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Function of Underwriting
Evaluate applications, select rating factors, policy terms and conditions
Private Insurers 3 Types:
- - Stock
- - Mutual
- - Reciprocal
- - Non-Commercial Insurance (Blue Cross, Blue Shield)
Benefits of Insurance
ppeace of mind and securing credit
Retaining all or part of the risk
Marketing Distributions 4 areas
- - Direct Writers
- - Direct Mail
- - Exclusive Agent
- - Independant Agencies
Investigative Agencies 5 areas
- - Personal Interviews
- - MIB
- - DMV
- - Financial Reports
- - Physician Statement/Current Physical
works on behalf of a company for an insured
Works on behalf of an insured for a company
works for an employer, selling insurance (other then life) under an agent. NO SUCH THING AS LIFE SOLICITOR!
works with agents and is appointed with may companies
Third Party Administrator: no license, collects premiums, assist in settling claims
- - Life Combo
- - Life only Agent
- - both sell disability
- - Life & Disability Analyst
not authorized to transact business in CA except through Surplus Lines Broker
Lines broker and able to sell insurance in CA
Insurance organization outside the country
Insurance organization outside the State of CA
Insurance Organization inside the State of CA
no notice of appointment on file, but all fees and CE units are up to date
handles affairs and funds of others
CE unit reuirements
- - 24 hrs each term which is every 2 years
- - LTC you will need 8 hrs CE every year for the first 4 years part of the 24 hr requirement
- - annuity you will need 8 hrs for first 4 years
- - code 4 hrs for first 4 years after first year 12 hrs
California Insurance Code
California Code of Regulations
Departements in an Insurance Company
- - Sales/Marketing
- - Underwriting
- - Claims
- - Actuarial
Types of insurance Companies 5 types
- - Reciprocal
- - Mutual
- - Stock
- - Risk Retention Groups
- - Lloyds
- Elected by the citizens to ADMINISTER, INTERPRET and ENFORCE the CODE
California Life and Health Insurance Guarantee Association: pays up to 80% of an insolvent insurers claims and no more than $250K in death benefits. Also, no more than $100K cash value
Rating Laws 4 Types
- - Prior Approval (California)
- - File & Use
- - Use & File
- - Open Cumpetition
Insurance Service Office - helps actuarial to standerize forms
Insured gives up the right to sue the 3rd party and the company does it for them
Mediator that helps settle disputed claims
A living benefit designed to protect against outliving ones resources by making periodic payments from an account
request form for insurance signed by agent & insured and becomes part of the policy, if accepted
a supplemental for/endorsement to change, add or modify a policy
Portion the insured pays before the company
Elements of a Contract 4 elements
- - Offer & Acceptance
- - Competent Parties
- - Legal Purpose
- - Consideration of a Contract (cash money)
Types of Contracts
- - Adhession
- - Aleatory
- - Unilateral
- - Conditional
- - Personal
- - Utmost Good Faith
Insured has no say in the contract wording, only accepts or rejects it "take-it or leave-it"
Values exchanged may not be equal (money)
Premium for a promise. Insurer is the only one that cannot cancel without just cause
Must meet all conditions before a claim is paid
Cannot transfer. Between company and insured
Utmost Good Faith
Honest Information on both parties; to their best belief and knowledge
Written instrument where one undertakes to indemnify another
Parts of a Life Applcation/Policy
- - General (part 1)
- - Medical (part 2)
- - Agent Report (part 3)
- - Title/Data/Face page
- - Conditions/Clauses
- - Rider/Application
Void of a contract
E & O
Professional liability coverage for those who give advice for a fee
Not permissible as an incentive to purchase another product
Termination of an entire group plan
Extension of Benefits
continuation of coverage for a totally disabled person affected before the discontinuation of coverage
May or may not be the insured person, but the one with the rights to make changes etc.
Person or entity to which the benefits are paid
- - Frequency of a payment:
- - monthly
- - quarterly
- - semi-annually
- - annually
Risk 3 types
- - Preferred
- - Standard
- - Substandard
Statistcal chances of dying by using specific populations, diseases, ages, etc
Hazard 4 types
- - Moral
- - Marale
- - Physical
- - Legal
Law of Large Numbers
The larger the pool of information gathered, the more reliable it becomes
Degree to which a person or property is at risk.Par/@on-Par – Participating (Mutual) or non-participating (Stock) in paying dividends to aninsured.
Ideally Insurable Risk 2 areas
Accidental, creates a financial hardship
Tendency of those who need insurance to buy it.
Spread of Risk
Transfer or pool the risk.
Deliberately providing false information for gain/profit.
Hiding material information.
Important facts to the contract.
Oral or written expression of information.
Transacting Insurance 4 areas
- - Solicitation
- - Negotiation
- - Execution
- - Transaction
Display of License
Must be in a prominent place in your office.
Available in 30 days upon request; all policy information must be accessiblein 30 days notice and on file for 2 years.
Printing License # and Fines
Must be printed on ALL material to the public; fines are foreach offense and are $200 1st, $500 2nd, $1000 ea offense after that.
Must be disclosed.
Notice of Appointment
Every licensee must have one on file with the DOI to be activelylicensed.
Commissioner doesn’t create the code, only determines how toimplement it, etc.
1st attempt at restoring an insurance company that is close to insolvency.
List of Eligible Surplus Lines Insurers
Unbroken chain of events that results in damage or injury due tonegligence.
Broadening coverage without any extra charge during a policy period.
Reduction of the quantity, quality or value of something do to a coveredloss/ Consequential losses as a result of the covered loss.
Incurred losses + loss adjusted expenses and earned premium = Loss Ratio
Cancellation made by an insured prior to it’s expiration date and surcharged bythe Company.
Cancellation made prior to the expiration date and NOT surcharged by theCompany.
Cancellation of a policy back to its inception date with all premiums 100%refunded.
Cease coverage/ Company not continue beyond expirationdate/Cancels due to non-pay.
Money the company owes an insured for the unused portion of timealready paid for.
Just because I expect to own something in the future will notallow me to buy coverage for it now.
Percentage of premium dollar a company spends on claims and expenses.100%means no profit, broke even.
Waiver & Estoppel
Giving up a right/ Agent acts in a misleading way so the insured is notrequired to perform.
Insurance company nearing bankruptcy or unable to pay expected losses.
Non-Discrimination 7 areas
- - Race
- - Color
- - National Oigin
- - Religion
- - Sexual Orientation
- - Mental Impairment that is not material
- - Ancestry
Carried over required x loss – deductible= Loss payment
Limit of insurance for all claims within a policy period, typically annual.
Damages that may be awarded 4 Types
- - Punitive
- - Compensatory
- - Specific
- - General
Types of Rating Methods 3 Types
- - Manual
- - Judgment
- - Merit Rating
Estimate of an amount the insurer may have to pay for future claims.
Transferring the policy from one person to another
"Give Me A Full Cash Reward" G M A F C R
- - General
- - Medical
- - Agent Report
- - Title/Data/Face
- - Conditions/Clauses
- - Rider/Application
Annuity Options 4 types
- - Immediate
- - Deferred
- - Fixed
- - Variable
Purchased with a single lump sum and payments areset to begin in at least 1 year.
Purchased with a lump sum or payments over time,but insured makes no withdrawals for at least one year.
Unchanged rate of interest and payments to theannuitant.
Varying rate of return and payment are notguaranteed.
Immediate & Deferred
Payments made to annuitant immediately or after atleast one year.
Fixed & Variable Annuities
Fixed payments/fixed interest rates; Varying ratesof interest and payments may be fixed or vary. Variable is beneficial to help keeppace with inflation.
Accumulation Period & Annuity Period
Period of time in which an annuitantmakes payments; annuity period is also known as the annuitization period inwhich withdrawals are made.
General Account vs Separate Account
General account investing is typicallysafe and conservative, while Variable products invest in a separate account andaccumulate at varying rates of return due to their placement in higher risk areas.
Qualified vs Non-Qualified
In a Qualified plan, contributions are taxdeductibleand taxes are deferred until withdrawn. In a Non-Qualified Plan,contributions are @OT tax deductible, but funds increased during theaccumulation period are not taxed until withdrawn, either.
Group vs Individual Annuities
Group is purchased by an employer andIndividual by one person.
Equity Indexed Annuity
More risk but also more potential return than a Fixedbut less than a Variable. EIA’s are in between a Fixed and a Variable Annuity.
Market Value Adjusted Annuities
Company agrees to pay a fixed rate of returnfor a specific time period. However, the value of the Annuity at the time ofwithdraw is adjusted by current interest rate if surrendered early. The clientshares in the risk of changing interest rates. (Bought at 7%, sold at 9% = penalty.But sale at 5% = bonus)
Tax-Sheltered Annuities (403b)
Developed by Congress to help non-profitscontribute to an Annuity. Funds put here are excluded from employee’s currenttaxable income rate but are taxed when withdrawn. Also known as a TDA, Tax-Deferred Annuity or TSA, Tax-Sheltered Annuity.
Individual Retirement Annuities (IRA)
Pre-Tax Contributions of up to $5000per person if in a separate account for 2008. Taxable only when paid out
IRA 4 Types
- - EDUCATION IRA
- - SEP IRA
- - SIMPLE IRA
- - ROTH IRA
Beneficiary is allowed to attend a program of highereducation. Contributions are not tax deductible, but withdrawals are nottaxable either.
(Simplified Employee Pension) Each employee has an accountand employer (self-employed) contributes no more than 25% of salary or$46,000 for 2008.
(Savings Incentive Match Plan for Employees) Must haveno more than 100 employees who earned $5000 or more in compensationduring the previous year. In 2008, employees can make a catch-upcontribution of $2500.
Contributions are not tax deductible, but withdrawals arenot taxable either. To contribute, singles must earn less than $110,000 andmarried couples $160,000 and withdrawals cannot be made for at least 5years. You CAN contribute to it past age 70 and do NOT have to withdrawby age 70.
Long-term care (LTC) insurance
- - Long-term care (LTC) insurance pays for services to helpindividuals who are unable to perform certain activities of dailyliving (ADL’s) without assistance, or require supervision due to acognitive impairment (reasoning skills) such as Alzheimer’sdisease.
- - LTC is available as individual insurance or through an employersponsoredor association plan.
- - It covers medical care, nursing care, hospice, adult day care andother assistance you might need if you have a chronic illness ordisability that leaves you unable to care for yourself for anextended period of time.
- - Not generally covered by other health insurance services.
- - Services may be conducted in a facility or in your home and aregenerally very expensive to receive.
- - Protects a person’s assets from liquidation!
- - One year in a nursing care facility is averaged at about $40,000!
- Premiums are not tax deductible, as they are paid with after taxdollars and considered a personal expense. Unless:
- 1) They are paid by employer for group term life and employer isnot beneficiary.
- 2) A Company pays the premiums as a bonus/incentive.
- 3) Paid by a Non-Profit Organization.
- 4) Paid as part of an Alimony settlement.
- 5) Purchased to cover a debt/creditor.
Cash Value Accumulation:
Life policy interest is not taxable and cash value given at death isnot taxed, but early surrenders are taxed. However, if company selectsan “accumulated at interest” dividend option, the insured is taxed onlyon the interest gained on the dividend payment.
Can take a loan (borrow) tax free!Fewer than 2% pay Federal Estate Taxes, due to the value of an estateneeding to be over $2 million currently. Must be paid within 9 monthsof death.
Employee Retirement Income Security Act of 1974. Protectsa persons retirement/pension with stringent laws that must befollowed.
Qualified Plans: (registered with IRS and tax favors)
- - 401(k)
- - 403(b)
- - Roth IRA
- - Keogh IRA
Contributions on a pre-tax basis and therefore taxedwhen withdrawn. Employers may contribute.
Employees of a 501©3 organization such as, Educational,Religious, Charitable, etc.; tax free until withdrawn. Invests onlyin annuities and mutual funds.
Not tax deductible but tax free when withdrawn.Can contribute up to a certain amount per year.
For Self Employed persons. Can be a profit sharingor money purchase plan.
Non-Qualified Plan: (not registered and no tax favor for employer)
- 457 Plan
State & local government employees or of tax exemptorganizations.
Defined Benefit/Defined Contribution Plans
such asCorporate Pensions and Profit Sharing plans. The contribution isspecific and tax is deferred.
Money that is contributed by an employee belongs 100% tothe employee and when terminated, goes with them. The employercontribution is vested over time; typically 7 years.
Employee Stock Option Program
Taxes taken from Social Security (FICA)
Workers pay about 6.2% of their salary into Social Security (FICA)and employers must match this amount. High wage earners do not paySocial Security on any income over the “taxable maximum”.
Old Age, Survivors and Disability Insurance
To receive benefit at retirement, a worker must have been employedand paid SS for 40 quarters (10 years). These are called “workcredits”. Payment may also be made to a surviving spouse ordependent children or dependent parents.Death Payment of $255…Wage is based on your lifetime earnings that have been FICA taxed aswell as current averages.
is the Medicaid Program for Californians and isadministered by the CA State Dept of Health. For low income families,disabled and seniors with no co-pay or deductible. Receives acute andlong-term care.
Medi-Cal Eligible persons
Blind, pregnant, children under 21 in Foster Care,disabled, refugees for 18 mo., low income under 21, those on SSI/SSP,65 and older, on kidney dialysis, in skilled care facilities, receivingTemp Assistance to Needy Families.
- is a Federal program for people 65 or older OR who arepermanently disabled or have End-Stage Renal Disease. It pays part ofthe costs associated with hospitalization, surgery, doctors’ bills, homehealth care, and skilled-nursing care.It is financed by a portion of our payroll taxes and there is adeductible. People age 65 or older and receiving Social Security areautomatically signed up.
- Part A = Hospital Care (Mandatory)
- Part B = Medical Insurance (Voluntary)
- Part C = Managed Care Facility (Voluntary)
- Part D = Prescription Drugs
Agent, Adjuster, Admitted, Alien, Annuity, Annuitized, Analyst, Adjustable,Accidental Death & Dismemberment, APS
Broker, Binder, Blanket Policy, Burial Expenses, Blackout
CLHIGA, Conservation, CE, CIC & CCR’s, Commissioner, Certificate, CIConversion, Claimant, Cash Value
Display of License, Domestic, Discrimination, Discontinuance, Disclosure,Disability
Expectant Interest, ERISA, E & O, Eligible, Endowment
Fraud, Free Insurance, Fiduciary, Free-Look, Funeral Expense, FixedPremium
Guaranteed Renewable, Grace Period, Group Life
Hazard, Health Care levels, Hospice, HMO, Home Care, HICAP
Insurable Interest, Insolvency, Inactive License, Incontestability, Illustration
Joint Life, Juvenile, Jumping Juvenile
Key Employee, Keogh Plan
Misrepresentation, MGA, Mutual Co., Medical, Misstatement, Mortality,Medi-Cal, Medicare, MIB
Non-Admitted, Names for Agencies, Notice of Appointment, Nursing Care
Parts to a Policy, Prior Approval, Pre-Existing Condition, Par Policy, PayorRider
Qualifications to be an Insurance Company, Qualified Plans
Risk, Reinsurance, Rescission, Record Retention, Rates, Replacement,Retirement, Roth IRA
Solicitor, Stock Co., Self-Fund, Senior Issues, Survivorship Life, Second-to-Die, Suicide Clause
Term, TPA, Tertiary Beneficiary, Temporary Insurance, Taxation
Unearned Premiums, Unilateral, Utmost Good Faith, Underwriting, Universal Life
Waiver of Premium, Whole Life