Term
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Definition
| The transfer of financial responsibility associated with a potential of a loss (risk) to an insurance company, which in turn spreads the cost of unexpected losses to many individuals. |
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Term
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Definition
| The uncertainty or chance of a loss occurring (2 types of risk: pure and speculative). |
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Term
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Definition
| Refers to situations that can only result in a loss or no change. There is no opportunity for financial gain. Pure risk is the only type insurance companies are willing to accept. |
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Term
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Definition
| Involves the opportunity for either loss or gain. Example is gambling. Not insurable. |
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Term
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Definition
| A unit of measure used to determine rates charged for insurance coverage. Factors for life insurance include: age of insured, medical history, occupation and sex. |
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Term
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Definition
| Conditions or situations that increase the probability of an insured loss occurring. 3 types: physical, moral, morale. |
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Term
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Definition
| Individual characteristics that increase the chances of the cause of loss. Exist because of a physical condition, past medical history, or a birth condition. |
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Term
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Definition
| Tendencies towards increased risk. Involve evaluating character and reputation of the proposed insured. Refers to those applicants who may lie on an insurance app, or have previously submitted fraudulent insurance claims. |
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Term
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Definition
| Similar to moral hazards, except they arise from a state of mind that causes to indifference to loss, such as carelessness. Actions taken without forethought may cause physical injuries. (Not spending money on a flu shot, b/c insurance will cover me if I get sick anyways). |
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Term
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Definition
| The causes of loss insured against in an insurance policy. |
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Term
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Definition
| Is defined as the reduction, decrease, or disappearance of value of the person or property insured in a policy, by a peril insured against. |
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Term
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Definition
| One method of dealing with risk. Eliminating exposure to a loss. Effective, but seldom practical. |
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Term
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Definition
| The planned assumption of risk by an insured through the use of deductibles, co-payments, or self-insurance. Purposes are: to reduce expenses and improve cash flow, increase control of claims, fund for losses that cannot be insured. |
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Term
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Definition
| Method of dealing with risk for a group or individuals with same/similar exposure to loss to share the losses that occur within the group. (a reciprocal insurance exchange) |
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Term
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Definition
| An attempt to lessen possibility or severity of loss without avoidance. Includes actions such as installing smoke detectors, having annual physical, etc. |
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Term
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Definition
| The most effective way to handle risk is to transfer it so that the loss is borne by another party. Insurance is the most common method. |
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Term
| Elements of Insurable Risks (6) |
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Definition
- The loss must be due to chance.
- The loss must be definite and measurable.
- The loss must be statistically predictable.
- The loss cannot be catastrophic.
- The loss exposure to the insured must be large.
- The insurance must not be mandatory. |
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Term
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Definition
| The insuring of risks that are of a poorer class (more prone to losses). Underwriters protect against this by: restriction of coverage, acceptance only at higher rate, refusal to accept risk. |
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Term
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Definition
| A principle stating that the larger the number of similar exposure units considered, the more closely the losses reported will equal the underlying probability of loss. This law forms the basis for statistical prediction of loss upon which rates for insurance are calculated. |
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Term
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Definition
| A contract under which one insurance company (the reinsurer) in consideration of a premium paid to it, agrees to indemnify another insurance company for part or all of its liabilities from insurance policies it has issued. |
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Term
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Definition
| An insurance company that has qualified and received a Certificate of Authority to transact insurance in the state. |
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Term
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Definition
| An insurance company that has not applied, or has been denied a Certificate of Authority and may not transact insurance. |
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Term
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Definition
| Insurance company incorporated in this state. |
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Term
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Definition
| Insurance company incorporated in another state. |
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Term
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Definition
| Insurance company incorporated outside the U.S. |
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Term
| Independent Rating Services (5) |
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Definition
- AM Best
- Fitch
- Standard and Poors
- Moody's
- Weiss |
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Term
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Definition
| Authority a principal intends to grant to an agent by means of the agent's contract. |
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Term
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Definition
| Authority that is not expressed or written into the contract, but which the agent is assumed to have in order to transact his business. |
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Term
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Definition
| Appearance or assumption of authority based on the actions, words, or deeds of the principal. |
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Term
| Elements of a Legal Contract (4) |
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Definition
- Offer and acceptance
- Consideration
- Competent parties
- Legal purpose |
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Term
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Definition
| Contract in which unequal amounts or values are exchanged. |
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Term
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Definition
| Only one of the parties to the contract is legally bound to do anything. |
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Term
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Definition
| Certain conditions must be met by the owner and the company in order for the contract to be executed. |
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Term
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Definition
| The intentional act of relinquishing a known right, claim, or privilege. |
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Term
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Definition
| A legal process that can be used to prevent a party to a contract from re-asserting a right or privilege after that right or privilege has been waived. |
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Term
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Definition
| Can be covered (by insurance) if the policyowner faces the possibility of losing money or something of value in the event of loss. |
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Term
| Personal Uses of Life Insurance (7) |
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Definition
- Survivor Protection
- Estate Creation
- Cash Accumulation
- Liquidity
- Estate Conservation
- Viatical Settlements
- Life Settlements |
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Term
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Definition
| Allow someone living with a life threatening condition to sell their existing life insurance policy and use the proceeds when they are most needed, before their death. Not policy options, they are separate contracts in which the insured sells the death benefit to a third party at a discounted rate. |
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Term
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Definition
| Like Viatical Settlements except the seller is not terminally ill. |
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Term
| Social Security Income "Blackout" Period |
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Definition
| The time during which the surviving spouse and/or children do not receive and social security survivor benefits. Begins when youngest child reaches 16, and ends when surviving spouse reaches retirement (minimum age of 60). |
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Term
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Definition
| A legal contract that determines what will be done with a business in the event that an owner dies or becomes disabled. Called either a stock redemption plan (business owned) or an entity plan (owned through partnership). |
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Term
| Individual Life Insurance |
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Definition
| Is written on a single life. The rate and coverage is based upon the underwriting of that individual. |
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Term
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Definition
| Is written as a master policy, issued to the sponsoring organization, covering the lives of more than one individual member of that group. Individuals covered receive a certificate of insurance from the master policy. |
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Term
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Definition
| Is a general term used to refer to various forms of whole life insurance policies that remain in effect to age 100 so long as the premium is paid. |
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Term
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Definition
| Is temporary life insurance provided for a specific period of time. |
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Term
| Types of Life Insurance Contracts (6) |
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Definition
- Term Insurance
- Whole Life Insurance
- Endowment Insurance
- Adjustable Life Insurance
- Variable Life Insurance
- Universal Life Insurance |
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Term
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Definition
| (Mutual) Refers to any policy that distributes its dividends to policyowners. |
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Term
| Non-Participating LI Policy |
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Definition
| (Stock) Does not pay dividends to policyowners, but dividends are paid to stockholders. |
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Term
| Fixed Life Insurance (or annuities) |
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Definition
| Are contracts that offer guaranteed minimum or fixed benefits that are stated in the contract. |
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Term
| Variable Life Insurance (or annuities) |
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Definition
| Are contracts in which the cash values accumulate based upon a specific portfolio of stocks without guarantees of performance. |
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Term
| Factors in Premium Determination (3) |
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Definition
- Mortality (tables)
- Interest
- Expense |
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Term
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Definition
| Includes the mortality and interest components only. |
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Term
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Definition
| Is the one year cost for mortality, plus expense loading. Loading includes commissions, taxes, advertising, and amount to give insurer profit margin. |
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Term
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Definition
| The frequency the policyowner pays the premium. Either monthly, quarterly, semi-annual, or annual. (Higher Frequency = Higher Premium) |
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Term
| Connecticut Insurance Guaranty Association (3 divisions) |
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Definition
A nonprofit legal entity, insurers have to be members to sell insurance in CT. Divided into 3 separate accounts:
- Workers' Comp
- Auto insurance
- All other insurance |
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Term
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Definition
Is a written statement describing the features and elements of a policy. Must be provided when policy is delivered.
Must include:
- name and address of agent
- full name and home office of insurer
- generic name of basic policy and each rider |
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Term
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Definition
| Provides basic, generic information about life insurance policies that contains, and is limited to, language approved by the Commissioner. |
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Term
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Definition
| Is the risk selection and classification process. It involves the careful analysis of many different factors to determine the acceptability of applicants for insurance. |
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Term
| Field Underwriter (Agent) Responsibilities (6) |
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Definition
- Helping prevent adverse selection
- The proper solicitation of applicants
- Completing the application
- Obtaining the required signatures
- Collecting the initial premium and issuing the receipt
- Delivering the policy |
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Term
| Application (3 Basic Sections) |
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Definition
Is the starting point and basic source of info used by the company in the risk selection process.
Three Basic Sections:
- Part 1 = General Information
- Part 2 = Medical Information
- Part 3 = The Agent's Report |
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Term
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Definition
| - To get lower premium rate, sometimes applicants can backdate their policies (for no more than 6 months). |
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Term
| Individual Underwriting by the Insurer (6 possible steps) |
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Definition
- Application
- Producer Report
- Attending Physician Statement
- Investigative Consumer (Inspection) Report
- MIB report
- Medical Exams and Lab Tests |
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Term
| Classification of Risks (3 types) |
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Definition
- Standard
- Substandard
- Preferred |
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Term
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Definition
| Is the most common type of temporary protection purchased. "Level" refers to the death benefit that doesn't change throughout the life of the policy. Can take the form of an annually renewable term. Of the 3 main types of term insurance, has the highest premiums. |
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Term
| Annual Renewable Term Insurance |
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Definition
| The purest form of term insurance. Death benefit remains level, and policy is guaranteed to be renewable each year. But, the premium increases annually according to the attained age. |
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Term
| Level Premium Term Insurance |
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Definition
| Provides a level death benefit and a level premium during the policy term. |
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Term
| Decreasing Term Insurance |
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Definition
| Features a level premium and a death benefit that decreases each year over the duration of the policy term. Decreasing term is primarily used when the amount of needed protection is time-sensitive, or decreases over time. |
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Term
| Whole Life Policies (Cash Values/Nonforfeiture Value) |
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Definition
| Referred to as permanent protection. Are generally useful for individuals who wish to lock into a level premium amount that will never increase. Build cash values/NF value (which can be borrowed against or they become entitled to upon surrender). They don't accumulate until the 3rd year and grow tax-deferred. |
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Term
| Types of Whole Life Policies (Main 3) |
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Definition
- Straight Life
- Limited Payment
- Single Premium |
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Term
| Straight Life (Continuous Premium) |
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Definition
| Is the basic policy. It charges a level annual premium for the lifetime of the insured and provides a level, guaranteed death benefit. Has lowest premium of 3 main whole life policies. |
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Term
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Definition
| Like straight life it has a level annual premium, level/guaranteed death benefit, but is designed so that premiums will be paid up way before age 100. This requires a higher annual premium. |
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Term
| Single Premium Whole Life |
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Definition
| Is designed to provide a level death benefit to the insured's age 100 for a one time, lump sum payment. Generates immediate cash value. |
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Term
| Graded-Premium Whole Life |
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Definition
| Premiums start out relatively low and then level off at a point in the future. Starts out at 50% normal premium, grows next 5-10 years, then levels off. |
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Term
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Definition
| Charges a lower premium in first few years, and then a higher level premium for remainder. The higher portion is higher than a straight life premium. |
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Term
| Interest Sensitive Whole Life |
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Definition
| A fixed premium whole life policy that provides a guaranteed death benefit to age 100. Credits the cash value with the current (nonguaranteed) interest rate. |
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Term
| Equity Indexed Whole Life |
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Definition
| Similar to Interest Sensitive whole life. Premium is fixed and death benefit is guaranteed. Cash value is dependent upon the performance of the equity index although a minimum cash value is guaranteed. |
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Term
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Definition
Can assume the form of either term or permanent insurance. As the insured's needs change, adjustments can be made to the policy. However, the cash value only develops when the premiums paid are more than the cost of the policy.
Options include:
- Increase or decrease premium
- Change premium-paying period
- Increase or decrease face amount of coverage
- Change the period of protection |
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Term
| Universal Life (flexible premium adjustable life) |
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Definition
| Death benefit can be increased or decreased by policyowner. There is also the flexibility to increase/decrease the amount of premium as many times as needed. Can even skip premiums and fund policy from its cash value. Minimum premium is amount needed to keep policy in force, while target premium is the recommended amount to grow value. The policy is also interest sensitive. |
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Term
| Universal Policy Components (2) |
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Definition
Insurance Component
- always annual renewable term insurance
Cash Account
- accumulates tax-deferred and earns either the guaranteed contract rate or the current rate (whichever is higher) |
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Term
| Universal Life Death Options (2) |
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Definition
- Option A (Level Death Benefit)
- Option B (Increasing Death Benefit) |
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Term
| Option A (Level Death Benefit) |
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Definition
| The death benefit remains level while the cash value gradually increases. |
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Term
| Option B (Increasing Death Benefit) |
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Definition
| The death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the same amount. The total death benefit will always be equal to the face amount of the policy plus the current amount of cash value. However, an extra premium is charged for this option. |
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Term
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Definition
| Is a single policy that is designed to insure two or more lives. The premium would be less than for the same type and amount of coverage on the same individuals. Premium is based on joint average age, and death benefit is paid upon the first death only. |
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Term
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Definition
| Same as Joint Life, except it pays on the last death. Often used to offset the liability of the estate tax. |
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Term
| Juvenile Life (Jumping Juvenile) |
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Definition
| Any life insurance written on the life of a minor. A common policy is the Jumping Juvenile policy where the face amount increases at a predetermined age (21). Additionally, the premium remains level. |
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Term
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Definition
Usually written for employee-employer groups. Usually written as annually renewable term insurance. Two distinct features are:
- Evidence of insurability is not required
- Insureds do not receive a policy, nor do they own or control it |
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Term
| Characteristics of Group Underwriting (4) |
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Definition
- Purpose of the group
- Size of the group
- Turnover of the group
- Financial Strength of the group |
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Term
| Conversion from Group to Individual Policy |
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Definition
| If an employee terminates membership in the insured group, the employee has the right to convert to an individual whole life policy without proving insurability. |
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Term
| Credit Life Insurance (Individual vs Group) |
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Definition
| A Special type of coverage written to insure the life of the debtor and pay off the balance of a loan in the event of the death of the debtor. The creditor is the owner and beneficiary of the policy and premiums are generally paid by the debtor. |
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Term
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Definition
| A contract that provides income for a specified period of years, or for life. |
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Term
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Definition
| Aka the pay-in period. Payments earn interest tax-deferred. |
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Term
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Definition
| Aka the liquidation or pay-out period. |
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Term
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Definition
| A natural person (must be) and the person for whom the annuity is written and whose life expectancy is taken into account. |
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Term
| Single Premium Immediate Annuity |
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Definition
| One that is purchased with a single, lump sum payment and provides income payments that start within 1 year from the date of purchase. |
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Term
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Definition
| An annuity that either is purchased with a single, lump sum or is purchased through periodic payments. They grow tax-deferred. |
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Term
| Single Premium Deferred Annuities |
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Definition
| The annuity is purchased with a single payment, but the benefit is not paid until after one year or more has elapsed. |
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Term
| Flexible Premium Deferred Annuity |
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Definition
| The annuity is purchased with multiple payments that can vary from year to year, and the benefit payments begin sometime after one year from the date of purchase. |
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Term
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Definition
| A deferred annuity has a guaranteed surrender value that is available if the owner decides to surrender the annuity prior to annuitization. |
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Term
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Definition
| If an annuitant dies during the accumulation period, the insurer is obligated to return to the beneficiary either the cash value or the premiums paid, whichever is greater. |
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Term
| Pure Life/Life with Guaranteed Minimum |
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Definition
| With Pure Life, payment ceases at death, but provides the highest monthly benefits for individual annuitants. Life with Guaranteed Minimum will refund the beneficiary if the principal amount has not been fully paid out. |
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Term
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Definition
| Is a settlement option where two or more annuitants receive payment until the first death among annuitants, and then payments stop. |
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Term
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Definition
| Are short-term annuities that limit the amounts paid to a certain fixed period or until a certain fixed amount is liquidated. Only pays benefits until the end of a fixed period or until a certain fixed amount is liquidated. |
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Term
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Definition
Provides:
- Guaranteed minimum rate of interest to be credited to the payments
- Income payments that do not vary from one payment to the next
- The insurance company guarantees the specified dollar amount for each payment, and the length of the period of payments as determined by the settlement option chosen by the annuitant. |
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Term
| Market Value Adjusted (Modified Guaranteed) Annuity |
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Definition
| Is a single-premium deferred annuity that allows the owner to lock in a guaranteed interest rate over a specified maturity period, anywhere between 3 to 10 years. Penalties for a premature surrender depend upon current interest rates at the time of surrender. |
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Term
| Annuities: Lump-sum Settlements |
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Definition
| The annuitant can decide at the annuitization to withdraw all of the money. A lump-sum payment would be made to the annuitant, and all interest accumulated in the accumulation phase would become immediately taxable. An additional federal income tax penalty of 10% also could be imposed on the taxable portion if this was done prior to the annuitant reaching age 59.5. |
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Term
| Individual Retirement Accounts (IRAs) |
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Definition
| A tax-qualified annuity is used to accumulate retirement funds on a tax-deferred basis in an IRA, subject to IRA maximum contributions. |
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Term
| Modified Endowment Contract (MEC) |
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Definition
| Any life insurance policy failing the Seven-pay test is classified as an MEC. |
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Term
| Group Health Insurance Termination for Employees(5) |
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Definition
On earliest date in which one of the following occurs:
- Employment terminates
- The employee ceases to be eligible
- The date the overall maximum benefit for major medical benefits is received
- The end of the last period for which the employee has made the required premium payments comes about
- The master contract is terminated |
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Term
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Definition
| Is a federal medical expense insurance program for people age 65 and older even if the individual continues to work. Medicare benefits are also available to anyone, regardless of age, who has been entitled to SS disability income benefits for 2 years or has chronic kidney disease (renal impairment). |
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Term
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Definition
1. Part A - Hospital Insurance (FICA)
2. Part B - Medical Insurance
3. Part C - allows people to receive all of their health care services through available provider organizations
4. Part D - is for prescription drug coverage |
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Term
| Part A - Hospital Insurance |
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Definition
| Helps pay for inpatient hospital care, inpatient care in a skilled nursing facility, home health care, and hospice care. |
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Term
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Definition
| Hospital insurance helps pay for up to 90 days in a participating hospital in any benefit period, subject to a deductible. The first 60 days are covered at 100% of approved charges after the deductible is met. The next 30 covered days are paid, but they are paid with a daily copayment. Every Part A insured has a lifetime reserve of 60 days of hospital care. 60 days of non-use of the inpatient hospital benefit starts a new benefit period and a new deductible. |
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Term
| Skilled Nursing Facility Care |
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Definition
| Part A helps pay for up to 100 days in a participating skilled nursing facility in each benefit period, following a 3-day inpatient hospital stay for a related illness. |
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Term
| Part B - Medical Insurance |
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Definition
| Pays for doctor's services and a variety of other medical services and supplies that are not covered by hospital insurance. Most of the services needed by people with permanent kidney failure are covered only by medical insurance. |
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Term
| Part C - Medicare Advantage |
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Definition
| Is Medicare provided by an approved HMO or PPO. Many do not charge premiums beyond what is paid by Medicare. |
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Term
| Part D - Prescription Drug Insurance |
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Definition
| This optional coverage is provided through private prescription drug plans (PDPs) that contract with Medicare. |
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Term
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Definition
| Medicare supplement plans that are designed to fill in some of the gaps in Medicare. |
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Term
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Definition
| Is a Medicare supplement policy that contains restricted network provisions - provisions that condition the payment of benefits, in whole or in part, on the use of network providers. |
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Term
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Definition
| Is a federal and state funded program for those whose income and resources are insufficient to meet the cost of necessary medical care. |
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Term
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Definition
| Is daily nursing and rehabilitative care that can only be provided by medical personnel, under the direction of a physician. Skilled care is almost always provided in an institutional setting. |
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Term
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Definition
| Is nursing and rehabilitative care provided by medical personnel to those who need 24-hour supervision and help with daily activities. Can be provided in an institutional setting or an alternate setting. |
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Term
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Definition
| Is a facility that provides short-term , continuous care in a home-like setting to terminally-ill people with life expectancies of 6 months or less. |
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