Definitions Flashcards
absolute assignment
assignment by a policy owner of all control and rights in the policy to a third party
accelerated benefits
riders on life insurance policies that allow the life insurance policy’s death benefits to be used to offset expenses incurred in a convalescent or nursing home facility
accidental death and dismemberment
a policy or a provision in a disability income policy that pays either a specified amount or a multiple of the weekly disability benefit if the insured dies, loses his or her sight, or loses two limbs as a result of an accident.
accidental means….
wording in certain accident policies that restricts recovery to loss for bodily injury that is both unexpected and unintended
acquisition cost
expenses incurred by an INSURER that are directly related to putting the business on the books of the company. The largest portion of this cost is usually the agent’s or sales representative’s commissions or bonus.
additional monthly benefit
riders added to disability income policies to provide additional benefits during the first year of a claim while the insured is waiting for social security benefits to begin.
adhesion
term used to describe certain contracts. insurance policies are contractions of adhesion because the terms are DRAWN UP by the INSURER and the INSURED simply “adheres.” For this reason ambiguous provisions are often interpreted by courts in favor of the INSURED.
administrative services only (ASO)
an arrangement with an insurance company to administer a self-insured fund or multiple employer trust. The insurer provides only its services, NOT insurance coverage.
Adverse Selection
selection against the insurer in terms of insuring more poor risks than good or average risks; the tendency of more poor risks to buy and maintain insurance than good risks.
Aleatory
a contract in which the number of dollars to be given up by each party are not equal. Insurance contracts are of this type because the policyholder pays a premium and may collect nothing from the insurer or may collect a great deal more than the amount of the premium if a loss occurs.
Annual Renewable Term
Term life insurance that may be renewed annually without evidence of insurablity until some state age. ——When a renewable term policy is being renewed the rates will be based on the age the insured has reached AT THE TIME OF THE RENEWAL. Often called “Step Rate Premiums”
Reentry Option - Reissue
common feature of term policies - option gives the insured the opportunity to provide evidence of insurability at the end of the term in order to qualify to renew the policy at a lower premium rate than the guaranteed rate that is available without evidence of insurablity
Level Term
provides a level death benefit and level premium during the policy term
Decreasing Term
temporary protection for a specified period of time. Face amount decreases throughout the life of the policy down to zero the date of policy expiration. - Annual premium for a decreasing term policy remains level during the term of the policy.
Increasing term
death benefit increases over the life of the policy, and the premium remains level
Indeterminate Premium Term
Where the premium may fluctuate between the current premium charge and a maximum premium charge that is stipulated in the insurer’s premium tables, based on the insurer’s mortality experience, expenses, and investment returns
Interim Term
May be used to cover the period of time before permanent protection is to begin. Temporary term protection that will convert automatically at some future date, usually no later than 11 months. Premium is based in the age at application - premium for the permanent coverage is also based on attained age when permanent protection begins.
Whole Life Insurance (Ordinary Insurance) - Define and Characteristics
designed to provide protection for the whole life of the insured. Characteristics, Level Premium, Level Face Amount, Guaranteed Cash Value, Nonforfeiture Value, Policy Loans
Whole Life Insurnace - Types (6)
Continuous Premium, Limited Payment, Single Premium, Indeterminate Premium, Current Assumption, Economatic Whole Life
Universal Life
a flexible premium, adjustable benefit life insurance contract that accumulates cash value. - Prime feature of UL is premium flexibility- premiums paid accumulate and together with interest, make up the policy’s cash value- after sufficient cash value is accumulated, the policyowner has considerable flexibility with regard to subsequent premium payments. - May increase death benefit - may need to prove insurability -
Universal Life Death Benefits - Option A,
Opt A - provides level death benefit equal to the policys face amount. As Cash value increases the mortality risk decreases. Thus the cost of the death protection actually decreases over the life of the policy and accordingly more of the premium can be placed in the cash account - exactly the same concept that applies to whole life
Universal Life Death Benefits - Option B,
Provides for an increasing death benefit equal to the policy’s face amount plus the cash account. Mortality risk remains at a level amount equal to the policy’s face value. Thus, the policyowner will incur a higher expense for the cost of the death protection over the life of the policy and less of the premium will be deposited in the cash account.
Types of Life Insurance Policies
Term Insurance, Whole Life, Adjustable Life, Universal Life, Variable Life, Variable Universal Life, Industrial Life, Credit Life,
Insuring Clause
contains the basic promise of the life insurance company to pay a specified sum of money, in a lump sum or an equivalent income stream, to the beneficiary upon the death of the insured,
Consideration Clause
the consideration paid by the policy owner for the life insurance protection- the premium
Execution Clause
says that the insurance contract is executed when both parties (company and policyowner) have met the conditions of the contract.
Ownership Rights - Life
- name the beneficiary 2. decide how the proceeds of the policy are to be paid 3. right to assign the policy (ex. policyowner could borrow funds from bank and assign the policy to the bank as collateral.) AKA - Absolute Assignment 4. Use Cash Value 5. How to use any dividend paid by the company 6. With Convertible Term - Policyowner can change coverage to permanent protection.
Incontestability Clause
States that after the policy has been in force a certain length of time, the company can no longer contest it or void it, exempt for nonpayment of premiums- Usually 1 or 2 years.
Suicide Clause
designed to prevent people who are contemplating suicide from obtaining life insurance. clause states if the insured commits suicide within a specified period of time the policy will be voided. - after period of time elapsed company will pay the claim even if the insured commits suicide. - if suicide occurs within the time limit the company usually refunds any amount the policyowner has paid for the coverage.
Misstatement of Age or Sex
in an insurance policy provides that when a discrepancy in age exists, if the insured is alive the company must adjust eh amount of future premiums and request payment of the additional premium the policyowner should have paid. - If died the company must compute the amount of insurance that the actual premium paid would have purchased at the insured’s correct age and pay the beneficiary that amount. - provision allows the insurer to make a change in the policy even though the error is discovered beyond the incontestability period..
Modifications Clauses
must be endorsed on or attached to the policy in writing over the signature of a specified officer or officers of the company. - No one else has any authority to make changes or agreements, to waive provisions, or to extend the time for premium payment,,
Policy Change Provision (Conversion Option)
this exchange is usually made from one policy type to another policy form with the same face amount. If the exchange is to a policy with a higher premium insured merely has to pay the higher premium and no proof of insurability would be required- if changes to lower premium, proof of insurability may be required because of adverse selection to insurer.
Free Look
No policy of individual life insurance can legally be delivered or issued for delivery in most states unless it has printed on or attached to it a notice stating in substance that during a period of 10 days from the date the policy is delivered to the policyholder, it may be surrendering to the insurer together with a written request for cancellation of the policy and in such event, the policy shall be void from the beginning and the insurer shall refund any premium paid,
Revocable vs Irrevoable
Revocable - Changeable
Irrevocable - cannot be changed without the consent of the beneficiary
Beneficiary Succession
Primary, Contingent, Tertiary
Per Capita and Per Stirpes
Per Capita - Remaining LIVING - deceased will be split among LIVING
Per Stirpes - means through the root - to his heirs
Stock Insurance Companies - Participating or Non? - Taxed or Not?
Non-Participating- Policyholders do not participate in dividend, share profits and losses with stockholders - Taxable because income comes from PROFITS
Mutual Insurance Companies - Participating or Non? Taxed or Not?
Participating- because the policyowners participate in dividends, ownership rests with the policyholders - NOT TAXABLE because it is refund due to excess premium “Dividend”
Authority Types (3)
Express, Implied, Apparent
Elements of a Contract
Agreement, consideration, competent parties, legal purpose
Sources of Underwriting
Application, Medical Exams and History, Inspection Reports, MIB, the Agent, APS
Application Contents
Part 1- General Information- name, address, dob, occupation, ssn, other insurance owned
Part 2- Medical Information- past medical info, current physical condition, personal morals
Risk Classifications (4)
Preferred, Standard, Substandard, Declined,
Exclutions and Limitations
Aviation, War or Military Service, Hazardous Occupation or Hobby
Exclutions and Limitations - Life
Aviation, War or Military Service, Hazardous Occupation or Hobby
mortality vs morbidity
mortality - rate of death
morbidity - rate of disablity
Premium Mode
Payment frequency - monthly, quarterly, semi-annual, annually
Inter Vivos
Transferred while still living
Testamentary
Transferred after death
Government Insurance - “Social Insurance” (3)
Social Security, Medicare, Medicaid
Social Security - How is it funded? Who is it for? Why does it exist? What are the benefits (3) ?
SS- HOW - Funded by FEDERAL PAYROLL TAX - FICA (Federal Insurance Contributions Act) or OASDI (Old Age Survivor Disability Insurance) 15.3% - if self employed - pay all - if employed it is half and half - (H) includes “health”
WHO- Primarily a retirement benefit 65+
WHY- Fulfill social goal
BENEFITS- Retirement, Disability prior to age 65, Survivor Benefit a) $255 death benefit to surviving spouse - one time - Black out period - wait until 60
Medicare - How is it funded? Who is it for? Why does it exist? What are the benefits?
Medicare- HOW- Funded by FEDERAL PAYROLL TAX 2.9% - if self employed pay all - if employed it is half and half
WHO- Health insurance for 65+
WHY- Fulfill social goal
BENEFITS-
Medicaid - How is it funded? Who is it for? Why does it exist? What are the benefits?
Medicaid- HOW- State Funds - (General State Tax Revenues) - there is no state or federal PAYROLL TAX. “State Funds with Federal Assistance.
WHO - Health Insurance for the poor.
WHY- fulfill social goal
BENEFITS-
Blackout Period
Period from when spouse dies to age 60
Admitted VS Non-Admitted
Admitted - Authorized, Certificate of Authority
Non- Admitted - Non-Authorized, NO Certificate of Authority
Primary Source in Underwriting is..?
The Application
Applications - 3 Parts
Part 1 - Name, Address, Beneficiary(s), Type of Policy, other identifying info
Part 2 - Medical Information - Signatures after part 2
Part 3 - Agents Report -
Agents Responsibility vs. Customers Responsibility
Agent- ask all ? , probe if nessasary, eyes and ears of UW
Customer - answer truthfully
Signatures - Policyowner & Agent
If other person - Policyowner, Agent, and Insured
Life Insurance Disclosures
Written Disclosure to cost and coverage (Application) , Disclosure authorization notice (plain language) , HIV - No Discrimination -Informed waiver and consent form -If no Doc listed it becomes Public Health Issue and Department of Health is Notified.
Who can change the application?
The client, the insured, and they must initial.
What happens if a policy is issued without a completed application?
Company waives its right to have answer. - No post-claim underwriting!!! Post Claims UW is Illegal!!!
Warranty vs Representation
Warranty - absolutely true - only insurance company makes warranties. if breach of contract contract is rescinded and premium is repaid
Misrepresentation - statement made by best knowledge and belief - customers
What do companies do if there is a misrepresentation?
was info material to policy issuance?
Fraud
INTENTIONAL misrepresentation or concealment with the intent to cheat another. - Can cause to rescind life or guarantee health insurance policy if discovered within the first two years ,
Contestable Period
First 2 years of life or guaranteed health - after two years the policy becomes incontestable
Guarantee Renewable
when term of policy is up - insurance companies may increase the premium but may only increase by class
Waiver and Estoppel
if you have a right you may waive that right - Estoppel prevents someone from reasserting waived right.
Conditional Reciept
Coverage will begin the later of: date of application, medical exam (completion), date requested by customer,
Life Insurance Replacement - define - how
Replacement (Define)- Anytime an insurance company has a reduction in any of its values so that someone can buy a different policy
Replacement occurs when known, or should be known - lapsed, forfeited, surrenders, terminated,
Reissue with any reduction in values such as: cash, reduced paid up, extended term, reduction of benefits, or term of coverage, pledged as collateral.
Life Insurance Replacement - Agent Duties
Required to read to customer “notice regarding replacement” , list policy’s being replaced - names, policy number , Leave copies of materials, send notice of replacement to our company, signatures agent and customer
USA Patriot Act
Money Laundering - “Dirty Money” Earned illegally —
BSA- Bank secrecy act
MSB - money service business
FinCEN
Financial Crime Enforcement Network
Suspicious Activity Reporting Regulations
Dep, W/D, Transfers or business deals involving $5,000 or more if financial company or insurER -knows or has reason to suspect the transaction 1. has no legal purpose, 2. obtained to avoid other reporting constraints, 3. uses financial institution or insurER to assist in criminal activity, 4. is intended to mask funds from illegal activity,
Filed in 30 days from transaction
Conversion Privilege
Allows the insured to convert his or her GROUP coverage to individual coverage WITHOUT evidence of insurability, WITHIN 31 days from ineligibility point.
Could be ineligibility because of termination, because of class he or she was under and is no longer eligible for coverage, insureds dependent child reaches age specified in the policy as the age of terminating dependent coverage.
Coordination of Benefits Provision
many working couples have employment-provided group coverage and each is covered as a dependent by the others plan. This is designed to give insureds as much coverage as possible while eliminating over insurance .
The Insurance company covering the employee who has the claim is called the primary insurER.(AKA First during the year) - The second company will pay whatever the primary company will not pay, up to its own limits. — Plan of the parent whos BIRTHDAY is first, NOT born first, – is the primary and the other is secondary. — If, for children, parents are separated or divorced, the plan of the parent with custody is primary barring any other legal arrangements
