Flashcards
Section 1035 of the Internal Revenue Code allows cash surrender on a tax-deferred basis when moving cash between certain insurance products. The insured cannot better their tax position under a Section 1035 exchange.
Qualified retirement plan for a private business. Generally set up by large companies. It is possible to set up a Solo 401(k).
A qualified retirement plan for public school employees and non-profit organizations, also referred to as a TSA (tax-sheltered annuity).
A permanent change of owners rights.
An insurance policy with an accelerated death benefits provision will pay – under certain conditions – all or part of the policy death benefits while the policyholder is still alive. These conditions include proof that the policyholder is terminally ill, has a specified life-threatening disease, or is in a long-term care facility such as a nursing home. By accepting an accelerated benefit payment, a person could be ruled ineligible for Medicaid or other government benefits. The proceeds may also be taxable. Accelerated death benefits are also known as the living benefits rider.
One of the four elements required to have a legal contract. Acceptance is often made by the underwriter after reviewing the applicant’s application. The underwriter may make a counter-offer, in which case acceptance is made by the applicant.
When the accidental death benefit rider is added to a life insurance policy if the insured dies from an accident double or triple indemnity will be paid to the beneficiary. This rider also will provided a lump sum benefit if the insured becomes blind from an accident.
The accumulation period of a variable annuity is the time period before the annuity is annuitized. There is always a beneficiary during the accumulation period. During the accumulation period, the variable annuity is valued in accumulation units.
Insurance policies are contracts of adhesion. This means that if there is a lawsuit related to ambiguity in the contract it will always be decided in the interest of the insured, the insurer must stick to that interpretation. If they had wanted it interpreted otherwise they should have been more clear.
Combining whole life and term insurance adjustable life insurance allows the insured to adjust the premiums to fit their economic conditions.
An admitted insurer can legally do business in a state. The insurance company must meet the state’s legal and financial requirements to be an authorized insurer.
Adverse selection occurs when only bad risks sign up for life insurance. Group policies have participation percentages to prevent adverse selection.
An insurance company representative licensed by the state who solicits and negotiates contracts of insurance, and provides service to the policyholder for the insurer. An agent can be an independent agent who represents at least two insurance companies or a direct writer who represents and sells policies for one company only. Agents are also referred to as insurance producers.
Insurance contracts are aleatory, the outcome depends upon chance.
An alien insurer is one whose home office is in another country, but that is doing business in this state.
An annual renewable term insurance policy provides a fixed death benefit and premium for one year. To renew the policy the insured must pay the next year’s more expensive premium. There is no physical exam required to renew annual renewable term insurance.
A person who receives the payments from an annuity during his or her lifetime.
A contract that provides a periodic income at regular intervals, usually for life.
When an annuity is annuitized the monthly payments for life begin. There may or may not be a beneficiary during the annuity period, it depends upon the annuity payout option selected. During the annuity period, the variable annuity is valued in annuity units.
Apparent authority is the appearance of power on behalf of the insurer through the actions or use of identifying materials by the agent (producer), such as company advertising material. This type of authority occurs when a principal permits an agent to act on its behalf without either expressed or implied authority.
A statement of information made by a person applying for life insurance. It helps the life insurance company assess the acceptability of risk. Statements made on the application are used to decide on an applicant’s underwriting classification and premium rates.
The authorization for an agent (producer) to act for or represent an insurance company. An agent must have a minimum of one appointment but may have as many as they wish.
The transfer of all or part of a policy owner´s legal title and rights to a policy to another person. It is possible to change this type of transfer at a later date.
The insured’s current age is their attained age.
An authorized insurer can legally do business in this state.
Automatic premium loan is a free rider that the owner of a whole life policy can select that will keep a policy in force if the premium for the policy is not paid. This rider is not available on term insurance since there is no cash value.
This exclusion may be part of the policy’s language or added by a rider, it takes away coverage when the insured is “other than a fare-paying passenger.”
Avoidance is a risk management tactic whereby the risk of loss is prevented in its entirety by not engaging in activities that present the risk.
The person named in the policy to receive the insurance proceeds at the death of the insured. Anyone can be named as a beneficiary.
An extra percent of interest credited to an annuity during the first year that it is in force. The extra amount is above the interest rate to be credited beginning the second year and the remaining years that the annuity is in force. The extra rate is paid in the first year to attract new policyholders.
A boycott is a concerted refusal to deal or a group action designed to pressure another party into doing something by withholding or enlisting others to withhold patronage or services from the target. It can be a method of shutting a competitor out of a market or preventing entry of a new firm into a market. Boycott is an unfair method of competition that is prohibited under state law.
Stockholders in closed corporations (small privately held) often enter into buy-sell agreements with the corporation that are funded by life policies. These buy-sell agreements are funded with partnership life insurance policies. The premiums paid for partnership life insurance are not tax-deductible to the business since it is a policy that benefits the business. Life insurance proceeds are not taxable. The life insurance proceeds are used to buy out the heirs of the deceased stockholder (business partner).
The capital needs approach looks at how much money would be needed if the insured should die tomorrow. Needs include money to pay off the house, put the kids through school, and allow the spouse to take some time off from work. The face amount is determined by these needs.
The amount available in cash upon voluntary termination of a policy by its owner before it becomes payable by death or maturity. The amount is the cash value stated in the policy minus a surrender charge and any outstanding loans and any interest thereon.
This can occur when an agent persuades a consumer to borrow against an existing life insurance policy to pay the premium on a new one.
A beneficiary designation. Instead of specifically naming beneficiaries the owner designates a class or group of beneficiaries, for example “the children of Will and Jada.”
Coercion is an unfair trade practice that occurs when a producer applies physical or mental force or threat of force to persuade another to buy insurance.
A temporary change of owner’s rights, typically done to secure a loan.
The head of the state’s Department of Insurance. The Commissioner may also be referred to as the Director or Superintendent depending upon the state. The Commissioner’s job is to supervise the insurance business in a state and administer that state’s insurance laws.
Table of mortality based on intercompany experience over a period of time, which is legally recognized as the mortality basis for computing maximum reserves on life insurance policies. It is the 1980 CSO Table that is currently in use.
If the insured and the primary beneficiary die as the result of the same accident the common disaster clause states that the insured died last, even if that is not true. This common disaster clause protects the rights of the contingent beneficiary.
To be legally valid a contract must be entered into by competent parties. This means that the parties understand the contract that they are agreeing to.
Concealment is failure to disclose a material fact.
A premium receipt given to an applicant that makes a life and health insurance policy effective only if or when a specified condition is met.
Consideration is an exchange of value. Consideration for the insured is the premiums paid plus the answers to the questions on the application. Consideration for the insurer is the insurer’s promise to pay. Consideration does not have to be equal.
The consideration clause is the part of the insurance contract that sets forth the initial premium payment and renewal premiums as well as the frequency of the premiums due.
A period of up to two years during which a life insurance company may deny payment of a claim because of suicide or a material misrepresentation on an application.
Another party or parties who will receive the life insurance proceeds if the primary beneficiary should predecease the person whose life is insured.
In most cases, an insurance policy. A policy is considered to be a contract between the insurance company and the policyholder.
Life insurance is a contract of adhesion, where one party (the insurer) states the provisions of the contract while the other party (the insured) is not involved in its drafting, but whose participation is in either agreeing with it or declining it.