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551 Cards in this Set

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What is insurance?
Insurance is a social device for spreading the chance of financial loss among a large number of people.
What is the agreement between the insurer and the insured called?
It is called a contract of insurance, or a policy.
If the insured needs to be paid for a loss what must they do?
They must notify the insurer by making a claim.
What is risk?
Risk is the possibilty (uncertainty) that a loss might occur and is the reason people buy insurance.
What is a speculative risk?
A speculative risk is a risk situation that offers the opportunity for gain as well as the possibility of loss. This type of risk is not supposed to be insured and should not be covered.
What is a pure risk?
A pure risk is a risk with the possibility that a certain event will occur, for example an accident or sickness. However, it is the purpose of the insurance to restore the insured to his or her original position. Take make them whole, there is no profit.
What are the four ways to manage risks?
A risk may be retained, avoided, reduced, or transferred.
What is a retained risk?
A risk is retained when a person decides to assume financial responsibility for certain events. The deductible amount on a health insurance policy may be seen as a way the insured retains some portion of the risk.
What is avoiding a risk?
A person might avoid a risk by staying home rather than drive somewhere for example.
What is reducing a risk?
A person who reduces a risk may practice living healthier lifestyle and attempt to reduce the chance of illness.
What are the two ways a risk is transferred?
The first way is if a person is injured and sues the negligent party. That party is having the burdon of the risk involved put on them. The second way is through use of insurance where the risk or loss is transferred to the insurance company.
What is the pooling concept use in insurance?
By looking at groups of individuals, rather than the individuals themselves, to make predictions is called the pooling concept and is an accurate way of predicting potential losses.
What does the law of large numbers allow an insurance company to predict?
The law of large numbers allows the insurance company to predict the expected losses of a group. The greater the number of people being insured the more predictable the number of future losses.
How do insurance company's make money?
The insurance companies collect premiums to cover expenses, profits, and the cost of expected losses.
What is insurable interest?
To be insurable, a risk must involve the possibility of loss only, and not gain, and the applicant must have a legitimate interest in the preservation of the life or property insured.
When must isurable interest exist for life insurance?
For life insurance, insurable interest must exist at the time of the application of insurance, but it need not exist at the time of the insured's death.
When must insurable interest exist for property and casaulty insurance?
For property and casualty insurance, insurable interest must exist at the time of loss.
An insurable risk requires a "Large Number of Homogenous Units". Explain.
The expected loss experience of a group of exposure units cannot be predicted with any certainty unless there are a large number of exposure units in that group. You needs lots of people or units in a pool to be able to predict loss.
An insurable risk requires a "Loss Must Be Ascertainable". Explain.
The insurer must be able to place a monetary value on the loss.
An insurable risk require a "Loss Must Be Uncertain". Explain.
Uncertainty arises out of NOT knowing what is going to happen, or being able to predict what is going to happen to the individual exposure unit.
An insurable risk is one that has "Economic Hardship". Explain.
The nature of the loss must be such that an economic hardship would occur should the loss occur. The nature of the loss must be such that it is worthwhile to incur the premium cost to cover potential loss.
An insurable risk does not cover everything and has the "Exclusion of Catastrophic Perils". Explain.
Certain types of perils do not lend themselves to prediction. Such perils, when they cause losses, do not establish a pattern of predictability that can be relied upon for future predictions of anticipated loss. These perils are uscually excluded from coverage, such as war, nuclear risk and floods.
What is the principle of indemnity?
The principle of indemnity restores the insured person, in whole or in part, to the condition he or she enjoyed prior to the loss. Restoration may take the form of payment, repair, or replacement.
What are the three major sources of insurers?
Private Commercial Insurers, Private Commercial Service Organizations, And the United States Government.
List the types of Insurers
Stock Insurers, Mutual Insurers, Nonprofit Service Organization, Reciprocal Insurers, Fraternal Insurers, Reinsurance, Captive Insurers, Excess and Surplus Lines, Government Insurers.
What are Stock Insurers?
The individual stockholder provides capital for the insurer. In return, they share in any profits and any losses.
What are Mutual Insurers?
There are no stockholders. In a mutal company, ownership rests with the policyholders.
What are Nonprofit Service Organization (Insurers)?
They are organizations providing prepaid plans for hospital, medical, and surgical expenses.
What are reciprocal insurers?
Reciprocal insurers are unincorporated groups of people providing insurance for one another through individual indemnity agreements. Each individual who is a member of the reciprocal is known as a subscriber.
What are fraternal insurers?
Fraternal benefit societies are primarily life insurance carriers that exist as social organization and usually engage in charitable and benevolent activities. Fraternal insurers are distinguished by the fact that their membership is usually drawn from those who are also members of a lodge or fraternal organization.
What is reinsurance?
Reinsurance is a form of insurance between insurers. It occurs when an insurer (the re-insurer) agrees to accept all or a portion of a risk covered by another insurer.
What is Captive Insurers?
Captive insurers are formed to serve the insurance needs of their stockholders while avoiding the uncertainties related to commercial insurance availability and costs. A captive insurer's stock is controlled by one interest or a group of related interests who hve direct involvement and influence over the company's operations. For example, an association of self insured corporations may purchase reinsurance from a captive insurer that they control. Most captive insurers are non-admitted alien corporations.
What is "Excess and Surplus Lines" (insurance)?
Occassionally, it may be difficult to place a risk in the normal marketplace. If the risk is very large or unusual in nature, typical carriers may be unwilling to assume it. For some special risks, the only market may be with specialty carriers. Such business must be placed through a licensed excess or surplus lines broker, who will attempt to place it with an unauthorized carrier located in another state or out of the country (such as Lloyd's of London).
What is Government Insurers?
The federal government provides life and health insurance through various sources. The federal government has offered a variety of mility life insurance plans as well as Medicare for seniors, which is part of Social Security. This is typically because private insurance policies exclude catastrophic risks.
An insurer incorporated under the laws of the state in which it is operating is considered to be a(n):
Domestic Insurer
An element NOT part of a legal contract is?
Waiver and Estoppel
The insurance business is regulated primarily by?
State laws
Supreme court decisions and case law have contributed to the regulation of the insurance business which has set a?
Legal Precedent
An independent agent represents?
An independent agent represents more than one insurance company.
Under contract law, the actions by a party may intentionally and voluntariuly give up a known right. When this occurs, it is known as:
A Waiver.
Changing provisions in a policy is not the responsbilities of an?
What is the term that means an insurance contract is dependent upon chance or uncertain outcome?
Signatures of each party are not necessary for the formation of a legally valid contract. (True or False?)
True. Signatures are NOT required for a legally valid contract.
An agent's obligation to act in an insurance applicant's insured's best interest, based on the faith and trust placed on the agent by members of the insurance-buying public, is known as:
A fiduciary duty.
What is concealment?
Concealment is the failure to discole any material fact.
Some agents supervise all of an insurance company's business within a specified territory. These agents appoint other agents, supervise their business, and receive an overriding commission on that business. What is the formal name of this type of agent:
A General Agent
What is the contractual element that consists of "Offer" and the "Acceptance"?
Statements provided by an applicant for insurance are considered to be?
An insurance contract requires that the insured have the legal capacity to make a contract and is known as having?
Competent parties
The law of large numbers states that?
The predictions become more accurate as the number of units being considered increases.
Failure to discolse a known fact or facts when filling out an insurance application is an act of?
An insurance company owned by it's policy holders, who receive a return of unused premiums in the form of policy dividends, is a(n)?
Mutual company
A property and casualty insurance agent frequently has the authority to provide temporary insurance coverage known as a?
Insurance is a means of?
Transferring risk
What type of licensee represents insureds or prospective insureds and does not represent an insurance company?
An insurance broker.
A group of individuals who band together to assume risks, where each individual is responsible only for the share of the risk they assumed is known as?
Lloyd's Association
When a party appears to have given up a particular right by acts or by inaction that another party has relied on, the legal basis for asserting the original right may have been lost. This is known as the legal doctrine of?
An agent is a representative of?
The insurance company.
What is a moral hazard?
Any situation that creates a desire or tendency to create a loss on purpose in order to collect from the insurance company.
The uncertainty about loss that exists whenever more than one outcome is possible is called?
In which company may policyholders receive policy dividends when there is a profit?
In property and casualty and in medical-expense insurance, the principle of making someone "whole" again after a loss by paying only for actual losses is called?
What is the name of the type of insurer consisting of an unincorporated group of persons who provide insurance among themselves through an inter-exchange of indemnity agreements?
Reciprocal insurer
Insurable risks must involve only?
The possbility of LOSS only.
A contract where only one party, the insurer, makes an enforceable promise is said to be?
in the property and casualty insurance field, "insurable interest" must exist when?
At the time of application and at the time of loss.
Something that may increase the seriousness of a loss if loss occurs, or that increases the likelihood that a loss will occur is called?
A Hazard.
A binder may be?
Oral or written
The authority of an insurance agent that is spelled out in the written words of the agency contract between the agent and the insurer is?
Express Authority.
When a property insurance applicant makes a statement on an application that becomes part of the contract and includes a promies by the insured, the statement is considered to be a?
In a legal contract, each party must give something of value. Under contract law, this is referred to as?
Because an insurer writes the policy language and the insured has little or no control over the content, any ambiguity in the wording is usually resolved in favor of the insured. Because the design and wording of a policy are in the hands of the insurer, insurance policies are said to be?
Contracts of adhesion
The princple of indemnity states that?
You cannot recover more than you lost.
The doctrine of adhesion states?
That any ambiguity in an insurance contract is always construed against the party who wrote it, the insurer.
Consideration is defines as?
The exchange of values.
What is key person insurance?
A "Key Person" insurance, in which a business owner buys life insurance on a key employee, since the business would suffer if the key party died.
Life insurance has been primariyl regulated by?
By state law, not federal law.
The 1940 McCarran Act states?
The federal government has the right to regulate the business of insurance, but only to the extent that it is not regulated by state law.
If an insurance contract has "variable" features, which set of laws does it come under?
It is under the Federal Securities Laws. They have met the defition of a security as defined by the Federal Securities Act of 1933.
Federal securities laws are enforced by?
The Securities and Exchange Commission.
A producer selling these variable contracts must have?
A federal National Association of Securities Dealers (NASD) license (either series 6 or series 7) in addition to his state life insurance license.
A producer offering a variable contract must also give his client a disclosure document commonly known as a?
What is the main purpose of life insurance?
To offer protection to your survivors in the event of your death.
What are some other personal uses of life insurance beyond protection for survivors?
Life insurance includes, creation of an estate, cash accumulation, liquidity, estate conservation and viatical settlements.
If a client would like to have both protection and cash accumulation which type of insurance would satisfy both needs?
Cash Value life insurance, upon death the policy will pay face amount to the beneficiary.
Producers usually use two methods to calculate how much insurance coverage a client needs, what are these two types of methods?
The "Needs Approach" and the "Human Life Value Approach".
What is the Human Life Value Approach of determining life insurance?
This is based on the earning potential of the insured projected over a period of future years. in this method, the producer calculates what a family would lose in income by the death of the principal wage earner and presents a plan that would reimburse that loss.
What is the Needs Approach of determining life insurance?
The producer simply determines the needs of the individual client and presents a plan that will meet these needs. Needs would include burial expense, family maintenance, children's education and continuing income for the surviving spouse.
Explain the business use of life insurance called, "Buy and Sell Agreements".
Cross Purchase Buy/Sell Agreements help with the orderly continuation of a business in the event that an owner dies prematurely.
Explain the business use of life insurance called "Key Person Life Insurance".
This type of coverage protects a business against loss of its most valuable assets - a key employee.
Another form of business life insurance is "Executive Bonuses".
Some employers use life insurance products to fund-deferred compensation plans which enables highly paid corporate employees to defer current income, such as an executive bonus, and have it paid at a later date when the employee may be in a lower tax bracket.
In general Group Life Insurance is?
The most inexpensive type of life insurance, since it is usually sold to employer groups on a payroll deduction plan, which lowers the cost of administration compared to individual policies.
What is "Whole Life" insurance?
It is sometimes called "Cash Value" life insurance and is considred to be permanent. It covers you until you die or until the policy reaches maturity, which is normally age 100. A Whole Life policy cannot be changed without the client's consent and it never has to be renewed, although the premium may be paid annually or even more frequently. Whole Life is said to have a relatively low net cost, since it does develop a cash value after the third year that belongs to the policyholder while living. However, upon death of the insured, the policy will pay the "face amount" (policy limit), but the company will keep the accumulated cash value.
What is "Term" insurance?
Term is considered to be temporary, in that it usually purchased for a particular temporary need, such as to cover a bank loan or a mortgage. Although term is the most inexpensive type to buy at issue, over the long run, its net cost may be higher than Whole Life since there is no cash value to offset the cost.
What is "Endowment" insurance?
The endowment policies are similar to Whole Life, except they mature (endow) at a predetermined age that is selected by the client upon purchase. For example, an Endowment at 65 (E65) purchased with a face amount of $100,00 at original age 30, will pay $100,000 upon the death of the insured prior to age 65. However, if the client lives to age 65, the policy will endow and pay the client $100,000, which can be used for retirement purposes. Endowments are often used for children's educational purposes.
What is a Nonparticipating Policy?
Stock companies issue nonparticipating policies, meaning that company profits may be returned to the stockholders (who own the company) in the form of dividends. The policyholders are not entitled to share in the company profits. Dividends paid to stockholders of a stock company are considered to be ordinary income and are taxable.
What are Participating Policies?
Mutual companies do not have stock. Although they are corporations, they are owned by the policy holders. If the Board of Directors declares a dividend, it will be paid to the policyholders. The IRS has ruled that these dividends are return of premium already paid, so they are not taxable. Mutual companies issue participating policies. Dividends may never be guaranteed.
What is Annual Renewable Term insurance?
A policy in which the face amount stays level, but as the insured gets older, the premium increases each year. For example, a 30-year old male in good health could buy a $100,000 ART policy for an annual premium of about $100. However, he would have to renew the oplicy next year and the premium would increase to about $110.
What is Level Premium Term?
Since most clients do not like their premiums to increase each year, most insurers also offer level for a period of time, such as five years, 10 years or even 20 years.
What does the word term mean?
The word means time and term insurance is written for temporary periods of time.
What is a re-entry option on term insurance?
A common feature where if the insured passes a physical exam at the end of the term in order to qualify for a lower premium rate.
What is decreasing term?
A policy in which the premium stays the same each year but the amount of coverage decreases, usually on a straight-line basis.
What is convertible term insurance?
Most level and decreasing term policies are convertible at any time to Whole Life insurance without a physical exam.
What is Continuous Premium - Straight Life (Whole Life)?
premium payments are based upon client's (original) age at issue and can never be changed. Whole Life policies must accumulate a cash value after the third year in force. A Whole Life policy can never be canceled or changed by the insurance company. Policies reach maturity at age 100.
What is Limited Payment and Single Premium (Whole Life)?
These policies are exactly like Ordinary or Stright Life policies, except, the premium is paid over a shorter period of time.
What is Modified Premium and Graded Premium Whole Life?
Since level premium whole life is expensive, many insurers offer premium discounts during the early years of a policy to make it easier to sell.
What is an Endowment Policy?
An endowment policy is exactly the same as a Whole Life policy, except maturity occurs at a predetermined time selected by the insured.
What is the most expensive type of insurance?
Endowment policies are the most expensive.
What is a Join Life (First-to-Die) Policy?
These are Whole Life contracts written with two or more persons as the named insured. Most commony the policy is issued on two lives, with the insured amount payable on the death of the first insured to die.
Which financial services product creates an immediate estate?
Life Insurance!
Which policy is generally used to accumulate funds for education?
Which type of insurance policy would provide the greatest amount of protection for a temporary period which an insured will have limited financial resources?
A client pays $4,000 in premiums on his $50,000 Whole Life policy that has a cash value of $5,000. If he takes cash surrender, his tax implication will be?
$1,000 ordinary income.
The insured can receive the face amount of an endowment policy if they are still living when the policy's?
Cash value equals the face amount.
A 30-year mortgage obligation is best protected by what type of insurance?
Decreasing Term
A product with a flexible premium, guaranteed minimum rate of return, tax deferred earnings and tax free death benefits is?
Universal Life
A participating whole life insurance policy treats dividends as?
Treats dividends as a return of an overplayment of premium.
When an employer and an employee share the cost of the employee's Life insurance, it is known as?
A split dollar plan.
What insurance product has a flexible premium, fixed rate of return, tax deferred growth and a death benefit equal to the cash value?
A flexible premium deferred annuity.
An employee covered by a group life policy elects to cover 3 dependents as well. How many certificates of insurance must the group insurer issue?
One certificate.
When an insured purchases a decreasing term policy, what decreases each year?
The face amount.
When a corporation establishes a contributory group term contract, what percentage test must be met for participation?
In general what conversion benefit is available to a terminated employee under a group life insurance policy?
The employee may convert to an individual permanent life policy within 31 days without submitting evidence of insurability.
Life Paid-Up at age 65 is an example of?
Limited-Pay life policy.
Which type of life insurance offers only pure protection?
A Whole Life policy furnishes a form of permanent protection because it never has to be?
Renewed or converted
Most group life insurance is what type of coverage?
Level Term
Which policy provides the greatest amount of protection for an insured's premium dollar as well as some cash accumulation?
Whole life
A single premium used to buy a Whole Life policy will pay up the policy for?
The life of the policy!
Mr. Shulin owns a 30-Pay life policy that he purchased at age 30. The cash value will equal the face amount of the policy when he reaches the age of?
100! (Remember whole life typically reaches face value at age 100 even if the premium was payed on day one!)
An insurance prospect wants to purchase a policy that will accumulate the largest amount of cash by the age of 65. Which policy would be most likely to satisfy the prospect's needs?
Endowment at age 65.
The face amount of a Credit Life policy is limited by?
The amount of the loan.
What changes on a Term Life insurance policy when an insured exercises the "Reentry" option?
On Adjustable Whole Life, by adjusting the premium it will also adjust what?
The face amount.
Which type of life insurance does not permit changes in death benefits?
Modified whole life.
A survivorship life insurance policy will pay benefits when the?
The last party dies.
On term life insurance, the re-entry option is contingent upon?
Being able to pass a physical exam.
A permanent life insurance that offers cash value at the lowest premium is?
A Whole Life policy.
What is an employee's evidence of participation in a group life plan?
The Certificate of Insurance.
To make the insured "whole" again after a loss is referring to?
Principle of Indemnity
What is the amount the customer pays for the coverage provided?
The premium.
An insurance company organized in Great Britain doing business in California is considered to be?
Buying Insurance does not eliminate?
What is the authority of an insurance agent, which is spelled out in the written words in their contract with the Insurance Company they represent?
Express authority
Risk is defined as?
An uncertainty of loss.
An insurance company that issues participating policies?
A Mutual Insurance company
What is a company owned by the policyholders?
A Mutual Company
The premium paid for group life insurance is tax deductible for the employer? (True or False?)
"Home Service" is another name for?
Industrial life
Withholding of facts that should be included in an application for insurance is called?
Some important employees or officers of a company have a profound impact on the companies economic health. Death of such a person can result in interruption of the business, loss of sales and revenue, and an expensive search for a replacement. To protect against this situation companies may use?
Key person life insurance.
Statements made by an applicant for a life insurance policy that the applicant says are true to the best of his or her knowledge are referred to as?
Speculative risk has a chance of?
gain or loss.
An item that is not part of the life insurance policy on paper is?
The Conditional Receipt
If the insured understated his age and the error is discovered after the insured's death, the insurance company will?
Pay the amount the premium would have purchased at the correct age.
An insured on a tight budget who has a Whole Life insurance policy written by a mutual insurer should select which dividend option?
Reduction of premiums
A collateral assignment on a life insurance policy is?
Is a partial assignment of some rights to a creditor.
The provision in a life insurance policy that provides protection against unintentional policy lapse is known as?
The Automatic Premium Loan Provision.
An insured has a Whole Life policy with a $100,000 face amount and a $40,000 cash value. The insured's policy lapses, which non-forfeiture option should they select to provide lifetime coverage?
Reduced Paid-Up
If an insured buys the "Return of Premium RIder" and dies, the policy will pay the beneficiary?
The face amount plus all premiums paid up until the date of death.
When the primary beneficiary predeceases the insured, the proceeds are paid to the?
Contingent beneficiary.
If the interest on a policy loan is not repaid?
It will be added to the amount of the loan outstanding.
When a creditor has a temporary interest in a life insurance policy, it is known as a?
Collateral assignment.
A revocable beneficiary has?
Has no vested interest in the policy.
A life insurance policy dividends are considered to be a return of?
a premium overcharge.
Which settlement option might provide payments that exceed the proceeds of the policy and the interest earned?
Life annuity.
When the insured lists a group of beneficiaries it is known as a?
A class designation.
If the insured/owner of the policy does not pre-designate a settlement option for the beneficiary prior to death, the beneficiary may?
The beneficiary may select the settlement option upon the death of the insured.
Which rider is added to a policy written on the life of a child to make sure the premium is paid if the policyholder dies or becomes disabled?
Payor benefit rider.
If the insured's age was overstated at the time of life-insurance policy was purchased and the error is discovered on the death of the insured, the insurance company will?
Provide the additional insurance in the amount that has been purchased by the additional premium.
Protection against unintentional lapse of a Life policy is afforded by?
An automatic-premium loan
Are accelerated benefits treated as a policy loan?
No they are not treated as a policy loan.
What non-forfeiture option provides continuing cash-value buildup?
Reduced Paid-up
On an Adjustable Whole Life policy adjusting the premium will?
Also adjust the face amount.
If a life-insurance policy does not permit the policyholder to change the beneficiary, the beneficiary is?
The purpose of a Grace Period provision is to?
protect the policyholder against unintentional lapse.
A life insurance benefit payable while the insured is still living is?
Accelerated benefits.
An insurance company may defer payment for how long when an insured wishes to cash in the policy?
They may defer the payment for as long as six months.
A settlement option that provides for payment to be made in regular installments of a specified amount until the principle and interest are exhausted is?
Fixed Amount
If the beneficiary of a life policy wants the proceeds to be paid out in equal monthly payments, they should select which settlement option?
Fixed Amount
A beneficiary designation of "To all my children" is considered to be by?
By Class
When an insured sells or assigns their life insurance policy to another party in order to get money to pay for terminal expenses, it is known as (an):?
Viatical settlement!
The insuring agreement or clause in a Life insurance policy contains everything but how to change the?
The life insurance policy clause that prevents an insurance company from denying payment of a death claim after a specified period of time is known as the?
Incontestability Clause.
A life insurance rider that provides Whole Life on the primary insured and Term Life on the insured's spouse and children is the?
Family Rider
An insured died during the grace period of her life insurance policy and had not paid the required annual premium. The insurance company is obligated to pay?
The face amount of the policy less any earned premiums.
Which Life insurance settlement option takes into account the life span of the beneficiary?
Life income option.
Upon your death, if your beneficiary chooses the interest only settlement option. The interest becomes?
The interest is taxable.
Which whole life non-forfeiture option provides lifetime coverage?
Reduced Paid up!
A life insurance company may contest a policy during the "Contestable Period" for which reason?
A Material Misrepresentation!
Which statement about a typical Suicide Clause in a life insurance policy is true?
Suicide is excluded for a specific period of years and covered thereafter.
The owner of a business is insured under a $100,000 Key Employee Life policy that contains a Double Indemnity clause and a Suicide Clause. The business has paid the annual premium of $2,000. Six months after the inception date of the policy, the insured commits suicide. The insurance company will pay the beneficiary?
$2,000 - The premium paid.
In 1990, Mr. Smith bought a Life insurance policy on his 6 year old son, Jimmy, naming himself the beneficiary. Now that Jim is 18 years old, Mr. Smith may transfer all rights of ownership in the policy to him be executing a?
Absolute assignment.
Mutual insurers don't offer a dividend option on life insurance policies that yield a
Extended term option.
What is the waiver of premium rider?
It is a rider that can be added to any policy, that will pay the insureds premium after a waiting period if the insured becomes totally disabled. (I believe this is for Term insurance.)
What does a policy assignment do?
It transfers the owner's rights under the policy to the extent expressed in the assignment form.
What is an "Absolute Assignment"?
It transfers all of the policyholder's rights to another party.
What is a "Collateral Assignment"?
A collateral assignment occurs when the insured pledges his policy proceeds to the bank for a loan. This is seldom done anymore, since interest rates on life insurance loans are generally lower than those on bank loans.
A life insurance rider added to cover a child is usually what "Type" of insurance?
Level Term - This is typically a "Family RIder" to a Whole Life policy.
Most assignments of a life-insurance policy are made in order to protect the?
The insured's personal or business credit.
A rider added to a life policy to create coverage for your entire family is the?
Family Rider
A reinstatement of a lapsed Life insurance policy is not based on?
Current Age. - The future premiums will be based on the insured's original age.
In the simplest way, "Annuities" are considered to be?
The opposite of life insurance. (Annuities are unique in that they pay only if you live, not if you die!)
A Single Premium Annuity is also called a?
Immediate Annuity!
A Deferred Annuity is like?
It is like stashing our money in the bank for an extended period of time and it gains interest. At some point in the future you can start making to withdraw the premium plus interest earned.
Something important to remember about annuities is that you are betting you are going to live and the insurance company is betting?
You are going to die. Annuities are the opposite of life insurance. They do not provide death benefit though a beneficiary would receive the premium plus interest.
What is a Flexible Premium Deferred Annuity (FPDAs)?
This simply means that the annuitant has purchased a Deferred Annuity and has the option to pay in whatever amount he chooses, or nothing at all!
What is the main reason annuities are purchased?
They are purchased for retirement purposes.
What are some of the early-withdrawal penalties?
10% IRS tax! Annuities should be considered a long term investment!
An annuitant wants to be paid for as long as he/she lives at age 60. What are some of the insurance company factors that project payments?
1. The expected life span!
2. The amount of money accumulated.
3. The type of pay-out option selected (fixed or variable pay-out)

If the annuitant lives longer than the projected life span, he/she will recover more than the value of the account.
What is a Pure (Straight) Life Annuity.
This option pays the annuitant for as long as he/she lives, but the payments cease entirely upon death with no refund to survivors. (This is the most-risky option!)
What is a Life Income Annuity with Period Certain?
Sometimes called an Annuity Certain or a Period Certain Annuity, this annuity guarantees benefits will be paid for a fixed minimum period of time to be selected by the annuitant when he/she annuitizes, say 10 years. if the annuitant were to die during the period certain, the beneficiary would receive what the annuitant would have received had he/she lived until the end of the period certain.
What is a Refund Life Annuities (Cash or Installments)?
This option has very little risk since the insurance company promises to make a refund of the balance of your account if you die before you collect it all.
What is a Fixed Annuity product?
This type of annuity has a fixed rate of return, usually a minimum of around 4%.
What is a Variable Annuity product?
The clients funds are invested into the stock market directly and the insurance company maintains a separate investment account for that purpose. The annuitant bears all the investment risk in this type or product and it is considered a security.
What is a Market Value Adjusted Annuity?
This type of variable annuity where the policy owner commits a sum of money for a certain period of time, usually one year, two years or three years.
What is an Equity Indexed Annuity?
An EIA is a fixed annuity where both the principle and the interest are guaranteed. This is not considered a security.
Are Annuities used to create an estate?
No! Life insurance is used to create an estate. Annuities are the opposite, and are used to liquidate an estate by paying the beneficiary monthly payments over a period of time, usually for life.
To take cash surrender on an annuity, the insurer needs the permission of the?
Owner! Remember the owner may not actually be the annuitant.
An annuitant that chooses Life Income option means?
All payments cease when the annuitant dies and there is no beneficiary. The insurance company keeps any monies remaining in the account. This is a risky option.
Distributions taken from a tax-sheltered annuity (TSA) are?
Taxable as ordinary income in the year of the distribution. - Tax sheltered annuities (or TSAs) are qualified retirement plans that are available to employees of public schools, certain types of hospitals and non-profit charities on a payroll deduction basis. They are also known as IRC 403b plans and are similar to 401k plans.
Life insurance creates an immediate estate upon death of the insured. Annuities on the other hand do what with an estate?
Annuities liquidate an estate over a persons life span.
There is no cost basis for an annuitant when you create an?
Immediate annuity. - Be sure to know the difference between an immediate annuity and a deferred annuity. On an immediate annuity, you give the insurer the money and they start paying you back with monthly payments right away. Your cost basis is the amount of money you gave them, which was money you already paid taxes on (after tax dollars).
Upon death of an annuitant, proceeds payable to a beneficiary are?
Taxed as ordinary income above the annuitant's invested capital.
What does an annuity provide to a retired person?
They provide protection for a retired individual from outliving their savings.
What are the tax implications when an annuitant elects to take a cash surrender of a deferred annuity during the accumulation period at age 56?
Only the interest is taxable as ordinary income, but the interest is also subject to an IRS 10% early withdrawal penalty.
A husband and wife are co-annuitants and decide to select the "joint life" payout option upon annuitization. They will receive monthly annuity payments from the insurer until?
Either the husband or wife dies.
The amount of annuity benefits included in the value of the estate of a deceased "life income" annuitant is?
The Join and Survivor Life Annuity contract calls for the surviving annuitant to receive a?
Predetermined income for life.
Distributions taken from a tax-sheltered annuity (TSA) are?
Taxable as ordinary income in the year of the distribution.
Which contract requires a series of benefit payments be made at specified intervals?
On a tax deferred annuity, distributions must begin by age?
No age limit applies if you want to keep accumulating.
On a fixed annuity, the interest rate that is paid the first year, which could decline thereafter is known as the?
Current interest rate
Which Annuity will start paying the annuitant a monthly payment right away for the rest of their life?
Cash Surrender is available on an annuity in which period?
During the accumulation period.
Who is capable of taking cash surrender on an annuity?
The contract owner.
A pure life annuity is also known as a?
Life income annuity.
The life span of the "beneficiary" of a life insurance policy is needed to? (Think annuities)
The life span is needed to determine the amount of monthly payments that will be taxable if the life income option is selected.
The annuitants cost basis on a non qualified deferred annuity is?
The amount of the premiums paid in.
Death of an annuity owner may create a tax burden for the beneficiary. How can the spouse of an annuity owner, as beneficiary, avoid this burden?
They may continue the contract and defer taxes.
Most people buy deferred annuities to?
Earn tax deferred income to supplement retirement.
Ryder buys an annuity naming Gerry and Cheryl as co-annuitants. The amount of the monthly payments during the annuity period will be based upon?
The joint life span of both Gerry and Cheryl.
A woman has inherited a sum of money. She is age 60 and desires to purchase an annuity that will appreciate with market and economic conditions. What type of annuity should she consider?
Variable! (Very Risky)
Which annuity guarantees payments for a specific period of time even if the annuitant dies?
Period certain!
Which annuity pay out option will pay the highest monthly payment for life of the annuitant?
Life Income
The principle use of an annuity is to?
Arrange an income for old age.
An annuity is not used to create a?
They are not used to create an estate for the insured's family. They are to provide income to the annuitant, typically for retirement.
To take cash surrender on an annuity, the insurer needs the permission of the?
Owner of the annuity.
On a refund annuity, who is entitled to the refund?
The beneficiary.
Upon death of the annuitant during the accumulation period of a deferred annuity, the proceeds are?
The proceeds are taxable to the beneficiary above the annuitant's cost basis.
What is a 1035 exchange considered to be?
A 1035 exchange is very similar to a rollover of a qualified plan. if an insured takes cash surrender of their life insurance policy or annuity they must pay ordinary income tax on any interest they received. The IRS will allow the insured/annuitant to defer paying this tax if they execute a 1035 exchange.
Once classified as a Modified Endowment Contract (MEC), the contract will remain that way?
Why would an annuitant consider making a 1035 exchange to another contract issued by the same insurer?
The new contract has a higher interest rate.
Taxes, if required, on the accumulated interest in the cash value account of a whole life policy are due?
Upon cash surrender.
A valid 1035 Exchange of a life insurance contract must be?
On the life of the same person?
Under Internal Revenue Code Section 1035, an annuity may be exchange for?
For another annuity written on the same annuitant with a different insurer.
For tax purposes, all Modified Endowment Contracts (MEC) issued to an insured will be considered to be one Modified Endowment Contract if issued?
Within 12 months.
If a life insurance policy is purchased and fails to meet the seven-pay test, it is considered by the IRS as a(n)?
Modified Endowment Contract (MEC)?
What is a Qualified Plan?
A retirement plan that meets the criteria of the Employees Retirement Income Security Act (ERISA) of 1974.
What does Vesting mean? (In a Qualified Plan?)
Vesting means ownership. All Qualified Plans must establish a vesting schedule where all employer contributions to the plan will belong to the employee no later than the end of the sixth year (three years for some plans).
What is the Eligibility of a Qualified Plan?
ERISA prescribes that all full time employees who have worked for at least 1 year and are age 21 or more must be covered in a Qualified Plan, if offered.
What is the Non-Descrimination clause in a Qualified plan?
ERISA specifies that all workers must be treated alike, that is, the employer must contribute the same percentage for lower paid workers that is contributed for higher paid workers, such as managers.
So when speaking of a "Qualified" retirement plan it is?
A "qualified" plan in connection to any sort of retirement plan, typically follows the ERISA and is paid in pre-tax (before tax) dollars.
What is a non-qualified plan?
Retirement plans that do not meet the requirements of the ERISA are known as non-qualified plans.
What is a Simplified Employee Pension (SEPs)?
Is an Employer sponsored IRAs. This type of plan offers corporations the opportunity to establish an employer-funded pension plan for eligible employees. With the exception of annuities, IRAs may not be funded by life insurance products.
What is a Self-Employed Plan? (HR-10 or Keogh Plans)?
This type of retirement plan is also known as an HR-10 plan.
What is a Profit Sharing and (401(k) Plans)?
These plans are voluntary, and if an employee elects to participate, amounts deferred are not included in taxable gross income and earnings credited to the account will grow tax-free until distributed.
What is a SIMPLE plan? (Savings Incentive Match Plan for Employees)?
A simplified retirement plan for small employers (less than 100 employees) who do not have another type of retirement plan to offer their employees. This plan may be structured as an IRA or a 401(k) and allows for elective contributions by employers.
What is a profit sharing plan?
A profit sharing plan is an arrangement by an employer in which employees share in profits of the business. To be a qualified plan, a predetermined formula must be used to determine contributions to the plan benefits to be distributed once a participant attains a specified age, becomes ill or disabled, severs employment, retires, or dies.
What organization is responsible for enforcing the Employees Retirement Income Security Act of 1974 (ERISA) pension plan requirements?
The Department of Labor.
In order to avoid withholding tax applied to a qualified plan rollover an individual should do which of the following?
Make a trustee to trustee roll over. - Mandatory income tax withholding of 20% applies to most taxable distributions paid directly to you in a lump sum from employer retirement plans regardless of whether you plan to roll over the taxable amount within 60 days. The only way this 20% withholding can be avoided is by executing a trustee to trustee direct rollover.
A Keogh Plan is a qualified plan for?
Keogh plans are qualified plans for the self-employed and partners. Corporate officers are not eligible. Employees of public schools are eligible for Internal Revenue Code Sections 403b plans, also known as Tax Sheltered Annuities.
The IRS levies a 10% IRS early withdraw penalty but will waive the fee for many reasons such as disability, medical expenses, education, first time home buyer. But it will not waive the fee for?
On most qualified retirement plans, such as traditional IRAs, distributions must begin no later than age 70 1/2. If they don't, an excise tax of what percent applies?
50% excise tax is levied on the amount that should have been distributed, but wasn't.
A client who contributes to a 403B TSA on a payroll deduction basis may?
Also make non-deductible contributions to a ROTH IRA up to a specified limits. - Any one with earned income may contribute to an IRA regardless of wheather or not they are covered by another qualified plan. However, contributions to a ROTH IRA are NEVER tax deductible.
Parents of children ages 6 to 8 are considering IRAs for them. What would you advise them?
To consider alternative investments, since IRAs are only for those with earnings and their spouses.
The extra premium that is charged for the waiver of premium rider does not?
Does not apply to the policy's cash value.
Income payments made from an annuity are?
Only partly subject to federal taxation. - When the annuitant annuitizes the payments they receive are made up of two things; 1) their investment (cost basis) which is returned tax free and 2) the accumulated interest which is taxable. The annuitants cost basis is spread over their life span and is not taxable. Anything received over and above their cost basis is interest and is taxable as ordinary income.
Who or what can be the beneficiary of a life insurance policy?
Mostly any entity can be named as a beneficiary of a life insurance policy.
An accounting measure used to determine an annuity owner's interest in the separate account of a variable annuity before payments begin is called a/an?
Accumulation unit. - Variable annuity values are calculated based on the value of units. During the accumulation period these units are referred to as accumulations units.
Dividends paid to a policyholders of a Mutual insurance company are?
Not taxable.
What does a "free look" provision in a life insurance policy allow?
The insured to return their policy, within a specified number of days, and receive a full refund.
As opposed to life insurance, an annuity is designed to protect an individual from the financial risk of?
Outliving one's resources.
Are premiums of any policy type deductible by an individual for income tax purposes?
Premiums paid for individual life insurance policies are not tax deductible.
A client wants to name his children as beneficiaries to receive proceeds equally, but if one dies, he wants their interest distributed equally between survivors. He should name them?
Per capita. - Per capita is latin for each head.
In order to cover children that are born or adopted after a family policy is issues?
Children are automatically provided with term insurance after a short waiting period upon birth or adoption. No notification need be provided to the insurer.
Annuity values are determined by multiplying the number of accumulation units by the value of units in the separate account in a?
Variable annuity.
The Guaranteed Insurability rider does?
It allows the insured to increase coverage at certain intervals without a physical.
List three types of dividend options!
Cash, Paid up additions, Apply to premium.
A Whole Life policy is being kept in force by the waiver of premium rider. What effect does this have on the cash value accumulation?
NONE - This rider will go into effect if the insured becomes disabled and is unable to pay their premium. This rider will not pay the premium for the insured, it will waive the premium while the insured is disabled.
An annuity with a 10 year period certain will pay?
Minimum 10 years / maximum lifetime.
The type of annuity in which the values grow according to the performance of the separate account, and in which benefits may fluctuate according to market performance, is called?
A variable annuity.
What is divisible surplus?
It is another name for policy dividends. Dividends paid by a mutual insurers to their policyholder are not taxable as the IRS considers them a return of overpayment of premium.
If the client exercises the extended term nonforfeiture option it provides?
Paid-up term coverage equal to that of the original policy.
How do you figure out the persons taxable cost basis for an annuity?
Divide the cost basis by their lifespan. (???)
The reduced paid-up non-forfeiture option will create a new policy in what way?
It will be a single premium whole life policy with a reduced face amount.
What is an accidental Injury?
It is an injury that is unintentional and unforeseen.
What is a sickness?
A sickness or disease which first manifests itself after the effective date of the insurance policy.
The words "disability (or health) insurance" could mean any of these five types?
1. Disability Income Insurance.
2. Accidental Death and Dismemberment (AD&D) Insurance.
3. Medical Expense Insurance.
4. Dental Insurance.
5. Long Term Care Insurance.
What does Disability Income insurance cover?
It protects against loss of your net earned income in case you become sick or injured and cannot work.
What is Medical Expense Insurance?
It is the most common type of disability insurance and covers doctor and hospital bills.
What does the common exclusion of Pre-existing Conditions clause do?
It protects the insurance company from applicants who do not tell the truth to the best of their knowledge regarding prior health problems on their application. Even so if the applicant tells the truth the under writer may add an impairment rider or rate up the premium to cover the additional conditions. Once the probationary period is over, all pre-existing conditions (whether mentioned on the application or not) are covered, unless the insured can be proven to have deliberately attempted to deceive the insurer (fraud), in which case there would still be no coverage.
What is Field Underwriting?
The underwriter's principal functions are to review applications to eliminate those that do not meet underwriting standards.
What is Fraud defined as?
Fraud is defined as the "intent to deceive" and is very hard to prove.
To restore you financially after a claim is known as the?
The principal of indemnity.
A claim filed under an individual Accident and health policy might be denied if the loss was do to?
Alcohol and Narcotics
A producers underwriting responsibility would include which of the following?
Making sure all material facts are included in the application. - The producer is sometimes referred to as a 'front-line' underwriter, since they generally have personal contact with the applicant.
Preexisting conditions are defined as?
Sickness you had prior to the effective date of the policy.
Hospital Indemnity policies do not follow the principle of?
Indemnity. They are limited health type insurance policies that do not follow the principle of indemnity and instead pay out a certain amount. In this case maybe $250 a day for hospital stay.
What does Basic Medical Expense insurance policy cover?
It covers first dollar coverage for scheduled benefits. It has no deductible and pays up to the limit. For example it will pay the first $2000 but no more. It is "Major Medical" that covers high limits, deductible and co-insurance.
Does cancer and dread disease policies follow the principle of indemnity?
No they do not follow the rule of indemnity and you can have as many as you like and will pay in addition to one another.
What is true about the requirements regarding HIV exams?
Prior informed written consent is required from the applicant.
The Pre-existing Condition Exclusion in disability insurance is designed to protect the insurance company from?
Adverse selection.
When a person jumps off a street car and breaks their ankle, this injury is considered to be?
Sudden and unforeseen.
A policy available to business owners that will provide payment for normal business expenses in the event that the owner is disabled, best describes?
Business Overhead Expense. This is often purchased by small employers to pay the ongoing business expenses (such as payroll) in the event the owner of the business becomes disabled.
When benefits are paid to a policy holder covered under a Hospital Expense policy, the policy is considered to be?
Reimbursement. - In true insurance, unlike HMO's, the benefits are paid directly to the insured.
Pre-existing conditions are referred to in which required disability policy provisions?
Time Limit on Certain Defenses. It is another name for incontestability clause. If you failed to mention a pre-existing condition on your application, a claim occurring in the first two years may be contested.
Which of the following terms is the definition of the potential for loss?
Health coverage becomes effective when the?
First premium has been paid and the application has been approved.
An applicant for a disability insurance policy has a heart condition of which he is unaware and therefore he answers "no" to the question pertaining to heart problems. His answer is considered to be a?
Representation. The client told the truth to the best of his knowledge, which is defined as a "representation."
A sworn statement of truth is a?
In general when does coverage become effective in health insurance?
When the insurance company accepts the risk.
Policy delivery refers to the delivery of the?
Completed insurance policy to the applicant.
A conditional receipt is?
It is an interim insuring agreement.
Individual disability insurance policies are required to contain 12 mandatory provisions in order to protect the consumer. What are they?
Entire Contract, Time Limit on Certain Defenses, Grace Period, Reinstatement, Notice of Claim, Claim Forms, Proof of Loss, Time payment of claims, Payment of Claims, Physical Exams and Autopsy, Legal Actions, Change of Beneficiary.
Once the insurer receives notice of a claim from the insured, the insurer is responsible for?
Sending the insured claim forms.
Under the Legal Actions Provision, the insured cannot sue for non-payment of a valid claim until after 60 days in order to?
Give the insurer time to investigate the claim.
The policy provision that prevents an insurance company from altering its agreement with a policyholder by referring to documents or other items not contained in the policy is called the?
Entire Contract Provision.
How many days must an insured wait after submission of Proof of Loss before taking legal action against an insurance company?
60 days.
A guaranteed renewable Health insurance policy.
May be renewed at the insured's option up to a certain specified age.
The purpose of the Illegal Occupation Provision is to?
The Illegal Occupation Provision is like an exclusion, in that it states that no coverage applies if the insured is injured during the commission of a felony.
The Time of Payment Claims Provision requires that an insurance company pay Disability Income benefits no less frequently than?
The Entire Contract Provision in a health policy states?
The policy, with attached endorsements and other papers, constitutes the Entire Contract between the policyholder and the insurance company.
The group insurance provision that prevents two insurers from paying more than the actual loss is called?
Coordination of Benefits.
A cancelable policy of health insurance may be cancelled?
By either the insurer or the insured.
To be eligible for benefits under the Waiver of Premium Provision, the insured must?
Be under a physician's care.
If an insurance company refuses to renew an individual health policy, the policy would be considered?
Optionally renewable.
A health insurance claim occurs on May 30, but the policy lapses on June 1. If the claim is turned in on June 8th, the company will?
Pay the claim.
If an insurance company fails to notify an applicant that a reinstatement application was not approved, insurance will be placed back in force within how many days?
45 days.
A premium that is due could be deducted from a claims payment if?
The loss occurred during the grace period.
If the insured is not entirely satisfied with the policy issued, she may return it to the insurance company for voiding and receive a refund of premium at which of the following times?
Within a specified period from the date the insured receives the contract.
Which statement about the Time Limit on Certain Defenses Provision is true?
It may prohibit an insurance company from denying a claim on the basis of misstatements in an application.
Under the Uniform Provisions Law, which of the following provisions is optional for an A&H policy?
Change of occupation.
An insured's individual health insurance policy was reinstated effective June 1. On June 8 the insured became ill, was hospitalized and returned to work June 15. The insured's policy would provide?
No benefits. Health insurance policies contain a 10-day probationary period upon reinstatement. It only applies to sickness, not accidents. Thus, any sickness occurring within the first 10 days of reinstated policy would not be covered since the insurer considers it to be pre-existing.
The main purpose of HIPAA is?
To waive the probationary period when switching group coverages. HIPAA mainly addresses the portability of your Group Medical Expense coverage from one employer to another.
Which claims condition makes health insurance claims easier to process?
Assignment of benefits.
Rates in a Guaranteed Renewable Health Insurance policy can be changed by?
Rates may be changed by class only.
The insured is required to submit a Notice of Claim to the insurance company within how many days after a loss?
20 days.
The Misstatement of Age Provisions gives the insurance company the right to?
Adjust benefits payable.
The purpose of the Time Limit on Certain Defenses Provisions is to limit the time during which the?
Insurance company can challenge the contract because of material misstatements in the application.
The Legal Actions Provision of a disability policy requires that?
An insured waits at least 60 days after submission of Proof of Loss before initiating a lawsuit.
An individual health policy is considered reinstated after how many days following the request if the policyholder has not heard from the insurer?
45 days.
Under a Guaranteed Renewable disability policy, the insurance company may?
Change premium rates if all other policies in that class within that state are changed.
A producer has just been told by a policyholder that she is 10 years younger than was listed on the application. The producer should?
Notify the insurance company to adjust the existing policy to the correct age.
A cancelable health insurance policy can be cancelled by?
The insured or the insurer.
Carlos Rivera is involved in a two-car accident in which he is disabled, and his passenger and the other driver are injured. Which would most likely be covered by his Disability Income policy?
His lost income.
Which statement is usually true about the benefits of a group Short-term Disability Income policy?
They are not payable for accidents covered by Workers Compensation.
If a provider for a family is receiving Social Security disability benefits and dies, the survivors?
May be eligible for a portion of benefits.
On a disability income policy with the typical definition of total disability, you are still considered to be disabled if, after 2 years?
You cannot perform any job you are suited to do by experience, education or training.
Seth Brown is covered by a non-contributory group disability income policy and becomes eligible for $2000 a month in benefits. Which of the following is true?
100% of the premium is tax deductible by the employer, and 100% of the benefits are taxable to Seth. (Non-contributory means, employer pays 100% of the premium.)
What is a presumptive disability?
It is a disability that prevents them from ever working again and they will no longer have to go to the insurer's doctor every 6 months to prove that they are still totally disabled. (Disability Income policy)
Which of the following is true about a presumptive disability?
It is a disability that generally will cause the insured to no longer have to prove total disability.
On an A&H policy there are two types of clauses for accidental injury. Explain both "accidental means" and "accidental bodily injury".
If a policy has an "accidental means" clause, no coverage will apply if the insured meant to do whatever it was that caused his injury. And the broader "accidental bodily injury" clause, states that accidental injuries are covered whether the insured meant to engage in the activity or not. (As I understand it "means" basically only covers if something outside of you causes the accident.)
What does the Elimination Period do on a Disability Income policy?
The waiting (or elimination) period starts at the onset of a disability. It is selected by the insured when they buy the policy, and the longer it is, the lower the premium will be. It is like a deductible, except it is state in time rather than in dollars. It is not retro-active.
What type of Health Insurance policy would you buy to provide you with funds for retraining if a valued employee becomes disabled?
Key Person Disability.
Is it true that the definition of total disability is standardized by all insurers?
It is false. Total disability is specified in the individual policy.
What happens at age 65 if one has been receiving Social Security Disability Income benefits?
At age 65 they are simply converted into retirement benefits instead.
Which statement about the optional Change of Occupation Provision in a Disability Income policy is true?
It sets forth the rights and obligations of the insurance company and the insured in the event the insured engages in a more hazardous or less-hazardous occupation.
To qualify for disability income benefits from Social Security, you must?
Have fully insured status. Social Security is available only to those who are under age 65 and who have attained "fully insured" status, which requires beneficiaries to have contributed to Social Security for at least 40 quarters (10 years).
The period of time between the onset of a claim and the start of a disability income benefits is called the?
Elimination period (Or waiting period).
In Partial Disability benefits payment would be based on?
Payment would be based on loss of time, income or function.
If an insured is disabled and receiving benefits under a disability policy that provides payment to the insured for at least two years, at what intervals must the insured provide notice of continuing loss?
Six months.
To qualify as disabled under the provisions of Social Security, your disability must be expected to last at least?
12 months.
Under Social Security, you are considered to be totally disabled if you cannot perform any job and your disability is expected to last at least ____ months, or to result in death.
12 months.
In a disability policy, an Elimination (waiting) Period Provision refers to the period?
Between the first day of disability and the day to which the disability must continue before it can result in the insured receiving benefits.
You might consider buying Disability Income insurance to cover occupational injury because?
Your Workers' Compensation benefits may be inadequate.
What is a main eligibility requirement for Social Security Disability Income benefits?
Fully insured status.
The waiting period before a qualified person can receive Social Security disability benefits is?
Five months.
Business overhead insurance will pay for which of the following?
A Disability Income policy has a 7 day waiting period. If the insured is disabled for 15 days, how many days of benefits will the policy pay?
If an individual becomes totally and permanently disabled, Social Security Disability benefits may begin after?
Five Months.
The section of a health policy that states the causes of eligible loss under which an insured is assumed to be disabled is the?
Insuring Clause.
PPOs were started by insurance companies as?
as a means of competing with HMOs.
A client concerned about paying future medical bills would buy which type of health insurance?
Medical expense. Medical Expense covers your hospital and doctors bills if you become sick or injured.
A Medical Expense policy covers?
Hospital and doctor bills.
Clients of a HMO are known as?
On Medical expense insurance, when only one deductible applies to all family members injured in the same accident, it is called a ________ deductible?
Common accident
Third party administrators do everything but?
Provide coverage. They are basically doing everything an insurance company would, without the insurance. Marketing, Underwriting, Claims processing, etc.
Charles Adams advised his insurance company of a loss covered by his Major Medical policy. If the insurance company does not provide Mr. Adams with the proper claim forms within 15 days, he has the right to?
Submit a description of the loss, in his own words, as Proof of Loss. (If the insurer does not comply with a condition in the policy, then they have waived it and the insured may submit Proof of Loss in any form.
The purpose of the Coinsurance Clause in Major Medical policies is to?
Motivate the insured to minimize unnecessary care.
If the client goes out of network for services on a PPO...
The amount paid will be reduced.
On a medical expense policy, the requirement that the insured seek a second surgical opinion prior to having surgery will result in?
Fewer claims.
A Major Medical Expense policy has a $100 per family, per year deductible and 80/20 co-insurance. Three claims occur during the year as follows: The first claim was for $200, the second claim was for $400 and the third claim was for $500. How much will the insurer pay?
A set amount that some Managed Care Plans (HMOs) charge for each doctor visit is known as?
A co-payment.
Tom O'Hara was hospitalized for two weeks and received a bill for $2,100. He has Major Medical policy with a $100 deductible. His coinsurance is 80/20, figured after reducing the bill by the deductible amount. Mr. O'Hara is expected to pay a total of?
The 'carry-over-deductible' applies to claims occurring within?
The last three months of the year.
Comprehensive Medical Expense insurance combines which of the following coverage in one policy?
Basic Hospital/Surgical and Major Medical
A customer who wants his medical bills paid if he breaks his leg should buy?
Medical Expense policy
"Ambulatory" services are generally those that stress?
Outpatient surgery.
Clients of an HMO are known as?
An insured has Major Medical policy that calls for a flat $2,000 deductible and 80/20 co-insurance. If the insured incurs medical expenses of $6,000, he/she would receive benefits of?
On an HMO, initial care and consultation is performed by...
The primary care physician.
If an individual wants to purchase a policy that would provide the broadest coverage for medical expenses they should purchase?
Comprehensive major medical.
What term describes the concept that the insurer and the insured share in the cost of medical expenses, with the insurer bearing the greater share?
A 46 year old is paralyzed in an accident on vacation. Disability benefits would most likely be paid by?
Social Security
Which Disability Income policy would have the highest premium?
14 day waiting period / 5 year benefit period.
A 46 year old is paralyzed in an accident on vacation. Disability benefits would most likely be paid by?
Social Security.
A Family deductible is commonly defined as?
A deductible that applies to the family and once satisfied no longer applies during the year.
In Health Maintenance Organizations, the use of a primary care physician or PCP is common as part of?
The gatekeeper system.
A Medical Expense policy covers?
Hospital and doctor bills.
In health insurance policies, a "Preexisting Condition" is one which an?
Applicant received medical advice or treatment for prior to applying.
In the medical insurance field, the term "Coinsurance" means that an insured person?
Will have to pay a portion of covered expenses.
When an insured holds more than one occupation, and occupation is used to classify the risk, the insurer will generally classify the insured according to the occupation?
That is most hazardous.
Clients of an HMO are known as?
Disability Income policies often do not begin paying benefits immediately when an insured person becomes disabled. Usually, the disability must continue for a period of time before benefits begin. The period is known as the?
Elimination Period.
The waiting period on a Disability Income policy is defined as?
The time period from onset of injury until benefits begin.
When medical expense policies do not state specific dollar benefit amounts, but instead base payments upon the charges for like services in the same geographical area, benefits are based on?
the Usual, reasonable and customary.
The gap between the Basic Plan and Major Medical in a Comprehensive Major Medical policy is known as a?
Corridor deductible.
When only one deductible applies to all family members it is referred to as a?
Family deductible.
Many Major Medical policies include a provision whereby when expenses reach a certain dollar amount, the insured no longer shares in the cost of expenses, the insurer pays 100% of remaining covered charges. This is referred to as the?
Stop-loss limit.
The Cost of Living Rider is tied to the cost of living index and?
Increases coverage automatically based on the index, but the premium increases.
Health Maintenance Organizations are not required to provide for?
Prescription drugs.
The Social Security Rider is utilized to?
Eliminate confusion and allow the insured to receive Social Security Benefits?
A Hospital Confinement Indemnity policy will do which of the following?
Pay a state amount only if in the hospital.
To avoid over insurance and reinforce the Principle of Indemnity insurers will often?
Limit Disability Income coverage amounts.
Occupational coverage provides coverage?
This is self employed insurance for on the job and off the job coverage.
Under HIPAA, the maximum probationary period for pregnancy on Group Health insurance is?
0 months.
The purpose of a 75% participation requirement on a contributory Group Health plan is to?
Prevent adverse selection.
Under HIPAA, health coverage is "portable" from one group to another group without any new probationary period as long as coverage was continuous with no gaps greater than ____ days?
63 days.
The primary purpose of the Coordination of Benefits Provision found in group Medical Expense coverage is to?
Prevent the claimant from profiting from an injury or sickness.
Which statement about group insurance is true?
Group insurance is essentially reduced-cost mass protection.
When switching from one Group Medical Expense policy to another, the insurer must?
Give credit for prior creditable coverage. - Under HIPAA, Group health insurers must give terminated employees a Certificate of Creditable coverage, stating how much of their probationary period has already been satisfied under their prior group contract.
Group Disability Income insurance is designed to cover employees only while?
they are off the job, so the coverage is considered to be 'non-occupational' in nature. Employees who are injured on the job are covered by Workers Compensation insurance, which is a type of Casualty insurance.
An employer's requirement for hospital pre-authorization on a group health policy is designed to?
Prevent unnecessary hospitalization.
In group health insurance, the contract is between the?
Employer and the insurance company.
The federal law that allows a terminated employee to continue coverage in the group is known as?
Consolidated Omnibus Budget Reconciliation Act (COBRA). - Don't confuse 'continuation' of coverage with 'conversion' of coverage.
Employees covered under a group health policy who attain age 65 may?
continue in the group with no change in coverage.
Group health insurance normally specifies that what percentage of those eligible must be enrolled under a noncontributory plan?
100% in a noncontributory group plan.
Group health insurance for terminated employees is convertible to individual coverage without a physical exam for?
31 days.
On a Group Medical Expense policy, what provision allows the insured to collect in full while avoiding over insurance?
Coordination of Benefits.
Ms. Smith is covered by a non-contributory group disability income plan where she works. The policy has a 30 day waiting period and offers benefits of $2,000 per month. If she is off work for 7 months due to a covered disability, she will receive?
$12,000, all of which is taxable.
Under HIPAA, health coverage is "portable" from one group to another group without any new probationary period as long as coverage was continuous with no gaps greater than ____ days.
63 days.
A Certificate of Insurance issued to an employee covered by a Group Medical Expense plan must contain?
A summary of the policy coverages and provisions.
Concurrent review is defined as
the assignment of a caseworker to an ongoing claim.
Something to remember about Dental Coverage that is important is?
Insurers are reluctant to write individual dental coverage since you might wait to buy it just before you need treatment.
A Prepaid dental plan is similar to?
They operate in the same manner as HMOs.
A specialized dental service that provides for treatment of missing teeth is known as?
Dental Expense policies generally have a deductible that does not typically apply to?
Preventative Care
An individual is enrolled in a group dental expense policy, which pays claims based on what is usual, reasonable and customary. This means
the policy benefits will vary depending on the cost of the services provided in various geographic locations.
When a dentist uses mechanical devices to straighten teeth, it is known as?
An individual is covered under a group Dental Expense plan and needs to have some bridgework done. They are looking in their policy to see if it will be covered. Bridgework is also known as?
Under Dental insurance, crowns are considered to be?
What is Part A-Hospital Insurance for Medicare?
Covers hospitalization, post-hospital skilled nursing care, home-health care, hospice care, and blood transfusions.
What is Part B-Hospital Insurance for Medicare?
Sometimes called Supplementary Medical Insurance (SMI) since it supplements Part A. Part B (the optional portion) is generally designed to cover physicians' services.
What is Part C-Medicare Advantage Plans for Medicare?
Seniors who elect to enroll in an Advantage Plan are entitled to the same benefits that HMOs and PPOs provide to their youngest subscribers.
Medicare Part B-Medical Insurance pays a percentage of?
The Medicare approved amount?
When does a Part A Medicare claim begin?
Date of hospitalization.
Medicare Part A-Hospital Insurance will provide coverage for which of the following?
Skilled nursing care.
Medicaid is funded by?
State and federal moneys.
A client covered by Group Health insurance needs kidney dialysis. Which coverage is primary?
The group plan.
A 46 year old is paralyzed in an accident on vacation. Disability benefits would most likely be paid by?
Social Security.
Treatment of overseas emergency medical care for senior citizens is?
Covered by some Medicare Supplements.
Nursing home care for those who are not sick, but cannot take care of themselves is provided by?
At what age is a person eligible for Medicare?
They must be at least age 65.
Medicare Part A Hospital coverage is supported by?
Withholding and self-employment taxes.
Persons covered by Medicare are called?
Medicare Part A-Hospital Insurance provides coverage for institutional psychiatric care for 190 days per?
When a person takes early retirement under Social Security at age 62, when does coverage for Medicare Part A begin?
Automatically at age 65.
Individuals covered under Medicare are called?
Medicare Supplements are not approved by?
The free-look when replacing Long Term Care insurance and Medicare Supplements is?
30 days.
The maximum probationary period on a Medicare Supplement is?
6 months.
Nursing home coverage under Medicaid is based on?
Financial Need.
Coverage under Medicaid for custodial care in a nursing home is based upon?
Low income and asset levels.
Which statement best describes the tax responsibilities under a Business Overhead policy?
Premiums are deductible, benefits are taxed.
Premiums paid by sole proprietors for individual health insurance coverage are?
Fully deductible.
Distributions that are taken from a Medical Savings Account (MSA) that are used to purchase a new sport utility vehicle are?
Taxable as ordinary income plus a 15% penalty.
On individual Disability income benefits are?
Not taxable, coverage is based upon the insured's net income. Premiums paid by the individual are not tax deductible.
The premium your employer pays for qualified long-term care insurance is tax deductible the same as?
Medical expense insurance.
Premiums paid for individual Disability Income policies are?
Not tax deductible.
Medical Savings Accounts (MSAs) are available to small business employees and self employed individuals who have?
High deductible health insurance.
Medical expense premiums paid by sole proprietors or partners are?
They are fully deductible.
Benefits paid to participants in a Medical Savings Account (MSA) are?
Not taxable.
Mr. Smith is insured on a contributory Group Disability Income plan that pays benefits of $4,000 a month. If Mr. Smith has to pay 1/4th of the monthly premium, how much of his monthly benefit will be taxable?
The IRS does not tax which of the three major benefit programs?
Welfare benefits, Social Security Disability benefits, and Workers Compensation benefits are not taxed.
Group disability income benefits are usually?
Based on a percentage of the employee's gross income.
The premium paid by your employer for qualified long-term care insurance is?
Excluded from the employee's gross income.
Alice has Group Health Insurance with Alpha company where she works. Her husband Ben has Health Insurance with Bravo Company where he works. Both policies provide dependents coverage. If Ben gets sick?
Bravo is primary, Alpha is secondary.
Under dental insurance, crowns are considered to be?
Group health insurance for terminated employees is convertible to individual coverage without a physical exam for?
31 days.
Nursing Home care under Medicare is?
Extremely limited.
On a Group Medical Expense policy, what provision allows the insured to collect in full while avoiding over insurance?
Coordination of Benefits.
An employer's requirement for hospital pre-authorization on a group health policy is designed to?
Prevent unnecessary hospitalization.
Nursing home care for those who are not sick, but cannot take care of themselves is provided by?
In regards to Medicare Supplements insurance companies may?
Sell only the "core" plan if they choose. They must always sell the A plan though. They can not offer any plan above A without A as well.
In Medicare, Physicians and Surgeons services are covered by?
Medicare Part B for an additional premium.
A Certificate of Insurance issued to an employee covered by a Group Medical Expense plan must contain?
A summary of the policy coverages and provisions.
Remember this about Long Term Care policies.
Long Term Care policies do not place limit on the care provided to individuals.
Medicaid is funded by
State and federal moneys.
Remember this about noncontributory group health insurance!
All employees must be enrolled. 100% participation is required.
Medicare's hospital insurance benefits may also pay benefits for?
Home health care.
The main purpose of HIPAA is?
HIPAA is to regulate probationary periods.
Medicare Part A Hospital coverage is supported by?
Withholding and self-employment taxes.
A licensed agent must notify the commissioner of a change of address?
24 Hour Coverage provides "seamless" occupational and non-occupational coverage?
True - It means it covers 24 hours a day.
The Workers Compensation Second Injury Fun requires?
Both the first and second injury to be job related in order for the fund to pay.
The extra premium that is charged for the Accidental Death Benefit rider?
Does not apply to the policy's cash value.
Could an agent use any name for use without approval of the commissioner?
No. All business names to be used must be filed with the Commissioner for approval.
What does HICAP stand for?
It stands for the Health Insurance Counseling and Advocacy Program. It is a nonprofit, volunteer program to assist seniors.
An agent licensed for Life insurance in 2009 mostly sells Long Term Care. She needs how many hours of Continuing Education in 2009?
24 hours each two years of continuing education, of which must be 8 hours of Long Term Care specific hours of credits.
Physicians and Surgeons services are covered by?
Medicare Part B for an additional premium.
A "morale" hazard is?
Is a careless client. A "moral" hazard on the other hand is someone who lies.
If a person is transacting insurance without a license they are guilty of which of the following?
A misdemeanor.
An insurance coverage that pays a certain dollar amount while an insured is confined in a hospital, and under which the benefits are not tied to the amount of incurred expenses, is?
A Hospital confinement indemnity insurance.
What is a life insurance policy dividend classified as?
The policy's share of the company's excess funds or divisible surplus.
What are the three types of ordinary life insurance?
W-E-T, Whole Life, Endowments, and Term.
California Life agents must renew their license?
Prior to the expiration of your license.
How many "classes" of insurance are in California?
There are 20 specific classes of insurance.
Consideration is?
Consideration is defined as an exchange of values and is required in order for a contract to be legally enforceable. It is not required to be equal and is required when the contract is entered into, not at the time of loss.
Occupational coverage provides coverage?
On and off the job.
The Continuing education requirement needed to sell long term care is?
The standard Continuing Education (which includes 8 hours for LTC).
Does the common disaster clause protects the Insurance Company if a lot of clients die due to the same disaster?
False. It is for cases where both the primary beneficiary and insured die in the same accident. it is designed to protect the interests of the contingent beneficiary.
In CA, LTC policies must?
Offer inflation protection.
A client is 65 today. His LP 65 will reach maturity?
At age 100. He just finished paying his premiums at 65.
When does the authority to transact insurance by an agent become effective?
When the "Notice of Appointment" is signed by the insurer.
An insurance company can change a provision that is required to be in the policy by the Uniform Provision Law in which situation?
Only if it benefits the policyholder.
In disability insurance, several riders are available for insured to purchase. The "return of premium" rider?
Provides for the return of a percentage of premiums paid at periodic intervals, provided the insured remains disabled.
An agent's license is considered to be inactive if?
They hold no appointments by an insurer.
An insurance company domiciled in another state but transacting business in California is known as a?
Foreign company.
The 'black-out' period under Social Security starts when the youngest child is age?
16 years old.
A qualified Employee Benefit plan that gives employees part ownership in the company for which they work is known as a?
Employee Stock Ownership plan.
Be careful not to confuse 'concealment' with fraud.
The failure to disclose a material fact that a party knows and ought to communicate is defined as 'concealment', not fraud.
Retirement benefits under Social Security are based primarily upon?
Average monthly wages.
Under the California Insurance Code, anyone who diverts or appropriates customer funds while acting in a fiduciary capacity to their own use is guilty of?
Which type of Life insurance utilizes the 'level premium concept'?
Traditional Whole Life.
If an Agent wants to surrender their insurance license to the Commissioner, but it is in the possession of their employer, what is the procedure?
Send written notice to the Commissioner requesting cancellation.
What type of policy has both a Capital and Principal sum?
Accidental Death and Dismemberment (AD&D) insurance.
In every LTC policy that provides home care benefits, eligibility for home care benefits require that the insured be unable to perform at least ____ Activities of Daily Living (ADLs) or have an impairment of cognitive ability.
Medicare Part B does not cover?
An insurer who provides for all of its liabilities and purchases reinsurance on all of its outstanding risks is considered to be?
With regard to the ethical behavior of a Life agent, which of the following makes it easier for agents to conduct themselves in an ethical manner?
Always putting the best interests of clients and policyholders first.
On Health insurance, the actuarial table used by insurers to determine product benefits and pricing is known as the?
Morbidity table. - Morbidity tables are to health insurance, as mortality tables are to Life insurance.
A person who has contributed to Social Security 6 out of the last 13 quarter has what status?
Currently insured.
What is important to remember about Paid-up additions.
It is a dividend option, not an insurance rider.
When a corporation enters into an agreement with their shareholders to buy their shares back in the event of their death, it is known as an?
Buy-Sell Agreement.
Medical Information Bureau (MIB) members must report?
Health conditions discovered during the underwriting process.
A movie production company is concerned about the possibility that their star might become disabled due to illness and become incapable of completing the picture. What type of insurance should they buy?
A life insurance policy that will always provide enough protection to pay off your mortgage is known as?
Mortgage redemption.
Agents who sell Long Term Care (LTC) must meet which of the following LTC continuing education requirements in California?
8 hours every year for the first 4 years, then 8 hours each licensing period.
In California, a Life Agent represents the?
Insurance company.
When an Agent pleads 'nolo contendere' to a violation of the insurance code it means?
He is leaving the determination of guilt up to the opinion of the Commissioner.