Chapter 5

Question 1

Ordinary Individual

Answer 1

This is issued on individuals people using individual policies normally with an evidence of insurability required. Grace Period is a minimum of 30 days in length. Ordinary Life doesn’t include Group or Industrial and Home Service Policies.

Question 2

Franchise

Answer 2

Group Insurance whereby a Master Policy is not issued since underwriting is on an individual basis and individual policies are issued. Evidence of insurability may be required. Grace period is minimum of 30 days. Insurer requires a minimum number of participants before underwriting.

Question 3

Characteristics of a Group Life Policy

Answer 3

Employer-Employee, associations, creditor.
Master Policy
Certificate of Insurance
Grace Period is 31 days.
Eligibility Period of 3 months, and concern of Adverse Selection.
Contributory Plan - 75% of all employees participate. Noncontributory 100% participation required.

Question 4

Group

Answer 4

Employer is issued a Master Policy and each employee receives a Certificate of Insurance covering the employee and if offered, his/her dependents.

Question 5

Dependent

Answer 5

Member’s spouse and all unmarried children from birth through
20 years of age
24 if attending educational institution.
A child 21 years or older who is both incapable of self-sustainint employment due to physical or mental handicap. Proof of incapacity must be furnished within 31 days of attainment age. Subsequent proof may be required buy not more than every 2 years.

Question 6

Certificate of Insurance

Answer 6

Statement of protection
Coverage may be continued under an individual policy without proof of insurability if filed within 31 days of employment termination and premium payment. Individual will equal group coverage. If death occurs, death benefit must be paid.

Question 7

Group Provisions

Answer 7

Written on a renewable term basis without cash accumulating, and the incontestability clause is the same (2 years). Continuation after retirement is accomplished by the Retired Lives Reserves (RLR) System. The employer pays an equal premium amount each month while the employee is active to pay for a reduced retirement benefit. Continuation for disability may continue if covered under group and the claim was filed within 12 months of disability.

Question 8

Discontinuance

Answer 8

Group Life and Disability may be discontinued by the individual if he/she desires to purchase an individual policy. When a covered person is no longer eligible for group coverage, it may be discontinued through conversion.

Question 9

Types of Group Plan Sponsors

Answer 9

Single Employer
Labor Union
Multiple Employer Trusts (METs)
Trade Associations
Government Entities

Question 10

Single Employer

Answer 10

The employer may be a partnership, a corporation, or a sole proprietorship.
There are 2 legal employer-employee groups
Contributory - employees must contribute premium payments.
Non-contributory - mandatory 100% of the employees participating.

Question 11

Labor Union Groups

Answer 11

The plan must be for the benefit of someone other than the union.
The Taft-Hartley Act prohibits employers from turning over funds directly to a union. A separate fund must be set up and trustees appointed to manage the fund.

Question 12

METs

Answer 12

METs may be sponsored by insurers, independent administrators or two or more employers of the same industry.
Sponsor must design the plan and select group. Sponsor becomes administrator,
Each MET must have a trustee (often a bank trust department) with all financial transactions routed through the trustee. Experience Rated.
MET members don’t have to purchase all benefits offered by administrator’s trust. Majority are self-insured and seldom name an insurer as trust administrator. If the MET is insured, the trust may then be administerd by the sponsoring insurer.

Question 13

Trade Associations

Answer 13

A combination of one or more employers, trade associations and labor unions. Insure employees.

Question 14

Government Entities

Answer 14

This includes the State and any political subdivisions and any municipality. These groups may provide the same type of group coverage as do private employers.

Question 15

Travel Insurance

Answer 15

Travel Insurance is insurance that is intended to cover medical expenses, financial and other losses incurred while traveling. Travel insurance can usually be purchase at an airport.

Question 16

Credit Life Insurance (Individual and Group)

Answer 16

Owner is beneficiary. Credit life insurance pays off remaining debt.
Protects the lender not the debtor
Amount paid will not exceed amount owed. Becomes effective at loan inception and ends at payoff.

Question 17

Credit Life

Answer 17

Usually the individual debtor pays the premium.
Amount of insurance benefit shall not exceed the total amount of indebtedness.
The coverage begins when the debtor becomes obligated to the creditor. Term of coverage is generally month-to-month covering the installment payments.

Question 18

Industrial Home Service

Answer 18

Debit/Industrial
Low Income Individuals
Premium is paid by agent collection
Grace period is 4 weeks
Normal Settlement is lump sum

Question 19

Industrial Home Service

Answer 19

Without medical examination. Premiums collected weekly or monthly by insurance agent servicing that area or paid directly to the insurer.
Normally have face amounts less than $1,000 or less and written to reduce funeral costs.
Facility of Payment Clause - The company may pay to a relative or anyone it deems entitled to the benefits int he absence of a designated beneficiary.

Question 20

Social Security Legislation Acts

Answer 20

1935 - An Old age Retirement Benefit was given to this nation. In 1939, this system expanded to provide protection for the worker’s family. OASI - Old Age, Survivors Insurance.
1956 - Disability Income benefits were added, Old Age, survivors, Disability insurance OASDI
In 1965 Title 18 or Medicare was added to Old Age, Survivors, Disability and Health Insurance OASDHI.

Question 21

Social Security System Funding

Answer 21

Funding is collected and kept in a trust, and invested in government securities. Fund is managed by 2 public trustees and the Secretaries of Treasury, Labor, and Health and Human Services.
The actuarial value of contributions are not related to the actuarial value of benefits. It is not fully funded and provides only a minimal base income.

Question 22

Insured Status

Answer 22

Fully Insured

Currently Insured

Question 23

Fully Insured

Answer 23

He/she has been credited with 40 quarters of covered employment since 1936. If the insured has attained age 21 after 1950, he/she is considered fully insured if that individual has acquired a minimum of 6 quarters of covered employment with 1 quarter for each year over age 21. Benefits that may be received monthly:
Retirement age 62 or older
Spousal retirement at age 62 or older
A dependent child of retired worker.
A spouse of retired worker at any age if caring for a dependent child.
A widow or widower at age 60, ir at age 50 if disabled.
A dependent parent of a deceased worker.

Question 24

Currently Insured

Answer 24

A worker must be coered at least 6 quarters during the full 13-quarter period ending with the quarter in which he/she: dies, becomes disabled, or is entitled to retirement benefits. Lump sump death benefit of $255, child, mother and father benefit. Survivor’s benefit is computed using the deceased’s Primary Insurance Amount PIA.

Question 25

Types of Social Security Benefits

Answer 25

Retirement - Pays benefits to workers (Age 65 or reduced benefits at age 62) and their dependents.
Death/Survivor - pays benefits to the family of a covered worker.
Disability Income - pays benefits to a covered worker and dependents.

Question 26

Survivor Benefits

Answer 26

Survivor Benefit is the amount of income that may be expected from the Primary Insurance Amount.
Children are covered to age 18-19 if enrolled in high school.
Child is still entitled to benefit if remarried of surviving parent. Also if adopted
Blackout period begins when the youngest age turns 16 and ends when widower turns 60.
Social Security Benefits - last at least a year or death, approved at 6 month and it’s not retroactive.