Key Terms Flashcards

Question

No Cash w/ Application (no consideration) - CH3

Answer 1

* 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

Answer 2

Application and first premium - the applicant only "invites an offer"

Answer 3

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

Answer 4

manual delivery in person

Answer 5

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

Answer 6

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

Answer 7

*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

Answer 8

binds coverage w/out reference to policy delivery

Answer 9

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

Answer 10

controls contestability and suicide clauses

Answer 11

*to lower insurance age, premium, and medical requirements; policyowner pays for coverage not received maximum 6 months in most states

Answer 12

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

Answer 13

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

Answer 14

application and first premium (not renewal premiums)

Answer 15

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

Answer 16

one event must occur before another duty or right exists ex initial premium, application, "good health"

Answer 17

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

Answer 18

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

Answer 19

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)

Answer 20

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

Answer 21

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)

Answer 22

proceeds paid to contingent beneficiaries or insured's estate; murderer cannot receive proceeds killing must be wrongful and intentional

Answer 23

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

Answer 24

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

Answer 25

*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

Answer 26

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

Answer 27

*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

Answer 28

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

Answer 29

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

Answer 30

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)

Answer 31

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

Answer 32

*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

Answer 33

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

Answer 34

* 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

Answer 35

*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

Answer 36

*An insurer may be subject to a bad suit if it: Creates unfair claim processing procedures Uses abusive tactics Improperly delays Fails to investigate

Answer 37

*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

Answer 38

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

Answer 39

*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

Answer 40

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

Answer 41

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

Answer 42

*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

Answer 43

*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

Answer 44

* 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

Answer 45

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

Answer 46

* 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

Answer 47

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

Answer 48

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

Answer 49

*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

Answer 50

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

Answer 51

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

Answer 52

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

Answer 53

Required policy provision Advancement; no obligation to repay

Answer 54

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)

Answer 55

Required policy provision *Participating policies only Participating policy dividends Return of unearned premium

Answer 56

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

Answer 57

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 ```

Answer 58

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

Answer 59

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

Answer 60

Required policy provision Optional methods of distribution of proceeds by policyowner or beneficiary

Answer 61

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

Answer 62

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

Answer 63

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

Answer 64

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)

Answer 65

* 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

Answer 66

* 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

Answer 67

**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

Answer 68

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

Answer 69

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

Answer 70

Property that is NOT land or attached to land

Answer 71

* 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

Answer 72

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

Answer 73

*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

Answer 74

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

Answer 75

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

Answer 76

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

Answer 77

*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

Answer 78

*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

Answer 79

*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

Answer 80

*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

Answer 81

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

Answer 82

* 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

Answer 83

* 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

Answer 84

normally, the death certificate is required

Answer 85

* 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

Answer 86

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

Answer 87

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

Answer 88

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

Answer 89

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)

Answer 90

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

Answer 91

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

Answer 92

Person (name and relationship, DOB, etc.) or organization entitled to proceeds Needs to be reviewed and updated regularly

Answer 93

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

Answer 94

*Can have more than one, different percentages Owns proceeds at death of insured

Answer 95

* 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

Answer 96

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

Answer 97

* 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

Answer 98

* 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"

Answer 99

Rights available to policyowner during insured's lifetime Surrender options Dividend options Policy loans Assignment Change of beneficiary

Answer 100

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

Answer 101

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

Answer 102

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

Answer 103

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

Answer 104

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)

Answer 105

* 1. Policyowner may change to anyone * 2. No insurable interest required * 3. Must be in writing * 4. Policy normally does NOT need to be endorsed * 5. If there is an irrevocable beneficiary, they must consent to the change * 6. Collateral assignment and divorce court orders may limit the policyowner's ability to change beneficiaries

Answer 106

*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

Answer 107

*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

Answer 108

* 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

Answer 109

* 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

Answer 110

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

Answer 111

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

Answer 112

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

Answer 113

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

Answer 114

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

Answer 115

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

Answer 116

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

Answer 117

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

Answer 118

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)

Answer 119

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

Answer 120

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

Answer 121

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

Answer 122

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

Answer 123

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

Answer 124

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

Answer 125

*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

Answer 126

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

Answer 127

*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

Answer 128

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)

Answer 129

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

Answer 130

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

Answer 131

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

Answer 132

* 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

Answer 133

* 1. Presumption of Agency - There can be no presumption that one person acts for another - There must be tangible evidence of the agency relationship * 2. 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 * 3. Responsibility for Acts of Agents - The agent must consent to the agency relationship

Answer 134

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

Answer 135

*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

Answer 136

*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

Answer 137

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

Answer 138

* 1. Duty of Loyalty = full disclosure to the principal and act in principal's best interest * 2. Duty to Obey = follow principal's directions * 3. Duty to Exercise Reasonable Skill, Care, and Diligence **Agent is liable for damages for acts that violate duties to principal

Answer 139

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

Answer 140

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

Answer 141

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

Answer 142

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)

Answer 143

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

Answer 144

*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

Answer 145

*registration, holding out, advertising and sales literature Defines investment advisor engaged in business of giving advice to others about investing for compensation

Answer 146

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

Answer 147

Licensing and regulation of securities by states Requires filing of sales and advertising literature

Answer 148

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

Answer 149

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

Answer 150

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

Answer 151

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

Answer 152

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

Answer 153

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

Answer 154

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

Answer 155

Violation of one's right to be left alone

Answer 156

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

Answer 157

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

Answer 158

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

Answer 159

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

Answer 160

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

Answer 161

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

Answer 162

* can be temporary or permanent * Temporary: Intoxication or duress * Permanent, NOT temporary: Alzheimer's or insanity

Answer 163

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

Answer 164

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

Answer 165

* 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

Answer 166

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

Answer 167

Can specify powers (notary); terminates if principal becomes disabled or incompetent Principal decides who can act on their behalf under a POA

Answer 168

Remains in effect if principal becomes incompetent; no need for court intervention Principal or attorney-in-fact can terminate at any time

Answer 169

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

Answer 170

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

Answer 171

*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

Answer 172

*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

Answer 173

* 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 * 2. Lack of knowledge or skills to competently perform one's duties is also a top rated ethical concern

Answer 174

*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

Answer 175

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

Answer 176

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

Answer 177

*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

Answer 178

1. Ethical behavior is a core value 2. Ethical codes exist to elevate human behavior 3. Earning professional designations exemplifies professionalism * 4. The American College's Code of Ethics - Eight Canons - Professional Pledge