Chapter 11 Flashcards

1
Q

what is the distinction between laws and regulations?

A

congress and the state legislatures pass laws (hence legislations) and the executive branch enforces the laws that the legislatures pass.

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2
Q

There are 3 basic types of government that exists today. Name them

A

unitary system: most common. Power is concentrated at the national level, with little power being held in political subdivisions.
confederation: union of equal states
Federal system: major system. national government holds sig power but the small political subdivisions also hold sig power.

  • CAN and US are federal
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3
Q

In the federal system in the states there are two sources of legislation impacting life insurance. Name them

A
  1. federal level, congress routinely passes laws impacting may aspects of financial services (Li insurance)
  2. state level- state legislatures are the primary source of insurance legislation, enacting a sig body of legislations that regulates the life insurance industry. (licensing, solvency, marker conduct review)
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4
Q

True or False
In many cases State legislatures pass laws that are recommended to them through the “model acts” created by the NAIC (national associations of insurance)

A

True.

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5
Q

Which office is responsible for international insurance agreements and why?

A

The Federal Insurance office (FIO) was created in the Treasury Department by the Dodd Frank Act passed, in 2009. Which included the provisions that created the FIO.
- The act also included the mandate to protect the US financial system from systemic risk presented by financial institutions deemed :too be to fail”

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6
Q

What is the purpose of the FSOC (financial Stability Oversight Council)

A

Given authority to identify and monitor systemic risks
identify both bank and non-bank financial institutions whose financials failure can have a widespred -ve impact on the US economy.
- “non-bank” are financial instituitions with over 50$ billion in assets.

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7
Q

What do you call a financial instituion that is deemed to present a systemic risk?

A

Systemic important financial institution (SIFI).

  • they are required to be surpervised by the Federal Reserve and adhere to stricture standards.
  • there are 4 insurance companies given SIFI in 2014.
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8
Q

What is the purpose of the IAIS? (International Association of Insurance Supervisors.

A

A significant regulator for many U.S. Insureers.

-NAIC now collaborates with IAIS.

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9
Q

What is the purpose of the HIPAA (health Insurance Portability and Accountability Act of 1996)

A

designed to improve efficiency in health care through the standardization of electronic data interchange and provide security measures to protect health information and disclosure.

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10
Q

Which organization issued regulations in 2003 establishing, for the first time, a set of national standards for the protection of certain health information./

A

The US department of Health and Human Services (HHS)

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11
Q

What is the purpose of the Privacy Rule standards

A

address the use and disclosure of individuals health information called “protective health information” by organizations subject to the privacy rule called covered entitites, as well as standards for individuals privacy rights to understand and control how their health information is used.
- make sure the individuals health information is properly por

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12
Q

Within the HHS, who has the responsibility for implementing and enforcing the PRivacy Rule with respect to Voluntary compliance acitvities and civil money penalties.

A

The Office for Civil Rights (OCR)

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13
Q

The privacy rule and the administrative simplification rules apply to who

A

health plans, health care clearinghouses and to any health care provider who transmits health information to electronic form in connection with transactions for which the secretary of HHS has adopyted standards under HIPAA.

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14
Q

The “ individually identifiable health information” is information, including demographic data, that includes what?

A
  1. relates to the individual’s past, present or future physical or mental health or condition
  2. relates to the provision of health care to the individual’s
  3. relates to the past, present or future payment for the provision of health care to the individual
  4. indentifies the individual or for which there is a resonable basis to believe it can be used to identify the individual.
  5. Includes and common identify
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15
Q

Who falls under the “ Health Care Providers” umbrella?

A

providers of services
providers of medical or health services.
any anyone defined by MEdicare and any other person or organization that furnishes, bills, or is paid for health care.

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16
Q

True or False

Canada has the same privacy legislations as the US?

A

No,

CAD has its own set of vary comprehensive privacy guidelines.

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17
Q

What is the purpose of the Canadian Life and Health Insurance Association (CLHIA)

A

developed a comprehensive set of privacy guidelines, and in 1980 the Ontario legislature decreed that all life and accident and sickness carriers must follow the guideline if they want to do business in Ontario.

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18
Q

What does the Personal Information Protection and Electronic Documents Act (PIPEDA) establish?

A

ground rules for how private sector organizations can collect, use or disclose personal information in the course of commercial activities.
- applies to organizations’ commercial activities in all provinces

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19
Q

What is the role of the Consumer Reporting Act (CRA)

A

regulating the collection of information in the underwriting process at the provincial level.

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20
Q

What legilation protects personal information in quebec?

A

Quebec bill 68,
it establishes specific rules regarding notifications, disclosure, and accuracy in the collection of personal information in the underwriting process

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21
Q

What is the USA patriot Act was signed into law by president bush in response to 911 terrorist attachs. What does it enhance/enforce.

A

enhances the authority of the US law enforcement for the stated prupose of investigating and preempting potential terrorist acts against the US.

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22
Q

The US Paritot ACT, contains regularions of certain insurance companies such as Li and annuity providers to establish formal anti-money laundering (AML) programs. The regulations define the term “insurance company to include any individual engaged with the US as a business in what 3 acts?

A
  1. the issuing, underwriting, or reinsuring of a life insurance policy
  2. the issuing, granting, purchasing or dispositing of any annuity contract
  3. the issuing, underwriting, or reinsuring of any insrance product with investment features similar to those of Li policy or annuity contract, or which can be used to store value and transfer that value to another person.
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23
Q

Any company that is a target for possible money laundering will have to establish an AML program that includes what minimum criterias?

A
  1. the development of internal policies, procedures and controls
  2. the designation of a compliance officer
  3. an ongoing employee training program
  4. an independent audit function to test the program.
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24
Q

Define the planning technique of “ Stranger Owned life insurance” in terms of evaluating insurable interrests.

A

known as STOLI or SOLI, may also be called “investor owned life insurance” (IOLI). Transaction steps include:

a. individual is solicited with an offer of “free insurance” for a short duration, typically 2-3 years
2. individual purchases a life insurance directly through a trust of business entity as as limited liability corporation (LLC) or partnership using non-recouse or hybrid financing for all premiums and accured interrests.
3. as an enticement to enter into the transaction, the individual is often paid an upfront “participation” fee
4. when the loan takento pay the premiums matures, the inidividual is given 3 choices.
a) keep the policy by repaying the accumulated loan balance
b) relimquish the policy to the lender in satisfaction of the debt
c) sell the policy on the open markert for cash to a life settlement company, repay te loan balance and pocket the difference.

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25
Q

STOLI transactions raise a number of issues for cx, advisors, producers, and u/w. Why?

A
  1. lack of insurable interrest.
  2. Shifting legal landscape
  3. Is the loan a “Bona Fide” loan
  4. hybrid financing
  5. Insurance capacity. ( those who participate in a STOLI program may preclude obtaining their coverage in the future)
  6. SEC/NASD Action
  7. rebating
  8. legal complexity
  9. Health and privacy issues
  10. discrimination
  11. Congressional Action Regarding the Tax Tx of Life Insurance.
  12. Fraud
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26
Q

Which act contains specific rules on what is an insurable interrest in canada?

A

Canadian Uniform life insurance act (ULIA)

- this act states if there is no insurable interrest at the time of application then the application is void.

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27
Q

What are hybrid fianancing contracts

A

contract collateralized, typically with non-liquid assets such as real estate. Loan rates are very steep compared to fully collateralized financing. the accertive impact of the continuously compounding interest will inevitably result in the hybrid financial structure becoming economically unfeasible prior to the payment of death proceeds. Contract owner is faced with the choice of liquidating invested collacteral assets or settling the contract owner is faced with the choice of liquidating invested collateral assets or settling the contrcat.

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28
Q

Programs that promise a “participation” fee or provide a peroid of “free” insurance protection can consititute a rebate if they what? (2)

A
  1. offer an advantage or benefi to a proposed insured not contained in the insurance policy
  2. offer a method of purchasing coverage that is not presented to similarly situated clients.
    - in this regard the value of the rebate could be deemed to taxable income to the insured.
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29
Q

How to some insurance companies fight the risk of Fraud for STOLI policies?

A

they add disclosure forms or application questions to their process designed to uncover the intent of the policy ie: settle the policy, or sell it.

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30
Q

What is CHOLI (charity owned life insurance)

A
  • leaveraged with the loan proceeds being used to finance a large block of charitable own llife insurance policies.
  • some cases SPIA’s (single premium immediate annuities) will be purchased with the loan proceeds.
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31
Q

What are COLI (Corporate owned life insurance) policies

A

used to fund post-retirement benefit liabilities such as nonqualified deferred compensation and post-retirement medical plans for their key employees.
- cash values accumulate income tax free and the death benefits proceeds are income tax free.

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32
Q

What is the purpose of the “COLI Best Practives ACt of 2005”

A

this addressed past practices in which rank-and-file employees were covered without their knowledge or consent. This bill

  1. restricts COLI to a limited class of highly compensated employees
  2. require employers to provide notice to insured employeesand obtain their consent
  3. establish disclosyre and record keeping requirements for business holding COLI policies
  4. impose a tax on COLI policy death benefits if these requirements were not met
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33
Q

What is a life settlement?

A

where companies would allow for pay outs on policies for terminally-ill clients.

34
Q

True or False
- because accelerated death benefits and viatical settlements received by terminally-ill and chronically-ill individuals from insurers and qualifying “viatical settlement companies” were exmpted from federal income tax by HIPAA.

A

True, its what makes them more attractive from a tax perspective.

35
Q

What is the most important provision in the “Model Law” developed by NAIC inregards to STOLIs

A

They are prohibited to be sold in the first 5 years, with some hardship exceptions.

36
Q

Who regulates the solvency of insurers?

A

the state government regulates insurance companies, and thei responsibility to monitor the solvency of insuers doing business in their states.

  • All the states, have created state guaranty associations to which licensed life and health insurers must belong.
  • the companies that must belong become “member insures”
37
Q

What happens when an insurer licensed in multiple states is declared insolvent?

A

the National Organization of Life and Health Insurance Guaranty Associations (NOLHGA) on behalf of the affected memer state guaranty associations, assembles a task force of guaranty association officials. They develop a plan for meeting memeber association obligations.
- they typically analyse the company’s commitments, ensures that covered claims are paid, and where appropriate=, arrnages for covered policies to be transfered to a healthier insurer.

38
Q

What is the purpose of a secondary guarantee on a policy?

A

Keeps an insurance policy insurance policy inforce and guarantees the death benefit, even when the policy would have otherwised lapsed because of lack of cash value, when certain contractural requirements are met.

39
Q

What are the two most prevelant methods of providing secondary guarantees?

A
  1. specifed premium guarantees
  2. shadow accounts
    - both methods allow for early and late payments require premiums and can be quite attractive to clients looking for guarantees.
40
Q

What is a specific premium guarantee?

A

provides policy holders with a guaranteed death benefit as long as the policy owner pays a specified premium each year.

41
Q

What is a shadow account prodcut

A

is an alternative or hypothetical account value is calculated using an alternate set of expense charges, cost of insurance and interest.

42
Q

What is Regulation XXX

A

adopted by many states, which requires comapnies to increase the reserved for secondary guarantee features found on UL policies.

43
Q

What is Actual guideline AXXX?

A

Created by the NAICLH because regulation XXX was complicated and its an interpretation of regulation XXX.
- affective 01/2003.

44
Q

What is a result of the created retaliatory premium taxes?

A

out-of-state life insurance companies are discouraged from domesticating in high premium tax states, and existing companies can have an incentive to relocate to low tax states.

45
Q

True or False:

All provinces or territories in CAN impose a tax on insurance premiums colected in the province/territory?

A

True,
premiums are considered to be “written” in the province in which the policyholder is the resident at the time the premium is payable.

46
Q

What is the most important provision in the “Model Law” developed by NAIC inregards to STOLIs

A

They are prohibited to be sold in the first 5 years, with some hardship exceptions.

47
Q

Who regulates the solvency of insurers?

A

the state government regulates insurance companies, and thei responsibility to monitor the solvency of insuers doing business in their states.

  • All the states, have created state guaranty associations to which licensed life and health insurers must belong.
  • the companies that must belong become “member insures”
48
Q

What happens when an insurer licensed in multiple states is declared insolvent?

A

the National Organization of Life and Health Insurance Guaranty Associations (NOLHGA) on behalf of the affected memer state guaranty associations, assembles a task force of guaranty association officials. They develop a plan for meeting memeber association obligations.
- they typically analyse the company’s commitments, ensures that covered claims are paid, and where appropriate=, arrnages for covered policies to be transfered to a healthier insurer.

49
Q

Define the Uniform Law commisions (ULC) formaly NCCUSL

A

is a group of law professors, judges, and lawyers appointed by the executive branch of every sate with a mission of developing model state laws.

50
Q

What are the two most prevelant methods of providing secondary guarantees?

A
  1. specifed premium guarantees
  2. shadow accounts
    - both methods allow for early and late payments require premiums and can be quite attractive to clients looking for guarantees.
51
Q

What is a specific premium guarantee?

A

provides policy holders with a guaranteed death benefit as long as the policy owner pays a specified premium each year.

52
Q

What is a shadow account prodcut

A

is an alternative or hypothetical account value is calculated using an alternate set of expense charges, cost of insurance and interest.

53
Q

What is Regulation XXX

A

adopted by many states, which requires comapnies to increase the reserved for secondary guarantee features found on UL policies.

54
Q

What is Actual guideline AXXX?

A

Created by the NAICLH because regulation XXX was complicated and its an interpretation of regulation XXX.
- affective 01/2003.

55
Q

What is a result of the created retaliatory premium taxes?

A

out-of-state life insurance companies are discouraged from domesticating in high premium tax states, and existing companies can have an incentive to relocate to low tax states.

56
Q

True or False:

All provinces or territories in CAN impose a tax on insurance premiums collected in the province/territory?

A

True,
premiums are considered to be “written” in the province in which the policyholder is the resident at the time the premium is payable.

57
Q

True or False
The NAIC model Unfair Trade Practices Act, had guidelines that make it an act of unfair discrimination to refuse/limit lifeinsurance to a person d/t past and future lawful travel experience

A

No, only the past.

The future travel is still eligible for adverse activites

58
Q

Define the Genetics Information Non discrimination Act (GINA)

A
  • passed in 2008

- indicates the law does not apply to Life, disability of LTC.

59
Q

Define the state genetic testing u/w laws.

A

Vast majority focus on restrictions related to health insurance.

60
Q

Define the Uniform Law commisions (ULC) formaly NCCUSL

A

is a group of law professors, judges, and lawyers appointed by the executive branch of every sate with a mission of developing model state laws.

61
Q

How does the FINRA affect Life insurance business.

A
  1. Before a producer can sell viariable insurance products, a producer must successfully pass an exam to become a FINA “registered”
  2. Certain marketing materials must filed with FINRA before they can be used with the public
  3. The prospectus that must accompany the sale, of variable product must typically be reviewed and approved by FINRA in advance of their sale.
  4. FINA has jursidication over anti-money laundering activites of life insurance companies and can bring enforcement actions against life insurance producers that sell registered products, as well as the insurance carries themselves.
  5. FINRA promulgates rules governing the “suitabulity” of resgistered products requires insurance company registered representatives and their broker-dealer to ensure that product recommendations are suitable for purchases given their financial background
62
Q

Name the 3 ways in which life insurance companies can do business.

A
  1. stock company - stockholders own company
  2. mutual comapny - policy holders own comapny
  3. mutual holding company (MHC) - hybird organization.
63
Q

who are the owners of Mutual Holding Company?

A

there the original mutual insurance company becomes a stock insurance company that is wholly owned by a mututal holding company.

64
Q

What are some advantages of merging companies

A
  • reducing operating expenses.

- merge firms acheive greater efficiency grains than firms that have not been involved in mergers or aquisitions.

65
Q

Which legislation was created at the federal level in concerns to “anti-trust”.

A

the Sherman Antitruct Act of 1890, makes it illegal to conspire to restain interstate and foreign trade.

66
Q

Which act makes it easier for regulators to investigate mergers for anti-trust violations?

A

the Hart-Scoss-Rodino Antitrust improvement Act (1976)

67
Q

What is the ACLI

A
  • ACLI is governed by a board of directors that is elected by its membership and that sets policy and guides the actions of the association.
  • members are the leading providers of financial and retirement security products covering individual and business markets.
  • account for the majority of life insurance carriers and represent over 90% of the assets and premiums of the US life insurance and annuity industry
68
Q

Securities Act of 1933, and the Securities Exchange Act of 1934 were designed to restore investor confidence in the US capital markets by providing more structure and government oversight. What are the twofolds of the main purposes of these laws?

A
  1. companies publicly offering securities for investment dollars must tell the public the truth about their business, the securities they are selling, and the risk involved in investing.
  2. People who sell and trade securites- brokers, dealers, and exchanges- must treat investors fairly and honneslty, putting the investors; interrest first.
69
Q

Congress established the Securities and Exchange commision (SEC) in 1932. Why?

A

to enfoce the newly passed securities laws, to promote stability in the markets and to protect investors.

  • requires insurance companies to disclose meaningful financial and other information to the public, and alllow investors to judge for themselves.
  • also oversee’s exchanges, broker-dealers, investment advisors, mututal funds, and certain operations of insurance companies.
70
Q

Who makes up the SEC?

A

5 appointed commissioners
5 divisions
23 officers
- headquaters in Washington DC.

71
Q

SEC approved the formation of Financial Industry Regulatory Authority (FINRA) through a consolidation of the enforcement arm of the NY stock exchange and the NASD. Why?

A

the dedicated to the investor protection and market integrity thorugh effective and efficient regulation and complementary compliance and technology-based services.

  • Goal is to bring integrity to and confidence to the markets.
  • it licenses individuals, admits firms to the industry, writes rules to govern their behavior, examines them for regulatory compliance, and disciplines those who fail to comply.
  • oversees + regulates trading in equities, corporate bonds, securities futures and options, and provides education andf qualifications examiations while supporting securities firms in their compliance aciti
72
Q

How does the FINRA affect Life insurance business.

A
  1. Before a producer can sell viariable insurance products, a producer must successfully pass an exam to become a FINA “registered”
  2. Certain marketing materials must filed with FINRA before they can be used with the public
  3. The prospectus that must accompany the sale, of variable product must typically be reviewed and approved by FINRA in advance of their sale.
  4. FINA has jursidication over anti-money laundering activites of life insurance companies and can bring enforcement actions against life insurance producers that sell registered products, as well as the insurance carries themselves.
  5. FINRA promulgates rules governing the “suitabulity” of resgistered products requires insurance company registered representatives and their broker-dealer to ensure that product recommendations are suitable for purchases given their financial background
73
Q

How does FINRA prevent fraud?

A

by subjecting producers to regorous licensing and continuing education requirements, as well as doing spot examinations of client flies and marketing materials used with consumers.

74
Q

What protects consumers from discriminatory rebates that could occur in the absence of laws to the countrary?

A

Rebating rules,

75
Q

Which two states allow for rebating?

A

California and Florida. BUT producers must follow regulations and procedures to ensure that the rebates are not given selectively to some consumers and not others.

76
Q

Life insurance industry faces legislative and regulatory challenges on 3 primary fronts. What are they?

A
  1. federal
  2. State
  3. Local
77
Q

Carriers have to deal with a wide array of issues in a variety of governemntal venus, the insurance industry has deceloped potent lobbying effort that takes two basic forms.

A
  1. industry trade association (ACLI) the national Association of Insurance and Fianncial Advisors (NAIFA), and the association for advanced life underwriting (AALU)
78
Q

What is the ACLI

A
  • ACLI is governed by a board of directors that is elected by its membership and that sets policy and guides the actions of the association.
  • members are the leading providers of financial and retirement security products covering individual and business markets.
  • account for the majority of life insurance carriers and represent over 90% of the assets and premiums of the US life insurance and annuity industry
79
Q

What is NAIFA?

A
  • nonprofit organization
  • represents the interrest of approx. 200K producers and associates.
  • largest financial services memebership association.
  • Producer interest group to advocate for a positive legislative and regulatory environement, enhance business and professional skills, and promote the ethical conduct of its members.
80
Q

What is AALU?

A
  1. national association of advance life insurance planners who are committed to preserving insurance through polititcal involvement.
  2. keeps members informed about the latest regulatory and business devleopment affecting advanced life u/w products and services.
  3. monitors bills, proposed regulations and court cases that affect slients, business owners, and professionals.