Test Flashcards
Commercial insurers
Private insurance companies
Sell for profit
Stock and mutual insurers
Multi-line insurer
Sell more than one line of insurance
Commercial insurers
Stock companies
Incorporated under state law
Make profit for stockholders
Nonparticipating insures:
Policy holders do not participate in receiving dividends or electing board members
Stock dividends paid to stockholders
Dividends are taxable Bc they’re profit
Mutual companies
Owned by their policyholders
Participating insurers:
Receive dividends and elect board members
Dividends are paid to policyholders
Not taxable- return of premium
Unless the dividends sit and collect interest… that is taxable
Mixed insurer
Both participating and nonparticipating
Dividends not guaranteed
Strong assessment mutual company
Classified by the way they charge premium
Pure assessment mutual company:
Loss-sharing: no premium payable in advance. Each member assessed an individual portion of losses that occur
Advance premium assessment mutual:
Premium charger- if too much then returned as dividends, if too little more paid up to a point
Fraternal benefit societies
Mutual
Nonprofit religious, ethnic or charitable organizations that provide insurance to its members
Can’t be just to obtain insurance
Risk retention groups
Mutual
Group of people in same profession or industry
Ex, pharmacists
Service providers
Offer benefits to subscribers in return for the payment of a premium
HMO and PPO
Reciprocal Insurers
Unincorporated groups of individual members that provide insurance for other member via indemnity contracts. Each member acts as the insurer and insured and managed by the Attorney in Fact
Reinsurers
Make arrangements with other insurance companies to transfer a portion of their risk to the re-insurer.
Transferring - Ceding company
Assuming - Reinsurer
Captive insurer
Insurer established and owned by the parent company to insure the parent company’s loss exposure.
Home service insurers
Industrial insurance
sold by home service or debt life insurance companies
Small face amounts, weekly paid premiums
Government insurance
Social insurance programs to protect against universal risks by redistributing income to help people who cannot afford the cost of incurring losses themselves
Social Security
Government insurance
OASDI - elderly, young child of dead parent, disability
Medicare
Government insurance
CARE for elderly
Medicaid
Government insurance
AID financially needy
SGLI and VGLI
Government insurance
Military life insurance
Tri-Care
Government insurance
Health insurance for members of military and their family
Self-Insurers
Retain risks and must have a large number of similar risks and enough money to pay claims.
Employer pays insurance benefits from a fund derived from the employer’s current revenues
Lloyd’s of London
Not a company
Members of an association form syndicates to underwrite and issue insurance
Group of investors who share in unusual risk
Distribution systems
Ways insurance is sold to public
Captive agents
Work for only one insurer
Independent agents
work for themselves or several insurers
Career Agency Systems
commercial insurers establish offices in certain locations and recruit career agents
Agents are captive - work for one
Personal Producing General Agency System
Agents work for an independent agency selling policies from several companies.
Work for the PPGA, not employees of an insurance company
Independent Agency system
American Agency System
Independent agents represent a number of insurance companies under separate contractual agreements
Managerial System
Branch offices are established in several locations.
Salaried branch manager with bonuses based on commission of sales
Mass Marketing
Direct selling:
agents not used ex. mail, tv, radio
Regulated by?
Regulated on a state-by-state basis
Minimum fed. oversight
1869 paul v virgina
Insurance transactions crossing state lines are NOT interstate commerce
1905 the armstrong investigation act
Gave the authority to the states to regulate insurance
1944 US v south-eastern underwriters association
Insurance transactions crossing state lines ARE interstate commerce and subject to fed. regulation
1945 the mccarran ferguson act
Fed. gov has the right the regulate the insurance industry, but it will not exercise that right if the insurance industry was regulated well at state levels
1970 fair credit reporting act
Insurance companies must notify applicants if a credit check will be made on them
1999 gramm-leach-bliley act
Financial services moderation act
Repealed glass-steagall act
allowed insurance companies to enter eachother’s line of business
2001 USA patriot act
detect and deter terrorsits and their funding by imposing anti-money laundering requirements
2003 national do not call registry
insurance calls are NOT exempt
2010 patient protection and affordable care act
PPACA
Affordable care act
One of the significant regulatory overhauls and expansion of coverage in US history
National Association of Insurance Commissioners
NAIC
Composed of insurance commissioners from all 50 states
Recommending appropriate laws
Responsible for the creation of the Advertising Code and Unfair Trade Practices Act and Medicare Supplement Insurance Minimal Standards Model Act
Advertising code
Code specifies certain words or phrases considered misleading and not to be used
Unfair trade practices act
Gives chief financial officer the power to investigate insurance companies and producers to impose penalties
Authority to seek a court injunction to restrain insurers from using methods believed to be unfair
NAIFA and NAHU
Members are life and health agents dedicated to supporting the industry and advancing the quality of service provided by insurance professionals
Cretaed a Code of Ethics
Ethics of selling 7
- Selling to needs
- Suitability of recommended
- Full disclosure
- Document everything
- Client services
- Give Buyer’s Guide
- Policy Summary
Reserves
Accounting measurement of an insurer’s future obligations to its policyholders.
Set aside by an insurance company and designated for payment of future claims
Liquidity
Insurers ability to make an unpredictable payout to policyowners
Guaranty Association
Established by all states to support insurers and protect consumers in case an insurer becomes insolvent or inability to pay claims up to a certain limit
Independent Rating Services
Credit rating agencies that rate or ‘grade’ the financial strength and stability of insurers based on claims, reserves and company profits
AM Best, Moody’s, Standard and Poor, Fitch Ratings
Hazard
condition or situation that creates or increases a chance of loss.
ex. icy roads
Loss
Unintentional decrease in the value of an asset due to a peril
Peril
Event which causes loss
Can be referred to as the accident itself
Risk
Potential for loss
Speculative Risk
Both the chance for loss or gain
Not insurable
Pure risk
only insurable risk
only potential for loss
Elements of insurable risk 6
- Due to chance
- Definite & Measurable
- Predictable
- Not catastrophic
- Loss exposure to insurer must be large
- Randomly selected
Law of large numbers
Larger amount of exposures that are combined into a group: more certainty there is to the amount of loss incurred in any given period
prediction of losses based on past experiences
increased accuracy in prediction
Loss exposure
any situation that presents the possibility of a loss
Homogeneous exposure units
similar objects of insurance that are exposed to the same group of perils
Adverse selection
Tendency for poorer than average risks to seek out insurance
Avoidance of risk
avoid the risk all together
Reduction of risk
minimizing severity of a potential loss
Retention of risk
self insure
accepting a risk and confronting it if it occurs
Transfer of risk
Make someone else responsible for a loss
Risk pooling
When a large group of people spread a risk for a small certain cost
ex. doctors pooling money for malpractice exposure
Reinsurance
A contractual arrangement that transfers exposure from one insurer to another insurer
Principle of Indemnity
Restoring the insured to the same condition as before the loss
Human life value approach
Method of determining the financial value of a person’s life based on computing the current value of a person’s future earnings
Needs based value approach
Method of determining the financial value of a person’s life based on the amount of money needed for current and future expenses
Insurance policies are…
legal contracts where a promise of benefits is exchanged for valuable consideration (premiums)
life insurance
insurance company agrees to pay a predetermined amount - face amount in exchange for the insured’s consideration (premium)
Health insurance
insurance company agrees to pay a percentage of the insured’s medical bills in exchange for the insured’s consideration (premium)
Consideration
Something of value that each interested party gives to each other
insured - premium
insurer - promise to pay
Legal purpose
insurable interest - cannot contain an illegal purpose
offer and acceptance
Offer: applicant submits application and initial premium
Offer accepted after approved by company’s underwriter
Competent parties
Must be of legal competence: legal age, mentally capable of understanding terms, not influenced by drugs or alcohol
Contract of adhesion
There is only one author (insurer)
If there is an ambiguity the courts always favor the insured
Aleatory contract
Unequal exchange
outcomes depend on certain events/chance
a legal bet
Unilateral contract
one sided agreement - only insurer is legally bound to do anything
personal contract
contracts between the insurance company and the individual
Health - cannot transfer without insurer okayed
life - can transfer
Conditional contract
certain conditions must be met by all parties in the contract
Valued contracts
pays a stated amount
ex. life insurance
Indemnity contracts
only reimburse the actual cost of the loss
ex. health insurance
Principle of Indemnity
Restore the insured to the same financial condition as what existed prior to the loss
Utmost good faith
No attempt to misrepresent, conceal or commit fraud
Full, honest disclosures
Warranties
Statements made by the applicant believed to be true are not part of the contract and need to be true only to the extent that they are material and related to risk
Concealment
withholding info or facts by the applicant
Insurable interest
Requires individual to have a valid concern for the continuation of the life/well-being of the person insured
Only needs to exist at the time of the application
Reasonable epectations
a concept which states that the insured is entitled to coverage under a policy that a sensible and prudent person would expect it to provide
stranger-oriented life insurance
A third party will purchase the consumers policy and receive proceeds as a profit upon death.
Typically illegal bc no insurable interest
Agent authority
Relationship in which one person is authorized to represent and act for another person or company is established through the law of agency.
Authorized agent
person who acts for another person and has the power to bind principal to contracts
Agents authority granted by insurer
Types of authority
- Express
- Implied
- Apparent
Fiduciary responsibility
Agent handles money - has a fiduciary responsibility
Someone in a position of trust and confidence
Fraud
Intentional misrepresentation or concealment of material fact
Waiver
Voluntarily giving up a known right.
Estoppel
Legal process of preventing one party from reclaiming a right that was waived
Parol evidence rule
Rule that prevents parties from changing the meaning of a written contract by introduction oral or written evidence made prior to the formation of the contract, but not part of it
Subrogation
right for an insurer to pursue a third party that caused an insurance loss to the insured
void contract
agreement that does not have legal effect and, thus, in not a contract
Voidable contract
valid contract which can be voided at the request of a party with the right to reject
Cancellation
voluntary act of terminating an insurance contract
Endorsement
Written form attached to an insurance policy that alters the policy’s coverage, terms or conditions
Brokers
Represents a number of insurance companies under separate contractual agreements
professional liability insurance
errors and omissions
professional liability for which producers can be sued for mistakes of putting a policy into effect.
Insurer agrees to pay sums that the agent legally is obligated to pay for injuries resulting from professional services that he rendered or failed to render
Health insurance
broad field of insurance plans that provide protection against the financial consequences of illness, accidents, injury and disability
Medical expense insurance
Reimbursing the insured in part or full
Reimbursement plans
Disability income insurance
Provide replacement income when wages are lost due to a disability
Accidental death and dismemberment insurance
Provides the insured with a lump-sum benefit amount in the event of accidental death or dismemberment
Interim Coverage
short-term policies that an be purchased on an interim basis when in between jobs or waiting for a new policy to start
How are health insurance policies paid for
year to year
premium calculated based on interest, expenses, types of benefits and morbidity
Not fixed
Business Continuation plans
Continue the operation of a business in the event of a disabling sickness or injury to a business owner or key employee
Day to day activities of business, not compensation for the owner
Employee benefit plans
help an employee in the event of a disabling sickness or injury
Disability buy-sell plans
aka Disability buy-outs
Assist in the sale of a business if the owner is disabled
Sets plan for selling and buying the share of the business
Funded with disability income policy - lump-sum
Benefits are tax-free bc premiums paid are not tax deductible
Key person disability insurance
monthly benefit to a business to cover expenses for additional help when a key person is disabled
Business is the owner and premium payer of the policy
Benefits are tax free
Group health insurance
Contract between the insurance company and the group (employer)
Provided through group master contracts
Employer responsible for premium payouts
higher benefit max. and lower deductibles
Probationary period
Period of time during which a new employee is ineligible for group health insurance coverage
Enrollment period
Limited period during which all members may sign up for a group plan
Coordination of Benefits
group health
Provision found in group health plans to avoid duplication of benefit payments and over insurance when an individual is covered under more than one group
Limits amount of claims to total allowable medical expenses
Establishes primary carrier
Overutilization
Occurs when health benefits are too high
is insuring under group or individual cheaper
group
Based on size of group, claims experience, ages and previous insurers
Noncontributory
Most require 100% participation by eligible members and employee does not contribute to paying bill
Contributory
Employee does contribute in paying bill
Shared funding arragement
Allows the employer to self-fund health care expenses up to a certain limit
Minimum premium arrangement
Allows employer to self-insure the normal and expected claims up to a given amount and the insurer funds only the excess amounts
Retrospective premium arrangement
Insurer agrees to collect a provisional premium but may collect additional premium or make refund at the end of the year based on the actual incurred losses
Self-funding arrangement
Large employers may elect to fully self-fund, but contract for administrative services only
Underwriting group insurance
Insurer evaluates the group as a whole rather than individuals within the group
Objective: avoid adverse selection
Based on group’s risk profile: accepted or rejected
July 1, 1997 - HIPPA
Limited ability of employer-sponsored groups and insurers to exclude individuals on the basis of preexisting conditions
Preexisting conditions limiting
limit conditions to those which medical advice was recommended or received within 6 months period ending on enrollment date and exclusions can extend for no more than 12 months
How many days must an employee enrolling in group insurance NOT have without health insurance for a preexisting condition
63 days
Creditable coverage
prior group health insurance that reduces the maximum preexisting condition exclusion period that a new group health plan can apply to that individual
HIPAA portability rules
Allow individuals who change from one group plan to another to eliminate any preexisting conditions excluded under the new plan
Allows an individual to be eligible for coverage upon hire when leaving one group plan to go to another with a different employer
Conversion Privilege
Allows insured to convert their group certificate to an individual medical expense policy with the same insurer
Insurer can charge an appropriate rate
Individual cannot be denied
Conversion must occur in 30-31 days
Individually identifiable health information
A person’s health claim information
How often must a Notice of information practices be given to a policyholder
every 3 years
What is HIPPA excluded for
workers compensation and disability income plans
According to HIPPA, do groups with 20 or more employees have to allow former employees to continue benefits under the employer’s group health insurance
yes
What percent of excise tax for early withdrawal from IRAs will not apply to the extent a withdrawal is used for medical expenses that exceed 7.5% of the individual’s adjusted gross income
10%
COBRA
Federal law that guarantees a continuation of their group coverage if their employment is terminated for reasons other than gross misconducts
COBRA requirememnts
- laid off, not hired
- 20 or more employees & continue coverage for terminated workers for 18 months
Terminated employee may be required to pay up to 102% of premium
According to COBRA, 36 months of health coverage must be given for these circumstances (4)
- employee dies - goes to children
- Dependent children no longer qualify as ‘dependent children’ under a new plan
- employee eligible for Medicare
- Separates or divorces f
Pregnancy Discrimination Act
Act of 1978 amended the Civil Rights Act of 1964 to prohibit sex discrimination based on pregnancy
Treated as any other diability
Requires group plans covering 15 or more people to treat pregnancy related claims no differenty than any other allowable medical expense
Three standard forms of basic medical expense insurance
hospital, surgical, and physician’s expenses
Group basic medical expense plan can combine two or more types or only consist of one type
Group Major Medical Plans
Single, extensive plan
Participants usually required to satisfy an initial deductible with comprehensive plans
Benefits usually more extensive than individual plans
Dental care
Normal dental maintenance, oral surgery, root canal therapy, and orthodontia
Coverage may be on a ‘reasonable and customary charge’ basis or dollar-per-service schedule approach
deductible and coinsurance features are typical as are maximum yearly benefits
Vision care
Coverage usually pays for reasonable and customary charges incurred during eye exams by ophthalmologists and optometrists
Commonly exclude Lasik
Cafeteria Plans
Allows conversion of salary into non-taxable benefits
Pick and choose from benefits before taxes are deducted
Employees can contribute if benefits exceed allowance
What groups are exempt from ERISA regulations
Church
Group disability income plans
Specify benefits in terms of % of earnings
Most require a minimum period of service before being eligible for coverage
Short-term disability plans are characterized by max. benefit periods of rather short durations
Long-term disability plans provide for max. benefit periods of no more than 2 years
Group AD&D
Frequently offered in conjunction with group life insurance plans
Normally does not include a conversion privilege
Blanket health plans
Cover a group who may be exposed to the same risks, but the composition of the group are constantly changing
Franchise health plans
Coverage to members of an association of professional society
Individual policies are issued to individual members and the association or society simply serve as the sponser for the plan
Premium rates are usually discounted for franchise plans
Credit Accident and health plans
Designed to help the insured pay off a loan in the event they are disabled
Monthly benefit payments equal to the monthly loan payments due
Health Savings Accounts
tax-favored vehicle for accumulating funds to cover medical expenses
Under 65 are eligible
Annual contributions of up to 100% of an individual’s health plan deductible
55-65 year olds can make an additional catch-up contribution
Grow tax-free
Qualified health care expenses include amounts paid for 7
- doctor’s fees
- meds
- hospital services not paid for by insurance
- retiree health insurance premiums
- Medicare expenses
- Qulified long-term care services
- COBRA coverage
Non-occupational health plans
Policy that does not cover injuries sustained while at work because those injuries are covered by workers compensation
Can employers take tax deductions for premium contributions they make to a group plan?
yes
as long as they represent ‘ordinary and necessary business expense’
Are individual premium contributions tax-deductible?
Generally, no
Are benefits an individual receives under a medical expense plan considered taxable income?
No, because they provided to cover losses the individual incurred
Are disability benefit payments that are attributed to employee contributions taxable?
No, but benefit payments that are attributed to employer contributions are taxable
Are sole proprietors permitted tax deductions for health costs paid from their earnings
Yes, in the amount of 100% of costs
Are federal income taxes applied to death benefits paid to beneficiary of an insured under a health insurance policy
Not likely, but proceeds may still be included as part of the insured’s taxable estate
AD&D insurance
Primary form of pure accident coverage
Provides a stated lump-sum benefit
Principal Sum AD&D
The amount of insurance purchased
Represents the maximum amount the policy will pay
Capital Sum AD&D
Amount payable for the accidental loss of sight or dismemberment
Specified amount, which varies according to the severity of the injury
Accidental means
Cause and result of accident to be unintentional
Limited risk policies
Set forth specific risk and provide benefits to cover death or dismemberment due to that risk
Special risk policies
Covers unusual hazards normally not covered under ordinary accident and health insurance
Commercial insurance companies function on the reimbursement approach
Right of assignment built in which allows policy owners to assign payments from the insurer directly to the health care provider
Service providers
offer benefits to subscribers in return for the payment of a premium. Benefits are in the form of services
Blue cross and blue shield
Dominant health insurers of the US. (prepaid plans)
Provides the majority of their benefits on a service basis rather than a reimbursement basis
Doctors agree to specific cost for services to subscribers
Nonprofit
Health maintenance organizations HMO
Prepaid health care services to subscribing members
Organize and deliver health services at its own local health care facilities
Health care services only given by physicians and hospitals that participate in that HMO
Payment to physician: capitation
Stress preventive care
Preferred provider organizations PPO
Collection of health care providers who offer their services to certain groups at prearranged discount prices. In return, the group refers it members to the preferred providers for healthcare
fee-for-service
More choice (often private) in physicians
Ambulatory care
personal care consultation, treatment, or intervention using advanced medical technology or procedures delivered on an outpatient basis
outpatient surgury
physicals
immunizations
Medicare
Fed. funded to provide hospital and medical expense insurance protection to 65+.
Also those with chronic kidney disease, receiving SSI
Administered by The Centers for Medicare and Medicaid Services
Medicare part A
Hospital insurance: covers impatient care in hospitals and skilled nursing facilities, and it covers care provided in a hospice and some care provided at home
Drug administration as part of inpatient treatment
Day of hospital entrance is the first day of benefit period
Skilled nursing facility expenses only covered if insured was hospitalized shortly before entering the facility
Max of 100 days per benefit perios
What is the lifetime psychiatric inpatient care limit for medicare part A
190 days
Primary financing of medicare part A
Federal payroll and self-employment taxes
Participating providers
Physicians that agree to accept assignment on ALL medicare claims
Medicare part B
Medical insurance: provides med. insurance for required doctor’s services, outpatient services and medical supplies
Excess charge
The difference between the physician’s actual charges and Medicare’s approved amount
Is falling below the poverty line a qualifying event for medicare?
no
When is open enrollment for Medicare part B
Jan 1 - March 31
How is medicare part B funded?
General tax revenue and user premiums
How to become eligible for Medicare part D
Prescription drug coverage
Must have Medicare coverage
SSDI
Provides services other than survivor ship and retirement benefits
How to be eligible for SSDI
40 quarter credits
Must be so mentally of physically disabled that he cannot preform any substantial gainful work
Impairment must be expected to last at least 12 month or result in an earlier death
Max. SSDI benefit
100% of the insureds Primary Insurance Amount
SSDI waiting period before and individual will qualify for benefits
5 months
Medicaid
Provide matching federal funds to states for their medical public assistance plans to help needy persons regardless of age
Who is eligable to medicaid
low income who are blind or disabled or minors
How id Medicaid funded
financed by both federal and state governments
What is required by Medicaid for the payment of nursing home expenses?
Financial nees
TRI-CARE
Federal government accident and health plan which provides accident and health coverage to military families
Federal Employees Health Benefits Program
system of ‘managed competition’ through which employee health benefits are provided to civilian government employees and annuities of the US gov.
Two types:
- fee-for-service
- HMO
State workers’ compensation program
compensate employees for lost wages and medical expenses due to occupational accidents
Employers are responsible for providing to employees
Losses that are covered by workers’ comp. are generally excluded from coverage
Self-insurance
Administered by insurance companies that are paid a fee for handling the paperwork and processing the claims.
Some groups adopt a min prepaid plan MPP
Multiple Employer trusts
Marketing group benefits to employers who have a small number of employees. Usually part of the same industry.
Participants are issued a joiner agreement
Employer’s premium payments are directed into a trust from which the plan’s benefits and claims are paid
Often self-funded and use insurance company for administration
Multiple employer welfare arrangements
Type of MET
Consists of small employers who have joined to provide health insurance to their employees, often self-insured
tax-except
Employment-related common bond
Disability income insurance
provide an individual with a stated amount of periodic income in the event of a disabling condition
individual or group
Guaranteed renewable policy disability plan
most common individual disability income policy:
adjusts the premium on an annual basis and provides benefits for nonoccupational illnesses and injuries
Disability income benefits
Insured’s income limits the amount of the monthly benefit that an insured may select
benefits paid as monthly income payments
Highest premium under the disability income policy is…
14 day waiting period and a 10 year benefit period
Percent-of-earnings approach
determines benefits using a percentage of the insured’s pre-disability earnings and considers other sources of disability income
flat amount method
Policy specifies a flat income benefit amount that will be paid if the insured becomes totally disabled
What happens if someone with disability income insurance dies?
Earned but unpaid benefits will be paid to the insured’s estate
What percent of a participants income does group long-term disability benefits limit?
60%
Disability Defined
totally disabled before benefits under a disability income policy are payable
Often considers the insured’s edu, training and experience
Any occupation Def of total disability
unable to preform any occupation for which they are reasonably suited per edu, training and experience
Own occupation Def of total disability
insured is unable to preform the insured’s current occupation
Better for policyowner
Presumptive disability
Conditions that automatically qualify the insured for the full benefit because the severity of the conditions presumes the insured is totally disabled even if they can work
Include: blind deaf loss of speech loss of 2+ limbs
Waives the usual requirements for total disability benefits
Partial Disability
Inability of the insured to preform 1 or more important duties of the job OR the inability to work at a full-time basis
Normally payable only if the policy owner has first been totally disabled
Flat amount benefit
set amount stated in the policy
Usually 50% of full time disability benefit
Residual Amount benefit
Normally used after a full disability payment has been paid and the insured is back to work with a REDUCED workload
Benefit is based on the proportion of income lost due to the partial disability
Multiply the % lost by the stated monthly benefit for total disability
Rehabilitation Benefit
Facilitates vocational training to prepare the insureds for a new new occupation
Helps disabled return to work
Accidental means
CAUSE of injury must have been unexpected and accidental
Accidental bodily injury provision
RESULT of the injury has to be unexpected and accidental
Far less restrictive
Probationary Period
Period of time which must elapse following the effective date of the policy before benefits are payable
One-time
Ends 15 or 30 days after policy begins
Excludes preexisting sickness and protects insurer against adverse selection
Does not apply to accidents
Elimination period
Time immediately after the start of a disability when benefits are not payable
Eliminate claims for short-term disability
‘waiting period’
Benefit Period
Max. length of time that disability income benefits will be paid
Longer period- higher cost of policy
How long do individual short-term policies provide benefit periods for disability income benefits?
6 months to 2 years
How long do individual long-term policies provide benefit periods for disability income benefits?
more than 2 years
5, 10 or 20
Delay disability provision
Certain amount of time during which a total disability may result from an accident and the insured will still be eligible for benefits
May be 30, 60 or 90 days…
Recurrent disability provision
Period of time during which the recurrence of a disability is considered a continuation of the prior disability
No new elimination period
Change of occupation provision
In an individual covered under a disability income policy is injured in an occupation more hazardous that stated in the policy, the result will be a reduced benefit level. Increased if less hazardous.
Nondisabling injury
For when a person covered by disability income insurance is injured, but does not qualify for income benefits
Provision for a medical expense benefit that pays the actual cost of medical treatment for non-disabling injuries from an accident
Elective Indemnity
Some short term disability income policies provide an optional lump-sum payment for certain named injuries
Waiver of Premium Rider
Generally included with guaranteed renewable and noncancelable individual disability income policies
Exempts policyowners from paying premiums during periods of total disability
-Beginning at the date of disability
Must experience total disability for more than a specified period
-usually 3 or 6 months
Social Security Rider
Provides payment for additional income when the insured is eligible for social insurance benefits, but those benefits have not yet begun, have been denied, or is given in a lesser amount
Cost-of-Living Adjustment (COLA) Rider
Provides for indexing the monthly or weekly benefit payable under a disability policy to changes in the Consumer Price Index
Benefit amount is adjusted on each disability anniversary
Guaranteed Insurability Rider
The right to purchase additional amounts of disability income coverage at predetermined times in the future without evidence of insurability
Exclusion Rider
Specified disease or body part is not afforded coverage
How long of a term is individual medical insurance typically written for?
1 year term
Basic medical expense plans
‘first dollar insurance’
Provides benefits up front without having to satisfy a deductible
lower benefit limit, benefits are lower than actual expenses incurred
Categories of medical care in Basic Medical Expense Plans
- hospital expense
- surgical expense
- Pysician’s expense
usual, customary and reasonable expense
Fee charged by a physician or other health care professional
max amount the issuer will consider eligible for reimbursement
based on geographical area
Hospital expense policies
Cover hospital room and board, miscellaneous hospital expenses, medicines, use of operating rooms and supplies
No deductible and limits on room and board are set at a specified dollar amount per day up to a max number
Concurrent review
Method of utilization review that takes place on-site when a patient is confined to a hospital
Typical result is monitoring the length of stay
What is preadmission testing meant to do?
Helps control health care costs primarily by reducing the length od hospitalization
Basic Surgical expense coverage
In conjunction with hospital expense policies
pay for cost of surgeons
Surgical Schedule approach
Every procedure is assigned a dollar amount by the insurer
Reasonable and Customary apporach
Surgical expense is compared to what is deemed reasonable and customary for the geographical part of the country
Relative Value approach
Similar to surgical schedule - assigning values to procedures
Instead of a flat dollar amount - a specified set of units is assigned
Basic physician expense coverage
Basic Physicians Nonsurgical Expense Coverage
Can be purchased to cover emergency accident benefits, maternity benefits, mental and nervous disorders, hospice care, home health care, outpatient care, and nurses expenses
Offer only limited benefits that are subject to time limitations
Nurses’ expense benefits
Pay only for private duty nursing care according to doctor’s order while the insured is a hospital patient
Convalescent care facility benefits
Provide a daily benefit for confinement in a skilled nursing facility for a limited recovery period following discharge from a hospital
Pharmacy benefits
Limited to meds and med therapy management activities required by individual state boards of pharmacy
A controlled substance list is a pharmacy benefit that covers prescription drugs
Major medical expense plans
Picks up where basic medical insurance leaves off
either a supplement to a basic plan OR a comprehensive stand alone plan
Major medical expense plans provide benefits to:
reasonable and necessary medical expenses, subject to policy limits
catastrophic medical expense protection
Both in and out patient expenses
hospice
Drug formulary
Major medical expense plans requirements and tax info
usually carry deductibles
Coinsurance requirements
Large benefit maximums
Supplementary Major medical
Supplement coverage payable under basic medical expense policy
If there is a time limit on the basic policy, the supplemental coverage will provide coverage thereafter
Comprehensive Major Medical
Combines the features of basic expense coverage and major medical coverage, sold as one policy
ex. Major medical policy
Includes a deductable and coinsurance
Lifetime max. benefit
Limits insurers total exposure under a contract
per cause max. benefit
Limits the medical expenses covered for each cause
Deductable
Stated initial dollar amount that the individual insured is required to pay before insurance benefits are paid
Flat deductable
Stated dollar amount that applies to a covered loss.
Applied per occurrence, per individual
Corridor deductable
Covers the gap between basic coverage and major medical
Integrated deductable
Used when a major medical plan is supplementing basic coverage
Per-cause deductable
The insured must satisfy a deductible for each accident or illness
All-cause deductible
The insured only has to meet the deductable amount once during the benefit period
Calendar-year deductable
Begins on Jan 1st and ends on Dec 31st
Requires a specific lump-sum out of pocket before any benefits are paid in a calender year
Carryover provision
Permits expenses incurred during the last 3 months of the calendar year to be carried over into the new year
Coinsurance
Insurance pays a high % of additional expenses and the insured pays the rest
Usually 80/20
Stop-Loss
Limit the amount of expense the insured may be exposed to in a policy year
The insured has paid a specified amount and the insurer will pay the remaining 100% up to max. policy limit
Pre-existing conditions
Contain a benefit limit on them
When considering the replacement of an individual accident and health policy, a preexisting condition exclusion in the new contract may reduce benefits
Internal Limits
Certain types of expenses may have limits placed on the dollar amount of certain services or the type of service
Health Savings Accounts HSA
tax-advantaged medical savings account for individuals with a high-deductible plan
not subject to income tax and roll over if not spent
Tax deductable
Pay for out-of-pocket medical expenses
Contributions by an employer are not taxable income
In Health Savings Accounts, distributions other than for qualified medical expenses to a Heath Savings Account are taxable at what %
20%
Health reimbursment arrangements
must be established by employer and funded by employer
reimburse employees for out-of-pocket medical expenses and individual health insurance premiums
Reimbursements may be tax-free if the employee paid for qualified medical expenses or a qualified medical plan
Medical Savings Account
Created to help employees of small employers to pay for medical care expenses
Tax-free accounts set up with financial institutions
Qualified medical sac=vings accounts are available for employers of what size
no more than 50
Flexable savings accounts
tax-advantaged accounts that can be set up via cafeteria plan of an employer
Allows employees to set aside a portion of earnings to pay for qualified medical expenses as established in cafeteria plan
Medicare supplement
Medigap
Individuals 65 who enrolled in medicare, however, anyone currently receiving Medicare part A and B is eligible to participate
Sold by private
Do not pay costs for part c and d
How many standardized Medigap plans are there?
10
a, b, c, d, f, g, k, l, m, n
Standardized by National Association of Insurance Commissioners
Standard in Medicare Supplement Insurance Minimum Standards Model Act
Who cannot be refused or rated for a Medicare supplement policy
Individuals over 65 who enrolled in Medicare part B for the first time
Cannot be rated within 6 months of enrollment
What is the only reason a medicare supplement insurance can be canceled
Canceled by insurer for nonpayment of the premium
What is included in most medicare supplement insurances
Hospice care
Coverage for foreign travel
Medicare supplement plans f and g
cover costs known as medicare part Bexcess charges
How many days must medicare supplements have for a ‘free-look’
30 day
Core benefits of Medicare Supllement insurance
Part A: hospice coinsurance or copayment
Part B: coinsurance or copayment
first 3 pints of blood as an inpatient
Medicare select
Supplement coverage through a preferred provider organization PPO
Thus, pays a lower premium
Medicare and managed care MCO
Many MCOs contracted with the Health Care Financing Administration to provide part A and B services to recipients.
Offered by private companies
Can be limited by state or counties
Medicare part c
Provided by an approved HMO or PPO
Offer additional benefits
Can choose a Private Fee For Service plan
In addition to the premium, enrollees must pay a small copayment per visit, or per service
does NOT cover long-term care
Medicare part D
Prescription drug plan administered by private insurance companies
Requires payment of a premium and a deductable
Long term care insurance
Often covers nursing home care
Care for an extended period (over 90 days)
Fixed dollar amount
Long term care coverages
Pay benefits when at least two ADLs cannot be preformed
Categories of long-term care
- Skilled nursing care
- Intermediate nursing care
- Custodial care
Home and Community based services
Home health care is care provided in the insured’s home, usually on a part time basis
Adult day care
For those that require assistance with various ADLs while their caregivers are absent
Respite care
Provide a short rest period for a family caregiver
Continuing Care
Provide a benefit for elderly individuals who live in a continuing care retirement community
Taxation of long term care benefits
Excluded from income
Long term care partnership plan
federally supported, state operated initiative that allows individuals who purchase a qualified long-term care insurance policy to protect a portion of their assets that they would typically need to spend down prior to qualifying for Medicaid coverage
National association of insurance commissioner
establish uniform or model terms, provisions, and wording standards for inclusion in all individual health insurance contracts
Entire contract
includes policy and application
Nothing outside the contract can be considered part of the contract
No changes will be made to the contract or waive any provisions after issued
Executive officer of the insurance company must make changes
Time limit on certain defenses
Limits the time during which the insurance company may challenge the validity of a claim based on a misstatement made on the application
A fraudulent statement on a health insurance application is grounds for contest at any time, unless it is guaranteed renewable
Grace Period
Additional time to pay overdue premiums
7 for weekly
10 for monthly
31 for annual
Money is taken out of claims for unpaid premiums if they are filed
Reinstatement
If an insured fails to pay a renewal premium within the time granted but the insurer subsequently accepts the premium, coverage may be restored
No action on the application is needed for 45 days
for 10 days after reinstatement, sickness is not covered
Notice of claim
policyowner’s obligation to notify the insurance company of a claim in a reasonable period of time
usually 20 days after the occurance
Claim forms
Company must supply a claim form to an insured within 15 days of receiving notice of claim
If not, any claim form must be accepted
Proof of loss
Statement given to the insurance company to show that a loss occurred
Claimant has 90 days to submit proof of loss
Time of payment of claims
Provides for immediate payment of the claim after the insurer receives notification and proof
Prevent delaying payments
Payment of claims
Provision in health insurance contract which specifies how and to whom claim payments are to be made
Loss of life: beneficiary
Physical exam and autopsy
Entitles a company, at its own expense, to make physical exams of the insured at reasonable intervals, unless forbidden by state law
Legal actions
The insured cannot take legal action against the company in a claim dispute until after 60 days from submission of proof of loss
Limit to no more than 5 years
Change of Beneficiary
The insured may change the beneficiary designation at any time unless a beneficiary has been named irrevocably
Change of occupation
Allows the insurer to reduce max benefits if job is more hazardous
Reduce premium rate if less hazardous
Misstatement of age
Allows insurer to adjust the benefit payable if the age of the insured was misstated when policy application was made
Other insurance with this insurer
Total amount of coverage to be underwritten by a company for one person is restricted to a specified max amount
Protects insurer form over insurance
insurance with other insurers
- Benefits payable for expenses incurred will be prorated in cases where the company accepted the risk without being notified of other existing coverage for the same risk
- Allows an insurer to pay benefits to the insured on a pro-rata basis when the insurer was not notified prior to the claim of other health insurance
Relation of earnings to insurance
If disability income benefits from all disability income policies for the same loss exceed the insured’s monthly earnings at the time of disability, the relation of earnings provision states that the insurer is liable only for that proportionate amount of benefits as the insured’s earning bear to the total benefits under all such coverage
Unpaid premiums
If there is an unpaid premium at the time of the claim becomes payable, the amount of the premium is deducted from the sum payable
Cancellation
Gives the company the right to cancel the policy at any time with 45 days; written notice
Notice must be given with refusal to renew a policy or change premium rates
10 day notice must be given is cancellation is for nonpayment of premium
Insured can cancel at any time with written notice
Conformity with state statues
Any policy that is in conflicted with state statues in the state where the insured lived at the time are automatically amended to conform with the minimum statutory requirements
illegal occupation
Insurer is not liable for losses attributed to the insured’s being connected with a felony or illegal occupation
Intoxicants and narcotics
Insurer is not liable for any loss attributed to the insured while intoxicated or under the influence of narcotics
Also losses from committing a felony
The policy face
Contains a summary of the type of policy and the coverage provided by the policy
Identifies the insured, terms, renewal
Insuring clause
States the kind of benefits provided and circumstances of payment
Specify the scope of limits
Consideration clause
Insurer: promises in policy
Insured: Premium, application
Probatinary period
Number of days after a policy issue date during which coverage is not afforded for sickness
beins at inception of policy
Conversion privilege for dependents
All must provide dependent coverage up to age 26
Mandatory second surgical opinion premium
requires the insured to seek a second opinion for surgeries that are on a list of elective surgeries
Waiver of premium
Waives the payment of premiums after the insured has been totally disabled for the specified period of time
owner’s rights provision
defines the person who may name and change beneficiaries, select options available under the policy, and receive any financial benefits
Free-look provision
Gives the policyowner the right to return the policy for a full refund within a limited period of time after the delivery of the polcy
Assignment provision
transfer of ownership in life insurance policy
new owner: assignee
Absolute assignment
The transfer is complete and irrevocable
asignee recieves full rights and control
Collateral assignment
Policy is assigned to a creditor as security, or collateral, for a debt.
The rest is given to a benficiary
Beneficiary designation
Policyowner indicates who is to receive the proceeds
Settlement options
The ways in which the proceeds can be paid out or settled are explained
Discretionary provision
Limits the way a court can review a claim denial and makes it difficult for the court to conduct a fair review of the claim
Designed to protect insurance company
Maternity benefits
Provide a fixed amount for childbirth or a benefit based upon a specified multiple of thedaily hosptal room benefit
Payor provision rider
provides waiver of premiums if the adult premium-payor should die or, become totally disabled
Accidental death benefit rider
Provides an additional amount of insurance usually equal to the face amount of the base policy if the cause of death was an accident
Return of premium rider
in the event of death of the insured within a specified period of time, the policy will pay, in addition to the face amount, an amount equal to the sum of all premiums paid to date
Cost of living rider
Gives applicants the ability to guard against the eroding effects of inflation
long term care rider
Helps safeguard against the financial burden of long-term care.
Provides an acceleration of the death benefit to help pay for costs involved with long-term care
Coomon restrictions
war self-inflicted/suicide hernia riots use of drugs felony foreign stays at work
preexisting conditions
usually exclude paying benefits for losses due to preexisting conditions
Exclusions are subject to ‘time limit on certain defenses’ provision
Waivers for impairments
When an insurance company does not cover a loss due to a specific condition the insured has
Waiver is removed when condition improves
Renewable provision
Allows insurer to cancel insurance at different points during the life of the policy
Cancelable policies
May be terminated by either party
Allow the insurer to increase premium
the ONLY type an insurer can cancel anytime
Optionally renewable policies
Gives the insurer the option to terminate the policy in a date specified in the contract
Conditionally renewable policies
Allows insurer to terminate coverage but only in the event one or more conditions stated in the contract
Can increase premiums at time of renewal
Guarenteed renewable policies
Policy must be renewable until a certain age
Usually have increasing premiums
If rates are increased on a guaranteed renewable policy, they must be increased for an entire class
Nonrenewable policies
Normally associated with short term health insurance
Established policy lengths of a year or less and are considered temporary
noncancelable policies
A noncancelable policy cannot be cancelled nor can can its premium rates be increased under any circumstances
Underwriting
Process of risk selection to determine whether or not an applicant is insurable and how much to charge premiums
Material facts matter
Avoid adverse selection
Application
Insurable interest must exist between the policyowner and the insured when it is made
General info
Health info
Agents personal observations
credit report
applicant statements
Medical report
Inspection reports
Medical Info Bureau
Special Questionnaires
Field underwriting procedures
Completed by the agent
- Making sure application is correct and complete
- Collecting initial premium
- forwarding application to insurer
- seeking additional info
- notifying insurer of suspected misstatements
- delivering the policy
Application errors
Applicant must initial errors
Incomplete applications are returned to agent
Signatures
Agent and applicant need to sign
If insurance is not for applicant, unless a minor, the insured must sign
That’s third party ownership
US patriot act
Requires companies to establish formal anti-money laundering programs
To detect and deter terorism
Buyer’s guide
Provides general info about types of insurance available
Policy summary
Provides specific info about policy purchased
Suitability form
Ensures that the customer is best suited for the policy they’re buying
Applicant ratings and classification
risk classification
Privacy notice must be given to applicant if personal info is disclosed and passed along
Preferred
Standard
Substandard
Uninsurance
Lower risk, lower premium
What can be done for a substandard risk
- Attaching an exclusion rider or waiver
- extra premium
- limiting type or coverage
Risk factors
physical condition
moral hazards
occupation
age
sex
history (med/fam)
avocations
Insurable interest
Premium factors
besides risk factors, there are many other standard items that impact the cost of premium for a health insurance policy
Morbidity
Expected incidence of sickness or disability within a group in a given period
Interest
A large portion of every premium recieved is invested to earn interest
Reduce the premium amount
Expenses
The cost to run a business
Benefits
number and kinds of benefits provided by a policy affect the premium rate
More benefits: higher premuim
more risk: higher premium
Claims experience
Tables based on past claims experience constructed for hospital expenses based on the amounts paid out in the past for the same type of expenses
Allows insurer to know what to expect for future claims
Community rating
requires health insurance providers to offer health insurance policies within a given geographical area at the same price to all individual or group plans without medical underwriting, regardless of health status
Initial premium
If the premium is not paid with the application, the agent should submit the application to the insurance company without the premium
Policy is not effective until paid
Premium mode
permits the policyowner to select the timing of premium payments
May be more expensive if payed in increments
annual
semi annual
quarterly
monthly
no ‘single pay’ option for health but yes for life
Receipts
The only time a customer will recieve a receipt is if they pay their initial premium rate at the time of the application
Conditional receipt
Provider issues a conditional receipt to the applicant when the application and premium are collected
Denotes that coverage will be effective once the applicant proves to be insurable
‘when conditions are met’
Binding receipt
Coverage is guaranteed until the insurer formally rejects the application
Policy issue
when insurer ‘approves’ the application they are ‘issuing the policy’
Effectve date of coverage
identifies when the coverage is effective and establishes the date by which future annual premiums must be paid
Application, premium, statement of continued good health signed
Statement of good health
Verifies the insured has not become ill, injured or disabled during policy approval process
Used when premiuum was not submitted with application
Also used when reinstating a policy
Policy delivery
Means of delivery: mailing policy to agent, mailing policy to applicant, personally delivering policy
Personal delivery
Allows producer to explain the coverage to the insured
Builds trust and reinforces the need for coverage
Constructive delevery
insurance company intentionally relinquishes all control over the policy and turns it over to someone acting for the policyowner
If the company instructs the agent not to deliver the policy unless the applicant is in good health, there is no constructive delivery
When are premiums taxable
paid before the paycheck is taxed or removed from taxtable income when filing taxes
When are premiums not taxable
paid after your paycheck is taxed and not removed from taxable income
taxation of disability income insurance
premiums paid are not deductible by the individual insured, but benefits are tax free
for group paid by employer:
premiums are deductible by the employer, thus, taxable to recipient
If an employee contributes:
benefits will be tax-free in proportion to the premium contributed
taxation of medical expense insurance
Incurred medical expenses that are reimbursed by insurance may not be deducted from federal income tax
expenses not reimbursed are only deductible to the extent that they exceed 7.5% of the insured’s adjusted income
100% of premium is tax deductable for self-employed
Group insurance premium taxatio
- premiums paid by employer are tax deductible to the employer
- Premiums paid by the employr are NOT tax deductable to the employee
Policy design
Design or structure of a policy and its provisions can impact insurer’s cost containment efforts
high deductible will help limit claims
Coinsurance means sharing medical cost
Shortened benefit periods
Medical cost management
Process of controlling how policy owners utilize their policies
Four approaches
- mandatory 2nd opinions
- precertification review
- ambulatory surgery
- case management
Precertification review
Obtain approval from the insurer before entering a hospital for an elective surgery
Determines if the treatment is medically necessary
Evaluating an individual’s overall health prior to being hospitalized for surgery
Concurrent (utilization) review
health insurance company’s opportunity to review a request for medical treatment to confirm that the plan provides coverage for the medical services
Health care is reviewed as it is being provided
Ambulatory surgery
procedures on an outpatient basis where once an overnight hospital stay was required
Case management
a specialist within the insurance company who reviews a potentially large claim as it develops to discuss treatment alternatives with the insured
point of service plans
allows insured to choose either an in-network or an out-of-network provider when care is needed
Care is coordinated by primary care physician
More expensive to insured for out-of-network
commissioner
administration and enforcing WI insurance laws
Appointed by governor
Gives permission for examination of records
Twisting
misrepresentations or inaccurate comparisons to induce a person to terminate or borrow against their current insurance policy to take out an insurance policy with another insurer
Cold lead advertising
Falling to disclose that the purpose of the marketing effort is insurance solicitation
Restorative dental
Restoring function and integrity of a missing tooth structure
ex. fillings, crowns and dental bridges
Endodontics
Diseases of the dental pulp
root canals
Periodontics
Prevention, diagnosis and treatment of disease
Prosthodontics
Replacement of missing parts
Bridgework or dentures
Integrated deductible
Single deductible for medical and dental
What selection of dentists is used in pre-paid plans
closed panel of dentists
