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141 Cards in this Set
- Front
- Back
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Insurance transfers_____.
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the risk of loss from an individual or business entity to an insurance company, which in turn spreads the costs of unexpected losses to many individuals.
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Agency Contract
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A contract that is held between an insurer and an agent/producer, containing the expressed authority given to the agent/producer, and the duties and responsibilities to the principal. An agent who is in violation of the agency contract may be held personally liable to the insurer.
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Agent/Producer/Field Underwirter
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A person who acts for another person or entity known as the principal with regard to contractual arrangement with third parties; a legal representative of an insurance company.
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Applicant or proposed insured
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person who requests or seeks insurance from an insurer
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Beneficiary
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the person who receives the benefits from the policy of insurance
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Death Benefit (face amount/face value/coverage)
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the amount paid when a claim is issued against a policy of insurance
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Insurance Policy
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a contract between a policy owner (and/or insured) and an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events
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Insured
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the person covered by the policy of insurance who may or may not be the applicant or policy owner
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Insurer (principal)
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the company who issues a policy of insurance; any person or company engaged as the principal party in the business of entering into insurance contracts.
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Life Insurance
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a coverage upon a person's life, and granting, purchasing or disposing of annuities
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Policyowner
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the person who is entitled to exercise the rights and privleges in the policy and who may or may not be the insured
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Premium
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the money paid to the insurance company for the policy of insurance
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Insurance Transaction (by mail or any other means) includes _____
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solicitation ir inducement; negotiations; effectuation of a contract of insurance; advising of an individual concerning coverage or claims
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Stock Companies
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owned by stock holders who provide the capital necessary to establish and operate the insurance company and who share in any profits or losses.
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Officers (of stock companies)
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are elected by the stockholders to manage stock insurance companies
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Nonparticipating (stock) policy
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does not pay dividends to policy owners; however, taxable dividends are paid to stockholders. Traditionally issued by stock companies.
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Mutual Companies
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are owned by policyowners and issue participating policies in which policyowners are entitled to NON-TAXABLE dividends!
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Dividends are generated when _____.
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the premiums and earnings combined exceed the actual costs of providing coverage, creating a surplus.
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Certificate of Authority
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State Issued license showing that you have met any requirements set forth by the state and are considered authorized or admitted into the state as a legal insurer.
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Domicile of Insurer
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location of incorporation and whether or not they are authorized to write business in a state. Domestic; Foreign; Alien.
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Domestic Insurer
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operating in the state they are incorporated in
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Foreign Insurer
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operating in a state other than the one they are incorporated in
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Alien Insurer
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Incorporated outside of the U.S.
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Underwriting
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the risk selection and classification process; the process in which an insurance company determines whether or not a particular applicant is insurable and if so what premium to charge.
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Field Underwriter
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helps prevent adverse selection; proper solicitation of applicants; completes the application; obtain required signatures; collects initial premium and issues receipt if applicable; delivers policy
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Application
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starting point and basic source of information used by the company in the risk selection process. Part 1- general info. Part 2- medical info
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Part 1-General Information
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identifies the type of policy applied for and the amount of coverage and beneficiary.
ex. name, dob, income, etc, AND EXISTING POLICIES. |
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Part 2-Medical Information
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medical background, present health, medical visits in recent years, medical status of living relatives, causes of death of deceased relatives.
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non-medical application
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application for relatively small amount of insurance; completed by agent and proposed insured. Larger amounts usually require examination by medical professional
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Agent's (producer's) report
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provides the agent's personal observations concerning the proposed insured
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Required Signatures?
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Applicant/Propsoed Insured (except minors), Agent. also (Policyowner if different from insured)
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Changes in Application
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correct information and applicant inital or complete new application. DO NOT erase or white out
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Unanswered Questions
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return to applicant for completion. If a policy is issued with questions left unanswered, the contract would be interpreted as if the insurer waived its right to have an answer to the question thus the insurer would be barred from denying coverage based on any information that the unanswered question might have developed
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Warranty
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an absolutely true statement upon which the validity of the insurance policy depends. Statements made by applicants for life and health policies are usually not considered warranties, except in cases of fraud.
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Representations
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statements believed to be true to the best of one's knowledge, but are not guaranteed to be true. The answers provided by the insured the questions of the insurance application.
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Misrepresentations
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Untrue Statements that could void the contract
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Material Misrepresentation
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statement that if discovered would alter the underwriting decision of the insurance company.
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Intentional Misrepresentation
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Fraud
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Premium Receipt
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Issued at the time the Agent collects the Premium.
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Conditional Receipt
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states that coverage will be effective either on the date of the application or the date of the medical exam (whichever occurs last), unless coverage is declined, rated, or issued with riders excluding specific coverage.
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Replacement
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any transaction in which new life insurance or a new annuity is to be purchased and it is known or should be known to the proposing producer that by reason of the transaction, existing life insurance or annuities have been or will be: in anyway terminated, reduced in value or term, converted, pledge as collateral or used in a financed purchase.
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Replacing Insurer
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Company that issues new policy
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Existing Insurer
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company whose policy is being replaced
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Replacement Application Requirements
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producer must provide: statement signed by applicant as to whether replacement of existing life insurance or annuity is involved in transaction AND a signed statement as to whether the producer knows replacement is or may be involved in the transaction
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Notice Regarding Replacement
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Must be presented to applicant and signed by both applicant and producer. Provide applicant with copy.
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(4) Duties of a Producer
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1. Notice of Replacement
2. Obtain list of existing life insurance and/or annuity policies (include company names and policy numbers) to be replaced 3. Leave applicant copy of communications used for presentation 4. Submit copy of replacement notice to replacing insurance company with application |
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(2) Duties of Replacing Insurance Company
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1. require from producer list of the applicant's life insurance or annuity contracts to be replaced and a copy of replacement notice provided to applicant
2. Send each existing insurance company a written notice advising of proposed replacement (time sensitive). a policy summary or ledger statement of proposed life insurance or annuity must be included |
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Disclosure Statement
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Must be provided to applicant no later than the time the application for insurance in signed. Helps applicants make more informed decisions about their choice of health insurance
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Disclosure Authorization Notice
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States the insurer's practice regarding collection and use of personal information. used when insurers plan to seek and use info from investigators. Must be in plain english and approved by the Commissioner.
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Insurers usually require HIV testing when the coverage amount is _____.
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$50,000 or higher
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State regulations regarding HIV testing
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Insurer must reveal the use of testing to the applicant and obtain written consent; test must meet US Deparment of Health and Human Services Protocol; Insurer must disclose test result as authorized by applicant in writing; If no Physician is identified by applicant, the positive test results and identity of the applicant must be sent to the state Department of Health; the reporting of test results must include name and address of testing facility
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AML (Anti-Money Laundering) Standards
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Monitors all financial transactions and reporting of any suspicious activity to the government. $5,000 or more
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SAR (Suspicious Activity Report)
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$5000 or more must be report if suspect. report with 30 days. FinCEN Form 108
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Adverse Selection
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risks which are mre likely to suffer a loss
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Fair Credit Reporting Act
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protects consumer against the circulation of inaccurate or obsolete information by ensuring records are confidential, accurate, relevant and properly used
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Acceptability of a Risk is determined by checking_____.
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the individual risk against many factors directly related to the risk's potential for loss.
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Consumer Reports
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include written and/or oral information regarding a consumer's credit, character, reputation, or habits collected by a reporting agency from public sources
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Investigative Consumer Reports
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differ from consumer reports in that information is obtained through investigation and interviews with friends, associates, and neighbors. Cannot be made unless CONSUMER IS ADVISED IN WRITING 3 DAYS of request.
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Risk Classifications
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Standard; Substandard, Preferred
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Standard Risks
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entitled to insurance protection without extra rating or special restrictions
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Substandard (High Exposure) Risks
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not acceptable at standard rate because of physical condition, personal or family history of disease, occupation, or dangerous habits. "Rated"
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Preferred Risks
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superior physical condition, lifestyle, and habits. Qualify for lower the standard premiums
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Declined risks
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Applicants who are rejected
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STOLI (Stranger-Originated Life Insurance)
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financed and purchased soley with the intent of selling them for life settlements. Violate the principal of insurable interest
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Principal of Insurable Interest
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ensure that a person purchasing a life insurance policy is actually interested in the longevity rather than the death of the insured
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IOLI (Investor-originated Life Insurance)
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policy written on (70+) seniors by investors who have no insurable interest in the insured.
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Deliver the policy ______ or _____.
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by mail or in person.
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Premium must be paid by when?
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At the time of policy delivery. Policy does not go into effect until premium has been collected.
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Statement of good health
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may be required from insured verifying that insured has not suffered injury or illness since application date
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Buyer's guide
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provides basic generic information about life insurance policies. Must be provided prior to accepting initial premium. If, 10 days free-look period, guide may be provided with policy.
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Policy Summary
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a written statement describing the features and elements of the policy being issued. Must be provided when the policy is delivered
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Illustration
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presentation or depiction that includes nonguarenteed elements of a policy of individual or group life insurance over a period of years and must distinguish between guaranteed and projected amounts
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Inspection Report
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cover moral and financial information regarding a potential insured, usually supplied by private investigators and credit agencies. Companies that use inspection reports are subject to the rules outlined in the Fair Credit Reporting Act.
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Term Life Insurance (Temporary) A.K.A. Pure Life Insurance; also see Pure Death Protection
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Provides coverage for a specified period of time. Provides Greatest amount of coverage at lowest premium. Maximum age above which coverage will not be offered or renewed.
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Pure Death Protection
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provided by term insurance, no cash value. If policy is canceled or expires prior to insured's death, nothing is payable at the end of the term.
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three types of Term Insurance are ______.
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renewable, convertible, or renewable and convertible (R&C)
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Renewable term life insurance
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provision which allows the policy owner the right to renew the coverage at the expiration date WITHOUT EVIDENCE OF INSURABILITY. New premium based on insured's current age at time of renewal
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Convertible
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provision which provides policyowner the right to convert policy to a permanent insurance policy WITHOUT EVIDENCE OF INSURABILITY. premium based on insured's attained age at time of conversion.
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Three types of term coverage?
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Level; Increasing; Decreasing
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Level Term Insurance
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Most Common. refers to death benefit that does not change throughout life of policy
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Annually Renewable Term (ART)
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Purest Form of Term Insurance. Premium remains level. Policy Guaranteed renewable. PREMIUM INCREASES ANNUALLY ACCORDING TO ATTAINED AGE as probability of death increases
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Decreasing Term
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Level Premium. Covers mortgage or other time sensitive debt. convertible. renewable is null. The amount of coverage decreases as the outstanding loan balance decreases each year
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Increasing Term
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level premiums. death benefit increases each year over duration of policy term. used by insurance companies to fund certain riders that provide a refund of premiums or a gradual increase in total coverage such as cost of living or return of cash value riders
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Return of Premium (ROP)
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increasing term policy that pays additional death benefit to beneficiary equal to the amount of premiums paid. ROP is paid off if death occurs is specified period of time or if the insured outlives the policy term
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Permanent Life Insurance
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general term used to describe various forms of life insurance policies that build cash value and remain in effect for the entire of the insured or until age 100. ex: Whole life
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Whole life Insurance
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lifetime protecting and cash value. endow at age 100. the cash value created by the accumulation of premium is scheduled to equal the face amount of the policy at age 100. can be borrowed against. repayment deferred up to 6 months.
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what are the 3 basic forms of whole life insurance?
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Straight whole life; limited-pay whole life; single premium whole life
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Ordinary (straight) Whole Life a.k.a continuous premium whole life
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lowest annual premium. policy owner pays premium until the time of the insured's death or age 100
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Limited-pay Life and Single Premium Life
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designed so that the premiums for coverage will be completely paid up well before age 100. life paid-up 65 (LP-65) great if you don't want bills after retirement. 20-pay life: completely paid in 20 years
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Single Premium Whole Life (SPWL)
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one-time, lump sum payment. minimum premium required
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Adjustable Life
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provides either term or whole life and can be converted at anytime but insured MUST SHOW PROOF OF INSURABILITY. only develops cash value when the premiums paid are more than the cost of the policy
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Interest/Market-sensitive Life Products
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Universal Life, Variable Whole Life, Variable Universal Life, Interest-sensitive Whole Life,
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Universal Life (flexible premium adjustable life)
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policy owner can increase payments and later decrease again; can miss payments and policy will remain active as long as there is sufficient cash value to cover monthly deductions; option to pay minimum or target premium
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Minimum Premium (Universal Life)
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amount need to keep the policy in force for the current year. makes the policy perform as annually renewable term
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Target Premium (universal life)
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recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime
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What are the two types of Universal Life?
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Level Death Benefit (option a) and Increasing Death Benefit (option b)
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Level Death Benefit option
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death benefit remains level while cash value gradually increases, thus lowering the pure insurance with the insurer in the later years
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Increasing Death Benefit option
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annual increase in cash value so that the death benefit gradually increases by the amount the cash value increases. expenses much greater than option a. cash value will be lower in later years than option a.
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Variable Whole Life (securities license required)
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fixed premium with underlying investment account, however, the policy owner my allocate the premium into a sub account/separate account such as bonds,growth stock, money market, and real estate accounts held by the insurer
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Variable Universal Life (securities license required)
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flexible premiums and adjustable death benefits. policy owner, not the insurer, decides where net premiums will be invested. not fixed.
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Interest-Sensitive Whole Life (Current Assumption Life
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provides the same benefits as other traditional whole life policies with the added benefit of current interest rates which may allow for either greater cash value accumulation or a shorter premium-paying period
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Equity-Indexed Whole Life
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fixed premium. death benefit guaranteed. cash value dependent on performance of equity index
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Joint Life (business partners/husbands and wives)
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insures 2 or more lives. can be term or permanent. based on average age between the ages of insureds. Death benefit paid upon FIRST DEATH only. lower premium for same coverage than individual
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Survivorship Life
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like joint life, insures multiple based on joint age. PAYS on LAST DEATH. lower premium than joint life.
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what are joint life and survivorship life most commonly used for?
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joint- husbands and wives to cover mortgage or business partners to cover each person's share of the company
survivorship- husbands and wives to cover liability of estate tax |
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Annuity
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not life insurance. is the liquidation of a principal sum, regardless of how it was accumulated.
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accumulation period
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pay-in period; grows interest tax deferred.
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annuity period
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annuitization period, liquidation period, or pay-out period can be specified length of time longer or shorter than life expectancy
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Annuities help annuitant, which must be a natural _____, fund _____ or supplement _______ in the form of ________ settlements.
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1. person 2. college 3. retirement 4. structured
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What are THREE ways in which annuities can be classified?
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How they are paid for; when the income payments from the annuity begin; How the money in the annuity grows.
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What are the two ways an annuity can be paid for?
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1.Single/lump sum payment
2.Periodic payments |
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What are the two ways in which an annuity can be paid out?
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1.Immediate annuity
2.Deferred annuity |
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What is an Immediate Annuity?
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An annuity which is purchased with a single, lump sum payment and provides income payments that start WITHIN ONE YEAR
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What is a Deferred Annuity?
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An annuity in which income payment begin sometime AFTER ONE YEAR from the date of purchase. Can be single/lump sum or funded through periodic payments
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What are the two types of Deferred Annuities?
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Single Premium Deferred Annuity (Lump Sum) or Flexible Premium Deferred Annuity (Periodic Payments)
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What is a fixed annuity?
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the annuitant knows the exact amount of each payment received from the annuity during the annuity period, but the purchasing power may erode over time due to inflation.
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What is a Variable Annuity?
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used to provide a hedge against inflation, it has varying rates of return on the funds paid into it. Account holder bares investment risk
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Variable Premiums purchase ____ units in the fund, which is similar to buying share in a mutual fund.
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Accumulation
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Upon annuitization, the accumulation units are converted to _______ units.
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Annuity Units
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Three main characteristic of Variable Annuities...
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1. Underlying Investment
2.No guaranteed interest rate 3.Requires Security License |
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Indexed or Equity Indexed Annuities are _____________.
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fixed annuity that invest on a relatively aggressive basis to aim for higher returns. Have guaranteed minimum interest rates. Less risky with expected higher rate of return.
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"Entire Contract" Provision
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policy+copy of application+any riders or amendments = entire contract
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Insuring Clause
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Found on face page, States the insurer's promise to pay death benefit upon insured's deatth. Defines who the parties to the contract are, the premium to be paid, how long coverage is in force and the amount of death benefit
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Free Look
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specified number of days from date of receipt of physical policy for policyowner to review policy and if dissatisfied return it for full refund.
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Consideration Clause
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Both parties must provide some value. Insured provide premium and statements made in application. Insurer promises to pay in accordance with terms of contract.
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Owner's rights
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Only policy owner has ownership right which include naming or changing the beneficiary, receiving policy's living benefits, selecting benefit payment options, and assigning policy.
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Who has the responsibility of paying policy premium and must have an insurable interest in the insured at the time of application for insurance?
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Policy Owner
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What is third policy ownership?
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when policy owner and insured are not the same person.
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Transfer of a life insurance policy does not change the ______ or amount of ________.
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1. Insured
2. Amount of coverage |
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Absolute Assignment
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Permanently transfers all rights of ownership to another person or entity who does not need to have insurable interest in the insured.
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Collateral Assignment
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Transfers partial right to another person usually in an attempt to secure a loan. When debt is paid, assigned rights return to policyowner.
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Does the policyowner have to name a beneficiary in order for the policy to be valid?
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No.
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Define Beneficiary.
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Person or interest to which the policy proceeds will be paid upon the death of the insured. May be a person, class/group of people, the insured's estate, or an institution, charity, corporation, or trustee of a trust.
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Primary beneficiary has ______ claim to policy proceeds in the event of insured's death.
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First
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Can more than one primary beneficiary be named?
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Yes. Policyowner can also choose how proceeds will be divided.
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Contingent Beneficiary has ______ claim in the event of insured's death and __ ____ receive ______ if primary beneficiary is alive at time of insured's death.
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1. do not
2. anything |
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What happen's if none of the beneficiaries are alive or no beneficiary has been named at time of insured's death?
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Proceeds will go to insured's estate and may be included in the insured's taxable estate.
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What does it mean to have a revocable beneficiary?
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designated beneficiary can be change at any time.
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What does it mean to have an irrevocable beneficiary?
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designation may not be changed without the written consent of beneficiary and policyowner cannot borrow against the policy's cash value or assign the policy to another person without the beneficiary's agreement.
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Common Disaster Clause
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if both parties die in an accident or within a period of time specified by the insurer, it will be assumed the primary beneficiary died first and the proceeds will be paid to the secondary beneficiary or to the estate of the insured if no secondary beneficiary is named.
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Benefits designated to a minor will be paid to either _______ or _______ which may or may not be the same person.
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1. guardian
2. trustee if trust is named beneficiary |
