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Life Insurance Flashcards

1
Q

Insurance

A

Transfer the risk of loss from an individual to an insurer
Based on the principle of indemnity
Based on spreading of risk and law of large numbers.

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2
Q

Hazards

A 
Hazards give rise to a peril
3 Kinds of Hazards
Physical
Moral: Tendency towards increase risk
Morale: indifference to loss
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3
Q

Risk

A

Uncertainty regarding financial loss
2 types of Risk
Pure Risk: insurable bc it involves chance of loss
Speculative: not insurable has chance of gain

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4
Q

Element of Insurance Risk

A

Due to chance: chance of loss beyond insured control
Definite and Measurable: loss must be have definite time, place, and amount
Predictable: number of losses must be statistically predicable
Not Catastrophic: there must be limits that the lost can’t exceed
Large Exposure: insurer must be able tp predict losses based on law of large numbers
Randomly Selected Exposure: insurer must have a fair proportion of both good or poor risk

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5
Q

Stock

A

Owned by stockholder

Issue nonparticipating policies

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6
Q

Mutual

A

Owned by policyowners
Issue participating polices
Pay dividends to policyholder which are a refunded excess of premiums

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7
Q

Fraternal Benefit Society

A

Not for profit org
Benevolent and charitable brotherhood
Must be member to receive benefits
Membership based on religious, national or ethic lines

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8
Q

Express Authority

A

Power specifically stated in the contract

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9
Q

Implied Authority

A

Not specifically stated in the contract but is assumed necessary to conduct insurance business

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10
Q

Apparent Authority

A

The appearance of a relationship between the agent and principle based on words or actions

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11
Q

Domicile

A

Domestic: incorporated in this state
Foreign: incorporated in another state
Alien: Incorporation another country

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12
Q

Authorized/ Admitted

A

Approved by Department of Insurance

Has certificate of Authority

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13
Q

Unauthorized/ Nonadmitted

A

No Cert of Authority

Cannot transact business in this state

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14
Q

Elements of a Legal Contract

A

Agreement offer and acceptance
Consideration premiums and representation on part of insured: payments of claim
Competent parties of legal age sound mental capacity not under influence of drugs or alcohol
Legal Purpose: not against public policy

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15
Q

Contract Characteristics

A

Adhesion: one party prepares contract other accepts it as is
Aleatory: Exchange of unequal amounts
Conditional: certain conditions must be met
Personal: between policyowner and insurance company
Unilated: only one of the parties to contract is legally bound

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16
Q

Legal Interpretations

A

Ambiguities in contract are always resolved in favor of insured
The insured can reasonably expect coverage based on agents words or actions.
Utmost good faith: parties rely on each other for information
Material Misrepresentation: Breach of warranties/ Fraud
Waiver: voluntary act of relinquishing a legal right

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17
Q

Personal Use

A

Survivor protection: planning for survivor needs
Cash Accumulation: permanent policies have living benefits
Estate Creation: life insurance creates an immediate estate
Estate Conservation: using life insurance proceeds to cover estate taxes

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18
Q

Amount of Insurance

A

Human life value approach: potential earnings of insured

Needs approach: predicted needs of surviving family

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19
Q

Business Uses of Life Insurance

A

Key Person: third party ownership-business is owner employee is insured
Buy-Sell: funding not really insurance, but a business continuation agreement
Executive Bonuses: employer gives employee wage increase in amount of insurance premium; employee is policyowner

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20
Q

Solicitation and Sales Presentation

A

Advertisement: must be truthful and not misleading
Illustration: presentation of nonguaranteed elements
Buyer’s Guide: Generic info about life policies must be provided at time of application
Policy Summary: Description of features and benefits of policy being issues

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21
Q

Underwriting

A

Field Underwriting (by Agent)
Application: completed and Signed
Agents Report: agent’s observations about applicant that can assist in underwriting
Premiums with application and conditional receipts
Company Underwriting
Multiple sources of info( app, consumer report, med info bureau)
Selection criteria: cannot discriminate unfairly
Risk Classification 3 types of risk Standard, Substandard, and preferred

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22
Q

Premium Determination

A

3 key factors
Mortality, Interest, and Expense
Premium Payment Mode: the higher the frequency the higher the premium

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23
Q

Adjustable Life

A

Policyowner may adjust premium and premium-paying period, face amount, and period of protection
Can be converted from term to whole life
Cash Value only develops if premium paid are more than cost of policy

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24
Q

Term Life/ Level Premium Term

A

Level death benefits and level premium

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25
Annually Renewable Term
Renews each year without proof of insurability | Premiums increase due to attained age
26
Decreasing Term
Coverage decreases at predetermined times gradually best used when the need for protection declines from year to year
27
Increasing Term Life Insurance
Coverage increases each year
28
Whole Life General Characteristics
Permanent protection guaranteed elements (face amount, premium and cash value) until death or age 100 Level Premium Cash Value and other living benefits
29
Straight Life (continuous premiums)
Basic Policy Level Death Benefits Insured pays premiums for Life or Until Age 100
30
Limited Payment
Premiums are paid until a certain age or time; coverage in effect to age 100
31
Single Payment
Premium paid in one lump sum and coverage continues to age 100
32
Flexible Premium ( Gen Characteristics)
Types of Whole Life Insurance | Flexible Premiums
33
Policy Issue and Delivery
Effective Date of Coverage- policy is delivered and premium is paid If the premium is not paid with the application, the agent must obtain premium and a statement of continued Good Health at time of policy delivery
34
Term Life ( Gen Characteristics)
Pure Protection Last for specific term No Cash Value
35
Taxation Life Insurance
Premiums not tax deductible Cash Value taxable only if amount exceeds premium (taxed on gain) Policy Loans not taxable interest not tax deductible Dividends not taxable as return of premium any interest is taxable Accelerated Benefits tax free Death Benefits not taxable of lump sum if any interest is taxable Surrenders: taxable if cash surrender is value
36
IRAs
Contributions pre tax, tax deductible Earnings: tax deferred Distributions: taxable; 10% penalty for early with drawl
37
Roth IRAs
Contributions: after tax, not tax deductible | Distribution not taxable
38
Universal Life
Has an insurance component in form of annually renewable term 2 death benefit options Option A level death benefit Option B Increasing death benefit Can make partial surrender/cash withdrawal Flexibility through unbundling
39
Variable Life
Fixed premium, minimum death benefit Cash Value and actual amount of death benefit Assets is separate accounts Agent must be dually licensed in insurance and securities
40
Joint Life (First-To-Die)
Insures 2 or More people Premium based on joint age of insured Benefit Paid upon first death
41
Group Life
Master contract goes to the sponsor usually the employer Certificate of Insurance goes to the members Underwritten as a group Open enrollment proof of insurability required Conversion to individual policy 31 days same face amount but a high premium
42
Survivorship Life (second-to-die)
Insures 2 or more people Premium based of joint age of the insured Benefits paid upon the last death
43
Credit Life
Only for the amount of debt Decreasing term Creditor is owner and beneficiary
44
Standard Provisions
``` Entire Contract Payment of Premiums Grace Period Reinstatement Incontestability Misstatement of Age Statements of Insured Legal Action Payment of Claims ```
45
Other Provisions
``` Ownership Modification Medical Examination Assignment Free Look Exclusions ```
46
Beneficiaries
Designations individuals, classes, estates, minors, trusts Succession levels of priority each level succession is only eligible if beneficiary in level above has dies *Primary first claim to policy proceeds * Contingent( secondary, tertiary) next claim after primary Policyowner's right to change a beneficiary *Revocable can be changed at anytime *Irrevocable can only be changed with beneficiary's consent Common Disaster Clause: protects rights of contingents beneficiaries if insures and primary beneficiary died at approximately same time it is assumed the primary beneficiary died first Spendthrift Clause: protects policy proceeds from claims of creditor
47
Cash Loans Available
Policy's cash value minus any unpaid loans and interest
48
Automatic Premium Loans
Prevent unintentional policy lapse due to nonpayment of premium
49
Withdrawals and Partial Surrenders
Available in universal life A charge may apply
50
Disability Rider
Waiver of Premium waves premium if insured become totally disabled; 6 month waiting period before begins Wavier of cost of the insurance; in Universal Life Policies: It waives cost of insurance in event of insured's disability Disability income waives premium and pays monthly income
51
Accelerated Benefits Rider
Early payment if insured is diagnosed with specified catastrophic illness A portion of Death Benefit Death Benefit is reduced by amount paid plus earnings lost by insurer
52
Additional Insureds Riders
Spouse/other insured: term rider(limited time, Limited coverage) usually expires when spouse turns 65 Children's Term: covers all children of insured (limited time, limited coverage) can be converted to permanent policy Family Term: Spouse and children covered under one rider
53
Accidental Death Rider
Pays double or triple indemnity if accidental death occurs as defined in policy; death must occur within 90 days of accident
54
Guaranteed Insurability Riders
Allows for purchase of additional Insurance at specified times without evidence of insurability at insureds attained age
55
Cost of Living Riders
Increase face amount by cost of living factor died in inflation
56
Return of Premium Rider
Increasing term is added to whole life policy provides that if death occurs prior to a given age, not only is death benefit payable to beneficiary, but all premiums paid as well
57
Nonforfeiture
Cash Surrender Value after that no more insurance Extended term: automatic option uses cash value to convert to term insurance Reduce Paid Up Insurance: uses cash value as single premium to purchase permanent policy with reduced face amount
58
Dividends
Cash-Insurer sends check to insureds Reduction of Premiums: dividend is applied to next year's premium Accumulation at Interest: Insurer keeps dividend in an account where it accumulates interest. Paid Up Addition: Dividends is used to increase face amount One Year Term: Dividend is used to buy additional insurance
59
Settlement
Cash Lump- Sum payment; usually not taxable Life Income: Provides income to the beneficiary cannot outlive; no guarantee that principal will be paid out (if beneficiary dies too soon) available as single life or joint and survivor Interest Only: Insurer retains the principal and only pays out interest Fixed Period: Payments for a specified time period until all proceeds are paid out Fixed Amount: Payments in specified amounts until all the proceeds are paid out
60
Annuities Phases
Accumulation Period: Payments in, goes to insurer Annuitization Period: payments out ; goes to insured
61
Annuities Parties
Annuitant: insured; policy issues on annuitant's life must be natural person Beneficiary: Will receive any amount contribution to annuity (plus any gain) if annuitant dies during accumulation period. Owner: has all rights to policy (usually annuitant) can be corporation or trust
62
Types of Annuities
Fixed Annuities: Guaranteed fixed payment amount premiums in general account Variable Annuities: payment not guaranteed premiums are separate account and invested in stocks and bonds Indexed Annuities: Interest rate tied to an index, earn higher rate than fixed not as risky as variable or mutual funds
63
Premium Payments
Single-One Lump Sum payment the principle is created immediately (used for both immediate and deferred annuities) Periodic (Flexible) multiple payments annuity principle funds is created over time (used for deferred annuity only)
64
Income Payments
Immediate: purchased with a single premium. Income payments start within one year from date of purchase Deferred: Purchased with either lump sum or periodic payments premium. Benefits start sometime after one year from date of purchase (often used to accumulate funds for retirement)
65
Settlement Options
Lump Sum-at Annunization; and all interest accumulated is taxable. Additional 10% penalty can be imposed prior to annuitant's reaching 59 1/2. Life Only: Insured cannot outlive income. Any monies not paid out are retained by company at insured's death. Pays highest amount monthly Refund Life Annuity: guaranteed life income. If annuitant dies, balance is "refunded" to beneficiary. Installment option gives beneficiary payments until purchase amount paid out. Cash refund of balance of original annuity purchase amount minus payments made to annuitant. Joint Life Annuity: 2 or More annuitants receive payments until first death, then payments cease Joint and Survivor: Income for 2 or more that cannot be outlived. Often used with period certain. When one annuitant dies, the other receives either 1/2 or 2/3 of original payment amount Life with Period Certain: specific monthly payment for life and specific period of time. (Life plus 10 year cetain) If an annuitant dies before payment period is up, payment goes to beneficiary Annuities Certain: payment guaranteed for fixed period or until certain fixed amount paid. *No life option*
66
Interest Rate
Guaranteed: Company must pay this minimum percentage. Usually 3% Current: Exceeds guaranteed rate paid to annuitant when company's own investment is better than expected
67
Qualified Plans (Gen Requirements)
Approved by IRS Tax Benefits for employers and employees Must be permanent and have a vesting requirement Cannot discriminate in favor of prohibited group
68
Individual Qualified Plans
Traditional IRA requirement & Features Earned Income Contributions: Pretax, No age limit, Dollar Limit- up to max allowed, Married Couples-double amount of singles Withdrawals must be begin at age 59 1/2 not later than 72 Roth IRA: Earned Income Contributions- After Tax, No age Limit, Dollar Limit- up to max allowed Withdrawal do not have to begin at 72
69
Employer-Sponsored Qualified Plans
General Characteristics Contribution up to an IRS-specified amount Both employer and employee contribution Types of Plans SEP: Small Employer/ Self Employed SIMPLE: Small Employer( no more than 100 employees) 401K: Any Employer, cash or deferred arrangement 403b: tax sheltered annuity TSA nonprofit organizations
70
Rollovers and Transfers
Tax Free Transactions Distribution of money from one qualified retirement plan to another Must be completed within 60 days If from plan to participant 20% distribution is withheld If from plan to trustee no withholdings
71
Modified Endowment Contract (MEC)
Overfunded life Insurance Policy Accumulation- tax deferred Distribution: taxable last in, First Out Distributions before 59 1/2 - 10% penalty
72
Licensing Process
Complete pre-licensing education Pass Examination Submit application and fees
73
Types of Licenses
Individual Resident and Non Resident Business Entities Temporary License: valid for 180 days issues maintain business
74
Maintenance and Duration
Must be renewed every 2 years Continuing educations must be completed every reporting period Disciplinary actions license denial, suspension, revocation, or nonrewal Cease and Desist order Monetary Penalties
75
Commissioner of Insurance
Elected for 4 years Regulates internal affairs of Depart of Insurance Does not Write Laws Examines all authorized insures
76
Insurer Regulations
``` Must obtain Cert of Authority Responsible for agent appointment Solvency requirements(must be member of Guaranty Association) Avoid Unfair trade practice or unfair claim settlements ```
77
Agent Regulations
Only one license of the same type is allowed per agent Must be licensee in line of authority for which agent transacts insurance Must have appointment to represent an insurer Avoid unfair trade practice

LA Life Insurance (1 decks)

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