INSURANCE Flash cards

Question 1

1 Aleatory

Answer 1

An aleatory contract is a contract of unequal exchange. One party stands to receive more than the other.

Question 2

1 Unilateral

Answer 2

Only one party in the contract can be held to a promise. The insurer makes a promise to pay if a claim occurs. The policyholder is not obligated to pay a premium.

Question 3

1 Estoppel

Answer 3

To be legally stopped from being able to enforce one’s legal right.

Question 4

1 Fair Credit Reporting Act (FCRA)

Answer 4

It is federal legislature designed to protect consumer information.
- The act requires that the applicant knows who is gathering the information
- The applicant has the right to see the information, in order to verify its accuracy
- The applicant has the right to have any misinformation corrected.
If necessary

Question 5

1 Implied

Answer 5

Implied authority is real authority the insurer grants the agent, but is not written in the agency agreement.
- Powers are not spelled out or expressed by the company, however the power’s are allowed and may even be expected by the company.

Question 6

1 Expressed

Answer 6

Express authority does not have to be assumed, it is real
- the powers and authorities expressed in the agency agreement.

Question 7

1 Apparent

Answer 7

Apparent authority is not an official authority. ABC company created circumstances that lead to the client making an assumption. From the clients perspective this authority looks real even when it is not. No agent has unlimited birding authority.
- is not a “real” authority look “real” from the clients perspective, but it does not actually exist as a “real” authority.

Question 8

1 TEN DAY

Answer 8

FREE LOOK

Question 9

1 The formation of a contractual agreement

Answer 9

• Competent parties (legal capacity)
• Legal purpose
• Offer and acceptance (Agreement)
• Consideration

Question 10

3 An Equity Indexed Annuity

Answer 10

Is a fixed annuity with investment returns tied to changes in a specific equity index.
- Equity indexed annuities have an investment return tied to a specific equity index, such as the Dow Jones, Industrial Average or the Standard & Poor 500.
- It is not a variable product, it’s a fixed annuity.

Question 11

1 Indemnity (Indemnify, Indemnification)

Answer 11

To make whole, no more no less

Question 12

9 Multiple Employer Welfare Arrangement (MEWA)

Answer 12

A group of small employers coming together to self insure.

Question 13

Interest

Answer 13

The death benefit has to be paid out in sixty days or they have to pay the beneficiary/Insured 8% of interest.

Question 14

5 Viatical Settlements

Answer 14

If the policyholder chise to sell the life insurance contract to an investor in order to receive funds from the death benefit prior to the insured’s death, this is called a viatical settlement.
An investor purchases the policy in anticipation of collecting the death benefit upon the death of the insured. As the new owner, the investor changes the beneficiary designation to themselves

Question 15

2 Universal Life - Option A does what

Answer 15

it increases in order to maintain its tax status.

“Level death benefit”

the death benefit consists of risk plus cash value. The risk is greatest at the beginning of the policy and is designed to reduce over time as it is offset by a growing cash value account.

• Has a death benefit that increases in order to maintain its tax status

Question 16

2 Universal life - Option B does what

Answer 16

has a death benefit that increases gradually as the cash value increases

“Increasing death benefit”

the risk is option B stays constant. The risk never changes from the original death benefit amount purchased. The death benefit is now equal to the cash value plus the original face amount.

• Automatically increases with cash value accumulation. It doesn’t increase to maintain its tax status

Question 17

Equity

Answer 17

Cash value accumulation

Question 18

1 Adhesion

Answer 18

One party (the insurer) is responsible for the wording of the contract. Since the contract is written by the insurance company with no input allowed from the insured if the contract wording is “ambiguous” or unclear, any challenge would be interpreted by the courts in favor of the insured.

Question 19

1 Warranty

Answer 19

A promise or guarantee

Question 20

Legal Action

Answer 20

The Legal Action Provision states that the insured must allow the insurer 60 days after filling a written proof of loss, before any action can be instigated against the insurance company.

Question 21

Partial Assignment

Answer 21

The policyowner gives up some of his/her ownership rights for a temporary period of time.

Question 22

1 Material Statement

Answer 22

Is something that had the insurance company been aware of, the information would have affected how or if the policy was issued.

Question 23

1 Waiver

Answer 23

to voluntarily give up a known right

Question 24

1 The term Mutualization refers to:

Answer 24

Mutualization is when control of a company is transferred from Stockholders (stock company) to policyholders (mutual company) The company is reorganizing into a mutual company.

Question 25

1 Binding Receipt

Answer 25

Coverage begins the date of the application, until the applicant is notified otherwise. The binder could be replaced by the policy, it could expire, or the company could cancel the binder with one days notice.

Question 26

3 Exclusion Ratio

Answer 26

The Annuity side, using the exclusion ratio method, a part of each income check consists of growth and a part will consist of principal. This means that the annuitant will have to pay taxes on a portion of each check.

Principal (amount that has been previously taxed)/ Expected return

Question 27

Fixed Annuities

Answer 27

A fixed (conventional) annuity is a product in which the insurance company pays an interest to the owner for the use of the money.

Question 28

The multiple indemnity rider increases the death benefit if the insured dies due to an accident. How will the cash value accumulation be affected by a multiple indemnity rider?

Answer 28

Cash value is not affected by riders
(Additional premiums paid for a rider is for the additional coverage provided by the rider. It does not impact cash values. Premium payments do not come out of the cash value. Extra payment is paid for the extra benefit.)