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LA Life Insurance > Life Insurance > Flashcards

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
Q

Annually Renewable Term

A

Renews each year without proof of insurability

Premiums increase due to attained age

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26
Q

Decreasing Term

A

Coverage decreases at predetermined times gradually best used when the need for protection declines from year to year

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27
Q

Increasing Term Life Insurance

A

Coverage increases each year

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28
Q

Whole Life General Characteristics

A

Permanent protection guaranteed elements (face amount, premium and cash value) until death or age 100
Level Premium
Cash Value and other living benefits

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29
Q

Straight Life (continuous premiums)

A

Basic Policy
Level Death Benefits
Insured pays premiums for Life or Until Age 100

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30
Q

Limited Payment

A

Premiums are paid until a certain age or time; coverage in effect to age 100

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31
Q

Single Payment

A

Premium paid in one lump sum and coverage continues to age 100

32
Q

Flexible Premium ( Gen Characteristics)

A

Types of Whole Life Insurance

Flexible Premiums

33
Q

Policy Issue and Delivery

A

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
Q

Term Life ( Gen Characteristics)

A

Pure Protection
Last for specific term
No Cash Value

35
Q

Taxation Life Insurance

A

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
Q

IRAs

A

Contributions pre tax, tax deductible
Earnings: tax deferred
Distributions: taxable; 10% penalty for early with drawl

37
Q

Roth IRAs

A

Contributions: after tax, not tax deductible

Distribution not taxable

38
Q

Universal Life

A

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
Q

Variable Life

A

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
Q

Joint Life (First-To-Die)

A

Insures 2 or More people
Premium based on joint age of insured
Benefit Paid upon first death

41
Q

Group Life

A

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
Q

Survivorship Life (second-to-die)

A

Insures 2 or more people
Premium based of joint age of the insured
Benefits paid upon the last death

43
Q

Credit Life

A

Only for the amount of debt
Decreasing term
Creditor is owner and beneficiary

44
Q

Standard Provisions

A 
Entire Contract
Payment of Premiums
Grace Period
Reinstatement Incontestability
Misstatement of Age
Statements of Insured
Legal Action
Payment of Claims
45
Q

Other Provisions

A 
Ownership
Modification
Medical Examination
Assignment
Free Look
Exclusions
46
Q

Beneficiaries

A

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
Q

Cash Loans Available

A

Policy’s cash value minus any unpaid loans and interest

48
Q

Automatic Premium Loans

A

Prevent unintentional policy lapse due to nonpayment of premium

49
Q

Withdrawals and Partial Surrenders

A

Available in universal life A charge may apply

50
Q

Disability Rider

A

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
Q

Accelerated Benefits Rider

A

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
Q

Additional Insureds Riders

A

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
Q

Accidental Death Rider

A

Pays double or triple indemnity if accidental death occurs as defined in policy; death must occur within 90 days of accident

54
Q

Guaranteed Insurability Riders

A

Allows for purchase of additional Insurance at specified times without evidence of insurability at insureds attained age

55
Q

Cost of Living Riders

A

Increase face amount by cost of living factor died in inflation

56
Q

Return of Premium Rider

A

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
Q

Nonforfeiture

A

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
Q

Dividends

A

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
Q

Settlement

A

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
Q

Annuities Phases

A

Accumulation Period: Payments in, goes to insurer

Annuitization Period: payments out ; goes to insured

61
Q

Annuities Parties

A

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
Q

Types of Annuities

A

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
Q

Premium Payments

A

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
Q

Income Payments

A

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
Q

Settlement Options

A

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
Q

Interest Rate

A

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
Q

Qualified Plans (Gen Requirements)

A

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
Q

Individual Qualified Plans

A

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
Q

Employer-Sponsored Qualified Plans

A

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
Q

Rollovers and Transfers

A

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
Q

Modified Endowment Contract (MEC)

A

Overfunded life Insurance Policy
Accumulation- tax deferred
Distribution: taxable last in, First Out
Distributions before 59 1/2 - 10% penalty

72
Q

Licensing Process

A

Complete pre-licensing education
Pass Examination
Submit application and fees

73
Q

Types of Licenses

A

Individual Resident and Non Resident
Business Entities
Temporary License: valid for 180 days issues maintain business

74
Q

Maintenance and Duration

A

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
Q

Commissioner of Insurance

A

Elected for 4 years
Regulates internal affairs of Depart of Insurance
Does not Write Laws
Examines all authorized insures

76
Q

Insurer Regulations

A 
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
Q

Agent Regulations

A

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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