insurance live class deck Flashcards
most companies stop writing policies at
85
the ability to change existing term policy from term to permanent policy without providing medical insurability
convertibility
cash value will equal face amount at age
100
insurance contracts: universal life insurance
flexibility- flexible premium adjustable life
partial CV withdrawals are allowed no loan needed to access CV
combo of a annually renewable term and cash value fund
guraranteed minimum rate
2 death benefits
1.level death benefit
2.level death benefit plus cash value
joint life (first to die)
2 or more ppl under one contract
when the first dies the death benefit is paid to to the beneficiary (or other person under contract)
survivorship life (second last to die)
covers estate taxes over 12.06 mil
death benefit payable after last person die
no benefit payable on death of first person only last person
face amounts exceed 1mil
juvenile life insurance
3 party contract
parent is the owner child is insured when
jumping juevenille
when child comes of age………..
variable life
has the same characteristics of ordinary whole life with one extinct difference
premiums are level and take a portion of premium and put it into a sub account to get invested
separate account
regulate as a mutual fund by the SEC according to the investment company act of 1940
-annual premiums are fixed(variable whole life)
-guaranteed minimum death benefit
-no guarantee regarding cash value because money is being invested
variable universal life
a universal life policy with the ability to invest in stocks, bonds, the most flexible of all life
where does the life insurance policy go if there is no primary, contingent or tertiary
goes to the estate, if there is no will
if trust is established it avoids lawyer and legal fees.
spendthrift provision
protects beneficiary from creditors
creditors cannot attache lien against death benefits left with insurer
lump sum benefits are not protected
crappo is used to remember policy loan rights
false
the death benefit must be paid to a family member
false
the insurer may not always pay the death benefit
true
a policyholder may sell their policy back to the insurance company
false
key employee
compensate business due to death (disability) of key employee
-who is a key employee–someone critical to operation of business
cannot be business owner
provides funds that are needed to offset loss or hire replacement
thrid party contract-insurable interest?
premiums are not deductible;benefit is tax free
business continuation “buy-sell”
using life insurance, provides for business continuation in the event of a partners death
-makes money avaialable to purcahse interests of deceased partners beneficiaries
-pre-arranged purchase price; contractual agreement to sell
of owners= # of policies needed
cross purchase plan- # of partners -1x # of partners = # of policies
two-party contract (between employer and insurer)
employer receives master contract
employee receives certificate of coverage
premium payment group insurance concepts
non contributory-employer pas all premium must cover 100% of employees
contributory-employee pas all or part of premium and must cover 75% employees
employer is owner and retains all ownership rights except
–right to change beneficiary
group insurance coverage is more liberal underwriting than individual
group as a whole is evaluated, generally no individual underwriting.
good risks outweigh bad risks (adverse selection)
impariments are covered
enrollment period
group insurance-law of large
easier to predict losses with greater accuracy with larger group
individuals cannot form a group with the sole purpose of obtaining group insurance; must be a common bond
group insurance-conversion option
within 31 days without proof of insurability
death benefits are provided during 31 day period paid by group plan
term to whole life-attained age
no medical exam or health questions
annuity–living too long
an anuuity is account/investment vehicle established by and insurance company which allows for the tax-deferred growth of the contributions during the accumulation period
–a person invest funds on either a lump sun or periodic basis and can either immediate or deferred
-may contracts guarantee that the owner will not run out of money in retiremnet even if the funds are exhausted (when a lifetime payout is chosen)
immediate annuity
purchased in one lump sun with the payout generally starting immediately
deferred annuitiy
purchased with period payments and payout typically starts after retirement
annuities
a contract that provides income for a fixed period or an annuitants lifetime
systematic liquidation of an estate or pool of money
-product sold by life insurance
-protection against outliving ones income
-savings program-future income
fixed annuity
pre determine monthly income for life
general assets account
interest rate guarantee
limits policy owner risk
insurer assumes the risk
variable annuity
monthly benefit varies per performance
separate accounts consisting of stocks and bonds
higher potnetial return- no guarantee
policyowner assumes the risk
requires FINRA SERIES 6 OR 7 registration to sell
annuities is paid
lump sum or periodic (level or flexible)
when do annuities benefits begin?
immediate
-first payments begin in 30 days of deposit only as a lump sum
deferred
-defer paterments to later date (retirement)
annuity life with period certain
income for life, with survivor benefit if annuitant dies before end of term or designated period 5, 10, 15, 20
straight life or pure life anuity
income for life with no refund to survivor
no survivorship greatest risk to anuitants beneficiary
largest monthly income
greatest potential overall benefit
annuity- unit refund life annuity
annuitant receives an amount at least equal to his original investment
at death any remaining amount is paid to beneficiary
joint life annuity
payment to two or more annuitants which ceases on death of either party
joint and survivor
payment to two or more annuitants
payment continues to surveyor often at a reduced amount 75%
(take a life insurance policy instead )
equity indexed annuity
allows for stock market appreciation with downside protection
less risk for the insured
guaranteed 3% regardless of market performance
indexing method
-llinked to an equity index
participation rate
-percentage of the index “gain” that is kept by contract holder with remainder kept by insurer (90/10)
can there be more than one recipient of an annuity payment
yes according to the number of lives on annuity
is a variable annuity owner guaranteed against a loss
no. variable annuities are subject to market risks
are lump sum deposits required to be made to purchase an annuity?
no. premium payments may be periodic contributions
tax treatments of life products-life insurance is considered a personal expense
death benefit is received income tax free
cash value
-grows tax-differed
-upon surrender, not taxable unles the cash value exceeds the premiums paid (cost basis) then only the excess is taxable
-cost basis consists of premiums paid for base policy only and not premiums paid for riders
dividends
considered a return of overpaid premium and are not taxable
interest earned is taxable
loan interest
not a taxable event
settlement options
when death benefits are left with an insurer, interest is paid on the proceeds
the interest is taxable
MEC (MODIFIED ENDOWNMENT CONTRACT)
not good to have a mic
-premiums paid are not in proportion to death benefit provided
-an mec is an irs classification of an insurance contract
-seven pay test- if the premiums paid in during thr frist seven years exceed the net level premium that should have been paid is a mec
-once a life insurance policy becomes a mec it stays- all withdrawls are taxable
-if taken out prior to 59 1/2 additional 10% penalty applies
-advantages Death benefit remains income tax free and the cash value growth is tax deferred until withdrawn
((things to note. have the person over contribute right before it qualifys as a mec and have them pay 4% tax vs 31% tax in the stock market)
taxation of group life insurance
-employer paid premiums are tax deductible as a business expense
-death benefit is received tax free
- cost of first 50K group life is tax exempt to employee
-if coverage exceeds 50K will be taxable as ordinary income
1035 exchange
IRS allow a tax free exchange of insurance product for another like kind
-life insurance for another or endownment for annuity
-endowmnet policy for another endowment or annuity
annuity for annuity
ANNUITY CANNOT BE EXCHANGED FOR LIFE INSURANCE POLICY
1035
individual for whom the exchange is being made must benefit from at least some characteristics of the new product
-improve credit rate of new issuer
-better returns on the new product
-improved benefits on the new product
cash proceeds should not be received on the exchange
the exchange should be compelted within 60 days
the premiums paid for a life insurance policy are
non deductible
the cash value in excess of cost basis is ______ if a whole life policy is surrendered
taxable
interest paid on death benefits that are not distributed as a lump sum is
taxable
death benefits on a life insurance policy are ________ in the deceased estate
included
a loan taken on a modified endowment contract is
taxable
the death benefit on a group life insurance policy is
tax free
a 1035 exchange allows a __________exchange of a life insurance product for another like kind
tax free
employee retirement income security act of 1974 (ERISA)
created to prevent missuse and mismanagement of pension plan funds
rules apply to private sector defined benefit and defined contribution plans
earnings are tax defered usually
-plans can not be discriminatory
-an approved vesting schedule must be followed
-specifies the percentage of employers contribution to which the employee is entitled when withdrawing formt he plan
-employees are 100% vested in their own contributions
primary insurance amount-via
full retirement benefit at full retirement age
averaged indexed monthly earning
determines what was contributed versus income payment
pure risk
insurable chance of loss only
speculative rish
chance of gain or loss (lottery ticket)
peril
what caused the loss (life insurance, death of insured)
insurance spreads the risk and reduce the financial uncertainty assiciated with loss
RISK MANAGEMENT STARR
RISK SHARING-owning car get in car accident and pay deductible
TRANSFER-reinsurance company where risk is transferred to other companies; ex 25% is owned by one company, 25% antoher and writing company has 50% of risk
AVOIDANCE-exclusion clauses (hazerdos activities, pilot, military)
REDUCTION-ex homeowners insurance limits water damage to 10K
RETERNTION-ex more good risk tha bad
adverse selection
selection not in favor of insurance compnay tendency of poorer risks to actively seek insurance coverage
the law of large number will prevent losses
false
a contract of indeminity transfers losses
true
a hazard is a way for the insurer to avoid risk
false
insurable interest
in order to purchase insurance on a person the owner must posses an insurable interest in that person
based on financial relationship
-must exist at applicaiton
-not required to exist at time loss occurs
-insured must be made aware of the purchase by signing the app
-an individual has an unrestricted/unlimited insurable interst in herself. the amount of insurance is limited by underwriting ex. I want life policy on me so ken is taken care of. 10M policy underwriting would examine if ken would lose 10M if I dies
admitted and authorized insurers
licensed in that state cert of authority
domestic carrier
carrier that has home office in which the state they are authorized to sell insurance
ex mass mutual in state of mass
foreign
another state than home state
ex mass mutual with office in Connecticut
alien
home office in another country that sells insurance in the state
ex sunlife of Canada
mutual companies
owned by policy holders, insurance dividends
reinsurance
insurance purchased by insurance companie transwer of risk
faculative reinsurance
individual agreements on a case by case basis
automatic ready
automatic acceptance of a portion of risk
concept of agency
the relationship that exists between two parties, when one party acts on behalf of another
ex agent/producer reps a particular insurer
agency is referred to as the pricipal while the agent is authorized rep
actual or expressed contract
actual powers an agent has that are defined in their contract ex agent has expressed authorit to rep company and receive commissions
implied
usual and customary business practices that may not specifically be listed in contract
apparant
authroity that the public perceives an agent to have
agreement
offer and acceptance
consideration
the lawful exchange of one value for another
application info+premium=coverage
legal capacity
bothparties must be legally competent to enter into contract
legal purpose
sale cannotbe contradictory to the good of public
aleatory contract (unequal)
a contract that may or may not provide more in benefits than premiums
ex buys life insurance and dies 3 months later will 250K payout
contract of adhesion (non negotiable)
a contract drawn up by one part (the insurer) take it or leave it
ex car insurances
unilateral contract
a legal agreement in which only one of the two parties needs to act to make the contract enforceable
conditional contract
terms specifying obligations of an insured to keep a policy in force
personal contract
valued contract (non negotiable)
pay a stated sum regardless of the actual loss incurred
(life insurance)
indemnity contract
pay an amount equal to loss
utmost good faith
both parties act with honesty and integrity
fiduciary
financial responsibility position of trust
representations
anything answered on application
statment that is true to the best of the applicants knowledge or belief can be changed prior to policy issue not after
warranty
statment made by the insurer that is guaranteed
misrepresentation
a flase statment that will not affect underwriting
is not material will not effect issue
ex mailing address error
material misrepresentation
a false statment or concealment that is important to the issuance of a policy and affects policy issue
ex health statments, drug abuse, driving habits etc
concealment
failure to voluntarily disclose material facts relevant to underwriting process
fraud
intentional deception
ex filing false claim
HMO health maintenance orgianizations
preventative care
pre paid premium
enrollee members
small co pay
most are closed panel plans
blue cross blue shield
blue cross=hospital benefits blueshield=pysicians
preferred provider organization (PPO)
enters into contractural agreement with hospital and doctors
does not provide treatment directly
pop creates preferred provider arrangments with hospitals in exchange for a discounted cost
-employees will pay a lower deductible
-can go outside pop will pay higher cost
-ppo can choose any doctor within network
champus (tricare)
government organization that provides health care benefits for dependents of military personnel
a replacement health insurance policy will cover all aliments
no
tricare and champus can be used as a replacement for any individual
no only military personnel
health insurance will pay for UCR medical bills
yes usual customary reasonable medical bill are covered
health insurance policies-disability
provides income if the insured become disabled and becomes unable to earn paycheck
”. “ medical expense insurance
pay hospital and doctor bills resulting from injurt and illness
disability income
inability to perform your own normal occupation or daily duties
-any occupational the inability to perfrom any gainful occupation
-more iberal definition more expensive the premium
presumptive disability
a type of total and permanent disability based on loss of sight hearing speech and loss of limb
paid despite the fact the insured is still working
paid as Lump sun
loss of earning test
disability income based on earned not unearned
ex commisions bonuses vs rental income interest investments
partial disability
the inability to perform some but not alll of your duties
-follows a period of total disability added a s a rider and pays 50% of disability benefit
residual disability
another form of partial based on percentage of lost income
fluctuates monthyl
recurrent disability
no elination period to get benefits
if after 6 months a new disability and a new elemination period is issued
elimination waiting period
period preceding each disability during which benefits are not paid
common elimniation 230/60/90 days
longer the elinination the cheaper
