Cfpe 1101 Mod 4

Front 1

Describe the functions of an agent with regard to Authority to bind insurer.

Back 1

The insurer is legally liable for the acts of one of its agents who is performing his or her duties, even if the agent makes fraudulent statements unknown to or unauthorized by the insurer. If an agent accepts a premium and tells a person the desired insurance is in place (bound), the insurer must pay any claims.

Front 2

Describe the functions of a broker with regard to Authority to bind insurer.

Back 2

Does not have the power to bind the insurer to a risk.

Front 3

Describe the functions of an agent with regard to Relationship to insured.

Back 3

Not a representative for the insured

Front 4

Describe the functions of a broker with regard to Relationship to insured.

Back 4

A representative of the insured

Front 5

Describe the functions of an agent with regard to Relationship to insurer.

Back 5

First and foremost, the representative of the insurance company

Front 6

Describe the functions of a broker with regard to Relationship to insurer.

Back 6

Not an agent of the insurer; thus, cannot bind the insurer to a risk

Front 7

Alex Young, an agent for Secure Insurance Company, was terminated from his position. A week after he was terminated, Alex wrote an insurance policy for Jeff MacGregor. Under what circumstances would Secure Insurance Company be obligated to uphold the contract?

Back 7

If Secure Insurance Company did not notify Alex’s former clients of the termination, Alex may have apparent authority to bind Secure.
If Secure Insurance Company allows Alex to keep rate books, business cards, or receipt books, Alex may have apparent authority to bind Secure.

Front 8

Under what circumstances might a principal not be liable for acts of an agent?

Back 8

if the agent does not have express authority, implied authority, or apparent authority to bind the principal
the principal (insurer) would not be obligated after alerting the insured that it is not ratifying the acts of the agent
this would be evidenced by not issuing the proposed insurance policy and by returning any premium checks received
however, if, prior to such action, the insured filed a claim, the insurer (principal) might well have to pay that claim

Front 9

46. New World Insurance Company accepted Art’s premium. If Art dies, will New World Insurance Company be required to provide benefits? Explain your answer.

Back 9

Yes. Joyce did not have express authority to write a life insurance policy for any applicant over age 45; however, New World ratified Joyce’s act (apparent/ostensible authority) by accepting Art’s premium.

Front 10

Recently, officials at L&H Insurance Company discovered that Frank Cortez, a broker for L&H, solicited a health insurance policy for Joan Martin, even though he knew that she had a health condition that would normally cause her to be rejected for coverage. Frank did not inform L&H of Joan’s health, so the policy was issued and Joan’s premium was accepted. What is L&H Insurance Company’s obligation in this situation?

Back 10

No liability; knowledge of a broker is not imputed to the insurance company, as the broker is the agent for the insured, not the insurer; knowledge, actions, and assertions of brokers acting within their authority remain with them and do not extend to insurers.

Front 11

4–2 Identify roles of the adjuster in the loss adjustment process.
Differentiate between notice of loss and proof of loss.

Back 11

Notice of loss: This is the first step in the claim process; it must be given immediately or as soon as is practicable.
Proof of loss: Within a specified time after giving notice, the insured must file proof of the loss, which is a sworn statement stating that a loss has occurred, the amount of the claim, and the circumstances surrounding the loss.

Front 12

4–2 Identify roles of the adjuster in the loss adjustment process.
Briefly outline and explain the stages of the loss adjustment process (Notice)

Back 12

First step: contact insurer and tell them of the loss

Front 13

4–2 Identify roles of the adjuster in the loss adjustment process.
Briefly outline and explain the stages of the loss adjustment process (Investigation)

Back 13

Insurer determines if there was a loss covered by policy

Front 14

4–2 Identify roles of the adjuster in the loss adjustment process.
Briefly outline and explain the stages of the loss adjustment process (Proof of loss)

Back 14

Sworn statement by insured that states that a loss has occurred and that enumerates the amount of the loss

Front 15

4–2 Identify roles of the adjuster in the loss adjustment process.
Briefly outline and explain the stages of the loss adjustment process (Payment or denial)

Back 15

Insurer pays or denies the claim

Front 16

4–3 Describe policy provisions and options for the insured or insurer in settling losses.
Describe seven provisions frequently contained in insurance policies that deal with the insured’s duties relating to loss settlement. (Notice of loss)

Back 16

The insured is required to give immediate notice of a loss to allow insurer to investigate.

Front 17

4–3 Describe policy provisions and options for the insured or insurer in settling losses.
Describe seven provisions frequently contained in insurance policies that deal with the insured’s duties relating to loss settlement.(Protect damaged property)

Back 17

The insured is to protect property from further damage.

Front 18

4–3 Describe policy provisions and options for the insured or insurer in settling losses.
Describe seven provisions frequently contained in insurance policies that deal with the insured’s duties relating to loss settlement. (Inventory)

Back 18

The insured is required to construct an inventory of damaged property, including quantity, description, actual cash value, and amount of loss; receipts, bills, and related information are to be attached.

Front 19

4–3 Describe policy provisions and options for the insured or insurer in settling losses.
Describe seven provisions frequently contained in insurance policies that deal with the insured’s duties relating to loss settlement. (Evidence)

Back 19

The insured may be required to show the damaged property to the insurer.

Front 20

4–3 Describe policy provisions and options for the insured or insurer in settling losses.
Describe seven provisions frequently contained in insurance policies that deal with the insured’s duties relating to loss settlement. (Written proof of loss)

Back 20

The insured is to provide written information as to the time and cause of the loss, the interest of the insured and others in the property, other insurance coverage, all encumbrances on property, etc.

Front 21

4–3 Describe policy provisions and options for the insured or insurer in settling losses.
Describe seven provisions frequently contained in insurance policies that deal with the insured’s duties relating to loss settlement. (Assistance and cooperation)

Back 21

The insured may have to attend hearings/trials, present evidence, supply medical reports, submit to physical examination, etc.

Front 22

4–3 Describe policy provisions and options for the insured or insurer in settling losses.
Describe seven provisions frequently contained in insurance policies that deal with the insured’s duties relating to loss settlement. (Appraisal)

Back 22

Either party may request that a controversy be settled by appraisal when the insured and insurer cannot agree on the ACV or the amount of the loss.
(Life insurance policies contain only proof of loss and settlement options as provisions in the contract.)

Front 23

4–3 Describe policy provisions and options for the insured or insurer in settling losses.
Explain three options of the insurer in settling claims.

Back 23

a. Replacement: The insurer may repair or replace damaged property with that of like kind and quality (rather than pay the ACV of the loss).
b. Abandonment and salvage: The insured surrenders ownership of the lost or damaged property to the insurance company to claim a total loss; the property is taken over by the insurer (salvage) to reduce its loss.
Pair or set: This gives the insurer the right to repair or replace any part, to restore the pair or set to the value before the loss, or to pay the difference between the ACV of the property before and after the loss.

Front 24

4–4 Calculate the amount paid on covered losses under coinsurance and deductible clauses in a given situation.
Last year, Tom Jones purchased a warehouse for $700,000. Its current replacement cost is $1 million. The building is covered for fire-related perils by XYZ Insurance Company to a policy limit of $500,000, with an 80% coinsurance provision and a $2,000 straight deductible. Last week, a fire broke out in the building, causing $400,000 of covered damage. What amount of coverage should Tom have on the building for this loss to be fully covered?

Back 24

$800,000, or 80% of $1,000,000

Front 25

4–4 Calculate the amount paid on covered losses under coinsurance and deductible clauses in a given situation.
Last year, Tom Jones purchased a warehouse for $700,000. Its current replacement cost is $1 million. The building is covered for fire-related perils by XYZ Insurance Company to a policy limit of $500,000, with an 80% coinsurance provision and a $2,000 straight deductible. Last week, a fire broke out in the building, causing $400,000 of covered damage. Using the formula provided in Chapter 2 of this module, calculate the amount that XYZ Insurance Company will apportion for this loss.

Back 25

replacement cost x coinsurance % = amt insurance req’d
1,000,000 x .8 = 800,000
(ins carried / ins req’d x loss) – deductible = amt paid
(500,000 / 800,000 x 400,000) - 2000 = 248,000

Front 26

4–4 Calculate the amount paid on covered losses under coinsurance and deductible clauses in a given situation.
Bill Jacobs owns a small office building with a current replacement cost of $520,000. The building is covered by Safe Insurance Company for fire-related perils to a policy limit of $400,000, with coinsurance of 80% and a $2,000 straight deductible. A fire breaks out in the building, causing $70,500 of covered damage. What amount will Safe Insurance Company apportion for this loss?

Back 26

replacement cost x coinsurance % = amt insurance req’d
520,000 x .8 = 416,000
(ins carried / ins req’d x loss) – deductible = amt paid
(400,000 / 416,000 x 70,500) - 2000 = 65,788

Front 27

4–5 Evaluate the relevant factors in assessing an insurance agent in order to select an insurance agent.
What are the duties of general agents

Back 27

independent business people empowered by the life insurance company they represent to sell insurance in specified territories and to appoint agents

Front 28

4–5 Evaluate the relevant factors in assessing an insurance agent in order to select an insurance agent.
What are the duties of independent agents

Back 28

generally represent several property and liability companies doing business under the American Agency System; can place business with any company they represent

Front 29

4–5 Evaluate the relevant factors in assessing an insurance agent in order to select an insurance agent.
What are the duties of captive agents

Back 29

represent only one company or a group of companies under common ownership; prohibited by contract from representing other insurers if insurance can be placed with captive agent’s company

Front 30

4–5 Evaluate the relevant factors in assessing an insurance agent in order to select an insurance agent.
What are the duties of career agents

Back 30

usually work with a general agent or agency manager and associate themselves with one primary company; usually maintain license agreements with other companies in order to meet client needs

Front 31

4–5 Evaluate the relevant factors in assessing an insurance agent in order to select an insurance agent.
What are the duties of producing general agents

Back 31

like general agents, except:
usually sell insurance personally
do not have designated territories
usually do not hire and train agents
may represent more than one life company

Front 32

4–5 Evaluate the relevant factors in assessing an insurance agent in order to select an insurance agent.
What are the duties of brokers

Back 32

find the best coverage possible for clients by working with many insurers and act as the agent of the insurance buyer

Front 33

4–5 Evaluate the relevant factors in assessing an insurance agent in order to select an insurance agent.
What are the duties of surplus-line or excess-line brokers or agents

Back 33

handle any type of insurance that cannot be purchased within the state (coverage must be placed with a company not licensed to do business in that state)
the individual may not be able to obtain coverage from an admitted (in-state) insurer because loss is too great or the required amount of insurance is too large
surplus-line agent or broker can place business with unadmitted insurer if necessary coverage cannot be obtained within the state from an admitted insurer at a reasonable price

Front 34

4–5 Evaluate the relevant factors in assessing an insurance agent in order to select an insurance agent.
What are the duties of solicitors

Back 34

find insurance prospects and then handle business through an independent agent, broker, company branch, or service office
generally cannot bind insurer or issue policies

Front 35

4–5 Evaluate the relevant factors in assessing an insurance agent in order to select an insurance agent.
What factors should be considered in selecting an agent?

Back 35

competence
inclination to service
experience
training
education
specialization
reputation

Front 36

4–5 Evaluate the relevant factors in assessing an insurance agent in order to select an insurance agent.
Penny Whistle has been a life insurance agent with the Eire International Insurance Company for seven years. Penny is a CLU and is studying to become a CFP® certificant. She regularly receives new clients through referrals and recommendations from her current clients. Recently, Penny drove 100 miles to personally deliver a claim check to a distraught widow. Would you do business with Penny, and why?

Back 36

Yes, because she has seven years of experience, during which time she has received recommendations from her clients, indicating that she has a good reputation.
Penny's CLU designation and her current studies for the CFP® certification indicate her commitment to ongoing education and training.
Her recent trip to deliver a claim check shows her dedication and inclination to service.

Front 37

4–6 Evaluate the relevant factors in assessing an insurance company in order to select an insurance company.
What factors may be checked in deciding if an insurance company is strong enough to warrant a client’s business?

Back 37

the company’s rating with various rating companies
the NAIC Watchlist
IMSA (Insurance Mktplace Standards Assn) Membership
RBC (Risk Based Capital) ratios

Front 38

4–6 Evaluate the relevant factors in assessing an insurance company in order to select an insurance company.
You are evaluating the Sonoma Insurance Company for a client. Sonoma has a B+ rating from A.M. Best, a BBB+ rating from Standard & Poor’s, and an A– rating from Fitch. The company has been in business for 20 years and has $300 million in assets. Sonoma recently was moved to the “Company Action Level” as a result of low RBC numbers, and three of the NAIC’s twelve ratios are outside the usual ranges. Would you recommend that your client buy a policy from Sonoma Insurance Company, and why?

Back 38

No, because the company is weak financially, as shown by poor overall financial and RBC ratios.
The ratings from the rating agencies identify that Sonoma has marginal financial soundness.
The company has not been in business for very long, and it doesn’t have a particularly large amount of assets for an insurance company.

Front 39

4–7 Identify roles or effects of a given government branch in regulating the insurance business.
Explain the reasons for regulating the insurance business.

Back 39

to maintain competition (antitrust)
to prevent abuse of consumers
to correct or prevent market failures

Front 40

4–7 Identify roles or effects of a given government branch in regulating the insurance business.
Which approaches does the government use to control the insurance business?

Back 40

antitrust law (including the attempts to maintain competition through the Sherman Act) and
prohibitions against agreements for or acts of boycott, coercion, or intimidation
regulation to apply specific performance standards to firms within the industry
two types of action are used—restricting entry and controlling prices

Front 41

4–7 Identify roles or effects of a given government branch in regulating the insurance business.
Briefly discuss the three economic theories for regulating the insurance industry.

Back 41

Market failure: the view that the purpose of regulation is to correct market failures.
Public choice: This views regulation as part of the system that serves to reallocate wealth among competing groups.
Capture: Regulators generally come from within the industry being regulated and/or leave the regulatory agency for a position in the industry.

Front 42

4–7 Identify roles or effects of a given government branch in regulating the insurance business.
Briefly discuss the two rationales for regulating the insurance industry.

Back 42

Vested in the public interest: it is important to the public welfare that an insurer promising to indemnify insureds for future losses fulfills its promises.
Destructive competition: Too much competition cannot be allowed in the insurance industry because companies may under-reserve for future losses and subsequently fail.

Front 43

4–7 Identify roles or effects of a given government branch in regulating the insurance business.
Explain the role of the legislative branch in regulating insurance.

Back 43

Each state enacts laws governing the conduct of the insurance industry within its boundaries.
Laws spell out requirements to be met by persons wanting to organize an insurance company within a state.
Laws set forth standards of solvency to be enforced.
Laws provide for regulation of rates and investments.
Laws provide for licensing of agents.

Front 44

4–7 Identify roles or effects of a given government branch in regulating the insurance business.
Explain the role of the courts in regulating insurance.

Back 44

render decisions on the meaning of policy terms
rule on the constitutionality of state insurance laws and the actions of those administering the law

Front 45

4–7 Identify roles or effects of a given government branch in regulating the insurance business.
Explain the role of a state’s commissioner of insurance in regulating insurance.

Back 45

is the central figure in the regulation of the insurance industry in each state
makes rulings that have the binding force of law
exercises judicial power in interpreting and enforcing the state’s insurance code

Front 46

4–7 Identify roles or effects of a given government branch in regulating the insurance business.
Explain the role of the NAIC in regulating insurance.

Back 46

The National Association of Insurance Commissioners has no legal power, but through it the 50 state commissioners exchange information and ideas and coordinate regulatory activities. In addition, it has established an accreditation program to standardize certain aspects of state regulation of the insurance industry.

Front 47

4–7 Identify roles or effects of a given government branch in regulating the insurance business.
In general, what areas of insurance company operations are regulated by a state’s insurance commissioner?

Back 47

examination of companies
policy forms
rates
access to insurance
guarantee funds
social pricing
involuntary markets
investments
competence of agents
licensing of companies
unfair practices
reserves
company insolvencies

Front 48

4–7 Identify roles or effects of a given government branch in regulating the insurance business.
What is the role of an insurance commissioner in regulating each of the following? insurer solvency

Back 48

to avoid insurer insolvencies through rehabilitation or merger
if an insolvency occurs, to institute necessary proceedings to have insurer’s assets taken over by an official liquidator

Front 49

4–7 Identify roles or effects of a given government branch in regulating the insurance business.
What is the role of an insurance commissioner in regulating each of the following? licensing of insurers

Back 49

has power to license insurance companies

Front 50

4–7 Identify roles or effects of a given government branch in regulating the insurance business.
What is the role of an insurance commissioner in regulating each of the following? insurance policy forms

Back 50

approves policy forms to ensure that the insurance-buying public will not be mistreated as a result of unfair provisions

Front 51

4–7 Identify roles or effects of a given government branch in regulating the insurance business.
What is the role of an insurance commissioner in regulating each of the following? twisting and rebating

Back 51

twisting: to stop the indiscriminate inducing of a policyholder to lapse or cancel a policy of one insurer and to replace it with a policy of another insurer
rebating: to stop the giving of or offering to give any portion of the premium or any other consideration to an insurance buyer as an inducement to purchase insurance

Front 52

4–7 Identify roles or effects of a given government branch in regulating the insurance business.
List five examples of government agencies or laws resulting in indirect federal regulation of the way insurance companies do business.

Back 52

Internal Revenue Code
SEC
pension regulation, including ERISA, PBGC, DOL, and the IRS
COBRA and the Family Medical Leave Act of 1993
the Civil Rights Act of 1964
the Age Discrimination in Employment Act
and the Americans With Disabilities Act
The Health Insurance Portability and Accountability Act (HIPAA)

Front 53

New World Insurance Company has a policy prohibiting agents from writing life insurance policies for applicants over 45 years of age. Joyce Jefferson, an agent for New World, was unaware of this policy and inadvertently wrote a life insurance policy for Art Caldwell, age
46. New World Insurance Company accepted Art’s premium. If Art dies, will New World Insurance Company be required to provide benefits? Explain your answer.

Back 53

Yes. Joyce did not have express authority to write a life insurance policy for any applicant over age 45; however, New World ratified Joyce’s act (apparent/ostensible authority) by accepting Art’s premium.

Front 54

4-TTD

With regard to an agent's ability to bind an insurer, define EXPRESS AUTHORITY

Back 54

- specifically conferred on the agent.
- stated in agent's contract with the insurer.

Front 55

4-TTD

With regard to an agent's ability to bind an insurer, define IMPLIED AUTHORITY

Back 55

- not expressly granted
- which the agnt is assumed to have in order to transact the insurer's business

Front 56

4-TTD

With regard to an agent's ability to bind an insurer, define APPARENT AUTHORITY

Back 56

- a doctrine of ostensible authority
- appearance of, or assumption of authority based on ACTIONS, WORDS or DEEDS
- insured LEAD TO BELIEVE

Front 57

4-TTD

With regard to policy limits & recovery,define DEDUCTABLES

Back 57

- retained risk
- portion of insured losses that insured is expected to pay

Front 58

4-TTD

With regard to policy limits & recovery,define COINSURANCE

Back 58

- sometimes a splitting of the cost (co-pay)
- minimum % of insurance required to avoid being penalized for inadequate insurance when there are partial losses.

Front 59

4-TTD

Covered loss under a typical commercial property contract is the greater of:

Back 59

1) The Actual Cash Value (ACV) of the damaged part of the building
2) The amount determined by:
Ins Req'd = Replacement cost x coins %
Ins Carried / Ins Req'd x LOSS - DED = AMT PAID

Front 60

4-TTD

Regarding the 7 factors that limit an insurer's liability covering losses, define INSURABLE INTEREST

Back 60

exists when the interested party will suffer a loss if insured loss occurs.

Front 61

4-TTD

Regarding the 7 factors that limit an insurer's liability covering losses, define ACTUAL CASH VALUE

Back 61

replacement cost - depreciation

Front 62

4-TTD

Regarding the 7 factors that limit an insurer's liability covering losses, define POLICY LIMITS or FACE VALUE

Back 62

- maximum amt that will be paid when the insured loss occurs

Front 63

4-TTD

Regarding the 7 factors that limit an insurer's liability covering losses, define OTHER INSURANCE

Back 63

- provision states that when a loss occurs, and there is more than one insrance policy covering the same loss, the insured will not profit from the loss.

Front 64

4-TTD

Regarding the 7 factors that limit an insurer's liability covering losses, define SUBROGATION

Back 64

The right of the insurance company that has paid for a loss to recover its payments if it is determined that a different insrance company or person is responsible for the loss and is required to pay for it.

Front 65

4-TTD

Explain HIPAA impacts to PRE-EXISTING CONDITIONS

Back 65

may be excluded for max of 12 months

Front 66

4-TTD

Explain HIPAA impacts to PREGNANCY

Back 66

not a pre-existing condition

Front 67

4-TTD

Explain HIPAA impacts to NON-DISCRIMINATION

Back 67

group plans cannot exclude individuals or charge extra because of existing health conditions

Front 68

4-TTD

Explain HIPAA impacts to SPECIAL ENROLLMENT RIGHTS

Back 68

When an individual declines coverage becuase other coverage exists AND THEN HIS STATUS CHANGES, a group plan must allow that individual to enroll without penalty

Front 69

4-TTD

Explain HIPAA impacts to GUARANTEED COVERAGE

Back 69

A person who has been covered under a group plan for at least 18 mos mus be allowed to purchase an individual plan if no group plan is available.

Front 70

4-TTD

Explain HIPAA impacts to LONG-TERM CARE

Back 70

- Defined "qualified LTC insurance policies
- Policies may allow the holder to take an income tax deduction for all or a portion of the premiums as well as make the benefits tax free

Front 71

4-TTD

Explain HIPAA impacts to ACCELERATED DEATH BENEFITS

Back 71

If qualified under HIPAA as terminally or chronically ill, beefits paid from life policy may be fully or partially income tax free.