Insurance Flashcards

Question

Reinstatement

Answer 1

Reinstatement is the act of putting a lapsed policy back in force by producing satisfactory evidence of insurability and paying any past-due premiums required. Most states have reinstatement laws requiring an insurer to allow for a policy to be reinstated upon request of the policy owner within a specified period of time.

Answer 2

Property Insurance is an insurance policy that provides financial reimbursement to the owner or renter of a structure and its contents, in the event of damage or theft. Simply put Property insurance protects the things you own and rent.

Answer 3

Casualty (Liability) Insurance is insurance which broadly encompasses insurance not directly concerned with life insurance, health insurance, or property insurance. Casualty insurance includes vehicle insurance, liability insurance, theft insurance, workers' compensation insurance, and elevator insurance. Casualty insurance protects you financially in the event that someone sues you.

Answer 4

Property and Casualty Insurance are often referred to collectively as property and casualty insurance because the things you own have the potential to harm people in ways that could cause them to sue you. The main kinds of property and casualty insurance include auto insurance, home-owner's insurance, renter's insurance and umbrella insurance.

Answer 5

Proof of loss is a mandatory health insurance provision stating that the insured must provide a completed claim form to the insurer within days of the date of loss. If the insured wants paid, they must PROVE the loss occurred.

Answer 6

A Deductible is the amount of expense or loss to be paid by the insured before an insurance policy starts paying benefits. Deductibles typically apply to property, casualty, and health insurance.

Answer 7

An insurance Declaration page is a piece of paper which provides basic information about an insurance policy. Typically, the first page (face) of an insurance policy is a declaration page. The declarations page normally specifies the named insured, address, policy period, location of property, policy limits, and other key information.

Answer 8

Aleatory is a feature of insurance contracts in that there is an element of chance for both parties and that the dollar given by the policyholder (premiums) and the insurer (benefits) may not be equal. The premiums paid by the applicant is small in relation to the amount that will be paid by the insurance company in the event of a loss. * Consideration may be unequal * The outcome depends on chance or uncertain event * A legal bet is considered an aleatory contract

Answer 9

Apparent Authority deals with the relationship between the insurer, the agent, and the customer. It is the appearance of authority based on the agent-insurer relationship. Apparent authority is a situation in which the insurer gives the customer reasonable belief that an agent has the power and authority to bind the principal.

Answer 10

A competent party is one who is capable of understanding the contract being agreed to. All parties must be of legal competence, meaning they must be of legal age, mentally capable of understanding the terms, and not influenced by drugs or alcohol

Answer 11

A Conditional Contract means certain conditions must be met by all parties in the contract. This is needed when a loss occurs in order for the contract to be legally enforceable. All insurance contracts are conditional contracts

Answer 12

Concealment is the failure of the insured to disclose to the company a fact material to the acceptance of the risk at the time application is made.

Answer 13

Consideration is something of value that each interested party gives to each other. The insured provides consideration with payment of premium. The insurer provides consideration by promising to pay the insurance benefit.

Answer 14

In a contract of adhesion there is only one author - the insurance company. If there is an ambiguity in the contract, the courts always favor the insured over the insurer. Because an insurance contract has been prepared by an insurance company with no negotiation, it is considered a contract of adhesion.

Answer 15

Express authority is the explicit authority granted to the agent by the insurer as written in the agency contract.

Answer 16

Fiduciary Responsibility describes the relationship between the agent or producer and client or company funds. Because the agent handles money of the insured and insurer, he/she has a fiduciary responsibility. A fiduciary is someone in a position of trust. With insurance, for example, it is illegal for agents to mix premiums collected from applicants with their own personal funds. This is called commingling.

Answer 17

Health insurance contracts are indemnity contracts and will only reimburse the actual cost of the loss (pay medical bills, etc.) You cannot profit from an indemnity contract.

Answer 18

Implied authority is authority not specifically granted to the agent in the contract of agency, but which common sense dictates the agent has. It enables the agent to carry out routine responsibilities.

Answer 19

Insurable interest requires that an individual have a valid concern for the continuation of the life or well-being of the person insured. Without insurable interest, an insurance contract is not legally enforceable and would be considered a wagering contract. NOTE: Insurable interest only needs to exist at the time of the application (the inception of the contract).

Answer 20

The law of agency establishes a relationship in which one person is authorized to represent and act for another person or company. In applying the law of agency, the insurance company (insurer) is the principal. An agent or producer will always be deemed to represent the insurance company and not the applicant. In regard to the insurance contract, any knowledge of the agent is considered to be the knowledge of the insurance company (insurer). If the agent is working within the conditions of his/her contract, the insurance company is fully responsible.

Answer 21

Legal purpose means an insurance contract must be legal and not in opposition of public policy. If an insurance contract has insurable interest and the insured has provided written consent, it has legal purpose. Without legal effect, the contract would be null and void.

Answer 22

Life insurance contracts are valued contracts, which means it will pay a stated amount.

Answer 23

Offer and acceptance is an offer that may be made by the applicant by signing the application, paying the first premium, and if necessary, submitting to a physical examination. Policy issuance, as applied for, constitutes acceptance by the company. Or, the offer may be made by the company when no premium payment is submitted with application. Premium payment on the offered policy then constitutes acceptance by the applicant.

Answer 24

Policy A "policy" is a written contract in which one party promises to indemnify another against loss that arises from an unknown event. The various elements which make up an insurance policy continue on pages 3-4.

Answer 25

Policy Rider A legal attachment amending a policy. Additional benefits or a reduction in benefits are often incorporated in policies by the attachment of either a benefit or an exclusion rider.

Answer 26

Representations are statements made by applicants on their applications for insurance that they represent as being substantially true to the best of their knowledge and belief, but that are not warranted as exact in every detail.

Answer 27

Stranger-Originated Life Insurance (STOLl) is life insurance arrangements where investors persuade consumers (usually seniors) to take out new life insurance policies, with the investors named as beneficiary. Investors loan money to the insured to pay the premiums for a defined period. The insured ultimately assigns ownership of the policy to the investors, who receive the death benefit when the insured dies. The insured receives additional financial benefits, such as an upfront payment or a loan.

Answer 28

A Unilateral Contract is a one sided agreement, where only the insurer is legally bound. In an insurance contract only the insurance company is legally bound to do anything.

Answer 29

Utmost Good Faith implies that there will be no attempt by either party to misrepresent, conceal or commit fraud as it pertains to insurance policies.

Answer 30

A Voidable contract is a contract that can be made void at the option of one or more parties to the agreement.

Answer 31

A Void contract is an agreement without legal effect: an invalid contract. Fraud: In the event of fraud, insurance contracts are unique in that they run counter to a basic rule of contract law. Under most contracts, fraud can be a reason to void a contract. With life insurance contracts, an insurer has only a limited period of time (usually two years from date of issue) to challenge the validity of a contract. After that period, the insurer cannot contest the policy or deny benefits based on material misrepresentations, concealment, or fraud. Forms: The insurance carrier is responsible for assembling the policy forms for the insured person(s). Warranties are statements made on an application for insurance that are warranted to be true; that is, they are exact in every detail as opposed to representations. Statements on applications for insurance are rarely warranties, unless fraud is involved.

Answer 32

issues very small face amounts, such as $1,000 or $2,000. Premiums are paid weekly and collected by debit agents. They were designed for burial coverage.

Answer 33

is life insurance of commercial companies not issued on the weekly premium basis. It is made up of several types of individual life insurance, such as temporary (term), permanent (whole).

Answer 34

is insurance written for members of a group, such as a place of employment, association, or a union. Coverage is provided to the members of that group under one master contract. The group is underwritten as a whole, not on each individual member. One of the benefits of group life coverage is usually there is no evidence of insurability required.

Answer 35

Term life insurance gives you the greatest amount of coverage for a limited period of time. Term insurance is only good for a limited period of time because it has a TERMination date. Term insurance is an inexpensive type of insurance, making it an attractive option for large policies. Term life is the CHEAPEST type of pure life insurance, and due to having a termination date and not having any cash value, it will ALWAYS be cheaper than a whole life policy with the same face value. It provides a pure death protection since it only pays a death benefit if the insured dies during the policy term.

Answer 36

Level term is also called level premium level term, has a level face amount and level premiums. Premiums tend to be higher than annual renewable term because they are level throughout the policy period. However, the premiums will increase at each renewal. Life insurance written to cover a need for a specified period of time at the lowest premium is called Level Term Insurance. Term insurance always expires at the end of the policy period. For example, if D needs life insurance that provides coverage for the remainder of her working years and wants to pay as little as possible, D would need Level term. Level term provides a fixed, low premium in exchange for coverage which lasts a specified time period.

Answer 37

Decreasing term is term life insurance that provides an annually decreasing face amount over time with level premiums. These policies are usually used for mortgage protection. A decreasing term policy is a type of life policy which has a death benefit that adjusts periodically (according to a schedule) and is written for a specific period of time. Decreasing term policies are usually written for a mortgage or other debt that typically decreases over time until it is paid off. For example, a 15 year decreasing term policy could protect a 15-year mortgage. As the mortgage balance reduces each year, the face value of the insurance policy will adjust accordingly to match. After the mortgage is paid off, the insurance policy will expire.

Answer 38

Credit policies are typically purchased using a decreasing term life insurance policy, with the term matched to the length of the loan period and the decreasing insurance amount matched to the declining loan balance. Since Credit life insurance is designed to cover the life of a debtor and pay the amount due on a loan if the debtor dies before the loan is repaid, credit policies can only be purchased for up to the amount of the debt or loan outstanding. For example, if you wanted an insurance policy to protect a $20,000, 5-year auto loan, you would use a 5-year decreasing term life insurance policy with an initial face value of $20,000. You will pay the same level premium every month for the 5-year term of the policy. The face value will start out at $20,000 and change according to a schedule (the decreasing balance of the auto loan). After 5 years, the car will be paid for and the insurance policy will no longer be needed.

Answer 39

Increasing term is term life insurance that provides an increasing face amount over time based on specific amounts or a percentage of the original face amount.

Answer 40

Convertible term is a provision that allows policyowners to convert their term insurance into permanent policies without showing proof of insurability. Convertible Term provides temporary coverage that may be changed to permanent coverage without evidence of insurability. For example, if you take out a term insurance policy when you are young to take advantage of your good health and the policy's lower premium, but want the option convert the policy to a permanent one for final expense benefits once your finances improve, you would want a convertible term life policy. The conversion privilege of a group term life policy allows an individual to leave the group term (temporary) plan and convert his or her insurance to an individual (permanent) policy without providing evidence of insurability. The most important factor to consider when determining whether to convert term insurance at the insured's attained age or the insured's original age is the premium cost. The number one factor which impacts life insurance premium cost is the insureds current or attained age. For example, a $25,000 policy on a healthy 7-year-old boy will cost substantially less than a $25,000 policy on a 57-year-old man. Whether converting an individual or group term insurance policy, although your insurability is guaranteed, your age is typically reevaluated to your current (attained) age, not left at the age you were when you applied for the original term policy. Convertible Term would allow you to take your temporary coverage and change it to permanent coverage without evidence of insurability or good health, but your premiums will increase due to using your attained age.

Answer 41

Renewable term is term insurance that guarantees the insured the right to continue term coverage after expiration of the initial policy period without having to prove insurability. For example, if you have a 10-year renewable and convertible term; After the 10 years are up, the policy terminates or you can renew it. If you renew it the premium price will go up, and you will have the policy for another 10 years. This cycle continues until you are too old to renew or it's too expensive. All TERM insurance has a final TERMINATION date where you can no longer renew it.

Answer 42

Annual renewable term is term coverage that provides a level face amount that renews annually. This type of coverage is guaranteed renewable annually without proof of insurability.

Answer 43

A Term Rider is a type of life insurance product which covers children under their parent's policy. Family plan policies usually cover the family head with permanent insurance, and the coverage on the spouse and children is term insurance in the form of a rider. A term rider is always level term. This is cheaper than every family member getting their own policy. For example, the main policy may be on Dad, then mom and the children are riding on (attached to) dad's policy as term riders. Term riders allow for additional family members to be covered under one policy by attaching everyone to a main policy. Term riders can also allow an applicant to have excess coverage by adding an additional term rider for them to the main policy.

Answer 44

Whole life insurance provides death benefits for the entire life of the insured. It also provides living benefits in the form of cash values. It matures at age 100 and normally has a level premium. All whole life has the same type of benefits. The only difference in "types" of whole life is how the policy is paid. Some will be paid straight until death or age 100, some will be paid for after a few years or by a specific age, some may give you a little discount in the early years to help you get started, etc. All whole life lasts until death or age 100, has a fixed premium, and level benefit with cash value accumulation, regardless of how it is paid. Whole life is often compared to BUYING; like BUYING a house.

Answer 45

With Whole Life - Straight Life insurance, premiums are payable throughout the insured's lifetime, and coverage continues until the insured's death. Said differently, premiums are payable as long as coverage is in force. Like all other whole life policies, straight whole life provides fixed premiums, a level death benefit, and cash value. Whole life also requires the face amount to be paid out to the insured at age 100 (when the policy matures), provided a death benefit has not already been paid. If G wants a policy with a fixed level premium and a benefit that pays out at death or age 100, G would want a whole life policy. Straight whole life allows you to maintain coverage throughout your entire lifetime and spread the cost out over your entire life.

Answer 46

With Whole Life - Limited Pay the coverage remains on a limited-pay life policy until age 100 or death, whichever happens first. Even though the premium payments are limited to a certain period, the insurance protection extends until the insured's death, or to age 100. For example, if you were to purchase a 20-pay policy, premiums would need to be paid for 20 consecutive years. After that, you would not be required to make any additional premium payments, and your coverage would be guaranteed until death or age 100. A 40-year old applicant who would like to retire at age 70 and wants a policy with level premiums, permanent protection, and premiums paid up at retirement would also choose a paid-up-at age-70 limited pay policy. A limited pay life insurance policy covers an insured's whole life with level premiums paid over a limited time

Answer 47

Whole Life - Modified is a policy where the premium stays fixed for the first 5 years, and then increases in year 6 and stays level for the remainder of the policy. Modified whole life has all of the same features of any other whole life except the insurance company cuts you a break on premium for the first few years. For example, K wants to buy life insurance because she knows it is cheaper when she is young. However, she is a college student and cannot afford the large premium associated with whole Life. The insurance company may offer her a Modified whole life to lock in her age and provide her all of the benefits of whole life, but give her a discount on premium while she is in college. After the first five years of the policy, she will be out of school and be able to afford the normal premium cost. Modified Whole Life describes a whole life policy with a premium that increases once after the first few years and then remains level for the remainder of the policy.

Answer 48

Whole Life - Modified Endowment Contract (MEC) is best described as a policy that exceeds the maximum amount of premium that can be paid into a policy and still have it recognized as a life insurance contract. A MEC does not meet the 7-pay test and is considered over-funded, according to the IRS. For that reason, the policy will lose favorable tax treatment. The test is designed to discourage premium schedules that would result in a paid-up policy before the end of a seven-year period. For example, if your annual premium for a policy was $1,000 and you paid $20,000 in the first five years, you will have failed the 7-pay test by exceeding $7,000 (7- years times one year of premium). Said differently, you have exceeded the maximum amount of premium that can be paid into a policy and still have it recognized as a life insurance contract.

Answer 49

A Joint Life policy covers the lives of 2 individuals and save on premium cost by averaging the ages of the two insureds. Joint Life policies pay the face amount after the first person covered on the policy dies. This is similar to a Joint Checking account. The policy is shared between two people, and when one person dies, the other receives the entire account. If B and M were insured under a joint life policy and B were to die, M would receive the entire benefit and would also no longer be insured. A policy that promises to pay the face amount on the death of the first of 2 lives covered by the policy is called a Joint Life Policy.

Answer 50

A Joint Survivor or Last Survivor Life Policies cover the lives of two individuals and saves on premium costs by averaging the ages of the two insureds. Joint Life Survivor or Last Survivor policies only pay the death benefit upon the death of the last insured person. For example, say B and M purchase a joint life survivor policy. If B were to die first and then M died 10 years later, no benefits would be paid out from the policy until M died. A Joint Life and Survivor policy covers two lives but only pays benefits after the death of the last insured.

Answer 51

A Family Maintenance policy pays a monthly income from the date of death of the insured to the end of the preselected period. The payment of the face amount of the policy is payable at the end of such preselected period. If P is looking to purchase a life insurance policy that will pay a stated monthly income to his beneficiaries for 20 years after he dies and a lump sum of $20,000 at the end of that 20- year period, he should purchase a Family Maintenance policy. Family maintenance policies provide an income for a specific period starting at the death of the insured.

Answer 52

A Family Income policies pay an income beginning at the insured's death and continues for a period specified from the date of policy issue. For example, G purchased a Family Income policy at age 40, with a 20-year rider period. If G were to die at age 50, G's family would receive an income for 10 years.

Answer 53

An Adjustable Life policy owner is usually looking for a policy offering flexible premiums. As financial needs and objectives change, the policyowner can make adjustments to the premium and/or face amount of an Adjustable Life insurance policy. Adjustable life policies are able to provide these features by combining whole life and term life into a single plan. If a policyowner was looking for a policy in which they could control the amount and frequency of payments with a death benefit that can be adjusted as their life needs change, they would want an adjustable life policy. There typically are no dividends involved with adjustable life policies. Increasing the face amount may require a policyowner to provide proof of insurability. Usually, a customer with an Adjustable life policy has a special need for flexible premiums.

Answer 54

Universal life insurance policyincorporates flexible premiums and an adjustable death benefit. The investment gains from a Universal Life Policy usually go toward the cash value. The policyowner can use the cash value to manipulate the flexible aspects of a universal life insurance policy. A customer who wants a policy that gives them the most options and the most control would be looking for a Universal Life Policy. Universal policies use gains to fund the cash value and give the policyowner options for flexible premiums and adjustable death benefits.

Answer 55

Variable life insurance policies require a producer to have proper FINRA and National Association of Securities Dealers (NASD) securities registration prior to selling any variable policy contract, whether it be life insurance or an annuity, as they include regulated securities. These policies are also known as interest sensitive policies. The policies usually have a fixed level premium, but the cash value and death benefits of a Variable Life policy can fluctuate according to the performance of its underlying investment portfolio. A typical Variable Life Policy investment account grows through mutual funds, stocks, and bonds. This includes Variable Life, Universal Variable life, Variable Whole Life, and Variable Annuity. If a policyowner or applicant was looking for a policy to offset inflation, they would want to look into a variable policy. Since the policyowner is assuming all of the investment risk and the rate of return is not guaranteed, a person must have proper FINRA securities registration in addition to an insurance license to sell any variable contracts.

Answer 56

With Variable Universal Whole Life, (VUL) the policyowner controls the investment of cash values and selects the timing and amount of premium payments. Variable Universal Life policies give a policy owner the best of both Variable Life and Universal Life. If a policy owner was looking for a policy that allowed them to control how much and when premium was due, what investment accounts were used for funding, and where the returns from those investment accounts went, they would be looking for a Variable Universal Life Policy. The policy owner can control the timing and amount of premium payments, as well as the investment of cash values with a Variable Universal Life Policy.

Answer 57

Equity Index Universal Life Insurance Equity Index Universal Life Insurance or Equity Indexed Life combines most of the features, benefits and security of traditional life insurance with the potential of earned interest based on the upward movement of an equity index. Unlike, a traditional whole life plan, this plan allows policyholders to link accumulation values to an outside equity index like S&P 500. 80% to 90% of the premium is invested in traditional fixed income securities and the remainder of the premium is invested in contracts tied to a stipulated stock index. These policies are characterized by a guaranteed minimum interest rate, tax deferral of interest accumulations, and policy loan access. The equity index returns are designed to keep pace with or beat inflation which protects the policyholder against downside market risk. Equity indexed life insurance contracts combine term life insurance with an investment feature, similar to a universal life plan. Death benefit amounts are based upon the coverage amount selected by the contract owner plus the account value.

Answer 58

With an investor (or stranger) originated life insurance policy S(I)OLI, when the insured dies, the policyowner (investor) benefits. In normal circumstances, it is a beneficiary with insurable interest who benefits from the death of an insured. An investor originated life insurance policy is when an investor purchases a policy on the life of someone else to profit upon that person's death. The investor is typically the policyowner, payor, and names themselves beneficiary. Usually, this is in exchange for a monetary living benefit for the insured. For example, L, the Investor, has taken out a $100,000 life insurance policy on E, the insured. L is the policyowner who will receive the $100,000 upon E's death. E is the insured, and in exchange for allowing the policy on his life, receives $500 a month to help with bills. Investor or Stranger Originated Life Insurance Policies are illegal, as they are designed to circumvent the insurable interest requirements of an insurance contract and position the policyowner to benefit upon the death of the insured.

Answer 59

Cash Value is the equity amount or "savings" accumulation in a whole life policy.

Answer 60

The Endowment Policy is a contract providing for payment of the face amount at the end of a fixed period, at a specified age of the insured, or at the insured's death before the end of the stated period.

Answer 61

A face amount plus cash value policy is a contract that promises to pay at the insured's death the face amount of the policy plus a sum equal to the policy's cash value.

Answer 62

Juvenile Insurance is written on the lives of children who are within specified age limits and generally under parental control.

Answer 63

Non-Medical Life Insurance typically does not require a medical exam and tends to be more expensive than medically underwritten policies. The insurer will average out everyone's risk and charge accordingly. Although insurers typically will not require a medical exam, they will still inquire about the applicant's medical history and lifestyle.

Answer 64

The Entire Contract states the insurance policy itself, any riders and endorsements/amendments, and the application comprise the entire contract between all parties. Insurance producers cannot make changes to a policy. The entire contract provision is found at the beginning of every insurance policy issued. Only an authorized officer of the insurer is permitted to make changes to the contract. We can't send you additional paperwork later. THE ENTIRE POLICY AND APPLICATION is sent to you and that makes up your ENTIRE CONTRACT.

Answer 65

The Insuring Clause (or Insuring Agreement) is the insurer's basic promise to pay specified benefits to a designated person in the event of a covered loss. States the scope and limits of coverage "We ensure to INSURE you for..."

Answer 66

The Free Look state the policyowner is permitted a certain number of days once the policy is delivered to look over the policy and return it for a refund of all premiums paid.

Answer 67

The Consideration Clause states a policyowner must pay a premium in exchange for the insurer's promise to pay benefits. A policyowner's consideration consists of completing the application and paying the initial premium. The amount and frequency of premium payments are contained in the consideration clause. "Please CONSIDER me for insurance. Here is my COMPLETED APPLICATION, INITIAL PREMIUM, and how much, how often I agree to pay. Please consider me."

Answer 68

The Grace Period is a period after the due date of a premium during which the policy remains in force without penalty. If an insured dies during the Grace Period of a life insurance policy before paying the required annual premium, the beneficiary will receive the face amount of the policy minus any required premiums. For life insurance the grace period is typically one month. For health insurance, remember Aunt Grace's Birthday 7(makes payments more than once a month)-10(makes premium payments once a month)-31(makes Premium payments less than monthly (quarterly, semiannually, etc.).

Answer 69

A Reinstatement is putting a lapsed policy back in force by producing satisfactory evidence of insurability and paying any past-due premiums required. It Permits the policyowner to reinstate a policy that has lapsed- as long as the policyowner can provide proof of insurability and pays all back premiums, outstanding loans, and interest. Most states allow reinstatement up to 3 years after a policy has lapsed. However, some states are 5- 7 years. To reinstate any policy, you need: A reinstatement application, statement of good health, all back premiums.

Answer 70

Policy Loan (cash withdrawal) Provisions apply to policies that have cash value also have policy loan and withdrawal provisions. These policies must begin to build cash value after a certain number of years. In most states, this is 3 years. These loans, with interest, cannot exceed the guaranteed cash value or the policy is no longer in force. The policyowner has the right to the policy's cash value. Policy loans are not taxable. Any loans with interest due at the time of death will be deducted from the insured's policy proceeds.

Answer 71

The Automatic Premium Loan provision (or rider): Allows the insurance company to deduct overdue premium from an insured's cash value by the end of the grace period if a payment is missed on a life policy. The insurance company can AUTOMATICALLY take out a LOAN for you against your CASH VALUE to cover your PREMIUM in the event they don't receive payment from you. This can continue for as long as they don't receive a payment and you still have cash value. Once all of your cash value is gone, if you don't start paying, your policy will lapse. This is just like any other cash value loan.

Answer 72

Other insureds is also known as, Dependent riders may be added to a primary policy to cover a spouse or “another insured”, children or adopted children.

Answer 73

The "Incontestability Period" provides that, for certain reasons such as misstatements on the application, the company may void a life insurance policy after it has been in force during the insured's lifetime, usually one or two years after issue. After that period, the policy is considered incontestable.

Answer 74

The assignment clause allows the right to transfer policy rights to another person or entity.

Answer 75

Absolute Assignment is a policy assignment under which the assignee (person to whom the policy is assigned) receives full control over the policy and also full rights to its benefits. Generally, when a policy is assigned to secure a debt, the owner retains all rights in the policy in excess of the debt, even though the assignment is absolute in form.

Answer 76

Collateral Assignment is an assignment of a policy to a creditor as security for a debt. The creditor is entitled to be reimbursed out of policy proceeds for the amount owed. The beneficiary is entitled to any excess of policy proceeds over the amount due the creditor in the event of the insured's death.

Answer 77

The Accelerated Benefit Rider allows the insured to receive a portion of the death benefit prior to death if the insured has a terminal illness and expected to die within 1-2 years. Whatever amount is withdrawn in an accelerated death benefit will decrease the death benefit when death occurs. Accelerated Benefit Example: Your doctor said you are going to die, so you aren't going to stop paying your insurance (since you know you'll need it soon). Insurance company now knows you are going to die soon which means they are going to have to pay out the benefit. To make things a little easier and less stressful, they will give YOU some of the proceeds NOW and deduct from what would go to your beneficiary. Exclusions are features of an insurance policy stating that the policy will not cover certain risks. There are 6 common exclusions in insurance.

Answer 78

Suicide Clause: The policy will be voided and no benefit will be paid if the insured commits suicide within 2 years from policy issuance. The primary purpose of a suicide provision is to protect the insurer against the purchase of a policy in contemplation of suicide.

Answer 79

Aviation: The insurer will not pay the claim if the insured dies or is injured due to involvement with aviation, such as a military pilot flying a jet aircraft.

Answer 80

War or Military Service: The insurer will not pay the claim if the insured dies or is injured while in active military service or due to an act of war.

Answer 81

Commitment of a Felony\illegal occupation: If the insured dies or is injured while committing a crime of participating in an illegal occupation, the insurer will not pay the claim.

Answer 82

Alcohol\Narcotics: If the insured dies or is injured as a result of alcohol or narcotics, the insurer will not pay the claim.

Answer 83

Hazardous Occupation or Hobby: If the insured dies or is injured as a result of a hazardous occupation or hobby, the insurer will not pay the claim.

Answer 84

The Misstatement of Age or Sex Provision allows the insurer to adjust the policy benefits if the insured's age or sex is misstated on the policy application. The misstatement of age provision allows the insurer to adjust the benefit payable if the age of the insured was misstated when application for the policy was made. If the insured was older at the time of application than is shown in the policy, benefits would be reduced accordingly. The reverse would be true if the insured were younger than listed in the application.

Answer 85

Nonforfeiture Options are the options you have for your cash value if you terminate a policy that has cash value. You are closing your account (surrendering your policy), what do you want us to do with your cash (so you don't forfeit it)? When a policyowner decides, he does not want his insurance policy anymore, he has the option to surrender his policy. If there is cash value remaining, he must use one of the following nonforfeiture options:

Answer 86

Cash Surrender: allows the policyowner to receive the policy's cash value. Policyowner no longer has coverage at this point. Normally, the maximum length of time a life insurance company may legally defer paying the cash value of a surrendered policy is 6 months (Delayed Payment provision).

Answer 87

Extended Term Option: permits the policyowner to use the policy's cash value to buy level, extended term insurance for a specified period. No premium payments are made. The coverage provided with the extended term nonforfeiture option is equal to the net death benefit of the lapsed policy.

Answer 88

Reduced Paid-Up Option: the policyowner pays no more premiums but the face amount is decreased.

Answer 89

Cash Option: Take the cash

Answer 90

Dividend Options are the options a policyowner has when receiving dividend payments form an insurance policy. Participating policies pay dividends to policyowners if the company's operations result in a divisible surplus. Recall that dividends are a return of overcharged premiums, and are therefore not taxable. Insurers typically pay dividends on an annual basis. Keep in mind, with dividends, the policy is still active. The following dividend options are available to policyowners for settling dividend payments.

Answer 91

Reduced Premiums Option: Reduces premium payments

Answer 92

Accumulate Interest Option: Allows dividends to accumulate interest. Interest is the ONLY thing you can be charged tax on.

Answer 93

Paid-Up Additions Option: Purchase single payment whole life coverage

Answer 94

One-Year Term Option: Purchase one-year term protection

Answer 95

The Guaranteed Insurability Rider (future increase option): Permits the policyowner to buy additional permanent life insurance coverage at specific points of time in the future without submitting proof of insurability. It also includes specific events like marriage and births, without requiring the proof of insurability. Usually the benefit is allowed every 3 years, up to the original face amount of the policy. Health doesn't matter, age does Increase coverage for yourself without providing evidence of insurability

Answer 96

LIFE INSURANCE: Typically issued on a child's policy Allows them to add additional WHOLE LIFE COVERAGE Marriage, childbirth, various ages (25, 28, 31, 34, 37, 40)

Answer 97

Health Insurance Typically for long-term care and disability Allows to add additional LTC coverage or income protection Typically to keep offered at various ages to keep up with inflation and promotions Sometimes also called Future Increase Option or Cost of Living Increase

Answer 98

The Waiver of Premium Rider allows the policyowner to waive premium payments during a disability and keeps the policy in force. It does not provide cash payments to the policyowner. The disability must be total and permanent and have sustained through the waiting period (90 days or 6 months). After a certain age (usually 60 or 65), the waiver of premium rider is void. Waiver: Covers the PRIMARY INSURED. Does NOT provide income. Is NOT a loan. The insurance company is "waiving" the premiums". It's just as if the insured made the premiums every month.

Answer 99

Payor Provision (Rider or Clause) is available under certain juvenile life insurance policies and provides for the waiver of future premiums if the person responsible for paying them dies or is disabled before the policy becomes fully paid or matures as a death claim, or as an endowment, or the child reaches a specific age.

Answer 100

The Accidental Death Benefit Rider (multiple indemnity) pays an additional sum to the beneficiary if the insured dies due to an accident. The amount paid is a multiple of the policy face amount such as double or triple the original benefit. Truly the cheapest way to add a lot of coverage for a period of time.

Answer 101

The Return of Premium Rider pays the total amount of premiums paid into the policy in addition to the face value, as long as the insured dies within a certain time period specified in the policy. It also returns premiums to the living insured at the end of a specified period of time, as long as the premiums have been paid.

Answer 102

ACCELERATED BENEFIT (OPTION) RIDER allows the insured to receive a portion of the death benefit prior to death if the insured has a terminal illness and is certified by a physician as expected to die within 1-2 years.

Answer 103

BENEFICIARY: The person or entity designated in a life insurance policy to receive the death proceeds.

Answer 104

CASH VALUE: The equity or savings element of whole life insurance policies.

Answer 105

CLASS DESIGNATION: A beneficiary group designation (for example, all of my children), opposed to specifying one or more beneficiaries by name.

Answer 106

COMMON DISASTER PROVISION: A provisions of the Uniform Simultaneous Death Act which ensures a policyowner if both the insured and the primary beneficiary die within a short period of time, the death benefits will be paid to the contingent beneficiary. It also states that the primary beneficiary must outlive the insured a specified period of time in order to receive the proceeds.

Answer 107

CONTINGENT (SECONDARY) BENEFICIARY: The beneficiary second in line to receive death benefit proceeds if the primary beneficiary dies before the insured.

Answer 108

EARNED PREMIUM: The amount of premium paid by the policyowner for policy coverage or insurance protection already received.

Answer 109

EXPENSE FACTOR: Also known as the loading charge, is a measure of what it costs an insurance company to operate.

Answer 110

EXPENSE FACTOR: Also known as the loading charge, is a measure of what it costs an insurance company to operate.

Answer 111

FIXED AMOUNT INSTALLMENT OPTION: Pays a fixed death benefit in specified installment amounts until the principal and interest are exhausted.

Answer 112

FIXED/LEVEL PREMIUM: A concept of averaging what would be the total single premium for a policy over periodic payments. More periodic payments = higher total premium.

Answer 113

FIXED PERIOD OR PERIOD CERTAIN OPTION: Pays the death benefit proceed in equal installments over a set period of years. The dollar amount of each installment depends upon the total number of installments.

Answer 114

GRADED PREMIUM: A premium funding option characterized by a lower premium in the early years of the contract with premiums increasing annually for an introductory period. After the introductory period, the premium jumps to an amount higher than what the initial level premium would have been, and then remains fixed or constant for the life of the policy.

Answer 115

GROSS (ANNUAL) PREMIUM: The net premium for insurance plus commissions, operating and miscellaneous expenses, and dividends.

Answer 116

INTEREST FACTOR: A calculation for determining the amount of interest an insurance company can expect to earn from investing insurance premiums.

Answer 117

INTEREST ONLY OPTION: A death settlement option where the insurance company holds death benefit for a period of time and pays only the interest earned to the named beneficiary. A minimum rate of interest is guaranteed and the interest must be paid at least annually.

Answer 118

IRREVOCABLE BENEFICIARY: A beneficiary which may not be changed by the policyowner without the written consent of the beneficiary.

Answer 119

JOINT AND SURVIVOR OPTION: A settlement option which guarantees that benefits will be payed on a life-long basis to two or more people. This option may include a period certain and the amount payable is based on the ages of the beneficiaries. LIFE INCOME OPTION: A death benefit settlement option which provides the beneficiary with an income that they cannot outlive. Installment payments are guaranteed for as long as the recipient lives. The amount of each installment is based on the recipient's life expectancy and the amount of principal.

Answer 120

LIFE SETTLEMENT: An agreement in which a policyholder sells or transfer ownership in all or part of a life insurance policy to a third party for compensation that is less than the expected death benefit of the policy.

Answer 121

LUMP SUM OPTION: A death settlement option where death benefit is paid in a single payment, minus any outstanding policy loan balances and overdue premiums. The lump sum option is considered the automatic (or "default") option for most life insurance contracts.

Answer 122

MODIFIED PREMIUM: A premium funding option characterized by an initial premium that is lower than it should be during an introductory period of time (normally the first three to five years). After this time, the premium will increase to an amount greater than what the initial level premium would have been, and then remains level or constant for the life of the policy.

Answer 123

MORTALITY RATE: A measure of the number of deaths (in general, or due to a specific cause) in some population, scaled to the size of that population, per unit time.

Answer 124

NET PAYMENT COST INDEX: A formula used to determine the true cost of a policy for a policyowner. It uses the same the same formula as the Surrender Cost Index with the exception that it doesn't assume that the policy will be surrendered at the end of the period. The net payment cost index is useful if one's primary concern is the amount of death benefits provided in the policy.

Answer 125

NET (SINGLE) PREMIUM: A premium calculation used to calculate an insurer's policy reserves factoring in interest and mortality.

Answer 126

PER CAPITA (by the head): Evenly distributes benefits among all named living beneficiaries.

Answer 127

PER STIRPES (by the bloodline): Evenly distributes benefits amongst a beneficiary's heirs in the event that a beneficiary dies before the insured.

Answer 128

PREMIUM MODE: The frequency in which a policyowner elects to pay premiums.

Answer 129

PRIMARY BENEFICIARY: The first beneficiary in line to receive benefit proceeds upon the death of an insured.

Answer 130

POLICY PROCEEDS: The amount actually paid as a death, surrender, or maturity benefit. In the case of a death benefit, it includes the face value plus any earned dividends less any outstanding loans and interest. If surrender benefit, the amount includes any cash value less surrender charges and outstanding loans and interest. If maturity benefit the amount includes the cash value less any outstanding loans and interest.

Answer 131

RESERVES: The money set aside (required by the state's insurance laws) to pay future claims.

Answer 132

REVOCABLE BENEFICIARY: A beneficiary that the policy owner may change at any time without notifying or getting permission from the beneficiary

Answer 133

SETTLEMENT OPTIONS: Are optional modes of settlement provided by most life insurance policies. Options include lump-sum cash, interest-only, fixed-period, fixed-amount, and life income.

Answer 134

SINGLE PREMIUM FUNDING: A policy funding option where the policyowner pays a single premium that provides protection for life as a paid-up policy.

Answer 135

SPENDTHRIFT CLAUSE: A clause which prevents creditors from obtaining any portion of policy proceeds upon an insured's death. Additionally the clause can be selected by the policyowner to prevent a beneficiary from recklessly spending benefits by requiring the benefits to be paid in fixed amounts or installments over a certain period of time.

Answer 136

SURRENDER COST INDEX: A cost comparison calculation formula where the net cost is averaged over the number of years the policy was in force to arrive at the average cost-per-thousand for a policy that is surrendered for its cash value at the end of that period.

Answer 137

TERTIARY BENEFICIARY: The third beneficiary in line to receive death benefit proceeds if the primary and contingent beneficiaries both die before the insured.

Answer 138

UNEARNED PREMIUM: Premium which has been paid by a policyowner for insurance coverage which has not yet been provided.

Answer 139

UNIFORM SIMULTANEOUS DEATH ACT: states that if the insured and the primary beneficiary die at approximately the same time for a common accident with no clear evidence as to who died first, the law will assume that the primary died first, this allows the death benefit proceeds to be paid to the contingent beneficiaries.

Answer 140

Insurable Interest requires that an individual have a valid concern for the continuation of the life or well-being of the person insured. Without insurable interest, an insurance contract is not legally enforceable and would be considered a wagering contract. Insurable interest only needs to exist at the time of the application (the inception of the contract). A person is considered to have unlimited insurable interest in themselves.

Answer 141

The Application is a form supplied by the insurance company, usually filled in by the agent and medical examiner (if applicable) on the basis of information received from the applicant. It is signed by the applicant and is part of the insurance policy if it is issued. It gives information to the home office underwriting department, so it may consider whether an insurance policy will be issued and, if so, in what classification and at what premium rate.

Answer 142

General (Part 1) of the application asks general questions about the proposed insured, including name, age, address, birth date, sex, income, marital status, and occupation. Details about the requested insurance coverage are also included in Part I such as: Type of policy Amount of insurance Name and relationship of the beneficiary Other insurance the proposed insured owns Additional insurance applications the insured has pending Other information sought may indicate possible exposure to a hazardous hobby, foreign travel, aviation activity, or military service. Tobacco use.

Answer 143

Medical (Part II) of the application focuses on the proposed insured's health and asks a number of questions about the health history, not only of the proposed insured, but of the proposed insured's family, too. This medical section must be completed in its entirety for every application. Depending on the proposed policy face amount, this section may or may not be all that is required in the way of medical information. The individual to be insured may be required to take a medical exam and/or provide a blood test or urine specimen. Physical exams, if requested by the insurer, are performed at the expense of the insurer.

Answer 144

Agent's Report (Part III) of the application is where the agent reports personal observations about the proposed insured. Because the agent represents the interests of the insurance company, the agent is expected to complete this part of the application fully and truthfully. In Part III, the agent provides additional information about the applicant's financial condition and character, the background and purpose of the sale, and how long the agent has known the applicant. The agent's report also usually asks if the proposed insurance will replace an existing policy. If the answer is yes most states demand that certain procedures be followed to protect the rights of consumers when policy replacement is involved.

Answer 145

The Medical Information Bureau is a service organization that collects medical data on lifeand health insurance applicants for member insurance companies.

Answer 146

An attending physician statement (APS) is a report ordered by the insurance company and completed by a physician, hospital or medical facility who has treated, or who is currently treating, a person seeking insurance. An APS is one of the most frequently ordered additional sources of medical background information and can be for a specific ailment (diabetes, broken leg, etc.) or for a general family doctor.

Answer 147

Inspection Reports are reports of an investigator providing facts required for a proper underwriting decision on applications for new insurance and reinstatements.

Answer 148

Credit Report is a summary of an insurance applicant's credit history, made by an independent organization that has investigated the applicant's credit standing.

Answer 149

The Fair Credit Reporting Act is a federal law requiring an individual to be informed if she is being investigated by an inspection company. The law also outlines the sharing and impact of such information and requires individuals to be notified prior to being investigated.

Answer 150

Risk Classification is the grouping of different risks according to their estimated cost or likely impact, likelihood of occurrence, countermeasures required, etc.

Answer 151

Preferred is a risk whose physical condition, occupation, mode of living, and other characteristics indicate a prospect for longevity for unimpaired lives of the same age.

Answer 152

Standard is a person who, according to a company's underwriting standards, is entitled to insurance protection without extra rating or special restrictions.

Answer 153

Substandard is a person who is considered an under average or impaired insurance risk because of physical condition, family or personal history of disease, occupation, residence in unhealthy climate, or dangerous habits.

Answer 154

A Buyer's Guide is an informational consumer guide books that explain insurance policies and insurance concepts; in many states, they are required to be given to applicants when certain types of coverages are being considered. Buyer's Guides are often used with life insurance, long-term care insurance, and annuities.

Answer 155

A Policy Summary is a summary of the terms of an insurance policy, including the conditions, coverage limitations, and premiums. Policy summaries are often used with life insurance, long-term care insurance, and annuities.

Answer 156

A Conditional Receipt is given to the policy owners when they pay a premium at time of application. Such receipts bind the insurance company if the risk is approved as applied for, subject to any other conditions stated on the receipt.

Answer 157

Binding Receipts are given by a company upon an applicant's first premium payment. The policy, if approved, becomes effective from the date of the receipt.

Answer 158

Backdating is the practice of making a policy effective at an earlier date than the present. This is typically done to lower insurance premiums by ignoring a recent birthday. In most states agents are allowed to back-date up to 6-months, provided the insurer allows this practice.

Answer 159

The USA Patriot Act was enacted in 2001 and requires insurance companies to establish formal anti-money laundering programs. The purpose of the USA Patriot Act is to detect and deter terrorism.

Answer 160

Representations are statements an applicant makes as being substantially true to the best of the applicant's knowledge and belief, but which are not warranted to be exact in every detail. Representations must be true only to the extent that they are material to the risk.

Answer 161

Warranties are statements that are guaranteed to be correct. A warranty that is not literally true in every detail, even if made in error, is sufficient to render a policy void.

Answer 162

Noncontributory is an employee benefit plan under which the employer bears the full cost of the employees' benefits; in most states, the plan must insure 100% of eligible employees.

Answer 163

Contributory is a group insurance plan issued to an employer under which both the employer and employees contribute to the cost of the plan. Generally, 75% of the eligible employees must be insured in most states.

Answer 164

Certificate of insurance is a document issued by an insurance company/broker that is used to verify the existence of insurance coverage under specific conditions granted to listed individuals. With group insurance, the group (typically employer) is the policy owner and maintains a master policy. The insureds (typically employees) receive a certificate of insurance in lieu of a policy.

Answer 165

A Master policy is issued to the employer under a group plan; contains all the insuring clauses defining employee benefits. Individual employees participating in the group plan receive individual certificates that outline highlights of the coverage.

Answer 166

Conversion Privilege allows a policy owner, before an original insurance policy expires, to elect to have a new policy issued that will continue the insurance coverage. Conversion may be effected at attained age (premiums based on the age attained at time of conversion) or at original age (premiums based on age at time of original issue). Conversion is a common privilege for term life insurance and all group insurance. The insured does not have to prove insurability (good health) when converting a policy.

Answer 167

Franchise Insurance is a life or health insurance plan for covering groups of persons with individual policies uniform in provisions, although perhaps different in benefits. Solicitation usually takes place in an employer's business with the employer's consent. Generally written for groups too small to qualify for regular group coverage. May be called wholesale insurance when the policy is lifeinsurance.

Answer 168

Credit Policies are designed to help the insured pay off a loan in the event they are disabled due to an accident or sickness or in the event they die. If the insured becomes disabled, the policy provides for monthly benefit payments equal to the monthly loan payments due. If the insured dies, the policy will pay a lump sum to the creditor to pay off the loan. Credit policies typically cannot exceed the amount of the loan as that is the only amount the creditor has insurable interest in.

Answer 169

Blanket Health Policies are issued to cover a group who may be exposed to the same risks, but the composition of the group (the individuals within the group) are constantly changing. A blanket health plan may be issued to an airline or a bus company to cover its passengers or to a school to cover its students. No certificates of coverage are issued in a blanket health plan, as compared to group insurance.

Answer 170

An Annuitant is one to whom an annuity is payable, or a person upon the continuance of whose life further payment depends.

Answer 171

The Accumulation Period is when the premiums an annuitant pays into annuities are credited as accumulation units. The accumulation period may continue between the time after premiums have ceased but payout has not yet begun. At the end of the accumulation period, accumulation units are converted to annuity units.

Answer 172

Accumulation Units make up the value of contributions made by the annuitant less a deduction for expenses. The value of each accumulation unit is credit to the individual's account and varies depending on the value of the underlying stock investment.

Answer 173

Annuity Units are the converted accumulation units once variable annuity benefits are to be paid out to the annuitant. At the time of the initial payout the annuity unit calculation is made. From then on, the number of annuity units remains the same for that annuitant.

Answer 174

The Principal is the original sum of money paid in to an annuity through premium(s).

Answer 175

Single premium Annuity is an annuity for which the entire premium is paid in one sum at the beginning of the contract period. This can be deferred or immediate.

Answer 176

Periodic Payments (Flexible Premium) describes an annuity owner making multiple premium payments to accumulate principle. Typically, after the initial premium, these payments are flexible with frequency and amount.

Answer 177

Immediate annuities provide for payment of annuity benefit at one payment interval from date of purchase. Can only be purchased with a single payment. Immediate annuities typically begin paying income within one month of purchase.

Answer 178

Deferred annuities provides for postponement of the commencement of an annuity until after a specified period or until the annuitant attains a specified age. May be purchased either on single-premium or flexible premium basis. Deferred annuities typically do not begin making income payments for at least one year after the date of purchase.

Answer 179

Straight life annuity is an annuity income option that pays a guaranteed income for the annuitant's lifetime, after which time payments stop.

Answer 180

The Cash refund option provides that, upon the death of an annuitant before payments totaling the purchase price have been made, the excess of the amount paid by the purchaser over the total annuity payments received will be paid in one sum to designated beneficiaries.

Answer 181

A Life with Period Certain or life income with term-certain option is designed to pay the annuitant an income for life, but guarantees a definite minimum period of payments. The life with period certain option provides income to the annuitant for life but guarantees a minimum period of payments. This, if the annuitant dies during the specified period, benefit payments continue to the beneficiary for the remainder of that period.

Answer 182

A Joint and full survivor option provides for payment of the annuity to two people. If either person dies, the same income payments continue to the survivor for life. When the surviving annuitant dies, no further payments are made to anyone. A full survivor option pays the same benefit amount to the survivor. A two-thirds survivor option pays two-thirds of the original joint benefit. A one-half survivor option pays one-half of the original joint benefit.

Answer 183

Period certain is an annuity income option that guarantees a definite minimum period of payments. IE: 10 years.

Answer 184

Fixed annuities provide a guaranteed rate of return. The interest payable for any given year is declared in advance by the insurer and is guaranteed to be no less than a minimum specified in the contract. With fixed annuities, the investment risk is on the insurer.

Answer 185

Variable annuities shift the investment risk from the insurer to the contract owner. are similar to a traditional, fixed annuity in that retirement payments will be made periodically to the annuitants, usually over the remaining years of their lives. Under the variable annuity, there is no guarantee of the dollar amount of the payments; they fluctuate according to the value of an account invested primarily in common stocks. Variable annuities invest deferred annuity payments in an insurer's separate accounts, as opposed to an insurer's general accounts (which allow the insurer to guarantee interest in a fixed annuity). Because variable annuities are based on non-guaranteed equity investments (such as common stock), a sales representative who wants to sell such contracts must be registered with the Financial Industry Regulatory Authority (FINRA) as well as hold a state insurance license.

Answer 186

Equity indexed annuities are a fixed deferred annuity that offers the traditional guaranteed minimum interest rate and an excess interest feature that is based on the performance of an external equities market index.

Answer 187

A Market Value Adjustment can be attached to a deferred annuity that features fixed interest rate guarantees combined with an interest rate adjustment factor that can cause the actual crediting rates to increase or decrease in response to market conditions. Instead of having the annuity's interest rate linked to an index as with the equity-indexed annuity, an MVA annuity's interest rate is guaranteed fixed if the contract is held for the period specified in the policy. The market-value adjustment feature applies only if the contract is surrendered before the contract period expires. Otherwise, the annuity functions the same way a fixed annuity does.

Answer 188

The Exclusion ratio is a fraction used to determine the amount of annual annuity income exempt from federal income tax. The exclusion ratio is the total contribution or investment in the annuity divided by the expected ratio.

Answer 189

1035 Contract Exchange applies to annuities. If an annuity is exchanged for another annuity, a gain (for tax purposes) is not realized. This is also true for a life insurance policy or an endowment contract exchanged for an annuity. However, an annuity cannot be exchanged for a life insurance policy. This provision in the tax code allows you, as a policyholder, to transfer funds from a life insurance, endowment or annuity to a new policy, without having to pay taxes. The 403(b) Plan is a retirement plan for certain employees of public schools, employees of certain tax-exempt organizations, and certain ministers.

Answer 190

Quarter of Coverage is a basic unit for determining whether a worker is insured under the Social Security program.

Answer 191

The Social Security Act of 1935 was created to provide for the general welfare of United States citizens who are 65 years of age and older. The Act was enacted by the Senate and House of Representatives of the United States to enable individual states to make more adequate provisions to furnish financial assistance to the aged, blind, dependent and crippled children, maternal and child welfare, public health, and to establish more adequate provisions for the administration of their unemployment compensation laws; to establish a Social Security Board; to raise revenue; and to provide a basic floor of protection to all working Americans against the financial problems brought on by death, disability, and aging. In 1939 the law was changed to add survivors' benefits and benefits for the retiree's spouse and children. In 1956 disability benefits were added. Social Security is an entitlement program, not a welfare program. It is based on a "pay now in exchange for benefits later" system.

Answer 192

FICA taxes (Federal Insurance Contributions Act) are used to fund the Social Security program if a person hasn't contributed through their payroll program, they are not eligible for benefits.

Answer 193

Credits are the determining factor between being classified as fully insured or currently insured. Once a person becomes fully insured, death benefits are extended to his (or her) family. In other words, the family becomes eligible for survivorship benefits. Four credits is the maximum any one person can earn in a given year; therefore, for the 40-quarter rule to apply, an individual must have been employed and have paid FICA taxes for 10 years at least.

Answer 194

Fully Insured is a status of complete eligibility for the full range of Social Security benefits: death benefits, retirement benefits, disability benefits, and Medicare benefits. A person must have contributed for 40 quarters of employment to be fully insured.

Answer 195

Currently Insured is under Social Security, a status of limited eligibility that provides only death benefits.

Answer 196

OASDI stands for old age, survivor and disability insurance, which is more commonly referred to as Social Security. To pay for these programs, the federal government imposes a tax on earned income that must be withheld by your employer. The OASDI deduction on your paycheck shows how much was withheld.

Answer 197

The Primary Insurance Amount (PIA) is the benefit (before rounding down to next lower whole dollar) a person would receive if he/she elects to begin receiving retirement benefits at his/her normal retirement age. At this age, the benefit is neither reduced for early retirement nor increased for delayed retirement.

Answer 198

Blackout period is a period following the death of a family breadwinner during which no Social Security benefits are available to the surviving spouse.

Answer 199

Disability Benefit Qualifications is when Social Security uses both medical disability criteria and non- medical criteria to determine whether you qualify for Social Security disability (SSDI, the program based on work credits) or Supplemental Security Income (SSI, the low-income program). First, you must be able to prove that you are medically disabled.

Answer 200

Retirement Benefits is when Social Security retirement benefits are only available to covered workers who are fully insured upon retirement. Benefits are paid monthly. If a covered worker retires at the normal retirement age, he or she will receive 100% of the PIA. However, if a covered worker retires early at the age of 62, the maximum Social Security benefits is 80% of the PIA. This reduction remains all through retirement. Retirement benefits pay covered retired workers, their spouses, and other eligible dependents a monthly retirement income.

Answer 201

Taxation of Social Security Benefits states that Social Security benefits are subject to federal income tax if the beneficiary files an individual tax return and his or her annual income is greater than $25,000. Joint filers will pay federal income tax on their Social Security benefits if their income is greater than $32,000

Answer 202

A Qualified plan is a retirement or employee compensation plan established and maintained by an employer that meets specific guidelines spelled out by the IRS and consequently receives favorable tax treatment.

Answer 203

ERISA (The Employee Retirement Income Security Act of 1974) is a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans.

Answer 204

Defined contribution plans are a tax-qualified retirement plan in which annual contributions are determined by a formula set forth in the plan. Benefits paid to a participant vary with the amount of contributions made on the participant's behalf and the length of service under the plan.

Answer 205

Profit-sharing plans are any plans whereby a portion of a company's profits isset aside for distribution to employees who qualify under the plan.

Answer 206

Defined benefit plans are pension plans under which benefits are determined by a specific benefitformula.

Answer 207

The 401(k) Plan is a retirement savings plan sponsored by an employer. It lets workers save and invest a piece of their paycheck before taxes are taken out. Taxes aren't paid until the money is withdrawn from the account.

Answer 208

The 403(b) Plan is a retirement plan for certain employees of public schools, employees of certain tax-exempt organizations, and certain ministers.

Answer 209

Keogh plans are designed to fund retirement of self-employed individuals; name derived from the author of the Keogh Act (HR-10), under which contributions to such plans are given favorable tax treatment.

Answer 210

Simplified employee pension (SEP) is a type of qualified retirement plan under which the employer contributes to an individual retirement account set up and maintained by the employee.

Answer 211

SIMPLE is a qualified employer retirement plan that allows small employers to set up tax-favored retirement savings plans for their employees.

Answer 212

Traditional IRA is a personal qualified retirement account through which eligible individuals accumulate tax- deferred income up to a certain amount each year, depending on the person's tax bracket.

Answer 213

IRA Contributions/Withdrawals provide generous tax breaks. But it's a matter of timing when you get to claim them. Traditional IRA contributions are tax deductible on both state and federal tax returns for the year you make the contribution, while withdrawals in retirement are taxed at ordinary income tax rates. Anyone under the age of 70 1/2 with earned income may open a traditional IRA. Withdrawals must start no later than April 1 following the year in which the participant reaches the age of 70 1/2, and the law specifies a minimum amount that must be withdrawn every year. No cash withdrawals prior to the age of 59 1/2 are permitted without having to pay a 10% excise tax, with the following exceptions: if the owner dies or becomes disabled; if distribution is in equal payments over the owner's lifetime; if higher education expenses for a dependent are necessary; to purchase a first home with up to $10,000 down payment; if out-of-pocket medical expenses are in excess of 7.5% of adjusted gross; to pay health insurance premiums while unemployed; or to correct or reduce an excess contribution.

Answer 214

Roth IRA is an individual retirement account allowing a person to set aside after-tax income up to a specified amount each year. Both earnings on the account and withdrawals after age 59 1/2 are tax-free. The funds are taxed as income before the contribution is made. In other words, Roth contributions are made with after-tax dollars. Therefore, at the time of payout, the funds are tax free. Unlike the traditional IRA, the Roth imposes no age limits. Roth withdrawals are either qualified or nonqualified. Also, unlike traditional IRAs, Roth IRA distributions are not mandatory and can therefore be inherited and passed down through generations.

Answer 215

Qualified Withdrawals provide the tax-free distribution of earnings. To be a qualified withdrawal, the funds must have been held in the account for a minimum of five years; and if the withdrawal occurs for one of the following reasons, no portion of the withdrawal is subject to tax. The owner has reached age 59 1/2 The owner dies or becomes disabled The distribution is used to purchase a first home

Answer 216

Nonqualified Withdrawal If a withdrawal is taken without meeting the above criteria and the amount of the withdrawal exceeds the total amount contributed, it is a nonqualified withdrawal. The earnings from the contributions become taxable.

Answer 217

Rollovers are an individual retirement account established with funds transferred from another IRA or qualified retirement plan that the owner had terminated.

Answer 218

The Human Life Value Approach is an individual's economic worth, measured by the sum of the individual's future earnings that is devoted to the individual's family.

Answer 219

The Human Needs Approach is a method for determining how much insurance protection a person should have by analyzing a family's or business's needs and objectives should the insured die, become disabled, or retire.

Answer 220

Needs-Based Selling describes the ethical duty of a producer to sell a product that fits the needs of the prospect rather than the needs of the producer. An example of a needs-based violation is a prospect being sold insurance with the highest premium (and the greatest commission) instead of the proper coverage. By committing themselves to professionalism and the needs of the client, insurance producers can act both responsibly and ethically. There are two principles involved in needs-based selling:

Answer 221

Fact-finding is the first step. An agent should understand what his client's goals are (long term, short term, retirement, etc.) and be able to create a map that will lead to the fulfillment of those goals. Treat all information with utmost confidentiality.

Answer 222

Education is the second step. Show clients how insurance can be used as an effective financial tool to help them reach their individual goals. Make certain the client understands the application and underwriting processes, the policy purchased and any attached riders.

Answer 223

Cross-purchase plans are agreements that provide that upon a business owner's death, surviving owners will purchase the deceased's interest, often with funds from life insurance policies owned by each principal on the lives of all other principals.

Answer 224

Entity plans are agreements in which a business assumes the obligation of purchasing a deceased owner's interest in the business, thereby proportionately increasing the interests of surviving owners.

Answer 225

Key Person Insurance is the protection of a business against financial loss caused by the death or disablement of a vital member of the company, usually individuals possessing special managerial or technical skill or expertise.

Answer 226

Split-dollar plans are arrangements between two parties where life insurance is written on the life of one party who names the beneficiary of the net death benefits (death benefits less cash value), and the other party is assigned the cash value, with both sharing premium payments.

Answer 227

Appointment: the authority given to an agent to transact business on behalf of the insurer is called appointment. No person may act as an insurance agent unless currently licensed by the department and appointed by the insurer. New appointments will expire 24 months on the last day of the licensee's birth month An appointing entity may terminate its appointment of any appointee at any time with at least 60 days' notice Within 30 days after terminating the appointment, the entity must file written notice with the department including the reasons and facts involved in the termination An agent's license will terminate if the agent allows 48 months to elapse without being appointed for the class or classes of insurance listed on the license

Answer 228

Renewing or Maintaining a license (Continuing Education): an agent needs to abide by the following guidelines every two years to maintain their license: 24 hours of continuing education every two years for agents licensed less than 6 years 20 hours of continuing education for every two years for agents licensed more than 6 years Any continuing education must include minimum 4 hours in law and ethics Pay license fees, appointment and renewal fees Continue to be appointed with an insurance company

Answer 229

Unfair Trade Practices: any of various deceptive, fraudulent, or otherwise injurious (as to a consumer) practices or acts that are declared unlawful by statute (as a consumer protection act) or recognized as actionable at common law.

Answer 230

Unfair Claims Settlements: the improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims practices an insurer tries to reduce its costs. However, this is illegal in many jurisdictions.

Answer 231

Domestic, Foreign, and Alien: insurance companies are classified according to the location of its corporation. Regardless of where the insurance company is incorporated, it still has to get a Certificate of Authority before transacting insurance within a state. The following definitions apply: Domestic insurance company: a company that resides and is incorporated under the laws of the state in which its home office is located. For example, a company chartered in Florida would be a domestic company in Florida. Foreign insurance company: a company whose home office is located in another state. It is considered to be a foreign company in all states except for its home state. For example, a company chartered in Texas would be a foreign company in Florida. Alien insurance company: is one that is chartered and organized in any country other than the United States. It is considered an alien insurance company in all states. For example, a company chartered in Canada would be an alien company in Florida.

Answer 232

Free-Look: also known as the “Right to Examine”. Health insurance policies must provide a minimum free-look period of 10 days upon policy delivery. This allows the policyowner time to decide whether or not to keep it. If the policyowner decides not to keep the policy within the 10 days allowed, a full refund will be given.

Answer 233

Grace Period: life insurance policies must provide a grace period of 31 days after the due date. If the insured dies during the grace period, the insurance company may deduct any premium due from the death benefit.

Answer 234

Replacement: is strictly regulated and requires full disclosure by both the agent and the replacing insurance company. Replacement regulations exists to assure that purchasers receive specified information and it also reduces the opportunity for misrepresentation. Policy replacement is defined as a transaction in which a new policy or contract is to be purchased, and the agent is aware that an existing policy or contract has been, or will be: Lapsed, forfeited, surrendered or partially surrendered, assigned to the replacing insurer or otherwise terminated Converted to reduced paid-up insurance, continued as extended term insurance, or otherwise reduced in value by the use of nonforfeiture benefits or other policy values Modified to cause a reduction in benefits or length of policy term Subjected to loans exceeding 25% of the cash value Reissued with a reduction in cash value Used in a financed purchase

Answer 235

Entire Contract: a provision that the policy, application, and all attachments shall constitute the entire contract between the parties. States that the agent does NOT have the authority to change the policy or waive any of its provisions.

Answer 236

Notice of Claim: written notice of a claim must be given within 20 days after a covered loss starts or as soon as reasonably possible.

Answer 237

Reinstatement: an insurance company that requires an application for reinstatement has style 45 days to reject the application before reinstatement is automatic. In other words, if the insurer takes no action within 45 days, the policy is considered reinstated automatically. If a health policy is reinstated after it had lapsed for nonpayment, there is a waiting period of 10 days before a claim covering sickness will be covered. Injuries sustained from an accident, however, will be covered immediately. If the insurer takes no action within 45 days after receiving the reinstatement application, the policy is considered automatically reinstated.

Answer 238

Pre-existing Conditions: is any condition for which the patient has already received medical advice or treatment prior to enrollment in a new medical insurance plan.

Answer 239

COBRA: The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a federal law that requires employers with 20 or more employees to include a continuation of benefits provision for former employees and their dependents. COBRA guarantees that the participant can continue the group coverage (at their own expense) at group rates if their participation in the group plan is terminated because of a qualifying event. Qualifying events: include the death of the employee, termination of employment (except for termination because of gross misconduct) or a reduction in work hours, which results in the participant no longer qualifying for group coverage. Note: It is important to remember that COBRA benefits apply only to group health insurance, not group life insurance.

Answer 240

Long-Term Care: long-term care insurance is designed to provide coverage for diagnostic, preventive, therapeutic, rehabilitative, maintenance, or personal care services in a setting other than an acute care unit of a hospital. A health insurance agent license is required in order to solicit Long-term care insurance in the State of Florida Long-term care insurance is any policy designed to provide coverage for at least 12 consecutive months for each covered person on an expense-incurred, indemnity, prepaid, or other basis

Answer 241

Medicare: is the federal health insurance program for: People who are 65 or older Certain younger people with disabilities People with End-Stage Renal Disease (permanent kidney failure requiring dialysis or a transplant, sometimes called ESRD) The different parts of Medicare help cover specific services: Medicare Part A (Hospital Insurance) Medicare Part B (Medical Insurance) Medicare Part C (Medicare Advantage Plans) Medicare Part D (prescription drug coverage)

Answer 242

Dental Plans: occasionally, dental insurance is part of a health benefits package with a single deductible called an integrated deductible, applying to both medical and dental coverages. More often, however, dental coverage and claims are handled separately with a separate deductible. There also may be a probationary period in group dental insurance to help hold down coverage for preexisting conditions. Some dental policies are scheduled, meaning benefits are limited to specified maximums per procedure with first dollar coverage. Most, however, are comprehensive policies that work in much the same way as comprehensive medical expense coverage. In addition to deductibles, coinsurance and maximums may also affect the level of benefits payable under a dental plan