a simple spreading of risk or the possibility of loss across a sizeable number of people, instead of bearing the cost on one person. basically everyone chips in a small amount to cover a large amount if somehting is to occur
law of large numbers?
the large the number of individual risk that are combined into a group, the more certain there is of knowing the amount of loss sustained in a given period of time
involves the chance of both loss and gain, like gambling
involves only the chance of loss, like an injury from an accident
what are the risk included with insurance
life insurance and health insurance
individual characteristics that promote the chance of peril, like someone that is blind
behaviorism or habits an individual may have
tendencies that stem from attitude or an emotional state, such as sorrow that can lead to distarction of hazard
non participating companies that sole purpose is to make a profit for its stockholders
a participating company that the owners are the policyowners. if you purchase insurance from a mutual insurer you would be both customer and owner
assessment mutual insurer?
this type of insurer charge premiums
lloyds of london?
specializes in insurance that is not usually covered for example a singer insuring her voice.
insure insurance companies
fraternal benefit societies?
non profic organizations that are known for their social and charitable events
offer benefits in the form of medical services, which are prepaid by customers on a monthly basis know as premiums. basically the sell medical and hospital services, not insurance
two types of service providers?
hmo and ppo
hmo? health maintance orginization
known for stressing preventive care, provides subscribers services of participating physicians and hospitals
ppo? preferred providers orginization
receive discount from certain health care providers in exchange to referring their members to them.
types of government insurance?
oasdi, social security hospital insurance and supplemenatl medical insurance also known as medicare, and workers compensation
captive agency system?
consist of an insurance company appointing an agent to solicit their product, and the master agent or general agent can train and also get commision for each agent tied to them
personal producing general agency or PPGA
is not employed by the insurance agency but by the PPGA company they work for, to solicit other companies insurance
independent agency system?
this system allows an agent to become appointed with as many carriers as they choose, they are paid commision directly from the insurance company they solicet
paul vs virginia 1868?
an insurance company was attemted to be regulated by the state it did not hold domicile within. the court ruled with the state because insurance should not be considered intersate commerce, and each state has the right to regulate insurance sold
united states vs southeastern underwriting insurance SEUA 1944?
puts insurance in the hand of the federal governemnt by stating insurance is a form of interstae commerce and any state laws that conflict will be void
McCarron-ferguson act 1945?
this act overturned the decision of SEUA by once again ruling that insurance is not interstate commerce
goal is to provide uniform laws to states to follow in order to standerized multilple state insurance laws, but they do not regulate insurance laws
two major achievments by NAIC?
Advertising code and unfair trade practices act
NAIFA AND NAHU?
their purpose is to help meet and maintain the health and financial needs of individuals through education, advocacy, and ethical codes
state guarenteed association
gurantees that if their are unpaid claims by insurance compaines that the insurer will get paid
types of private insurers?
lloyds of london
assessment mutual insurers
fraternal benefit societies
the possibility there will be an element of chance for both parties and the dollar value exchange may not be equal
means only one party prepares the contract and is non-negotiable
only one party is required to follow through on any enforceable promise. if you keep paying premium insurance must maintain agreement
if policy holder stops paying they insurer, insurance stops
valued or indemnity?
amount paid will be equal to amount lost
stranger-originated life insurance?
occurs when investors invite individuals to purchase life insurance and make the beneficiary the investor
legal enforcement of a waiver, if a waiver is legally enforced its considered an estoppel
parol evidence rule
once an agreement is in written form it cant be changed
when agen persuades client to drop current insurance from one company to go to another companty to get commission again
change their current plan to another with the same company
Ordinary life insurance
consist of plans such as term, endowment, and perminant. ordinary life insurance is the most common type of insurance
know as buriel insurance, this type of insurance provides minimal coverage in case someone dies to cover basic service
3 basic forms of term life insurance
level term insurance
provides coverage for a certain time period.
decreasing term insurance
benefits will decrease over time, good to use for morgages. if the insurance is for 1million dollars for ten years. if the insurer dies in the first year he would receive 1million and if the ten years is up he will receive 0 dollars
increasing term insurance
benefits will increase over time, good for consumer price index CPI, good example is ever growing gas prices
option to renew
allows the policyowner to renew is insurance for examples for 7 years more. since they have insurance they do not have to prove insurability and if they have a heart attack they cant be denied renewability
annual renewable term ART
provides coverage for a year at a time, their is usually a limit on how many times you can renew and is most popular with group insurance
option to convert
allows policy owners to convert to a whole life or permanent plan at the end of their term insurance. this does not require proof on insurance. when exchange for whole life occurs a new premium will be met depending on age
in option to convert their are two ways new premiums could be charge, what are they
attained age method-new premium rates are determined with policy holders current age at time of exchange
original age method-premium of whole life insurance is calculated with the age of inception
know as savings or accumilation element. cash values grows until equalling the face amount at the maturity of 100 years of age. the money accumilated can be used as a loan, or if the insurer decides to cancel he could take what accumilated minus interest accrued.
distingished by cash values like whole life insurance but at a much faster rate. instead of maturing at age 100 they mature for example at age 65. endowments give living benefits and death benefits
modified endowment contracts MEC
because individual where using life insurance for fast funding methods and tax benefits, congress passed a law to dissuage people for buying life insurance as a investment as a result the technical miscellanous and revenue act was place TAMRA. As a result a new type of insurance was created MEC
family plan policies
design to cover all members with different amounts. usually the policy owner is the main source of income in the household so he has the largest face amount
joint life policies
covers two people under one policy, premiums are calculated usually with the average of both ages. and if one is to die they can change to a single policy without proving insurability
for children from 1 day to 14-15 years old. often comes with a payor provision which if the guardein or parent dies, permiums will not have to paid until child because a particule age
credit line insurance
Used the life of debtor is insured for the amount of the loan. premiums are paid by the creditor and usually use decreasing term
interest sensitave whole life
differs from odrinary whole life when premiums remain level. premiums usually change annually do to interest rates trends caused by higher or lower mortality or investent returns.
consist of both term and permanant insurance, the insurer can adjust plan based on their needs, but proof of insurability may be required
is flexible simular to adjustable insurance but the policy owner decideds how much and how many payments are to be made. its classified as a whole life but in reality its a term life plan that is renewable annualy.
equity index universal life EIUL
Life insurance largely based on market return. offers policy owners to transfer funds from fixed account to index account. cash values can only increase if market is favorable not decrease if market is down. calculations usually made from NASDAQ
variable insurance products
in order to sell these kinds of plans you need to have a life insurance license along with a financial industry regulatory authority FINRA. with variable insurance seperat accounts are used in order for the investor to direct funds that are more aggressive for a possibility of a higher return
variable universal life insurance
a combination of universal life and variable life policies which contain a degree of death benefits, cash values, and premium payments.
3 forms of whole life insurance
straigh whole life
limited pay whole life
single-premium whole life
other forms of whole life
modified whole life
usually more affordable then straight whole life for the first couple of years, usually 5 years then becomes slightly higher then straight whole life insurance. good for college students starting out in the work force who cant intially afford whole life insurance
graded premium whole life
simular to modified standard whole life with premiums being less expensive then whole life but over the years gradually increases until finally leveling off slightly higher then standard whole life
minimum deposit whole life insurance
intial payment which allows for immediate build in account. subsequent premium payments are then paid by borrowing from the cash value for the portion of the entire premium
economic life or enhanced ordinary life
offered by some mutual companies that allow a policyowner a higher insurance death benefit at a lower premium through the combination of whole life and term life policy.
indexed whole life
includes a face amount that will adjust depending on consumer price index CPI.
free look provision for life insurance
policy holder has 14 days to review the contract
grace period provision if premium paid weekly
grace period provision if premium paid monthly
grace period provision if premium paid quartely, semi-annualy, or annualy
grace period provision if premium paid and age is over 64
additional 21 days than standard
allows the policy owners to transfer the policy to whoever they see fit
assignee gains full control
assigns policy to a creditor as collertal for a debt
accelerated benefit provision
if policy owner gets a a grave medical condition, they are allowed to utilize a certain percentage of their faced amount. the remaining is paid to the beneficiary in the case of death
additional benefit that can be placed in an insurance policy
guranteed insurablity rider
provides a policy holder with whole life to purchase specified amounts of additional insruance in intervals without providing proof of insurability
waive of premium rider
if an insurer is unable to earn income because of illness or disability, and are unable to pay their premiums the policy will not lapse due to none payment
automatic premium rider
if payment is not received afte grace period , cash value is applied towards the cost of the monthly premium in order to prevent policy from lapsing.
return of premium rider
in the event of death during a specified time period beneficiary will receive the face amount of policy along with all premiums paid.
cost of living rider
this rider is tied to consumer price index CPI. the face amount will increase in an inflation index. but if CPI rises higher then insurance allows for maximing face time usually 5%, insurer must the remaining if the want to continue to match CPI
Other insured rider
basically a term life insurer for the family member who is tied to the whole life insurance plan, usually known as the child rider
a secondary beneficiary is alos considered a ....
level premium funding
based on charging more premium than the insurance is worth early in the policy so that when the insurer gets older the mortality rate increases, the additional cost offsets the additional risk
3 classification an inurance company has for an insurer
with preliminary term for interim coverage, what is the time an applicant can delay the start of the policy
1 to 11 months
3 features of group insurance
with contributory group insurance what percent of the employed has to be enrolled
noncontributoring group insurance requires what percent of employess to be enrolled
group term life
most common type of insurance; annually renewablle term ART insurance. If employee is not with the company they will not pay, and if they stay it will renew without proof of insurability
3 common forms offered for group permanent life also known as group whole life insurance are
group paid up
group ordianry form is
in some instances cash values of group ordinary insurance are owned by the employees, at other times it's used to fund the plans of the remaining employees through the results of cash forfeiture
group paid up
involves a combination of both term and whole life. the employer pays the term portion while the employee pays the whole life. in the event of termination or retirement, the employee is granted the paid-up portion, known as the cash value
mostly paid by the employee but they can choose how much coverage they want or how much they want to pay
are group life premiums taxed
not if under or equal to 50,000, and in order to qualify for favorable tax treatment employer must benefit 70 percent of the employees along with 85 percent of participating employees must not be key employees
what 3 ways benefits are determine for group life insurance
earnings-benefits based on the amount you earn, for example life insurance equals 3 times an employee annual salary
employment position-the higher the position the greater amount of insurance
flat benefit-a flat benefit is provided to all emplyees
with group life insurance how long do you have to convert to an individual plan
31 days also individual converting must opt for whole life regardless if their group life was permanent or term
franchise life insurance
employer is considered a sponsor instead of the policyholder because each individual receives their own policy. employers main task is to collect premiums for insurance companies
group credit life insurance
considered term group life insurance, it is used to pay creditors the amount loaned to a debtor in the event death occurs and loan not paid back.
blanket life insurance
covers everyone during an event of a given time, for example a cruise ship. no certifcates are given and policyholders are not listed
multiple employee trust MET
used for small employers looking to provide coverage for their staff and employer must become member of the trust by subcription
multiple employer welfare arrangments MEWA
Type of MET (multiple employer trust) for small employers that are self funded and tax exempt status
what is an annuity
its a fanancial tool that will provide a succession of payments to a policy owner or annuitant in exchange for a lump sum payment or a series of payments to the insurer. so basically the annuitant pays the insurer a certain amount which is then credited with certain rate of interest and thats how money grows in an annuity
how can annuitant payments be received once its ready to start paying out
paid over an amount of time
paid for a certain monetary per payment
act as a death benefit
how come insurance companies are definately qualified to sell annuities
because of the ability to guarantee annuity payment for an annuitants life regardless of age attained
to guarantee annuity payment for an annuitants life regardless of age attained
what is an annuitant designed for
to protect an individual from outliving their resources, through the liquidation of an estate
annuity payout option begins immediately, exactly one month after the premium has been paid. also known as single premium immediate annuity SPIA
doesnt start paying annuitant until a future specified date
straight life income option
guarantees annutiant payment for life, if he dies the rest gos to the insurer. this option often gives the biggest payout
if annuitant dies before principle sum is depleted, the rest gos to the beneficiary in a lump sum
installment refund option
if a annuitant dies payment will be the same to the beneficiary as the annuitant received
life with period certain option
pays annuitant for life and guarentees a minimum amount of payments.
joint and full survivor option
payout of two annuitants, and is the lowest paying option
period certain option
provides payments for a certain period of time regardless if annuitant is alive or not.
provides a guarantee rate by insurance company. known as the minimal garantee rate, which it could never go below
is an investment approach. their is no minimal gurantee rate.
how much are you tax if you withdraw your annuity before the age of 59 1/2
10 percent, plus income tax
annuity individual use is to
stream income for annuitants retirement, and some annuties pays out the beneficiary incase of death
qualified annuity plans
tax qualified retirement plans that are tax lower
annuitant being paid for a lawsuit or winning the lottery
what formula is used to compute the taxable portion of an annuity payment
exclusion ratio (investment in contrace divided by the expected return
calculating average monthly wage for social security was prior to what year
3 ways to calculate social security earnings
average monthly wage AMW (before 1979)
average index monthly earnings AIME
primary insurance amount PIA
3 types of social security benefits
employee retirement income security act ERISA is
protects emplyee retirement plans by establishing rules that qualified plans must follow to ensure that plan fidiciaries do not misuse plan funds and was enacted in 1974
what are the requirements in order for a retirement plan to be considered a qualified (favorable tax treatment) employer retirement plan
participating standards-must follow to certain participation standards, for example being employed for 1 or more years and must be over 21. also if the qualified employer plans provides vesting a minimal of 2 years employed is usually required
coverage requirements-must provide equal oppurtunity to everyone and not favor those of higher rank
vesting schedules-employees have a 100% vested interest in their benefit that accrue from their contributions. qualified plans must adhere to principles that propose such vesting schedules and nonforfeightable rights
funding standard-contributions must be made by the employer on behalf of the employee, by an employee, or both and must be held by a 3rd party and invested
contributions-define contribution plan and define benefit plan that must restrict specific amounts that could be made or acrued to any single, individual plan
define contribution plans
several plans that funds are invested in that accumilate interest and possibly dividens like profit sharing plans, stock bonus plans, and money purchase plans
profit sharing plan
allows emplyees to participate in the company profits with a specific formula at time of retirement
stock bonus plan
benefits are dispersed in form of company stock
money purchase plans
outlines with a fixed contribution, such as 5 percent of emplyees annual income with several requirements
define benefit plan
provides a specific amount come retirement, it can be in dollar value or by calculating salary and years of service.
a defined contribution plan, this plan allows an employee to take a reduction in their salary by defering a certain amount into a retirement plan
tax sheltered annuities 403b plans
tax favored retirement plan is an annuity thats available for public schools and certain tax exempt orginizatoins
IRC section 457 defered compensation plan
congress enacted this code to allow participants the ability to defer compensation without current taxation
keogh plans HR-10's
tax defered pension plan available for self employed and unicorporated business
simplified employee pension SEP
created to overcome the usual cost associated with establishing qualified plans. contributions could be larger then IRA's
salary reduction plans SEP
reserved for small business with 25 or fewer employees
for small business fewer then 100 employees
catch up contribution
at the end of a plans years, individuals who are 50 years or older are allowed to contribute additional amounts
traditional IRA individual retirement plan
individuals are giving the oppurtunity to save money while receiving a tax break
includes any individual under the age of 70 1/2 who has earned income that contributions levels of 100 percent of their annual income but cant exceed 5000 dollars and if so will be taxed 6 percent
use post tax dollars instead of pre tax dollars for contributions like a traditional IRA
What is the waiting period required in order to receive s.s disability benefits
supplement major medical
used to obsorb the cost when basic medical insurance is unable to provide complete coverage
comprehensive major medical
known for extensive coverage
this deductible is only required when basic medical care exceeds or is exausted
is offset by basic medical expense plan
disability income probation period
15 to 30 days
elimination perido for disabilty income
starts immediately after the beginning of disability and can be from 1 week to a year to prevent small claims
short term disability benefits last how long
6 months to 2 years
long term disability payments last how long
until insurer reaches 65
delayed disability provision last how long
considering that total disability doesnt always follow an accident, this provision allows 30, 60, or 90 days delay between occurance
provides benefits for reacurring disablity
principle sum in AD&D
this is a death benefit that incase policy owner dies, the beneficiary will receive the principal sum stated in the contract. however if the insurer dies under specified circumstances the beneficiary could receive double, triple, or even quadroopl benefits payed out
this is a dismemberment benefit. that flucuates depending on the accident
if individual is doing risky behavior like rock climbing benefits will not be paid
if policy holder is doing risky behavior like rock climbing benefits still get paid. most plans follow this
limited risk AD&D policies
provides coverage for specific times like commercial travel
special risk policy for AD&D
covers unusual hazards, like a pianist insuring the hands, or a gymnist their legs
if a medicare supplement insurance policy excludes coverage for preexisting conditions, the exclusion can not exist for longer than?
with medicare part A, how many days of inpatient hospilization services are covered after the deductible is satisfied?
what type of business life insurance plan is used to purchased the deceased owners interest so that business can continiue without financial interuption?
buy sell plan
what are the four basic parts of an insurance contract
pertaining to medicare supplement policies, how many days does the free look provision last?
a situation where a partnership agrees to buy out the interest of a deceased partner is called a
entity type plan
life insurance provision that includes cash values
policy loan provision
are floods considered hazards
written proof of lost must be sent to the insurer within
applicants who apply for large amounts of insurance usually require what type of report