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Life & Health Insurance
NM Life & Health Insurance
146
Other
Professional
06/12/2009
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Term
Fair Credit Reporting Act
 Definition
applicant for insurance BE INFORMED that a consumer report may be requested regarding his application
Term
insurable interest
 Definition
individual purchasing insurance must have a DIRECT interest in individual to be insured: spouse, child, BUT NOT nephew, for example.
Term
existence of insurable interest in life/health insurance policy:
 Definition
insurable interest must exist at the time of application.
Term
warranty
 Definition
is guaranteed to be true (by the INSURER)
Term
True or False?: initial premium must be submittedto the insurer with the completed application
 Definition
FALSE
Term
Representation is...
 Definition
A statement THAT IS TRUE TO THE BEST KNOWLEDGE of the APPLICANT.
Term
The 3 risk classifications are:
 Definition
preferred, standard, and substandard
Term
Binding receipt is...
 Definition
one that provides coverage IMMEDIATELY once the premium is paid and the receipt is given.
Term
3 factors that UNDERWRITING considers:
 Definition
health, hobbies, age/sex (NOT anything about the beneficiary)
Term
primary sources of information (that Underwriting uses)
 Definition
medical examination, application, agent's report
Term
Medical INFORMATION Bureau PROVIDES...
 Definition
medical info on applicants
Term
FAIR CREDIT REPORTING ACT says....
 Definition
applicant must be advised that a consumer report may be requested
Term
the FREE LOOK period begins:
 Definition
when the policy is DELIVERED (lasts about 10-20 days)
Term
to form a valid contract you must have (3) things:
 Definition
(A.C.L.): an Agreement, Consideration, Legal capacity
Term
a statement guaranteed to be absolutely true best describes a(n):
 Definition
warranty
Term
DOMESTIC insurer:
 Definition
insurer is in the state in which it is incorporated (same state)
Term
FOREIGNER insurer (is not outside the country!):
 Definition
licensed to conduct in other states other than the one it is incorporated (New Mexico --> California)
Term
ALIEN insurer:
 Definition
incorporated OUTSIDE the U.S.
Term
licensed agents legally represent what party?
 Definition
the INSURER
Term
An example of service insurers/providers (those that provide insurance/health care services DIRECTLY to people):
 Definition
Blue Cross/Blue Shield, HMO PPO
Term
ability to predict approx. # of deaths/disabilities w/in a certain group is called...
 Definition
LAW OF LARGE NUMBERS
Term
refusing to fly, not investing in stocks, refusing to drive are example of (risk...)
 Definition
(risk) AVOIDANCE
Term
ONLY _____ RISKS are insurable.
 Definition
PURE (involves only the chance of loss, never gain or profit)
Term
elements of insurable risk (6) items:
 Definition
Due to chance
Definite and measurable
Predictable
NOT catastrophic
Loss exposure must be Large (must be a large group)
Insurers must have good & bad risks.
Term
In insurance, RISK is defined as:
 Definition
Uncertainty regarding LOSS
Term
Buying insurance means:
 Definition
transferring risk (the loss goes to the INSURER - the company insuring)
Term
The FUNCTION of insurance is (it's purpose)
 Definition
to spread financial risk over a large group (minimizes the loss to any one individual).
Term
Perils & Hazards are factors that cause/give rise to risk. A Hazard is any factor that gives rise to a PERIL. 3 types of Hazard are:
 Definition
physical (physical condition/medical history), Moral (increase the chance of loss - Alcoholism for example), MoralE (the ATTITUDE of a person, such as driving recklessly)
Term
When a building burns, fire is the peril. When a person dies, death is the peril. When an individual is injured in an accident, the accident is the peril. A PERIL is...
 Definition
the immediate event causing LOSS (and giving rise to risk).
Term
Keeping a $500,000 diamond ring in a safety deposit box is an example of what RISK?
 Definition
(risk) REDUCTION - lessen the risk by doing something preventative
Term
A POLICY OWNER is...
 Definition
individual who pays the premium, may also be the insured, beneficiary or another third party
Term
An INSURED is the...
 Definition
individual whose death causes the policy benefits. - can also be the policyowner.
Term
the BENEFICIARY is...
 Definition
that entity that receives the benefits (and is not a party to the contract)
Term
Types of Policies (6):T E M U Con Com
TCEMUCom
 Definition
Term, Endowment, Modified, Universal, Convertible, Combination
Term
Annuity that provides guaranteed UNITS instead of Dollars is?
 Definition
VARIABLE (units are invested in common stocks, therefore each time benefit is paid can vary and is therefore not guaranteed)
Term
An ENDOWMENT is a policy that provide (2) things:
 Definition
life insurance protection during a specific time AND payment of the face amount if the insured lives BEYOND the specified period
Term
Decreasing Term Policy (where the premium is very low) is a (TERM LIFE INSURANCE POLICY) is best
used for:
 Definition
covering a DECREASING obligation such as a home mortgage or auto loan.
Term
This life insurance policy offers (2 things): investment options and guaranteed death benefit
 Definition
Variable Universal Life insurance
Term
Policy type that provides the MAXIMUM amount of insurance protections at the LOWEST cost:
 Definition
TERM INSURANCE (protection for a limited # of years, amount payable ONLY if death occurs DURING the specified time and nothing paid if the insured survives the specified time period).
Term
LEVEL TERM policy has the characteristic of:
 Definition
its premium increasing according to the age (provides protection for a specified amount of insurance for the length of the contract)
Term
Contract (policy) that is characterized by an increasing death benefit with each succeeding payment is known as...
 Definition
INCREASING TERM
Term
With the purchase of a DECREASING TERM life insurance policy the _____ decreases each year.
 Definition
Face amount of the coverage (the Value)
Term
A person age 65 who want to ensure that he receives the largest possible monthly benefit from his fixed annuity should select what type of annuity?
 Definition
LIFE annuity (provides payments to the annuitant from a specified date and for the rest of the annuitant's life. Payments cease upon death with no refund to survivors therefore providing the maximum income per dollar of premium).
Term
All life insurance policies have a CASH VALUE ACCUMULATION, EXCEPT:
 Definition
TERM LIFE
Term
A life insurance contract that combines level term insurance with a whole life policy describes a
 Definition
FAMILY MAINTENANCE POLICY (provides additional income to the survivors of the primary wage earner: plan pays a monthly benefit amount to the insured's suvrvivors for a specified payment period beginning with the date of the insured's death and continuing for the full period.
Term
Definition of LIFE INSURANCE:
 Definition
contract where INSURER agrees to pay the BENEFICIARY a specified amount in consideration of the premium payments made during the INSURED'S life.
Term
INCREASING TERM policy does what:
 Definition
increases face value with each payment of premium.
Term
The two main features of TERM LIFE INSURANCE are:
 Definition
RENEWABLE feature (based on attained age) & CONVERTIBLE feature (permits policyowner to exchange a term policy for a whole life contract w/out evidence of insurability)
Term
WHOLE LIFE insurance general characteristics (1):
 Definition
provides proteciton for an individual's life; it is NOT limited in its duration.
Term
Periodic payments made over a fixed period for the duration of a person's life is known as a(n):
 Definition
ANNUITY (the annuitant)
Term
(Annuity) - Single Premium Plan:
 Definition
funded with a single, lump-sum amount, insurer agrees to pay annuitant (person receiving the benefits) in installments.
Term
(Annuity) - Periodic Premium Plans: Level Premium (3 characteristics) [Opposite of Periodic Premium Plan]
 Definition
1]insured agrees to pay same premium per year to a specified age. 2]creates a specified amount of annuity funds. 3]at the designated age, fund is converted into payments.
Term
(Annuity) - Periodic Premium Plans: Flexible Premium (2 characteristics) [Opposite of Periodic Premium Plan]
 Definition
1] insured pays a periodic flexible premium which may vary from year to year. 2] annuity benefit depends upon the size of the accumulated funds when payout begins.
Term
(Annuity - when annuity begins) IMMEDIATE annuity:
 Definition
first benefit payment is due one payment interval from the date of purchase.
Term
(Annuity - when annuity begins) DEFFERRED annuity
 Definition
there must be a period longer than one benefit payment interval before payment begins.
Term
(Annuity) - Fixed Annuity guarantees...
 Definition
a specified (fixed) number of dollars which will be paid each month (the premiums have been invested in fixed-dollar investments such as bonds).
Term
(Annuity) - Variable Annuity provides...
 Definition
monthly benefits (payments) based upon a fixed amount of annuity units - the exact value of the a unit is determined each time the benefit is to be paid. The premiums have been invested in common stocks which vary each month and cannot be guaranteed.
Term
(Annuity) Equity Indexed Annuities
 Definition
cannot decrease in value, is tied to a stock market-related (EQUITY) index [Standard & Poor's 500]. The value can only increase because of stock appreciation but CANNOT DECREASE in value.
Term
(Annuity) - Income: SETTLEMENT OPTIONS: LIFE ANNUITY (no refund) provides payments...
 Definition
to an annuitant from a specified date and for the rest of the annuitant's life. Payments cease upon the annuitant's death with no refund to survivors. Has the potential for providing maximum dollar.
Term
(Annuity) - Income: SETTLE OPTIONS: PERIOD CERTAIN ANNUITY provides...
 Definition
a guaranteed number of payments to the annuitant - whether he lives or dies - even if he survives the guaranteed period provided. the longer the period, the smaller the payment. A beneficiary can continue to receive payments if the annuitant dies within the payment period.
Term
(Annuity) - Income: SETTLEMENT OPTIONS: Joint Life Annuity provides...
 Definition
a specified amount of income for two or more persons. Income received ceases upon the FIRST death of the covered persons (annuitants).
Term
(Annuity) - Income: SETTLEMENT OPTIONS: Joint and survivor annuity provides...
 Definition
payments throughout the lifetime of all annuitants; payments continue until the last person dies.
Term
(Annuity) - Income: SETTLEMENT OPTIONS: Temporary Annuity pays benefits in one of two ways:
 Definition
1] a specific number of years,
2] until the annuitant dies.
Term
Annuity) - Income: SETTLEMENT OPTIONS: Installment refund annuity guarantees (2) things:
 Definition
1] pays an income to the annuitant each year as long as he lives;
2] upon death, the annuity will refund the remaining payments to a beneficiary in installments.
Term
Annuity) - Income: SETTLEMENT OPTIONS: Cash refund annuity pays the annuity...
 Definition
in a lump sum, the difference between the amount deposited and the benefits received before the annuitant's death made to the annuitant's beneficiary or estate.
Term
typical number of waiting period (in months) w/ the waiver of premium provision
 Definition
3
Term
payor clause states that premiums will be
 Definition
waived until child reaches age of maturity
Term
3 items included in the INSURING CLAUSE
 Definition
1] name of insured, 2] name of beneficiary 3] insurer's promise to pay
Term
10-day free look period begins at the time of...
 Definition
delivery of policy
Term
(re: life insurance) - ABSOLUTE ASSIGNMENT is...
 Definition
all rights are transferred to another person.
Term
When beneficiary dies and no other is named, upon death of insured, proceeds go to:
 Definition
insured's estate
Term
Contingent beneficiaries (DO/DO NOT) share the policy proceeds with primary beneficiary
 Definition
DO NOT.
Term
The least expensive mode of premium for a life insurance policy is:
 Definition
Annual
Term
Non-forfeiture Options include (policyowner wants to stop paying policy premiums) [3]:
 Definition
extended term, reduced paid-up, surrender for cash.
Term
______ option provides for the payment of proceeds over a SPECIFIED time.
 Definition
Fixed-period
Term
supplemental additions to a policy are called:
 Definition
RIDERS
Term
[POLICY RIDER] waiver of premium
 Definition
becomes disabled premium payments waived, contract in force, 90 day waiting period, up to age 60/65.
Term
[POLICY RIDER] guaranteed insurability:
 Definition
allows policy holder to purchase specified amounts of additional insurance WITHOUT EVIDENCE OF INSURABILITY.
Term
[POLICY RIDERS] Payor Benefit:
 Definition
provides for the continuance of insurance coverage on juvenile if person paying dies or is disabled.
Term
[POLICY RIDERS]: Accelerated (Living) Benefits:
 Definition
insured may use a portion of policy's death benefit while alive; usually a percentage of total amount.
Term
[POLICY RIDERS]: Cost of Living (Adjustment)
 Definition
provides increases in the amount of insurance protection WITHOUT requiring insured to provide evidence of insurability.
Term
(4) Owner's Rights:
 Definition
1] changing beneficiary 2] receiving dividends if available 3] borrowing funds from cash value 4] assignment of rights of contract to another party
Term
Policy Provision: Third Party Ownership -
 Definition
when a party other than the insured is the owner of the policy.
Term
First in line to receive policy proceeds:
 Definition
Primary Beneficiary
Term
Second in line to receive policy proceeds if primary dies before insured:
 Definition
Contingent Beneficiary
Term
Third in line to receive policy proceeds if both primary and contingent die before the insured:
 Definition
Tertiary Beneficiary
Term
Example of Third-Party Ownership arrangement (Bill is the owner of policy):
 Definition
A 25k policy on his wife with benefit payable to his children.
Term
3 facts about GROUP life insurance:
 Definition
1] evidence of insurability is not required 2] individuals covered are not parties to the contract (employer is policyowner and pays premium 3] must be incidental to the formation of the group (i.e. not created for the specific purpose of providing insurance).
Term
In a CONTRIBUTORY plan, what % of employees must participate before policy is issued?
 Definition
75%
Term
Conversion privilege allows a terminate employee to convert to an individual plan in how many days?
 Definition
31 days
Term
Noncontributory plan is one where an employer pays...
 Definition
the ENTIRE cost.
Term
Keogh plans are designed and available to:
 Definition
a self-employed professional
Term
Contributions made to TSA's (Tax-sheltered annuities) are treated as: (think my TIAFF CREF contribution)
 Definition
a salary reduction.
Term
Premiums paid on an individual life insurance policy are generally _____ deductible
 Definition
NOT
Term
Difference between traditional IRA and Roth IRA:
 Definition
in a Roth IRA the contribution is NOT deductible but distribution is (IRA now, Roth later for tax free)
Term
(re: disability income insurance) a person is considered disabled based on:
 Definition
the inability of the insured to perform duties of his job.
Term
partial disability allows for ____% benefit of the monthly total disability benefit.
 Definition
50%
Term
(re: health insurance) the period following the onset of a disability during which no benefits from a disability income policy will be paid (insured can usually manage without financial hardship) is known as:
 Definition
the elimination period. (typically 30 to 90 days)
Term
3 facts concerning major medical insurance:
 Definition
1] benefits have high max. limits 2] benefits are expressed asa a percentage of eligible expenses 3] characterized by percentage participation
Term
formula for calculating a 80/20 coinsurance provision with a $500 deductible and an expense of $3700:
 Definition
$3700 - $500 = $3200 X .8 = $2560 - $3700 = $1140 (the amount insured is responsible for)
Term
A disability income contract that PAYS the EXPENSES of a firm if the owner becomes disabled best describes:
 Definition
Business Overhead Expense
Term
Deductible found in a major medical policy are typically expressed as a
 Definition
fixed-dollar amount
Term
Disability, Major Medical and Basic Hospital Expense policies EXCLUDE what (type of injury) under their coverage?
 Definition
Intentionally self-inflicted injuries
Term
HMO's emphasize...
 Definition
preventative medicine
Term
_________ is an example of a nonprofit org. providing health care benefits.
 Definition
Blue Cross/Blue Shield
Term
Definition of Total Disability:
 Definition
cannot perform duties of their own occupation for a specific period of time
Term
Definition of Partial Disability.
 Definition
inability to perform one or more important duties on an insured's occupation.
Term
Definition of Residual Disability.
 Definition
provides a reduced monthly benefit in proportion to an insured's loss of income when he begins to work again at a reduced earnings.
Term
The benefit amount payable as a result of accidental death is referred to as the
 Definition
Principal Sum.
Term
The benefit amount payable for an accidental dismemberment is referred to as the
 Definition
Capital Sum. (usually a percentage - 50% - of the principal sum.
Term
Medical Expense Insurance --> Basic Hospital Expense --> Indemnity basis means
 Definition
insurer will pay a specified amount PER DAY (with a max. number of days)
Term
Medical Expense Insurance --> Basic Hospital Expense --> Reimbursement/Expense-Incurred basis means
 Definition
insurer pays for ALL or a PERCENTAGE of ALL expenses, regardless of daily amount involved.
Term
4 characteristics of Major Medical policies:
 Definition
1] High Max. Limits 2] Blanket Coverage 3] Coinsurance (80/20) 3] Deductibles
Term
2 differences between HMO and PPO:
 Definition
1] PPO DO NOT provide benefits on a prepaid basis. 2] Employees are NOT required to use the practitioner on the PPO list.
Term
Service Organizations -> Blue Plans --> nonprofit --> BLUE CROSS provides coverage for
 Definition
hospital benefits.
Term
Service Organizations --> Blue Plans --> nonprofit --> Blue Shield insurance provides coverage for
 Definition
physician expenses, including surgical expenses.
Term
LONG-TERM INSURANCE --> 3 levels of categories
 Definition
1] skilled nursing care 2] Intermediate nursing care 3] Custodial care
Term
LONG TERM INSURANCE --> Services & Support (4):
 Definition
1] Home/community-based services 2] Adult day care 3] Respite care 4] Continuing care
Term
Normal amount of days the grace period (a premium not being paid on the due date) is in most accident and health contracts:
 Definition
31
Term
Within how many days of sustaining a loss must an insured send WRITTEN NOTIC of claim to insurer?
 Definition
20 days
Term
An insurer must send out claim forms when requested by claimant w/in how many days?
 Definition
15 days
Term
WRITTEN PROOF of loss must be sent to insurer w/in how many days?
 Definition
90 days
Term
In what situation would a benefit or premium reduction occur?
 Definition
Change of occupation
Term
A period of time that is satisfied for each new disability incurred describes
 Definition
Elimination Period
Term
Under a guaranteed renewable policy...
 Definition
policy may not be cancelled as long as premium is paid (but may be increased based on a class basis, provisions may NOT be altered)
Term
Mandatory (uniform in all states) provisions:
 Definition
Entire contract, time limit on certain defenses, grace period, reinstatement, notice of claim, claim forms, proof of loss, time of payment, payment of claim, physical exam and autopsy, legal actions, change of beneficiary
Term
Social Security disability benefits will begin following a waiting period of how many months?
 Definition
5 months
Term
Disability benefits will be paid by Social Security to a party that is
 Definition
fully insured
Term
Disability benefits paid under Social Security begin in what month?
 Definition
6th month
Term
Medicare Part A covers
 Definition
hospital expenses.
Term
Medicare Part B covers
 Definition
Physician, surgeon, other medical expenses.
Term
Medicare Part C covers
 Definition
Optional coordinated care plan, fee for service plans, or MSA
Term
Medicare Part D is a
 Definition
prescription drug benefit program.
Term
This person makes rules and regulations to help administer the provisions of the NM Insurance Code
 Definition
Superintendent of Insurance
Term
This association protects policyowners, insureds and benficiaries from insurers that are unable to perform their contractual obligations
 Definition
NM Life and Health Insurance Guaranty Association
Term
Certificate of Authority
 Definition
an insurer's license to transact specific kinds of insurance business in NM
Term
Appointed by an insurer to sell insurance, solicit applications...
 Definition
INSURANCE AGENT always represents the Insurer
Term
An independent contractor who helps NEGOTIATE insurance contracts
 Definition
INSURANCE BROKER represents the insured.
Term
provides advice, recommendations and info regarding aspects of insurance policies
 Definition
INSURANCE CONSULTANT cannot receive compensation that is directly related to amount of insurance sold.
Term
Investigates, negotiates, and settles claims or adjusts losses on behalf of insurer, insured or self insured
 Definition
INSURANCE ADJUSTERS
Term
An individual employed by a licensed resident agent (who is appointed by the insurer) to solicit insurance and perform other duties to help the agent
 Definition
SOLICITOR
Term
employed by an insurer/general agent to help agents or solicitors sell insurance
 Definition
SERVICE REPRESENTATIVE do not need to be licensed, but cannot independently sell or receive commission.
Term
Types of Insurance Business
 Definition
life, health, annuity, property, vehicle, casualty, marine/transport./ surety, title
Term
Type of licenses
 Definition
Life, Health, Property, Title, Casualty, Surety, Marine/Trans., Vehicle
Term
replacement refers to
 Definition
any transaction involving new coverage that will cause one of several events to occur
Term
A PRODUCER has several responsibilities and is otherwise known as a
 Definition
FIELD REPRESENTATIVE
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