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151 Cards in this Set
- Front
- Back
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Insurance |
A contract whereby one part (insurer) agrees to indemnify or guarantee another party (insured) against a loss by a specified future contingency or peril in return for payment of a premium. A transfer of risk. |
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Life Insurance |
Creates an immediate estate. 30-day grace period for payment of any premium (except the first). 10 day free look provision. |
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Adverse Selection |
The tendency of risks with higher probability of loss to purchase and maintain insurance more often than the risks who present lower probability |
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Law of Large Numbers |
A principle stating that the larger the number of similar exposure units considered, the more closely the losses reported will equal the underlying probability of loss |
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Reinsurance |
A form of insurance whereby one insurance company (the reinsurer) in consideration of a premium paid to it, agrees to indemnify another insurance company (the ceding company) for part or all of its liabilities from insurance policies it has issued. |
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Domestic Insurer |
An insurance company that conducts business in the state of incorporation. |
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Foreign Insurer |
An insurance company that is incorporated in another state |
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Alien Insurer |
An insurance company that is incorporated outside the United States. |
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Authorized (Admitted) Insurers |
An insurance company authorized and licensed to transact business in a particular state. |
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Unauthorized Insurer |
A company that poses as an authorized provider of a financial protection plan, but are actually fraudulent operations that take advantage of consumers and sometimes even insurance agents to collect "premiums" on nonexistent policies. |
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What is the difference between agents and brokers? |
Agents (also called producer) represent insurers (the company). Brokers represent insureds (the client). |
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Express Authority |
The authority granted to an agent by means of the agent's written contract. |
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Implied Authority |
Authority that is not expressed or written into the contract, but which the agent is assumed to have in order to transact the business of insurance for the principal. |
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Apparent Authority |
The appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created. |
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Fiduciary Responsibility |
An agent/broker who handles insurer's funds in a trust capacity |
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Contract Law |
Agreement (offer & acceptance), Consideration (exchange of value), Competent parties,Legal Purpose
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Adhesion |
A contract offered on a "take-it-or-leave-it" basis by an insurer, in which the insured's only option is to either accept or reject the contract. Any ambiguities in the contract will be settled in favor of the insured. |
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Aleatory |
A contract in which participating parties exchange unequal amounts. Insurance contracts are aleatory in that the amount the insured will pay in premiums is unequal to the amount the insurer will pay in the event of a loss. |
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Indemnify |
To restore the insured to the same condition as prior to loss with no intent of loss or gain.
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Utmost Good Faith |
The fair and equal bargaining by both parties in forming the contract, where the applicant must make a full disclosure of risk to the company, and the insurance company must be in underwriting the risk.
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Warranties
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A material stipulation in the policy that if breached may void coverage.
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Representations |
Statements made by the applicant on the insurance application that are believed to be true, but are not guaranteed to be true. |
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Misrepresentation |
A false statement or lie that can render the contract void. |
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Concealment |
The withholding of known facts that, if material, can void a contract. |
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Material Information |
Any information about a company or its products that is likely to change the perceived value of a security when it is disclosed to the public. Bankruptcy filings, a change in the board of directors (BOD), corporate officers or public accounting firm, changes in the company's fiscal year, and revisions to financial statements are all examples of material information. |
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Fraud |
Intentional misrepresentation or deceit with the intent to induce a person to part with something of value. |
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Waiver |
The voluntary abandonment of a known or legal right or advantage. |
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Personal Uses of Life Insurance |
Estate Conservation |
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Business Uses of Life Insurance |
Buy-Sell Funding, Key Person, Executive Bonuses |
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Applicant |
A person making application for, or offering himself, herself or another to be insured under an insurance contract. |
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Insured |
A person or organization covered by insurance |
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Policyowner |
The person who has possession of the policy, usually the insured. |
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Beneficiary |
The person who receives the proceeds from the policy when the insured dies. |
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Insurable Interest |
A financial interest in the life of another person; a possibility of losing something of value if the insured should die. In life insurance, insurable interest must exist at the time of policy application or policy. |
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MIB Report |
Medical Information Bureau. An information database that stores the health histories of individuals who have applied for insurance in the past. Most insurance companies subscribe to this database for underwriting purposes. Made up of insurers. |
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Fair Credit Reporting Act |
A federal law that established procedures consumer-reporting agencies must follow in order to ensure that records are confidential, accurate, relevant and properly used. |
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Buyer's Guide |
Generic booklet that describes insurance policies and concepts, and provides general information to help an applicant make an informed decision. |
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Policy Summary |
A specific summary of coverages,benefits,limitations, exclusions,cost and terms of a proposed life insurance policy. |
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AIDS & HIV Disclosures |
No question may be asked to determine sexual orientation, test results are given to MIB only as abnormal findings, no exclusion due to AIDS
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Conditional Receipt |
A binding receipt that provides that if a premium accompanies an application,the coverage will be in force from the date of application or medical examination, if any, which ever is later, provided the insurer would have issued the coverage on the basis of the facts revealed on the application, medical examination and other usual sources of underwriting information. |
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Underwriting |
The process of reviewing, accepting or rejecting applications for insurance. Sources: insurance application, medical exams and history, attending physician’s statement, consumer reports, MIB, federal credit report, agent report |
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Reduction of Premium |
This option allows the policyholder to apply policy dividends toward the next year's premium. The dividend is subtracted from the premium amount, yielding the new premium due for the next year |
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Installment Refund Annuity |
Guarantees payments to the annuitant each year as long as the annuitant lives. Upon death, the annuity will refund the remaining payments to a beneficiary in installments. |
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Variable life insurance is regulated by... |
Both the state and federal governments, as well as the Insurance Department. FINRA. |
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If a plan changes from monthly to annually, the premium does what? |
Decreases |
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Guaranteed Insurability Rider |
An option that allows the policyowner to purchase specific amounts of additional insurance at marriage, birth of a child, and/or every 3 years or so between the ages of 25 and 40, without proving continued insurability. Rates for the additions are based upon attained age. |
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Survivor Protection |
Planning which helps to assess the needs, assets, and liabilities of the survivors in order to determine how to best care for them in the event of the primary wage earner’s death. |
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Group Life Insurance |
Can be converted to an individual whole life, not a term, policy; the group life insurance premiums are usually lower than those of an individual policy; the group sponsor receives a master contract, while the participants receive certificates of insurance. The cost of the coverage is based on the average age of the group and the ratio of men to women |
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The Waiver of Cost of Insurance Rider |
Found in Universal Life policies, if the insured becomes disabled, the rider allows the cost of insurance to be waived, with the exception of premium costs required to accumulate cash value. |
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If a claimant is to bring a recovery action against an insurance company for a loss claimed under a policy, the action must wait... |
60 days |
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Universal Life Death Benefit |
Annually renewable term |
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Bail-Out Provision |
This provision allows the owner to surrender the annuity without charge if interest rates drop a specified amount within a certain time frame. |
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Annually Renewable Term Policy |
Premiums are adjusted each year to the insured's attained age; however, the policy may be guaranteed renewable. Death benefits remain level, and as with any term policy, there are no cash values. |
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Equity Index Whole Life Policy |
Premium is fixed, and the death benefit is guaranteed. Cash value is dependent upon the performance of the equity index although a minimum cash value is guaranteed. |
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Convertible Term Insurance |
Convertible to whole life without proof of insurability up to the full term death benefit. However, upon conversion, the premium for the permanent policy will be based on the insured’s attained age. |
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Free Look Provision |
A mandatory provision that allows the insured to examine a policy, and if dissatisfied for any reason, return the policy for a full refund of any premiums paid. It commences when the policy is delivered. |
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Tax-Sheltered Annuity |
A special tax-favored retirement plan available only to certain groups of employees (nonprofit charitable, educational, religious, and other 501c(3) organizations, including all employees in public education). |
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Classification of Risk |
Standard, Substandard (rated), preferred |
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Backdating |
Dating any document by a date earlier than the one on which the document was originally drawn up. Under most circumstances, backdating is seen as fraudulent and illegal, although there are some situations in which backdating can be used in a legal and beneficial way, such as backdating a claim for a past period.
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Premium Determination |
Mortality, Interest, Expenses |
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Premium Payment Mode |
This is the frequency in which a policyowner elects to pay premiums.
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Contributory Group Life Insurance |
Members pay (75% must participate) |
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Noncontributory Group Life Insurance |
Owner Pays (100% must participate) |
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Conversion from Group to Individual within... |
31 days |
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Viatical Settlement |
Policyholder sells all rights to the policy to a viatical settlement company for a percent of the face amount; viatical company then receives the entire death benefit when the insured dies
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Replacement |
- Present applicants with Notice Regarding Replacement of Life Insurance. - Provide replacing insurer w/ copies of the signed notice given to the applicant and all sales proposals used. - Replacing insurers are frequently required to notify existing insurers of replacement transactions within a specified period of time |
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Participating Policies |
Life policies that pay dividends. |
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Dividends |
Considered return of premium and therefore are not taxable, but also not guaranteed. Interest on dividends IS taxable. |
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Dividend Reduction of Premium Option |
Dividends applied to reduce next year's premium amount
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Dividend Accumulation at Interest Option |
Dividends remain with insurer to accumulate interest like a savings account |
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Dividend Paid-up Additions Option |
Purchase additional amounts of insurance, added to face amount of contract |
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Dividend Paid-up Insurance Option |
Apply towards policy to receive a policy that will eventually be paid in full sooner. One that will become a paid-up policy. |
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Dividend One-year Term Option |
Purchase additional one-year term insurance up to amount of cash value of policy |
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Settlement Options |
Settlement options are chosen at the time life insurance is purchased, as to how the life insurance proceeds will be paid to the beneficiary if the insured dies |
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Settlement Fixed Amount Option |
Specific amount of income is chosen and distributed until all money is paid out |
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Settlement Fixed Period Option |
Specific amount of time chosen in which you need money. Proceeds will be given in amounts based on length of time chosen. |
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Settlement Life Income Option |
Form of life annuity. Pure life income (no beneficiary), refund life income (beneficiary), life income w/ period certain (beneficiary), joint & survivorship life income |
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Settlement Interest Only Option |
Leave proceeds with insurer and only receive a check for interest the money earns (then death benefit can be left for additional beneficiary(s)) |
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Commissioner |
Appointed by governor, qualified through knowledge, $50,000 bond, active member of NAIC, examines insurers once every 5 years |
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Life & Health Guaranty Association |
Producers aren’t allowed to tell clients that this association exists unless asked specifically |
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Temporary License |
Granted only to take care of business in event of death or disability. Cannot write any NEW business. Valid for 180 days. |
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Certificate of Authority |
A certificate of authority is an insurer’s license to transact insurance business in Indiana. |
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Limited Lines Producer |
Person authorized by Commissioner to sell certain limited lines of insurance (baggage, travel accident, etc.) |
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If Commissioner refuses to grant or renew license, applicant may demand a hearing within... |
63 days |
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Hearing for denial of license or renewal must be held within... |
30 days of written demand |
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Following a hearing, the Commissioner may impose a fine between |
$50-$10,000 |
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Violation of a cease and desist order may result in fine up to.... |
$25,000 for each violation |
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Whenever a new director or principal officer is appointed to an insurer, the company must notify the Commissioner within... |
30 days |
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Requirements for Licensing |
18 years of age, criminal background check, fee, examinations, resident of Indiana or have primary place of business in Indiana, apply to Commissioner |
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Lines of Insurance |
Life, Accident and health or sickness, Property and casualty, Variable life and variable annuity products, Personal lines, Credit, Title |
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Limited Lines |
Flight, Travel, Baggage, Prearranged Funeral, Crop Hail, Credit, Title, Industrial Fire |
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Insurance and limited lines producer license renewal fees due every... |
2 years |
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License Reinstatement |
If all required continuing education was completed before the license expired, and it has not been 12 months the licensee may have the license reinstated without passing a written examination. A penalty of three times the unpaid renewal fee is required unless it is received within 30 days. |
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Continuing education requirement |
20 hours |
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A licensee must inform the Commissioner of a change of personal or business address within... |
30 days |
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Controlled Business |
Business written on the interest of the applicant or licensee, their immediate family, or their employer. During a 12-month period the commission earned on controlled business cannot be more than25% of the aggregate commission earned. |
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Twisting |
Misrepresentation with the intent to induce someone to let lapse, forfeit, or surrender any policy or contract |
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If the Commissioner believes that an unfair claim settlement practice has occurred, he will deliver a copy of the complaint to the insurer and respond to the complaining party advising them of the action to be taken within... |
10 days of receiving the complaint |
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An insurer receiving a notice of complaint must respond in writing to the complainant and the Commissioner within... |
20 business days |
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Incontestability Provision |
Required in Life Insurance stating that the validity of the policy cannot be contested, except for nonpayment of premiums, after it has been in force for 2 years. |
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Limit on Life Insurance Interest Rates |
8% |
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Term Insurance |
Temporary Insurance for a specified period of time. Does not accumulate cash value. Level, Increasing, Decreasing. |
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Level Premium Term Insurance |
Level death benefit and premium |
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Increasing Term Insurance |
Death benefit grows over time |
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Decreasing Term Insurance
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Death benefit decreases over time. Used for mortgage protection.
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Whole Life Insurance |
Coverage up to age 100 (endows, matures), Permanent insurance, Cash value, Level. Continuous Premium (straight life), Single Premium (lump sum), Limited Payment, Modified Whole Life, Graded Premium Whole Life, Equity Indexed |
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Single Premium (Lump Sum) Whole Life Insurance |
Entire premium paid upfront, accumulated immediate cash value, covered to 100. |
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Limited Payment Whole Life Insurance |
Pay for the entire policy in a shorter period of time or to a specific age, shorter payment period, higher premium |
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Modified Whole Life Insurance |
Premiums that are lower than typical whole life premiums during the first few years (3-5 years) and then higher than typical thereafter; one large increase |
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Graded Premium Whole Life Insurance |
Gradual premium increase from low to level |
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Equity Indexed Whole Life Insurance |
Face amounts are linked to equity index, for example S&P 500 |
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Joint Life Policy |
Payable on death of first insured |
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Survivorship Life Policy |
Payable on death of last insured |
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Jumping Juvenile Policy |
Automatically increases in face amount at a given age (usually 21), but premiums remain level |
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Payor Benefit Juvenile Policy |
Premiums on child's policy waived if applicant (usually parent) dies or becomes disabled before child reaches a certain age (usually 21) |
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Family Policy |
Coverage on principal breadwinner equals 4x spouse and 5x children's coverage. Whole life on primary and convertible term on spouse & children. |
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Adjustable Life |
Policy owner can adjust face amount (w/ evidence of insurability), premiums, or plan type. Insured selects two of these and insurer determines third. |
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Universal Life Insurance |
ART with cash value. Target premium goes to Mortality Charge, Expenses, and Cash Account. Takes difference out of CV. CV has guaranteed interest rate (contract rate). Allows cash withdrawal (no interest). Ends when CV empties. Option 1(A)- face amount no cash value. Option 2(b)- both. |
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Variable Whole Life Insurance |
Cash value backed by equity investments and securities but not guaranteed. Must have life insurance and securities license to sell. Guaranteed minimum death benefit. Level premium. |
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Variable Universal Life Insurance |
CV backed by equity investments, allows policyowner to adjust death benefit and/or premium. |
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Reentry Term Life Insurance |
An insured with a guaranteed renewable option may choose to answer medical questions for a reduced premium rate (prove insurability) |
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Continuous Premium (Straight Life) Whole Life Insurance |
Basic policy, most common. Level to age 100. |
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Credit Life |
Issued on life of a borrower to protect creditors, usually decreasing term, cannot have face value higher than insureds debt |
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Waiver of Surrender |
Annuity contracts provide for a waiver of surrender charges if the annuitant is confined to a Long-term Care facility for at least 30 days |
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Where do Fixed Annuity premiums go? |
Insurance company's general account |
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Accelerated Death Benefit |
Terminal illness, permanent institutionalized, or life-threatening medical condition. Does not cover disability. Maximum of 100% |
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Types of Assignments |
Absolute (assigns entire policy) and Collateral (assigns part or all of the benefits). |
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Illustration |
A presentation of nonguaranteed elements of a policy |
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Equity Indexed Annuities |
They invest on a relatively aggressive basis to aim for higher returns. Guaranteed minimum interest rate. |
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Fixed Annuity |
Less risky, guaranteed return |
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Variable Annuity |
Equities, more risky, need security license |
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Immediate Annuity |
Begin payment within a year |
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Deferred Annuity |
Begin payment in more than a year |
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Nonforfeiture Cash Option |
Lump Sum, policy cannot be restored |
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Nonforfeiture Extended Term Option |
Default, used to purchase term policy equal to existing face amount |
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Nonforfeiture |
Highest amount of insurance protection. What happens to the cash value when policy is cancelled, surrendered, or lapsed. |
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Nonforfeiture Reduced Paid-Up Option |
CV is used to purchase a paid-up whole life policy with a reduced face amount. |
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Military Service or War Clause |
Limits or eliminates death benefit if the insured dies as a result of war or while serving in the military. |
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Consideration |
Something of value that each party gives to the other. The consideration on the part of the insured is the payment of premium and the representations made in the application. For the insurer, paying a claim.
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What aspect of all retirement funds are tax-free? |
Accumulation |
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Defined Benefit Plans |
Favors owners and key employees nearing retirement. The contribution formula is weighted toward these employees. Benefit is known, contribution is unknown.
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MEWA |
Multiple Employer Welfare Arrangement, a joining together by employers to provide health benefits for employees
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Accidental Death Rider |
Insured receives double or triple death amount in the even of an accidental death. 90-day benefit stipulated in most policies. |
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Retention |
A planned assumption of risk, or acceptance of responsibility for the loss by an insured through the use of deductibles, copayments, or self-insurance.
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Rule 24 |
Life Insurance Solicitation, must provide the Buyer's Guide and the Policy Summary. Only applies to individual policies that do not offer variable, credit, or annuities. Cost is the difference between what insureds pay and what they get back. |
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Death of Annuitant |
Beneficiary receives the total amount of paid premiums OR the cash value, whichever is higher |
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Rule 13 |
Life Insurance Advertising, disclosure to consumer to protect against unfair trade practices |
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MET |
Multiple Employer Trust, Smaller employers band together and purchase at lower group rate, sponsors develop, underwrite, and administer the plan. Individuals have no conversion rights. |
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Acceptance |
Take place when the underwriter approves the application and issues the policy |
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Rule 16.1 |
Life Insurance Replacement, disclosure |
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Requirement for Group Life |
Must be organized for reasons other than buying insurance, must have at least 100 members, have a constitution, by-laws, and hold at least annual meetings, active for at least two years. |
