the principal.

apparent Authority

The appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created.

Express, implied, or apparent

agents act within the scope of his Authority
an insurer may be liable to an insured for unauthorized acts of its agent when the agency contract is unclear about the authority granted

professional liability insurance E&O

Insurance that covers persons engaged in various occupations against liability resulting from their rendering or failing to render professional services.

Waiver

An intentional, knowing relinquishment of a legal right. ( if an insurer fails to enforce a provision of a contract it cannot later than I explain based on a violation of the provisions)

Estoppel

A legal theory under which a person is barred from asserting or denying a fact because of the person's previous acts or words.

parol evidence rule

parol evidence is oral or verbal evidence, or that which is given verbally in the court of law. The parol evidence rule states that when parties put their agreement in writing, all previous verbal statements come together in the writing and a written cont

void

a void contract is simply an agreement without legal effect( an insurer may also avoid an insurance policy if a misrepresentation on the application is proven to be material)

voidable contract

A contract that may be legally avoided at the option of one or both of the parties.

Forms

the insurance carrier is responsible for assembling the policy forms for the insured person

Fraud

in the event of fraud insurance contracts are unique in that they run counter to a basic rule of contract law. Under most contracts, fraud can be a reason to void a contract. With life insurance contracts, and ensure has only a limited period of time usua

industrial life

insurance issues very small face amounts, such as $1,000 or $2,000. Premiums are paid weekly and collected by debit agents. They were designed for burial coverage.

ordinary life insurance

life insurance of commercial companies not issued on a weekly premium basis. It is made up of several types of individual life insurance, such as temporary( term), permanent( whole)

group life insurance

provides life insurance on a group of people in a single (master contract) one of the benefits of group life coverage is usually there is no evidence of insurability required

Term Life Insurance

Insurance that provides financial protection from losses resulting from a death during a definite period, or term.

Level Term Insurance

Term insurance where the face value of policy remains the same from the date the policy is issued until the date the policy expires.

Decreasing Term Insurance

term insurance in which the annual premium remains constant but the face amount of the policy declines each year. these policies are usually used for mortgage protection

credit life insurance

A special type of coverage written to pay off the balance of a loan in the event of the death of the debtor.

increasing term insurance

pays an increasing death benefit and has increasing premium as the policyholder ages.

convertible term insurance

converts their term insurance into permanent policies without showing proof of insurability

renewable term insurance

term insurance that guarantees the insured the right to continue term coverage after expiration of the initial policy. Without having to prove insurability

renewable term insurance

term insurance that guarantees the insured the right to continue term coverage after expiration of the initial policy. Without having to provide insurance bility

annual renewable term

term covers that provides a level face amount that renews annually. This type of coverage is guaranteed renewable annual without proof of insurability

term Rider

adds term coverage to an existing life insurance policy

whole life insurance

life insurance that pays a benefit on the death of the insured and also accumulates a cash value. it matures at the age 100 and normally has a level premium

straight life insurance

Life insurance that requires the payment of premiums until the face value is reached or the insured is deceased; also called ordinary life or whole life

limited-payment life insurance

the insured has lifetime protection, and premiums are level, but they are paid only for a certain period

modified life insurance

Whole life insurance for which the insurance company charges reduced premiums in the early years and higher premiums thereafter.

modified endowment contract

An IRS classification of an actual insurance contract; If the premiums paid for it are higher than the proportion of the death benefit (overfunded policy) it will lose many of the tax advantages

Joint Life Policy

Covers two or more lives and provides for the payment of the proceeds at the death of the first among those insured, at which time the policy automatically terminates.

joint Survivor

payment to two or more annuitants and if one dies, the other still gets payments

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 income policy

Combines Whole Life insurance with a Decreasing Term
Rider also written on the same person

adjustable life policy

Whole life insurance policy, but you can change your policy as your needs change. You can change your premium payments to increase or decrease coverage

universal life insurance

A combination of whole life insurance and term life insurance.

variable life insurance

life insurance in which the benefits are a function of the returns being generated on the investments selected by the policyholder

variable universal

same as Universal with more investment choices but no minimum guaranteed rate of return

Equity Indexed Life

A flexible premium whole life contract that offers a rate of return on policy cash accumulation based on selected stock market index or indices from period to period with guarantee of no threat to principal.

cash value

the amount received after giving up a life insurance policy

endowment policy

An insurance product that pays out a lump sum after a specified term or if the insured person dies before the end of the term. Endowment policies are often used as a way of saving over the long term.

face amount plus cash value

Contract that promises to pay at the insured's death the face amount of the policy plus a sum equal to the policy's cash value

juvenile insurance

Permanent insurance written on underage children (usually from one day to age 14 or 15 years.)

non-medical life insurance

Non-Medical Life Insurance typically does not require a medical exam and tends to be more expensive than medically
underwritten policies.

Entire Contract

An agreement that is made up of two or more parts, in which each part is dependent upon the others.

insuring clause

A general statement that identifies the basic agreement between the insurance company and the insured, usually located on the first page of the policy.

Free Look Period

An amount of time provided to an insured in order to examine the insurance policy.

consideration clause

The part of an insurance contract setting forth the amount of initial and renewal premiums and frequency of future payments.

Grace Period

A time period during which no finance charges will be added to your account

reinstatement

the reappearance of a conditioned response after extinction has taken place

policy loan provisions

Policies that have cash value also have policy loan and withdrawal provisions. These policies must begin to build cash value after a certain number of years. In most states, this is 3 years. These loans, with interest, cannot exceed the guaranteed cash va

automatic premium loans

Allows the insurer to automatically use the policy cash value to pay an overdue premium. There is no cost for this provision.

incontestability period

An incontestability clause is a clause in most life insurance policies that prevents the provider from voiding coverage due to a misstatement by the insured after a specific amount of time has passed. A typical incontestability clause specifies that a con

assignment clause

The right to transfer policy rights to another person or entity

absolute assignment

A transfer by the policyholder of all control and rights to a third party

collateral assignment

The policyowner temporarily assigns a life insurance policy to a creditor as collateral for a loan

accelerated benefit Rider

Pays a portion of the death benefit if the insured is diagnosed with a terminal illness.

exclusion

the process or state of excluding or being excluded.

suicide clause

A provision stating that if the insured dies by suicide during the first two years the policy is in force, the death benefit will equal the amount of the premium paid.

Aviation Clause

Limits or excludes coverage when the insured is participating in specified types of air travel. Coverage is usually confined to regularly scheduled flights of commercial airlines. Often applies to student pilots.

war or military service

The insurer will not pay the claim if the insured dies while in active military service or due to an act of war.

commitment of a felony or illegal occupation

if insured dies or is injured while committing a crime or participating in an illegal occupation the insurer will not pay the claim

alcohol or narcotics

if the insured dies or is injured as a result of alcohol or narcotics the insurance will not pay the claim

hazardous occupation or Hobby

If the insured dies as a result of a hazardous occupation or hobby, the insurer will not pay the claim.

misstatement of age or sex provision

the company can make an adjustment due to a misunderstanding of age or sex at any time and adjust the payout or premiums accordingly.

nonforfeiture options

Three options available by law to policyowners that enable them to recover a policy's cash-value upon surrender of that policy. (1) Cash (2) Reduced Paid-Up Insurance (3) Extended Term Insurance

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.

guaranteed insurability rider

Allows insured to purchas additional amounts of disability income insurance at future dates
- future dates are policy anniversary dates
-added coverage can be attained but must prove income increase
- AKA Additional Purchase or Future Increase Option

waiver of premium Rider

should the owner be disabled and cant earn an income, after 6 months, all premiums will be paid by the insurer during the disability period; After 6 months, the premiums will be repaid

payor provision

provides that in the event of death or disability of the adult premium payor, the premiums on a juvenile policy will be waived until the insured child reaches a specified age or the maturity date of the contract.

accidental death benefit Rider

A life insurance policy rider providing for payment of an additional benefit when death occurs by accidental means.

return of Premium Rider

the death benefit will increase in proportion to the premium increases

Inception of the contract

When must insurable interest exist for a like insurance contract to be valid?

The schedule and the amount of premium payments

The consideration clause of an insurance contract includes

The insurance company

A policy of adhesion can only be modified by whom?

When third-party ownership is involved, applicants who also happens to be the state primary beneficiary are required to have

Insurable interest in the proposed insured

Performance is conditioned upon a future occurrence

Insurance contracts are considered aleatory contract because

Insurance company

Who makes the legally enforceable promises in a unilateral insurance policy?

E and F are business partners. Each take out a $500 life insurance policy on the other, naming him self as beneficiary. E and F eventually terminate their business 4 months later E does. Although he was married with three children at the time of death, th

F

Insurable interest

A life insurance policy would be considered a wagering contract with out?

Investor originated life insurance

Which of these arrangements allows one to bypass insurable interest laws?

Legal purpose (insurable interest)

Strange originated life insurance has been found to be in violation of which of the following contract of all elements