INSURANCE Flash cards
1 Aleatory
An aleatory contract is a contract of unequal exchange. One party stands to receive more than the other.
1 Unilateral
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.
1 Estoppel
To be legally stopped from being able to enforce one’s legal right.
1 Fair Credit Reporting Act (FCRA)
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
1 Implied
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.
1 Expressed
Express authority does not have to be assumed, it is real
- the powers and authorities expressed in the agency agreement.
1 Apparent
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.
1 TEN DAY
FREE LOOK
1 The formation of a contractual agreement
- Competent parties (legal capacity)
- Legal purpose
- Offer and acceptance (Agreement)
- Consideration
3 An Equity Indexed Annuity
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.
1 Indemnity (Indemnify, Indemnification)
To make whole, no more no less
9 Multiple Employer Welfare Arrangement (MEWA)
A group of small employers coming together to self insure.
Interest
The death benefit has to be paid out in sixty days or they have to pay the beneficiary/Insured 8% of interest.
5 Viatical Settlements
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
2 Universal Life - Option A does what
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
2 Universal life - Option B does what
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
Equity
Cash value accumulation
1 Adhesion
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.
1 Warranty
A promise or guarantee
Legal Action
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.
Partial Assignment
The policyowner gives up some of his/her ownership rights for a temporary period of time.
1 Material Statement
Is something that had the insurance company been aware of, the information would have affected how or if the policy was issued.
1 Waiver
to voluntarily give up a known right
1 The term Mutualization refers to:
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.
1 Binding Receipt
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.
3 Exclusion Ratio
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
Fixed Annuities
A fixed (conventional) annuity is a product in which the insurance company pays an interest to the owner for the use of the money.
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?
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.)
