Life & Health Insurance
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Insurance term for uncertainties. The chance of loss. The person or thing insured.
The possibility of loss to a risk being caused by its surroundings. Ex: Wrong place, wrong time.
A specific situation that increases the probability of the occurrence of loss arising from a peril, or that may influence the extent of the loss. Ex: You did wrong & got hurt.
Cause of a possible loss.
Ex: My dog "Per" ran out in front of a car & caused an accident. Per (dog) = peril
The amount sought through an insured's claim or the amount paid on behalf of an insured under an insurance contract.
Methods of Risk Management
- AVOID the risk - Ex. Never drive a car
- REDUCE the risk - Ex. Only drive in certain areas of town
- RETAIN the risk - Ex. Be willing to pay your own medical expenses.
- TRANSFER the risk - Ex. Buy Insurance
- SHARE the risk - Policyholders share in every loss by paying premiums to cover claims.
Elements of Risk Selection
- Physical Condition
- Medical History
- Moral Fitness
- Financial Condition
- Plance of Residence
A device to transfer the risk of loss from individuals to an insurer, who agrees for a consideration ($), to indemnify (pay) a specified amount for losses suffered by the insured.
Law of Large Numbers
The larger the group being studied, the more accurate the predictions become.
The applicable for a policy must have a legitimate interest in the preservation of the life to be insured.
Person to be insured must give consent by signing the application
Relationships that create "Insurable Interest"
Blood, marriage, and economic dependence.
Insurable interest only has to exist when policy is applied for, not when the claim occurs.
Company is owned & controlled by stockholders. These are usually non-participating policies, which DO NOT produce dividends.
Companies are owned & controlled by the policyholders and usually issue participating polices which are policies that "may" pay policy dividends.
*Dividend not taxable
A charitable organization.
Ex. Woodmen of the World
Two Types of Cooperatives
Producer Co-ops - includes Blue Cross/Blue Shield and some Health Maintenance Organizations.
Consumer Co-ops - May be incorporated or unincorporated. Mutual Co.'s are examples of incorporated co-ops. Unincorporated co-ops operate as reciprocal companies, using an attorney in fact to manage the business.
With a self funded plan, an employer, - not an insurance company - pay the claims themself.
Not truly and Ins. Co., but rather an association of individuals or groups who agree to share in insurance contracts.
Ex. Where a baseball pitcher would go to insure his arm.
A company that has a license to operate in the state.
AKA: Licensed, Authorized, Admitted
A company with no license to operate in a state.
AKA: Unlicensed, Unauthorized, Non-Admitted
Where the company is incorporated or domiciled
Domestic - A company that was incorporated in the state.
Foreign - A company that is incorporated in another state.
Alien - A company that is incorporated in another company.
Methods of Marketing
General Agency - When a business contracts w/ an insurance company to sell only that company's policies.
Direct Marketing - A company markets through direct mail or television, not requiring producers.
Managerial System - Insurance company that hires producers as employees.
- Powers specifically granted to an agent/producer by contract with the company.
- Implied Authority - Necessary actions must be taken by agent/producer to be able to execute his expressed authority.
- Ex. Collecting the first premium.
- Apparent Authority - Actions of the agent that were unnecessary, but company did not protest.
- Ex. Collecting renewal premiums.
The agent/produer handles the money of others and acts in a capacity of trust.
1 of 4
Four Elements of any contract
1.) Agreement -
A meeting of the minds.
- Offer - Offer may come from applicant or company.
- Ex. Offer = applicant completing app. & paying initial premium.
- Must be unconditional and unqualified. Party receiving offer must accept w/o making changes.
Counter Offer -
A change is made by the party receiving the offer.
2 of 4
Four Elements of any Contract
2.) Consideration - The exchange of value between the parties to a contract.
Insured's Consideration - Answers in the application & payment of initial premium. Money paid to insurer by the insured is called consideration.
Company's Consideration - Legally enforceable promises contained in the policy.
3 of 4
Four Elements of any Contract
3.) Competent Parties - Both parties to a contract must be legally competent.
Ex. Minors, mentally incompetent, people under influence of drugs/alcohol.
4 of 4
Four Elements of any Contract
4.) Legal Purpose - A contract must be for a legal purpose and enforceable by law.
The exchange of unequal value between the parties.
The insurance contract is based on chance or unceartain future outcome, and the premiums are not equal to the benefits.
A contract written solely by one party and must be adhered to by the other party w/o bargaining.
Take it or leave it.
Means one sided, involving the exchange of an act for a promise.
The principal of indemnity
To restore a person to the status enjoyed before the loss, but without a gain.
To give up a voluntary right.
Rule of law that says once something has been waived, if the second party relies on that waiver, then the first party can't take the waiver back.
Ex. Questions left blank on the application are not grounds for voiding a policy if discovered after the policy is issued.
Parol (Oral) Evidence Rule
After a contract is put in writing, all previous oral agreements become void.
Answers/statements made to the best of ones knowledge.
A statment of absolute fact or truth.
An incorrect answer sometimes referred to as an act of commission.
An act of omission.
Voiding a policy due to Misrepresentation or concealment
Company must prove that info. that was wrong was material to the risk, that they had no knowledge of the correct info, & that the insured intended to defraud the company.
The basis for the regulation of all insurance activity.
Stipulates that each state would regulate the insurance business within its boundaries.
Passed by Congress in the 1940's.
National Association of Insurance Commissioners.
Louisiana Insurance Code
The code originates from Title 22
Filing False Documents
Any person who misrepresents a co.'s assets or liabilities, withholds evidence in a hearing, or withholds evidence in an investigation is subject to a $5000 fine and/or 5 years in jail.
The Insurance Commissioner
Insurance Commissioner is elected to a four year term.
Certificate of Authority
Needed to practice any insurance in the state.
A person who solicits, negotiates, effects, procures, delivers, renews, continues, or binds policies of insurance for risks in this state.
The commissioner can issue a temporary producer license for up to 180 days w/o requiring an exam.
Renewal of License
Life/Health & Accident requires a minimum of 24 hours of continuing education prior to renewal w/ at least 3 hours dedicated to the subject of ethics.
Change of Address
Notify commissioner within 10 days of change of address.
Commissioner will cancel license of a producer for:
1) Insurance written for the interest of the producer, his immediate family, or employer
2) Insurance covering himself or members of his family, a corporation, association, etc.. that the producer or his family is associated with
Producer shall not pay, directly/indirectly a commission/fee to anyone selling/soliciting/negotiating insurance in this state unless they hold a valid license.
*Violators shall be fined not less than $1,000, nor more than $5,000 per violation, or imprisoned for not more than 2 years, or both.
Payment to Unlicensed Entities
Producer can't pay any money or commission to anyone without a valid license in this state.
* If convicted, producer will be fined not less than $2,000 or more than $50,000, or imprisoned with or without hard labor, for not more than 3 years or both.
Must be approved by commissioner.
Using non-approved trade names results in a fine not to exceed $250. If producer continues to use non-approved name, for 10 or more days after being notified by Commissioner to cease will be subject to an additional fine not to exceed $5,000.
A working relationship between producer and insurer (company) they represent.
Producer may represent more than 1 insurer, or sale exclusively for 1 company.
Termination of Appointment
Commissioner must be notified within 30 days following the effective date of termination.
If reason for termination of appointment is due to violating an insurance code, there are 15 days.
Disclosure of confidential information will result in a $500 fine for the first disclosure, and a $1,000 fine for all others by same indivudal.
No licensee whos license has been revoked will be able to apply for a new license within 1 year from the effective date of the revocation. If judicial review of the recovation is sought, withing 5 years from the date of the final court order affirming the revocation.
Notice from Commissioner for hearing/appeal
The commissioner must give notice of a hearing/appeal at least 10 days in advance.
Cease and Desist Hearings for a method, act, or practice violating the Code.
A cease & desist order may be accompanied by a fine of up to $1,000 per non-willful violation, or $25,000 per willful violation. Max can go to $100,000 if not willful or $250,000 if willful.
Any person aggrieved by an order of the commissioner can appeal to the courts. Must be filed in the district court of East Baton Rouge and petition filed within 30 days of the effective date of order given by commissioner.
A statement which is false, maliciously critical of, or derogatory to the financial condition of an insurer
Coycott, Coercion, and Intimidation
It is unlawful to be involved in any of these acts that tend to result in an unreasonable restraint of, or monopoly in, the business of insurance.
Incompletely/unfairly comparing policies in order to sale the one the agent is presenting.
An inducement to buy insurance by gifting, offering, or promising a rebate of premiums, a favor or advantage in dividends/benefits, shares of stock, or anything of value which is not specified in the contract.
Anything aside from the policy itself offered is rebating.
A person w/ intent to injure, defraud, or deceive an insurance company or insured is guilty of a felony & subject to imprisonment w/ or w/o hard labor, not to exceed 5 years, a fine of $5,000, or both on each count.
No insurer can terminate, cancel, refuse, impose a rider, establish differentials in premium rates, discriminate, or exclue an individual or family member from coverage due to info. discovered with prenatal testing.
These provisions do not apply to tests conducted to determine pregnancy.
Licensing Surplus Lines Brokers
To be eligible, must have 2 years experience in insurance w/ an office in LA, $250 first time application, $350 renewal fee per 2 years, pass an exam, and maintain a $40,000 bond.
Must have capital/surplus of at least $2,000,000; pass the prescribed # of Insurance Regulatory Information Systems tests - and must deliver any info requested by commissioner w/in 30 days, and net premiums written must not exceed 4 times the insurer's capital/surplus.
The purpose is to protect policyholders & beneficiaries against failure in the performance of contractual obligations due to impairment or insolvency of the insurance company insuring the insured.
Guaranty Association shall not provide coverage for
- 1) any portion of contract not guaranteed by insurer, or under which the risk is borne by the policy or contract holder.
- 2) A reinsurance policy, unless assumption certificates have been issued
- 3) Self insured plans
- 4) A policy issued in LA by a insurer when they were not licensed or have a cert. of authority to issue said pol.
- 5) Any unallocated annuity contract except those qualified under the US Internal Revenue Code.
In no event shall the association be liable to pay more that $500,000.
Guaranty Association - not covered:
- 1) Health Maintenance Organization
- 2) Fraternal benefit society
- 3) Mandatory state pooling plan
- 4) Nutual assessment company
- 5) Insurance exchange
- 6) Nonprofit hospital or medical service organization
- 7) Any entity similar to any of the above.
No person/insurer shall make reference to the existance of the Louisiana Guaranty Association for the purpose of sales solicitation or inducement to purchase a policy.
The 3 parties to an application
This could be the same person, or 3 different people.
- 1) Proposed insured - the person to be insured
- 2) Applicant - party making application to company for policy
- 3) Policyowner - person paying premium
A minor's application
A life application on a minor under the age of 15 must be signed by the guardian.
Changing an Application
Changes in an application must be acknowledged in writing by the proposed insured. A producer cannot simply correct.
Premium receipts are given in lieu of a policy when the first premium is paid w/ the application.
Coverage begins on the date of receipt, provided the applicant is found to be insurable. In other words, the coverage is retroactive to the application date when and if approved by the underwriter.
Coverage takes effect on the date of application regardless of the applicant's insurability and will remain in effect for a specified number of days, or until rejected by the underwriter.
Temporary Insurance Agreement
This is temporary insurance protection while an app is being considered.
Policy Effective Date
Important for 3 reasons:
- 1) Coverage begins
- 2) Contestable period begins - 2 yr. contestablity period for life
- 3) Suicide exclusion period begins - 2 years.
The max in most states is 6 months, since you shouldn't have to go back more than 6 months to get a previous age.
Dividends are not taxable, but the interest from them is.
If a policy was issued as applied for, a copy of the illistration must be provided to the insurer and the applicant. If issued other than applied for, a revised illustration, conforming to the policy issued, must be sent w/ policy when delivered.
Policy Deliver Receipt
When hand delivered, the insurer must keep the Delivery Receipt for 2 years. If mailed, this must be kept for 3 years.
The person who decides whether coverage will be given and on what basis.
Medical Examiner's Report
Examiners retained by the insurance company perform physical exams and submit reports to the company.
Attending Physician's Statement (APS)
The underwriter may request an APS from the proposed insured's doctor. Usually used to obtain mroe specific info about a particular medical problem.
Inspection or Consumer Reports
Agencies contacted by the insurance company supply consumer info such as credit reports to the company.
Medical Information Bureau (MIB)
An insurance trade association that supplies medical info about applicants. Info obtained from the MIB cannot be used by insurers as the sole reason for denial of coverage.
The Fair Credit Reporting Act
Info. about a consumer must be available to that person if requested. Disputed info must be investigated & removed if determined to be inaccurate.
Events in which the principal has both the change of winning or losing.
There are more risks with higher probablity of loss seeking to purchase and maintain insurance
List an accurate comparison between private and government insurers.
Private insurers may be authorized to transact insurance by state insurance departments
An organization that, in addition to other activities, provides a formal insurance plan to its members.
When both parties must perform certain duties & follow rules of conduct, to make the contract enforceable.
The anticipated number of individuals within a group who will die within a specified period of time..
Not to be confused w/ Morbidity Tables.
Comparative Interest Rate
The rate of return on a hypothetical side fund, so that the value of the side fund will be exactly equal to the surrender value of the higher premium policy
Mortality - Interest + expense =
This describes the specific information about a policy.
Universal Life - Option A
This policy has an IRS required corridor or gap between the cash value and the death benefit.
Credit Life Insurance
The Creditor is the policy owner & the beneficiara, while the debtor is the insured.
Group life insurance
is based on the ratio of men and women in the group.
Universal Life Option B includes the annual increase in cash value, the death benefit under this option would....?
Gradually increase each year by the amount that the cash value increases.
How long does an insurer/reporting agency have to reply to a consumer's request for additional info. conserning an Investigative Consumer Report.
Maximum penalty for habitual willfull noncompliance with the Fair Credit Reporting Act.
Any licensed person who makes false material statements related to insurance may be fined & imprisoned up to
Law that protects consumers against the circulation of inaccurate or obsolete info is..
The Fair Credit Reporting Act.
How many days after requesting an Investigative Consumer Report must an insurer notify the consumer in writing that the report will take place.
Insurer examinations must occur no less frequently than
Every 5 years
How much can a sole business proprietor/partner deduct from the cost of a medical expense plan?
100% of the cost of a medical expense plan provided to them and their families because they are considered self-employeed individuals, not employees.
Group disability income insurance premiums paid by the employer are..
Deducted by the employer as an ordinary business expense.
Premiums for group accidental death & dismemberment policies are...
Deductible to the employer as an ordinary business expense.
Premium payments for personally owned disability income policies are..
Not tax deductible.
What is the highest percentage that can be deducted by the proprietors of a business for the cost of a medical expense plan?
100% of the taxpayer's annual earned income
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