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life ins.
life insurance
| Question | Answer |
|---|---|
| insurable interest | policy holder faces the possibility of losing money or something of value in event of loss |
| 3 factors that determine insurable interest | 1. insuring his life 2. insuring family life 3. insuring business partner, key employee or someone who has a financial obligation |
| Survivor protection | provide funds necessary if wage earner dies. must examine survivor's needs. |
| estate creation | the purchase of life insurance creates an immediate estate. May also be created thru earning, saving and investing over time |
| t or f purchase of life ins is the only immediate way to create an estate. | true |
| cash accumulation | these occur in whole life policies |
| liquidity | availability of cash to the insured. Some policies have cash you can borrow. |
| viatical settlements | allow someone living with lifet threatening condition to sell their life policy and use proceeds when most needed, before death. These are separate contracts the insured sells the death benefits to a 3rd party at discounted rate. |
| concepts of viaticals | the insured are referred to as viators; viatical producers represent providers; viatical brokers represent the insureds |
| How does the human life approach determine amoun of personal life ins? | requires calculating of future earnings of insured using wages, inflation and # of yrs to retirement, and time value of money |
| how do you calculate life value? | find after tax income through retirement; subtract annual expenses; find # of yrs til retirement; estimate effect of inflation on income for required # of years |
| How does the needs approach determine the amount of personal life ins? | based on family predicted needs if insured dies. Provides proper amount of coverage immediately. Gather this info. 1. debt 2. income 3. mortgage 4. expenses |
| How do you determine lump sum needs? | final medical expenses,funeral, day to day family exp (mort, groceries, car, util) (other exp day care, ins, taxes) |
| debt cancelation | insurance can be used to create a fund to pay off debt rather than transfer to heirs. Most lenders require a collateral assignment of life ins. as a condition of the loan) |
| Emergency reserve funds | ins. may be used for sudden death expenses like travel and lodging |
| education funds | ins can pay for college. For surviving spouse and children |
| bequests | leave funds to the church, school or organiz. at time of death |
| social security black out period | time during which surviving spouse and children do not get survivr benefits. starts when youngest child reaches 16 and ends when spouse is 60. Unmarried children till age 19 if in school can still recv benefits. |
| retention | retaining assets. This can be done by liquidation or selling assets |
| business uses of life insurance | immediate payment upon deathof insured, protects firm in event of death of key employee |
| buy sell agreement | also called a business continuation agreement, states what will happen if owner dies or becomes disabled. it obligates owners or heirs to w/d from business and sell their interest to surviving partners |
| stock redemption plan | under corp. ownership, if business owns policies, pays premiums and is the beneficiary, businesses are obligated to purchase interests of any disabled or deceased partner. |
| entity plan | in a partnership it is an entity plan that obligates comp to buy out disabled partners |
| cross purchase plan | policies owned by individcual business partners and they are beneficiary. Under this plan each partner agrees to sell to survivor each survivor agrees to |
| disclosure authorization notice | before an insurer can obtrain information from investigators regarding the insured this form must be presented |
| mortality tables | help predict life expectancy and death rates within a specific group of people |
| Who can be an agent | any person who solicits ins on behalf of a company takes or transmits a policy collects premiums examines loss and is compensated by premium where a part of premium is paid to the agent |
| license process | 1. file app 2. filing fee up to $50 3. provide finger prints on request |
| who can be licensed? | 18 y/o, past test in last 12 mo |
| types of insurance licenses | individual and partnershps |
| Individual ins license | indiv who is appointed by at least 1 ins co admitted or authorized to transact ins in TX. |
| Partnership ins license | ins to a corp or partner. if meet these requir. 1. Auth by art of incorp 2. 1 officer act as agent indiv lic. 3. able to pay up to $25k for neglig 4. actively engaged in ins bus. 5. ea locat lic. separ 6. sub app fees & info 7. officer not lic suspended |
| who do agens represent | the ins company |
| Who appoints the commissioner of insurance in Texas | The Govenor |
| Wh can grant a temp life ins agents license? | Commissioner of Insurance ONLY! |
| To be a commissioner what and how long of experience in these occupations do you need? | 5 years in an executive admin or attorney or CPA position |
| misrepresentation | a producer who omits a statement that can mislead persns addressed |
| Term life insurance | Temporary protection no "living benefits" |
| accelerated death benefit | can be part of a term life policy, this is a benefit that allows early payment of some portion of death benefit |
| pure death protection | this is what term ins. provides not cash value involved |
| t or f term ins usually thought to be temp until permanent ins can be purchased | true |
| 3 basic types of term insurance | 1. level 2. increasing 3. decreasing |
| level term ins | most common death benefit this ins does not change |
| annually renewable term | premium increases each year with age |
| limited pay life insurance policy | requires policy owner only pay premiums for a specified number of years or until death |
| adjustable life policy | can increase premium payments, have a limited pay policy |
| group life ins | requires a minimum number of participants depending on who pay premiums (reduced adverse selection) |
| credit life policy | amount of coverage can only be amount owed. Sold to a debtor and designed to pay off debt |
| who selects bene in group life policy | employees |
| what can change in an adjustable life policy? | premium payments period, amount of ins (face amt), the length of coverage (period), increase or decrease premiums |
| provisions | explains the rights and characteristics of an ins contract. not standard policy because exact wording not required in Texas |
| t or f the same basic provisions apply to most life policies | true |
| NAIC | National Association of Insurance Comissioneers. Help to bring uniformity among life policies |
| entire contract | policy and copy of applic. alng with riders and amendments constitute entire contract |
| payment of premium | policy states when and how ften payments are made. This can be mo, qrtly, semi annually, or annually |
| mode | manner and frequency policy owner pays, If not annual additional csts for more frequent billing will apply |
| t or f if owner dies during the period of time insurance has been paid, ins co must also refund ins prem. proceeds along with policy proceeds | true |
| grace period | period of time after prem due date that policy owner has to pay prem before policy lapses (30-31 days) If policy owner dies during this time the policy is still paid but prem will be deducted |
| reinstatement | usually 3 years after policy has lapsed. must pay all past prem plus interest not to exceed 6% |
| owners rights | explains owner's rights choose options, and receive policy proceeds |
| cash surrender of a policy | cash value exceeds prem paid, excess = taxable as ordinary income |
| what limi99ts amount to borrow against a policy? | cash value and loan interest |
| other insured ride | covers spouse or oht4er family member |
| cash option | insured recv's annual life ins dividend check |
| autmatic prem. payment | owner fails to pay prem past grace period and policy does not lapse why? |
| one year tern option | the dividend option in which policy owner uses dividends to pay for insurance for 1 year |
| fixed period | bene wanted guarantee that benefits paid from principal and interest would be paid for 10 years before gone. |
| reduction in prem option | use dividents to help pay premiums |
| optional waiver of prem rider | if an ins owner becomes disabled, unable to work prem waived for life, This has a 6 mo waiting period to determine disability, then those 6 mos prem are refunded |
| interest only option | insurer retains policy pr00ceeds and pays interest only to beneficiary. Insurer will usually guarantee an interest rate |
| can children convert to their own policy w/out proff of insurability? | yes if they were riders |
| paid up option | uses the dividend to purchase 1 year ins in amount of cash value |
| cost of living rider | a rider that may be attached to a life ins policy that will adjust the face amount based upon a specific index |
| guaranteed insurability rider | specific amounts of ins to be purchased a specific ages without proving insurability avail to all, usually expires at 40 yrs old |
| policy assignment | transfers owners rights under the policy to the extent expressed in the assignment form |
| non contribulatory policy | you don't contribute (100% employees allowed) 100% paid by employer |
| contributory policy | shared cost of life ins with employer and employee (75% of employess involved) |
| what happens when you leave a company | 1. convert policy to whole life which is more expensive this must be done within 31 days of leaving the company |
| An insured stops making payments on a loan to him from cash value of policy. What will happen? | Policy will terminate when loan amt and interest = or exceeds cash |
| accidental death rider | if the insured's death occurs during specified time period after accident the policy will pay double or triple face amount |
| annuity | a contract that provides income for a specified number f years or for life. It protects a person from outliving their $$. |
| accumlation period of an annuity | also called pay in period is the period of time over which the annuitant makes payments to an annuity payments earn interest tax deferred and grow |
| annuity perid | or annuitization period, or liquidation period or pay out period. May last a life time or a shorter period |
| owner of annuity | person who purchases contract, has all rights such as nameing bene |
| annuitant | person who receives benefits of the annuity. must be a natural person |
| Single premium immediate annuity | purchased with single lump sum pmt and is set to provide income within 1 year from date of purchase |
| what is annuity income based on | 1. cash value 2. frequency of pmts 3. interest rate 4. annuitants age (younger person have smaller installments) |
| deferred annuity | grow tax deferred. Used to accumulate funds for retirement |
| nonforfeiture | has a guaranteed surrender value of premiums paid |
| surrender charge | charged if surrendered prematurely. This charge generally reduces over time. 6% 1st year, 5,4,3,2,1 |
| death benefits | pay total premiums or cash vlaue whichever is greater to bene. If no bene then it is paid to the estate. |
| Life annuity | will pay a specific amt for remainder of the person's life |
| pure life or straight life | pmt ceases at death |
| 2 types of refund annuities | 1. cash refund - lump sum pmt 2. installment refund - when owner dies, bene will cntinue to receive installments |
| single life annuities | covers only 1 life |
| multiple life annuities | covers 2 or more lives joint and survivor - 1 dies = 1 dies and the other receives 2/3 or Joint life = 1 dies and pmts stop |
| annuities certain | short term annuities that limit amt paid to a certain fixed period. Pays until end of a fixed period. can be bought as fixed period or fixed amount installments |
| fixed period installments | owner selects time period for benefits the issuer determines how much each pmt will be |
| fixed annuity | fixed in the sense it provides: guarantee min rate of inter, fixed income pmts, ins co guarantees that specifies $$ amt for each pmt and length f period of pmts |
| general acct | a fixed annuity into which premiums are invested. These accts are conservative enough t guarantee interest rate |
| guaranteed in rate | rate at which ins co will pay for fixed annuity if rate drops (usually 3%) |
| use of annuity | provide income for retiremnt or any other reason like to liquidate4 an estate, ((10% penalty if used before age 59 1/2) |
| annuity tax deferred | deferred annuities grow tax deferred. However, upon surrender any balue above owner's basis (premiums paid) is income taxable as ordinary income |
| Education | annuities can be used to save for education. Not as popular as before, b/c they are LIFO. Interest is last in so the first out are taxable |
| variable annuity | payment not guaranteed. Premiums invested in stocks and bonds. Prem in separate acct. |
| equity index annuity | interest rate tied to index earn higher rate. not as risky as variable annuity or mutual funds |
| Life only annuity | insured cannot outlive income. any monies not paid out are retained by the annuity company |
| refund life annuity | guaranteed life time income. If annuitant dies balance goes to bene |
| life with period certain | specific m. pmt fr life and specific period of time. If annuitant dies before period ism up money goes to bene. |
| joint life annuity | 2 r more annuitants, recv' pmts till one dies then pmts stop. |
| joint and survivor | income for 2 or more cannot be outlived, when 1 dies, ther receives 1/2 or 2/3 of orig pmt |
| annuity certain | pmt guaranteed for fixed period or until certain fixed amount paid. no life guarantee |
| are life ins proceed to bene taxed? | they are tax free if taken as a lump sum if other method then some tax free and some taxed |
| cash value | any cash value above the basis is taxed as ordinary income. |
| dividends | refund of excess prem. and are not considered for income tax purposes. If dividends earn interest, the interest is taxed as ordinary income |
| policy loans | the loan is made against cash built up. Insurer charges and interest rt. |
| TRANSFER for value | if life ins policy is sold to a 3rd party, they may not be tax exempt. This does not apply if policy was assigned as collateral to a lender. |
| 3 reasons why life ins would be included as part of the deceased estate and subject t federal estate tax | 1. insured possesed any "inciderets of ownership" @ time of death. 2. the insured estate is designated the bene 3. if insured trans ownership within 3 years of death the entire face amt is taxable. |
| Incidesets of ownership | anyone of the rights of policy ownership such as right to cash value. The entire amount will be taxable with estate even though paid to bene. |
| Is whoel life Prem paid deductable | no |
| is the cash value that exceeds the basis or total premiums paid taxable | yes at the surrender of the policy |
| are whole life policy loans taxable | no |
| is the dividend interest on a whole life police taxable | yes only on the interest |
| is a lump sum death benefit taxable on a whole life policy | no |
| modified endowment contracts | (MECS) tax reform act of 1984 changed a lot of traditionaq tax shelters. Single life prem were bought to place lrge sums of $$ into them tax deferred. Then they would take policy loans and partial surrenders against policy. MECS were made to stop this |
| 7 pay test | made in 1988, to stop single pay lump sums into ins. (MECS) It determined if was policy over funded. Prem paid cannot = more than 7 yrs of premium |
| What happened to policies that were written before the 7 pay test in 1988? | The 7 pay test did not apply. They were all grandfathered in to old period. |
| MEC change | any time a MEC which was created to prevent pol.icy holders from using cash value policies like universal or whole life ssolely s a source of tax favor loans, had a death benefit increase that was a material change and a new 7 pay test was required |
| taxation on MEC | if policy is MEC if there is a gain, the first dollars recv'd by policy owner are considered to be excess of over premiums and immediately taxed. (LIFO) rule - interest comes out first |
| Exclusion ratio | some portion of an annuity is taxable and some is not |
| cost base | portion paid in to annuity not taxable |
| tax base | portion taxable is interest earned on principle |
| early distribution of annuity | if w/d before age of 59 1/2 a 10% penalty is imposed upon the taxable portion of the distribution. |
| exclusion ratio | used to determine annuity amounts to be excluded from taxes |
| annuity death distribution | if owner dies before annuity start date, contract interest is taxable. If bene is spouse, taxes can be deferred |
| corp ;owned annuities | can only grow tax deferred if has a human annuitant. This prevents corps from purchasing an annuity and postponing taxation indefinetely |
| IRA's | must have earned income and be younger than 70 1/2 to get IRA. can contribute 100% of income up to $5000. Married can double this amount even if only 1 has income. |
| what is the penalty for over contributing to an IRA | 6% |
| earned income | salary, wages, commissions, this des not include investment income or unemployment benefits |
| t or f you can make IRA contributions in any mode and they will be tax deductable | false, they must be made in cash |
| catch up contributions | IRA contribution for persons 50 and over can add an additional $1000 |
| exceptions for early IRA penalty early w/d | 59 1/2, totally disabled, 1st time home buyer not > $10k, w/d for college, catastrophic med expenses |
| t or f if a exception is made for early w/d the money is still subject to income taxes | true |
| REQUIRED AGE OF IRA W/D | 70 1/2 by Apr 1 of year following this b-day. if RMD is not taken there is a 50% penalty of shortfall from required amount |
| On or Before 12/31 | Owner of annuity dies before distrib, entire interest must be distributed on or before 12/31 of calendar yr that has the 5th anniv of owners death, unless there is a bene. bene can stretch out interest over his life |
| roth IRA | age not matter, distrib not mandatory, grow tax free as long as open for 5 years or more |
| when can a traditional IRA be converted to a Roth? | when income does not exceed $100k, income tax will be paid on all the yuear trad rolled over to roth |
| how can money be moved from 1 qualified IRA to another? | rollover or transfer |
| rollover | move from 1 plan to another if paid directly to participant 20% must be w/held as a withholding tax. If funds to to new trustee there is no w/holding tax this is called a transfer |
| transfer | funds go from one plan directly to new plan |
| section 1035 exchanges | when one policy is exchanged for another ie. ins for ins, ins for annuity, annuity for annuity. as long as on the same life (person) no tax on these transactions |
| qualified retirement plans | entitles owner to tax benefits |
| characteristics of a qualified retirement plan | designed for employer and their bene's; formally written and communicated to employees; us no discrim benefit formula does not favor prohibited group; not geared to specific group; permanent; approved by IRS; have vesting require.; all w/d are taxed |
| prohibited group | at a company it is the officers, stockholders or high paid employees that make up this group - retirement plans cannot be written to suite them only |
| tax advantages to employer for qualified plans | employer contrib tax deduct.; not taxed as income to employee, earnings grow tax deferred; lump sum distributions to employees are eligible for favorable tax treatment |
| if w/d from qualified plan before 59 1/2 10% penalty except | death of participant, disability, divorce, a series of = payments at least annually over, loan from plan, a part of qualified rollover |
| Plan types | SEPS, 401(k), Simple Plan, Tax shelter |
| SEP | (Simple Employee Pension) for small employers, employer contributes and is not considered employee income, employer can contribute up t $49k or 25% whichever is less |
| 401 (k) | Company profits put in a plan for employees. employees take less pay to put some in retirement plan. employers can match or do a % it must be systematic and substantial |
| Cash and deferred arrangement (CODA) | employees can choose to get taqxabel cash compensation or to put in 401(K) |
| HOW MUCH CAN EMPLOYEE PUT IN 401K? | up to $16,500 this is not counted as part of the income |
| how can 401(k) be arranged | pure salary reduction plan; bonus plan; thrift plan |
| bonus or thrift plan | employer will contribute amount or % for each $$ contributed by employee. Employee contribution not always required. |
| can you borrow from your 401 (k) | yes, up to 50% not to exceed $50K |
| Simple Plans (savings Incentive match plan for employees) | sm business </= 100 employees,receiving at least $5k in compensation from employer during previous yr, employees can defer $11,500 annually, emplyer mtches $ for $ up to 3%, taxes deferred for both employer and employee till w/d |
| tax shelter annuities (TDA) | also tax shelter acct (TSA) or 403(b) non profit employees plan. this is under 501(c)(3) of IRS and to emplyees of public shcools |
| contributions for tax shelter annuities | by employer or employee through salry reduction; not part of employee income; limit contrib same as for 401(k) $16,500; catch up also applies |
| profit sharing plan | where employer will contribute money to employee retirement plan when there is a profit made by the company |
| life insurance | bought in case you die too soon to protect your survivors |
| annuity | purchased in case you live too long and need more retirement money, protects a person who outlives their assets, guaranteed mo income, no max limit, |
| pay in phase of an annuity | this is the time period you are paying premiums in |
| pay out or annuitization phase of an annuity | this is the time period you are taking w/d |
| annuitant | person who used annuity money |
| beneficiary | person who receives money if owner dies |
| How can you buy an annuity? | lump sum, flexible pmt, level premium set in contract there is a min amount |
| how does money grow? | earns interst, fixed interest rate, or a variable rate, owner chooses where to put money (stocks, bonds), money is put in a separate account |
| t or f person selling annuity must have life ins and securities license | true |
| when can you use annuity money | an immediate annuity w/d within 12 months this must be stated with a lump sum |
| deferred annuity | any time after 12 mo period once they take money out they will p[ay taxes on interest and growth but not principal |
| how des money get sent to me | lump sum, annuity certain, life annuity |
| 3 parts to policies | 1. provisions 2. riders 3. options |
| dividend | return of excess premium refund of overcharged premium |
| 2 types of insurance companies | 1. mutual ins co. - owned by policy holders they are a PARTICIPATING co b/c they participate in dividends 2. Stock ins co - non participating - owners are shareholdersw |
| dividend in certain year was declared how do you receive it? | tax free, cash payment, reduction of premium, accumulation and interest - telling ins co. to keep dividend and make it grow |
| t or f growth on dividend is not taxable | false all interest on dividend is taxable |
| Whole life adjustable policy | client can change prem, pay period, and term. client get 2 choices and ins co gets 1 choice of what to change, proof of insurability will probably be required for coverage and risk |
| universal life | combines term ins and cash value plan. term ins = annual renewable term, price increases each year based on person's age |
| Option A and Option B | A - bene recv's death benefit only B - bene recv's death benefit and cash value |
| variable policy | something changing this is the interest rate, money kept in separate account b/c risk is taken by client. death benefit will not go below purchased amount. this considered investment so seller must have securities license |
| equity index policy | permanent life ins where cash value grows at a guaranteed rate but is linkied to an outside equity index like (s & p 500); not considered and investment, give client opp to earn higher interest |
| insurance | transferof financial responsibility associated with a potential of a loss (risk) to and insurance company. This spreads cost of loss to many individuals |
| hazard | are conditions or situations that increase the probability of an insured loss occurring. Hazards are classified as physical hazards, moral hazards, or morale hazards. |
| what conditions go along with hazards | Conditions such as lifestyle and existing health, or activities such as scuba diving are hazards and may increase the chance of a loss occurring. |
| Physical hazards | are individual characteristics that increase the chances of the cause of loss. Physical hazards exist because of a physical condition, past medical history, or a condition at birth, such as blindness |
| moral hazards | tendencies towards incrsd risk. they involve eval the character and rep of the proposed insured. Moral hazards refer to those applicants that may lie on an application for insurance, or in the past, have submitted fraudulent claims against an insurer |
| morale hazards | they arise from a state of mind that causes indifference to loss, such as carelessness. Actions taken without forethought may cause physical injuries. (I'm not going to spend my money for a flu shot. If I get sick, my insurance will pay for my care.) |
| risk | the uncertainty or chance of a loss occurring |
| two types of risk | pure and speculative |
| pure risk | refers to situations that can only result in a loss or no change. There is no opportunity for financial gain. Pure risk is the only type insurance companies are willing to accept. |
| speculative risk | involves the opportunity for either loss or gain. An example of speculative risk is gambling. These types of risks are not insurable. |
| exposure | is a unit(s) of measure used to determine rates charged for insurance coverage. |
| determining rates to consider | * The age of the insured; * Medical history; * Occupation; and * Sex. |
| homogeneous | A large number of units having the same or similar exposure to loss are referred to as |
| Perils | are the causes of loss insured against in an insurance policy. |
| health insurance | insures against the medical expenses and/or loss of income caused by the insured’s sickness or accidental injury; |
| property insurance | insures against the loss of physical property or the loss of its income producing abilities; |
| casualty insurance | insures against the loss and/or damage of property and resulting liabilities. |
| loss | defined as the reduction, decrease, or disappearance of value of the person or property insured in a policy, by a peril insured against. Insurance provides a means to transfer loss. |
| what elements must be present in pure risk to make it insurable? | due to chance, must be definite and measurable, must be statistically predictable, cannot be catastrophic, loss must be large, ins must not be mandatory |
| adverse selection | is the insuring of risks that are of a poorer class (more prone to losses) than the average risk. |
| t or f one of the functions of underwriting dept is to protect against adverse selection | true |
| how do underwriters protect insurer against adverse selection | Restriction of coverage; Acceptance only at a higher rate; Refusal to accept the risk. |
| law of large numbers | is 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. |
| reinsurance | a contract under which one insurance company (the reinsurer) in consideration of a premium paid to it, agrees to indemnify another insurance company for part or all of its liabilities from insurance policies it has issued. |
| ceding insurer | The originating company that procures insurance on itself in another insurer |
| faculative reinsurance | When reinsurance is purchased on a specific policy, it is classified as |
| fraternal benefit society | a volun org that provides ins bfits for mbers of an affiliated lodge, relig org, or frat org with a rep form of gov.Since frat sell only to their mbrs and are charit instit, they are not subject to all of the regs that apply to insurers that ins to public |
| gov forms of ins | medicare, social security, fed crop insurance, national flood ins |
| difference between private and gov ins | major difference between government programs and private insurance programs is that the government programs are funded with taxes and serve national and state social purposes, while private policies are funded by premiums. |
| admitted insurer | an insurance company that has qualified and received a Certificate of Authority from the Department of Insurance to transact insurance in the state |
| non admitted insurer | an insurance company that has not applied, or has applied and been denied a Certificate of Authority and may not transact insurance. |
| certificate of authority | needed before you can sell insurance |
| domestic insurer | an insurance company that is incorporated in this state. In most cases, the company's home office is in the state in which it was formed - the company's domicile. |
| foreign insurer | an insurance company that is incorporated in another state, territorial possession or Washington, D.C. |
| alien insurer | an insurance company that is incorporated outside the United States. |
| what are the financial rating services of insurance companyies | fitch, moody, am best, standard and poors, weiss |
| Independent Agency System/American Agency System. | An independent agent represents several companies and is appointed on a non-exclusive basis |
| Exclusive Agency System/Captive Agents | The agent represents only one insurer and is appointed on an exclusive basis. The captive agent earns commissions on personal sales and overrides of other agents. Business is owned by the insurer and the insured is a customer of the insurer. |
| AGENCY SYSTEM | an entrepreneur, empow by the insurer that he or she repres on an excl basis to sell life ins in a specified terr and to appt subagents. The gen agent may receive comp for ofc exp, advert and staff, and will recv' comm on sales and overrides on his agents |
| mangerial system | A sales force is supervised by a branch manager who, in contrast to the general agent, is a salaried employee of the insurer. The agents assigned to the branch office can be employees of the insurer or independent contractors. |
| Direct Response Marketing System | comp which advertises its ins thru the mail, internet, tv, or thu other mass marketing tech and requires the applicant to complete the app and return it directly to the insurer by mail or online, bypassing the agent, is a direct response marketing system |
| agent/producer | person who acts for another person or entity known as the principal, with regard to contractual arrangements with third parties. |
| t or f if the insured submits payment to the agent, it is the same as submitting a payment to the insurer. | true |
| three types of agent authority | express, implied, apparent |
| express authority | the authority a principal intends to grant to an agent by means of the agent’s contract. It is the authority that is written in the contract. |
| 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. |
| apparent authority | authority is the appearance of, or the assumption of, authority based on the actions, words, or deeds of the principal or because of circumstances the principal created. |
| fiduciary responsibility | An insurance agent who agrees to obtain coverage for a client is obligated to exercise the same degree of care as would be expected from a reasonable, prudent, and competent professional in the field. |
| fiduciary | a producer who handles insurer funds in a trust capacity. He or she does not commingle premiums collected with his or her own personal funds. |
| professionalism | a person in an occupation requiring an advanced level of training, knowledge, or skill. Being professional means placing the public's interest above your own in all situations. |
| contract | an agreement between two or more parties enforceable by law.” In order for a contract to be legally binding or enforceable by law, it must have certain essential elements. |
| 4 elements of a legal contract | offer and acceptance, consideration, competent parties, legal purpose |
| consideration | both parties give this to each other, consider for insured is payment, insurers consideration is the promise to pay |
| Aleatory Contract | a contract in which unequal amounts or values are exchanged. The premium paid by the insured is small in relation to the amount that will be paid by the insurer in the event of loss. |
| personal contract | the insurance company and an individual. Since the company has a right to decide with whom it will and will not do business, the insured cannot transfer the contract to someone else in most cases without the written consent of the insurer. |
| unilateral contract | only one of the parties to the contract is legally bound to do anything. The insured makes no legally binding promises; however, an insurer is legally bound to pay losses covered by a policy in force. |
| conditional contract | certain condit must be met by owner and comp for contr to be executed. requires both insurer and owner to meet certain condit before contr can be executed, unlike other types of policies, which put burden of condition on either the insurer or the owner |
| principal of utmost good faith | implies that there will be no fraud, misrepresentation or concealment between the parties. |
| indemnity | referred to as reimburs is a provision in insurance policy that states that in the event of loss, an insured is permitted to collect only to the extent of his/her finan loss and is not allowed to gain financially because of the existence of contract. |
| representations | statements believed to be true to the best of one's knowledge, but they are not guaranteed to be true. For insurance purposes, representations are the answers the insured gives in response to the questions on the insurance application. |
| intentional and material | a misrepresentation would be considered fraud |
| warranty | an absolutely true statement upon which the validity of the insurance policy depends. |
| concealment | egal term for the intentional withholding of information of a material fact which is crucial in making a decision. In insurance, concealment is the withholding of information that will result in an imprecise underwriting decision. |
| fraud | the intent. misrepres or inten concealment of material fact used to induce another party to make or refrain from making a contract, or to deceive or cheat a party. Fraud is grounds for void life ins contract if it is discovered during the first 2 years. |
| waiver | the intentional act of relinquishing a known right, claim or privilege. |
| estoppel | a legal process that can be used to prevent a party to a contract from re-asserting a right or privilege after that right or privilege has been waived. |
| key person insurance | business can suffer a financial loss because of the premature death of a key employee that has specialized knowledge, skills or business contacts. A business can lessen the risk of such loss by the use ins |
| executive bonus | an arrangement where the employer offers to give the employee a wage increase in the amount of the premium on a new life insurance policy on the employee. |
| indiv life insurance | Written on single life (person) |
| group life ins | written as master policy, issued to the sponsoring org, covering the lives of more than one individual member of that group. Individuals covered by group life insurance do not receive a policy, but receive a certificate of insurance from the master policy |
| who pays taxes in group life policy? | Coverage paid for by the employer in excess of $50,000 is taxed to the employee. |
| characteristics of group policies | group must exist for reason other than buying ins, must have opp to convert policy if they leave group |
| permanent life ins | general term used to refer to various forms of whole life insurance policies that remain in effect to age 100 so long as the premium is paid. |
| 6 different types of life ins | Term insurance; Whole life insurance; Endowment insurance; Adjustable life insurance; Variable life insurance and Universal life insurance. |
| t or f not all policies issued by a mutual insurer are participating. | true |
| participating (par) | annual dividends are paid to policy holder |
| fixed life ins or annuities | are contracts that offer guaranteed minimum or fixed benefits that are stated in the contract. |
| variable life ins or annuities | contrts which cash val grow based upon portf stocks w/o guarantees of perform. Variable annuities keep pace with inflation, they are determined by value of securities backing it, and the number of units rec'vd remains constant, but the unit value varies |
| FINRA (financial industry regulatoryt authority) formerly NASD (nat assoc of Securities Dealers) | agents dealing with variable annuities are required to be registered with them |
| t or f variable contracts are securities and are regulated by SEC | true |
| separate accounts | accounts that must be established for variable products |
| factors in premium determination | mortality, interest earnings |
| mortality tables | give number of indiv in a group at a certain agewho are expected to be alive at a succeeding age. This table will indicate to a life insurance company the "natural premium" for an individual applying for life insurance. |
| NATURAL PREMIUM | the amount of premium that must be collected from each member of a group composed of the same age, sex and risk in order to pay $1,000 for each death that will occur in the group each year. |
| Interest earnings | Since premiums are paid before claims are incurred, insurance companies invest the money in an effort to earn interest. This interest is a primary factor in lowering the premium rate. |
| expense | |
| net premium | the premium without operating costs factored in |
| loading | the insurer adds the costs of operating expenses t the premium, includes commissions, taxes, advertising, and while not an expense, includes the amount added to a pure or basic rate to provide for a profit margin to the insurer. |
| gross premium | Mortality – Interest + Expense (loading) = Gross Premium |
| duty of agents | before using an advertisement, an agent must file its contents with the home office of the insurer, and receive a written approval. |
| duties of insurers | insurers marketing policies in Texas must maintain a system of control over the content, form, and method of dissemination of all advertisements on their policies. |
| policy summary | writ stmnt with facts of pol. must have name,add, full name & home ofc or admin ofc add of the insurer, and generic name of basic policy and each rider. A policy summary will also include prem cash val, divid, surren val and death benefit for pol yrs |
| approval conditional receipt | coverage begins only when the pre-paid application is approved by the insurer (but before the policy is delivered). Therefore, there is no coverage during the initial underwriting process. This type of receipt is rarely used. |
| unconditional (binding) receipt | used most often with prop & casualty ins. c binding recpt, coverage begins immed, for a length of time, until the policy is issued. they stipulate that coverage is effect. from the date of the app for only a specified period of time, such as 30 or 60 days |
| attending physician's statement (APS) | this is asked for by the underwriter when there is no prior medical hx but there seems to indicate some risk of writing the policy |
| paramedical exam | conducted by paramedic or nurse |
| investigative consumer report | this covers financial and moral information. This can be ordered by underwriter. They must follow rules of the fair credit reporting act. |
| Medical Information Bureau (MIB) | underwriter can also ask for this, MIB is made up of ins companies, this would have adverse medical information on clients, Cannot be denied based on MIB alone |
| HIV tests | these are usually done on clients that are insured for $50k or more. |
| Rules for HIV tests | 1. written persmision 2. must meet protocol of Health and Hum Svc 3.Must disclose test results in writing 4. in no dr and results are posit then results must be passed on to dept of health must include name, address and rpt number |
| what are the 3 ratings of insured? | standard, substandard and preferred |
| when can a corporation and banks have a life ins license? | TX corp and principal place of business is TX, at least corp offcer indiv licensed, corp must demonstrate finan respons and be able to pay up to 25k if legally required because of an error |
| how can non residents of TX be licensed? | A nonresident of Texas may be licensed as a life insurance agent if he or she meets the Texas licensing requirements, as long as the person's home state gives Texas residents the same privilege. |
| when can the written part of the life exam be waived for states you don't live in? | other states requires written exam, official in other state verifies that applicant is life licensed and had passed the exam, applic has no place in TX as life ins agent |
| life agent license | if not have life license, you can use this license for endowment and annuity benefits, death and dismemb or disability, industrial life with weekly prem, fixed variable annuity, life ins for any one life over 15k with set prem, any other as req by commiss |
| t or f a person is not required to have life license if your write funeral ins or ins under 15k | true |
| life ins counselor | any person who, for a fee or commission, offers to examine a life insurance, an annuity, or pure endowment policy, to give advice, a recommendation or information regarding the policy’s terms, conditions, benefits, coverage or premium. |
| How often do you have to renew your life ins license | every 2 years |
| if your life license has expired form more than 1 year what must be done | you must retake exam |
| how do you know your license is about to expire? | commiss will send a notice 30 days before expiration |
| under what circumstances will commiss grant a temp license | appl has submit app and fee and would like to collect fees on industrial life ins, when insurer is considering a person for an agent, they can sign off and have them temp licensed |
| how long do temp license last | not more than 6 months for the same person |
| t or f temp licensed agents cannot sell ins that replaces annuities or life ins | true |
| what must you do to renew your license? | 30 HOURS of continuing education, and app and fees. |
| When does renewal conin education not apply? | agents lic for 20 years by dec 31, 2002; agents licensed for residual income only, nonres agents if home state require same educ, qual for exemp for illness, retired agents |
| how must contin ed for renewal be completed? | at least 59% in classroom setting and approved by the department |
| HOW long do you have to maintain records for continuing education for your renewal? | at least 4 years |
| emergency cease and desist order | emerg cease and desist order must explain the immed danger to public safety and outline the charges and require that the person to immediately cease and desist for such action. The order must also explain the rights of the person charged with the order |
| how long do you have to contest the cease and desist order | 30 days and the comm must hold the hearing no more that 10 days after the request is received unless parties mutually agree on different date |
| surrender of agents license | Surrendering the license will not keep the agent from being penalized. |
| how long do you have to wait to reapply if your license has been suspended? | 5 years |
| along with the cease and desist the comm can also do what? | order admin pmt, order licensee to make restitution, any combination of these |
| when can a licensee be penalized? | break ins code, violates another ins law of this state, violates rule adopted by the state |
| how much can ins penalty be? | not greater than $25,000 depending on seriousness of crime, economic harm, hx of prev violations, amt necess to deter future violation, was violation intentional, |
| commiss of tx ins is appointed how and for how long? | appt by gov for 2 year term ending feb 1 of odd years, |
| t or f the commiss cannot live with anyone who is a licensed agent | true |
| certificate of authority | a company must have this signed by the commiss granting authority to conduct ins business. It remains in effect until revoked, canceled or suspended |
| what are the financial requirements each year for the insurer? | financial statement must be analized each year by a CPA - finan report from prior year must be filed with commiss by jun 30th |
| how often does commiss examine insurer records? | once every 5 years |
| defamation | occurs when an oral or written statement is made that is intended to injure a person engaged in the insurance business. This also applies to statements that are maliciously critical of the financial condition of any person or a company. |
| rebating | any inducement offer in sale of ins that is not in the policy. Rebates include money, reductions in comm, stock, bonds, secur and their divid, favors or advantages in benefits, and personal services. Both the offer and acceptance of a rebate are illegal |
| disparagement | An advertisement may not unfairly disparage competitors and their policies, services or business methods and may not unfairly minimize competing methods of marketing insurance. |
| if an agent moves to a new state, what must they do? | they have 30 days to his new address with and proof of authorization to conduct business in new state to ins department |
| when must a corp or partnership submit biographic info to TDI | on ea officer, director or unlicensed partner who does operations, each sharehlder who can control partnership, if owned by parent entity each person in control of parent entity |
| When must co or partnership notify TDI | felony or conviction of licensed agent, or addition or removal of officer, director, partner, mbr, or mgr |
| life, accident, health and hospital service insurance guarantee associatin | An advertisement may not unfairly disparage competitors and their policies, services or business methods and may not unfairly minimize competing methods of marketing insurance. all insurers must belong to this org Assoc has a board of 9 direc apt by gov |
| Fair Credit Reporting Act | became law on April 25, 1971,established procedures that consumer-reporting agencies must follow in order to ensure that records are confidential, accurate, relevant, and properly used |
| Consumer Reports | include written and/or oral information regarding a consumer's credit, character, reputation, or habits collected by a reporting agency from employment records, credit reports, and other public sources. |
| Investigative Consumer Reports | similar to consumer rpts in that they also provide information on the consumer's character, reputation, and habits. The primary difference is that the information is obtained through an invest and interviews c assoc, friends and neighbors of the consumer |
| t or f investigative consumer reports must notify consumer within 3 days in writing | true |
| WHA are the penalties of using info from consumer reports under false pretenses? | up to $1000 fine and 2 years in prison |
| fine for willfully violating Fair Credit reporting act? | UP TO $2500 |
| t or f if ins is declined or modified b/c of info in consumer rpt, consumer must be advised and provided name and address of reporting agency | true |
| if consumer challenges info in consumer report and wins what is the obligation of the consumer reporting agency | agency must send the corrected information to all parties to which they had reported the inaccurate information within the last 2 years. |
| what is the penalty for falsifying insurance | 50k per act and up to 10 years in prison |
| commissioners term office | 2 years |
| max duration of temp license | 90 days |
| min requirement for ethics trng | 2 hours |
| Minimum required for year in premiums in business other than controlled | 25% |
| time period For agents to report change of address, felony conviction, or administrative action | 1 MONTH |
| Maximum agent licensing fee | $50 |
| Financial responsibility that corporations and banks must prove to become agents | $25k |
| Maximum fine for violating the Insurance Code | $25k |
| Fine for each false and fraudulent act | $50k |
| Fine for willful violation of the Fair Credit Reporting Act | $2500 |
| what is the purest form of term ins? | ART - annual renewable term, policy value remains level but premium increases with age |
| level premium term | Term provides a level death benefit and a level premium during the policy term. For example, a $100,000 10-year level term policy will provide a $100,000 death benefit if the insured dies any time during the 10-year period. |
| decreasing term | level premium and a death benefit that decreases each year over the duration of the policy term. |
| when is decreasing term used | Decreasing term is primarily used when the amount of needed protection is "time-sensitive", or decreases over time. Decreasing term coverage is commonly purchased to insure the payment of a mortgage or other debts if the insured dies prematurely. |
| whole life policy | refer to as permanen protec since as long as the prem is paid coverage will continue for life of insured. prem for whole life policies is based on age therefore, it remains the same throughout the life of the policy |
| nonforfeiture value | The cash value, called nonforfeiture value, does not usually accumulate until the third policy year and grows tax deferred. |
| types of whole life policies, | straight life, limited pay and single premium |
| straight life | also referred to as Continuous Premium Whole Life), It charges a level annual premium for the lifetime of the insured and provides a level, guaranteed death benefit. If the insured lives to age 100, the policy endows (matures) |
| Limited pay whole life | level annual prem, level guaranteed death benefit, endows for face amount if insured lives till 100, usually pay prem only for 20 years |
| single premium whole life (SPWL) | endows if insured lives to 100, builds cash immed because of size of prem |
| how long is the rate of return usually set for a single premium whole life policy? | 1 - 5 years then changed by the insurer but will not go below certain rate stated in the policy |
| Single prem whole life have surrender charge how does it work? | the policy is subject to a surrender charge that is levied if the policy is surrendered for cash within a specified period of time. The surrender charge is generally in effect for 7 to 10 years on a diminishing basis. |
| indeterminate premium reduction policy | policy in which the premium is guaranteed for an initial period, then the insurer can charge up to a maximum premium charge that is specified in the policy |
| WHAT IS ONE OF THE MAIN PURPOSES FOR THE INDETERMINATE PREM REDUCTION POLICY? | One of the purposes of the policy is to provide insureds with insurance coverage at a lower initial premium than would be obtainable from the insurer if the premium could not be changed by the insurer for the life of the policy. |
| t or f Indeterminate premium reduction pol must include a statement that all non-guaranteed premium rates used to market policy are lower than rates that the insurer is willing to guarantee in other policies | true |
| Indeterminate premium written statement must include what? | premium might be changed, frequency of changes, non guarantee of prem, max charge can be charged, dividends are only payable if declared |
| adjustable life policy | developed in an effort to provide the policyowner with the best of both worlds (term and permanent coverage). An adjustable life policy can assume the form of either term insurance or permanent insurance |
| What are the normal options for the insured in an adjustable policy | inc or decr prem, change prem paying period, inc or decr face amount of coverage, changed period of protection |
| t or f As a result of this flexibility, the policyowner has the option of converting from term to whole life or vice versa on variable policy | true |
| universal life | allow the policyowners to adjust the premium, the insurance companies may give the policyowner a choice to pay either the minimum premium or the target premium. |
| how much is the ins on unversal life guaranteed for? | usually the minimum of 3-5.5% |
| what do prem go to in a universal life policy? | small part of it is deduct for prem exp, bal is alloc into the policy's cash acct. Certain exps are then deducted from cash acct. These expenses (loads) incl mortality costs, sales exp incurred in marketing and distrib and expenses involved in issuing |
| what are the two components of universal life? | insurance component and cash account |
| insurance component of universal life | The insurance component of a universal life policy is always annual renewable term insurance. |
| cash account of universal life | The insurance component of a universal life policy is always annual renewable term insurance. |
| what are the two death benefit options with universal life | Option A and B |
| Option A of Universal life | Level Death Benefit option), the death benefit remains level while the cash value gradually increases |
| option B of Universal life | Under Option B (Increasing Death Benefit option), the death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases. There is an extra prem charge for this opt |
| group life insurance | usually written for employee-employer groups, but other types of groups are also eligible for coverage. It is usually written as annually renewable term insurance. |
| two features that distinguish group from indiv ins | evid of insurability usually not reequired, participants (insured) do not recv' a policy nor are they in control of the policy |
| certificates of insurance | issued by employers to participants under group plan evidencing they have coverage |
| t or f If one applies for group coverage after the open enrollment period, proof of insurability may be required in order to avoid adverse selection. | true |
| law of large numbers | the larger the number the less the risk of loss (this applies to group ins) |
| characteristics of group plans | purpose of group, size of group, turnover of group and finan strength of group |
| what is the cost of the group prem based on? | average age of the group and ratio of men to women. mUST BE A MIN NUMBER OF PARTICIPANTS |
| ELIG GROUPS | Employers, labor unions, gov entities, principals (to insure agents and sales persons), creditors, veterans land board, nonprofit orgs, any other qual grp |
| t or f If the master group contract is terminated, every individual who has been on the plan for at least 5 years will be allowed to convert to individual insurance of the same coverage. | true |
| credit life ins | pays off the loan if borrower dies, creditor is the owner and bene of the policy |
| variable life ins | a level fixed premium investment based product. It is in essence a combination of decreasing term insurance and an investment fund. Under this policy, the amount of the premium is fixed, but face amount of the policy varies over time, face amt not vary |
| what makes variable ins flucuate? | The cash value of the policy, however, is not guaranteed and fluctuates with the performance of the portfolio in which the premiums have been invested by the insurer. |
| T OR F Variable products are governed in part by the Securities and Exchange Commission; therefore, agents selling variable life policies must also secure a securities license. | true |
| The incontestability clause | prevents an insurer from denying a claim due to statements in an application after the policy has been in force for 2 years, even on the basis of a material misstatement of facts or concealment of a material fact. |
| representation | a written response to questions or statements made on an application for insurance which the applicant indicates are fact to the best of their knowledge and the underwriter relies upon to issue a policy. |
| distinction between a warranty and a representation | is if a warranty is untrue, the insurer has the right to void the contract. If a representation is untrue, the insurer has the right to cancel the contract only if the representation was material to the creation of the contract. |
| t or f In Texas, all legal actions must not begin more than 2 years after the loss occurred. | true |
| how long does the insurer have to pay the death claims? | Upon receipt of a written proof of death and the right of the claimant to the proceeds, the insurer must pay death claims within 2 months. If there is not a beneficiary named in the policy, the death proceeds are paid to the estate of the insured. |
| policy owner | the individual who has all the ownership rights, including the responsibility of paying the policy premiums. |
| third party ownership | when the policy owner and the insured are not the same person |
| assignment | specifies the policyowner's right to assign (trans rights of ownership)policy and proced that must be followed to effect assign. owner does not need the insurer’s permission to assign policy, but they do need to advise insurer in writing of the assignment |
| what are the two types of assignments | absolute and collateral |
| absolute assignment | involves transferring all rights of ownership to another person or entity. This is a permanent and total transfer of all the policy rights. The new policyowner does not need to have an insurable interest in the insured. |
| Collateral Assignment | transfer of partial rights to another person. It is usually done in order to secure a loan or some other transaction. Once the debt or loan is repaid, the assigned rights are returned to the policyowner. |
| Modifications | must be endorsed on or attached to the policy in writing over the signature of an executive officer of the insurer. While the policyowner may request changes, only an executive officer can make the changes to the contract. |
| Right to Examine (Free Look) | allows the owner 10 days from receipt to look over policy and if dissatisfied for any reason, return it for a full refund. The free look period starts when the policyowner receives the policy (policy delivery), not when the insurer issues the policy |
| Medical Examination | can be required when large sum as face value of policy or if owner is older. HIV testing can also be required but requires written consent |
| Exclusions | Causes of loss, exposures, conditions, etc. listed in the policy which are not covered and with no benefits payable. |
| what are the most common life ins exclusions? | aviation clause, hazardous occupation or hobbies clause, war or military svc clause, |
| aviation clause | policies today unlike the past will cover passengers on airplane, however they may deny pilots coverage or charge an extra fee |
| hazardous occupat or hobbies | occup like sky diving or race car driving are considered hazardous and ins co can choose to exclude these activities or they can choose to charge a higher premium for them |
| what are the two different exclusion clauses that involve military | status clause and results clause |
| status clause | excludes all causes of death while the insured is on active duty in the military |
| RESULTS CLAUSE | only excludes the death benefit if the insured is killed as a result of an act of war. |
| T OR F the policyowner does not have to name a beneficiary in order for the policy to be valid. | true |
| class of beneficiary | using a designation such as "my children". Many insurers encourage the insured to name each child specifically and to state the percentage of benefit they are to receive. |
| what are the two class desig. that are used when an insured chooses to "group" the beneficiaries? | Per Capita and Per Stripes |
| Per Capita | meaning "by the head," evenly distributes benefits among the living named beneficiaries. |
| Per Stripes | meaning "by the bloodline," distributes the benefits of a beneficiary who died before the insured to that beneficiary's heirs. |
| estates | if no bene alive or assigned to policy the death benefits go to the estate |
| how are benefits to minors handled? | must be given to a trustee or guardian for the minor. |
| trust | The person who establishes the trust (known as the grantor) gives legal title of a property to another (known as the trustee) to be used for the benefit of the trust beneficiary. |
| t or f trusts are inexpensive to set up and manage | false |
| Succession | bene desig gives for 3 levels. If primary bene dies before insured, contingent (or tertiary) in succession of benes will get proceeds. Each level in succession of benes is eligible for benefits if the bene in the level above them died before insured |
| primary beneficiary | has first claim to the policy proceeds following the death of the insured. The policyowner may name more than one primary beneficiary and how the proceeds are to be divided. |
| secondary beneficiary (contingent bene0 | has second claim in the event that the primary beneficiary dies before the insured. Contingent beneficiaries (those after the primary) do not receive anything if the primary beneficiary is still living at the time of the insured’s death. |
| tertiary beneficiary | third in line for the death benefits in the event that both the primary and contingent beneficiaries predecease the insured. |
| irrevocable policy beneficiary | may not be changed without the written consent of the beneficiary. Irrevocable beneficiaries have a vested interest in the policy and, therefore, the policyowner may not exercise certain of the policyowner rights without the consent of the beneficiary. |
| revocable beneficiary | The policyowner, without the consent or knowledge of the beneficiary, may change a revocable designation at any time |
| common disaster clause | provided under the Uniform Simultaneous Death Law, addresses insured and prim bene dying at same time, in order to protect the contingent bene. if insured died first, benefits go to prim estate, if prim died 1st they go to contingent bene |
| t or f under the Under the Uniform Simultaneous Death Law, the law will assume that the primary beneficiary dies first in a common disaster | TRUE, the intent is to fulfill the wishes of the insured |
| insurers state a period of time, s 30, 60, 90 days, in which death must occur in order to follow common disaster clause. as long as prim dies within that time it will be considered bene died first and death proceeds go to contingent bene | true |
| spendthrift clause | prevents bene from wrecklessly spending death benefits by giving them in installments |
| interest only option | the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals (monthly, quarterly, semiannually, or annually). |
| fixed period option (period certain) | specified period of years is selected, and equal installments are paid to the recipient. Both the principal and interest are liquidated together over the selected period of time. |
| Fixed Amount Option | pays a fixed, specified amount in installments until the proceeds (principal and interest) are exhausted. The recipient selects a specified fixed dollar amount to be paid until it is gone. |
| Life Income Option | provides the recipient with an income that he or she cannot outlive. If bene dies soon, they forfeit proceeds, or if live long time they may outlive the policy principal ins may provide an option of some or all of proceeds being paid in event bene dies |
| single life option | can provide a single beneficiary income for the rest of his/her life. Upon the death of the beneficiary, the payments stop. |
| life income Joint and Survivor | guarantees income for two or more recip as long as they live. This opt is 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. if one dies the other recv 1/2 or 2/3 |
| when is the life income joint survivor used most often | This option is commonly selected by the policyowner who wants to protect two beneficiaries, such as elderly parents |
| non forfeiture values | Because permanent life insurance policies have cash values, there are certain guarantees that are built into the policy that cannot be forfeited by the policyowner |
| t or f nonforfeiture values guarantees (known as nonforfeiture values) are required by state law to be included in the policy. | true |
| nonforfeiture values | at the end of set amt of yrs, the cash value of $8,100 can be used as sing prem to buy paid-up ins of the same type as the orig policy. The insured does not pay any more prem, while still retaining some amount of life insurance (in this example, $21,750). |
| extended-term | column indicates the option to use the policy’s cash value to purchase in a single premium a term insurance policy in an amount equal to the original policy’s face value |
| cash surrender value | policyowner simply surrenders the policy for the current cash value at a time when coverage is no longer needed or affordable. Upon receipt of the cash surrender value, if the cash value exceeds premiums paid, the excess is taxable as ordinary income. |
| surrender charge | fee charged to the insured when a policy or annuity is surrendered for its cash value. |
| extended term | Under this option the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy |
| t or f If the policyowner has neglected to select one of these nonforfeiture options, the insurer will automatically implement the extended term option in the event of termination of the original policy. | true |
| reduced paid-up ins | Under this option, the policy cash value is used by the insurer as a single premium to purchase a completely paid up permanent policy that has a reduced face amount from that of the former policy. |
| policy loan option | is only found in policies that contain cash value. |
| T OR F Any outstanding loans, and accrued interest, will be deducted from the policy proceeds upon the insured’s death. | TRUE |
| What will happen to a life policy if the amount of the loan and accrued interest exceeds the available cash value | the policy will lapse |
| how long in advance does an insurer have to notify the insured that the policy will lapse? | 30 days this must be in writing |
| t or f policy loans are not subject to income taxation | true |
| how is a policies cash value or loan value calculated? | Loan value = cash value - (previous unpaid loans + interest) |
| automatic premium loans | special type of loan that prevents the unintentional lapse in policy due to nonpayment of premium |
| how long can an insurer defer loan requests | normally for up to 6 months |
| partial w/d or surrender | allowed by universal life policies However, there may be a charge for each withdrawal and there are usually limits as to how much and how often a withdrawal may be made |
| how and when are dividends paid? | first dividend could be paid as early as the 1st policy anniversary, but participation (dividend distribution) must occur no later than the end of the 3rd policy year. From then on the dividends are usually paid on an annual basis |
| "grossed-up" premium. | higher premium is charged as a safety margin in the event the insurer’s experience is higher than anticipated. This is the reason for dividends. |
| Paid-up Additions | div used to buy single prem in addition to face amt of the permanent policy. No new policies are issued; however, each of these small single premium payments will increase the death benefit of the original policy by whatever amount the dividend will buy. |
| paid up insurance | insurer usually first accumulates the dividends at interest and then uses the accumulated dividends, plus interest, and the policy cash value to pay the policy up early. |
| disability riders | written modifications attached to a policy that may add or delete benefits to modify the original agreement to the needs of a specific policyowner. Riders sometimes incur extra cost to the policyowner. |
| waiver of premium rider | serves to waive the premium for the policy if the insured becomes totally disabled. |
| t or f If the insured is still disabled after this waiting period, the insurer will refund the premium paid by the insured from the start of the disability. | true |
| How long will waiver of premium rider last | This rider usually expires when the insured reaches age 65. however if the policyowner becomes disabled on or before 65 the waiver will last for the duration of the disability |
| waiver of cost insurance rider | found in Universal Life Insurance. In the event of disability of the insured, this rider waives the cost of the insurance but does not waive the cost of premiums necessary to accumulate cash values |
| disability income benefit rider | in event of disabil, insurer will waive policy prem and pay a mo. income to insured. This rider has all the same characteristics of the waiver of premium rider with the addition of paying a weekly or monthly income benefit to the insured while disabled |
| how is the amount of the disability income benefit determined? | The amount paid is normally based on a percentage of the face amount of the policy to which it is attached. |
| spouse term rider | allows the spouse to be added to coverage for a limited period of time and for a specified amount. The rider is usually level term insurance and usually expires when the spouse turns 65. |
| children's term rider | allows child to be added to coverage for limited time for an amount. coverage is term insurance and usually expires when the minor reaches a certain age (18 or 21). Most provide the minor with the option of converting to a permanent policy at that time |
| t of f newborn children are automatically covered by the life policy after certain number of days | true |
| t or f Upon reaching the maximum age for dependent coverage, children are permitted to convert their coverage to permanent insurance without evidence of insurability. | true |
| family term rider | incorporates the spouse term rider along with the children’s term rider in a single rider. When added to a whole life policy, the family term rider provides level term life insurance benefits covering the spouse and all of the children in the family. |
| what riders affect death benefit amount? | accidental death rider, guaranteed insurability rider, cost of living rider, return of premium rider, |
| accidental death rider | pays some multiple of the face amount if death is the result of an accident as defined in the policy. Death must usually occur within 90 days of such an accident |
| double r triple indemnity rider | two or three times the face amount of a life policy. (accidental death rider) |
| guaranteed insurability | allows the insured to purchase additional coverage at specified future dates (usually every three years) or events, such as marriage, birth of a newborn child, etc., without evidence of insurability. usually expires at age 40 |
| cost of living rider | addresses inflation by automat increasing the amount of insurance without evidence of insurability from the insured. The face value of the policy may be increased by a cost of living factor, tied to an inflation index such as the Consum Price Index (CPI) |
| return of premium rider | rider is achieved by using increasing term insurance. When added to a whole life policy it provides that at death prior to a given age, not only is the original face amount payable, but also all prem prev paid are payable to the beneficiary. exp at age 60 |
| Accelerated (Living) Benefit Provision/Rider | early pmt of portion of death benefit if term ill, med condit that extraord condit like organ transpl, med condit that w/o tx limits insureds time, inabilty to perform activ of daily liv (ADL), perm instit or long term care, any condit approved by commiss |
| hwo is the acceleraqted living benefit amount determined? | usually specified as a percentage of the face amount of insurance, usually 50%, but it is legal for the insurer to pay up to 100% of the death benefits before the insured dies. |
| living needs rider | provides for the payment of part of the policy death benefit if the insured is diagnosed with a terminal illness that will result in death within 2 years. |
| long term care coverage | provide for the payment of part of the death benefit (called accelerated benefits) in order to take care of the insured’s health care expenses, which are incurred in a nursing or convalescent home. |
| is the payment of accelerated living benefit taxable? | This is not a taxable benefit since it is used to pay medical benefits or long term care due to catastrophic or terminal illness. |
| How much will bene recv if insured uses accelerated living benefit rider for medical exp? | death benefit = face amt - amt w/d - earnings lost by the insurer |
| HOW do LIFO AND FIFO apply to life insurance and annuities? | FIFO applies to Life insurance only. Annuities follow a LIFO (last in, first out) format |
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