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Life and Health

2016 Insurance Exam

QuestionAnswer
Preexisting Conditions Insurers may not discriminate against or charge higher rates based on preexisting conditions
NAIC National Association of Insurance Commissioners- Has no legal authority to enact or enforce insurance laws
FIO Federal Insurance Office-Monitors the insurance industry and Identifies issues and gaps in the state regulation of insurers. Not a regulator or supervisor.
Stock Insurance Company Stock Company is owned by stock holders or shareholders.
Speculative Risk Situations where there is a chance for loss, gain. Example is gambling.
Pure Risk Situations for which there is no chance of gain. Only situation is where outcome is for nothing to occur or for a loss to occur.
Net Premium Mortality-Interest=Net premium
Gross Premium Net Premium(Mortality-Interest)+Interest)+Expenses=Gross Premium
FCRA Fair Credit Reporting Act-Governs the collection of information about an applicant from a third party.
Endow Matures-The maturity date or time at which the policies cash value equals the face amount and the proceeds are paid to the policy owner.
Rider An added benefit attached to the policy that modifies existing coverage. A rider is usually added at the time of application and typically requires an increase in premium.
Term Insurance Considered Pure Insurance and provides Pure Death Benefit- Temporary Insurance for a specified amount of time.
Permanent Insurance Traditional Whole Life-Specified Time Period, Permanent Insurance is designed for an Entire Lifetime-Level Premium and Level Face Value- Cannot be converted or renewed.
Joint Life First to Die-Written to cover 2 or more lives. Death benefit is paid upon the first insured to die.
Joint Survivorship Whole Life Policy- written to cover 2 or more lives-Death Benefit is not paid until the last insured dies.
Viatical Settlement Agreement between a third party and a life insurance policy holder(Viator)insuring the life of an individual with a life-threatening or terminal illness(normally with a life expectancy of two years or less).
Whole Life Can be sold as Straight Life, Limited pay Life, and Single Pay Life
Universal Life Flexible Premium Adjustable-Contract Permits Owners to raise and lower or skip premium payments and or to raise and lower the death benefits as described in the policy- Increasing the death benefit usually requires additional underwriting
Grace Period Time period provided after the premium due date before a policy lapses(usually 30 days)
Implied Authority Implied authority, also known as “usual authority,” is the authority of an agent acting on behalf of another person or entity. The person acting with implied authority does what is reasonably necessary in order to effectively perform his duties.
Legal Competence competence concerns the mental capacity of an individual to participate in legal proceedings or transactions, and the mental condition a person must have to be responsible for his or her decisions or acts.
Adhesion contract between two parties, where the terms and conditions of the contract are set by one of the parties, and the other party has little or no ability to negotiate
What are the essential elements of a contract? For a contract to be legally binding it must contain four essential elements: •an offer. •an acceptance. •an intention to create a legal relationship. •a consideration (usually money).
Reinsurance is insurance that is purchased by an insurance company (the "ceding company" or "cedent" or "cedant" under the arrangement) from one or more other insurance companies (the "reinsurer") directly or through a broker as a means of risk management
Indemnification To indemnify another party is to compensate that party for loss or damage that has already occurred, or to guarantee through a contractual agreement to repay another party for loss or damage that occurs in the future
Syndicates A group of companies or underwriters who join together to insure very high-valued property or high-hazard liability exposures. Insurance exchanges, such as Lloyd's of London, use syndicates to write insurance.
Aleatory Contract An aleatory contract is a contract in which the performance of one or both parties is contingent upon the occurrence of a particular event. The most common type of aleatory contract is an insurance policy
Alien Insurer Insurer that is formed in a country foreign to where some or all of its business will be conducted. Regardless of where the insurer is located, it must follow the rules and regulations.
Facultative Agreement Reinsurance for a single risk or a defined package of risks. The ceding company (the primary insurer) is not compelled to submit these risks to the reinsurer.
Speculative Risk Speculative risk is a category of risk that can be taken on voluntarily and will either result in a profit or loss. All speculative risks are undertaken as a result of a conscious choice
Pure risk Pure risk, also called absolute risk, is a category of threat that is beyond human control and has only one possible outcome: loss. Pure risk includes such things as natural disasters, fire or untimely death.
Law of Large Numbers The law of large numbers is a principle of probability according to which the frequencies of events with the same likelihood of occurrence even out, given enough trials or instances
Concealment Is the act of hiding or not putting forward any relevant fact in front of the insurer that need to be revealed. An applicant commits this fraudulent act intentionally or unintentionally that may lead to loss to the insurer
Unilateral Contract Is a legally enforceable promise - between legally competent parties - to do or refrain from doing a specified, legal act or acts. In a unilateral contract, one party pays the other party to perform a certain duty.
Broker An insurance broker (also insurance agent) sells, solicits, or negotiates insurance for compensation.
Agent Producer Independent insurance agents, also known as insurance sales agents or "producers", typically sell a variety of insurance and financial
Risk Management In the world of finance, risk management refers to the practice of identifying potential risks in advance, analyzing them and taking precautionary steps to reduce/curb the risk.
Self Insurance Is a method of managing risk by setting aside a pool of money to be used if an unexpected loss occurs. Theoretically, one can self-insure against any type of loss.
Waiver Is the voluntary relinquishment or surrender of some known right or privilege. Regulatory agencies or governments may issue waivers to exempt companies from certain regulations
Admitted Insurer 'Admitted Insurance' Insurance purchased from a company that is admitted (or licensed) in the state in which the policy was sold.
Stock Insurance an insurance company with capital contributed by stockholders who control its operations and reap any profits or sustain any losses which may result therefrom and with policies that are ordinarily nonparticipating and always nonassessable.
Mutual Insurance Mutual insurance company is an insurance company owned entirely by its policyholders. Any profits earned by a mutual insurance company are either retained within the company or rebated to policyholders in the form of dividends.
Express Authority Express authority is the authority which the principal has expressly given to the agent whether orally or in writing.
Implied Authority Implied authority (sometimes described as usual authority) is the authority of an agent to do acts which are reasonably incidental to and necessary for the effective performance of his duties.
Apparent Authority Apparent authority refers to a situation where a reasonable third party would understand that an agent had authority to act. This means a principal is bound by the agent's actions, even if the agent had no actual authority, whether express or implied.
Warranty In contract law, a warranty has various meanings but generally means a guarantee or promise which provides assurance by one party to the other party that specific facts or conditions are true or will happen.
Risk Reduction One of the major risk management techniques. Taking precautionary measures to reduce the likelihood of a loss, or to reduce the severity of a possible loss
A Loss has to be what? Calculated
Surplus Insurer Excess and surplus lines insurance is a segment of the insurance market that allows consumers to buy property and casualty insurance through the state regulated insurance
What does Insurance do? Transfers Risk
What is the highest Authority for Insurance The individual States
Ones Life Unlimited Insurance
Ceding Company Purchased by an insurance company (the "ceding company" or "cedent" or "cedant" under the arrangement) from one or more other insurance companies (the "reinsurer") directly or through a broker as a means of risk management.
The commissioner is appointed by: The governor
Who gives the authority to the Commissioner? The Texas Legislator
How often does the commissioner examine insurers Every 5 years
What can't the commissioner do? Prosecute
How long is a temporary License good for? 90 Days
How many continuing education credits must be in Ethics per 2 year period? 2
Number of CE credits per 2 year period? 30
How many CE credits must be done in a class room setting 50%
Is there a grace period for CE NO
How long is an agents appointment good for? Until it is withdrawn
What is the maximum number of companies an agent can represent? No maximum
How many officers need to be licensed for a corp or bank to be licensed? one
What is the penalty for acting as an agent without a license? Class B Misdemeanor; up to 500 dollars
What percentage of an agents sales need to be to the general public? 25%
Agents need to keep records for CE for how long? 4 Years
McCarran-Ferguson Act Gave the power to regulate Insurance back to the states
What must banks provide in the Branch to sell annuities? Separate and distinct areas w/no literature that says FDIC insured.
If someone has their license revoked how long do they have to wait to reapply? 5 Years/ 60 Months
What can life and health counselors do that regular agents can't? charge fees for research and recommendations
Is commingling an unfair trade practice? No, but it is illegal
What is the term for misrepresenting or making incomplete comparisons to replace existing policies? Twisting
Advertisements containing untrue or misleading statements about another insurer Disparagement
Men have a higher Mortality Rate; the state of being subject to death
Women have a higher MorbidityRate; The morbidity rate is the frequency with which a disease appears in a population.
Once a MEC Always a MEC
What is a MEC A Modified Endowment Contract (MEC) is a special type of cash value life insurance policy that requires extra attention because of the tax laws associated with it.
What is taxable on an annuity? Gains; tax deferred until realized
Credit Life cannot exceed what? The amount of Debt
Are Death Benefits Taxable? NO
What is taxable on a Cash Value Surrender of life Insurance? Profits/Interest
What type of 1035 transfer cannot be done without having to pay taxes? Annuity to life Insurance
When must Credit Life Insurance End? Within 15 days of Scheduled Maturity Date
Can Credit Life Insurance be included in the rest of the costs in the contract? No it must be separate
When can Group Insurance cover only certain employees? When the employer pays all of the premium!
What type of organization cannot purchase group insurance? When the organization is formed for the sole purpose of buying insurance
How long do you have to convert a group policy to individual insurance? 30 days without proof of insurability
What proves you have Group Insurance? The Certificate of Insurance
What is the penalties for unfair competition and unfair practices 500 dollar fine and a class A misdemeanor
How many days must the commissioner give for a hearing? 10 days
What is the maximum fine the commissioner can assess? $25,000
Where is the venue for any court action involving the TDI and Agent? Travis County District Court
How many days does and Agent have to report an address change to the TDI? 30 Days
What does Advertisements created by the agent require? Prior written approval by the sponsoring insurer
How long must advertisements be kept on file? 3 years
How is a MEC taxed? LIFO
Why would you buy a single premium life insurance Contract? Estate Planning
Dividends from MECs are taxable at what rate? 10% before age 59.5
What is the only group benefit taxable when received by the employee? Disability Income
What are the only tax deductible premiums? Premiums paid for by the employer for group insurance
What is Defamation Making any oral or written statement that is false or derogatory as to the financial condition of any insurer is known as
Who must sign the insurance contract for a key person The Agent, Policy Owner, and the Key Person
What is a Cross Purchase A buy-sell agreement between 2-3 partners
Who buys the policy in an entity purchase? The employer
Who pays the taxes on Executive Bonus? The Executive
How long does it take to get disability benefits from SS after applying? 5 Months
To count as a total disability, how long must the disability last? At least 12 Months
How long does it take to be fully insured by SS? 10 Years 40 Qtrs
What are the most important non-qualified Retirement Plans? Annuities
What is the Internal Revenue Code for Keogh? HR-10
How many employees qualify a company for a SIMPLE IRA Less than 100
Who contributes to a SIMPLE IRA The Employer
Who does not qualify to participate in a 403b? Government Employees
Gross Premium=Net Premium+???? Expense
What kind of insurance is known as Pure Protection Term
Age considered when term insurance is converted? Attained Age
Amortized Decreasing Term
Who needs to provide proof of insurability on a jumping juvenile policy with the payer provision Both the juvenile and the premium payer
What type of policy is a combination of whole life and term Adjustable Life
When might you have to provide proof of insurability again in an adjustable life policy? If the Death Benefit is increased.
This type of policy is known for having flexible premiums? Universal
Unbundled Insurance Universal
Vaiable Policies have a minimum_____ but no guarantee of ______! Death Benefit, Earnings/Cash Value
Type of insurance that is like buying term and investing the difference in the Market Variable Universal Life
What is known as a vanishing premium? Interest Sensitive
What identifies that parties to the contract and the legal purpose of the contract and other basic details? Insuring Clause
If its not found here! Its not part of the Contract! Entire Contract Clause
Free look for life insurance=____, for senior products=_____. 10 Days, 30 days
Consideration Premium Plus Fees
Grace Period 30 or 31 days from the premium due date
Does a policy loan affect the Cash Value? No
How long are life insurance policies Contestable? 2 Years
How long before Suicide is covered? 2 Years
If there is a misstatement of age or Sex what happens? Adjust the Benefit accordingly
The insured has to die within how many hours for the common disaster clause to apply? 120 Hours/5 days
What is not an incidence of ownership? Payment of Premium
Who chooses the settlement Option if the Owner hasn't? The beneficiary
To be considered Terminal, how long must you have to live? Less that 2 years
What age is looked at when using guaranteed insurability? Attained Age
What happens to cash values and dividends if waiver of premium is exercised? Nothing changes, continue to grow on Schedule
What is the death benefit if the return of premium rider is in affect? Face Amount+Premiums Paid
Accidental Death only applies if the insured dies within ___days of the accident 90
In AD&D if you lose one hand insurance pays? 50%
What guarantees that an annuitant will receive income if they outlive their life expectancy? The insurance Company general assets
What is not required for a contract to be legal? Equitable Terms or Counter Offer
When is insurable interest required? At Date of Issue
Who uses the law of large Numbers Actuaries
When is the Social Security Black Out Period? From the time the youngest child turns 16, to when the spouse turns 60
How is the face value affected by loans? It is NOT!
An Agent outside the state is considered what? A NON Resident
Dividends on Stock Companies are considered? Taxable in the Year Paid
Dividends on Mutual Funds are? Not Taxable?
Participating Plans Receive Dividends
Non-Participating Plans have _____ No dividends
LLoyd Association Rules 10-10..Lloyds can write up to 10 times assets, at least 10 underwriters, must use Lloyds in Name
What is the company called that wrote the original policy of a reinsure? Ceding Company
Company accepting the policy to be reinsured? Assuming Company
Facultative A policy-by policy approach to reinsurance
What is a field underwriter also known as? Agent
Knowingly giving up a right? Waiver
Answers to questions on the insurance application are considered to be??? Representations
What is the best way to prove you work for an insurance company? Using their paperwork
How many companies may an agent represent? No Limit
Free Look Period is how long? 10 days
If there is any ambiguity in the contract terms, ruling will be in the favor of the insured or beneficiary Adhesion
Unequal Consideration between Premium and benefit Aleatory
Underwriting Department Responsible for the selection of risks (persons or property) to insure and rating that determines policy premiums.
What is the principle of indemnity? means to be restored to the same financial or economic condition that existed prior to the loss
Underwriting The process of selecting, classifying, and rating a risk for the purpose issuing or not issuing insurance coverage
What is an insurable Interest? Value of even or entity for which an insurable interest exists
What must exist at the time of a loss? Insurable Interest
What is a Tort? A civil wrong.
What is the underwriters primary responsibility? Determine risks associated with determining insurablility
What is a peril? Source of a loss.
What are the 3 types of Losses Physical, Moral and Morale
What is the MIB? Medical Information Bureau(Collects Adverse Medical Information about an applicants health
What does an Inspection Report do? General Report of the applicants finances, character, morals work, hobbies, and other habits.
What is a Viatical Settlement? Terminally Ill selling a policy to a third party for less than the death benefit but more than the cash value
Term Insurance has the lowest what? Lowest of the initial Premium Outlay
Flexible Insurance Universal and Variable Universal Life Insurance
Variable Insurance Policy that uses a separate account for the cash value accumulation.
Stock Insurance Is Non participating
What is Term Insurance considered? Pure Insurance, Pure Death Benefit (No Cash Value)
What is Permanent Insurance Designed for? Whole Life Provide Insurance for a lifetime. Matures at age 100 or 121 if based off of the 2001 Mortality Table.
What is Joint Life? Whole Life Policy (First to Die) written to cover 2 or more lives
What is Joint Survivorship Whole Life (Last to Die) written to cover 2 or more lives and the death benefit will not pay out until the last insured dies.
How long is the typical grace period? Usually a month or 31 days unless State Law specifies
Reinstatement used if a policy unintentionally lapses due to non payment, it can be reinstated by the owner; time period is usually 3 years from lapse, but can be as long as 5 years. Evidence of insurability will need to be proven
Premiums Premiums are considered a personal expense and are not tax deductible (determines the cost basis for tax purposes)
What is a Section 1035 Exchange Exchange of an existing insurance policy or contract for another without incurring any tax liability.
What is a Qualified Plan? Meet requirements of Federal Tax Law, to be eligible for favorable tax treatment.
What is a Non-Qualified Plan? Does not meet the requirements needed to be eligible for favorable tax treatment.
What is ERISA? Employee Retirement Income Security Act-Sets minimum standards for pension plans in private industry.
ERISA doesn't do what? Doesn't require that employers establish a plan, just ensures if they do the minimum standards are met.
IRAs are not considered what? They are not a qualified plan as they are set up by the individual!
What type of plan is Blue Cross Blue Shield? Prepaid plan. In most states Blue Cross is not for profit.
Blue Cross Hospital Service Plan (Contract with Hospital)
Blue Shield Physician Service Plan (Contract with Physicians)
HMO is what Health Maintenance Organization (Managed health Care System) Emphasize Preventative Medicine.
PPO is what discounted fee for service negotiation in advance.
Accidental Death Provides face amount(principle sum) if the insured dies due to an accident within 90 days from the date of the accident.
What is Capital Sum (Accidental Death and Dismemberment) Typically 50% of the principle sum if loss of one limb, single dismemberment, or sight in one eye due to and within 90 days of the accident.
Part D of Medicare covers what? Prescription Drug Plan
Medicare Part B covers? Physicians and Surgeons Services.
Medicare Part A covers? Hospital Insurance (Inpatient)
Medicare Part A covers Blood transfusions after the first? 3 pints of blood.
Grace Period? Not less than 7 days for weekly premium, 10 days for monthly premiums, 31 days for all other modes of premium.
Right to Exam (Free Look Period) Allows the insured usually 10 days-30 days to look over a policy and return it for a full refund.
Dependent Eligibility includes employees spouse, and all children from birth until age 26.
How long does an employee have to notify their employer to continue with COBRA 60 days if they elect to continue coverage. The employer has 14 days to notify the employee of their right to continue coverage.
What size of business qualifies as a small employer? 50 employees or less.
Eligible Employee Employee has a regular schedule of 30 hours or more per week. Waiting period for eligibility cannot exceed 90 days.
If an employee continues to work after 65 who pays as primary if there is a group health plan? Group Health Plan pays first over Medicare.
How long must new born coverage continue? 31 days after birth.
Created by: TXsnoflk