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Insurance Licensing
| Term/Question | Definition/Answer |
|---|---|
| Life Insurance | Transferring the risk of premature death from one party to another. |
| What creates an immediate estate? | Life insurance |
| Term Life Insurance | Temporary or limited protection, providing the most amount of life insurance at the lowest initial premium. No cash value or equity. |
| Agent | An individual authorized to solicit, sell, and transact coverage for specific insurance providers under an agent contract. |
| Broker | A person who represents the insured (client) rather than the insurance company and cannot bind coverage. |
| Insured | The customer who receives insurance protection under an insurance policy. |
| Insurer | An insurance company that provides coverage and assumes risk. |
| Mutual Insurance Company | An insurer owned by policyholders that typically issues participating insurance policies with potential dividends. |
| Participating Policy | A policy that allows policy owners to receive dividends and elect the board of directors. |
| Producer | An individual licensed to sell, solicit, or transact insurance, including both agents and brokers. |
| Stock Insurance Company | An insurer owned by stockholders that typically issues nonparticipating policies. |
| Indemnity | The goal of an action is to restore and insured to the same financial position they were in prior to when the loss in question occurred. |
| Nonparticipating Policies | Don't pay policy dividends because policy owners are not the owners of the insurance company. |
| Divisible Surplus | The amount of earnings paid to policy owners as dividends after the insurance company sets aside funds required to cover reserves, operating expenses, and general business purposes. |
| Mutualization | A stock company may be converted into a mutual company. |
| Demutualization | Mutual companies can convert to stock companies. |
| Mixed Plan | If an insurance company issues both participating and nonparticipating polices. |
| Fraternal Benefit Societies | Noted primarily for their social, charitable, and benevolent activities, but also issue insurance to cover members. Then have memberships that may be based on religion, nationality or ethnicity. |
| Reciprocal Insurer | An unincorporated organization overseen by a board of governors or directors in which individual members (subscribers) agree to insure one another. |
| Captive Insurer | An insurer established and owned by a parent firm or group of firms to insure the parent's loss exposure. |
| Risk Retention Group (RRG) | Specialized insurance company created under the LRRA of 1986, to provide liability insurance for individuals and entities with a common bond (pharmacists, dentists, etc.). Group-owned insurers assume and spread liability risks among members. |
| Risk Purchasing Group (RPG) | Differs from RRG in that RPGs purchase insurance from an insurance company; they don't act as insurers. |
| Reinsurers | An arrangement by which an insurance company transfers a portion of an assumed risk to another insurer. Occurs to limit the loss that any single insurer would face if a significant claim became payable. |
| Primary Insurer (Ceding Company) [Reinsurance Agreement] | The insurance company that transfers its loss exposure (risk). |
| Reinsurer (Assuming Company) [Reinsurance Agreement] | The company assuming risk. |
| Net Retention [Reinsurance Agreement] | The portion of the risk that the ceding insurer retains. |
| Treaty Reinsurance | Involves an automatic sharing of the risks that are assumed based on previously established criteria (broader and automatic). |
| Facultative Reinsurance | A primary insurer that seeks reinsurance tailored to cover a specific risk or exposure without an ongoing agreement. |
| Surplus Lines Insurance | Available to those who need protections that is not available through the commercial insurance carriers authorized to do business in the applicant's state. |
| Lloyd's of London | A syndicate of individuals and companies that individually underwrite insurance to gather and disseminate underwriting information, and helps associates settle claims/disputes by providing coverages that may otherwise be unavailable in certain areas. |
| Industrial Insurer | Characterized by relatively small face amounts. Generally, the selling agent visits the policy owner's home each week to collect premiums. |
| Admitted (Authorized) Insurer | An insurer authorized to transact insurance business in a particular state and issued a certificate of authority. |
| Nonadmitted Insurer | Can offer surplus lines coverage when authorized insurers won't accept the risk. |
| Domestic Insurer | An insurer that is incorporated under the laws of the state in which it conducts insurance business. |
| Foreign Insurer | An insurer that is conducting insurance business in a state other than where its offices are located. |
| Alien Insurer | The insurer is incorporated in a country other than the United States. |
| Underwriting | The department is responsible for reviewing applications, conducting investigation to gain additional information about applicants, assigning risk class, and approving/declining an application. |
| Actuarial | The department calculates policy rates, reserves, and dividends and makes other applicable statistical studies and reports that focus on morbidity and mortality tables. |
| Solicitor | Not licensed to sell insurance. Represents a producer and solicits prospective applicants to meet and discuss their insurance needs with that producer on their behalf. |
| Service Representatives | Insurance company employees who do not engage in sales activities that pay commissions. |
| Adjuster | A person who engages in investigative work to obtain information for adjusting, settling, or denying insurance claims. |
| Captive (Career) Agent | Works for one insurance company and sells only that company's insurance policies. |
| Independent Agent | Works for themself and sells the insurance products of many companies. |
| Career Agency | Often a branch of a major stock or mutual insurance company. Insurance agents are recruited, trained, and supervised by a general agent (GA) who has a vested right in any business that written by the agents who sell for the agency. |
| Managerial System [Career Agency] | The insurance company establishes branch offices in multiple locations, the insurer employs a salaried branch manager. |
| Personal Producing General Agency (PPGA) System | Primarily sell insurance, but they may build a small sales force to assist them. Generally responsible for maintaining their own offices and administrative staff, and are supervised by regional directors. |
| Independent (American) Agency System | A creation of the property and casualty industry, doesn't commit a sales staff or agency to any one particular insurance company. They represent any number of insurance companies through contractual agreements. |
| Paul V. Virginia 1868 | Established that insurance was not interstate commerce, giving states the authority to regulate the insurance industry. |
| United States V. Southeastern Underwriters Association (SEUA) 1944 | Declared insurance as interstate commerce subject to federal regulation. |
| McCarran Ferguson Act 1945 | Deliberately returned primary insurance regulation to the states while requiring compliance with federal antitrust laws. Violations can result in fines up to $10,000 and/or one year imprisonment. |
| Fair Credit Reporting Act 1970 | Safeguards consumer privacy by requiring insurers to maintain transparency in their investigation processes. |
| Fraud and False Statements Act 1994 | Creates a significant barrier for individuals with felony convictions involving dishonesty or breach of trust, requiring them to obtain written consent from state regulators before working in insurance. Penalties include fine of $50,000 and 10 years jail. |
| Financial Services Modernization Act (Gram-Leach-Bliley Act) 1999 | Broke down barriers between banking, insurance, and securities industries by allowing them to affiliate and enter each other's markets. Established strict privacy protection requirements. |
| Do Not Call Implementation Act 2003 | Created the National Do Not Call Registry, significantly impacting insurance telemarketing practices. Exemptions for charities, political organizations, and surveys. |
| CAN-SPAM Act 2003 | Established rules for commercial email communications. |
| National Association of Insurance Commissioners (NAIC) | Brings together regulators and industry personnel on committees that regularly examine various aspects of the insurance industry and recommend applicable insurance laws and regulations. Neither enacts or enforces compliance. |
| Unfair Trade Practices Act | Gives the head of each state insurance department power to investigate insurance companies and producers, but also authorizes them to issue cease-and-desist orders and to impose penalties. |
| Model Advertising Code [NAIC] | The code specifies certain words and phrases that are considered misleading by their very nature and cannot be used in the advertising of any kind of insurance. |
| National Conference of Insurance Legislators (NCOIL) 1969 | Works to preserve state regulation of the industry and to educate public policymakers on related issues. Writes Model Laws for consideration and adoption by state legislatures. |
| National Association of Insurance and Financial Advisors (NAIFA) and National Association of Health Underwriters (NAHU) | Created a code of ethics that details the expectations of agents in their duties toward clients. |
| How is an insurer's financial strenght determined? | Examining the company's reserves and liquidity. |
| Reserves | The accounting measurement of an insurer's future obligations to its policyholders. |
| Liquidity | Indicates a company's ability to make unpredictable payouts to policy owners. |
| Administrations Services Only (ASO) Plan | A contract in which a self-funded employee welfare benefit plan contracts with an insurer for administrative services while remaining responsible for the cost of claims. |
| Capitation | This method for compensating health care providers is calculated per patient rather than per service. |
| Closed-Panel Network | A form of HMO in which providers deliver services within HMO facilities. |
| Concurrent Review | A form of utilization review in which health care is reviewed as it's being provided. The reviewer monitors the appropriateness of care, with a focus on cost control. |
| Consolidated Omnibus Budget Reconciliation Act (COBRA) | Mandates that employers provide employees and their qualified beneficiaries with continuing coverage through the company's group health plan following a qualifying event. Employees have up to 60 days to accept coverage. |
| Contributory Plan | A group insurance plan in which the employees and the employer share the cost of coverage. |
| Conversion Privilege | Allows individuals covered under a group plan to convert their coverage to individual policies upon termination of their group plan coverage. |
| Creditable Coverage | Previous coverage under another insurance plan when there has not been a break in coverage that lasts 63 days or longer. Reduces or eliminates any new waiting period for pre-existing conditions when changing plans. |
| Exclusive Provider Organization (EPO) | An insured has direct access to any in-network provider without a referral, but no coverage is provided for out-of-network care unless there's an emergency. |
| Experience Rating | A measurement that's used to project a client's level of risk when underwriting large group insurance. insurers use it to help set the premiums for group plans. |
| Franchise Health (Wholesale) Plans | Provide health insurance coverage to members of an association or professional society. Premium rates are typically discounted for franchise plans. |
| Group Model HMO [Closed Panel)] | The HMO pays a capitation or predetermined fee to the provider group, while the group pays the physicians for services provided. |
| Health Insurance Portability and Accountability Act (HIPAA) 1997 | Guarantees that American workers can transfer and continue health insurance coverage when they change or lose their jobs. It also strengthened privacy protections. |
| Health Maintenance Organizations (HMO) | An organization that offers comprehensive prepaid health care services to its subscribing members. Subscribers pay a fixed periodic fee rather than a fee per service. |
| Indemnity Plans | Traditional insurance plans that are not involved with organizing or administering provider networks. They simply indemnify insureds by reimbursing them for covered costs. |
| Independent Practice Association (IPA) HMOs [Open Panel] | Characterized by a network of physicians who practice in their own facilities and participate in the HMO on a part-time basis. |
| Multiple Employer Trust (MET) | Combines multiple employers (10+) into a single pool to provide group insurance. Holds the master contract rather than the participating employers. |
| Multiple Employer Welfare Arrangement (MEWA) | A group of 2+ employers with a common bond that join together to provide health benefits for their employees on a self-insured basis. |
| Natural Group | An organization that exists for some reason other than to obtain insurance. |
| Network Model HMO [Closed Panel] | Similar to the Group Model; however, it involves more than one physician group. |
| Noncontributory Plan | A group insurance plan in which the employer pays the entire group premium. |
| Notice of Privacy Practices | Required by HIPAA; a notice at the time of enrollment (and every 3 yrs) by the health insurance plan to new subscribers detailing the health plan's compliance with the HIPAA Privacy Rule and consumer rights. |
| Open-Panel Network | A form of HMO in which providers deliver services while working out of their own offices on a part-time basis. |
| Participating Providers | Doctors and hospitals that contractually agree to specific fees for the services they provide to subscribers. |
| Point-of-Service (POS) Plan | Combines in-network care that's similar to an HMO with limited out-of-network care. |
| Preferred Provider Organization (PPO) | A sponsored network of health care providers that contract with the PPO to offer their services to PPO subscribers on a fee-for service basis at prearranged discount prices. |
| Pregnancy Discrimination Act 1978 | Requires that women who are affected by a pregnancy, childbirth, or related medical conditions be treated the same as any other person for employment-related purposes. |
| Prospective Review | A form of utilization review that involves analyzing a case before admission to determine the type of treatment that's necessary. |
| Retrospective Review | A form of utilization review that occurs after medical treatment is provided. |
| Service Basis | A system of insurance coverage in which consumers contract with service providers (i.e. BCBS) to obtain medical services from participating providers in exchange for a premium. |
| Right of Assignment | Allows policyholders to assign benefit payments directly to the healthcare provider, thereby relieving them of the need to pay the medical care provider. |
| Blue Cross | Covers hospital expenses |
| Blue Shield | Covers surgical and medical expenses. |
| Blue Cross and Blue Shield | Offer policies for individual and group coverage. |
| Fee-For-Service | The cost of each service is scheduled and incurred when the provider performs it; it is not prepaid. |
| Discount Medical Plan Organizations (DMPOs) | Not insurance policies but they offer discounts on certain medical services and are typically regulated but the state's department of insurance. |
| Probationary Period [Employment] | An established waiting time before one may join a group plan. |
| Probationary Period [Policy Terms] | Delays the excludes coverage for illnesses for between 10-30 days a policy is first in force. |
| Enrollment Period | Once employees become eligible for coverage, they have a limited period to accept coverage under the plan, most providers allow 31 days. |
| Actuarial Value [Medical] | This represents the minimum projected percentage of medical costs that are likely to be covered by a medical expense policy. |
| Bronze Plan | This ACA metal tier plan has an actuarial value projected to cover 60% of typical medical costs. |
| Gold Plan | The ACA metal tier plan has an actuarial value of 80% of typical medical costs. |
| Flexible Spending (Accounts) Arrangements (FSAs) | Allow employees to set aside a portion of their earnings for qualified medical expenses on a 'use it or lose it' basis. |
| Health Reimbursement (Accounts) Arrangements (HRAs) | Cover cost-sharing amounts such as deductibles and coinsurance. Unused amounts carry over from year to year and accumulate with annual employer contributions. |
| Health Savings Accounts (HSAs) | Available to U.S. taxpayers enrolled in a high-deductible health plan; the funds contributed to an account are not subject to federal income tax at the time of deposit or when used for qualified medical expenses. |
| Impairment Rider | Insurers add an impairment rider to health insurance policies that permanently exclude claims for a condition disclosed by the insured during the application process. |
| Look-Back Period | The defined period immediately preceding the beginning of coverage during which an insurer can identify a health concern as a pre-existing condition, subject to the terms of applicable policy provisions. |
| Medical Savings Accounts (MSAs) | Tax-free accounts set up with financial institutions, such as banks and insurance companies; available for employers with 50 or less employees. |
| Out-of-Pocket Maximum | This is the most an insured must pay for covered services in a single plan year. Includes deductible, coinsurance, and any applicable copays, but NOT premiums or exceeding UCR. |
| Per-Cause (Occurrence) Deductible | The insured must satisfy a deductible for each accident or illness. |
| Platinum Plan | This ACA metal tier plan has an actuarial value projected to cover 90% of typical medical costs. |
| Portability [HIPAA] | One's ability to retain access to a group insurance policy when changing employers. |
| Pre-Existing Condition | A health condition that exists prior to the inception of insurance coverage. |
| Silver Plan | This ACA metal tier plan's actuarial value is projected to cover 70% of typical medical costs. |
| Stop-Loss | Traditionally, the maximum amount of coinsurance an insured paid in one year. |
| Usual, Customary, and Reasonable (UCR) | Plans that use this approach compare expenses to what is deemed reasonable and customary for the geographical region of the country where the service was performed (i.e. HMOs). |
| Major Medical Expense Insurance | Offers comprehensive coverage for catastrophic medical expenses; annual deductible can be significant; unlimited coverage for essential services and higher limits on other types of care. |
| Basic Medical Expense Insurance | Covers a range of benefits (i.e. maternity benefits, hospice care, etc.). Benefits are often lower than the actual expenses incurred. First-dollar coverage which means no deductible; coverage limited to a specific list of services. |
| Basic Hospital Expense Insurance | Covers hospital room and board as well as miscellaneous hospital expenses; covers things rather than practitioners. |
| Basic Surgical Expense Insurance | Cover the costs of surgeons' services, regardless of whether surgery is performed in or out of the hospital. |
| Surgical Schedule Approach (Plan) | The insurer assigns a dollar amount to each surgical procedure. |
| Relative Value Scale Approach | Assigning each surgery a designated number of units rather than a flat dollar amount; the insurer establishes the fundamental value of a single unit. |
| Basic Physician Expense Coverage | Covers a physician's non-surgical services. An amount per visit is typically paid for treatment of an injury or illness. |
| Major Medical Expense Insurance | Offer high maximum benefits and comprehensive coverage under one policy with a renewable one-year term. Provide a variety of benefits as minimum essential coverage and cover significant portions of an insured's anticipated out-of-pocket costs. |
| Corridor Deductibles | Policies that include some basic first-dollar benefits before the major medical deductible applies. Such deductibles separate basic and major medical benefits. Example: If John has $5,000 ded, Insurance pays first $4,000, then John pays his $5,000. |
| Supplemental Major Medical Policies | After the basic policy pays its maximum benefit, the supplemental major medical policy provides coverage for expenses not covered by the basic policy and for those that exceed the basic policy's maximum benefit. |
| Initial Deductible | A stated dollar amount that an insured individual must pay before the insurance carrier begins paying its share of covered claims. |
| Calendar Year Deductible | Considered an all-cause deductible because the insured must meet it only once during the benefit period. |
| Carryover Provision | Allows an insured to apply claims paid by the insured in the final three benefit period months to the following year's deductible. |
| Flat Deductible | The stated dollar amount an insured must pay before an insurance policy pays for a claim (i.e. $500). Example: John has $5,000 ded & $7,000 procedure. John pays $5,000, insurer pays $2,000. |
| Family Maximum Deductible | Limits the total amount required from the entire covered family. It usually equals two or three times the individual deductible. If the family deductible is met first, claims will start being paid. |
| Integrated Deductible | When a major medical plan is packaged with basic insurance in a comprehensive policy. Can also apply whenever more than one policy shares a single deductible. |
| Advance Premium Tax Credits (APTCs) | A federal tax credit for individuals that reduces the amount they pay for health insurance premiums on the government marketplace. |
| Consumer-Driven Health Plans (CDHP) | Purpose is to incentivize individuals to consider the cost of medical services. Elements include pre-tax savings vehicle (HSA or HRA), a corridor or integrated deductible, and qualifying high-deductible insurance policy. |
| Archer Medical Savings Accounts (Archer MSAs) | Help employees of small employers (50 or less) and self-employed individuals pay for their medical care expenses. |
| Medicare Medical Savings Account (MSA) | Type of Medicare Part C; Medicare deposits a set amount into the MSA account annually. |
| Cafeteria Plan | Financial vehicle that allows U.S. businesses to offer a variety of employee benefits, including accident and health insurance, on a pre-tax basis. |
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