Vocab. Set 3

Question 1

Self-Inflicted Injury

Answer 1

An injury to the body of the insured inflicted by the insured, usually not covered on Health insurance.
On Life insurance, although insurers do not want to cover suicide, most states require it to be covered after the policy has been in force for two years (one year in Colorado).
However, if an insured dies as a result of suicide within the first two years,the premiums paid are refunded to the beneficiary.

Question 2

Service Plans

Answer 2

An arrangement by a pre-paid Health Services Organization to pay certain vendors of health-care services directly for rendering approved services to covered persons. These arrangements may preclude or limit any additional charges for the defined services. HMOs are the best known, but not the only, form of pre-paid service plans.

Question 3

Settlement Options

Answer 3

Themethod of receiving Life insurance proceeds.Generally, there are five Life insurance Settlement Options:

1. Cash,
2. Interest,
3. Fixed Period,
4. Fixed Amount
5. or the beneficiary may use the proceeds of the policy to purchase an Annuity

(remember the acronym of C-I-F-F-A).Proceeds paid to the beneficiary of a Life policy are tax free. However, if the beneficiary selects the Interest Option, the interest received will be taxable to the beneficiary.

Question 4

Short Term Disability

Answer 4

A form of disability income insurance paying benefits which is usually written on a group basis with short waiting periods (often seven days) and short benefit periods (often six months).

Question 5

Sickness Insurance

Answer 5

A generic name for Health insurance coveringloss by illness or disease. Illness or disease does not include accidental bodily injury. Sickness insurance may provide benefits for loss of time or expense incurred by pregnancy.Watch out on the state exam for these definitions! Health insurance is a broad term that includes Medical Expense, Disability Income and AD&D insurance. Disability insurance is just another name of Health insurance. However, Disability Income insurance is a specific type of Health insurance.

Question 6

Single-Premium Annuity

Answer 6

An Annuity purchased with one lump-sum payment, generally with after tax dollars.
You can buy either a Single Premium Immediate Annuity, which allows you to “annuitize” right away, or you can buy a Single Premium Deferred Annuity, where you annuitize sometime in the future, perhaps at retirement age.

Question 7

Single-Premium Policy

Answer 7

A Life insurance policy on which the entire premium is paid in one payment, which creates an immediate cash value. Remember, in lieu of a traditional Whole life policy where payments are payable to age 100, you can buy a Limited Pay Whole Life policy, such as a LP 65, a 20 Pay Life or even a 1 Pay life. Universal Life policies were often purchased with a single premium before tax law rules regarding Modified Endowment Contracts (MECs) were adopted.

Question 8

Solicitor

Answer 8

A person who finds insurance prospects for a producer.

Question 9

Standard

Answer 9

A risk that meets the same conditions of health, physical condition, morals, and other underwriting criteriaas the tabular risks on which the rate is based.The Standard Risk is also known as the Average Risk. Remember, most people are insurable. It is just a matter of classifying them into the proper rating category: Preferred, Standard or Non-Standard

Question 10

Standard Non-forfeiture Law

Answer 10

A law adopted by most states that provides that any cash-value accumulation or its equivalent must be made available to the policy owner should he/shestop paying the premiums.Any time a cash value Life insurance policy lapses, the policy owner must be given the choice of three Non-forfeiture options: Cash Surrender, Reduced Paid Up or the Extended Term option. In other words, the cash value may not be forfeited to the insurer!

Question 11

Standard Provisions

Answer 11

A set of statutory provisions required by most states to be included in every Health policy issued. Also called Uniform Policy Provisions or Mandatory Policy Provisions.Generally, Standard Provisions, such as the Grace Period, are designed to protect the policy holder. There are 12 required Standard Provisions contained in individual Health policies. There are also several Optional Provisions that Health insurers may include, such as Change of Occupation. Optional Provisions are generally included to protect the insurance company.

Question 12

Stated Amount

Answer 12

Relating to an agreement to pay a specified amount of money to or on behalf of the insured upon the occurrence of a defined loss. For example, the principal sum on an AD&D policy.AD&D and Life insurance are considered to be “valued” policies, since the amount payable in the event of a claim is determined when the policy is first issued. However, Health insurance follows the Principle of Indemnity, in that the policy will pay the policy limit or the amount of the claim, whichever is less.

Question 13

Stock Insurance Company

Answer 13

An incorporated insurance company with capital divided into shares and owned by the shareholders.Stock companies issue “non-participating” policies, in that dividends (if declared) are payable to the stockholders rather than to the policyholders, an ARE TAXABLE.

Question 14

Surgical Schedule

Answer 14

A list of specific maximum amounts payable for surgical procedures in Basic Health insurance indemnity type policies.Sometimes called a Relative Value Schedule.

Question 15

Surrender

Answer 15

Withdrawing the cash value of a Life policy and surrendering the policy to the insurer.No further coverage exists and the policy may not be reinstated. Cash Surrender is one of the three required Non-forfeiture options.
A policy may be surrendered for cash at any time. However, amounts received in excess of premiums paid upon cash surrender are TAXABLE.

Question 16

Term Insurance

Answer 16

Life insurance that normally does not have cash accumulation and is issued to remain in force for a specified period of time, following which it is subject to renewal or termination.Term insurance is considered to be temporary coverage. Remember, the word “term” means time. Term policies only cover you for a period of time and you must die in the term in order to be covered. Whole life, however, is permanent in that it covers you until you die.

Question 17

Tertiary Beneficiary

Answer 17

Next in line behind the Contingent Beneficiary to receive policy proceeds if both the Primary and Contingent Beneficiaries are deceased. Also known as the Final Beneficiary, which is usually the estate of the insured.The word “Tertiary” means “third.”

Question 18

Time Limit on Certain Defenses

Answer 18

A Uniform Provision on Health Insurance policies specifying that after a given number of years (usually two), no statements (except fraudulent misstatements) made in the application shall be used to deny a claim or void the policy and that no claim shall be denied or reduced on the ground that a disease or physical condition not excluded at time of issue existed prior to effective date. Also known as the Incontestability Clause. A Healthpolicy is contestable for the first two years and incontestable thereafter, except for fraud

Question 19

Total Disability

Answer 19

A degree of disability from injury or sickness that prevents the insured from performing duties for remuneration or profit. The definition in any given case depends on the wording in a covering policy.This definition actually varies by company. In other words, on Disability Income insurance, you get what you pay for. If this definition is broad, such as you are totally disabled if you cannot perform your own job, the policy will be expensive. However, if the definition states that you are totally disabled only if you are confined to the hospital, it won’t cost much.

Question 20

Travel Accident

Answer 20

A form of accident insurance limiting coverage to accidents occurring while the insured is traveling.This is a form of AD&D insurance, and is considered to be a limited policy since it covers accidents only. These policies have many exclusions, such as no coverage if your injury occurs while you are under the influence of drugs or alcohol.

Question 21

Twisting

Answer 21

Inducing or seeking to induce a policy owner by misrepresentation to terminate an existing Life policy to replace it with a new policy. In most states twisting is illegal and/or unethical. Producers are naturally tempted to engage in “replacement,” since the commission paid on new policies generally exceeds the commissions paid on renewal policies. Replacement is not illegal, unless it is detrimental to the client. However, “twisting” the facts in order to induce replacement is an illegal and/or unethical trade practice.

Question 22

Unauthorized Company

Answer 22

An insurer not permitted to sell insurance within a state. Generally, you are prohibited from selling insurance for an unauthorized company. All insurers must be “authorized”to sell insurance in a state, which means that they must obtain a Certificate of Authority from the state.

However, Surplus Lines companies (such as Lloyds of London) and companies who “reinsure” other companies are exempt from this requirement. Most states allow Surplus Lines companies to write the risks that authorized companies won’t take. Surplus Lines companies do not participate in the State Guaranty Fund (Association) and are generally unregulated as to rates and policy forms used.

Question 23

Underwriter

Answer 23

1) A salaried company employee trained in evaluating risks and determining the rates and coverages.No license is required.
2) A producer, especially a Life insurance producer, is considered to be a “Field Underwriter”or “Front Line Underwriter.”In theory, the producer is supposed to do some underwriting before submitting the case to the home office underwriter in order to assist in making a decision on the basis of known facts. The producer is required to report all facts known to him/her that might affect the risk. Remember, the producer represents the insurer, not the insured.

Question 24

Underwriting

Answer 24

The process of evaluating a risk for the purpose ofissuing insurance coverage. Also known as risk classification.The underwriter’s job is to select business that fits into the rate structure of the insurer, allowing the insurer to not only pay claims and expenses, but to make an underwriting profit.

Question 25

Unearned Premium

Answer 25

That portion of an advance premium payment that has not yet been used for coverage written.
Thus, in the case of an annual premium, at the end of the first month of the premium period, 11 months of the premium would still be “unearned.”So, if the insurer cancelled a Health policy that had an annual premium of $1,200 after one month on a pro-rata basis, they would have to refund $1,100 in unearned premium.

Question 26

Uniform Simultaneous Death Act

Answer 26

A uniform law adopted by most states providing that if the Primary Beneficiary and the insured die in the same accident and there is no proof that the beneficiary outlived the insured, the proceeds are paid as if the Primary Beneficiary died first, which means that the proceeds are paid to the Contingent Beneficiary. Also known as the Common Disaster provision.

Question 27

Variable Annuity

Answer 27

An Annuity contract in which the amount of the periodic benefits varies, usually in relation to security market values, a cost-of-living index, or some other variable factor invested in a “separate” account, which is very similar to a mutual fund,in contrast to a Fixed or Guaranteed Return Annuity.Producers selling variable annuities or variable life insurance must also pass the Series 6 or 7 exam and be registered with FINRA (formerly known as the NASD). Variable annuities are regulated under both state and Federal law(by the SEC). Further, most states require that producers selling variable products obtain a Variable Products endorsement to their state Life insurance license.

Question 28

Waiting Period

Answer 28

A period of time between the beginning of a disability and the date benefits begin.
Also known as the Elimination Period.The Waiting Period is like a deductible, in that the longer it is, the lower your premium.

Question 29

Waiver

Answer 29

1) A rider waiving liability for a stated cause of accident or sickness.Also known as an “impairment” rider.
2) A provision or rider agreeing to waive premium payment during a period of disability.Also known as “Waiver of Premium” rider.
3) The giving up or surrender of a right or privilege that is known to exist.For example, the underwriter has the right to require applicants to complete all the questions on the application.
If the underwriter accepts an incomplete application, they have waived the right to obtain it later.
**Once a right is waived, it can no longer be asserted. This is known as “ESTOPPEL.”

Question 30

Warranty

Answer 30

A statement made on an application for insurance that is warranted to be true in all respects, a literal truth. If untrue in any respect, even though the untruth may not have been known to the person giving the warranty, the contract may be voided without regard to the materiality of the statement.
Statements on Life and Health insurance applications are, in the absence of fraud, not warranties, but REPRESENTATIONS.

Question 31

War Clause

Answer 31

This generally excludes coverage for persons serving in the armed forces during the time of war, whether on the battlefield or not.
Many policies exclude coverage for war as part of the contract.There are many states that have laws regarding life insurance policies sold to members. In these states life insurance policies sold to members of the military cannot exclude coverage for war.

Question 32

Whole Life

Answer 32

A Life policy that runs for the insured’s Whole Life —that is, until death or the ultimate age on the mortality table being used (age 100or age 120 depending upon which mortality table was used). Premiums for a Whole Life policy may be paid for the Whole Life or for a limited period (for example, 20-Pay-Life or LP65) during which the higher premium charged pays up the policy.
Also known as permanent insurance since it provides insurance for a person’s whole life.