Glossary of CA Life and Health insurance
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- 3 examples of insurance:
- Define Annuities
- Not life insurance
retirement product sold by insuarnce companies
- the uncertainty of loss
- the direct cause of a loss
- increases the chances of a loss occurring
- 3 types of hazards
- 2 types of risk
- Pure (insurable)
- Risk Pooling
- reduces financial risk among the many insured.
makes predicting losses much easier for insurers
- Adverse Selection
- when the uninsurable seek to purchase insurance resulting in great losses to the insurers.
- restores an insured to the condition he/she was prior to the loss.
- Private investors protect themselves from ____ by ____.
- adverse selection
- Insurable interest
- suffering a loss because of death or disability from a personal or financial nature
- 6 elements of an ideally insurable event:
cannot be catastrophic
due to chance
definate and measurable
large loss exposure
loss exposure must be random
- risk transfer
- buying insurance
- 4 types of risk management
- 2 tables used to predict future losses
- Driving recklessly is an example of a _____.
- Morale Hazard
- 3 examples of parties who are not competent to enter into a contract.
those under the influence.
- Tort Law
- Deals with damage done to others.
- Contract law
- Deals with the formation and enforceability of contracts.
- 4 major elements of a contract:
- When does consideration occur?
- When both parties give value in exchange for promises.
- Protects insurers against dishonet applicants.
Right to avoid contractual obligations
In effect for the first two years of the policy.
- 8 unique features of an insurance contract
Valued or indemnity
Utmost good faith
- unequal exchange of values in a contract.
- "Take it or leave it"
Drafted by one party and either accepted or rejected.
- Contract enforced against one party only.
- Conditional on the happening of the event
- Utmost good Faith
- based on statements or representations that are perceivd to be truthful.
- GUARANTEE material facts in the application
- An intent to deceive
- Failure to communicate information
- A _____ could void a contract if it is material to the risk insured.
- Conditional contract
- when the insurer pays a claim for a covered loss
- Penalty for Fraud
- $150,000 or double to amount of the fraud if over $150k.
And/or, 1 year in jail or 2-5 years in state prison.
- _____ is grounds for recsinding a policy.
- Information NOT required in a contract:
- Known information
Info that should be known
Info about which communication has been waived
Info that is not material to the risk
- 6 items in an insurance contract:
- Paries involved
Property of life insured
Interest of the insured
Risk insured against - peril
- What the insured pays for coverage
- Who sets the premium rates?
- Life insurance premium factors
- Mortality factor
Other premium factors
- Mortality table
- helps insureres accurately predict future claims based on classifications (gender and ages) of insureds.
- Loading charge
- (sales charge)
built into insureds premiums and pays for insurers expenses.
- 4 premium Payment modes:
- Annual (least expensive)
Monthly (most expensive)
- Short rate cancellation
- unearned premiums are returned without a penalty.
- Pro Rata cancellation
- all unearned premiums are returned without a penalty.
- Earned surplus
- when the insurer's assets exceed their liabilities.
- Policy dividends (are/are not) guaranteed and taxable.
- are not
- substandard risk pays (higher/lower) premiums because they represent a (higher/lower) risk to the insurer
- Individual life insurance premiums are/are not tax deductible
- are not
- Premiums paid for business life insurance (key person) (are/are not) tax deductible?
- are not
- Premiums paid by employers in a group life plan (are/are not) tax deductible?
- Cash value
- the savings amount in a whole life policy.
- Death benefit
- face amount or limit of a liability
- Who selects the settlement option during an insured's lifetime?
- only the policy owner
- Who selects the settlement option if the policy owner doesn't?
- the automatic settlement option?
- lump sum cash (not taxable)
- 1035 exchange
- like to like transfer of policies
No taxation on any gains
Must exchange entire policy
- what the insured pays the insurer for coverage.
Rate X Amount of coverage = premium
- Other premium factors
- Def underwriting
- Classify, Select and rate risks.
- 3 people in a life insurance contract
(can be same person)
- Who represents the insurer
- Agent must solicit prospects that represent a good risk for the insurer.
Must take all applications.
- 4 Parts to the insurance application
- General (personal info)
Attachment to policy
- 3 classifications of risk
- Insurer can obtain an Attending Physician Statment APS, provided they have____.
- written permission from the applicant.
- Questions on an application cannont be soley for _______.
- Medical Information Bureau
funded by insurance companies
Purpose is to detect concealment of physical medical conditions
- Who can change an application?
- the applicant or the agent with permission from the applicant.
- Beneficiaries may/may not initial changes to an application.
- may not
- All insurers must use the same _____ test.
- _____ or _______ is not a basis for considering what type of HIV/AIDS test can be adminstered by an insurer.
- Marital Status
- Insurers _____ notify an applicant if a test is ____.
- Fair Credit Reporting Act
- protects an individual's right to privacy and access to his/her credit report.
- Required signatures
- agent and proposed insured
insurer does not sign
- binding receipt
- provides immediate coverage
- no physical exam is needed in a _____ application.
- constructive delivery
- when the insurer delivers the policy to someone acting for the insured (agent).
- Return policies in California
- Under age 60 - 10 days free look.
60 and over - 30 days free look.
- Definition of a senior
- 60 or older in life/annuity
65 or older in health
- 3 categories of Life insurance - OIG
- Ordinary life insurance (individual policies)
- can be term, whole life, endowments, universal life, variable life.
- small face amounts
individually issued policies
death benefit - 1k to 10k
- 10 or more employees
employer pays premium
usually term insurance
- Term life insurance
- NO CASH VALUE
Face amount is specified
Usually lowest cost
term life periods
term life premiums
Level, increasing and decreasing terms
- Family Policy
- Designed to ensure all family members are covered
Whole policy on the breadwinner, Level term insurance on named family members, additional children have free coverage at day 15 of life
- Rights of the owner of the policy
- Name beneficiaries
Assign the policy
Select the settlement options
Cash value at maturity
Select payment mode
- Policy Application Riders
Entire contract provision
- Insuring Clause
- Promise to pay benefits
Parties of the contract
Conditions under which claims will be paid
Usually on the first page of the policy
- There is/is not a standard life insurance policy
- is not
- Grace period
- The period during which coverage will cnotinue although premiums have not been paid.
Life and health only.
- Automatic premium loan
- Insurer borrows the premium amount from cash value to keep coverage in force. Not found in term insurance.
- Keep original premium, cash values, and now new suicide clause.
- Incontestable clause
- Protects the insured
After 2 years.
- suicide clause
- no death benefit if w/in 2 years of the policy
- Collateral Assignment
- when the policy's cash value and/or death benefit act as collateral for a loan.
- Absolute assignment
- transfers ownership of the policy
- Misstatement of age or sex
- face amount is adjusted to correct.
- Policy Exclusions
Hazardous hobbies or occupations
- Non-forfeiture options
- allow the owner to keep the cash value if the policy lapses or is surrendered.
- 3 non-forfeiture options
- Cash surrender or loan value
extended term insurance
- ____ provides the most protection, but has no cash value.
- Extended term
- A non-participating policy (non par) is issued by ___.
- a stock insurer
- A participating policy (par) is issued by ____.
- a mutual insurer
- Waiver of premium rider
- In case of disability, all premiums waived and benefits continue.
- Guaranteed Insurability rider
- option to purchase addl policies at specific ages without evidence of insurability.
- Waiver of payors premium rider
- In case of disability of death, premiums will be paid by the insurer until the insured reaches a specified age.
- Accidental death benefit rider
"Double Indemnity rider"
- Benefits will double or triple if death occurs before a certain age.
- Term rider (cost of living rider)
- Consumer price index (CPI)
increase in premium due to additional coverage.
- Accelerated Death benefits
"living needs rider"
- A portion of the face value can be paid out in advance in the case of the terminally ill.
- Person named to recieve the policy proceeds at the death of the insured
- Succession levels of beneficiaries
- if all primary and contingent beneficiaries are deceased
- Per capita
- Proceeds divided equally among surviving beneficiaries
- Per Stirpes
- Share that would have gone to a beneficiary that died before the insured wil lpass to the deceased beneficiary's children - grandchildren
- Revocable Beneficiary
- has only a passive interest in the face amount of the policy. Can be replaced at any time.
- Irrevocable beneficiary
- has a vested interest in teh cash value and face benefit of a policy.
- Uniform Sinultaneous Death Act
- if sequence underterminable, presumed beneficiary died first.
- Common Disaster Clause
- If beneficiary does not survive the insured by a prescribed # of days, proceeds go to estate.
- Spendthrift Clause
- Protects the policy proceeds from creditor claims of either the beneficiary or the policy owner.
- Facility of Payment provision
- allows the insurer to pay all or part of the proceeds to someone who is not named a beneficiary.
- Human life value approach
- takes into consideration the loss of future earnings if the insured dies.
- Needs analysis approach
- takes all-important facts into consideration: financial and otherwise, in determining insurance needs.
- Individual Uses for Life insurance
- Final Expense fund
income if disabled
- Key person
- key employee protects the employer in teh event a valuable employee dies.
- Life insurance creates an immediate ____.
- Buy sell insurance is used to fund a _______.
- Buy sell agreement
- A group may/may not be formed soley for the purpose of obtaining insurance.
- may not
- Which costs less?
group life insurance
- Are there requirements for medical exams for group insurance?
- in group insurnace, the employer receives a ______, the employee recieves a _____.
- policy (master policy)
certificate of insurance
- 8 features of group insurance:
- Master contract
Certificate of insurance
Medical exam requirements
Selection of coverage
Flow of insureds
Contributory vs noncontributory
- In group insurance _______ selects coverage for policy
- In group insurnace _______ selects beneficiary
- Employees pay part of the premium
requires 75% participation
- Employer pays entire premium
Requires 100% participation of eligible employees
- Eligible groups that offer group life
- single employer groups
credit or debitor group
- size of group for group insurance
- types of group life plans
- Group term - no cash value
Group permanent -
a) Group ordinary
b) Group paid up
c) Group universal
- How group benefits are determined:
- Franchise (wholesale) insurance
- reasonably priced individual policies offered in the workplace
- Blanket life
- no name insured's in the policy covers an entire group (college football team)
- Flat benefit
- everyone gets the same benefit
- a group policy may insure dependents of emplyees if at least __% of members select coverage
- __ days conversion from group to individual coverage
- Multiple employer trust (MET)
- Small businesses who do not have enough EEs may form a MET
Also different employers w/in the same related industry
- Who must apporove all group life insurance policies?
- IN CA, the commissioner of insurance
- Underwriting factors for group life insurance
- Size of group
Average age of group
Amount of benefit
- Common exclusions
- An annuity is a ______ not an insurance policy
- retirement plan
- A _____ creates an estate and a _____ liquidates an estate through income payments.
- insurance policy
- Lump-sum of money paid out in equal installments over a period of time.
- Person who receives the income payments
- Insurability required in annuities?
Medical underwriting required?
- Accumulation period
- owner deposits funds with life insurance company; payments and interest accumulate
- Annuitization period
- Annuity contract generates income payments on a regular basis (monthly)
- Funding methods
- Single payment
- Immediate annuity
- Lump-sum (single premium) deposit begins generating income payments immediately
- Deferred annuity
- Single premium or series of premium payments are allowed to accumulate to generate income payments at some point in future
- Fixed annuity
- Insurance company bears investment risk - generates interest rate during accumulation period and gurantees fixed payments during annuity period.
Funds are invested in insurance company's account.
- Variable annuity
- Purchased as a hedge against inflation.
Annuity owner bears investment risk.
Funds are invested in a separate account similar to mutual funds.
Accumulation rate will vary, as will income.
- Straight life annuity
- Payments for lifetime of annuitant - no other guarantees
- Life with period certain
- Payments for lifetime of annuitant - guaranteed to a beneficiary for a specific time if annuitant should die first.
- Cash refund
- Guarantees income to annuitant for life.
If annuitant dies before payments have equalled the annuity fund, the balance will be paid to the annuitant's beneficiary in a lump sum.
- Installment period
- Guarantees income to annuitant for life.
If annuitant dies before payments have equaled the annuity fund, balance to beneficiary
- a _____ annuity is recommended for conservative investors
- a _____ annuity is recommended for investors looking for a hedge against inflation.
- 2 major periods in an annuity are:
- accumulation period
- Equity indexed annuities
- include a minimum guranteed rate of investment
risk borne by insurance co
- Tax sheltered annuities
- TSAs are deferred annuity contracts that may be used t ofund individual qualified retirement plans
- For a couple over 60, what type of annuity is not allowed
- straight life
- Penalty for early withdrawl from an annuity
- 10% prior to age 59.5
- Most common type of payout
- straight life
- Social security provides a ____ _____ of protection
- basic floor
- Fully insured means a person is elidgable for _________.
- OASDI benefits
Old Age, Survivors, Disabiliity Insurance
- A maximum of ___ credits can be earned per year.
- to be currently insured, a person must have earned ___ credits durring the ___ quarter period preceeding death
- Black out period
- No benefits payable for period b/w when youngest child reaches age 16 until widowed spouce reaches at least age 60.
- Eligibilities for medicare
- 65 or older, suffering from terminal renal failure, or have been receiving social sec. disabiliity for at least 24 consecutive months.
- Qualifications for disability benefits for SS.
- under age 65, if over 30, must be fully insured, disability must be at least 12 months or lead to death
- Definition of disability
- must be unable to perform the duties of any occupation, cannot perform any substantial gainful work
- Waiting period for disability benefits
- 5 months
- 2 different types of retirement plans
- Tax Sheltered Annuities
- a retirement plan for scholl district employees
- Contributions to an IRA are/are not generally tax deductible
- Employee Retirement Income Security Act of 1974
Enforced by the dept of Labor
Governs qualified plans in the private sector
Establishes eligibility requirements for participants
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