Adverse Selection
Insuring of risks more prone to loss than the average
Agent/Producer
legal representative of an insurance company
Applicant/Proposed insured
a person applying for insurance
Hazard
Conditions that increase the probability of a loss
Moral
tendency toward increased risk (driving fast)
Morale
indifference towards risk (not locking the door)
Indemnity
restoring the insured to the condition that existed before loss
Insurance
Transfer of risk of loss from an individual to na insurer
Insurance Transaction
solicitation, negotiations or effectuation of a contract
Insured
Person covered by the insurance policy
Insurer
a company that issues an insurance policy
Law of Large Numbers
the larger the number of people with the same exposure to loss the more predictable the loss will be
Peril
the cause of loss
Policyowner
person who has the rights and privileges in he policy
Risk
uncertainty or chance of loss
Ownership
Stock (nonparticipating) Mutual (participating/dividends)
Domicile
Domestic (this state) Foreign (another state) Alien (another nation)
Required Elements of Contract
Agreement, Consideration, Competent Parties, Legal Purpose
Personal Contract
Between an insurer and an individual
Aleatory Contract
Exchange of unequal values
Unilateral Contract
Only one party is legally bound by the contract
Adhesion Contract
Contracts are accepted by the applicants as is
Conditional Contract
Both parties must meet certain conditions
Misrepresentation
An untrue statement on the insurance application
Warranty
An absolutely true statement
Concealment
Intentional withholding of material information
Fraud
Intentional act with the purpose of deceiving another party
Underwriting
Risk Selection and classification
3 Parts of Application
General Information, Medical Information, Agent's Report
Underwriting Sources
Application, Consumer Reports, MIB
Risk Classifications
Preferred, Standard, Substandard
Premium Factors
Mortality, Interest, Expense
Premium Payment Mode
Annual, Semi-annual, Quarterly, monthly. Higher the frequency the higher the payment
Conditional Receipt
When prem is given with the application, courageous is effective as of date of application
Statement of Good Health
Required if premium is paid at policy delivery.
Who must sign the application?
Agent and Applicant
Beneficiary
Person who receives the benefits from an insurance policy
Death Benefit
Amount paid upon the insured's death
Estate
Person's net worth
Life Insurance
Coverage on human lives
Personal Uses of Life Insurance
Survivorship protection, Estate Creation, Estate Conversion, Cash Accumulation, Liquidity
Key Person Insurance
Key employee is the insured, company is the applicant. Protects from lost of earnings
Face Amount
Amount of benefit stated in the policy
Key Features of Term Insurance
Pure Death Protection, Level Premiums, Renewable, Convertible
3 Types of Term Insurance
Level, Increasing, Decreasing
Key Features of Whole Life
Protection Until 100 years old, Level Premium, Cash Values and Lvings Benefits
3 Basic Types of Whole Life
Straight Life, Limited Payment, Single Premium
Adjustable Life Insurance
Term or Permanent, Policy owner can increase or decrease the premium the face amount of period of protection
Level Term Insurance
Face amount remains the same
Increasing Term Insurance
Face amount increases each year
Decreasing Term Insurance
Face amount decreases each year
Straight Whole Life
Premiums are paid until the insured's death or age 100
Limited Payment Whole Life
Premiums are paid up before age 100
Single Premium Whole Life
Policy is completely paid up after one premium
Universal Life Option A
Level Benefit Annually renewable term and cash amount
Universal Life Option B
Increasing Benefit Annually renewable term and cash amount
Key Features of Variable Life
Permanent Insurance, Fixed Premium, Cash Value, SEC Regulated, Insurance and Securities License
Key Features of Credit Life
Insurers the debtor and pay off balance of an, Creditor is owner and beneficiary
Key Features of Group Life
Natural Group, no evidence of insurability, master policy, certificates of insurance, conversion to individual insurance
Options
Ways to invest or distribute money available in a policy
Provisions
the lights and obligations within the contract
Riders
modify policy provisions
Assignment
Policy owner can transfer ownership to another person. Absolute and Collateral
Beneficiary Designation
Succesion: Primary vs Contingent Change of Beneficiary Revocable vs Irrevocable
Entire Contract
Policy with riders and amendments plus copy of application
Exclusions
Perils and hazards not covered
Free Look
Period of time after issue to return the policy or a refund of premium
Grace Period
Time allowed for payment of premium after due date
Incontestability
After a specified period of time, the insurer cannot deny a claim based on misstatements on the application
Legal Action
Period of time for legal action after a loss
Misstatement of Age
Death benefit is adjusted according to the insured's correct age
Ownership
Policy owner's rights and privileges within the period
Payment of Premiums
Premiums must be paid in advance
Reinstatement
Lapsed policies can be restored within a specified period
Statements of Insured
Considered representations and not warranties
Time of Payment of Claims
Insurer is required to pay claims within a specified time period
Nonforfeiture Options
Guarantees built into a policy. 1 Cash Surrender Value 2. Extended Term 3 Reduced Paid Up
Dividend Options
Only in participating Policies, not guaranteed, not taxable 1 Cash Payment 2 Reduction of Premium 3 Accumulation at Interest 4. One Year Term 5 Paid up additions 6 Paid up Insurance
Settlement Options
Methods Used to pay Death Benefits 1. Cash Payment 2 Fixed Period Installments 3 Fixed Amount Installments 5 Life Income
Waiver of Premium
Waives the premium in case of insured disability
Accelerated Benefit
Early payment of a portion of the death benefit to the insured
Spouse/Other/Childrens/Family Term
Cover for additional insureds for a limited time period
Accidental Death
Pays a multiple of the face amount
Cost of Living
Addresses the inflation cost
Return of Premium
Refunds the premium paid
Accumulation Period
Pay in period. Premiums are paid into an annuity
Annuitant
Natural person whose life expectancy is taken into consideration and who receives annuity payments
Annuitization Period
Pay out period. Income is paid to the annuitant
Annuity
Contract that provides income for a specified period of time or for life
Lump Sum
Single Payment
How Premium is Paid
Single Premium (Lump Sum) / Flexible Premium (Periodic Payments)
How Benefits are Available
Immediate (Within 1 yr) / Deferred (After 1 year)
Life Contingency Options
No guarantee that all the proceeds will be paid out
Annuities Certain
guarantee that all the proceeds will be paid out
Fixed Annuity
guranateed interest rate eve income payments in the general account
Variable Annuity
Interest rate and income payments are not guaranteed. Separate Account.Treated as securities
Uses of Annuities
Lump sum settlements. Qualified Retirement Plans, Education Funds
Earned Income
Salary wages, commisions
Qualified Plan
retirement plan that meets the irs guideline
Tax Deferred
withheld or postponed until a specified time in the future
Qualified Plan Requirements
Designed for benefit of employees. Formally written and communicated Nondiscriminatory. Permanent Vesting Requirement, IRS Approved
Traditional IRA
Earned Income, Pretax Requirements, Dollar amount limit for contributions, Age limit for contributions and distributions
Roth IRA
Earned Income, After-Tax Contributions, Dollar amount limit for contributions
Keogh Plan
Self employed plan
SEPs
Self employed or small employer
SIMPLES
small employer >100 employees
401K Profit Sharing
Any employer
403 B
non profits, schools
Policy Proceeds
death benefit
Rollover
tax free distribution of funds from one qualified plan to another
Surrender
early termination of a policy by a policy owner
Premiums
not tax deductible
Lump Sum Death Benefit
tax free
Death Benefit in installments
prinipal is tax free interest is taxable
Dividends
tax free return of unused premiums
Cash Value Accumulations
grow tax deferred, anything in excess of the premiums paid is taxable
Policy Loans
not taxable interest on outstanding loans
Surrenders
anything in excess of the premiums paid is taxable
Accidental Bodily Injury
unforeseen and unintended injury from accident
Coinsurance
Cost sharing by policy owner and insurer
Deductible
Amount of covered expenses paid by the policy-owner before the policy pays
Pre-existing Condition
Condition for which the insured received diagnosis or treatment prior to policy date
Sickness
Illness or disease that manifests itself while the policy is in force
Disability
Loss of income due to a disability
Hospital and Medical
Reimbursement benefits for a physician or hospital expenses
Long Term Care
Medically necessary services received in a nursing home or a person's own home
Common Policy Exclusions
War, Intentional self inflicted injuries, Elective Cosmetic Surgery, Coverage provided by govt plan, Criminal activity injury
Process of Issuing a Policy
Solicitation and Marketing, Underwriting, Policy Issue and Delivery
Solicitation and Marketing
Advertisements and sales presentations must be truthful and not misleading. Outline coverage
Underwriting - Application
Signatures on the application (Agent, applicant and insured)
Policy Issue and Delivery
Conditional receipt, statement of continued good health. Goes in effect when the premium is paid and policy is delivered
Benefit Period
Period of time for the monthly disability benefit payments
Closed Panel
Physicians provide services exclusively to members of a health organization
Fee-for-Service
Plans where providers receive a payment for billed charges for each service
Medical Expense Insurance
insurance that reimburses the policy-owner for hospital and medical costs
Open Panel
Physicians provide services to a health organization and its subscribers, but retain the right to treat nonmembers
Prepaid
Plans where providers are compensated regularly regardless of the services provided
Subscriber
An individual signed up for a prepaid plan
Basic Hospital/Medical/Surgical
Reimbursement insurance, first dollar coverage, limited coverage
Major Medical
Reimbursement insurance, deductibles and coinsurance, and Larger Benefit Limit
HMO
Preventive Care, Service Plan, prepared Basis, Limited service area and limited choice of providers, Gate-keeping
PPO
Indemnity Plan, Fee for Service, Open Panel, No primary care doctor
Disability Income Key Features
Replaces lost income, Individual/Group, Elimination Period
Disability Income Business Uses
Business overhead expense, Disability buyout, key-person/parterner
Group Health Key Features
Certificate of Insurance, Group Underwriting, Conversion to Individual Insurance without evidence of Insurability
Types of Group Health Insurance Plans
Individual Employer Groups, Associations, Multiple-Employer Trusts, MEWAs, Small Employer, Blanket Insurance, Contributory
COBRA
20 Employees, Extends Group Health Coverage to Terminated, Employees pay 102% of Prem, Limited period of coverage, Applies to health insurance only
Affordable Care Act
COverage till children are 26, No exlusions for pre-existing conditions, Qualified health plans, Essential Health Benefits
Provisions Standard
Define the rights and duties of the insurer and the policyholder
Riders Standard
Amendments attached to the policy that modify provisions
Cancellation
Insurer may cancel a policy within a specified period after issue by notifying the insured in writing
Change of Beneficiary
Policy owner can change the beneficiary with a written request to the insurer as long as the beneficiary is revocable
Change of Occupation
Insurer can adjust the benefits for a more hazardous occupation
Claims Forms
Insurer's duty to supply the forms to the insured within a specified number of days after notice of claim
Conformity with Statues
Policy promisions must conform to the minimum requirements of the state statutues
Entire Contract Provision
Policy with riders and amendments plus copy of the application
Free Look Provision
Period of time after issue to return the policy for a refund of premium
Grace Period Provision
Time allowed for payment of premium after due date
Illegal Occupation
Insurer is not liable for injuries resulting from participation in illegal activity
Insurance with Other Insurers
Insurers pay proportionate amount of any claim
Insuring Clause
General statement that identifies the basic agreement between the insurer and the insured
Legal Action Provision
Specifies the period of time for legal action after a loss
Misstatement of Age/Gender
Benefit is adjusted according to the insured correct age
Notice of Claims Provision
Insured duty to provide a notice to the insurer in the event of a loss
Payment of Claims Provision
Specifies to whom claims will be made
Physical Examination and Autopsy
Insurer's right to examine the insured at the insurers own expense if not prohibited by a state law
Proof of Loss Provision
Must be submitted within a specified period of time after loss
Reinstatement Provision
Lapsed policies can be restored within a specified period
Renewability Provision
Rights to cancel or renew coverage
Time Limit on Certain Defenses
After a specified period of time, the insurer cannot deny a claim based on misstatements on the application, except in cases of fraud
Time of Payment of Claims Provision
Claims must be paid immediately upon proof of loss, but no later than the time specified in the policy
Unpaid Premium Provision
Any past due premiums will be deducted from a claim
Impairment/Exlusions
Excludes coverage for a condition that is otherwise covered
Guaranteed Insurability
Allows to purchase additional amounts of disability income insurance without evidence of insurability
Multiple Indemnity
Doubles or triples of the benefit for accidental death
Renewability
Noncancellable, Cancellable, Guaranteed Renewable, Conditional Renewable, Optionally Renewable
Activities of Daily Living
Bathing, Continence, Dressing, Eating, Toileting, Transferring
Open Enrollment
Annual General Enrollment Period
Medicare
Federal Medical Expense Insurance. 65 yrs old Eligibility or Social Security Disability Income Benefit 2 years
Part A
Hospital Coverage
Part B
Medical Coverage
Part C
Medicare Advantage
Part D
Prescription Drugs
Medicare Supplement Policies
Private Insurance, Fills in gaps in Medicare Coverage, Plan A Core benefits, Guaranteed Renewable
Medicaid
State Insurance Program Insurance Program for Insufficient Income, Funded by Federal and State Government, Strict Requirements
Social Security Disability Income Insurance
EligibilityRequirements, meet definition of disability have proper insured status and satisfy the waiting period. Amount is based on the insured primary insurance amount
LTC Coverage Requirement
12 consecutive months, guaranteed renewable, elimination period, inflation protected, covers organic cognitive disorders
LTC Levels of CAre
Skilled Daily Nursing Care, Intermediate Rehabilitative care by medical personnel on occasional basis, Custodial Meeting Personal Needs, Home Health, Adult Day Care, Respite
Any Occupation
Insured is unable to perform any duties of the occupation for which he is suited by education training or experience
Nonoccupational Coverage
Claims that result from accidents or sicknesses that occur off the job
Occupational Coverage
Benefits for illness injury or disability resulting from accidents or sicknesses that occur on or off the job
Own Occupation
Insured is unable to perform any duties of his own occupation
Managed Care
Cost Containment Plans, Controlled Access to Providers, Comprehensive Case Management, Preventative Care, Risk Sharing
Workers Compensation
Work Related Injury or Sickness, 4 types of benefits medical income, death and rehabilitation, Benefits paid regardless of fault or negligence
Contributory Plan
Employee pays part of or the entire premium
Noncontributory Plan
The employer pays the entire premium
Disability Income
Prem - Not tax deductible
Benefits- Tax Free
Medical Expense and LTC
Premiums - Deductible as a medical expense (above threshold limit)
Employer Sponsored Group Health
Prem Paid by Employer - Deductible as a business expense, not taxable to the employee.
Benefits - Portion attributable to the employer's contribution is taxable to the employee in group disability
Key Person Disability and Disability Buy Sell Insurance
Premiums - Not Deductible to the Business
Benefits - Tax Free
Sole Proprietors and Partners
Premiums - Deductible up to 100%
Agent
Licensed person who solicits insurance on behalf of an insurance company
Broker
Licensed person who represents the insured
Commissioner/Director/Superintendent
Head of the Department of Insurance
Nonresident Agent
Agent who is licensed and resides in another state but is authorized to transact insurance in this state
Agent Qualifications
Age requirement, Examinations and education, forms and fees, good moral character
Types of Licensees
Resident vs Nonresident
Temporary License
Business Entity
Maintenance and Duration
Remains in force unless revoked.
License Renewal Schedule
Continuing Education
Reporting Change of Address
Agent Appointment
Department of Insurnce
Duties and Powers
Examination of insurers
Hearings
Cease and Desist Order
Guaranty Association
Protects Policyowners, insured and beneficiaries in case of insolvency.
Funded by member insurers
All authorized insurers are members of the Association
Defamation
the action of damaging the good reputation of someone; slander or libel.
False Advertising
false, misleading, or unproven information to advertise products to consumers or advertising that does not disclose its source
Rebating
Returning a portion of the premium or the agent's/broker's commission on the premium to the insured or other inducements to place business with a specific insurer
Twisting
The act of inducing or attempt to induce a policy owner to drop an existing life insurance policy and to take another policy that is substantially the same kind by using misrepresentations or incomplete comparisons of the advantages and disadvantages of t
Fair Credit Reporting Act
Protects Consumers against circulation of inaccurate or obsolete information.
Consumer Reports and Investigative Consumer Reports.
Consumer Privacy Regulations
Fraud and False Statements
Willfully and with the intent to deceive making oral or written statements that are false or omitting materials.
Need written consent from insurance regulatory official to rejoin business.