Know This- Comprehensive

What is the fundamental concept of insurance?

Insurance is the transfer of risk of loss. The cost of an insured's loss is transferred over to the insurer and spread among other insureds.

What type of risk is insurable?

Only pure risks

Define Risk.

A chance that a loss will occur.

Define Hazard.

A condition that increases the probability of loss.

Define Peril.

The cause of loss.

According to the Law of Large Numbers, what happens as the number of people in a risk pool increases?

Future losses become more predictable.

Who do insurance agents represent?

The insurer (principal).

What is the insurer’s consideration in an insurance contract?

The promise to pay for losses.

What is the insured's consideration in an insurance contract?

The payment of premium and statements on the application.

What does "Aleatory" mean in the context of insurance contracts?

It means there is an exchange of unequal amounts or values.

What does "Unilateral" mean in the context of insurance contracts?

It means only one of the parties to the contract is legally bound to do anything (the insurer makes a promise).

What does "Adhesion" mean in the context of insurance contracts?

The contract is prepared by one party (insurer) and accepted or rejected by the other party (insured) on a take-it-or-leave-it basis.

What is the principle of Indemnity?

Insureds cannot recover more than their loss. The purpose of insurance is to restore the insured to the same position as before the loss, not to allow them to profit.

What are Representations in insurance?

Statements believed to be true to the best of one's knowledge, such as an insured's statements on the application.

Which type of life insurance policy distributes dividends to policyowners?

Participating policies

When must insurable interest exist in life insurance?

At the time of application.

Who must the policyowner have insurable interest in?

The life of the insured.

What kind of information does a buyer's guide provide?

Generic information on various types of policies.

What kind of information does a policy summary provide?

Specific information on the policy being issued.

What role does a life insurance producer fill for the company in the underwriting process?

The company's field underwriter.

What does a conditional receipt mean regarding coverage effective date?

The applicant may be covered as early as the date of the application.

What is the key source underwriters use for information about the applicant?

An insurance application

Can insurers refuse coverage solely based on adverse MIB report information?

Insurers cannot refuse coverage.

How does risk relate to insurance premium?

The higher the risk, the higher the premium.

What is the rule regarding premium payment and coverage?

NO premium, NO coverage.

What insurance provides the greatest amount of coverage for the lowest premium?

Term insurance

Which type of insurance lacks cash value?

Term insurance

In level term insurance, what does the term "level" signify?

The death benefit, which remains constant

Which insurance type offers lifetime protection and builds cash value?

Whole life insurance

What happens if a premium payment is missed on a universal life policy?

The premium can be deducted from the policy's cash value without causing a lapse

Who assumes the investment risk in variable contracts?

The policyowner

As what type of insurance is group insurance typically written?

Annually renewable term insurance

In a group insurance plan, who holds the master contract?

The employer

What do individual insureds receive under a group insurance plan?

Certificates of insurance

Is evidence of insurability required when converting from group to individual life insurance?

No, it is not required

Absolute vs. Collateral Assignment

Absolute assignment is the complete and permanent transfer of ownership rights; collateral assignment is the partial and temporary transfer of rights.

Entire Contract

= policy + copy of application + any riders or amendments.

Grace Periods

Protect policyholders from losing insurance coverage if they are late on a premium payment.

Misstatement of Age

on the application will result in adjustment of premiums or benefits.

Policy Loans

Are ONLY available in policies that have cash value (whole life).

Waiver of Premium Rider

waives the premium for a total disability after a waiting period.

Children’s Term Rider

one premium for ALL children.

Accelerated Benefit

= early payment of part of death benefit to the insured from the insurer for qualifying medical expenses.

Children’s Term Rider

one premium for ALL children.

Accelerated Benefit

= early payment of part of death benefit to the insured from the insurer for qualifying medical expenses.

Nonforfeiture Options

are triggered by policy surrender or lapse.

Extended Term (Automatic Nonforfeiture Option)

same face amount, shorter term of coverage.

Dividends (Life Insurance)

are a return of excess premiums; therefore, not taxable when paid to the policyowner.

Settlement Options

are triggered by the insured’s death or age 100.

Life-Income (Straight Life) Settlement Option

the recipient cannot outlive the benefit payments.

What is the required entity for an annuitant, considering that annuities are based on life expectancy?

A natural person

What is the term for the phase when funds are being deposited into an annuity?

The accumulation period

What is the term for the phase when an annuitant begins receiving payments from the annuity?

The annuity period

What is the relationship between a shorter life expectancy and the benefit amount in an annuity?

It leads to a higher benefit

What is the relationship between a longer life expectancy and the benefit amount in an annuity?

It leads to a lower benefit

How are annuity premiums invested in a fixed annuity?

They are deposited into the company's general account

What type of annuity is bought with a single premium and starts paying out almost immediately?

An immediate annuity

When do income payments commence for a deferred annuity?

Sometime after one year from the purchase date

Which annuity payout option offers the highest monthly payment but carries the risk of not paying out the entire principal?

Pure life annuity

Which payout option ensures payments continue for a specified duration, irrespective of whether the annuitant is alive?

The fixed-period option

What is the primary purpose or main use for annuities?

To provide retirement income

Qualified Plans

Have tax advantages.

Traditional & Roth IRAs (Eligibility & Contributions)

Are for individuals with earned income. Contributions to a Traditional IRA are with pre-tax dollars (tax deductible); contributions to a Roth IRA are with after-tax dollars (NOT tax deductible).

Traditional & Roth IRAs (Distributions)

Traditional IRA distributions are taxable; Roth IRA distributions are NOT taxable.

Policy Loans from Cash Value

Are NOT income taxable.

Lump-Sum Life Policy Proceeds

Are tax free for the beneficiary.

Life Insurance Settlement Options (Taxation)

The principal is tax free, but the interest is taxable.

Fundamental Taxation Principle (Insurance/Annuities)

Taxes must be paid either upon contribution or upon distribution, NOT both (if taxed on one end, will not be taxed on the other).

1035 Exchange

A nontaxable exchange of cash value life insurance or an annuity on the same life. both (if taxed on one end, will not be taxed on the other).

1035 Exchange

A nontaxable exchange of cash value life insurance or an annuity on the same life

What are the two major perils covered in health insurance policies?

Accidental bodily injury and sickness.

How are medical expense benefits classified in health insurance?

They are considered reimbursement benefits.

What do limited health insurance policies cover?

They cover a specific sickness or accident only.

In AD&D (Accidental Death and Dismemberment) policies, what does the principal sum represent?

The full face amount (100%).

What is the capital sum in AD&D policies?

A percentage of the face amount.

What is the agent's responsibility regarding insurance applications?

To ensure that the application for insurance is complete and accurate to the best knowledge of the applicant.

What must happen if there are changes on the insurance application?

They must be initialed by the applicant or insured.

What is required to avoid coverage gaps when replacing insurance coverage?

There cannot be any coverage gap between the existing coverage and replacement coverage.

Until what age must children of an insured be covered under the parent's health plan?

Until age 26.

What does the Affordable Care Act (ACA) require regarding health insurance plans?

All individual and group health insurance plans be issued on a guaranteed issue basis.

What benefit may be awarded under the ACA to low-income individuals?

Premium discounts, regardless of the chosen metal levels.

What established the standard clauses that must be included in all individual medical contracts?

NAIC's Uniform Individual Accident and Sickness Policy Provision Law

What is required from the policyowner before a company can alter a medical coverage contract?

The insured's consent

What dictates the grace period duration?

The premium payment mode

In the event of a covered medical incident, providing initial notification and formal evidence of the incident are the duties of whom?

The insured

Following a covered incident, providing the necessary paperwork and distributing the funds in a timely manner are the responsibilities of whom?

The insurer

If an applicant provides an incorrect birth year when applying for medical coverage, how is the discrepancy handled?

Benefits are adjusted per the current premium

What mechanism is used to prevent a policyowner or their dependents from financially gaining from an illness or injury?

Pro rata benefit reduction

When is the policyowner allowed to terminate their coverage contract?

At any time

What type of contract mandates the company to maintain coverage provided the owner continues making their scheduled payments?

Guaranteed renewable policy

What definition of disability makes it more difficult for a disabled worker to receive benefits if they can still perform some tasks?

Any occupation policy

What functions as a temporal deductible to filter out minor, brief illnesses and limit administrative overhead?

The elimination period

What type of benefit provides support when a worker can still perform certain job duties but experiences a drop in earnings?

Partial disability

How are payouts structured differently between employer-sponsored group plans and personal individual policies?

Group plans pay a percentage of income, while individual policies pay a flat amount

For insurance designed to protect a company against the loss of a vital employee, who owns, pays for, and receives the proceeds of the policy?

The business

What is the primary financial advantage of accepting a larger upfront share of medical costs before your coverage kicks in?

Lower premium

What proactive approach to medicine is the primary emphasis of a Health Maintenance Organization?

Preventive care

In certain managed care plans, who is responsible for controlling overall costs by directing patients to specialists only when necessary?

A gatekeeper

Which health plan model offers greater freedom to see non-contracted doctors, but requires higher subscriber payments in return?

PPOs

What is the direct financial benefit to the patient when they choose to receive care from a contracted medical professional?

Lower out-of-pocket costs