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CA LIFE AND HEALTH INSURANCE
Flashcards for the CA Life and Health Insurance exam
121
Insurance
Professional
01/25/2012

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Cards

Term
Waiver
Definition
Voluntary abandonment of a known or legal right.
(An insurance company is considered to have waived rights surrounding any unanswered questions in the application once the policy is issued)
Term
Inception Date
Definition
Effective Date- when coverage begins
Term
Insurance
Definition
Indemnifying against loss or damage from a Contigent or Unknown event
Term
Ideally Insurable Risk
Definition
- Large number of like units (make loss predictable)
-Loss is calculable
- Accidental
- Cause Financial Hardship
- Exclude catastrophic perils
Term
Facultative Agreement
Definition
Reinsurance agreement: Ceding insurer and reinsurance co. can exchange advice about the underwriting.
Term
Insurable Interest
Definition
Possibility of economic loss due to sickness or death
Life: must exist at time of application
Term
Policy
Definition
Written document in which insurance contract is set forth
Term
Cash Value
Definition
Money that accumulates in a permanent LIFE policy from the premiums/interest. May be withdrawn if the policy is surrendered, and is paid out on maturity (endowment) of the policy
Term
Human Value Life Approach
Definition
Measures future earnings, annual expenses and assets to determine life policy coverage needed
Term
Needs analysis Approach
Definition
Assesses need for coverage by looking at assets vs financial needs caused by death (child tuition) to determine life policy coverage level. Assumes immediate death
Term
Capitol Liquidation
Definition
Analyzing insurance needs for an 'income objective' by assuming both principal and interest in assets are liquidated over time.
Term
Captial Retention/Conservatin
Definition
Analyzing insurance needs for an 'income objective' by assuming desired income will be generated by investment earnings, not principal
Term
Disadvantages to NOT having a Buy Sell agreement
Definition
- Income to surviving family stops
-Surviving owners may suffer a loss
- Asset reduction and delayed estate transfer; forced liquidation
Term
Key Person (tax)
Definition
If ER is NOT beneficiary, but is owner and premium payor- may be deducted as business expense.
Term
Deferred Compensation Life Plan
Definition
ER promises to pay key employees certain amounts of money at future date- Taxes are deferred on this until the employee takes possession, and if EE dies before retirement, benefit is paid to ER who then pays beneficiaries.
Term
SERP (Supplemental Executive Retirement Plan)
Definition
benefits in addition to traditional 401k- non tax qualified as usually used for key employees
Term
Executive Bonus Plan
Definition
Premiums are bonused to shareholders to cover the cost of the policies owned on other shareholds (cross purchase plan)
Term
Group Life Insurance
Definition
- makes up 40% of life insurance.
-85% of group is ER-EE
- renewable term basis
Term
Home Service Life Insurance (Industrial)
Definition
(Debit Life Insurance)- $10,000 or less to pay funeral expenses.
Term
Reinstatement (Life)
Definition
Pay back premiums, plus interest and Prove Insurability- available within 3 years from lapse
Term
Entire Contract
Definition
Policy + Riders + Copy of Application
- Statements on app considered representations and NOT warranties
Term
Modifications (Life)
Definition
Approved by policyowner, signed by executive officer and made part of contract
Term
Results Clause (Life)
Definition
Death from war, only premiums are refunded
Term
Suicide (Life)
Definition
If in first 2 years, only refund of premium. If after 2 years- full face amount is paid.
Term
Loan Rate Provisions (Life)
Definition
- Fixed: Maximum is 8%
-Adjustible: Maximum based on Moody's Corporate Bond Yield Average
Term
Prohibited Provisions (Life)
Definition
Any that:
- Limit the time for legal action to Less than 1 year
- Allow backdating other than to conserve age
- Allow settlement to be less than face amount
- Designate Agent as representative
- Require forfeiture if loan is less than loan value
Term
Per Capita
Definition
'Per Person': if 1 beneficiary dies, money is split between other beneficiaries
Term
Per Stirpes
Definition
'Per Beneficiary': if 1 beneficiary dies, money is split between other beneficiaries + heirs of deceased beneficiary
Term
Change of Insured
Definition
Corporate Owned Life Insurance: May change out one insured for another of similar qualifications (exchanging 1 insured exec for another)
Term
Decreasing Term (Life)
Definition
Death benefit decreases but premiums remain level (often used against a mortgage or credit life insurance- to cover an oustanding loan in case of death)
Term
Increasing Term (Life)
Definition
Death benefit increases, premiums remain level.
Term
Re-Entry Term (Life)
Definition
Lower premiums at issue, renewed at lower premiums as long as can prove Evidence of Insurability. Health declines: premiums increase
Term
Life Expectancy Term (Life)
Definition
uses mortality table to provide level term benefit over life expectancy. Cash value accumulates to offset premiums in later years.
Term
Renewability (Term Life)
Definition
Renew without evidence of insurability- premium based on Attained Age
Term
Convertability (Term Life)
Definition
Covert to permanent without evidence of insurability- premium is based on Attained age or Issue age
Term
Pure Insurance Protection (Whole Life)
Definition
Face Value- Cash Value
Term
Straight Life (Whole Life)
Definition
Premium and Face amount remain level till death or age 100
Term
Limited Payment (Whole Life)
Definition
Premium payments are for specified time, face amount remains level
Term
Current Assumption (Interest Sensitive) Whole Life
Definition
Flexible premiums, face amount doesn't fluctuate. Current interest rate is higher than with traditional life.
Term
Enhanced Whole life (Economatic)
Definition
Uses dividends to purchase additional insurance (if individual needs more protection than can afford.
Term
Endowment (Whole Life)
Definition
Matures prior to 100 (like limited payment). Level premium and face amount. Emphasis on savings rather than insurance.
Term
Adjustable Life (Flexible Design)
Definition
Level Premium & Death benefit- policyowner can Adjust TYPE or AMOUNT of coverage without changing existing policy and premiums may change as a result. (good for those with fluctuating income)
Term
Universal Life (Flexible)
Definition
Face amount and Premiums are adjustable (with approval).
- death benefit is one year renewable term
- cash value earns interest at current rate (premiums placed in cash value account, interest credited to cash value)
- premiums adjust with the cash value allowing more or fewer premiums.
Term
Variable Life (Flexible)
Definition
fixed premium- death benefit/cash value varies reflecting the investment experience.
- Guaranteed minimum face amount (original issue amount)
FINRA license needed to sell
Term
Variable Universal Life (Flexible)
Definition
Premium and death benefit are flexible- policyholder selects the separate accounts (mutual accounts) to invest in.
Term
Family Income (Life)
Definition
provides specific monthly income for the Remainder of the term period if insured dies within the term period.
Term
Family Maintenance
Definition
Provides specific monthly income for a specific period Beyond the insureds death, if they die within the term period.
Term
Family Policy (Life)
Definition
Adds Spouse (to age 65) and Children (to 25) on the head of houses insurance. If primary insured dies, rider is paid up until each family's term expires.
Term
Joint Life (First to Die)
Definition
Death benefit is paid on first to die- provides income protection for spouse.
Term
Joint Life (Last to die)
Definition
Death benefit paid on the last to die- provides beneficiary income protection
Term
Surrender Cost Index (SCI)
Definition
Most recognized method of comparing policies with fixed interest rates.
Term
Comparative Interest Rate (CIR)
Definition
Compares cash value policies with term plans using interest rates.
Term
Waiver of Cost of Insurance (Life Rider)
Definition
Waives the deduction of cost of insurance from a Universal Life Policy while insured is totally disabled (usually after 6 months of disability)
Term
Guaranteed Insurability (Life Rider)
Definition
Insured can purchase additional amounts of insurance at certain ages Without evidence of Insurability.
-premiums based on attained age
Term
Return of Cash Value (Life Rider)
Definition
Increasing Term insurance equal to the cash value- provides payment of term insurance equal to the cash value amount at time of death.
Term
Grigsby V Russell (1911)
Definition
Case establishing Life Insurance as property that could be transferred (assigned)
Term
Capital Conservation
Definition
Settlement Option: Paying out the interest only from a Life Policy as form of income (taxable)
Term
Life Income Joint and Survivor
Definition
payments are guaranteed to two or more recipients- upon death of first benefits continue to survivors
Term
Joint Life (Settlement Option)
Definition
payments guaranteed to two or more, after death of first, payments cease.
Term
Extended Term (Life Nonforfeiture option)
Definition
'Automatic Option'- cash value used to buy a single premium term policy for as long a period as it will buy.
Term
Premium Reduction (Life Dividend Option)
Definition
Using dividends towards the next premium due.
Term
Accumulate at Interest (Life Dividend Option)
Definition
Dividends are trained and interest rate paid the policyowner is compounded annually
Term
Paid Up Additions (Life Dividend Option)
Definition
Purchases Single Premium premanent benefit At Insureds Attained Age
Term
One Year Term (Life Dividend Option)
Definition
Purchases Single Premium one year term policy (normally if doing something more dangerous that year)
Term
Paid Up Option (Life Dividend Option)
Definition
Pays off the policy more quickly than scheduled.
Term
Acceleration of Endowment (Life Dividend Option)
Definition
Reduces the time period for the policy to endow
Term
Automatic Premium Loans
Definition
Automatically borrows form the cash value to cover a premium payment at the end of the Grace Period
Term
MET (Multiple Employer Group- Life, Health and Disability)
Definition
-Sponsored by Insurers, or two or more employers of the same industry.
-Sponsor (usually administrator) must design the plan and select groups permitted to participate
-Must have Trustee that routes all financial transactions
Term
1. OASI (1935)
2. OASDI (1956
3. Title XVIII (1965)
4. Medicare 2006
Definition
1. Social Security- old age retirement benefit
2. Disability Income benefits added to Social Security (unable to engage in ANY employment lasted at least 12 months- 5 month waiting period)
3. Medicare
4. Medicare part D was added
- Federally Funded
- ER withholds employee's tax
-Self Employed can pay amount equal to ER + EE
- Actuarial values of contributions DO NOT equal Actuarial values of benefits
Term
Annuity (Liquidation) Period
Definition
Starts at receipt of first periodic payment
Term
Owner's Rights (Annuity)
Definition
Change annuity date, beneficiary and settlement options. - if beneficiary is spouse, IRS allows spouse to assume ownership upon annuitants death.
Term
Group Deferred Annuity
Definition
May be used as a pension plan for employees
Term
Fixed (Guaranteed) Annuity
Definition
-Minimum rate of interest and payout
-20 year projected schedule of cash availability shown on each anniversary
-Insurer bears any investment risk
- If interest rate drops below current rate, may be surrendered without surrender charge (Bailout Provision)
Term
Equity Indexed Annuity
Definition
Linked to equity index (houses, Standard and Poors 500 Index)
- safety of principal and minim interest
Term
Market Value (Adjusted) Annuity
Definition
backed with asset of bonds- purchased for 3-10 years, higher yield.
Term
Variable Annuity
Definition
Annuity payment fluctuates according to Investor experience in 'separate accounts' (mutual funds).
-Owner bears risk as they direct investment
-payments are made in terms of 'units' that may fluctuate in values (like stocks)
-prospectus required to be given at time of application
- Assumed Interest Rate (AIR) used when computing payments
Term
Temporary (Annuity Payment Option)
Definition
benefits received for a fixed period of time or until death
Term
Pure or Straight Life (Annuity Payment Option)
Definition
annuity is payable for as long as annuitant lives
Term
Life Income Period Certain (Annuity Payment Option)
Definition
payable for life or specific period- which ever occurs LAST
Term
LIfe Income & Joint Survivor (Annuity Payment Option)
Definition
payable to two or more annuitants while both living- on death of first, reduced annuity is paid to survivor
Term
Uniform Individual Accident and Sickness Policy Provisions Law
Definition
All policies MUST have:
- Entire Contract provision
- Time Limit on Certain Defenses (Incontestability)
- Grace Period
- Reinstatement
- Notice of Claim provision (20 days of loss)
- Claim form provision (15 days after notice of claim)
-Proof of Loss provision (90 days of loss)
- Time of payment of claims provision (immediately)
- Physical Exam and Autopsy provision
- Legal Actions provision (wait 60 days)
Change of Beneficiary (effective on owner's signature date)
Term
Optional Uniform Provisions
Definition
- Change of Occupation
- Misstatement of AGe
- Other Insurance with this Insurer
- Insurance with other insurers
- Relations of Earnings to Insurance (disability benefit shall not exceed earnings)
- Unpaid Premiums (can deduct unpaid premiums from claim)
- Confirmity with Sate Statutes
-Illegal Occupation
- Intoxicants/Narcotics
- Cancellation
Term
Noncancellable (Health & Disability)
Definition
guaranteed renewable to 65, guaranteed premiums
Term
Guaranteed Renewable (Health & Disability)
Definition
renewable to 65 Without proof of insurability. Premiums not guaranteed
Term
Optionally Renewable
Definition
Renewability is at option of Insurer
Term
Taxable when Benefits (List them)
Definition
- Cash Value beyond premiums when received as benefit
- Installment payments or Interest only payments (death benefit)
- Death Benefit if assigned
- Annuity if given upon death- (amount earned over contributions)
- Annuity when annuitized (taxed on amount of earned interest)
- Surrendered annutiy; amount over cost basis.
- 403(b), section 457, IRA's
Term
MEWA
Definition
small firms grouped together to form an association
- usually self funded
- Department of Insurance must issue a Certificate of Compliance
Term
Taft Hartley Trusts Act
Definition
established a trust for unions to receive benefits from, so employer can't pay group plan carriers directly.
Term
Service Providers
Definition
Carriers that pay the benefits to the providers rather than the insured (most plans today)
Term
Blue Cross Blue Shield
Definition
- prepaid plans
- Blue Cross: hospital
- Blue Shield: Physician
- Not for profit
Term
Group Model HMO
Definition
- contracts with independent medical Groups
- pays the Group Entity, not the individual physicians.
Term
Uniform Individual Accident and Sickness Policy Provisions Law (List Mandatory Uniform Provisions)
Definition
- Entire Contract
- Time Limit on Certain Defenses (Incontestable)
- Grace Period
- Reinstatement
-Notice of Claim (20 days after loss)
- Claim Form (15 days after Notice of Claim)
- Proof of Loss (90 days after loss)
- Time of payment of Claims (immediate)
- Physical Exam and Autopsy (Insurer can order)
- Legal Actions (can't take any before 60 days)
- Change of Beneficiary (Change becomes effective on owner's signature date)
Term
Uniform Individual Accident and Sickness Policy Provisions Law (List Optional Uniform Provisions)
Definition
- Change of Occupation
- Misstatement of Age
- Other Insurance with this insurer
- Insurance with other insurers
-Relations of Earnings to Insurance (disability insurance can't be more than monthly income)
- Unpaid Premiums (deducted from claims)
- Confirmity with State Statutes
- Illegal Acts
- Intoxicants and Narcotics
- Cancellation
Term
Noncancellable (Health and Accident)
Definition
Guaranteed renewable to age 65 with guaranteed premium
Term
Guaranteed renewable (Health and Accident)
Definition
Guaranteed renewable to age 65 Without proof of insurability (premiums not guaranteed)
Term
Conditionally Renewable (Health and Accident)
Definition
Renewable unless termination notice issued by insurer
Term
Optionally renewable (Health and Accident)
Definition
will renew only if insurer chooses to
Term
Nonoccupational (disability)
Definition
covers injury and sickness off the job only (workers comp used for on the job- combination is 24-hour coverage)
Term
CA workers comp
Definition
medical benefits are covered
income benefits begin after 3 day waiting period. retroactive benefits later paid back.
Term
Waiver of Premium (LTC Nonforfeiture Option)
Definition
premiums are waived usually after 90 days of confinement
Term
Cash Surrender Value (LTC Nonforfeiture Option)
Definition
Guaranteed lump sum is paid upon lapse or surrender
Term
Reduced paid up (LTC Nonforfeiture Option)
Definition
reduced amount of daily benefit provided for duration of benefit period after premiums discontinued
Term
Extended Term (LTC Nonforfeiture Option)
Definition
Full amount of daily benefit paid for a limited period of time after premiums have been discontinued.
Term
LTC Prohibited Provisions
Definition
Can't contain provisions that:
- cancels policy on grounds of age or health
- establishes a new waiting period when coverage is replaced
- provides coverage for ONLY skilled nursing facility
- payments based on 'Usual and Customary' benefits
- renew as anything less favorable than Guaranteed renewable
- refuse an extension of benefits if insitutionalization began while policy was in force
Term
Valued Contract
Definition
Pays stated amount in event of a loss (Disability or Life)
Term
Department of Insurance
Definition
- regulates insurers
- protects against insolvency
-regulates organization and ownership
- requires all investments be approved by Board of Directors
- all insurers must file financial report
- can examine any insurer
- can step in and rehabilitate or liquidate
Term
Express Authority
Definition
authority in agent's contract
Term
Implied Authority
Definition
authority public assumes agent has.
Term
Apparent Authority
Definition
authority created when agent exceeds their expressed authority and insurer doesn't counter it (taking premiums on a lapsed contract)
Term
Aleatory Contract
Definition
parties exchange unequal amounts of money
Term
Contract of Adhesion
Definition
Take it or Leave it contract- no negotiation
Term
Unilateral Contract
Definition
once premiums paid, only one party is legally bound
Term
Requirements for using Illustrations in a Life Policy
Definition
Must include:
- contact details of insurer and agent.
- Underwriting or rating classification based on
-Generic name of policy
- Initial death benefit
-Dividend option elction
It cannot:
- use term vanishing
- represent that a premium payment will not be required each year
Term
Conditional Receipt
Definition
coverage will be in effect the date of application or on completion of medical exam unless declined within a specific period of time
- premium is paid when application made
- receipt issued at time of application
Term
Commissioner
Definition
- elected by the people
- may revise the code of regulations
- Issues certificates of Authority
-regulates internal affairs of Department of Insurance
- structures and controls insolvency
Term
Twisting
Definition
Persuading a policyholder by misrepresentation to cancel one policy and purchase a new one (misdemeanor with $200/6month prison fine)
Term
Bureau of Fraudulent Claims
Definition
- operation costs borne by all insurers
- Insurer believe a fraudulent claim has been filed must report it in 60 days
- An insured signing a fraudulent claim form may be guilt of perjury
Term
Pre-Tax Contributions
Definition
- Disability Income, Life, medical, dental, LTC, AD&D, Business Overhead Expense, HRA contributions (if paid by ER)
- ER contributions to qualified retirement plans
Term
Post-Tax Contributions
Definition
- Disability income insurance where ER is beneficiary
- Disability, Medical, Dental, LTC, Life for an individual.
Term
Pre-Tax Benefits
Definition
- Lump sum life payment
- Dental, Medical, LTC, Disability Income Insurance if ER is beneficiary, FSA, HRA, HSA distributions
- Life Principal Amount (lump sum)
- Dividends
Term
Post-Tax Benefits
Definition
- Interest on dividends and lump sum life payment
- Disability benefits
- Interest on Life or Annuity principal or dividend amount
- Installment Life disbursements (including principal and interest)
- Life sum if transferred to stranger (STOLI)
- Surrendered Life or Annuity policy: amount above premiums paid
- Employer contributions to qualified retirement plans when benefit is received (EE taxed)
- Life Cash Value amount above Premiums Paid.
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