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HS324 Life Insurance Law > Key Terms > Flashcards

Key Terms Flashcards

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1
Q

Legislative Law - CH1

A

enacted by legally constituted governmental bodies w/ power and authority to enact laws

legislatures enact statutes while agencies issue regulations

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2
Q

Life Insurance Law - CH1

A

form of legislative law

**LI law derived from general contract law

LI regulated by states; vast differences in laws/interpretation of law

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3
Q

Case Law - CH1

A

also called common law

settles disputes b/t parties

**flexible in form and application

**American case law derived from the common law of England

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4
Q

Federal Constitution - CH1

A

gives fed gov power to act; no powers can be exercised by fed gov unless exist in fed constitution

**states retain all rights not granted to the federal government

**Supremacy Clause - as the supreme law of the land, the federal law = higher authority than any state constitution or law; states are supreme where the fed constitution is silent

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5
Q

Federal Legislation - CH1

A

**Treaties - agreements w/ foreign governments; treaties take precedence over state constitutions or statutes

**Federal Statutes (laws) - fed law holds a higher authority than any state constitution or law (supremacy clause); states regulate where the fed constitution is silent

**Federal Executive Orders & Administrative Regulations - orders of the president are legislative in form in that they prescribe general rules of conduct; Fed agencies (IRS) create legislative laws (regulations) to carry out the administration of laws

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6
Q

State Legislation - CH1

A

**State Constitutions - states are sovereign powers over residents for powers not delegated to the federal gov or not prohibited or limited by the state constitution

**State Statutes - have all powers not denied by fed or state constitution, fed statutes, or treaties; control the life insurance industry

**State Administrative Regulations - state executive powers to create administrative case

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7
Q

Judicial Decisions - CH1

A

**Common Law (England) - *basis of American legislative and case law; courts seek legislative answers or prior cases (precedents); if none exists they make an original ruling (case law); rooted in the law of England

**Civil Law (Rome) (Also Basis of Louisiana Law) - enactment of comprehensive code (general principles of law) applied to facts of a case; little influence by precedent (flexible and limited); will exert little influence on similar cases arising in the future

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8
Q

Legal Remedy - CH1

A

**an attempt to seek monetary damages for failure to perform a contract as written (ex civil suit); heard before jury

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9
Q

Equitable Remedy - CH1

A

**enforces performance in a contract, modifies its terms, or excuses performance of a contract that is in dispute; makes things right; heard before judge

Examples: Rescission, Restitution, Reformation of contract, Bills of interpleader

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10
Q

U.S. Supreme Court - CH1

A

**ultimate court of appellate jurisdiction

**superior to state constitutions, laws, etc.

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11
Q

Types of Jurisdiction - CH1

A

Original - where case is first heard

Appellate - reviews cases heard by a lower court

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12
Q

State Courts - CH1

A

**all states have one or more courts of original jurisdiction and one or more courts of appeal

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13
Q

Conflict of Laws, Place of Making Rule - CH1

A

where contract was made, brought into existence, delivered, or performed

Domicile - some states have laws that all policies are governed by where the insured/policyowner resides

Incorporation (home office) - in some states, the home office state determines policy interpretation

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14
Q

Conflict of Laws, **Center-of-Gravity Theory - CH1

A

gives emphasis to the law of the state that has the most significant contracts (connections) w/ the matter in dispute

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15
Q

Requirements for a Contract (5) - CH2

A
  • Offer - willingness to enter bargain
  • Acceptance - mutual assent
  • Consideration - something of value
  • Competent Parties - capacity to contract
  • Legality of Form - follow legal requirements
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16
Q

Life Insurance Contracts (5) - CH2

A

an informal contract

  • Aleatory (unequal transfer)
  • Unilateral (only 1 party makes an enforceable promise the insurer; if bilateral then policyowner would make promise as well but no promise by insured that premiums will be paid)
  • Contract of adhesion (offered by 1 party)
  • Subject to conditions precedent (certain conditions)
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17
Q

Aleatory Contract - CH2

A
  • unequal exchange, uncertain event, element of chance
  • Aleatory is NOT commutative where benefits are of approximately equal value; for the insurer the present value of future benefits is equal to the present value of future premiums
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18
Q

Conditional Contract - CH2

A

*Conditions Precedent - an act or event that must occur before duty is imposed and a right exists
Ex. Premium payments (first and subsequent), Completed Application, Medical and other reqs to put policy into effect

*Conditions Subsequent - an act or event that will terminate an existing right
Ex. Death by policy exclusion (military flight, suicide)
file death claim

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19
Q

*Contract of Adhesion - CH2

A

Not negotiated, accepted, or rejected; not amended by non-drafting party

Any ambiguity in terms favors the policyowner or beneficiary

Policyowner accepts or rejects the contract; cannot alter contract

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20
Q

*Parties to the Contract - CH3

A

*Policyowner and Insurer

Third party beneficiary is not a party to the contract

Assignees:
Collateral assignee: transfer of a right or interest to a third party; does not become a party

*Absolute assignee: DOES become a party (as the new owner) to the contract

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21
Q

Competency of Insurer - CH3

A

Unauthorized Insurer

1) public cannot be expected to know if statutory requirements complied w/
2) contract may be enforceable by policyowner

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22
Q

*Mutual Assent - CH3

A

offer and acceptance must be present for a contract to exist

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23
Q

*Parol Evidence Rule - CH3

A

all preliminary oral statements are superseded by the written contract (policy); once a policy is issued, the entire contract is in the policy; no “inclusion by reference” is allowed

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24
Q

*Entire Contract Provision - CH3

A

the application is attached to the policy to create the entire contract

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25
Q

No Cash w/ Application (no consideration) - CH3

A
  • is only an “invitation to offer”; the policyowner does not make the offer
  • the company makes the offer by issuing and delivering the policy

first full premium must be paid before coverage becomes effective

paying the premium is acceptance

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26
Q

Cash w/ Application - CH3

A

Application and first premium - the applicant only “invites an offer”

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27
Q

Conditions Precedent for Coverage - CH3

A

*statement of Good Health of applicant at time of delivery; the burden of proof is on the insurer

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28
Q

Actual Delivery - CH3

A

manual delivery in person

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29
Q

Constructive Delivery - CH3

A

policy is properly stamped and addressed to agent by mail and intended to be delivered unconditionally

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30
Q

Inspection Receipt - CH3

A

Used if cash is not paid; policy is not delivered but left for examination only

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31
Q

Delivery in Good Health Clause - CH3

A

*change in health after application or after medical exam to protect company

NOT only in cases where insured misrepresented or concealed health status

Actual health not the intent of the policyowner is key

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32
Q

Conditional Receipt - CH3

A

binds coverage w/out reference to policy delivery

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33
Q

Effective Date (policy date) - CH3

A

with receipt, the later of the date of application or the date of medical exam; if no cash, date of issue

controls anniversary (CV/dividend), premium due date, and date of extended term

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34
Q

Operative Date (date of issue) - CH3

A

controls contestability and suicide clauses

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35
Q

*Backdating - CH3

A

*to lower insurance age, premium, and medical requirements; policyowner pays for coverage not received

maximum 6 months in most states

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36
Q

*Unilateral - CH4

A

LI contracts are unilateral; only the company makes an enforceable promise; consideration is exchanged for a promise to pay the DB (insuring clause)

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37
Q

*Company Consideration - CH4

A

“promise to pay” the DB, plus other policy promises (nonforfeiture, reinstatement, APL, etc.)

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38
Q

*Promisee (policyowner) Consideration - CH4

A

application and first premium (not renewal premiums)

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39
Q

Condition - CH4

A

one event is contingent on the occurrence of another (for the benefit of the promisor)

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40
Q

*Condition Precedent - CH4

A

one event must occur before another duty or right exists

ex initial premium, application, “good health”

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41
Q

Condition Subsequent - CH4

A

an event that terminates an existing duty or right

renewal premiums (considered conditions precedent to continued coverage)

if the renewal premium is not paid the company is released from its promise

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42
Q

Consideration - CH4

A

any condition that benefits the promisor or is a detriment to the promisee

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43
Q

Forms of Consideration - CH4

A

Cash - normally acceptable

Check - treated as conditional payment (must be honored by bank)

Promissory Note - written promise to pay; not normally allowed by a company

*Services - restrictions in most states (considered rebating and discriminatory)

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44
Q

A contract must have a legal purpose: - CH4

A

an unlicensed insurer-issued contract is illegal

the law permits the policyowner, but not the insurer, the option to void or enforce the contract

  • W/out safeguards, life insurance could become speculative and socially harmful
  • Fear of speculation and socially harmful policies lead to insurable interest laws
  • There is a requirement that the insured is aware of insurance on their life and gives consent
  • Life insurance is seen as beneficial to society and worthy of favorable legislative treatment
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45
Q

Wagering - CH4

A

speculation is to be controlled by an insurable interest, which is required in all jurisdictions

an aleatory contract offers a potential large return for a small premium (moral hazard)

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46
Q

Murder of Insured by Beneficiary - CH4

A

proceeds paid to contingent beneficiaries or insured’s estate; murderer cannot receive proceeds

killing must be wrongful and intentional

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47
Q

Suicide - CH4

A

2 yr maximum exclusion period from date of issue (optional provision, not required)

*if there is no suicide exclusion clause, the DB is payable even if there was intention to commit suicide at the time of application

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48
Q

*Insurance Interest - CH4

Partnership

Divorced Spouse

Creditor/Business Relationship

Assignments

A

Restricted to those closely related to the insured by blood, love and affection, or sentimental interest or those who possess a financial interest (pecuniary interest) that they stand to gain more by the insured’s continued life than by the insured’s death

  • It must exist at the inception of contract but it need NOT be present at the time of the insured’s death
  • A partnership can collect on a key EE policy of a partner who has left the partnership
  • A divorced spouse can receive proceeds at the death of an ex-spouse if the policy was kept in force
  • If a creditor takes out a policy and pays the premium, they may retain all death proceeds even if the amount exceeds the debt or if the debt has been paid
  • Assignments - there is no requirement for insurable interest; life insurance is property and is freely transferable; a few states require the assignee to have an insurable interest
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49
Q

*Warranty - CH5

A

*a statement guaranteed to be true in all respects; violation in any respect can void the contract

important where breach of warranty is discovered during the contestable period and it increases risk, contributes to loss, occurs w/ fraudulent intent

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50
Q

Representations - CH5

A

An oral/written statement at the time or before the making of the contract

Representations are not part of the contract in general contract law

  • Some statements may be statements of fact or opinion, such as “I’m in excellent health”
  • Statements are not guaranteed to be true; they must be only substantially true when they are made
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51
Q

Entire Contract, Entire Contract Statutes & Warranties - CH5

A

*Policy and attached application:

The applicant’s statements are representations, NOT warranties

Oral/written statements not in application are not a part of the contract under the entire contract provision

In life insurance contracts, only written statements become a part of the entire contract

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52
Q

Material Misrepresentation - CH5

A

Statement is false: burden of proof on insurer

  • Material = influences insurer into contract it would not have made or would have made on different terms if it had known the truth
  • The aggrieved party (the insurer) can sue to recover damages or rescind the contract
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53
Q

*Rescission - CH5

A
  • Termination of contract (void from start)
  • W/in reasonable time after discovery of misrepresentation
  • Rescission requires adjudication (court hearing)
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54
Q

*Voidable - CH5

A

The offended party can disaffirm the contract and thus terminate the agreement, or they can affirm and enforce the contract (such as an illegal contract issued by an unauthorized insurer)

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55
Q

*Void - CH5

A

The contract does not exist; unenforceable by either party; void from the start; never happened; no “meeting of the minds”; insurer returns all premiums paid; neither party can enforce or defend; the contestable clause is irrelevant

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56
Q

*Materiality - CH5

A

*Reflects the insurer’s decision to accept risk it would not have made had it known the true statement of material fact or the terms under which the insurer made the decision

A few states require that the misrepresentation contribute to loss

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57
Q

To obtain a rescission, the company must prove the following: - CH5

A

Statements of Fact - the insurer must prove statements were both false and material

*Statements of opinion must be false, material, and fraudulent; insurer must prove they were intentional, seldom leads to litigation and is difficult to prove

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58
Q

Tests of Materiality, UW Standards in Court (2) - CH5

A
  • Prudent Insurer Standard = outside experts provide objective standards; uses judgement of industry experts; used in majority of jurisdictions; presupposes a uniformity of opinion and practice that does not exist
  • Individual Insurer Standard = uses the insurer’s own practices in terms of how it decided on similar cases; difficult for the beneficiary to object since the information comes from company files and testimony
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59
Q

*Concealment - CH5

A

*Nondisclosure; failure of an applicant to communicate knowledge of a material fact that the insurer does not possess

In general contract law, an intentional act to hide a material fact

*Misrepresentation by silence in insurance law

Must be material and fraudulent

Most difficult defense to prove; more difficult than breach of warranty or misrepresentation

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60
Q

*Bad Faith Suit - CH5

A

*An insurer may be subject to a bad suit if it:

Creates unfair claim processing procedures

Uses abusive tactics

Improperly delays

Fails to investigate

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61
Q

*Waiver - CH6

A

*A voluntary and intentional giving up of a known right

Failure to demand an answer to an unanswered question in the application

A waiver is treated as an assent (agreement) to something or an abandonment of some right

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62
Q

Situations leading to a waiver of an insurer’s right to deny a claim: (3) - CH6

A

1) Breach of Condition Precedent = valid life insurance policy contingent on payment of first premium, statement of good health, no change of heath b/t application and delivery, the agent having no actual or apparent authority to extend credit
2) Misrepresentation in Application = collusion of applicant and agent

3) Waiver Subsequent to Policy Issue = explicit statement by company or by inconsistent actions
ex: consistently accepting premiums after the grace period expires

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63
Q

Estoppel - CH6

A

*A party loses the ability to assert a defense d/t prior actions inconsistent w/ that defense

Virtually interchangeable w/ Waiver

The purpose is to correct a wrong and prevent unfair treatment to another d/t one’s actions

Limits a person’s right to change their mind if it impinges on another’s right based on reliance on that person’s representations or promises

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64
Q

*Equitable Estoppel - CH6

A

Representation of past or present actions or facts relied upon by another party so that changing one’s position would be unfair

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65
Q

*Legal, or Promissory, Estoppel - CH6

A

Involves future conduct (promise); one person reasonably relied on a statement of future conduct (promise); it would be unfair to allow the first person to change their conduct (promise); if you make a promise you can’t change your mind

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66
Q

*Election - CH6

A

*The act of choosing b/t two mutually exclusive alternative rights or privileges

Similar to waiver; choosing one alternative waives the other

The company accepts premium after discovery of a material misrepresentation

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67
Q

*Incontestable Clause - CH7

A

*Limits time (2 yrs max) for company to rescind policy based on misrepresentation of material facts; waives company’s rights to dispute the validity of the contract after a certain period

Developed to overcome prejudice against LI by skeptical public

*Required policy provision by law in all states

It may benefit dishonest persons, but the benefits to honest policyowners make it worth the cost

Protects beneficiary

Gives company reasonable period of time to investigate

**Contest is about the validity of the contract, NOT terms w/in the contract

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68
Q

Situations NOT protected by the incontestable clause (no time limit) - CH7

A
  • A lack of insurable interest
  • Impersonation at physical exam
  • The applicant intended to murder the insured

Incontestable clause is meaningless if the contract is invalid and void; no contract, no clause

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69
Q

What constitutes a contest within the meaning of the incontestable clause? - CH7

A

Merely refunding premium is not sufficient

There must be a contest (court action taken) during the contestable period that challenges the validity (not the terms) of the policy as a contract

Suit to rescind by insurer (equitable remedy, heard by judge)

Defense by insurer in court of a lawsuit by the beneficiary to enforce the contract (jury)

*Once the contest is started, the contestable period stops running

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70
Q

Monahan Decision - CH7

A
  • The Monahan case decided that an action to deny a claim must occur w/in the contestable period
  • The contestable period does not end at the insured’s death but continues for the benefit of the beneficiary until the contestable time period ends

The policy never becomes incontestable if the insured dies during the incontestable period

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71
Q

Incontestable Clause Exclusions - CH7

A

Nonpayment of premiums; no premium no contract

Disability and accidental DBs may or may not be included in contestability; included in contestable clause unless specifically excluded

Excepted hazards (conditions subsequent) - the company may limit risk it does not want to cover; adjustments and exclusions can be made after the contestable period

Not subject to contestability - Terms of the contract, not a question of contract validity (*flying/military service in time of war and piloting aircraft as a hobby)

Suicide Clause - the exclusion usually coincides w/ the contestable time period but it is independent of the incontestable clause

  • Misstatement of Age and Sex
  • Amount payable adjusted to what it would have purchased for correct age or sex by premium actually paid; adjustments can be made at any time; it is not contestable
  • Incorrect age/sex does not invalidate the contract, unless fraud is proven; if so, it must be contested w/in the contestable period
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72
Q

*Reinstatement - CH7

A

Generally (majority opinion), the policy is only contestable regarding information provided in the reinstatement application for the same period as in the original clause (2 years)

Information in the original application retains the original contestable period

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73
Q

Reformation - CH7

A

*Reissue the policy correctly when a clerical error or substantial but obvious mistake is discovered

Done to make the policy represent the actual agreement b/t the company and the applicant and the intention of the parties

*A reformation CANNOT be made if fraud was involved in the contract

Reformation is NOT subject to the incontestable clause

The majority of reformations occur w/out controversy or litigation

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74
Q

Policy Face Page Information (5) - CH8

A

1) Name of insurer
2) Policy details: insured, policyowner, face amount, policy #, policy date, date of issue, and type of insurance provided
* 3) Free-look provision: 10 days, no reason required to cancel policy, full refund
4) Insuring Clause - insurer’s promise to pay
5) Signature of company officer

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75
Q

Required Policy Provisions (9) - CH8

A

Provisions may be more favorable to policyowners but not less favorable

  1. Grace Period
  2. Policy Loan
  3. Incontestable Clause
  4. Divisible Surplus (participating policies only)
  5. Entire Contract (no incorporation by reference)
  6. Reinstatement
  7. Misstatement of Age/Sex
  8. Nonforfeiture Provisions
  9. Settlement Options

** SUICIDE PROVISION IS NOT A REQUIRED PROVISION

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76
Q

*Grace Period - CH8

A

Usually 31 days; required policy provision

Grants policyowner additional time to pay premium after it is due

If insured dies during grace period, the company can deduct the premium from proceeds

The offer does not extend coverage; this offer allows the policyowner to avoid reinstatement requirements

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77
Q

*Policy Loan - CH8

A

Required policy provision

Advancement; no obligation to repay

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78
Q

*Incontestable Clause - CH8

A

Required policy provision; required in all states

After the policy has been in effect for a period of time (normally 2 years), the insurer cannot declare the policy invalid

  • Three General Exceptions:
    1. Lack of insurable interest at the inception of policy
    2. Policy purchased w/ the intent to murder the insured
    3. Medical exam taken by someone other than the proposed insured (fraud)
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79
Q

*Divisible Surplus - CH8

A

Required policy provision

*Participating policies only

Participating policy dividends

Return of unearned premium

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80
Q

*Entire Contract - CH8

A

Required policy provision

*No incorporation by reference

Prohibits incorporation by reference

Parol Evidence Rule - The insurer cannot use any statement unless in application, to contest or void the contract, or to deny a claim

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81
Q

*Reinstatement - CH8

A

Required policy provision

*Generally 3 years but varies

Allows a policyowner to reacquire coverage under a policy that has lapsed

Requirements:
Provide evidence of insurability
Pay overdue premiums plus interest
Repay or reinstate any outstanding loans
A policy surrendered for cash surrender value cannot be reinstated
82
Q

*Misstatement of Age/Sex - CH8

A

Required policy provision

Not contestable

Adjust policy premiums or benefits to reflect true age or sex; not excluded by incontestability clause; contestability deals w/ policy validity rather than enforcement of provisions

83
Q

*Nonforfeiture Provisions - CH8

A

Required policy provision

Based on level premium concept (pay in advance)
Cash surrender
Extended term insurance
Reduced paid up insurance

84
Q

*Settlement Options - CH8

A

Required policy provision

Optional methods of distribution of proceeds by policyowner or beneficiary

85
Q

Prohibited Provisions (3) - CH8

A

1) Agent cannot be made the agent of the insured for the purpose of filling out the application
2) Cannot settle a claim for less than the DB
3) Nonpayment of premium cannot cause a forfeiture of CV as long as CV exceeds the total indebtness

86
Q

Optional Provisions (5) - CH8

A

1) Suicide = 2 years; return premium; if not in policy then company must pay claim for suicide at any time
2) Ownership = all rights in policy
3) Assignment = right to assign exists w/out this provision
4) Plan Change = subject to company rules regarding evidence of insurability and policy changes
5) Accelerated Benefits = limited life expectancy

87
Q

Common Provisions (2) - CH8

A

1) Riders = Accidental Death Benefit, Guaranteed Purchase (insurability) Option, Waiver of Premium (WP)
2) Policy Filing and Approval = if a required provision is not included, courts will treat the policy as if it did include the provisions required by law

88
Q

Payment of Premium - CH9

A

Paying premiums does not give that person any rights if they are not a party to the contract (if the person is not the policyholder)

89
Q

Presumption of Premium (2) - CH9

A
  • 1) Conclusive Presumption = if policy is delivered the policy is presumed to be in effect; it cannot be rebutted; if the insured dies, there is no premium but the insurer must pay
  • The insurer can collect the premium but cannot challenge the validity of the contract
  • The agent must take care in only delivering policies if conditions precedent are met

*2) Rebuttable Presumption = if policyowner possesses the policy, it is presumed that the premium was paid but this can be rebutted if the insurer can provide evidence the premium has not been paid; if evidence is provided, the presumption is overcome and the policy is void

90
Q

Payment of Renewal Premiums - CH9

A
  • The policyowner has no obligation to pay renewal premiums
  • In majority of states, paying renewal premium is a condition precedent to continue the insurer’s promise
  • A payment to an authorized agent is the same as a direct payment to the company
  • If the agent refuses to accept payment, the insurer cannot lapse the policy

Payments to an unauthorized agent may be effective if apparent authority exists

Payment to the policyowner’s agent (broker) is NOT payment to the insurer

91
Q

Mailbox Rule - CH9

A

**If a renewal premium is mailed and properly stamped by a date such that the owner could “reasonably expect the post office to deliver it before the premium due date” …. it will NOT be considered late, even if the post office delivers it late or not at all

92
Q

*Property - CH10

A

The exclusive right of ownership; the right to possess, enjoy, transfer, or dispose of a thing or an interest

93
Q

*Real Property - CH10

A

Real estate; land and those things that are part or attached to the land

94
Q

*Personal Property - CH10

A

Property that is NOT land or attached to land

95
Q

Two Types of Personal Property - CH10

A
  • 1) Tangible Personal Property = clothing or jewelry; something that has physical characteristics
  • 2) Intangible Personal Property = ownership right is evidenced by a legal document, such as ownership in a corporation (stock certificate); ownership interest is a right independent of a physical document; the right itself cannot be seen or touched
96
Q

Transfer of Ownership - CH10

A

A person may freely transfer any property interest they possess by assignment, gift, or sale

97
Q

Property Rights in Life Insurance - CH10

A

*Intangible property is referred to in law as a chose (pronounced “shows” or “show-zah”), or “THING” in action

The law provides the right to sue if the intangible property right is infringed upon

Represents a right in the law, normally evidenced by a legal document and enforceable by the law

Tangible property is a chose in possession; capable of physical possession and transfer by delivery

**Life Insurance is a chose in action and represents the intangible personal property rights in the policy

98
Q

**Life Insurance Policy Owner Rights (7) - CH10

A
  1. Surrender the policy
  2. Assign the policy
  3. Designate and change the beneficiary
  4. Obtain a policy loan (if CV present)
  5. Select and change dividend options (if participating)
  6. Select and change investment options (if variable)
  7. Select a settlement option
99
Q

**Common Law Property & Marital Status - CH10

A

Based on English Common law developed through case law by English courts

Used in 41 states; basis of U.S. legal system

Marital status has no direct effect on ownership interest, including life insurance, in common law states

Proceeds pass by will, intestacy, joint ownership, or operation of law

100
Q

**Community Property Law & Marital Status - CH10

A

Laws exist only where they have been enacted into law by state legislature

Based on France’s and Spain’s law

Used in 9 states

Property acquired in marriage is community property; each spouse has undivided 1/2 interest

Exceptions = Gifts, property owned before marriage, inheritance, and property acquired by separate funds

101
Q

**Life Insurance in Community Property States (Example) - CH10

A

*Example: A common law couple from NJ is unaffected by traveling to a community property state CA and buying property, and a couple from a community property state CA is unaffected by traveling to a common law state NJ and buying property

Property acquired by separate funds is separate property; property acquired by community funds is community property regardless of how it is titled

102
Q

**Exoneration Statutes - CH10

A

*Protect the INSURER from paying proceeds or other policy benefits twice

Insurer not relieved from all liability

If an unknown community property right emerges and insurer had no previous knowledge

If insurer pays proceeds under terms of contract, they will not be held liable to community property interests

*Derived from civil law and applies only in community property states

103
Q

**Legal Remedy - CH10

A

*Money damages for failure to perform required duties under contract; pay a specified sum to the plaintiff

Lawsuit (action at law) where someone injured by another person

*Decided by a jury

104
Q

**Equitable Remedy - CH10

A

*Action in equity to fix the problem

Puts parties in the position they were in before the breach of contract or the injustice was committed

*Decided by a judge

105
Q

Wrongful Killing of Insured - CH10

A

A beneficiary who kills the insured may not collect DB

Killing must be wrongful and intentional

*If proceedings are delayed, the insurer may pay proceeds to the court through an interpleader action, which is used when there is a conflict or lack of clarity on who is entitled to the proceeds

106
Q

Equitable Remedies (4) - CH10

A
  • 1) Declaratory Judgment = declares obligations and rights of parties when rights and duties are in bout; parties can then move forward to resolve the dispute
  • 2) Interpleader = has a court decide who is entitled to funds when property is claimed by 2 or more people; purpose is to avoid paying proceeds to more than 1 party
  • 3) Reformation = discover the intent of parties and rewrite or reform the contract to express actual intent; two grounds: mistake (there is a difference b/t the intent and the written agreement) and misrepresentation (an error misrepresents the intention of the parties)
  • 4) Rescission = cancel the contract d/t material misrepresentation in the contract
107
Q

**Three Requirements for Equitable Remedy - CH10

A
  • 1) No Adequate Remedy at Law = goal is to put parties in the position they were in before the contract was breached or the injustice was committed
  • 2) Clean Hands = court case must not be an attempt to defraud the other person or use the court as a tool to cheat another person; there must be attempts to do what is right b/t the parties
  • 3) No Unnecessary Delay = there are time limits or statutes of limitations for bringing problems to court; plaintiffs must bring cases quickly, not wait to the last minute
108
Q

Proof of Death - CH11

A

normally, the death certificate is required

109
Q

**Mysterious Disappearance of the Insured, Presumption of Death (4) - CH11

A
  • 1) Missing for a fixed period of time, usually 7 years
  • 2) No reasonable explanation for the absence
  • 3) Total absence of communication
  • 4) Diligent and unsuccessful search has been conducted
110
Q

**Release Settlement - CH11

A

Intentional giving up of right for a consideration

Insurer requires a release from the beneficiary as part of a negotiated settlement of claim

To be enforceable, there usually must be an exchange/consideration

111
Q

**Compromise Settlement - CH11

A

The existence of a right to proceeds is in dispute

Insurer may use this when the insured disappeared and the presumption of death is not fully satisfied

112
Q

**Reappearance of Missing Insured - CH11

A

A person who had previously been declared dead is discovered alive

If proceeds were paid in full: insurer can recover the proceeds plus interest

If a compromise settlement was paid: there is no recovery of the amount paid

113
Q

Reasonable Expectations Doctrine, **Majority View - CH11

A

If language is clear, the contract is enforced as written

If there is ambiguity, the benefit of the doubt goes to the non-drafting party (policyowner)

114
Q

Reasonable Expectations Doctrine, **Minority View - CH11

A

Reasonable expectations of the non-drafting party (policyowner) in a contract of adhesion will control contract interpretation even if contract language is clear and unambiguous

Extremely favorable to the policyowner in an effort to impose liability on the insurer

115
Q

**Estate of Insured (As Beneficiary) - CH12

A

Paid by will or per laws of intestacy for purposes of paying estate expenses

Generally it is unwise to name the estate as a beneiciary:
No protection from creditors
Subject to estate administration and settlement costs
Delays distribution to intended beneficiaries
If used, should be only in the amount of anticipated estate expenses

116
Q

**Clearly Specified Beneficiary - CH12

A

Person (name and relationship, DOB, etc.) or organization entitled to proceeds

Needs to be reviewed and updated regularly

117
Q

**Class Beneficiary - CH12

A

Can present complications to insurer in paying claim as members may be difficult to identify and locate

Typically, proceeds are paid equally to all members of a group unless specified in the beneficiary designation on the application or policyholder change form

118
Q

**Primary Beneficiary - CH12

A

*Can have more than one, different percentages

Owns proceeds at death of insured

119
Q

**Contingent Beneficiary - CH12

A
  • First-Taker = has claim once the primary beneficiary is removed, or their claim ripens/matures on the death or removal of the primary beneficiary
  • Second-Taker = takes unpaid installments beyond the death of the primary beneficiary, such as a fixed period option, in the same manner as the primary beneficiary
120
Q

Revocable Beneficiary - CH12

A

Can be unilaterally changed by the policyowner

*Has a mere expectancy (defeasible interest) of proceeds

Policyowner can change the beneficiary or exercise any policy right w/out the revocable beneficiary’s consent

Any interest in the policy terminates at the beneficiary’s death

*Change of beneficiary may not be allowed (is precluded) if the policy is collaterally assigned or when a court order in a divorce case requires the former spouse as the beneficiary

121
Q

Irrevocable Beneficiary - CH12

A
  • Conditionally vested - must survive the insured
  • Beneficiary must consent to any change that affects the DB
  • Policyowner does NOT have the unilateral right to change the beneficiary (like joint owners)
  • Owner cannot act in any way that will diminish proceeds w/out the consent of the irrevocable beneficiary
  • No loan, no dividend, no assignment w/out the beneficiary’s consent = limited ownership rights
122
Q

Situations where there is more than one beneficiary in a class and a beneficiary predeceases the insured (2) - CH12

A
  • 1) Per capita (New York Rule) = surviving named beneficiaries share equally, per head
  • 2) Per stirpes (Connecticut Rule) = heirs of deceased beneficiary take that beneficiary’s share; “by the trunk” or “through the root”
123
Q

**Prematurity Rights - CH12

A

Rights available to policyowner during insured’s lifetime

Surrender options

Dividend options

Policy loans

Assignment

Change of beneficiary

124
Q

**Incidents of Ownership, Ways of preventing inclusion of proceeds in estate (3) - CH12

A
  1. Owner not the insured
  2. Transfer policy to another person or trust (3 year rule)
  3. Absolute assignment (3 year rule)
125
Q

5 Possible Outcomes of Death Claim - CH12

A
  1. Insurer pays claim
  2. Insurer denies claim
  3. Insurer denies, and beneficiary takes matter to court
  4. Interpleader - insurer pays claim to court to determine proper recipient
  5. Insurer denies claim, but compromise settlement is paid
126
Q

**Simultaneous Death (Common Disaster Clause) - CH13

A

If the order of death of the insured and beneficiary is unclear/unknown, the insured will be presumed to have survived the beneficiary; proceeds are payable to the insured’s estate or named contingent beneficiary

127
Q

**Uniform Simultaneous Death Act - CH13

A

Life insurance proceeds are distributed as if the insured survived the beneficiary if the order is unknown, the same as in a common disaster clause

If the order of death is known, the order cannot be changed

128
Q

**Delayed Payment Clause - CH13

A

The beneficiary must survive the insured by a specified period of time such as 10, 14, or 30 days

Used to avoid problems of short-term survivorship of beneficiary after insured’s death (proceeds paid in lump sum would have to pass through two estates, delay and estate administrative expenses are charged twice resulting in estate shrinkage)

129
Q

Changing Beneficiaries (6) - CH13

A
    1. Policyowner may change to anyone
    1. No insurable interest required
    1. Must be in writing
    1. Policy normally does NOT need to be endorsed
    1. If there is an irrevocable beneficiary, they must consent to the change
    1. Collateral assignment and divorce court orders may limit the policyowner’s ability to change beneficiaries
130
Q

**Minor Beneficiaries - CH13

A

*A minor lacks the legal capacity; the insurer requires minors to have a guardian

A minor cannot give binding release to the insurer when receiving proceeds

Upon attaining majority, the minor might repudiate the release and demand payment again

A minor cannot give release to change an irrevocable beneficiary

Age 18 is the age of majority in 44 states

131
Q

Trust as Beneficiary - CH13

A

*A trustee may be a natural person or a corporation

The trustee administers proceeds according to the terms of the trust agreement; trust agreement spells out the trustee duties and responsibilities

*The trust agreement must exist at the time the trustee is named beneficiary in case the insured dies

132
Q

Assignment - CH14

A
  • If the beneficiary is revocable, the owner may assign proceeds; a revocable beneficiary is not vested; they merely have an expectancy of receiving the proceeds
  • If the beneficiary is irrevocable, the owner may not assign proceeds w/out the irrevocable beneficiary’s permission

The insurer is not responsible for the validity of the assignment

Some companies may require an endorsement (a notice of assignment stamped on the policy); insurers require any assignment to be made in writing and filed w/ the company

133
Q

Absolute Assignment - CH14

A
  • All rights transferred permanently and absolutely to another (a change of policy ownership)
  • Assignee is new owner
  • Divests policyowner of incidents of ownership

Beneficiary’s interest is extinguished (unless named beneficiary by absolute assignee)

Assignment (transfer) is a right of any property owner, and no provision is needed, but normally the policy includes this provision

134
Q

Collateral Assignment - CH14

A

Partial and temporary transfer of rights as collateral

  • Transfers the right only to the extent of protecting a loan
  • Assignment terminates and policyowner rights are restored when loan or lien is paid in full

Assignment is an ownership right; only the owner may assign the policy

135
Q

Assignment and Insurable Interest - CH14

A

If an applicant has insurable interest, the assignee needs no insurable interest at the inception of the contract or at death

  • If the policy is assigned “for/as security for debt” (consideration), the assignee may retain only the amount of their financial interest (The creditor-assignee must have an insurable interest at the time of assignment and at the time of death)
  • If the policy is assigned to the creditor “in satisfaction of debt” (not as security for it), the creditor is allowed to keep all the proceeds, even though they may greatly exceed the amount of the debt canceled
136
Q

American Bankers Association (ABA) Assignment Form - CH14

A

Clearly sets forth the rights transferred and not transferred to the assignee

*Rights include surrendering the policy for cash value and right to exercise all surrender options

137
Q

Effects of Assignment on Beneficiary’s Rights (4) - CH14

A
  1. The beneficiary’s interest will be extinguished to the extent of the assignee’s interest
  2. The claims of the assignee prevail over the insured’s estate
  3. The collateral assignee may pay premiums to keep the policy in force and add them to the indebtedness
  4. Upon repayment of the loan, the assignment terminates
138
Q

**Creditors of the Insured - CH15

A

Creditors of the insured may seek to satisfy claims from the cash value while the insured is alive or from proceeds after death

Courts and insurers do NOT support forcing surrender

Insurers are under no obligation to pay creditors

Proceeds payable to the owner/insured or the insured’s estate are not exempt in most states; protection is mostly for 3rd party beneficiaries/dependents

139
Q

**Creditors of the Beneficiary - CH15

A

A beneficiary’s (revocable or irrevocable) creditors cannot get the insured’s policy CV

*A beneficiary’s creditors can get proceeds after the insured’s death since the proceeds are now the beneficiary’s property

If the beneficiary is an irrevocable beneficiary, the policyowner’s rights cannot be defeated by the creditor of another person

140
Q

**After Maturity of Contract - CH15

A

Proceeds paid to the insured’s estate are available to estate creditors as any other unrestricted assets

Proceeds paid to a third party beneficiary (revocable or irrevocable) are vested in (owned by) the beneficiary and are free from claims of the policyowner’s creditors

141
Q

Bankruptcy Reform Act of 1978 - CH15

A

Exempts life insurance from claims of creditors when the policyowner is filing for bankruptcy:

Most states (34) have opted out of federal rules, so the policyowner is protected by state statutes

Some states (16) allow citizens to choose state or federal rules, but not both

If a policyowner is bankrupt and a trustee is appointed, the policy transfers to the trustee, who can surrender the policy for its cash value

142
Q

Federal Tax Lien Act of 1966 - CH15

A

The federal government can override state exemption laws to get taxes owed from the policy’s cash value

The federal government can attach proceeds to the extent of debt if a lien was attached before the insured’s death (United States v. Bess, 1958)

143
Q

Statutory Protection Against Creditors - CH15

A

All states provide protection of life insurance from claims of creditors; not all states protect cash values

Generally, proceeds are exempt from the claims of the insured’s creditors as long as they are identifiable as proceeds

Proceeds often are NOT protected once they are in the hands of the beneficiary

Cash values and death proceeds are not exempted from federal tax liens

144
Q

Distributive Statute - CH15

A

State Exemption Statute

Proceeds (generally not cash values) payable to the insured’s estate will pass to their spouse and children free of the claims against the estate; seldom protects against the claims of the beneficiary’s creditors

145
Q

Procedural Statute - CH15

A

State Exemption Statute

Provides protection from the insured’s and the beneficiary’s creditors; the amount of insurance is limited, and typically protection for cash values is not provided

146
Q

**New York Statute - CH15

A

State Exemption Statute

*Protects cash value and proceeds from claims of the insured’s creditors but NOT the beneficiary’s creditors; the majority of states have enacted similar legislation

147
Q

Comprehensive Statute - CH15

A

State Exemption Statute

All benefits exempt, w/out limitation, from claims of the creditors of the insured, beneficiary, third party owner, or any other person or organization; unlimited protection of all benefits payable to anyone from all creditors

148
Q

**Spendthrift Statute - CH15

A

State Exemption Statute

*Only protects the proceeds held under a settlement agreement (installment payout) from claims of the beneficiary’s creditors

Insurer and insured can agree that proceeds will not be subject to assignment or attachment by the beneficiary’s creditors; this agreement must be part of a policy or settlement agreement, and the beneficiary cannot be a part to it

149
Q

Capacity to Be a Principal - CH16

A

*Capacity = legal qualification, competency, power, and fitness to accept authority or responsibility

Principal MUST have the capacity to execute a contract

Minors and adults w/ limited capacity cannot be the principal or appoint agents, but they can be agents if they understand their assignments

Corporations have the capacity to the the principal and to appoint agents

150
Q

Capacity to Be an Agent - CH16

A

A contract signed by an agent is the contract of the principal, NOT the agent

An agent must be licensed (appointed) w/ each company that they represent as an agent; states require a company to appoint an agent so that the state is informed of which companies producers represent

An agent is not a party to the contract they negotiate b/t a third party and the principal

151
Q

Law of Agency - CH16

A

*Agency = a fiduciary relationship where one person agrees to act on another person’s behalf and be subject to control of that person that they have the authority to represent

The person granting the agency authority is the principal; the person receiving is the agent

The agent is engaged in the business of the principal and has a duty of loyalty

*The agent is a fiduciary of the principal and has an obligation to act in the best interest of the principal

152
Q

**Principal - CH16

A

A person who employs another to act for them; can be a person or a corp; the insurer must meet state requirements to be the principal (admitted insurer)

153
Q

**Agent - CH16

A

A person who acts for another; Fiduciary of principal; must act in principal’s best interest; agent must be licensed

154
Q

**Fiduciary - CH16

A

A person who acts in the best interest of another; must exercise good faith, a high degree of trust, and a duty of loyalty

155
Q

**Broker - CH16

A

A person who acts or aids in negotiating insurance on behalf of a client or a beneficiary; an agent of the insurer for purposes of delivery and collecting first premium

An agent has a duty to act solely for the benefit of the principal and under the principal’s directions

The agent occupies a special position of trust that imposes a duty of loyalty to the principal

*Agents and principals may be “natural persons” (people) or “artificial persons” (corps as legal entities)

No one can unilaterally make themselves the agent of another person

156
Q

**Agents Vs. Brokers - CH16

A
  • Agents
    1. Represent the insurer and the principal
    2. Agent’s knowledge is considered knowledge of the insurer
  • Brokers
    1. May be individuals, corps, and partnerships
    2. Represent the policyholder/insured/beneficiary
    3. Represent insurer for purposes of delivery and collecting first premium
157
Q

General Rules of Agency Law (3) - CH16

A
    1. Presumption of Agency
  • There can be no presumption that one person acts for another
  • There must be tangible evidence of the agency relationship
    1. Apparent Authority of Agents
  • The agent acts for the principal and is subject to the principal’s control
  • Apparent authority must be created by principal
    1. Responsibility for Acts of Agents
  • The agent must consent to the agency relationship
158
Q

**Express Authority - CH16

A

*Contract

Powers specifically given to the agent by the principal orally or in writing, most often in a contract and/or manual

159
Q

**Implied Authority - CH16

A

*Incidental

Powers not specifically given by the principal to the agent but that are necessary to exercise powers expressly given; it is implied that the agent has authority to perform incidental acts to those expressly given

Example: the agent accepts the check for the first premium

160
Q

**Apparent Authority - CH16

A

*Reasonable Belief

The public reasonably believes the agent possesses authority based on the actions of the principal; but none actually exists?

Example: the agent repeatedly grants permission for the policyowner to pay the premium late

161
Q

Agent Duties and Powers and Limits (6) - CH16

A

Agent contract confers and limits powers; agents denied power to:

  1. Create, alter, or discharge a life insurance policy/contract
  2. Extend time limits on premium payments
  3. Waive or extend conditions/obligations
  4. Accept predated/postdated checks
  5. Deliver policies to applicants not in good health
  6. Limits expressed in non-waiver clause in application and policy
162
Q

**3 Duties of an Agent to the Principal - CH16

A
    1. Duty of Loyalty = full disclosure to the principal and act in principal’s best interest
    1. Duty to Obey = follow principal’s directions
    1. Duty to Exercise Reasonable Skill, Care, and Diligence

**Agent is liable for damages for acts that violate duties to principal

163
Q

Principal’s Duties (6) - CH16

A
  1. Give the agent opportunity to work
  2. Provide goods for the agent to sell
  3. Pay the agent for services rendered
  4. Reimburse the agent for authorized expenses incurred
  5. Indemnify the agent for liabilities incurred
  6. Keep accurate account of finances
164
Q

Agent’s Duties (State/Insurer/Clients - 3) - CH16

A

To State:
Follow the insurance laws of the state

To Insurer:
Duty of Care
Not to exceed scope of authority

*Levels of Duty to Clients:
*1. Generalist Level
Skill, care, good faith, and diligence

*2. Dual-Agency Level
Fiduciary duty to principal-agent of the insurer (application and premium) and insured (delivery of policy)

*3. Expert
Expertise and high level of professionalism; producer representations of expertise may induce client reliance on that expertise; must make suitable recommendations

165
Q

Principal-Agent Relationship - CH16

A

Principal is bound by the agent’s actions if actual express authority exists

The law presumes the principal has control over its agents

Principal is liable if the agent’s wrongful acts w/in scope of the agency injure a third party

The knowledge of the agent is deemed to be the knowledge of the principal

166
Q

Ratification - CH16

A

Validation of an unauthorized act; only relevant to unauthorized acts beyond scope of express or implied authority

Occurs if the principal fails to repudiate an act w/in a reasonable time; ratification must occur w/in a reasonable time

Ratification binds the principal and relieves the agent of liability to the principal or a third party

Ratification occurs if the principal accepts the benefit of the unauthorized activities of an agent or imposter agent (one claiming to be an agent)

167
Q

**Life Insurance Agent Requirements (6) - CH16

A
  1. Must be licensed by the state and appointed by a company
  2. Must have contractual capacity
  3. Must agree to agency representation
  4. Must satisfy state-imposed minimum age
  5. Is subject to principal’s control
  6. Maintains files of business-related materials
168
Q

**Securities Act of 1933 - CH17

A

*full and fair disclosure

Prospectus requirement = summary of important information from registration statement; it must accompany any sales literature and be delivered prior to or at the time of solicitation

169
Q

**Investment Company Act of 1940 - CH17

A

*registration, holding out, advertising and sales literature

Defines investment advisor engaged in business of giving advice to others about investing for compensation

170
Q

**Prospectus - CH17

A

Applies to variable life and annuity products

Discloses detailed information about the investment and the company issuing the contract

It must accompany sales literature and be delivered prior to or at the time of the investment sale

Regulated by the SEC through the Securities Act of 1933; NOT state insurance departments

171
Q

**State Blue Sky - Uniform Securities Laws - CH17

A

Licensing and regulation of securities by states

Requires filing of sales and advertising literature

172
Q

Federal Insurance Advertising Laws (3) - CH17

A
  1. McCarren-Ferguson Act
    Established the federal government will regulate insurance only to the extent that such business is not regulated by state law
  2. Federal Trade Commission (FTC)
    Regulates interstate direct response mail insurance advertising
  3. U.S. Postal Service (USPS) and Federal Communications Commission (FCC)
    The postal service can take action when mail is used for false advertisements or to defraud people
173
Q

**The NAIC - CH17

A

National Association of Insurance Commissioners

Provides minimum standards and guidelines, to create uniformity b/t states, and it models laws and regulations suggested to be adopted by each state

174
Q

**NAIC Model Unfair Trade Practices Act - CH17

A

Prohibits false advertising = untrue, deceptive, or misleading advertising; focus is on misrepresentation

The act prohibits unfair trade practices such as:

  1. Unfair settlement practices
  2. Unfair claims practices
  3. Rebating
175
Q

**NAIC Model Rule Definition of Advertisement - CH17

A

Written or oral communication intended to create favorable opinion about insurance or to induce the sale of insurance; includes all sales literature and training material

The accuracy and truthfulness of producer-created sales materials is the responsibility of the insurer

The insurer must at all times have in place a system of control over the content of all advertising

176
Q

Fair Credit Reporting Act - CH17

A

Established procedures to safeguard information; releasing out of date information is prohibited

Act enforces privacy rights by controlling activities of consumer reporting agencies

Insurer’s investigative practices fall under this law

A person must request information or give permission for another to obtain it

Agency must disclose the nature and substance of information it has collected and make corrections

177
Q

Gramm Leach Bliley Act - CH17

A

Specific compliance rules designed to protect consumer information; applies to banks and insurance companies

178
Q

Telephone Consumer Protection Act - CH17

A

Gave the Federal Trade Commission (FTC) and the Federal Communications Commission (FCC) the authority to establish the Do-Not-Call Registry

179
Q

**Invasion of Privacy Torts - CH17

A

Violation of one’s right to be left alone

180
Q

**Four Torts (Personal Injury) Under Invasion of Privacy Law - CH17

A
  1. Misappropriation of another’s name or likeness
  2. Unreasonable intrusion into one’s private space
  3. Public disclosure of private facts
  4. Words or actions places another person in a false light in the eyes of the public
181
Q

**Defenses for Invasion of Privacy (2) - CH17

A
  1. Consent
    = Complaining party consented to the release of private information, such as authorization for MIB or Inspection Report
  2. Privilege
    = Certain parties have the right to seek out and investigate private information, such as a prospective employer
182
Q

NAIC Model Privacy Act - CH17

A

State law focused solely on the insurance industry

Balances the need of the insurer for private personal information and the consumer’s need for privacy

Gives consumers right to gain access to information and dispute accuracy; consent must be given before an investigation is conducted

Limits how information can be disclosed and prohibits pretext interviews, investigations in which the interviewer misrepresents their identity to obtain information about someone

Insurers must reveal the source and reason for adverse underwriting

183
Q

Intestacy - CH18

A

Dying w/out a will; state laws control distribution of property and vary by state

184
Q

Legal Capacity - CH18

A

Gained by reaching the age of majority, generally 18; for life insurance it is commonly age 15

185
Q

**Competent - CH18

A

Having sufficient capacity and possessing requisite physical, mental, or legal qualifications

The testator is competent if they understand:

  1. The general nature and extent of their property
  2. Their relationship to people named or disinherited in the will
  3. What their will is
  4. The transaction of simple business affairs
186
Q

**Incompetence - CH18

A
  • can be temporary or permanent
  • Temporary: Intoxication or duress
  • Permanent, NOT temporary: Alzheimer’s or insanity
187
Q

**Will - CH18

A

Indicates how property is to be distributed after death; appoints guardian of minor children if both parents die, executor, and trustees

188
Q

**State Laws of Intestacy - CH18

A

Dying w/out a will; state laws control distribution of property, custody, and other decisions; intestacy laws vary by state

189
Q

**Power of Attorney - CH18

A
  • All powers of attorney terminate on death
  • Powers can be limited or general
  • A general power of attorney cannot delegate the power to create or alter a will on behalf of the principal
  • A competent principal can terminate existing or springing powers at any time
  • A power of attorney prevents interference from another party

Used by a person to appoint another party to make decisions for them as their agent; persons creating the power (principal) can make very specific or general powers

190
Q

**Uses of Powers of Attorney (2) - CH18

A
  1. Estate Planning = desirable for a durable POA to specify that it delegates the power to make gifts, implement retirement plans, and execute property transactions
  2. One can create different powers of attorney for property management and health care, w/ different agents for different functions
191
Q

**Simple Power of Attorney - CH18

A

Can specify powers (notary); terminates if principal becomes disabled or incompetent

Principal decides who can act on their behalf under a POA

192
Q

**Durable Power of Attorney - CH18

A

Remains in effect if principal becomes incompetent; no need for court intervention

Principal or attorney-in-fact can terminate at any time

193
Q

Springing Durable Power of Attorney - CH18

A

Becomes effective only after the occurrence of specified events, such as the loss of physical or mental competency:

Creates powers when they are needed and not before

Agent can carry on necessary transactions regarding property management and health care w/out waiting for competency hearings or the appointment of a guardian

194
Q

Living Will (4) - CH18

A

Declares and individual’s intent to avoid prolonging life w/ artificial life support

Expresses an individual’s medical wishes if they become incapacitated

  • States have variations in rules and definitions, such as what constitutes a terminal condition
  • It is advisable to draft a living will that conforms to the applicable law in the person’s state of domicile; it may not be honored in other states
195
Q

Durable POA for Health Care (4) - CH18

A

*The attorney-in-fact can make medical decisions if the principal is unable to do so

They can make physicians aware of the living will and advocate compliance w/ the living will

Many physicians consider a living will to be direct conflict w/ their duty to prolong life

Physicians are also concerned that they may be subject to civil or criminal liability for not initiating artificial life support

196
Q

**Ethics - CH19

A

*The pillar of professionalism

Education/ethics are “high bars”; following the law and meeting compliance are NOT

The industry is build on trust:
=The only real product is the promise to pay
=Faith is the real commodity w/ which we deal
=W/out commitment to ethical integrity to foster our trust, our industry would not survive

197
Q

**Top-Rated Ethical Concerns (2) - CH19

A
    1. Failure to identify a customer’s needs and recommend products that meet those needs has been rated as a top ethical concern by life insurance agents
    1. Lack of knowledge or skills to competently perform one’s duties is also a top rated ethical concern
198
Q

**Ethical Issues (2) - CH19

A

*1. Indexed Products
= There is a concern that the public is unsure of what these products are or that they are investment products

*2. Annuities
= The suitability of annuities, especially variable annuities to older adults, has become a concern to regulators

199
Q

Regulation of Financial Planners - CH19

A

Investment Advisers Act of 1940

= Financial planners who meet the definition of an investment adviser under this act must register as an investment advisor w/ the SEC and FINRA

200
Q

Client entitled to all relevant information about the purchase they are considering: (6) - CH19

A
  1. Financial strength
  2. Current earnings/surplus relative to prior years
  3. Extent of junk bonds and real estate investments
  4. Percentage of troubled assets and derivatives
  5. Historical performance and accuracy of prior predictions
  6. Recent changes in participating dividend levels
201
Q

**Sources for Evaluating Insurers (3) - CH19

A

*1. NAIC
=Ex IRS ratios (stress tests); NAIC offers satisfactory ranges of ratios on financial strength; ratios outside the usual ranges are a warning sign that state regulatory inspection should be done

*2. Rating Services (A.M. Best, Standard and Poor’s, Fitch, Moody’s)
= Ex historical information; indicates how a company performed based on projections versus actual performance

*3. Insurer annual Reports
= Ex some measures of profitability are surplus, the company’s capital, and equity

202
Q

Ethical Conduct (4) - CH19

A
  1. Ethical behavior is a core value
  2. Ethical codes exist to elevate human behavior
  3. Earning professional designations exemplifies professionalism
    1. The American College’s Code of Ethics
  • Eight Canons
  • Professional Pledge

HS324 Life Insurance Law (3 decks)

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