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145 Cards in this Set

  • Front
  • Back
two approaches for determining amount of personal life insurance
1. Human life value approach
(loss of income)
2. Needs approach
3 things used to determine an individual's life value
how much you make
years to retirement
inflation
The type of information that needs to be gathered for the needs approach.
D debt
I income
M mortgage
E expense
the period of time after the youngest child is 16 yrs old, and parent reaching age 60
Black-out period
Selling assests
liquidation
retaining of assests
retention
name 6 business uses for insurance
Buy-Sell funding
Key person
executive bonuses
deferred compensation funding
split dollar plans
change of insured provisions
a legal contract that determines what will be done with a business when a partner dies
Buy-Sell agreement
If a business owns the policy for the Buy-Sell Agreement what is the policy called. Who pays premium, owns policy, and is beneficiary
Stock Redemption Plan
Business owns it.
If the policies are owned by the partners for the Buy-Sell agreement it is called. Who owns policy, pays premiums and is beneficiaries.
Cross Purchase Plan
Partners
a business carries insurance on an employee who is hard to replace
key person insurance
an arrangement where the employer offers to give the employee a wage increase in the amount of the new insurance premium
executive bonuses
a employers retirement, savings or other deferred compensation plan that is not a qualified retirement plan
Deferred Compensation Funding
2 classes of deferred compensation funding
in addition funding plan
elective
a deferred compensation that pays an amount in addition to the employee's qualified retirement plan
In addition funding plan
a deferred compensation funding that permits the employee to defer part of their salary or bonus as a tax deferred savings
Elective
a way to provide additional retirement benefits to employees
deferred compensation funding
an arrangement where both the employer and employee pay a portion of the premium and fund life insurance on employee
split dollar plan
--in a split dollar plan, who pays part of the premium that equals the annual increase in cash value
--who pays remaining premium
--employer
--employee
When an employee dies who has a split dollar plan how is the policy proceeds divided?
Employer recovers the total of its payments, remainder to beneficiary
--What provision is found in key person policies that allows the business to transer coverage to another?
--what is new insured subject to?
--change of insured provision
--evidence of insurability
5 classes of life insurance policies
group vs. individual
ordinary vs. industrial(home)
permanent vs. term
participating vs. nonparticipa
fixed vs. variable
life insurance is written as a master policy
group insurance
life insurance is written on a single life
individual
individuals covered under a group policy do not receive a policy but instead a
certificate of insurance
referred to as debit insurance
Industrial ( Home Service)
larger-sized policies that require medical underwriting
ordinary
whole life insurance that remains in effect to age 100
permanent
insurance that is temporary for a specific period of time
term
any policy that distributes dividends to policy owners by cash, reduced premium, units of paid up insurance, savings or purchase of term insurance
participating (mutual) insurance
a nonparticipating policy that does not pay dividends is what kind of insurance company
stock Insurance Co.
life insurance or annuities that offer guaranteed minimum benefits
fixed
life insurance or annuities in which the cash values accumulate based upon a specific portfolio of stocks
variable
traditional life insurance reserves are held in what kind of account
general accounts
What is the main differnce between permanent insurance and variable insurance
the reserve
variable life insurance reserves are held in
special accounts
variable life insurance and variable annuities are regulated by
Securities and Exchange Commission (SEC)
Mortality tables are developed using
Law of large numbers
the premiums paid on insurance policies are kept in what account?
general account
Premium without operating costs factored in is
net premium
Mortality - Interest
M-I
How do you figure gross premium?
Mortality - Interest + Expense
cost of operating a company is called
loading
Frequency the policyowner pays the premium
Mode
proper solicitation protects who?
public
What 2 disclosures must be given at time of signing an application
--life insurance disclosure statement
--life insurance surrender comparison index disclosure
An annuity purchased with a single lump sum and provides income payments that start one year from date of purchase
Single premium immediate annuity
An anuuity that either is purchased with a single lump sum or is purchased through periodic payments and income payments begin any time after 1 year
deferred annuity
the person who purchases the contract, but does not have to be the one who receives the benefits
Owner
The person who receives benefits or payments from the annuity
Annuitant
The person who receives benefits from the annuity if the annuitant dies during the accumulation period
Beneficiary
the period of time over which the owner makes payments into an annuity
accumulation period
the time over which the sum that has been accumulated during the accumulation period is converted into a stream of income payments to the annuitant
annuity period, annuitization period, liquidation period
how are annuites calssified?
method used to fund annuity
date annuity payments begin
configuration of annuity
When an annuity is surrendered what amount does the owner receive?
premuim paid , plus interest, minus the surrender charge
What nonforfeiture value does an annuity have
guaranteed surrender value
when can a surrender charge be waived
if annuitant is confined to a Long-term Care facility for at least 30 days
If an annuitant dies during accumulation period, what does beneficary receive
cash value or premuims paid, whichever is greater
a provision that allows the annuitant, in the event interest rates drop a specified amount within a specified time, the option to surrender the contract without charge
Bail-out provision
what is a pure life annuity
pays for annuitant's life time only
Annuitant will receive payments for their life time with a guarantee of a specified minimum time, beneficary will receive payment until specified time is over
Life with guaranteed minimum
What payment option provides annuitant with highest monthly benefits
Pure life (life annuity)
Two types of refund life annuities
installment refund and cash refund\
this payment option allows upon the annuitant's death, the beneficiary to continue receiving guaranteed installments until the entire premium amount has been paid out
Installment refund
this payment option allows upon the annuitant's death, the beneficiary to receive a refund of the principle (it does not guaranteed to pay interest on annuity)
Cash refund
A modification of the life income option in that it guarantees an income for two or more recipients that none of the recipients can outlive
Life income Joint and survivor
settlement option where two or more annuitants receive payments until the first death among the annuitants, and then payments stop
Joint life
annuity payment option that pays for a specific amount of time only
Installments for a fixed period
Annuity payment option that pays a specific amount
Installments for a fixed amount
An annuity that guarantees a minimum rate of interest to be credited to the purchase payment and payments that do not vary from one payment to the next.
Fixed annuity
Annuities that pay a specified dollar amount for each annuity payment.
Fixed annuity
fixed annuity premuims are kept in what kind of an account at the insurance company
General Account
An annuity that invests on a relatively aggressive basis and has a guaranteed minimum interest rate
Equity Indexed Annuity
What is the principal use of an annuity
provide income for retirement
annuities are measured in what
Units
when money is going into an annuity
accumulation period
when payments on an annuity begins
annuitize
the period of time the annuitant is making payments into the annuity contract
accumulation phase
If money is withdrawn from an annuity before the annuitant is 59 1/2 years of age what happens
besides income tax on the amount withdrawn a 10% penalty will be imposed by the federal goverment
group annuities are referred to as
403-b
4 personal uses for annuities
-IRAs
-tax deferred growth
-retirement income
-education funds
which annuity has no payment guarantee, premiums invested in stocks and bonds, premiums kept in separate account
variable annuities
4 types of annuities
-fixed annuity
-variable annuity
-equity indexed annuity
-tax deferred annuity
7 settlement options for annuities
-life only
-refund life
-life with period certain
-joint life
-joint and survivor
-lump sum
-annuities certain
are life insurance premiums tax deductible or not?
are life insurance proceeds taxable?
not deductible
not taxable
are dividends taxable
no, refund of paid premiums
FIFO stands for
first in first out
LIFO stands for
last in first out
if life insurance policy is sold to another party it is called a
transfer for value, and will not be tax exempt
When the death benefit is paid out to insured's estate is it taxed or not
it becomes a part of the estate and will be subject to federal estate tax
what is defined as any one of the rights of policy ownership
incident of ownership
4 incidents of ownership
-right to cash value
-right to change beneficiary
-right to obtain loans
-right to assign policy
if the insured,as policyowner, assigns or transfers ownership of the policy or makes a gift of the policy within 3 threes prior to his death how are taxes handled
the entire face amount will be included in insureds estate
TAMRA stand for---
what did it create
--technical and miscellaneous revenue act of 1988
--Seven-pay test
The cumulative premiums paid during the first seven years of a policy must not exceed the total amount of net level premiums that would be required to pay the policy up using guaranteed mortality costs and interest
seven pay test
an life insurance that fails the seven-pay test is classified as a
modifies endowment contract
MEC
funds withdrawn from a modified endowment contract are subject to two important provisions
-LIFO
-10 % penalty is taken before 59 1/2
the nontaxable, anticipated return of the principal paid into annuity is
cost base
taxable portion of an annuity is the interest earned on the principle and is known as
tax base
the period after an annuity has been purchased but before distributions begin
accumulation phase
cash surrender of an anniuty gives rise to what with taxes
immediate taxation on interest earned
IRS imposes a penalty for premature distribution of annuities what is the penalty
10% upon the taxable portion of the distribution
how much can an individual contribute to an IRA
100% of earned income up to $4,000 and $500.00 catch up for those 50 or over
early withdrawal from an IRA that is exempt from 10%penalty
but subject to income tax
-total disability
-down payment on home
-education expense
-catastrophic medical expense
distribution of funds from IRA must begin by what age . What is the penalty
70 1/2
50% penalty of shortfall from the required amount
Roth IRAs grow tax free as long as the account is open for at least
5 years
If a taxpayer makes an excess contribution to a roth IRA, there is what kind of a penalty
6%
if the distributions from a qualified plan or IRA is paid directly to the participant before age 59 1/2 ,how much must be withheld as witholding tax
20%
How long must rollovers be completed
60 days
certain exchanges of life insurance policies and annuities may occur as non-taxable exchange under what
section 1035 exchange
in order for a retirement plan to be qualified, what 5 requirements must be met
-plan is for benefit of employee and beneficiaries
-must be written and communicated to employees
-contribution formula most to discriminate
-must be offered to all employees
-plan must be permanent
3 tax advantages for employers who contribute to a qualified retirement plan
-employer contribution is tax deductible and are not taxed as income to employee
-earnings accumulate tax deferred
-if employee dies, first $5,000 of death benefit is tax free
ERISA stands for
employee retirement income security act
what was established to protect retirement plans
ERISA
6 types of distributions that considered exceptions to early withdrawal and are not subject to 10% penalty
-death of participant
-participant's disability
-divorce decree
-a series of equal payments taken for life
-a loan from the plan
-qualified rollover
6 types of qualified plans
-simplified employee pensions(SEP)
-Self-employed (HR 10 or Keogh)
-Profit sharing and 401K
-SIMPLE plans
-pension plans
-403B tax sheltered annuities
the cost of providing life insurance in a qualified plan must be less than what percent of the total cost of benefits under the plan
25%, the cost of this life insurance must be included as income by the employee
what must a person do who has a license in another state and moves to Pa.
How many days to do this
-complete and application and required feef $110.00
-provide proof of licensing in home state
_90 days
Commissioner can issue a temporary license for how many days
180 days
4 reasons Commissioner would issue a temporary license
-death of producer
-disabled producer
-active military service(prod)
-best interest of public
if reinstatement of lapsed license occurs within 60 days
reinstatement will occur retroactive to the effective date license lapsed
if reinstatement of lapsed license occurs after 60 days
the license will be reinstated with effective date being when the license is reinstated
how long does a person have to reinstate a license?
fee for lapsed license___
-1 year
-$165.00 plus renewal fee
if a licensee is doing business under a fictitious name other than the name appearing on the producer license what is required
notify the commissioner in writing prior to use of fictitious name
a producer has how many days to notify the Department of an address change
30 days
how many excess continuing education hours that are accumulated during a two year period be carried forward
only to the next 2 year period
-24 hours
-anyone license prior to 1991 exempt from CE
-nonresidents complete CE in home state
when it appears that a person is violating an insurance law of Pa or any rule or regulation made by the Commissioner what may be issued? what is the penalty?
-cease and desist order
-fine up to $5,000
-jail 6 months
-both
If a person is found guilty of a prohibited behavior what 4 things can happen
-denial,suspension,refusal to renew,or revocation of license
-fine up to $5,000
-cease and desist order
-any other conditions commissioner deems appropriate
acting as a producer while not properly licensed is punishable by
fine of $1,000
how many days to respond to a departmental inquiry
30 days
how many days to correct violation. if not corrected what happens
-15 days
-$100 per day
5 ways the commissioner measures an insurer's financial strength
-level of working capital
-adverse financial or market conduct examination reports
-asset protfolio that is insufficient
-net loss in the prior 12 months greater than amount specified by regulations
all premuim rates and form changes must be filed with the commissioner and are subject to
30 days waiting period before they become effective
insurers must notify the commissioner in writing when they terminate an appointment in how many days
30 days
a financial examination of every insurance company licensed in Pa must be conducted how often
once every 5 years
any inducement offered in the sale of insurance products that is not specified in the policy is called
rebating
includes money, reduction in commissions, promises and personal services
using incomplete or misrepresentation to convince a policyholder to terminate an existing policy and buy a new one
twisting (illegal)
offering anything not stated in the contract
illegal inducement
an underwriter can request additional information about a particular risk from an outside source, these reports fall under 2 catergories
consumer reports
investigative reports
the act that established procedures that consumer-reporting agencies must follow in order to ensure that records are confidential, accurate and properly used
Fair Credit reporting act
if a credit report is for life insurance policy or for credit less than $150,000 what information on the credit report is prohibited
bankruptcies more than 10 years old and negative info more than 7 years
2 major causes of perils under health insurance
-sickness
-injury
ninety percent of health insurance claims are from
sickness
three major underwriting factors
-physical condition of applicant and other insureds
-moral and morale hazards
-occupation
3 goverment health programs
-chips
-medicare
-medicate
health policy that covers members of a particular group when they are participating in a particular activity
blanket insurance