Dividends (mutual/policy)
never guaranteed, paid only from participating policies; not taxable (return of excess premium) but interest is
Fair Credit Reporting Act (FCRA)
protects consumer privacy and from overly intrusive information collection practices
Fraud and False Statements
knowingly presenting false or fraudulent information on an insurance application or claim for the payment of a loss; criminal offense punishable by fines or prison time
Adverse Selection
tendency of more bad risks than good risks to purchase and maintain insurance; ex: those in an area with a lot of earthquakes will buy a lot more earthquake insurance
Peril
specific cause of a loss
Insurable Interest
potential for an insured or beneficiary to suffer a financial or economic hardship in the event of a loss
Valued Contract
policy which pays a pre-determined amount when a claim is made
Representations
statements made are said to be true to the best of the applicant's knowledge and beliefs
Warranties
Statements made on the application that are guaranteed to be true
Aleatory Contract
parties to a contract exchange unequal amounts of money
insured's premium paid is less than the potential benefit to be received in the event of a loss
Carrier
an insurance company
Concealment
withholding of known (material) facts so important that the disclosure of them would change the decision of an insurer with respect to underwriting, settling a loss, or determining premium
Conditional Contract
both parties in a contract must perform certain duties and follow rules of conduct to make the contract enforceable
ex: insured pays premium, insurer provides coverage
Contract of Adhesion
one party (insurer) makes contract and presents it to the other party (insured) on a take it or leave it basis
indemnity contract
pays a specified dollar amount not to exceed the amount of the loss
beneficiary shouldn't profit from benefit paid to them
Utmost Good Faith
both parties bargain in good faith in forming the contract and rely upon the statements and promises of each other
direct response
marketing system that offers insurance contracts directly to the public through direct mail, newspaper, magazines, radio, TV, internet, vending machines etc.
domicile
Domestic: incorporated in this state
Foreign: incorporated in any other state
Alien: incorporated outside the US
Financial Rating Services
independent financial rating services evaluate and rate the claims paying ability and financial stability of insurance companies
ex: A.M. Best, Standard and Poor, Moody, etc.
Hazard
specific situation that increases the probability of a loss arising from a peril or that may influence the extent of the loss
can be Physical, Moral, or Morale
Principal of Indemnity
insured is restored to financial condition as prior to the loss
no profit or loss from insurance transaction
Insurable event
any event which may cause loss or damage or create legal liability on the part of the insured
insurability
ability of individual to meet underwriting requirements
insurer (principal)
source of authority in which the producer/agent must abide
Law of Agency
relationship between two parties where one may act on the behalf of the other and bind the actions or words of the principal
HIPAA
Health Insurance Portability and Accountability Act
Federal law guaranteeing the continuation of medical expense benefits to individuals who have been covered for 12 months immediately preceding a change of employment and who choose to participate in the
Consumer Driven Health Plans
help insureds control benefit costs by allowing them to decide how their health plan funds are used
(FSA, HRA, HSA, HDHP, MSA)
Flexible Spending Account (FSA)
employer established plan that permits the employee to defer pre-tax earnings into a specifically designated account from which the employee may withdraw funds to pay unreimbursed medical expenses
Health Reimbursement Arrangements (HRA)
employer-funded group health insurance plan that reimburses employees for qualified medical expenses
Health Savings Account (HSA)
trust created to pay the account holder's qualified medical expenses
employer or employee may establish/contribute and contributions are deductible
distributions are not taxable. coupled with High Deductible Health Plan (HDHP)
High Deductible Health Plan (HDHP)
deductible must meet a minimum dollar amount and out of pocket expense may not exceed a maximum dollar amount
Medical Savings Account (MSA)
employer sponsored, tax qualified account used to cover qualified medical expenses for employees
employer and employee may contribute up to limits.
Usually coupled with HDHP
Accidental Death and Dismemberment
Federal Tax Considerations
group premiums: paid by employer and are deductible by employer
benefits: received by employee are not taxable
Long-Term Care Insurance
Federal Tax Considerations
group premiums: paid by the employer, are tax deductible by employer
individual premiums: paid by individuals, are eligible for deduction and subject to certain limitations
benefits: usually not taxable
Business Overhead Expense
provides funds to cover overhead business expenses when the owner becomes disabled
does not cover owner's loss of income or pay
Disability Income
Federal Tax Considerations
group premiums: paid by employer, are deductible by employer if employee is beneficiary; not deductible if employer is beneficiary
individual premiums: not tax deductible
group benefits: paid to employee as result of employer contributions, are fully taxa
Disability Buy-Sell Agreement
pays a lump sum enabling a partner or business to buy out the totally disabled party's interest in the business
Medical and Dental Insurance
Federal Tax Consequences
group premiums: paid by employer, are tax deductible by employer. Premiums paid by employee are not deductible, unless expenses exceed specific income limits
individual premiums: are not deductible
sole proprietor premiums: are partially deductible
benefi
Business Overhead Expense
Federal Tax Considerations
premiums: are tax deductible by the business owner
benefits: received by business owner, are taxable
Disability Buy-Sell Agreement
Federal Tax Considerations
premiums: are not tax deductible
benefits: are fully tax-exempt
Impairment Rider
disability income rider that eliminates (excludes) coverage for a condition that would otherwise be covered
purpose is to reduce premium
Single Premium Life
When the entire cost of the policy is paid at time of purchase
face amount remains level to age 100
Straight Life
whole life policy with premium and face amount remaining level to age 100 or death of the insured, whichever comes first
Cost of Living Rider
disability income rider that automatically increases monthly benefits after the onset of a disability as the Consumer Price Index (CPI) increases
Hospital Confinement Rider
disability income rider that waives the elimination period if the insured is hospitalized during the elimination period
Current Assumption Life
whole life policy with flexible premium adjustments at specific time periods in the contract
Universal Life
Flexible premium and face amount policy with the cost of insurance protection deducted from the policy cash value
cash value is credited a current interest rate
conversion privilege
allows an employee to convert from a group policy to an individual policy, without a physical exam
extension of benefits
provision requiring medical expense benefits to a disabled insured be continued, following the termination of a policy, for a specified period of time
COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985)
federal law requiring employers to offer a medical expense coverage continuation option (18-36 months) to employees who are terminated or become ineligible
individual assumes premium payment
continuation of coverage
provision requiring continuation of dependent children coverage until a specified age or circumstance (such as while attending school)
variable life
fixed premium whole life policy under which the death benefit and/or cash value fluctuates reflecting the investment performance of the underlying separate account
variable universal life
flexible premium and face amount policy with cash value fluctuations reflecting the investment performance of the underlying separate account
universal life: option A
pays the face amount and provides a level death benefit
as cash value increases, the company's risk decreases (decreasing term plus cash value)
universal life: option B
pays the face amount stated in the contract plus accumulated cash value
benefit is based on level term plus increasing cash value to provide an increasing death benefit
separate account (non guaranteed values)
account separate from the general account that is invested in equity securities as offered by the insurance company
cash value held in the separate account will fluctuate based on the market conditions and does not have a guaranteed return
account is asso
joint life
permanent policy written on 2 or more lives
benefit paid when the first dies (first to die)
joint survivorship life
permanent policy written on 2 or more lives
benefit paid when last dies (last to die)
juvenile policy
any policy written on the life of a minor child
accelerated benefit rider
rider which allows the early payment of a portion of the face amount before death when insured is terminally ill (living need rider)
accidental death rider
death benefit rider which pays double the face amount if death was a result of an accident (double indemnity)
accidental death and dismemberment rider
death benefit rider which pays a multiple of the face amount upon accidental death; loss of sight, or loss of 2 limbs
principal sum is 100% (double dismemberment)
capital sum is 50% (single dismemberment)
guaranteed insurability rider
rider allowing the insured to purchase additional amounts of insurance at certain ages, events, or specified dates without evidence of insurability
premiums based on attained age
return of cash value rider
death benefit rider of increasing term insurance equal to the cash value
return of premium rider
death benefit rider of increasing term insurance equal to the amount of premiums paid
rider
added benefit attached to a policy that modifies existing coverage
typically added at the time of application and requires an increase in premium
term rider
attachment to an existent permanent or interest sensitive policy providing temporary extra insurance protection
waiver of payers premium
disability rider for which the insurer will waive the premiums due if the payer of the premiums becomes disabled
found on juvenile policies
waiver of premium/disability income
a disability rider that waives premiums and pays a monthly income during the insured's disability
waiver of cost of insurance
disability rider added to a universal life policy that pays the cost of insurance and other expense charges during the insured's disability
additional insured riders
spouse, child, and family
assignment
transfer of ownership rights of a policy to another party
consideration
insured's payment of premium in exchange for the insurer's promise to pay benefits
entire contract
application, policy, and any riders added
exclusions
stipulations within an insurance contract for which the insurer will not provide coverage
free look
number of days following receipt of a policy to look it over and if dissatisfied for any reason to return it for a full refund of premium
incontestability
after a policy has been in force for a specified period of years, the insurer cannot contest the insured's application statements (including errors, misstatements or even fraud)
insuring clause
defines who is insured by whom and the amount of coverage/benefit provided by the policy
misstatement of age/sex
allows the insurer, at time of claim, to adjust benefits according to the amount the premiums would have purchased at the correct age or gender
policy changes
must be written, signed by an executive of insurer, approved by policy owner and made part of entire contract
policyowner's rights
all cash values, loans, dividends, beneficiary determinations, assignments and option to exercise all rights of ownership
suicide provision
insurer's liability is limited to a refund of premiums (not death benefit) if the insured's suicide is committed within a specified period of time
automatic premium loan
policy provision which enables the insurer to automatically borrow from the cash value to cover a premium payment to prevent the contract from lapsing
grace period
specified time period after the premium due date and before a policy lapses
mode of premium
stipulates the frequency (monthly, quarterly, semiannually, annually) of premium payments and to whom
reinstatement
putting a policy back into force when in a lapsed mode and before it is cash surrendered
insurer will require payment of back premium, plus interest, plus proof of insurability
partial withdrawal
partial withdrawal of cash value is allowed with (flexible) policies such as universal or variable universal
in early years a surrender charge may apply
policy loan rate provisions
loans with fixed rates have a maximum fixed interest rate of 8%
loans with adjustable rates have a maximum interest rate based on Moody's corporate bond yield average
policy loans
an outstanding loan plus interest due, is deducted from the death benefit (at death) or cash value (if surrendered)
surrender charge
difference between the cash value and the cash surrender value
normally decreases over time
beneficiary designation
naming the beneficiary in a life insurance policy
individual, class: all the children
estate: when no beneficiary still living or to pay estate taxes
trust: on behalf of a minor or someone incapacitated
minor children: not recommended, should be a trust
c
beneficiary succession
primary is the first in line
contingent is the secondary beneficiary (if primary is deceased)
tertiary is the third in line (if primary and contingent predeceased)
change of insured
found in corporate owned life insurance when an executive ends employment or retires
common disaster clause
if it can't be determined whether the insured or the primary beneficiary dies first, the insured will be presumed to have survived the beneficiary
facility of payment clause
feature of an industrial (home service/debit) policy which allows the insurer to pay the death benefit to a relative or anyone it deems entitled to the benefits in the absence of a designated beneficiary
irrevocable beneficiary
policy owner may not change, assign, transfer, or surrender the policy without written consent of the beneficiary
revocable beneficiary
policy owner may change the beneficiary at any time
per capita
per head, a beneficiary designation assumed unless specified otherwise
equally divided among the surviving beneficiaries
per stirpes
beneficiary designation that pays out to the heirs of any deceased beneficiary designated not alive at the time of death of the insured
spendthrift trust
denies the beneficiary the right to assign his/her interest in the policy proceeds
protection against creditor claims of the beneficiary
funds are held in trust by the insurance company
cash surrender
a withdrawal of cash value and surrender of the policy
a nonforfeiture option
dividend options
policy owner choices for how they want to receive dividend distributions
dividend cash
policy owner receives dividends in cash
dividend premium reduction
policy owner applies dividends to the next premium due
dividend accumulate at interest
dividends are retained by the insurer and earn interest
dividend paid-up additions
dividends used to buy a single premium, additional permanent benefits, at the insured's attained age
dividend paid-up option
dividends used to pay off the original policy more quickly
dividend (one year term)
dividends used to buy a single premium, 1 year term benefit, at the insured's attained age
extended term
using cash value to buy a single premium term policy, of the same face amount, for as long of a period as it will buy
a nonforfeiture option
nonforfeiture options
cash value and death benefit protecting policy owner from loss of values upon lapse:
cash surrender
reduced paid-up
extended term
reduced paid-up
using cash value to buy a single premium, permanent paid-up policy, of a reduced face amount
settlement options
life insurance or annuity policy benefit distribution choices other than lump sum
payouts can be made for a temporary period of time or over a lifetime
settlement (cash)
distribution in lump sum
settlement (interest option)
distributions of interest only, and not principal
capital conservation
settlement (fixed amount)
distribution of a specified dollar amount until benefits are exhausted
capital liquidation
settlement (fixed period)
distributions for a specified period of time
settlement (life income period certain)
distributions for lifetime of recipient or specified period of time, whichever is longer
settlement (life income with refund)
distributions for lifetime of recipient
at death, if annuitant has not received an amount equal to total paid in, balance refunded to beneficiary (fixed amount of cash)
settlement (life income joint and survivor)
distributions for lifetime of 2 or more recipients
continues after death of first recipient
payments stop when survivor dies
settlement (joint life)
distributions for 2 or more recipients
stops with the death of first recipients
annuity
a systematic accumulation of, then liquidation of funds over the saver's lifetime, protecting them from out living their retirement benefits (superannuation)
annuitant
the individual whose life the annuity policy is based on
age and gender determine payout
annuity accumulation period
pay-in period from the time of first deposit (single, level or flexible premium) until a pay-out option has commenced
bailout provision (escape clause)
if the declared interest rate of a fixed annuity drops below the current interest rate by a specific amount, it may be surrendered without surrender charges being applied
flexible premium deferred annuity
contributions made at intervals and amounts chosen by the saver/investor, periodic withdrawals begin one year or more in the future
single premium immediate annuity
single premium (lump sum), immediate (within 1 year or less) periodic withdrawals begin
single premium deferred annuity
single premium (lump sum), periodic withdrawals begin 1 year or more in the future
annuity period
annuitization (payout) start at the receipt of the first periodic payment and continues on a regular basis
equity-indexed annuity
an annuity with the interest rate that is linked to a stock market related (equity) index
fixed annuity
guaranteed fixed interest rate during accumulation period, level fixed benefit amount during annuitization
market-value (adjusted) annuity
an annuity which allows the policyholder to experience the affect of the changes in interest rates in the open market upon surrender of the policy
if interest rates increase they will have a resulting lower cash value and if interest rates decrease they w
variable annuity
an annuity in which the accumulation and benefit payments fluctuate according to the investment experience of the separate account
certificate of insurance
document received by a member of a group showing evidence of coverage under a group insurance plan
franchise plans
group insurance plan for small employers whereby each employee receives a policy instead of a certificate of insurance
contributory group
single employer group insurance plan where at least 75% of eligible employees must participate and contribute to the premium payment
group conversion option
allows an insured to convert group coverage such as term to a different type of policy (such as cash value policy)
master policy
primary policy held by employer (sponsor) for a group insurance plan
noncontributory group
a single employer group insurance plan where 100% of eligible employees must participate and the employer pays all of the premium
credit life
life insurance coverage (individual or group) on the life of a debtor issued to a creditor
industrial insurance
small face amount (funeral expense) life insurance policies sold and premiums collected by debit agents (like Home Service or Debit Policies)
buy-sell agreement
contractually establishes a price and agreement to purchase the assets of a business should one of the contract participants predecease the other participants
cross purchase plan
type of buy-sell agreement used when more than one person purchases life insurance on each other or the employer
entity plan
used when the business owns the policies on the parties and is the designated beneficiary for each contract participant
law of large numbers
the larger the number of exposures considered, the more closely the losses reported will equal the probability of loss
loss exposure
the extent to which one may be affected by a peril
misrepresentation
a false statement in the application that can render the contract void, if material to acceptance of the risk
admitted insurer
an insurer that is authorized and has a certificate of authority to do business in a state
non-admitted insurer
an insurer that has not sought approval (or) has not been able to obtain approval to transact business in this state from the Commissioner of Insurance
personal contract
contract between the insurance company and the person insured at the time the contract is formed
this is a contract that cannot be assigned
producer (agent)
licensed individuals representing an insurance company when transacting insurance business
pure risk
situations where only the chance of loss and no chance for gain exists
requirements for insurable risk
calculable
large number of homogenous units
accidental
cause financial hardship
excludes war, nuclear attack and illegal acts
reinsurance
insurers (ceding company) transfer of risk to other insurers (reinsurance insurer)
risk management
process of analyzing exposures that create risk and designing programs to minimize the possibility of a loss
risk
a condition in which a chance of loss exists
speculative risk
instances where there is a chance of loss or gain
unilateral contract
only one party is legally bound to contractual obligations after the premium is paid
only the insurer has made a promise of future performance
broker
person that negotiates insurance contracts on behalf of the insured, thereby representing the client's interest, not the insurer
certificate of authority
authorization by the department of insurance to an agency or insurer to transact insurance in this state
fiduciary
an agent/broker who handles the insurer's funds in a trust capacity and submits all premiums promptly to the insurer
misrepresentation (agent)
making misleading representations or fraudulent policy comparisons, description of benefits or untrue statements about the financial condition of any insurer
elements of a legal contract
legal contract must include 4 necessary elements
competent parties
legal purpose
agreement (offer and acceptance)
consideration
applicant
a person applying for insurance coverage on him/herself or another person
application
document that is used to collect information provided by the applicant/insured for underwriting purposes
after the policy is issued, any unanswered questions are considered waived by the insurer
issue age (original)
insured's age on the policy issue date
third-party ownership
policy owner by someone other than the insured
constructive or legal delivery
occurs only if the premium was paid at the time of application
once the insurer issues the policy, a legal contract has been formed since the policy becomes the acceptance
once the insurer mails the policy to the agent it is considered constructively or l
estate creation
life insurance provides an immediate cash flow to beneficiaries upon the death of the insured
this creates an immediate estate
beneficiary
the designated recipient of life insurance proceeds upon the death of the insured
policyowner
individual who has the ownership rights of an insurance policy
replacement
any transaction in which a new life insurance policy will be replacing an old one
mortality table
actuarial table showing the mathematical probability of death at a certain age
capital liquidation
assumes both principal and interest are liquidated over a relevant period of time
capital conservation
assumes the desired income will be generated by the investment earnings only, thus retaining or conserving the principal invested
human life value
an approach for determining the future earnings at risk of a person who may die prematurely
needs analysis
an approach for determining the financial needs of surviving dependents of a deceased
fixed policy
a policy with fixed amount of coverage, benefits and premiums (Whole life and Term)
flexible policy
a policy with flexible premiums and benefits (Universal or Variable Universal)
group insurance
an insurance plan owned by an employer, creditor, association (with master policy), under which coverage is provided for the employees, debtors, members (receive certificate of insurance)
individual evidence of insurability not required
nonparticipating policy
insurance policy that does not pay dividends
typically issued by a stock insurer
ordinary life policy
any type of life insurance that is not group, industrial, franchise, or government insurance
participating policy
an insurance policy that may pay annual dividends to policy owners
typically issued by mutual insurers
permanent policy
a life insurance policy with level death benefit and premiums and protection to age 100 or until surrendered or death
variable policy
a policy with variable benefits based upon performance of underlying separate account
securities license required to sell (variable and variable universal)
attained age
a person's age at any point or time
buyer's guide
generic brochure developed by the NAIC to assist prospective buyers of life insurance
do not call registry
a Federal Trade Commission rule makes it illegal for most telemarketers or sellers to call a number listed on the National Do Not Call Registry
effective date
the date when insurance coverage begins (inception date)
errors and omissions
professional liability insurance covering the liability of an agent or agency
field underwriting
agent's observation and information gathered about the insurability of an applicant, from the initial personal interview through assisting the applicant to complete the application
illustration (policy summary)
required to be delivered at the time of life insurance application, an illustration showing premiums, interest rates, cash value if any, projected dividends, surrender value, other guaranteed data
premiums (assumptions)
all premiums are paid in advance of the coverage period
all premiums will be invested
all claims are paid at the end of a year
premiums (determination)
mortality: life expectancy shown on a mortality table
interest: future expected investment gains/losses of insurer's portfolio
expenses: total costs of operations of the insurer
premiums (net)
takes into account only the interest and mortality
mortality cost
-Interest (investment return)
____________________
=Net premium
premiums (gross)
adds costs of operation to the net premium
Net Premium
+Expenses (operating costs)
___________________
= Gross Premium (sum paid by the policy owner)
premiums (mode)
frequency of premium payment:
monthly (highest cost, because of admin costs)
quarterly
semiannually
annually - lowest cost
receipt - unconditional (binding)
if premium is paid, coverage will begin immediately for a specific length of time regardless of whether the applicant is ultimately approved by the insurer (Temporary insurance agreement)
receipt - conditional
if premium is paid, coverage will be in effect the date of application or medical exam, as long as the policy would have been issued as applied for
receipt - conditional (approval)
coverage becomes effective at application approval
if company does not approve the application, the coverage was never in effect
risks (classifications)
impacts premiums to be charged:
preferred: good risks, lower premium
standard: expected risks, premium
substandard risk: higher risk, higher premium
declined: risk for which insurer refuses to issue insurance
underwriting
process of evaluating a risk fro the purpose of issuing insurance coverage
includes selection classification and rating
underwriting (individual)
application
medical examination: the physical
Attending physician Statement: more info from doc
Medical information bureau: medical history
inspection report: consumer investigative report
agents report: agent observation
Stranger Originated Life Insurance (STOLI)
an agreement initiated at or prior to the issuance of a policy that includes:
the purchase of a policy benefiting a person, who at time of issue, has no insurable interest in the person to be insured
the transfer at any time of the legal ownership/benefit
Viatical Settlement
a terminally ill insured selling their policy for less than the death benefit to a third policy
viator
the owner of a life policy insuring the life of an individual with a life threatening condition who seeks to enter into a viatical settlement contract
cash value
money accumulated in a permanent policy that may be borrowed or surrendered to before maturity by the policy owner
annually renewable term
automatically renews every year without evidence of insurability
since the term is one year, the premium will increase based on attained age at renewal on a yearly basis
general account (guaranteed values)
a fixed account where the insurance company's general assets are held
when cash values are held in the general account the guarantees a fixed interest rate (or guaranteed interest rate) to be credited to the account
endow (mature)
the maturity date or time at which the policy's cash value equals the face amount and the proceeds are paid to the policy owner
face amount
the death benefit (limit of liability/insurance) payable on a life policy
convertible term
the right to convert to a permanent policy without evidence of insurability
premium based upon attained or issue age
re-entry term
a renewable term policy which can be renewed at lower premium - if evidence of insurability is provided
renewable term
the right to renew for another policy term without evidence of insurability
premium based upon attained age
term policy
a temporary life insurance policy with a death benefit that may be level, increasing or decreasing and may be renewable for another term, or converted to a permanent policy
adjustable life
a level premium and death benefit policy that can assume the form of Term or Whole Life within a single policy based on death benefit and/or premium adjustments
limited pay life
whole life policy with level face amount and premiums limited to a specific period of time (20 pay or to age 65)
Social Security (OASDHI)
the federal compulsory program providing:
old age (retirement)
survivors (family benefits)
disability (workers and dependents)
health insurance (medicare)
funded by employer and employee FICA tax
Taxation of Personal Life Insurance
premiums: individual paid (not deductible); employer paid (deductible)
cash value: accumulation not taxed (gain upon withdrawal is taxed)
policy loans: interest policy owner pays (not deductible)
dividends: not taxed (interest on dividends is taxed)
benef
modified endowment contract (MEC)
a life insurance contract not passing the 7-pay test, resulting in loss of tax advantages
the 7 pay test is a calculation to determine if an owner over funds the contract attempting to use it as an investment rather than as insurance
transfer for value rule
when a life policy is transferred (sold) to another person in exchange for a valuable consideration
new owner will be taxed on the proceeds received over the amount of consideration and premiums paid (loses its exempt status of death proceeds)
1035 Tax-Free Exchange
allows for the assets of one annuity/insurance policy to be transferred to another and continue the tax-deferred status of the invested funds
taxation of annuities
contributions: after tax dollars
interest: not taxable until surrender or distribution
surrender: amount over cost basis is taxable
annuitization: amount over cost basis is taxable
upon death of annuitant:
if payment ceases: not included in gross estate
i
exclusion ratio
the amount of each annuity payment that is excluded taxation and is considered a return of premium paid
ERISA
Employee Retirement Income Security Act
established rules pertaining to participating, vesting and funding of retirement plans
qualified retirement plans
retirement savings plans which meet certain qualifications set by Congress (enforcement by IRS) that allows them to have certain tax advantages
IRA
qualified retirement account for individuals, with deductible contributions and tax-deferred accumulation
Roth IRA
a retirement account for individuals, with non deductible contributions, tax-free accumulation and qualified tax free distributions
401(k) Plan
a defined contribution plan
it can be part of a profit-sharing plan allowing an employee the choice of taking income in cash or deferring receipt
403(b) Plan
Tax Sheltered Annuity (TSA)
a qualified retirement plan for employees of public school districts
501(c) (3)
Tax Sheltered Annuity (TSA)
a qualified retirement plan for employees of a non-profit organization
defined benefit plan
qualified retirement plan that guarantees a specified level of benefit at retirement
defined contribution plan
qualified retirement plan that is based solely on the amount of contributions made to the plan
benefits not determined until retirement
KEOGH
known as an HR-10 Plan
retirement plan for a self-employed person
SIMPLE
Savings Incentive Match Plan for Employees
small employer arranged IRA or 401(k)
SEP
Simplified Employee Pension
retirement plan where the employer makes contributions to an employee's IRA
individual insurance
insurance plan owned by an individual for the benefit of him/herself or surviving dependents, usually requiring evidence of insurability
premium
payment(s) made by the policy owner to the insurer to keep an insurance policy in force
accident and health
a policy covering injury and sickness
accidental bodily injury
a definition of accident within a policy that requires only that the injury (result) be unintended and unforeseen
accidental injury
spontaneous event, unforeseen and unintended, resulting in injury
accidental means
definition of accident within a policy that requires both the injury (result) and the (cause) of the injury to be unintended and unforeseen
coinsurance
financial participation requirement whereby the insured must share, on a percentage basis, the cost of medical expenses in excess of the deductible
copayment
a stated dollar amount that applies per claim in addition to any other cost sharing
morbidity table
the actuarial table showing the mathematical probability of disability (illness or injury)
preexisting condition
a prior medical condition for which the applicant has received or should have received, medical advice or treatment, within a specified period, before the effective date of a policy
probationary period
the specified period of time before a new coverage will go into effect for preexisting conditions
sickness
an illness or disease that first manifests itself or is first diagnosed and treated while the policy is in force
subrogation
legal process by which an insurer seeks recovery of the amount they paid to an insured, from the third party who was responsible for having caused the loss
dental expense
a medical expense policy covering the treatment and care of dental disease or injury affecting the insured's teeth
loss of time policy
a disability policy that pays weekly or monthly income benefits due to injury or sickness
advertising
regulated to give complete and accurate description to the public, prevent unfair competition, and set a minimum standard of conduct
underwriting actions
issue standard: issue policy at rate quoted
issue rated-up: issue policy at higher rate than quoted
issue with exclusions/limitations
rejection: not issued
outline of coverage
a generic brochure developed by the NAIC to assist prospective buyers of health insurance
equivalent of a policy summary in life insurance
earned premium
portion of a premium for which protection has already been given
insured
a person applying for coverage through an indemnity provider
service area
the primary geographical area of coverage and service provided by an HMO
subscriber
a person applying for coverage through a service provider
unearned premium
portion of a premium for which policy protection has not yet been given
critical illness (dread disease)
cancer or heart disease only plans
blanket payment
pays a set maximum overall limit with no itemizing
cash payment
a policy that pays a specified amount per day during hospitalization up to a maximum number of days
limited policies
policy that pays only under stipulated conditions
specifies the exposure covered and amount of corresponding benefit
limited policies (types)
accidental death and dismemberment
limited accident: specific injuries, causes and benefits
limited illness or dread disease: cancer or heart disease plans
hospital income or indemnity: cash payments to insured for days in hospital
blanket: coverage for g
exclusions (typical of individual or group policies)
preexisting conditions (excluded or subject to probationary period)
intentionally self-inflicted injuries (suicide)
war or act of war
elective cosmetic surgery
medical expense payable under Workers' compensation
aviation
military service and overseas resi
dental care (types)
endodontics: dental pulp care and root canals
orthodontics: teeth alignment and irregularities
periodontics: treatment of gum disease
prosthodontics: bridgework or dentures
restorative care: restore functional use of natural teeth
oral surgery: surgery fo
indemnity provider
pays benefits (reimbursements) to the insured for medical expenses incurred, rather than to the health care provider
reimbursement (expense incurred)
a policy that pays benefits directly to the insured
self-insured providers
self funded employer plans that pay claims out of own funds instead of an insurer
capitation fee
a fixed amount, paid per subscriber, which is negotiated in advance
specific fee for service
scheduled payment
pays benefits in the amount as listed in a policy, for each specified expense
Usual, Customary, Reasonable (UCR)
when insurer payments are based upon the average fee charged by all doctors in a given geographical area
not a scheduled fee in policy
closed panel (HMO)
the doctor can only work with HMO members
HMO
Health Maintenance Organization
managed health care provider offering a comprehensive array of medical services on a prepaid basis to subscribers living within a specific service area
open panel (HMO)
doctor can work with anyone, including HMO members
PPO
Preferred Provider Organization
an arrangement under which a selected group of independent hospitals and medical practitioners, in a certain area, agree to provide services to subscribers at a prearranged cost
Gatekeeper
primary care physician who monitors the health care needs of a subscriber under an HMO
POS
Point of Service
POS plans combine medical expense (out of network) and HMO (in network) benefits
Basic Medical Expense Policy
typically cover hospital expenses, doctor visits, surgical expenses and office visits on a specified benefit limit (scheduled) basis
benefit limits may be less than actual costs incurred
Basic Hospital Expense
pays for a hospital room, board, and miscellaneous hospital expanses up to a limit per day
carryover provision
expenses that did not satisfy the previous year's deductible and were incurred in the last 3 months of that year are used towards satisfying the current year's deductible
common accident provision
if several family members are injured in the same accident, only one deductible is applied
comprehensive major medical policy
a policy that combines the best features of the basic and major medical policies into one
will include deductibles, coinsurance, and stop loss limits
deductible
a specific dollar amount (cost containment method) used in insurance and designed to help control premium costs
family deductible provision
if a family is insured under a major medical policy, a maximum of 2 or 3 deductibles will satisfy the deducible requirement for the entire family, per calendar year
major medical policies
designed for prolonged or catastrophic injury or illness
includes a deductible before benefits are paid, coinsurance (percentage participation), and high maximum lifetime limits of coverage
stop loss limit
an "out of pocket" dollar amount beyond which the insured no longer participates in the payment of expenses and the insurer then pays 100% up to the policy limits
supplemental major medical policy
a major medical policy written to pay over and above any basic medical policy
a corridor deductible is payable by insured when the basic limits are exhausted and prior to the major medical coverage beginning
benefit period
the time period the insured is eligible to receive payments after the elimination period has been satisfied
disability income policy
a "loss of time or loss of income" policy that pays an income benefit when the insured is unable to work due to illness or injury
elimination period
a (time deductible)
a period of days (time) that must pass after the onset of an illness or occurrence of an accident before benefits will be payable
nonoccupational policy
a policy that pays for injury and illness off the job only
occupational policy
a policy that pays for injury and illness both on and off the job
partial disability
disability resulting inan insured's inability to perform 1 or more of the regular duties of an occupation
presumptive disability
where the insurer does not require periodic exams to prove continued disability
loss is presumed total and permanent due to the loss of sight, hearing, speech, or 2 limbs
recurrent disability
when a second disability is suffered due to the same cause within a set period of time
considered a continuation of the first disability so no second elimination period is applied
residual disability
disability income policy that provides continuing benefits after the insured returns to work, usually following a total disability
total disability
may be defined in a disability policy as:
inability to perform duties of insured's own occupation, or
unable to perform the duties of any occupation for which insured is reasonably suited by education, training or experience
worker's compensation
medical and disability benefits that apply to bodily injury or occupational diseases that arise from and in the course of employment
long-term disability
disability plans characterized by benefit periods of 2 years or greater or to age 65
short-term disability
disability income plans characterized by benefits for periods of short duration
less than 2 years
social insurance supplement rider
pays additional disability income until worker's compensation or social security payments begin
primary insurance amount (PIA)
amount received as a result of contributions to social security by an individual over their working lifetime
social security benefits are based off the PIA
medicare
a federal health insurance program for citizens age 65 or older and others of any age who have received social security disability benefits for at least 2 years
medicare enrollment
two enrollment periods:
initial: begins on the 1st day of the 3rd month before one is eligible and ends on the last day of the 3rd month following the month in which one is eligible (7 month window)
general: January 1 to March 31 of each year, coverage be
medicare programs
Part A: Hospital Insurance
Part B: Medical Insurance
Part C: Medicare Advantage
Part D: Prescription Drug Insurance
medicare select
a managed health care version of the traditional medicare supplement policy offered through indemnity insurers
medicaid
a federal and state administered program that assists individuals receiving public assistance with medical needs
long-term care insurance
a contract designed to provide coverage for necessary care, in a nursing home or ones own home as they grow older
long-term care insurance (characteristics)
a form of medical care without hospitalization
coverage is for no less than 12 consecutive months
coverage is for a stated period of years such as 3 years of life insured
long-term care (policy benefit triggers)
Impairment in Activities of daily living: if insured is incapable of performing any 2 ADL's (bathing, dressing, eating, toileting, transferring, ambulating)
Cognitive Impairment: loss of memory, deductive or abstract reasoning due to mental illness
Physic
chronically ill (defined)
a condition meaning a person is unable to perform at least 2 activities of daily living
adult day care
custodial care on a day care basis, outside the home for individuals not requiring 24 hour confinement in nursing home, but continue to live at home
assisted living
a system of housing and limited care that is designed for senior citizens who need some assistance with daily activities but do not require nursing home care
custodial care facility
includes:
licensed
supervision of an R.N.
accommodates 3 or more persons for a charge, assists with bathing, eating, dressing, and routine activities
home convalescent care
care provided in one's home under a planned program established by his/her attending physician
hospice care
focus on pain control, comfort, counseling for the terminally ill and family
intermediate care facility
includes:
licensed
24 hour care
supervision of R.N. or L.P.N.
Daily medical patient record
long-term care policy (facilities and levels of care)
skilled nursing facility
intermediate care facility
custodial care facility
home health care (convalescent and residential)
hospice care
adult day care
respite care
long-term care policy (nonforfeiture options)
cash surrender value: lump sum to policy owner upon lapse or surrender
reduced paid up: reduced amount of daily benefit for duration of benefit period
extended term: full amount of daily benefit for a limited period of time
residential care
living accommodations within long-term care facilities
respite care
provides relief for the caregiver and can include such services as someone coming to the home while the original caregiver tends to other matters
return of premium (long-term care)
optional benefit that refunds all or part of the premium less claims paid, either on a specified policy anniversary, at policy surrender or death of the insured
skilled nursing facility
a facility for patients that no longer require hospitalization but are not yet able to care for themselves at home
licensed
24 hour care
daily medical patient record
physician supervision
waiver of premium
a provision that allows the insured to suspend paying premiums during the period of disability or LTC confinement
long-term care policy (minimum benefit standards)
30 day examination period, return for full refund
renewal provision no less favorable than "guaranteed renewable"
outline of coverage delivered prior to presentation and application form
must offer optional, inflation protection
other standards depend upo
long-term care policy (replacement)
give purchaser "notice regarding replacement of accident and sickness or LTC Coverage"
insurer must waive any time periods applicable to preexisting conditions
replacing policy must not offer fewer benefits and a greater premium
third or greater policy is
long-term care policy (qualified)
a LTC policy that conforms to the NAIC Model Act and requirements of HIPAA to receive tax benefits set forth by the IRS
home health care
for patients at home who cannot fully provide for their needs
care is provided by visiting nurse or other person
Medicare - Part A (characteristics)
premium fee (financed by payroll taxes)
claim payments made directly to care provider
deductible is applied on a per benefit period basis
benefit period begins on first day of hospitalization
benefit period ends when one is out of hospital or skilled nurs
Medicare - Part A (coverage)
hospitalization (includes prescription drugs while hospitalized)
post-hospital skilled nursing facility care (hospitalization for 3 days, other requirements to qualify)
home health care (medically necessary, limited, specific period)
hospice care (termina
Medicare - Part B (characteristics)
optional, premium payment required
national fee schedule used to determine benefit amounts
pays 80% of national fee schedule amount
annual deductible and copayments required
claim payments made directly to care provider (if care provider takes Medicare As
Medicare - Part B (coverage)
medical expense: physician, surgical, equipment etc.
clinical laboratory services: blood tests, biopsies, urinalysis
home health care: medically necessary
outpatient hospital treatment: reasonable and necessary services
blood: except first 3 pints/benefit
Medicare - Part C (Medicare Advantage)
optional, premium payment required
participation in part A and B required
provides coverage that a Medigap Plan would provide
Medicare - Part D (Prescription Drug Insurance)
voluntary, premium payment required, premium varies by insurer
subsidies for premiums, deductibles, copayment available for low income individuals
a "Formulary" is a listing of prescription drugs that are covered under Medicare Part D
Medicare - Part D (enrollment)
anyone with part A and/or Part B may enroll
enrollment is with a participating Medicare Part D or Part C plan that offers prescription drug coverage
enrollment is effective on 1st day of the month following the month of enrollment
Medicare Supplement Insurance (Medigap)
private plans designed to supplement medicare coverage
pay for all or some of the medicare deductibles and coinsurance
Medigap (Characteristics)
insurers are limited to offering standard benefit packages
if any standard package is offered in a State, insurer must offer Plan A
purchased by persons 65 or older, with premium payment
Medicare Supplement Plan A (policy requirements)
30 day free look on the first page in bold print
outline of coverage (explains benefits, deductibles, exclusions, premiums)
buyer's guide delivered at time of application, with signed receipt
replacement question on Application Form
Medicare Supplement Plan A (min. requirements)
Part A:
coinsurance for days 61-90 of hospitalization in any Medicare benefit period
hospital coinsurance for day 91-150
Hospital expenses for an additional 365 days
Part B:
coinsurance for medical insurance (20%) of allowable charges
Part A&B:
cost of 1s
claim form provision
claim forms must be received by the insured from the insurer within 15 days after notice of claim
mandatory uniform provisions
health insurance provisions that must be in every individual policy
designed to protect the insured's interests
(look up examples in book)
Notice of Claim
in writing and within 20 days of loss
for disability claims the insurer can require notice of continuance of claim every 6 months
proof of loss
proof of loss is required within 90 days of loss but not to exceed one year
reinstatement
if the insurer does not reject the reinstatement application within 45 days coverage will be automatically reinstated
accidents are covered immediately while sickness coverage begins 10 days after reinstatement
time of payment of claim
all claims are paid immediately upon written proof of loss
loss of time benefits (DI) will be paid no less frequently than monthly
physical exam and autopsy
insurer has the right to examine the insured or require an autopsy at the insurer's expense where not prohibited by law
legal actions
insured must wait 60 days, but not more than 3-5 years, after proof of loss, before legal action can be brought against the insurer
whole life
policy of permanent protection that matures at insured's age of 100
change of beneficiary
consent of the beneficiary is not required unless named irrevocable
change becomes effective on owner's signature date upon the insurer's recording of the change
optional uniform provisions
health insurance provisions that may be included in an individual policy, at the option of the insurer
examples in book
change in occupation
if insured changes to a more hazardous occupation the benefits will be reduced to that which the premium would have purchased at the more hazardous occupation
if changing to a less hazardous occupation, benefits remain the same and premiums are refunded a
misstatement of age
benefits will be based on what the premiums paid would have purchased at the correct age
other insurance with this insurer
if more than one policy with the same insurer the insured may elect which policy is to be used
excess premiums for excess coverage is returned
insurance with other insurers
acts like a coordination of benefits
any one insurer's liability is limited in proportion to the loss
relationship of earnings to insurance
loss of time benefits cannot be more than the insured's monthly earnings at the time disability commences or last two years average earnings
unpaid premiums
insurer can deduct from any claim any unpaid premiums occurring during the grace period
conformity with state statutes
any provision in conflict with state statutes are automatically amended to meet the state requirement
illegal occupation/act
an exclusion to coverage
intoxicants and narcotics
exclusion to coverage
coordination of benefits
method of determining primary and secondary coverage when an insured is covered by more than one group policy
free look (right to examine)
allows insured, upon delivery of the policy, a specified number of days to look over the policy and if dissatisfied, return it for full refund
first dollar coverage
no deductible will apply
cancellable
policy can be cancelled by the insurer or insured at any time
conditionally renewable
health insurance policy that is renewable unless a termination notice is received from the insurer based on a stated event occurring
guaranteed renewable
guarantees renewability without proof of insurability, at insured's option, to age 65, but premiums are not guaranteed
non cancellable
renewal provision that guarantees the policy is renewable to age 65 with guaranteed premiums
nonrenewable
health insurance policy where the life "period of time" is expressed and cannot be renewed
optionally renewable
health insurance policy that is renewable only at the option of the insurer
ambulatory outpatient care
facility that provides diagnosis, treatment, preventative care, education, planning, dental/vision care on an outpatient basis
concurrent review
where the insurer monitors the length of a hospital stay
managed health care
medical expense plan attempts to contain costs of care by controlling the behavior of participants
mandatory second surgical opinion
requires the insured to consult a second physician, which is not the attending physician, to determine the necessity of surgery and/or alternate method of treatment
pre-certification
physician may submit claim information prior to treatment to learn if a procedure is covered and benefits will be paid
utilization review
determines if provided or proposed health care services were or are medically necessary
does not apply to emergency services
natural group
formed for the purpose other than to buy insurance
blanket insurance
group coverage for a group of individuals such as employees, teachers, students, passengers on a common carrier, sports teams, etc.
multiple employer welfare associations (MEWAs)
when large firms group together to form an association in order to reduce premiums/costs on health insurance by self-funding
multiple-employer trust (MET)
a form of group insurance where a sponsor (insurer or 2 or more employers in same industry) form a trust to administrate a (insured or self-insured) plan for the group
probationary period (group)
the specified period of time set by an employer, before an employee is eligible to enroll for group health benefits
community rating
group insurance premium based upon medical care cost within a particular geographical area or community
contributory plan
requires the employer and at least 75% of eligible employees to contribute to the group plan premium
experience rating
group insurance premium based upon the claim history of the group seeking to purchase insurance
group underwriting
all eligible members of the group are covered regardless of physical condition, age or gender
cost is driven by the type, size, average age, location, and group's claim history
no loss-no gain
requires that when a group health insurance plan is being replaced, ongoing claims under the former policy must continue to be paid under the new policy