Notes

Term insurance - Temp insurance, pure death protection
3 types of temp protection - level term, decreasing, increasing
Convertible - Temp to whole life insurance, premium for new policy is based on insureds current attained age
Grace period provision - period of time after payment is due, usually 30 days
non forfeiture options
- cash surrender: Take the cash
- reduce paid up option: new whole life policy with reduced face amount
- extended term option: cash is used for term policy, certain period of time depending on cash value
Dividends: paid only on participating policies, when purchasing policy from participating insurance companies, they are eligible to receive dividens
5 options to recieve - cash, apply against premium payments, allow them to accumulate interest, buy paid up additions, purchase 1 year term insurance
Riders only have value attached to the policy, their cost is added
waiver of premium rider
Life Policies Quiz -
1. A variable life policy has investment values based instruments such as mutual funds, stocks and bonds
2. Whole life is designed to mature at 100 or death of insured
3. A characteristic of Variable life policy is that it contains an Underlying equity investment
4. Key employees insurnce policy cannot change the policy's interest rate
5. Straight life policy - premiums are payable for as long as there is insurance coverage in force, Straight Whole life = level premiums until death or 100
6. Level term - covers for a specified period of time at the lowest premium
7. Equity index insurance - yields greater gains than bonds but will still protect the principal with a minimum of risk
8. variable whole life policies have a fixed level premium
9. Universal life is designed to provide flexible premiums and an adjustable death benefit
10. In variable whole life, if investment is poor, the death benefit will not go lower than the guaranteed minimum
11. A survivor ship life policy insures two individuals and is designed to pay the benefit upon the second death
12. Under a renewable term policy, the renewal premium is calculate on the basis of the insureds attained age.
13. Modified whole life is NOT interest sensitive.
14. Conversion privilege allows for someone is group term life policy to leave and continue their insurance without evidence of insurability.
15. Limited pay life - covers an insureds whole life with the level premiums paid over a limited time
16. Equity Indexed Life - premiums can be lowered or raised, based on investment performance, permanent life insurance that allows policyholders to tie accumulation values to a stock market index
17. Family Maitenence policy - provides income for a specific period starting at the time of death of the insured
18. Whole life - provides the insured with a cash value as well as a level face amount.
19. Universal life - combines term insurance with investment element
20. Credit life is typically a decreasing term
21. The shorter the pay period the faster the cash value will grow
22. Variable universal life - monthly mortality charges as well as self directed investment choices
23. Variable life products requires a producer to have a Life insurance license and securities license
24. The amount of coverage on a group credit life policy is limited to the insureds total loan value
25. The insured has the option to renew a renewable term policy
26. The cost of the insurance is most important when considering to convert term insurance
27 Decreasing term rider - can add additional coverage to a whole life policy.
28 Decreasing term policy - written for a specified period of time with a death benefit that changes regularly according to a schedule
29 The Accelerated death benefit provision in a life insurance policy is known as living benefit
30 Waiver of premium provisions - insured must be eligible for social security disability for claim to be accepted
31 Accelerated death benefits provide for the early payment of some portion of the policy face amount should the insured suffer from a terminal illness or injury.
32 The misstatement of age provision states an adjustment be made in the amount of insurance if the age of the insured is misstated.
33 Dividends paid from a life insurance policy are issued by the insurer
34 Dividends are not taxed as income to the policyowner, but interest is taxable as income for federal income tax
35 Reinstatement provision allows the policyowner to reinstate/reestablish a lapsed policy, also forfeit the right to use automatic loan provisions
36 The incontestable clause prevents the insurer from canceling the contract even for a material misrepresentation
37 The interest only settlement option does NOT involve the systematic liquidation of the death proceeds
38 Term life rider - offers the insured additional life coverage
39 Insuring clause - establishes the basic promise of the insurance company
40 Entire contract provision - found at the beginning of the policy, states that the policy doc, the app, and any attached riders constitute the entire contract
41 Consideration clause - initial premium and completed application
42 Long term care, a long term care rider is triggered by the insureds inability to perform two or more activities of daily living
43 Whole life/increasing term - A return of premium life insurance with a death benefit rider
44 A policyowner may assign ownership of the policy to a bank as collateral
45 Reduced paid up option would provide continuing cash value build-up
46 The purpose of suicide provision is to protect the insurer against the purchase of a policy in contemplation of suicide
47 Cash value provision makes policy loan possible
48 A term rider may be used to include coverage for children under their parents policy
49 Payor Clause - guarantees that premiums will be waived if juvenile life policyowner becomes disabled
50 Insuring agreement - Insuring clause/provisions sets forth the companys basic promise to pay benefits upon the insureds death
51 Ownership clause - states who the policy owner is and provides a general description of the owners rights
Premiums, Proceeds, and Beneficiaries
Factors determining premiums
1. Mortality - Rate of death, motality tables help predict life exp. and prob of death for a group
2. Interest - Primary factor in lowering premium rates
3. Expenses - companys have operating expenses, the expenses are factored into premium rates, also known as loading charge
Death benefit proceeds - aka settlement options, methods used to pay the death benefit to a beneficiary upon insureds death. The owner may select a settlement option at the time of the policy application and may also change it at any time during the life of the insured
Lump sum cash option - not taxable as income, proceeds are paid in cash called lump sum upon death of insured
Interest only option - The insurer guaranteed a certain rate of interest and will often pay interest in excess of the guaranteed rate.
Fixed period option - aka period certain, proceeds are paid out in equal installments over a specified period of years
Fixed amount option - pays a fixed specific amount in installments until proceeds are paid out/exhausted
Life income option - provides recipients with an income they cannot outlive, installment payments are guaranteed for as long as the recipient lives, the amount of the installments is based on their life expectancy.
Beneficiary - who gets money from death of insured
Primary ben - has first claim to the policy proceeds, may name more than one primary and decides how it is divided
secondary ben - has second claim in the event the primary ben dies before the insured, do not recieve anything if the primary ben is still living at the time of insureds death
Per stirpes - by the bloodline, money goes to beneficiaries heirs if they die
Per capita - by the head, evenly distributes benefits among the living named beneficiaries
Changing beneficiaires - Revocable = remove without consent, irrevocable = needs consent and information
Special situations - Uniform simultaneous death act - the law will assume that the primary beneficiary died first in a common disaster. Done to make sure the contingent ben recieves death benefit proceeds
Spendthrift trust clause - prevents beneficiaries reckless spending of benefits by requiring that the benefits are paid in fixed installments
A policyowner may change beneficiaries at any time, however consent may be needed if they are designted as irrevocable, request of change will be refused if insured tries to make changes of beneficiaries.
Level premiums - premium payment remains fixed thru the life of the policy, underlying concept is that the early years are charged more than what is needed
Minor beneficiary - a guardian is required to be appointed in the beneficiary clause of the contract
Life settlement contract - allows a policyowner to sell a life insurance policy for more than its cash value
Premium mode - feature that allows the policyowner to select the timing of the premium payment, such as monthly, quarterly, annually, etc
Total cash value surrender is NOT taxable, the INTEREST gained is taxable
Irrevocable designation, makes the change permanent, cannot be changed without written consent of beneficiary
Annual premium schedule allows for the lowest cost to the policyowner
The gross premium is higher on a MONTHLY payment mode as compared to being paid ANNUALLY. A payment mode that is more frequent than an annual payment will result in a higher gross premium
Agents are involved firsthand in underwriting process, all agents should know and understand the purpose and process of underwriting
Underwriting - the process in which an insurance company determines whether or not a particular applicant is insurable, if so what premiums they'll charge
What an underwriter will use - applicants health (current and past), occupation, lifestyle, hobbies, habits
Underwriting Process
Part 1 - General Info - gen questions about applicant, age, name, address, etc.
Part 2 - Medical Info - medical background, present health, medical visits
Part 3 - Agents report - Agents personal observations concerning the applicant, isnt a part of entire contract, but part of application process
Medical information Bureau - MIB is non profit trade org, its a way for insurance companies to compare info they collect on potential applicants
Fair credit reporting act - applicant has right to know why they were rejected based on consumer or investigative consumer reports
Risk classifications - if applicant is accepted, the underwriter will determine the risk or rating classification to be used in deciding whether or not the applicant should pay higher or lower premium
3 classifications of rating for an individual
1. Standard risk - people who are entitled to insurance protection without extra rating or special restrictions, average risk
2. Substandard risk - people who are not accptable of standard rates because of physical condition, personal or family history of disease, occupation, or bad habits, referred to as rated, because they can be rated up = higher premium
3. Preffered risk - Meet certain requirements. Superior physical condition, healthy lifestyles and habits. Qualify for lower premiums than standard risk.
Field underwriting agent - proper solicitation of applicants, prevent adverse selection, completing the application, obtaining the required signatures, collecting premium, delivering policy, issuing reciept
Conditional reciept - most common receipt, applicant is covered by the insurnce company as of the date of the application, providing that the insurance company approves them for insurance
Backdating - sometimes its possible to lower the premium rate by backdating an application for insurance, no more than 6 months, the only reason to backdate is to lower premiums
Inspection report - information obtained by phone call to proposed insured

Non contributory plan - employer pays all of the premiums, insurance company requires 100% of eligible employees are included, must cover ALL eligible employees at all times
Contributory - 75% of elgible employees are included in the plan
Features of group insurance - group life policies must contain a conversion provision that allows individual insured members to convert to an individual plan without evidence of insurability
Most group conversion provisions require that the conversion be made to a whole life policy as opposed to a term policy
Group underwriting - evidence of insurability is typically not required of each participant unless he or she is enrolling for coverage outside the normal enrollment period, based on various group characteristics
Group credit life - type of decreasing term insurance issued to creditors to cover the lives of people who have outstanding loans.
Blanket life insurance - covers group of ppl exposed to common hazard, ex. school or airline, covered only for specific hazards in the policy
An AD&D provision is not required in a group life policy.
An individual is covered under the group policy during the conversion period
Employers cannot report additional taxable income to employees covered under a group life policy paid for by the employer
Annuity- provides income for a specific # of years or for life, protects a person against outliving their money...Not life insurance, but a way of accumulating money and liquidating an estate
Annuitant - person who recieves the payments from the annuity
Accumulation period - aka pay in period, period of time over which the annuitant makes premium payments into annuity, its also when the premium payments earn interest on a tax deferred basis
Annuity period - aka annuitization period, time when the money accumulated in accumulation period is converted into income payments to the annuitant
Annuity funding
2 ways to fund annuity
-single payment (lump sum)
-periodic payments, in which premiums are paid in installments over time
Immedite annuity - income payments start within one year, single lump sum payment
Deferred annuity - income payments begin after the first year, single lump sum or monthly payments
Life with period certain - Annuity payments are guaranteed for the entire lifetime of the annuitant and for a specified period of time to the benefic
Fixed annuities - fixed guaranteed payout, guaranteed minimum rate of interest
Variable annuity - "hedge against inflation", variable because its not guaranteed payout, payments CAN vary from one payment to another, no set rate of interest. Considered a secuirty and is regulated by the securities and exchange commission, agent selling must have securities license
Accumulation units - variable annuity premiums invested and growing are called accumulation units
Annuity units - is the payout phase of variable annuity
Annuity taxes - A portion of each annuity benefit payment is taxable and a portion is not, non taxable = return of principal paid in (Cost base), portion that is taxable = interest earned on the principal (tax base)
A straight life annuity pays for the life of the annuitant. Pays largest monthly benefit to a single annuitant, based only on life expectancy.
Indexed annuity - deals with the credited interest tied to the fluctuations of the linked index
Social Security
aka old age survivors disability insurance, federal program designed to protect eligible workers and their dependents against a financial loss due to old age, disability or death
Provuides income benefits for those who meet requirements
Disability must result in medically determinable physical or mental impairment that is expected to result in early death
Available SS benefits - old age benefit 65 reduced - 62 based on earning over working years
spouse benefits - aka survivor benefits allow spouse and dependent children to recieve benefits from a deceased worker
To be eligible for SS disability benefits an employee must be unable to perform "any occupation"
SS does NOT provide benefits for Dismemberment
Federal gov is NOT a source of SS benefit funding
Retirement plans
qualified distributions are recieved tax free in a roth ira
Health Insurance:
3 categories of health coverage
- Medical expense insurance - standard health insurance, covers hospital care, surgical expenses, doctors visits, utpatient care, etc
- Disability income insurance - provides replacement income when wages are lost due to a disability, doesnt cover medical expenses associated with disability, but provides a guaranteed flow of income while the person is disabled
Accidental death and dismemberment insurance - provides a beneficiary with a lump sum death benefit in the event of accidental death of the insured. Also pays living benefit for dismemberment.
Health Ins is designed to provide coeverage for accidents and sickness.
Premium Fators - health insurance is funded by regular premium payments. Premiums can be paid annually, semi-annually, quarterly, or monthly.
Factors include: Interest, Expenses, Types of benefits, morbidity, age sex and occupation
Business needs - much like individuals need protection against the possible loss of income due to a disability, disability income policies are also used to protect businesses.
3 types for business needs
1. Disability buy-sell - legal agreement that specifies how a busniess will pass between owners when of the owners dies or becomes disabled.
2. Business overhead expense insurance is sold to small business owners who must continue to meet overhead expenses such as rent , utilities and payroll, the policy reimburses business owners for the actual overhead expenses incurred while the business owner is totally disabled. But does NOT reimburse the business owner for their salary
3. Disability buyout - just a with the life insurance buy sell agreement this agreement specifies who will purchase a disabled partner interest and legally obligates that person or party to purchase the business interest of the disabled partner.
Eligible groups - to qualify for a group health insurance, applicants must be a part of a group formed for a reason other than just obtaining health insurance
contributory plan - 75% of all eligible employees must participate and pay in this plan
non contributory plan - employer pays entire premium and 100% (MINIMUM) of employees must participate.
conversion privilage - members of a group have the ability to convert their policy to an individual plan
Pre-existing conditions - an individual may be excluded from a group coverage for up to a year for any conditions in which the individual sought treatment 6 months prior to the enrollment date
Maternity ben - coverage provided for maternity care must also cover the services of certified nurse-midwives, and services of licensed birth centers. Insurance co. also cannot limit the length of stay for maternity or newborns that are less than medically necessary.
Cobra - requires employers with 20 employees to extend group health coverage to terminated employees and their families. coverage continues for up to 36 months if the employee under this policy dies
Franchise health plans - provides health coverage for small groups whose numbers are too small to qualify for true group insurance.
Tax treatment of group plans - employers are entitled to take a tax deduction for premium contributors they make to an employee group health plan as long as the contributions represent ordinary and necessary business expense.
An irrevocable designation may not be changed without the written consent of the beneficiary.
Accident policy will most likely pay a benefit for an off the job accident
Short term medical coverage - interim coverage
Blanket health insurance - issued to cover a group who may be exposed to the same risks, compostion of the group are constatnly changing
A new employee must sign an enrollment card during the open enrollment period
Subrogation is the right for an insurer to pursue a third party that caused an insurance loss to the insured
Medicaid - funded by both state and federal governments
Blue cross blue shield - not insurance co. , non profit organization, considered a prepaid plan
The maximum SS disability benefit an insured can recieve is equal to 100% of the insureds Primary insurance amount
A Health Management org (HMO) is a prepaid group health plan, where members pay in advance for the services of participating physicians and hospitals that have agreements
HMOs traditionally provides services to its members at its own healthcare facility
Social security disability income - pays benefits that are based on a percentage of an indivduals Primary insurance amount (PIA)
Dental services are not provided in medicare A/B
Primary care physician - provides general medical care for a patient as well as the referral for specialized care
A major medical policy - provides benefits for reasonable and necessary medical expenses, subject to policy limits
Supplemetary major medical policy - after basic medical policy pays, supp medical policy cover expenses not in the basic policy
Comprehensive major medical policy - combo of basic expense coverage and major, sold as one policy. cover practically all medical expenses including hospital, physicians, surgical, nursing drugs and lab tests.
pre existing condition - not covered for one year
In order to establish a Health Reimbursement Arrangement, it must be established by the employer
The purpose of a stop loss provision is to limit the amount of insureds out of pocket medical expenses
Basic hospital and surgical policy - typically lower than the actual expenses incurred
Leukemia is the type of illness that will be covered in critical illness plan
Dental indemnity plans reimburse services only AFTER the carrier receives the bills
To qualify for a tax-exempt Health savings plan - the insured must be enrolled in a high deductible health plan
Elimination period - of an individual disability insurance policy refers to the amount of time a disabled person must wait before benefits are paid, also serves as a deductible in a disability income policy
The insureds earned income at the time of the purchase limits the amount of monthly benefits that an insured may purchase in a disability income policy
A residual amount benefit is based on the proportion of income actually lost due to the partial disability.
If a physician wants to increase the benefit for his disability policy as his practice and income grows, hed want to include Guaranteed insurability option rider
Medicare part c - offered by private insurers and is available to those who are enrolled in medicare part a and b
Long term care will look into pre existing conditions of insured no more than 6 months prior to policy being issued
A reimbursement policy - pays the actual covered expenses up to the daily maximum
Medicare supplement policy - provide the subscriber the best coverage for excess charges
most long term care pollicies pay on a reimbursement basis, up to the policy limits, typical free-look period = 30 days
Waiver of premium - must have a doctor certify that you meet the definition of disability, rider pays premium while your disabled
conditionally renewable health policy - premiums can increase at the time of renewal
entire contract provision - states that the producer doesnt have the authority to change the policy or waive any of its provisions
Guaranteed policy renewal - insurer may cancel the policy for nonpayment only, must be renewed by the insurer and premiums increase if applied to the entire class of insured
Insuring clause - states the amount of benefits to be paid in an accident and health policy, purpose is to specify the scope and limits of the coverage provided
Impairment rider - statement on policy that excludes coverage for specific injuries or conditions
Notice of a claim is typically required within 20 days after the occurrence or a commencement of loss
mandatory provisions - payment of claims
optional - misstatement of age, change of occupation, insurance with other insurers
payment of claims provision - states that the insured and insurance company will share the cost of covered losses
Nonrenewable - typical short term medical expense policy
noncancellable policies - provides guaranteed renewability and premium rates
Probationary period - period of time between the effective date of a health policy and the date of coverage for sickness
Health insurance underwriting considerations:
Age, gender, occupation, physical condition, allocation, moral and morale hazards, financial status of the applicant
Pre-admission certification - used to prevent unnecessary medical costs
Manage-care plans - includes hospice benefits, pre hospitalization authorization
Inspection report - phone call info from proposed insured
Laws and Rules Pertinent to insurance
Each person under a group life insurance policy is considered to be a certificate holder
Example of sliding would be - charging for an additional product without the applicants consent
Fraternal life insurance org - non profit provider of life insurance covered by special section of florida insurance code
Minimum age a person can sign a life insurance app on their own life= 15
In Florida, an agents controlled business may not exceed a max of 50%