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188 Cards in this Set
- Front
- Back
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3 examples of insurance:
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Life
Health/disability Annuities |
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Define Annuities
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Not life insurance
retirement product sold by insuarnce companies |
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Risk
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the uncertainty of loss
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Peril
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the direct cause of a loss
Fire |
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Hazard
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increases the chances of a loss occurring
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3 types of hazards
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Physical
Moral Morale |
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2 types of risk
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Pure (insurable)
Speculative |
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Risk Pooling
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reduces financial risk among the many insured.
makes predicting losses much easier for insurers |
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Adverse Selection
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when the uninsurable seek to purchase insurance resulting in great losses to the insurers.
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indemnity
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restores an insured to the condition he/she was prior to the loss.
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Private investors protect themselves from ____ by ____.
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adverse selection
underwriting applications |
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Insurable interest
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to have protection against the financial consequences of death, illness, accident or injury.
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6 elements of an ideally insurable event:
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predictable
cannot be catastrophic due to chance definate and measurable large loss exposure loss exposure must be random |
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risk transfer
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buying insurance
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4 types of risk management
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Transfer
Avoidance Reduction Retention |
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2 tables used to predict future losses
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Mortality
Morbidity |
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Driving recklessly is an example of a _____.
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Morale Hazard
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3 examples of parties who are not competent to enter into a contract.
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Minors
Mentally infirm those under the influence. |
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Tort Law
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Deals with damage done to others.
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Contract law
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Deals with the formation and enforceability of contracts.
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4 major elements of a contract:
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Agreement
Competent Parties Legal Purpose Consideration |
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When does consideration occur?
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When both parties give value in exchange for promises.
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Recission
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Protects insurers against dishonet applicants.
Right to avoid contractual obligations In effect for the first two years of the policy. |
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8 unique features of an insurance contract
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Aleatory
Adhesion Unilateral Personal Conditional Valued or indemnity Insurable interest Utmost good faith |
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Aleatory
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unequal exchange of values in a contract.
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Adhesion
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"Take it or leave it"
Drafted by one party and either accepted or rejected. Ambiguous |
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Unilateral
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Contract enforced against one party only.
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Conditional
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Conditional on the happening of the event
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Utmost good Faith
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based on statements or representations that are perceivd to be truthful.
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Warranties
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GUARANTEE material facts in the application
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An intent to deceive
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Fraud
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Failure to communicate information
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Concealment
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A _____ could void a contract if it is material to the risk insured.
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misrepresentation
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Conditional contract
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when the insurer pays a claim for a covered loss
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Penalty for Fraud
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$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. |
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_____ is grounds for recsinding a policy.
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Concealment
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Information NOT required in a contract:
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Known information
Info that should be known Info about which communication has been waived Info that is not material to the risk |
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6 items in an insurance contract:
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Paries involved
Property of life insured Interest of the insured Risk insured against - peril Time duration Premium |
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Premium
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What the insured pays for coverage
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Who sets the premium rates?
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Actuaries
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Life insurance premium factors
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Mortality factor
Interest factor Expense factor Other premium factors |
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Mortality table
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helps insureres accurately predict future claims based on classifications (gender and ages) of insureds.
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Loading charge
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(sales charge)
built into insureds premiums and pays for insurers expenses. |
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4 premium Payment modes:
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Annual (least expensive)
Semiannual Quarterly Monthly (most expensive) |
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Short rate cancellation
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unearned premiums are returned without a penalty.
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Pro Rata cancellation
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all unearned premiums are returned without a penalty.
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Earned surplus
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when the insurer's assets exceed their liabilities.
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Policy dividends (are/are not) guaranteed and taxable.
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are not
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substandard risk pays (higher/lower) premiums because they represent a (higher/lower) risk to the insurer
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higher
higher |
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Individual life insurance premiums are/are not tax deductible
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are not
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Premiums paid for business life insurance (key person) (are/are not) tax deductible?
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are not
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Premiums paid by employers in a group life plan (are/are not) tax deductible?
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are
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Cash value
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the savings amount in a whole life policy.
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Death benefit
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face amount or limit of a liability
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Who selects the settlement option during an insured's lifetime?
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only the policy owner
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Who selects the settlement option if the policy owner doesn't?
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beneficiary
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the automatic settlement option?
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lump sum cash (not taxable)
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1035 exchange
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like to like transfer of policies
No taxation on any gains Must exchange entire policy |
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Rate
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what the insured pays the insurer for coverage.
Rate X Amount of coverage = premium |
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Other premium factors
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Age
Sex Health Occupation Habits |
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Def underwriting
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Classify, Select and rate risks.
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Insurable interest
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suffering a loss because of death or disability from a personal or financial nature
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3 people in a life insurance contract
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owner
applicant insured (can be same person) |
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Who represents the insurer
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Agent
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Pre-selector
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Agent must solicit prospects that represent a good risk for the insurer.
Must take all applications. |
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4 Parts to the insurance application
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General (personal info)
Medical Agent's report Attachment to policy |
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3 classifications of risk
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preferred
standard substandard |
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Insurer can obtain an Attending Physician Statment APS, provided they have____.
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written permission from the applicant.
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Questions on an application cannont be soley for _______.
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Marketing
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MIB
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Medical Information Bureau
funded by insurance companies Purpose is to detect concealment of physical medical conditions |
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Who can change an application?
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the applicant or the agent with permission from the applicant.
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Beneficiaries may/may not initial changes to an application.
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may not
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All insurers must use the same _____ test.
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HIV/AIDS
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_____ or _______ is not a basis for considering what type of HIV/AIDS test can be adminstered by an insurer.
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Marital Status
Sexual orientation |
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Insurers _____ notify an applicant if a test is ____.
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must
positive |
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Fair Credit Reporting Act
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protects an individual's right to privacy and access to his/her credit report.
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Required signatures
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agent and proposed insured
insurer does not sign |
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binding receipt
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provides immediate coverage
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no physical exam is needed in a _____ application.
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non-medical
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constructive delivery
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when the insurer delivers the policy to someone acting for the insured (agent).
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Return policies in California
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Under age 60 - 10 days free look.
60 and over - 30 days free look. |
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Definition of a senior
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60 or older in life/annuity
65 or older in health |
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3 categories of Life insurance - OIG
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Ordinary
Industrial Group |
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Ordinary life insurance (individual policies)
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can be term, whole life, endowments, universal life, variable life.
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Industrial
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small face amounts
individually issued policies death benefit - 1k to 10k |
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Group
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10 or more employees
employer pays premium usually term insurance |
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Term life insurance
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NO CASH VALUE
Face amount is specified Temporary insurance Usually lowest cost term life periods term life premiums Level, increasing and decreasing terms |
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Family Policy
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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 |
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Rights of the owner of the policy
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Name beneficiaries
Assign the policy Select the settlement options Cash value at maturity Select payment mode Dividend options Coversion |
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Policy Application Riders
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PAR
Entire contract provision |
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Insuring Clause
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Promise to pay benefits
Parties of the contract Conditions under which claims will be paid Usually on the first page of the policy |
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There is/is not a standard life insurance policy
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is not
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Grace period
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The period during which coverage will cnotinue although premiums have not been paid.
Life and health only. |
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Automatic premium loan
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Insurer borrows the premium amount from cash value to keep coverage in force. Not found in term insurance.
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Reinstatement
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Keep original premium, cash values, and now new suicide clause.
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Incontestable clause
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Protects the insured
After 2 years. |
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suicide clause
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no death benefit if w/in 2 years of the policy
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Collateral Assignment
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when the policy's cash value and/or death benefit act as collateral for a loan.
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Absolute assignment
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transfers ownership of the policy
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Misstatement of age or sex
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face amount is adjusted to correct.
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Policy Exclusions
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War
Aviation Suicide Hazardous hobbies or occupations Illegal activities |
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Non-forfeiture options
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allow the owner to keep the cash value if the policy lapses or is surrendered.
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3 non-forfeiture options
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Cash surrender or loan value
Reduced paid-up extended term insurance |
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____ provides the most protection, but has no cash value.
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Extended term
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A non-participating policy (non par) is issued by ___.
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a stock insurer
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A participating policy (par) is issued by ____.
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a mutual insurer
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Waiver of premium rider
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In case of disability, all premiums waived and benefits continue.
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Guaranteed Insurability rider
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option to purchase addl policies at specific ages without evidence of insurability.
Ages 25-40 |
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Waiver of payors premium rider
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In case of disability of death, premiums will be paid by the insurer until the insured reaches a specified age.
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Accidental death benefit rider
ADB "Double Indemnity rider" |
Benefits will double or triple if death occurs before a certain age.
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Term rider (cost of living rider)
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Consumer price index (CPI)
increase in premium due to additional coverage. |
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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.
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Benficiary
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Person named to recieve the policy proceeds at the death of the insured
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Succession levels of beneficiaries
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Primary
Contingent Tertiary |
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Tertiary
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if all primary and contingent beneficiaries are deceased
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Per capita
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Proceeds divided equally among surviving beneficiaries
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Per Stirpes
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Share that would have gone to a beneficiary that died before the insured wil lpass to the deceased beneficiary's children - grandchildren
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Revocable Beneficiary
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has only a passive interest in the face amount of the policy. Can be replaced at any time.
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Irrevocable beneficiary
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has a vested interest in teh cash value and face benefit of a policy.
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Uniform Sinultaneous Death Act
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if sequence underterminable, presumed beneficiary died first.
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Common Disaster Clause
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If beneficiary does not survive the insured by a prescribed # of days, proceeds go to estate.
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Spendthrift Clause
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Protects the policy proceeds from creditor claims of either the beneficiary or the policy owner.
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Facility of Payment provision
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allows the insurer to pay all or part of the proceeds to someone who is not named a beneficiary.
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Human life value approach
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takes into consideration the loss of future earnings if the insured dies.
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Needs analysis approach
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takes all-important facts into consideration: financial and otherwise, in determining insurance needs.
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Individual Uses for Life insurance
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Final Expense fund
housing fund edcation fund survivor fund emergency fund retirement income income if disabled |
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Key person
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key employee protects the employer in teh event a valuable employee dies.
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Life insurance creates an immediate ____.
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estate
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Buy sell insurance is used to fund a _______.
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Buy sell agreement
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A group may/may not be formed soley for the purpose of obtaining insurance.
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may not
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Which costs less?
group life insurance individual insurance |
group
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Are there requirements for medical exams for group insurance?
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no
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in group insurnace, the employer receives a ______, the employee recieves a _____.
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policy (master policy)
certificate of insurance |
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8 features of group insurance:
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Master contract
Certificate of insurance Medical exam requirements Selection of coverage Beneficiary Low cost Flow of insureds Contributory vs noncontributory |
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In group insurance _______ selects coverage for policy
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employer
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In group insurnace _______ selects beneficiary
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member
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contributory
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Employees pay part of the premium
requires 75% participation |
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Noncontributory
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Employer pays entire premium
Requires 100% participation of eligible employees |
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Eligible groups that offer group life
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single employer groups
labor unions trade association credit or debitor group fraternal organizations |
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size of group for group insurance
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10
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types of group life plans
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Group term - no cash value
Group permanent - a) Group ordinary b) Group paid up c) Group universal |
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How group benefits are determined:
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Earnings
Employment position Flat Benefit |
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Franchise (wholesale) insurance
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reasonably priced individual policies offered in the workplace
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Blanket life
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no name insured's in the policy covers an entire group (college football team)
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Flat benefit
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everyone gets the same benefit
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a group policy may insure dependents of emplyees if at least __% of members select coverage
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75
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__ days conversion from group to individual coverage
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31
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Multiple employer trust (MET)
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Small businesses who do not have enough EEs may form a MET
Also different employers w/in the same related industry |
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Who must apporove all group life insurance policies?
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IN CA, the commissioner of insurance
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Underwriting factors for group life insurance
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Size of group
Average age of group Amount of benefit Acquisition cost |
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Common exclusions
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war
Military aviation |
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An annuity is a ______ not an insurance policy
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retirement plan
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A _____ creates an estate and a _____ liquidates an estate through income payments.
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insurance policy
annuity |
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annuity
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Lump-sum of money paid out in equal installments over a period of time.
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Annuitant
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Person who receives the income payments
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Insurability required in annuities?
Medical underwriting required? |
NO
No |
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Accumulation period
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owner deposits funds with life insurance company; payments and interest accumulate
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Annuitization period
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Annuity contract generates income payments on a regular basis (monthly)
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Funding methods
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Single payment
Periodic payments |
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Immediate annuity
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Lump-sum (single premium) deposit begins generating income payments immediately
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Deferred annuity
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Single premium or series of premium payments are allowed to accumulate to generate income payments at some point in future
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Fixed annuity
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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. |
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Variable annuity
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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. |
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Straight life annuity
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Payments for lifetime of annuitant - no other guarantees
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Life with period certain
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Payments for lifetime of annuitant - guaranteed to a beneficiary for a specific time if annuitant should die first.
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Cash refund
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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. |
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Installment period
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Guarantees income to annuitant for life.
If annuitant dies before payments have equaled the annuity fund, balance to beneficiary |
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a _____ annuity is recommended for conservative investors
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fixed
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a _____ annuity is recommended for investors looking for a hedge against inflation.
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variable
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2 major periods in an annuity are:
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accumulation period
annuity period |
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Equity indexed annuities
EIAs |
include a minimum guranteed rate of investment
risk borne by insurance co |
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Tax sheltered annuities
TSAs 403b |
TSAs are deferred annuity contracts that may be used t ofund individual qualified retirement plans
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For a couple over 60, what type of annuity is not allowed
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straight life
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Penalty for early withdrawl from an annuity
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10% prior to age 59.5
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Most common type of payout
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straight life
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Social security provides a ____ _____ of protection
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basic floor
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Fully insured means a person is elidgable for _________.
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OASDI benefits
Old Age, Survivors, Disabiliity Insurance |
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A maximum of ___ credits can be earned per year.
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4
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to be currently insured, a person must have earned ___ credits durring the ___ quarter period preceeding death
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6
13 |
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Black out period
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No benefits payable for period b/w when youngest child reaches age 16 until widowed spouce reaches at least age 60.
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Eligibilities for medicare
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65 or older, suffering from terminal renal failure, or have been receiving social sec. disabiliity for at least 24 consecutive months.
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Qualifications for disability benefits for SS.
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under age 65, if over 30, must be fully insured, disability must be at least 12 months or lead to death
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Definition of disability
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must be unable to perform the duties of any occupation, cannot perform any substantial gainful work
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Waiting period for disability benefits
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5 months
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2 different types of retirement plans
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qualified
nonqualified |
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Tax Sheltered Annuities
TSAs |
a retirement plan for scholl district employees
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Contributions to an IRA are/are not generally tax deductible
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are
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ERISA
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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 |
