2-15 Lic.

  1. risk pooling (loss sharing)?
    a simple spreading of risk or the possibility of loss across a sizeable number of people, instead of bearing the cost on one person. basically everyone chips in a small amount to cover a large amount if somehting is to occur
  2. law of large numbers?
    the large the number of individual risk that are combined into a group, the more certain there is of knowing the amount of loss sustained in a given period of time
  3. specutative risk?
    involves the chance of both loss and gain, like gambling
  4. pure risk?
    involves only the chance of loss, like an injury from an accident
  5. what are the risk included with insurance
    life insurance and health insurance
  6. physical hazard?
    individual characteristics that promote the chance of peril, like someone that is blind
  7. moral hazard?
    behaviorism or habits an individual may have
  8. morale hazard?
    tendencies that stem from attitude or an emotional state, such as sorrow that can lead to distarction of hazard
  9. stock insurers?
    non participating companies that sole purpose is to make a profit for its stockholders
  10. mutual insurers?
    a participating company that the owners are the policyowners. if you purchase insurance from a mutual insurer you would be both customer and owner
  11. assessment mutual insurer?
    this type of insurer charge premiums
  12. lloyds of london?
    specializes in insurance that is not usually covered for example a singer insuring her voice.
  13. reinsurers?
    insure insurance companies
  14. fraternal benefit societies?
    non profic organizations that are known for their social and charitable events
  15. servoce providers?
    offer benefits in the form of medical services, which are prepaid by customers on a monthly basis know as premiums. basically the sell medical and hospital services, not insurance
  16. two types of service providers?
    hmo and ppo
  17. hmo? health maintance orginization
    known for stressing preventive care, provides subscribers services of participating physicians and hospitals
  18. ppo? preferred providers orginization
    receive discount from certain health care providers in exchange to referring their members to them.
  19. types of government insurance?
    oasdi, social security hospital insurance and supplemenatl medical insurance also known as medicare, and workers compensation
  20. captive agency system?
    consist of an insurance company appointing an agent to solicit their product, and the master agent or general agent can train and also get commision for each agent tied to them
  21. personal producing general agency or PPGA
    is not employed by the insurance agency but by the PPGA company they work for, to solicit other companies insurance
  22. independent agency system?
    this system allows an agent to become appointed with as many carriers as they choose, they are paid commision directly from the insurance company they solicet
  23. paul vs virginia 1868?
    an insurance company was attemted to be regulated by the state it did not hold domicile within. the court ruled with the state because insurance should not be considered intersate commerce, and each state has the right to regulate insurance sold
  24. united states vs southeastern underwriting insurance SEUA 1944?
    puts insurance in the hand of the federal governemnt by stating insurance is a form of interstae commerce and any state laws that conflict will be void
  25. McCarron-ferguson act 1945?
    this act overturned the decision of SEUA by once again ruling that insurance is not interstate commerce
  26. NAIC?
    goal is to provide uniform laws to states to follow in order to standerized multilple state insurance laws, but they do not regulate insurance laws
  27. two major achievments by NAIC?
    Advertising code and unfair trade practices act
    their purpose is to help meet and maintain the health and financial needs of individuals through education, advocacy, and ethical codes
  29. state guarenteed association
    gurantees that if their are unpaid claims by insurance compaines that the insurer will get paid
  30. types of private insurers?
    • stock insurers
    • mutual insurers
    • lloyds of london
    • assessment mutual insurers
    • reinsurers
    • fraternal benefit societies
    • service providers
  31. aleatory?
    the possibility there will be an element of chance for both parties and the dollar value exchange may not be equal
  32. adhesioin?
    means only one party prepares the contract and is non-negotiable
  33. unilateral?
    only one party is required to follow through on any enforceable promise. if you keep paying premium insurance must maintain agreement
  34. conditional?
    if policy holder stops paying they insurer, insurance stops
  35. valued or indemnity?
    amount paid will be equal to amount lost
  36. stranger-originated life insurance?
    occurs when investors invite individuals to purchase life insurance and make the beneficiary the investor
  37. estoppel
    legal enforcement of a waiver, if a waiver is legally enforced its considered an estoppel
  38. parol evidence rule
    once an agreement is in written form it cant be changed
  39. twisting
    when agen persuades client to drop current insurance from one company to go to another companty to get commission again
  40. churning
    change their current plan to another with the same company
  41. IMSA
  42. Ordinary life insurance
    consist of plans such as term, endowment, and perminant. ordinary life insurance is the most common type of insurance
  43. industrial insurance
    know as buriel insurance, this type of insurance provides minimal coverage in case someone dies to cover basic service
  44. 3 basic forms of term life insurance
    • level term
    • decreasing term
    • increasing term
  45. level term insurance
    provides coverage for a certain time period.
  46. decreasing term insurance
    benefits will decrease over time, good to use for morgages. if the insurance is for 1million dollars for ten years. if the insurer dies in the first year he would receive 1million and if the ten years is up he will receive 0 dollars
  47. increasing term insurance
    benefits will increase over time, good for consumer price index CPI, good example is ever growing gas prices
  48. option to renew
    allows the policyowner to renew is insurance for examples for 7 years more. since they have insurance they do not have to prove insurability and if they have a heart attack they cant be denied renewability
  49. annual renewable term ART
    provides coverage for a year at a time, their is usually a limit on how many times you can renew and is most popular with group insurance
  50. option to convert
    allows policy owners to convert to a whole life or permanent plan at the end of their term insurance. this does not require proof on insurance. when exchange for whole life occurs a new premium will be met depending on age
  51. in option to convert their are two ways new premiums could be charge, what are they
    • attained age method-new premium rates are determined with policy holders current age at time of exchange
    • original age method-premium of whole life insurance is calculated with the age of inception
  52. cash value
    know as savings or accumilation element. cash values grows until equalling the face amount at the maturity of 100 years of age. the money accumilated can be used as a loan, or if the insurer decides to cancel he could take what accumilated minus interest accrued.
  53. endowment policies
    distingished by cash values like whole life insurance but at a much faster rate. instead of maturing at age 100 they mature for example at age 65. endowments give living benefits and death benefits
  54. modified endowment contracts MEC
    because individual where using life insurance for fast funding methods and tax benefits, congress passed a law to dissuage people for buying life insurance as a investment as a result the technical miscellanous and revenue act was place TAMRA. As a result a new type of insurance was created MEC
  55. family plan policies
    design to cover all members with different amounts. usually the policy owner is the main source of income in the household so he has the largest face amount
  56. joint life policies
    covers two people under one policy, premiums are calculated usually with the average of both ages. and if one is to die they can change to a single policy without proving insurability
  57. juvenile insurance
    for children from 1 day to 14-15 years old. often comes with a payor provision which if the guardein or parent dies, permiums will not have to paid until child because a particule age
  58. credit line insurance
    Used the life of debtor is insured for the amount of the loan. premiums are paid by the creditor and usually use decreasing term
  59. interest sensitave whole life
    differs from odrinary whole life when premiums remain level. premiums usually change annually do to interest rates trends caused by higher or lower mortality or investent returns.
  60. adjustable life
    consist of both term and permanant insurance, the insurer can adjust plan based on their needs, but proof of insurability may be required
  61. universal insurance
    is flexible simular to adjustable insurance but the policy owner decideds how much and how many payments are to be made. its classified as a whole life but in reality its a term life plan that is renewable annualy.
  62. equity index universal life EIUL
    Life insurance largely based on market return. offers policy owners to transfer funds from fixed account to index account. cash values can only increase if market is favorable not decrease if market is down. calculations usually made from NASDAQ
  63. variable insurance products
    in order to sell these kinds of plans you need to have a life insurance license along with a financial industry regulatory authority FINRA. with variable insurance seperat accounts are used in order for the investor to direct funds that are more aggressive for a possibility of a higher return
  64. variable universal life insurance
    a combination of universal life and variable life policies which contain a degree of death benefits, cash values, and premium payments.
  65. 3 forms of whole life insurance
    • straigh whole life
    • limited pay whole life
    • single-premium whole life
  66. other forms of whole life
    • modified
    • graded
    • minimum deposit
    • economatic
  67. modified whole life
    usually more affordable then straight whole life for the first couple of years, usually 5 years then becomes slightly higher then straight whole life insurance. good for college students starting out in the work force who cant intially afford whole life insurance
  68. graded premium whole life
    simular to modified standard whole life with premiums being less expensive then whole life but over the years gradually increases until finally leveling off slightly higher then standard whole life
  69. minimum deposit whole life insurance
    intial payment which allows for immediate build in account. subsequent premium payments are then paid by borrowing from the cash value for the portion of the entire premium
  70. economic life or enhanced ordinary life
    offered by some mutual companies that allow a policyowner a higher insurance death benefit at a lower premium through the combination of whole life and term life policy.
  71. indexed whole life
    includes a face amount that will adjust depending on consumer price index CPI.
  72. free look provision for life insurance
    policy holder has 14 days to review the contract
  73. grace period provision if premium paid weekly
    7 days
  74. grace period provision if premium paid monthly
    10 days
  75. grace period provision if premium paid quartely, semi-annualy, or annualy
    31 days
  76. grace period provision if premium paid and age is over 64
    additional 21 days than standard
  77. assignment provision
    allows the policy owners to transfer the policy to whoever they see fit
  78. absolute assignment
    assignee gains full control
  79. collateral assignment
    assigns policy to a creditor as collertal for a debt
  80. accelerated benefit provision
    if policy owner gets a a grave medical condition, they are allowed to utilize a certain percentage of their faced amount. the remaining is paid to the beneficiary in the case of death
  81. policy riders
    additional benefit that can be placed in an insurance policy
  82. guranteed insurablity rider
    provides a policy holder with whole life to purchase specified amounts of additional insruance in intervals without providing proof of insurability
  83. waive of premium rider
    if an insurer is unable to earn income because of illness or disability, and are unable to pay their premiums the policy will not lapse due to none payment
  84. automatic premium rider
    if payment is not received afte grace period , cash value is applied towards the cost of the monthly premium in order to prevent policy from lapsing.
  85. return of premium rider
    in the event of death during a specified time period beneficiary will receive the face amount of policy along with all premiums paid.
  86. cost of living rider
    this rider is tied to consumer price index CPI. the face amount will increase in an inflation index. but if CPI rises higher then insurance allows for maximing face time usually 5%, insurer must the remaining if the want to continue to match CPI
  87. Other insured rider
    basically a term life insurer for the family member who is tied to the whole life insurance plan, usually known as the child rider
  88. a secondary beneficiary is alos considered a ....
  89. level premium funding
    based on charging more premium than the insurance is worth early in the policy so that when the insurer gets older the mortality rate increases, the additional cost offsets the additional risk
  90. 3 classification an inurance company has for an insurer
    • preferred risk
    • standard risk
    • substandard risk
  91. with preliminary term for interim coverage, what is the time an applicant can delay the start of the policy
    1 to 11 months
  92. 3 features of group insurance
    • master contract
    • low cost
    • insured turnover
  93. with contributory group insurance what percent of the employed has to be enrolled
  94. noncontributoring group insurance requires what percent of employess to be enrolled
  95. group term life
    most common type of insurance; annually renewablle term ART insurance. If employee is not with the company they will not pay, and if they stay it will renew without proof of insurability
  96. 3 common forms offered for group permanent life also known as group whole life insurance are
    • group ordinary
    • group paid up
    • universal life
  97. group ordianry form is
    in some instances cash values of group ordinary insurance are owned by the employees, at other times it's used to fund the plans of the remaining employees through the results of cash forfeiture
  98. group paid up
    involves a combination of both term and whole life. the employer pays the term portion while the employee pays the whole life. in the event of termination or retirement, the employee is granted the paid-up portion, known as the cash value
  99. universal life
    mostly paid by the employee but they can choose how much coverage they want or how much they want to pay
  100. are group life premiums taxed
    not if under or equal to 50,000, and in order to qualify for favorable tax treatment employer must benefit 70 percent of the employees along with 85 percent of participating employees must not be key employees
  101. what 3 ways benefits are determine for group life insurance
    • earnings-benefits based on the amount you earn, for example life insurance equals 3 times an employee annual salary
    • employment position-the higher the position the greater amount of insurance
    • flat benefit-a flat benefit is provided to all emplyees
  102. with group life insurance how long do you have to convert to an individual plan
    31 days also individual converting must opt for whole life regardless if their group life was permanent or term
  103. franchise life insurance
    employer is considered a sponsor instead of the policyholder because each individual receives their own policy. employers main task is to collect premiums for insurance companies
  104. group credit life insurance
    considered term group life insurance, it is used to pay creditors the amount loaned to a debtor in the event death occurs and loan not paid back.
  105. blanket life insurance
    covers everyone during an event of a given time, for example a cruise ship. no certifcates are given and policyholders are not listed
  106. multiple employee trust MET
    used for small employers looking to provide coverage for their staff and employer must become member of the trust by subcription
  107. multiple employer welfare arrangments MEWA
    Type of MET (multiple employer trust) for small employers that are self funded and tax exempt status
  108. what is an annuity
    its a fanancial tool that will provide a succession of payments to a policy owner or annuitant in exchange for a lump sum payment or a series of payments to the insurer. so basically the annuitant pays the insurer a certain amount which is then credited with certain rate of interest and thats how money grows in an annuity
  109. how can annuitant payments be received once its ready to start paying out
    • paid over an amount of time
    • paid for a certain monetary per payment
    • act as a death benefit
  110. how come insurance companies are definately qualified to sell annuities
    because of the ability to guarantee annuity payment for an annuitants life regardless of age attained
  111. survivorship factor
    to guarantee annuity payment for an annuitants life regardless of age attained
  112. what is an annuitant designed for
    to protect an individual from outliving their resources, through the liquidation of an estate
  113. immediate annuities
    annuity payout option begins immediately, exactly one month after the premium has been paid. also known as single premium immediate annuity SPIA
  114. Defered annuities
    doesnt start paying annuitant until a future specified date
  115. straight life income option
    guarantees annutiant payment for life, if he dies the rest gos to the insurer. this option often gives the biggest payout
  116. cash refund
    if annuitant dies before principle sum is depleted, the rest gos to the beneficiary in a lump sum
  117. installment refund option
    if a annuitant dies payment will be the same to the beneficiary as the annuitant received
  118. life with period certain option
    pays annuitant for life and guarentees a minimum amount of payments.
  119. joint and full survivor option
    payout of two annuitants, and is the lowest paying option
  120. period certain option
    provides payments for a certain period of time regardless if annuitant is alive or not.
  121. fixed annuity
    provides a guarantee rate by insurance company. known as the minimal garantee rate, which it could never go below
  122. variable annuity
    is an investment approach. their is no minimal gurantee rate.
  123. how much are you tax if you withdraw your annuity before the age of 59 1/2
    10 percent, plus income tax
  124. annuity individual use is to
    stream income for annuitants retirement, and some annuties pays out the beneficiary incase of death
  125. qualified annuity plans
    tax qualified retirement plans that are tax lower
  126. structure settlement
    annuitant being paid for a lawsuit or winning the lottery
  127. what formula is used to compute the taxable portion of an annuity payment
    exclusion ratio (investment in contrace divided by the expected return
  128. calculating average monthly wage for social security was prior to what year
  129. 3 ways to calculate social security earnings
    • average monthly wage AMW (before 1979)
    • average index monthly earnings AIME
    • primary insurance amount PIA
  130. 3 types of social security benefits
    • retirement
    • death
    • disability
  131. employee retirement income security act ERISA is
    protects emplyee retirement plans by establishing rules that qualified plans must follow to ensure that plan fidiciaries do not misuse plan funds and was enacted in 1974
  132. what are the requirements in order for a retirement plan to be considered a qualified (favorable tax treatment) employer retirement plan
    • participating standards-must follow to certain participation standards, for example being employed for 1 or more years and must be over 21. also if the qualified employer plans provides vesting a minimal of 2 years employed is usually required
    • coverage requirements-must provide equal oppurtunity to everyone and not favor those of higher rank
    • vesting schedules-employees have a 100% vested interest in their benefit that accrue from their contributions. qualified plans must adhere to principles that propose such vesting schedules and nonforfeightable rights
    • funding standard-contributions must be made by the employer on behalf of the employee, by an employee, or both and must be held by a 3rd party and invested
    • contributions-define contribution plan and define benefit plan that must restrict specific amounts that could be made or acrued to any single, individual plan
  133. define contribution plans
    several plans that funds are invested in that accumilate interest and possibly dividens like profit sharing plans, stock bonus plans, and money purchase plans
  134. profit sharing plan
    allows emplyees to participate in the company profits with a specific formula at time of retirement
  135. stock bonus plan
    benefits are dispersed in form of company stock
  136. money purchase plans
    outlines with a fixed contribution, such as 5 percent of emplyees annual income with several requirements
  137. define benefit plan
    provides a specific amount come retirement, it can be in dollar value or by calculating salary and years of service.
  138. 401k
    a defined contribution plan, this plan allows an employee to take a reduction in their salary by defering a certain amount into a retirement plan
  139. tax sheltered annuities 403b plans
    tax favored retirement plan is an annuity thats available for public schools and certain tax exempt orginizatoins
  140. IRC section 457 defered compensation plan
    congress enacted this code to allow participants the ability to defer compensation without current taxation
  141. keogh plans HR-10's
    tax defered pension plan available for self employed and unicorporated business
  142. simplified employee pension SEP
    created to overcome the usual cost associated with establishing qualified plans. contributions could be larger then IRA's
  143. salary reduction plans SEP
    reserved for small business with 25 or fewer employees
    for small business fewer then 100 employees
  145. catch up contribution
    at the end of a plans years, individuals who are 50 years or older are allowed to contribute additional amounts
  146. traditional IRA individual retirement plan
    individuals are giving the oppurtunity to save money while receiving a tax break
  147. IRA participation
    includes any individual under the age of 70 1/2 who has earned income that contributions levels of 100 percent of their annual income but cant exceed 5000 dollars and if so will be taxed 6 percent
  148. roth IRA
    use post tax dollars instead of pre tax dollars for contributions like a traditional IRA
  149. What is the waiting period required in order to receive s.s disability benefits
    5 months
  150. supplement major medical
    used to obsorb the cost when basic medical insurance is unable to provide complete coverage
  151. comprehensive major medical
    known for extensive coverage
  152. corridor deductible
    this deductible is only required when basic medical care exceeds or is exausted
  153. interigrated deductible
    is offset by basic medical expense plan
  154. disability income probation period
    15 to 30 days
  155. elimination perido for disabilty income
    starts immediately after the beginning of disability and can be from 1 week to a year to prevent small claims
  156. short term disability benefits last how long
    6 months to 2 years
  157. long term disability payments last how long
    until insurer reaches 65
  158. delayed disability provision last how long
    considering that total disability doesnt always follow an accident, this provision allows 30, 60, or 90 days delay between occurance
  159. recurrent disability
    provides benefits for reacurring disablity
  160. principle sum in AD&D
    this is a death benefit that incase policy owner dies, the beneficiary will receive the principal sum stated in the contract. however if the insurer dies under specified circumstances the beneficiary could receive double, triple, or even quadroopl benefits payed out
  161. capital sum
    this is a dismemberment benefit. that flucuates depending on the accident
  162. accidental means
    if individual is doing risky behavior like rock climbing benefits will not be paid
  163. accidental results
    if policy holder is doing risky behavior like rock climbing benefits still get paid. most plans follow this
  164. limited risk AD&D policies
    provides coverage for specific times like commercial travel
  165. special risk policy for AD&D
    covers unusual hazards, like a pianist insuring the hands, or a gymnist their legs
  166. if a medicare supplement insurance policy excludes coverage for preexisting conditions, the exclusion can not exist for longer than?
    6 months
  167. with medicare part A, how many days of inpatient hospilization services are covered after the deductible is satisfied?
  168. what type of business life insurance plan is used to purchased the deceased owners interest so that business can continiue without financial interuption?
    buy sell plan
  169. what are the four basic parts of an insurance contract
  170. pertaining to medicare supplement policies, how many days does the free look provision last?
    30 days
  171. a situation where a partnership agrees to buy out the interest of a deceased partner is called a
    entity type plan
  172. life insurance provision that includes cash values
    policy loan provision
  173. are floods considered hazards
  174. written proof of lost must be sent to the insurer within
    90 days
  175. applicants who apply for large amounts of insurance usually require what type of report
    inspection report
Card Set
2-15 Lic.
life, health and variable annuities