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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
restores an insured to the condition he/she was prior to the loss.
Private investors protect themselves from ____ by ____.
adverse selection
underwriting applications
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.
Mentally infirm
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:
Competent Parties
Legal Purpose
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
Insurable interest
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
Time duration
What the insured pays for coverage
Who sets the premium rates?
Life insurance premium factors
Mortality factor
Interest factor
Expense 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)
Agent's report
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
Sexual orientation
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
Face amount is specified
Temporary insurance
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
Dividend options
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
Illegal activities
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
Reduced paid-up
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.
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
housing fund
edcation fund
survivor fund
emergency fund
retirement income
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
individual 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
Low cost
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
labor unions
trade association
credit or debitor group
fraternal organizations
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:
Employment position
Flat Benefit
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
Acquisition cost
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
Periodic payments
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
annuity 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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