L&H Terms Flashcards

Question

Exposure

Answer 1

is a unit of measure used to determine rates charged for insurance coverage. In life insurance, all of the following factors are considered in determining rates: - The age of the insured - Medical History - Occupation - Sex

Answer 2

A large number of units having the same or similar exposure to loss. The basis of insurance is sharing risk among the members of a large homogeneous group with similar exposure to loss

Answer 3

exists when poor risks are balanced with preferred risks, with "average" or "standard" risks in the middle. The purpose behind distributing risks in this manner is to protect the insurer from adverse selection. This is one of the key principles of insurance

Answer 4

the insuring of risks that are more prone to losses than the average risk. Poorer risks tend to seek insurance or file claims to a greater extent than better risks. To protect themselves from adverse selection, insurance companies have an option to refuse or restrict coverage for bad risks, or charge them a higher rate for insurance coverage.

Answer 5

include all exposures in which the possible losses are of the magnitude that would result in financial ruin to the insured, his or her family, and/or to his or her business

Answer 6

include those exposures in which the losses would lead to major changes in the person's desired lifestyle or profession

Answer 7

include those exposures in which the possible losses could be met out of current assets or current income without imposing undue financial strain or lifestyle changes

Answer 8

- consider the odds - don't risk more that you can afford to lose - dont risk a lot for a little

Answer 9

is a method of dealing with risk for a group of individual persons or businesses with the same or similar exposure to loss to share the losses that occur within that group. A reciprocal insurance exchange is a formal risk-sharing arrangement

Answer 10

the most effective way to handle risk. Transfer it so that the loss is borne by another party. Insurance is the most common method of transferring risk from an individual or group to an insurance company. Thought the purchasing of insurance will not eliminate the risk of death or illness, it relieves the insured of the financial losses these risks bring. There are several ways to transfer risk, such as hold harmless agreements and other contractual agreements, but the safest and most common method is to purchase insurance coverage

Answer 11

one of the methods of dealing with risk, which means eliminating exposure to a loss. ex. If a person wanted to avoid the risk of being killed in a plane crash, he/she might choose never to fly in an airplane. Risk avoidance is effective, but seldom practical

Answer 12

is the planned assumption of risk by an insured through the use of deductibles, co-payments, or self-insurance. It is also known as self-insurance when the insured accepts the responsibility for the loss before the insurance company pays. The purpose of retention is: - to reduce expenses and improve cash flow - to increase control of claim reserving and claim settlements - to fund for losses that cannot be insured

Answer 13

The loss mus be due to chance (accidental). In order to be insurable, a risk must involve the chance of loss that is outside the insured's control The loss must be definite and measurable. An insurable risk must involve a loss that is definite as to cause, time, place and amount. An insurer must be able to determine how much the benefit will be and when it becomes payable. Since insurance policies are legal contracts, it helps if the conditions are as exact as possible The loss must be statistically predictable. This enables insurers to estimate the average frequency and severity of future losses and to set appropriate premium rates. (in life and health insurance, the use of mortality table and morbidity tables allow the insurer to project losses based on statistics). The loss cannot be catastrophic. Insures typically will not insure risks that will expose them to catastrophic losses. Insurer's need to be reasonably certain that the losses will not exceed certain limits. Typically, insurance policies exclude coverage for loss caused by wars or nuclear events because there is no statistical data that allows for the development of rates that would be necessary to cover these events should they occur The loss exposure to be insured must involve large homogeneous exposure units. There must be a sufficiently large pool to be insured and those in the pool must be grouped into classes with similar risks so the insurer is able to predict losses based upon the law of large numbers. This enable insurers to properly prdict the average frequency and severity of the future losses and to set appropriate premium rates. In life insurance, mortality tables are used to project losses based on statistics The insurance must not be mandatory. An insurer must not be required to issue a policy to each applicant applying for coverage. The insurer must have the ability to require certain underwriting guidelines be met

Answer 14

cause injury to

Answer 15

if a possible future event could result in loss or liability to a person, it may be insurable under the insurance code. These insurable events may never occur, but insurance policies can provide protection when those times come. The more predictable a loss is, the more insurable. The less predictable, the less insurable

Answer 16

to purchase insurance, the policyowner must face the possibility of losing money or something of value in the event of loss. In life insurance, insurable interest must exist between the policyowner and the insured at the time of application; however, once a life insurance policy has been issued, the insurer must pay the policy benefit, whether or not an insurable interest exists A valid insurable interest may exist between the policyowner and the insured when the policy is insuring any of the following: - Policyowner's own life - The life of a family member (a spouse or a close blood relative) - The life of a business partner, key employee, or someone who has a financial obligation to the policyowner (such as debtor to a creditor) *Not required of beneficiaries since the beneficiary's well being is dependent upon the insured, and the beneficiary's life is not the one being insured, the beneficiary does not have to show an insurable interest for a policy to be purchased

Answer 17

is a provision in an insurance policy that states that in the event of a loss, an insured or a beneficiary is permitted to collect only to the extent of the financial loss, and is not allowed to gain financially because of the existence of an insurance contract. The purpose of insurance is to restore, but not let an insured or a beneficiary profit from the loss ex. will not get $20,000 from a $20k policy when loss equals $15,000

Answer 18

this principle implies that there will be no fraud, misrepresentation or concealment between the parties. As is pertains to insurance policies, both the insurer and insured must be able to rely on the other for relevant information. The insured is expected to provide accurate information on the application for insurance, and the insurer must clearly and truthfully describe policy features and benefits, and must not conceal or mislead the insured

Answer 19

a written agreement between two or more parties that is legally enforceable by law

Answer 20

a private, civil, non-contractual wrong for which a remedy through legal action may be sought. Or a wrongful act or the violation of someone's rights that leads to legal liability

Answer 21

any deliberate act that causes harm to another person regardless of whether the offending party intended to injure the aggrieved party.. For the purpose of this definition, breach of contract is not considered an intentional tort.

Answer 22

the result of acting without proper care. This is generally referred to as negligence

Answer 23

- agreement: offer and acceptance - competent parties - legal purpose - consideration

Answer 24

must be a definite offer by one party, and the party must accept this offer in its exact terms. In insurance, the applicant usually makes the offer when submitting the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy

Answer 25

something of value that each party gives to each other. The consideration on the part of the insured is the payment of premium and the representations made in the application. The consideration on the port of the insurer is the promise to pay in the event of a loss

Answer 26

requires that both parties be of legal age, mentally competent to understand the contract, and not under the influence of drugs or alcohol.

Answer 27

The purpose of the contract mus be legal and not against public policy. To ensure legal purpose of a Life Insurance policy, for example, it must have both: insurable interest and consent. A contract without a legal purpose is considered void, and cannot be enforced by any party

Answer 28

insurance contracts are offered on a take-it-or-leave-it basis by an insurer as there is no negotiation. Any ambiguities are in favor of the insured.

Answer 29

requires that certain conditions must be met by the policyowner and the company in order for the contract to be executed, and before each party fulfills its obligations. For example, the insured must pay the premium and provide proof of loss in order for the insurer to cover a claim

Answer 30

when there is an exchange of unequal amounts or values. The premium paid by the insured is small in relation to the amount that will be paid by the insurer in the event of loss

Answer 31

only one of the parties to the contract is legally bound to do anything. The insured makes no legally binding promises. However, an insurer is legally bound to pay losses covered by a policy force

Answer 32

a contract between the insurance company and an individual. Because the company has a right to decide with whom it will and will not do business, the insured cannot be changed to someone else without the written consent of the insurer, nor can the owner transfer the contract to another person without the insurer's approval. Life Insurance is the exception tho this rule: A policyowner can transfer (or assign) ownership to another person. However, the insurer must still be notified in writing

Answer 33

statements believed to be true to the best of one's knowledge, but they are not guaranteed to be true. For insurance purposes, representations are the answers the insured gives to the questions on the insurance application

Answer 34

untrue statements given by the applicant on the insurance application, which can void the contract

Answer 35

an untrue statement that, if discovered, would alter the underwriting decision of the insurance company. Furthermore, if material misrepresentations are intentional, they are considered fraud

Answer 36

a representation may be changed or withdrawn prior to the effectuation of the policy, but not after

Answer 37

a statement considered to be guaranteed to be true and becomes part of the contract

Answer 38

- misdemeanor - maximum fine of $25,000 - maximum 1 year of prison - or both fine and imprisonment

Answer 39

the idea that all parties to a contract are entitled to all information necessary to make an informed decision about the quality or nature of the contract

Answer 40

the legal term for the intentional withholding of information of a material fact that is crucial in making a decision. In insurance, concealment is the withholding of information by the applicant that will result in an imprecise underwriting decision. Concealment may void a policy.

Answer 41

the revocation of a contract. An injured party is entitled to rescind the contract if there is a false misrepresentation, concealment occurred or a violation of a material warranty or any other material provision of a policy

Answer 42

- the parties to the contract - the persons or property being insured - a statement of the insurable interest that exists if the insured is not the owner - the risks insured against - time period during which the policy will be in force or continue - the statement annual, semi-annual, quarterly, or monthly premium or a statement of the manner in which a premium rate and total premium will later be calculated, if it can only be determined at the termination or expiration of the contract

Answer 43

a contract between a policyowner (often the insured) and an insurance company which agrees to pay for loss caused by specified covered events

Answer 44

are added to the policy to modify provisions that already exist (usually used in Life and Health Insurance).

Answer 45

are printed addendums to a contract that are used to change the policy's original terms, conditions, or coverages (usually used in property and casualty insurance)

Answer 46

the act of revoking or terminating one's insurance policy

Answer 47

a policy that is terminated because of nonpayment of premiums

Answer 48

the continuance of an insurance policy beyond it's original term. The renewal or nonrenewal may occur on a date specified in the contract (usually on the policy anniversary or premium due date

Answer 49

the discontinuance of an insurance policy beyond it's original term

Answer 50

the period of time after the deadline or due date of a premium in which a late premium payment may be made without penalty, or without the policy lapsing

Answer 51

the price of insurance for each exposure unit

Answer 52

the payment required by the insured to keep the policy in force. It is determined by multiplying the rate by the number of units of insurance purchased

Answer 53

the portion of a premium that belongs to the insurance company for providing coverage for a specified period of time.

Answer 54

the portion of the premium the insurance company has collected but has yet to "earn" because it has not yet provided coverage for the insured

Answer 55

the period when, should the insured die prematurely, the surviving spouse will have dependent children to support. The family's income need will be greatest during this period

Answer 56

This is the period after the children are no longer dependent upon the surviving spouse for support, but before the surviving spouse qualifies for social security survivor benefits ("blackout period"). The income needs of the surviving spouse lessen during this period; however, until the surviving spouse reaches age 60, social security benefits are not available

Answer 57

during this period, the surviving spouse's working income ceases and his or her social security benefits begin. Since the surviving spouse's standard of living does not lessen, he or she will require an income comparable to the preretirement period during this time

Answer 58

- debt - income - mortgage - expenses

Answer 59

when insurance is used to create a fund to pay off debts of the insured such as home mortgage or auto loans

Answer 60

Insurance proceeds may be used to assist in paying for sudden expenses following the death of the insured, such as travel expenses and lodging for family members coming from a distance

Answer 61

Insurance proceeds may be used to assist in paying for children's education expenses so they can remain in school, or sometimes a surviving spouse who has worked in the home caring for the children will need to receive education or training in order to re-enter the job market

Answer 62

Insurance proceeds may be used as a source of retirement income

Answer 63

an insured may wish to leave funds to their church, school, or other organization at the time of their death

Answer 64

estates can take long periods of time to create via earnings, savings, and investments. The purchase of life insurance creates an immediate estate

Answer 65

gives the estimate of what would be lost to the family in the event of the premature death of the insured. It calculates an individual's life value by looking at the insured's wages, inflation, the number of years to retirement, and the time value of money

Answer 66

based on the predicted needs of the family after premature death of the insured. Some of the factors considered by the needs approach are income, the amount of debt (including mortgage), investments, and other ongoing expenses

Answer 67

the most common use of life insurance by businesses, which serves as a protection for employees and their beneficiaries.

Answer 68

a business can suffer a financial loss because of the premature death of a key employee - someone who has specialized knowledge, skills or business contracts. This policy insures that person. The business is the applicant, policyowner, premium payer and beneficiary. Also, the employee must give permission for this coverage.

Answer 69

a legal contract that determines what will be done with a business in the event that an owner dies or becomes disabled. This is also referred to as business continuation agreement

Answer 70

used in partnerships when each partner buys a policy on the other

Answer 71

used when the partnership buys policies on the partners

Answer 72

used by privately owned corporations when each stockholder buys a policy on each of the others

Answer 73

used when the corporation buys one policy on each shareholder

Answer 74

is sold to small business owners who must continue to meet overhead expenses such as rent, utilities, employee salaries, installment purchases, leased equipment, etc., following a disability. Does not reimburse the business owner for his or her salary, compensation, or other form of income that is lost as a result of disability. There is a 15 to 30 day elimination period and benefits are usually limited to one or two years. Premiums are tax deductible to the business as a business expense; however, the benefits received are taxable to the business as received

Answer 75

is an arrangement where the employer offers to give the employee a wage increase in the amount of the premium on a new life insurance policy on the employee. The employee owns the policy and therefore has all control. Since the employer treated the premium as a bonus, that amount is tax deductible to the employer and income taxable to the employee

Answer 76

the face value/amount or death benefit of an individual life insurance policy, subject to any exclusions or riders is applicable, minus any outstanding policy loans and interest payments due to the insurer

Answer 77

a presentation or depiction that includes nonguaranteed elements of a policy of individual or group life insurance over a period of years. A life insurance illustration must do the following: - distinguish between guaranteed and projected amounts - clearly state that an illustration is not a part of the contract - identify those values that are not guaranteed as such

Answer 78

- name of the insurer - name and business address of producer or insurer's authorized representative, if any - name, age and sex of proposed insured, except when a composite illustration is permitted under this regulation - Underwriting or rating classification up which the illustration is based - generic name of policy, the company product name (if different), and form number - initial death benefit - dividend option election or application of nonguaranteed elements, if applicable - illustration date - a prominent label stating "Life insurance illustration"

Answer 79

- represent the policy as anything other than a life insurance policy - describe nonguaranteed elements in a manner that could be misleading - use an illustration that depicts policy's performance as being more favorable than it really is - provide an incomplete illustration - claim that premium payments will not be required for each year of the policy in order to maintain the illustrated death benefits, unless that is the fact - use the term "vanish" or "vanishing premium," or a similar term that implies the policy becomes paid up - use an illustration that is not self-supporting

Answer 80

provides basic, generic information about lif insurance policies that contains, and is limited to, language approved by the department of insurance. Explains how a buyer should choose the amount and type of insurance to buy, and how the buyer can save money by comparing costs of similar policies. Insures must provide a buyer's guide to all prospective policy applicants prior to accepting their initial premium. If policy's come with free 10 day look period, then buyers guide can be delivered with the policy

Answer 81

a written statement describing the features and elements of the policy being issued. It must include the name and address of the agent, the full name and home office or administrative office address of the insurer, and the generic name of the basic policy and each rider. Will also include premium, cash value, dividend, surrender value and death benefit figures for specific policy years. Also, must provide when the policy is delivered

Answer 82

compares the cash values available to buyers if they surrender the policy in 10 or 20 years. Does not take into consideration the time value of money (or investment return on the insurance premium had it been invested elsewhere)

Answer 83

compares the death benefits that are paid at death in 10 or 20 years, if the insured died at that time, and accounts for the time value of money

Answer 84

is the risk selection process. The purpose of underwriting is to protect the insurer against adverse selection (risks which are more likely to suffer a loss)

Answer 85

- proper solicitation of applications - helping prevent adverse selection - completing the application - obtaining the required signatures - collecting the initial premium and issuing the receipt, if applicable - delivering the policy

Answer 86

the starting point and one of the basic/main sources of information used by the company in the risk selection process.

Answer 87

included the general questions about the applicant, such as name, age, address, birth date, gender, income, marital status, and occupation. It will also inquire about existing policies and if the proposed insurance will replace them. Part 1 identifies the type of policy applied for and the amount of coverage, and usually contains information concerning the beneficiary

Answer 88

includes information on the prospective insured's medical background, present health, any medical visits in recent years, medical status of living relatives, and causes of death of deceased relatives. For smaller amounts the agent and the proposed will complete all of the medical information. Would be considered a nonmedical application. For larger amounts, the insurer will usually require some sort of medical examination by a professional

Answer 89

if an application is taken at the time of purchase and a policy is then issued, the application must be attached to the policy. The policy and the application constitute the entire contract between the parties, and no additional documents may be incorporated into the contract unless endorsed and attached to the policy. Any statements made by the insured in the application are considered representations and not warranties

Answer 90

provides the agent's personal observations concerning the proposed insured. It is not part of the contract but is a part of the application process

Answer 91

if the proposed insured and the policyowner are not the same person, such as a business purchasing insurance on an employee, then the policyowner must also sing the application. An exception to the rule is an adult applying for insurance on a child.

Answer 92

Depending of the insurer agents can correct the information and have the applicant initial the change or complete a new application. Agent should never white out or erase information on an application for insurance

Answer 93

if an insurer receives an incomplete application, the insurer must return it to the applicant for completion. If the insurer issues a policy with questions left unanswered, the contract will be interpreted as if the insurer waived its right to have an answer to the question. The insurer will not have the right to deny coverage based on any information that the unanswered questions might have contained

Answer 94

collecting the initial premium and submitting it with the application increases the chances that the applicant will accept the policy once it is issued. They must also provide a premium receipt, which determines when coverage will be effective

Answer 95

conditional receipt is the most common type and is used only when the applicant submits a prepaid application. The conditional receipt says that the coverage will be effective either on the date of the application or the date of the medical exam, whichever occurs last, as long as the applicant is found to be insurable as a standard risk, and policy is issued exactly as applied for. This rule will not apply if a policy is declined, rated, or issued with riders excluding specific coverages

Answer 96

coverage begins only when the pre-paid application is approved by the insurer (but not before the policy is delivered). Therefore, there is no coverage during the initial underwriting process. This type of receipt is rarely used

Answer 97

is rarely used in life insurance. Is found more in property insurance. When the agent issues a binding receipt, coverage begins immediately for a specific length of time, even if the applicant is later found to be uninsurable. Binding receipts usually stipulate that coverage is effective from the date of the application for only a specific period of time, such as 60 days, or until the company either issues or declines coverage, whichever occurs first

Answer 98

an agreement that requires payment of the first premium at the time of application, but does not guarantee that the policy will be issued. This agreement bridges the gap between the applicant's need for immediate coverage and the insurer's need for thorough underwriting. The 3 types of agreements are: - Conditional Receipt (most commonly used) - 30-day interim term receipt - acceptance from of receipt

Answer 99

the protection period offered by binding receipts. During this period, a insurance company is liable for the maximum amount guaranteed under the binding receipt/temporary agreement.

Answer 100

the medical portion of an application which accepts a health questionaire completed and signed by the applicant and the agent and does not require a medical examination

Answer 101

The agent or broker is able to accomplish good pre-selection by a complete, accurate and thorough completion of the insurance application. The application will ask for all of the legally allowed information which an insurer may gather in order to do effective post-application

Answer 102

The period after an application is submitted but before it is approved? Using the application as a springboard, the underwriter begins an investigation of the client's complete risk profile. After considering all the information legally available, the underwriter will label the client as standard, substandard or uninsurable

Answer 103

The medical information bureau is a centralized information database into which insurers provide information from applications and claims. Subscribing insurers are then able to search the MIB database for information regarding any applicant for insurance. MIB is a nonprofit organization. Can only be used to help an applicant and not be used to adversely affect the applicant

Answer 104

is used by insurers to receive an applicant's driving record. A poor driving record can result in a rating or even declination

Answer 105

The APS (attending physician statement) enables the insurer to receive the complete medical treatment history of a client

Answer 106

The insurer can request that the applicant be examined by a physician and the results submitted for consideration. It is also common to require examination by a paramedical company and the use of blood, urine or saliva samples to check for nicotine or other drug use and the presence of HIV. An EKG (electrocardiogram) may also be required

Answer 107

Using financial inspection reports and/or information from major credit reporting agencies, the insurer can detect whether the client has a history of financial malfeasance (wrongdoing)

Answer 108

The underwriter may contact persons with information about the applicant by telephone. These may include coworkers, neighbors, relatives or other acquaintances

Answer 109

The insurer may also ask the applicant to fill out a separate hazardous activity questionnaire to determent the applicant's risk classification. The questionnaire may include questions regarding hobby aviation, scuba diving, and auto, boat, or motorcycle racing

Answer 110

To supplement the application, the underwriter may order an inspection report on the applicant from an independent investigating firm or credit agency, which covers financial and moral information. Companies are subject to the rules and regulations outline in the fair credit reporting act

Answer 111

established procedures that consumer-reporting agencies must follow in order to ensure that records are confidential, accurate, relevant, and properly used. The law also protect consumers against the circulation of inaccurate or obsolete personal or financial information

Answer 112

include written and/or oral information regarding a customer's credit, character, reputation, or habits collected by a reporting agency from employment records, credit reports, and other public sources

Answer 113

are similar to consumer reports in that they also provide information on the customer's character, reputation, and habits. The primary difference is that the information is obtained through an investigation and interviews with associates, friends and neighbors of the consumer. - cannot be made unless the consumer is advised in writing about he report in 3 days of the date the report was requested - consumer must be advised that they have the right to request additional information concerning the report, and the insurer or reporting agency has 5 days to provide the consumer with he additional information

Answer 114

fined and/or imprisoned for up to 2 years

Answer 115

the amount equal to the loss to the consumer, as well as any reasonable attorney fees incurred in the process

Answer 116

subject to a penalty of up to $2500

Answer 117

If a policy of insurance is declined or modified because of information contained in either a consumer investigative report, the consumer must be advised and provided with the name and address of the reporting agency. The consumer also has the right to know the identity of anyone has received a copy of the report, within the last year.

Answer 118

Consumer reports cannot contain certain types of info if the report is requested in connection with a life insurance policy or credit transaction of less than $150,000. The prohibited info includes: - bankruptcies more than 10 years old - civil suits - records of an arrest or conviction of crimes - any other negative information more than 7 years old (delinquencies, late payments, insolvency or any other form of default

Answer 119

a report that is completed by a paramedic or a registered nurse at the request of an underwriter

Answer 120

a statement made by a practitioner who treated the applicant for prior medical problem requested by an underwriter

Answer 121

must obtain written consent from the applicant on the approved form

Answer 122

Established for the internal dissemination of test results among its producers and employees to ensure confidentiality. In other words, they must establish a way to keep test results confidential.

Answer 123

- If tests were performed correctly, insurers may decline a potential insured for coverage if his/her medical sample comes back "positive for HIV/AIDS" after 2 different tests have been performed. The applicant can also be declined if he/she has already been diagnosed with AIDS/HIV by another medical professional - tests must be paid for by the insurer, not insured - If an insurer tests for HIV, it must first obtain from the insured informed, written consent. This often entails a separate disclosure from signed bu all insureds and the agent. A copy of this duplicate form should be left with the client. The information includes written details on the tests performed, their purposes and uses. and how results will be returned to insured. The form often asks for physician's name and address so that the client's doctor can get involved should a positive result come back. If the client has no physician, the insurer should urge the client to consult a physician or government health agency - Informed consent also includes supplying the client with information concerning AIDS/HIV counseling from third-party sources - The information that is gathered must be handled correctly and in compliance with confidentially requirements by authorized personnel - If an insured correctly obtains coverage, but later dies due to AIDS or AIDS-related conditions, coverage cannot be limited or denied

Answer 124

- may result in a civil fine of up to $1,000 plus court costs - the fine may go up to $5,000 plus costs for willful violations - if the violation causes economic, bodily, or psychological harm to the other party, the penalty may included a misdemeanor charge, one year in jail, and/or fa fine of up to $10,000

Answer 125

any scientifically or medically identifiable gene or chromosome that is known to be a cause of a disease or disorder, and that is determined to be associated with a statistically increased risk of development of a disease or disorder. This test cannot be used to determine insurability (except in policies that are contingent on testing for diseases or medical conditions). Must have written consent from the applicant and must notify him/her of the test result directly or through a designated physician

Answer 126

the health insurance portability and accountability act is a federal law that protect health information

Answer 127

patients have the right to view their own medical records, as well as the right to know who has accessed those records over the previous 6 years.

Answer 128

must be provided from the insurer to the applicant/insured when the insurer plans to seek and use information from investigators. It will state the insurer's practice regarding collection and use of personal information. Must be written in plain english and mus be approved by the head of the department of insurance

Answer 129

In classifying a risk, the home office underwriting department will look the applicant's medical history, present physical condition, occupation, habits and morals. If the applicant is acceptable, the underwriter must then determine the risk or rating classification to be used in deciding whether or not the applicant should pay a higher or lower premium. (standard, substandard, preferred)

Answer 130

persons who, according to a company's underwriting standards, are entitled to insurance protection without extra rating or special restrictions. Standard risks are representative of the majority of people at their age and with similar lifestyles. They are the average risk.

Answer 131

are those individuals who meet certain requirements and qualify for lower premiums than the standard risk. These applicants havea superior physical condition, lifestyle, and habits

Answer 132

applicants that are not acceptable at the standard rates because of physical condition, personal or family history of disease, occupation, or dangerous habits. These policies are also referred to as "rated" because they could be issued with the premium rated-up, resulting in a higher premium

Answer 133

applicants who are rejected. Risks that the underwriters assess as not insurable are declined. Examples are: - there is no insurable interest - the applicant is medically unacceptable - the potential for loss is so great it does not meet the definition of insurance - insurance is prohibited by public policy or is illegal

Answer 134

to cover the costs and expenses to keep the policy in force

Answer 135

risk, interest and expense

Answer 136

the ratio of the number of deaths in a specific population over a certain amount of time versus the number of living people in that population.

Answer 137

used by insurers to indicate the number of individuals within a specified group of individuals (e.g. males, females, smokers, nonsmokers) staring at a certain age, who are expected to be alive at a succeeding age. In other words, these table help the insurers predict the expectation of life and the probability of death for a given group

Answer 138

Since premiums are paid before claims are incurred, insurance companies invest the premiums in an effort to earn interest on these funds (invested in bonds, stocks, mortgages, etc.). This interest is a primary factor in lowering a premium rate

Answer 139

the expense factor, also known as the loading charge, also affect premium rates. Insurers have various operating expenses, so each premium must carry a proportionate share of these operating costs. The insurer''s largest expense is the commissions paid to its agents. Other ongoing expenses include payroll, rent and taxes

Answer 140

mode refers to the frequency the policyowner pays the premium

Answer 141

administrative charges and loss of interest premiums by the insurance company

Answer 142

the policyowner makes one lump-sum paymnent to the insurance company to create a policy. A single premium whole life policy will generate immediate cash value due to the size of the lump sum payment that is made to the insurance company. Most companies require a minimum premium of $5,000 or more for a single premium policy

Answer 143

A level annual premium. The policy is designed so premiums for the coverage will be completely paid up before age 100.

Answer 144

A lower premium is charged in the first few policy years, usually the first three to five years, and then a higher premium is paid for the remainder of the insured's life. These policies were developed to make the purchase of whole life insurance more attractive for individuals who, for example, are just starting out and have limited financial resources

Answer 145

Most life insurance policies have a level premium, which means that the premium remains the same throughout the duration of the contract

Answer 146

With a fixed premium, the same amount is paid periodically; with a flexible premium, the policyowner is allowed to pay more or less than the planned premium

Answer 147

Level premium. The premium remains the same throughout the duration of the contract. The insurer "overcharges" the insured in the policy's early years, and applies that excess in the later years to fund the increased mortality costs

Answer 148

used to determine the cost of insurance based on the insured's age and other underwriting factors.

Answer 149

- personal delivery with a signed and dated written receipt of delivery - Registered or Certified mail (requires a signature) - First class mail with a signed and dated written receipt of delivery - any other reasonable means (as determined by the commissioner)

Answer 150

- its another opportunity to explain to the policyowner (insured) what he or she has purchased and why - it reinforces the personal relationship with the agent and the company that the agent represents - it gives the agent the opportunity to assess future needs of additional insurance or provide other needed products - If the paperwork or information gathered in underwriting was incomplete or contradictory, the insurer may require the agent to revisit the client when delivering the policy to also get a signed confirmation that a condition does or does not exist in order to properly cover the client

Answer 151

when the contract is modified or amended

Answer 152

the first page of a life insurance policy. Contains a summary of the benefits and coverages the policy will provide

Answer 153

- the type of policy purchased, the amount of coverage it provides, and the premium amount and modal to be paid by the insured - The name of the insured, his/her age and gender, and the name of the policyowner - the date the policy will be effective and the date of termination - the premium payment period - if the policy is a term policy, the "renewability" of the policy - any option provisions or riders attached to the policy and the amount of premium to be paid for each

Answer 154

the agent will be required to collect the premium at the time of policy delivery. In this case, the policy does not go into effect until the premium has been collected. The agent may also be required to get a statement of good health from the insured. This statement must be signed by the insured, and verifies that the insured ha snot suffered injury or illness since the application date

Answer 155

verifies that the insured has not suffered injury or illness since the application date, which must be signed by the insured

Answer 156

the policy coverage would generally coincide with the date of application if no medical exam is required. If a medical exam is required, the date of the coverage will coincide with the date of the exam

Answer 157

refers to any financial transaction in which the owner of a life insurance policy sells a life insurance policy to a third party for some form of compensation, usually cash. A life settlement would require absolute assignment of all rights to the policy from the original policyowner to the new policy owner

Answer 158

- an explanation of possible alternatives, including accelerated benefits offered by the insurer - that some or all of the proceeds of a life settlement contract may be taxable - the proceeds of a life settlement contact may be subject to the claims of creditors - receipt of the proceeds will be sent to the owner within 3 business days after the life settlement provider has received acknowledgement that ownership of the policy has been transferred and the beneficiary has been designated according to the terms of the life settlement contract - that entering into a life settlement contract may cause other benefits under the policy, such as conversion or waiver of premium, to be forfeited by the owner - the total amount paid by the life settlement provider, as well a s the net amount to be paid to the owner - the date by which the funds will be available - that the life settlement provider is required to furnish to the owner a consumer information booklet - that the insured may be contacted by either the provider or the broker to determine the insured's health status or to verify the address (the provider or broker must also disclose that the contract will be limited to once every 3 months if the insured's life expectancy is more that 1 year, and no more than once a month if the insured is expected to live 1 year or less) - the life settlement provider's name, business and email address, and phone number - must also disclose that the owner has the right to rescind a life settlement contract within 30 days after the contract is executed by all parties and the owner has received all the disclosures, or within 15 days the receipt of the life settlement proceeds by the owner, whichever is sooner. Rescission by the policyowner is effective only if both notice of rescission is given and the owner repays all proceeds and any premiums, loans, and loan interest paid on account of the provider within the rescission period. If the owner dies during the rescission period, the contract will be deemed to have been rescinded subject to repayment by the owner or the owner's estate of all proceeds and any premiums, loans, and loan interest to the provider

Answer 159

is a life insurance arrangement in which a person with no relationship to the issured (a "stranger") purchases a life policy on the insured's life with the intent of selling the policy to an investor and profiting financially when the insured dies. In other words, STOLIs are financed and purchased solely with the intent of selling them for life settlements

Answer 160

anybody purchasing life insurance on another individual must have an insurance interest in that person. If there is no insurable interest, the insurer has a basis for declaring the policy and are void. The state law also prohibits issuing insurance policies as wagers on people's lives: STOLI arrangements violate these rules illegal in this state

Answer 161

is temporary protection because it only provides coverage for a specific period of time. It is also known as pure life insurance. Term policies provide for the greatest amount of coverage for the lowest premium as compared to any other from of protection. There is usually a maximum age above which coverage will not be offered or at which coverage cannot be renewed

Answer 162

- if the insured dies during the term, the policy pays the death benefit to the beneficiary - if the policy is cancelled or expires prior to the insured's death, nothing is payable at the end of the term - there is no cash value or other living benefits

Answer 163

level, increasing and decreasing

Answer 164

the most common type of temporary protection purchased. The word level refers to the death benefit that does not change throughout the life of the policy

Answer 165

provides a level death benefit and a level premium during the policy term. If the policy is renewed at the end of the term, the premium will be based on the insured's attained age at the time of renewal

Answer 166

is the purest form of term insurance. The death benefit remains level (in that sense, it's level term policy), and the policy may be guaranteed to be renewable each year without proof of insurability, but the premium increases annually according the attained age, as the probability of death increases

Answer 167

a policy which contains a provision that provides a current premium scale (nonguaranteed) and a maximum premium scale (guaranteed), beyond which premiums cannot be raised

Answer 168

policies that feature a level premium and death benefit that decreases each year over the duration of the policy term. Is primarily used when the amount of needed protection is time sensitive, or decreases over time. Commonly purchased to insure the payment of a mortgage or other debts if the insured dies prematurely.. a decreasing policy is usually convertible; however, it is usually not renewable since the death benefit is $0 at the end of the policy term

Answer 169

features level premiums and a death benefit that increases each year over the duration of the policy term. The amount of the increase in the death benefit is usually expressed as a specific amount or a percentage of the original amount. Increasing term is often used by insurance companies to fund certain riders that provide a refund of premiums or gradual increase in total coverage, such as the cost of living or return of premium riders. Would be ideal to handle inflation and the increasing cost of living. Often added to another policy as a rider, such as with return of premium policies

Answer 170

is a life insurance policy with an increasing term that pays an additional death benefit to the beneficiary equal to the amount of the premiums paid. The return of premiums is paid if the death occurs within a specified period of time or if the insured outlives the policy term

Answer 171

allows the policyowner the right to renew the coverage at the expiration date without evidence of insurability

Answer 172

provides the policyowner with the right to convert the policy to a permanent policy without evidence of insurability. The premium will be based on the insured's attained age at the time of conversion

Answer 173

is the general term used to refer to various forms of life insurance policies that build cash value and remain in effect for the entire life of the insured (or until age 100) as long as the premium paid. The most common type of permanent life insurance is whole life.

Answer 174

provides lifetime protection, and included a savings element (or cash value). Whole life policies endow at the insured's age 100, which means the cash value created by the accumulation of premium is scheduled to equal the face amount of the policy at age 100. The policy premium is calculated assuming that the policyowner will be paying the premium until that age. Premiums for whole life policies usually are higher than for term insurance.

Answer 175

level premium, death benefit, cash value and living benefits

Answer 176

the premium for whole life policies is based on the issue age; therefore, it remains the same throughout the life of the policy

Answer 177

the death benefit is guaranteed and also remains level for life

Answer 178

the cash value, created by the accumulation of premium, is scheduled to equal the face amount of the policy when the insured reaches age 100 (the policy maturity date), and is paid out to the policyowner. Cash values are credited to the policy on a regular basis and have a guaranteed interest rate

Answer 179

the policyowner can borrow against the cash value while the policy is in effect, or can receive the cash value when the policy is surrendered. The cash value, also called nonforfeiture value, does not usually accumulate until the third policy year and it grows tax deferred

Answer 180

straight whole life, limited-pay whole life and single premium whole life

Answer 181

The policyowner pays the premium from the time the policy is issued until the insured's death or age 100 (whichever occurs first). Of the common whole life policies, straight life will have the lowest annual premium

Answer 182

is designed so that premiums for coverage will be completely paid-up well before age 100. Some of the more common versions of limited-pay life are 20-pay life whereby the coverage is completely paid for in 20 years, and life paid-up at 65 (LP-65) whereby the coverage is completely paid up for by the insured's age 65. All other factors equal, this type of policy has a shorter premium-paying period than straight life insurance, so the annual premium will be higher. Cash value builds up faster for the limited-pay policies

Answer 183

is designed to provide a level death benefit to the insured's age 100 for a one-time, lump sum payment. The policy is completely paid-up after one premium and generates immediate cash

Answer 184

a whole life policy that provides a guaranteed death benefit to age 100. The insurer sets the initial premium based on current assumptions about risk, interest and expense. If the actual values change, the company will lower or raise the premium at designated intervals. Interest-sensitive whole life provides the same benefits as other traditional whole life policies with the added benefit of current interest rates, which may allow for either greater cash value accumulation or a shorter premium-paying period

Answer 185

a type of whole life policy that charges a lower premium (similar to term rates) in the first few years, usually the first 3 to 5 years, and then a higher level premium for the remainder of the insured's life. The higher subsequent premium is typically higher than a straight life premium would be for the same age and amount of coverage

Answer 186

somewhat similar to modified life in that premiums start out relatively low and then level off at a point in the future. A graded premium whole life policy typically starts with a premium that is approximately 50% or lower than the premium of a straight life policy. The premium then gradually increases each year for a period of usually 5 or 10 years, and then remains level therafter

Answer 187

a whole life policy that has the premium rate that may vary from year to year. These policies specify two premium rates: a guaranteed level premium stated in the contract (maximum premium),and a non guaranteed lower premium rate that the policyowner actually pays for a set period of time. After the initial period (usually 2-3 years), the insurer establishes a new rate which could be raised, kept the same or lowered, based on the company's expected mortality, expense and investments. The premium, however, can never be higher than the guaranteed maximum

Answer 188

a provision that insures borrowers for an amount equal to their mortgages. If the borrower/insured dies, the insurer assumes responsibility for paying the outstanding loan balance to the insured's creditor

Answer 189

a life insurance policy based on a family income policy which combines whole life with level term insurance insurance to provide a beneficiary with income over a specific period of time (e.g. 15 years or 20 years) if the insured dies during that time period. If the insured dies within the time period, the level term insurance is sufficient to pay the monthly income portion of the contract. Also, the policy contains permanent life insurance protection to be paid upon the death of the insured. Should the insured survive the specified time period, then the term portion expires without value and contract is left with only the permanent life protection

Answer 190

incorporates the spouse term rider along with the children's term rider in a single rider. When added to a whole life policy, the family term rider provides level term life insurance benefits covering the spouse and all of the children in the family

Answer 191

a single policy that is designed to insure two or more lives. Joint life policies can be in the form of term insurance or permanent insurance. The premium for joint life would be less than for the same type and amount of coverage on the same individuals. It's more commonly found as joint whole life, which functions similarly to an individual whole life policy with two major exceptions: - The premium is based on a joint average age that is between the ages of the insureds - The death benefit is paid upon the first death only

Answer 192

Also referred to as "second to die" or "last survivor" policy) is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age. The major difference is that survivorship life pays on the last death rather than upon the first death. Since the death benefit is not paid until the last death, than that which is t the joint life expectancy in a sense is extended, resulting in a lower premium than that which is typically charged for joint life, which pays upon the first death. This type of policy is often used to offset the liability of the estate tax upon the death of the last insured

Answer 193

any life insurance written on the life of a minor. A common juvenile policy is known as the "jumping juvenile" policy because the face amount increases at a predetermined age, often age 21. The face amount jumps, but the premium remains level

Answer 194

is primarily used with juvenile policies (any life insurance written on the life of a minor): otherwise, it functions like the waiver of premium rider. If the payer (usually a parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21. This rider is also used when the owner and the insured are two different individuals

Answer 195

is implemented by using increasing term insurance. When added to a whole life policy, it provides that the death prior to a given age, not only is the original face amount payable, but an amount equal to all premiums previously paid is also payable to the beneficiary. The return of premium rider usually expires at a specified age such as 60

Answer 196

is insurance that the cash value is dependent upon the performance of the equity index, such as S&P 500 although there is a guaranteed minimum interest rate. The policy's face amount increases annually to keep pace with inflation (as the Consumer Price Index increases) without requiring evidence of insurability. Indexed whole life policies are classified depending on whether the policyowner or the insurer assumes the inflation risk. If the policyowner assumes the risk, the premium remains level

Answer 197

was developed in an effort to provide the policyowner with the best of both worlds (term and permanent coverage). An adjustable life policy can assume the form the form of either term insurance or permanent insurance. The insured typically determines how much coverage is needed and the affordable amount of premium. The insurer will then determine the appropriate type of insurance to meet the insurer's needs. As the insured's needs change, the policyowner can make adjustments in his or her policy. Typically, the policyowner has the following options: - Increase or decrease the premium-paying period - Increase or decrease the face amount - change the period of protection

Answer 198

also known by it's generic name "flexible premium adjustable life", implies that the policyowner has the flexibility to increase the amount of premium paid into the policy and to later decrease it again. In fact, the policy owner may even skip paying a premium and the policy will not lapse as long as there is sufficient cash value at the time to cover the month deductions for cost of insurance. If the cash value is too small, the policy will expire

Answer 199

is the amount needed to keep the policy in force for the current year. Paying the minimum premium will make the policy perform as an annually renewable term product

Answer 200

is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime

Answer 201

as well as being a premium policy, universal life is also an interest-sensitive policy. Although the insurer guarantees a contract interest rate (usually 3 to 6%), there is also potential fort the policy owner to get a current interest rate, which is not guaranteed in the contract but may be higher because of current market conditions

Answer 202

insurance component and a cash account. The insurance component of a universal life policy is always annually renewable term insurance

Answer 203

universal life policies allow the partial withdrawal of the policy cash value. However, there may be a charge for each individual withdrawal and there are usually limits as to how much and how often a withdrawal may be made. During the withdrawal, the interest earned on the withdrawn cash value may be subject to taxation, depending upon the plan. The death benefit will be reduced by the amount of any partial surrender. Note, however, that a partial surrender from a universal life policy is not the same as a policy term

Answer 204

The death benefit remains level while the cash value gradually increases, thereby lowering the pure insurance with the insurer in the later years

Answer 205

also known as increasing death benefit option, the death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases. At any point in time, the total death benefit will always be equal to the face amount of the policy plus the current amount of cash value. Since the pure insurance with the insurer remains level for life, the expenses of this option are much greater than those for option A, thereby causing the cash value to be lower in the older years (all else being equal)

Answer 206

a universal life policy with an equity index as its investment feature. It has many of the same characteristics as the variable universal life (flexible premiums, an adjustable death benefit, the policyowner needs decides where the cash value will be invested) with the primary difference being the investment feature. Under a variable universal life policy, the policy's cash value is dependent upon the performance of one or more investment funds. Under the equity index universal policy, the policy's cash value is dependent upon the performance of the equity index. Cash values and death benefit are not guaranteed. Sale of the equity indexed universal life product does not require a securities license (whereas the sale of variable universal life does require a securities and life license

Answer 207

sometimes referred to as variable whole life insurance, is a level, fixed premium, investment-based product. Like traditional forms of life insurance, these policies have fixed premiums and guaranteed minimum death benefit. The cash value of the policy, however, is not guaranteed and fluctuates with the performance of the portfolio in which the premiums have been invested by the insurer. The policyowner bears the investment risk in variable contracts

Answer 208

is a type of insurance that combines many features of the whole life with the flexible premium of universal life and the investment component of variable life, making it a securities version of the universal life insurance

Answer 209

- a flexible premium that can be increased, decreased or skipped as long as there is enough value in the policy to fund the death benefit - Increasing and decreasing the amount of insurance - cash withdrawals or policy loans

Answer 210

Variable life insurance products are dually regulated by the state and federal government. Due to the element of investment risk, the federal government has declared that variable contract are securities, and are thus regulated by the Securities and Exchange Commision (SEC), and the Financial Industry Regulatory Authority (FINRA), formerly known as the National Association of Securities Dealers (NASD). Variable life insurance is also regulated by the Insurance Department as an insurance product

Answer 211

is written as a master policy, issued to the sponsoring organization, covering the lives of more than one individual member of that group. Individuals covered by group life insurance do no receive a policy, but receive a certificate of insurance from the master policy. The amount of coverage on certificate holders mus be determined according to nondiscriminatory rules. The rate and coverage are based upon group underwriting with all individuals covered for the same amount and rate. The cost of coverage paid by the employer in excess of $50,000 is taxed to the employee

Answer 212

- the group must exist for a reason other than purchasing group insurance - Individual members covered under the group master policy must have the right to convert their coverage to an individual policy without evidence of the insurability should they leave the group

Answer 213

is a special type of coverage written to insure the life of the debtor and pay of the balance of a loan in the event of the death of the debtor. Credit life is usually written as decreasing term insurance, and it may be written as an individual policy or as a group plan. When written group as group policy, the creditor is the owner of the master policy, and each debtor receives a certificate of insurance. The creditor is the owner and beneficiary of the policy although the premiums are generally paid by the borrower (or the debtor). Credit life insurance cannot pay out more than the balance of the debt, so that there is no financial incentive for the death of the insured. The creditors may require the debtor to have life insurance; they cannot, however, require that the debtor buys insurance from a specific insurer

Answer 214

stipulate (specify requirement) the rights and obligations of an insurance contract and are fairly universal form one policy to the next

Answer 215

stipulates that the policy and a copy of the application, along with any riders or amendments, constitute the entire contract. No statements made before the contract was written can be used to alter the contract. Neither the insurer nor the insured may change policy provisions once the policy is in effect without both parties agreeing to it and the change being affixed to the contract

Answer 216

the insuring clause (or insuring agreement) sets forth the basic agreement between the insurer and the insured. It states the insurer's promise to pay the benefit upon the insured's death. The insuring clause is located on the policy face page, and also defines who the parties to the contract are, the premium to be paid, how long coverage is in force, and the amount of the death benefit

Answer 217

states that the consideration (value) offered by the insured is the premium and statements made in the application. The consideration given by the insurer is the promise to pay in accordance with the terms of the contract. The consideration clause is not always a separate provision, but is often included in the entire contract provision. A separate provision concerning the payment of policy premiums is usually found in the policy

Answer 218

the parties to the insurance contract are the insurer, the policyowner, the insured, and the beneficiary. The policyowner and the insured may be the same person or different persons. Regardless, only the policyowner has the ownership rights under the policy, and not the insured or the beneficiary. Among the ownership rights are naming and changing the beneficiary, receiving the policy's living benefits, selecting a benefit payment options, and assigning the policy

Answer 219

the policyowner of a life insurance policy has the right to transfer partial or complete ownership of the policy to another person without the consent of the insurer. However, the owner must advise the insurer in writing of the assignment. Transfer of the life insurance policy does not change the insured or amount of coverage; it only changes who has the policy ownership rights.

Answer 220

involves transferring all rights of ownership to another person or entity. This is a permanent and total transfer of all the policy rights. The new policyowner does not need to have an insurable interest in the insured

Answer 221

involves a transfer of partial rights to another person. It is usually done in order to secure a loan or some other transaction. A collateral assignment is a partial and temporary assignment of some of the policy rights. Once the debt or loan is repaid, the assignment rights are returned to the policyowner

Answer 222

Insureds and beneficiaries have choices as to how they may receive proceeds from life insurance policies. (single, lump sum or payments over a period of time.

Answer 223

Conversion privilege in individual life insurance policies allows the policyowner to elect to have a new policy issues prior to the expiration of an existing policy. Most commonly, a conversion right is exercised when the policyowner converts the term policy to a cash-value permanent policy Conversion privilege may be exercised for dependents' coverage. When a dependent covered under an individual life insurance policy reaches the age for coverage, the insurer must provided the dependent the privilege to convert coverage to an individual policy of their own without evidence of insurability. Most states require that the insurer give a written explanation of the rights of the dependent prior to reaching such age.

Answer 224

An insurance company's surplus is called dividends. Most participating policies are issued by mutual companies. The owners of mutual companies are the insureds. As owners, the insureds have the right to share in any surplus the company earns each year

Answer 225

is a fee charged to the insured when a policy or annuity is surrendered for its cash value

Answer 226

This provision allows the policyowner 10 days from receipt to look over the policy and if dissatisfied for any reason, return it for a full refund of premium. The free-look period starts when the policyowner receives the policy (policy delivery), not when the insurer issues the policy. Certain life insurance transactions, such as replacement, may require a longer free-look period

Answer 227

is the period of time after the premium due date that the policyowner has to pay the premium before the policy lapses. The purpose of the grace period is to protect the policyowner against an unintentional lapse of the policy. If the insured dies during this period, the death benefit is payable; however, any unpaid premium will be deducted from the death benefit. In California, each individual life insurance policy must contain a provision for a grace period of at least 60 days from the premium due date. The 60-day grace period may not run concurrently with the period of paid coverage

Answer 228

the reinstatement provision allows a lapsed policy to be put back in force. The maximum time limit for reinstatement is usually 3 years after the policy is lapsed. If the policy owner elects to reinstate the policy, he/she will have to provide evidence of insurability. The policyowner is required to pay all back premiums plus interest, and my be required to repay any outstanding loans and interest. The advantage of reinstating a lapsed policy as opposed to purchasing a new one is that the policy will be restored to its original status, and retain all the values that were established at the insured's issue age *A policy that has been surrendered cannot be reinstated

Answer 229

The incontestability clause prevents an insurer from denying a claim due to statements in the application after the policy has been in force for 2 years, even if there has been a material misstatement of facts or concealment of a material fact. The incontestability period does not apply in the event of nonpayment of premiums; it also does not apply to statements relating to age, sex or identity

Answer 230

a provision which allows the insurer to adjust the policy at any time due to a misstatement of age or gender is included in the policy. If the applicant has misstated his or her age or gender on the applications, in the event of a claim, the insurer is allowed to adjust the benefits to an amount that the premium at the correct age or gender would have purchased. The calculations should be based on the insurer's rate ath the date of policy issue

Answer 231

are types of risks the policy will not cover. Certain exclusions are standard for all policies, while others are attached to the policy as an exclusion rider. The most common exclusions found in life insurance policies are aviation, hazardous occupation, and war and military service

Answer 232

most life insurance will cover an insured as a fare-paying passenger or a pilot on a regularly schedule airline, but will exclude coverage for noncommercial pilots, or require an additional premium for the coverage

Answer 233

if the insured is engaged in a hazardous occupation or participates in hazardous hobbies (such as skydiving or auto racing), death that results form the hazardous occupation or hobby may be excluded from coverage. The underwriter also has the option of charging a higher premium for insuring these risks

Answer 234

Most life insurance policies issued today do not exclude military service. However, there are actually two different types of exclusions that may be used to limit the death benefit if the insured dies as a result of war, or while serving in the military. The status clause excludes all causes of death while the insured is on active duty in the military. The results clause only excludes the death benefit if the insured is killed as a result of an act on war (declared or undeclared)

Answer 235

the suicide provision in life insurance policies protects the insurers from individuals who purchase life insurance with the intention of committing suicide. Insurance policies usually stipulate a period of time during which the death benefit will not be paid if the insured commits suicide. If the insured commits suicide within 2 years following the policy effective date (issue date), the insurer's liability is limited to a refund of premium. If the insured commits suicide after the 2-year period, the policy will pay the death proceeds to the designated beneficiary the same as if the insured had died of natural causes

Answer 236

meaning by the head,evenly distributes benefits among the living named beneficiaries.

Answer 237

meaning by the bloodline, distributes the benefits of a beneficiary who died before the insured to that beneficiary's heirs

Answer 238

If none of the beneficiaries is alive at the time of the insured's death, or if no beneficiary is named, the insured's estate will automatically receive the proceeds of the life insurance policy. The death benefit of the policy may be included in the insured's taxable estate if this occurs

Answer 239

trusts are commonly established for minors, or to create a scholarship fund. Trusts can be used for estate purposes, and when used properly, can keep life insurance death proceeds out of the insured's taxable estate if this occurs

Answer 240

the beneficiary designation provides for levels of priority or choice. In the event that the primary beneficiary predeceases the insured, the contingent (secondary or tertiary) level in the succession of beneficiaries will be entitled to the death proceeds. Each level in the succession of beneficiaries is only eligible for the death benefit if the beneficiary(s) in the level(s) above them has died before the insured

Answer 241

has first claim to the policy proceeds following the death of the insured. The policyowner may name more than one primary beneficiary, as well as how the proceeds are to be divided

Answer 242

also referred to as secondary or tertiary beneficiary, the contingent beneficiary has second claim in the event that the primary beneficiary dies before the insured. Contingent beneficiaries do not receive anything if the primary beneficiary is still living at the time of the insured's death

Answer 243

beneficiary designations may be either revocable or irrevocable. The policyowner, without the consent or knowledge of the beneficiary, may change a revocable designation at any time. An irrevocable designation may not be changed without the written consent of the beneficiary. In addition to being unable to change the beneficiary designation, the policyowner cannot borrow against the policy's cash value (as this would decrease the policy value until repaid) or assigning the policy to another person without the beneficiary's agreement.

Answer 244

when added to a policy, provides that if the insured and the primary beneficiary died in a common disaster (even if the beneficiary outlived the insured by a specified number of days), it is presumed that the primary beneficiary died first, so the proceeds will be paid to either the contingent beneficiary or to the insured's estate, if no contingent beneficiary is designated. Most insurers specify a certain period of time, usually 14 to 30 days, in which the primary beneficiary's death must occur in order for the common disaster clause to apply. As long as the beneficiary dies within this specific period of time following the death of the insured, it will still be interpreted that the beneficiary died first. The intent is to fulfill the wishes of the policyowner in regard to payment of the proceeds to beneficiaries

Answer 245

when included in a life insurance policy, protects beneficiaries from the claims of their creditors. This clause applies to the benefits that are paid in fixed-period or fixed-amount installments. The beneficiary does not have the right to select a different settlement option and is not allowed to assign or borrow any of the proceeds.The spendthrift clause is designed to protect life insurance policy proceeds that have not yet been paid to a named beneficiary from the claims of the creditors of the beneficiary or policyowner

Answer 246

an option that is only found in policies that contain cash value. The policyowner is entitled to borrow an amount equal to the available cash value. Any outstanding loans, and accrued interest, will be deducted from the policy proceeds upon the insured's death. The policy will not lapse with an outstanding policy loan unless the amount of the loan and accrued interest exceeds the available cash value. However, the insurer must provide 30 days' written notice to the policyowner that the policy is going to lapse. Insurance companies may defer a policy loan request for up to 6 months, unless the reason for the loan is to pay the policy premium. Policy loans are not subject to income taxation

Answer 247

Whenever a policy has cash value, it has loan value. The amount available to the policyowner for a loan equals the cash value minus any outstanding and unpaid policy loans included interest. If there are outstanding loans at the time of the insured's death, the loan amount will be considered a debt to the policy and the death benefit will be reduced by the amount of indebtedness

Answer 248

is not required, but is commonly added to contracts with a cash value at no additional charge. This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium.. For example, a loan against the policy cash value for the amount of premium due is automatically generated by the insurer when the policyowner has not paid the premium by the end of the premium-paying grace period. It is a loan for which the insurer will charge interest. If the loan and interest are not repaid and the insured dies, then it will be subtracted from the death benefit. While the insurer may defer requests for other loans for a period of up to 6 months, loan requests for payment of due premiums must be honord immediately

Answer 249

The policy cash value is used be the insurer as a single premium to purchase a completely paid-up permanent policy that has a reduced face amount from that of the former policy. The new reduced policy builds its own cash value and will remain in force until death or maturity

Answer 250

The insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy. The duration of the new term coverage lasts for as long a period as the amount of cash value will purchase. If the policyowner has neglected to select one of these nonforfeiture options, the insurer will automatically implement the extended-term option in the event of termination of the original policy

Answer 251

The policyowner simply surrenders the policy for the current cash value at a time when coverage is no longer needed or affordable. Upon receipt of the cash surrender value, if the cash value exceeds the premiums paid, the excess is taxable as ordinary income. A surrender charge is a fee charged to the insured when a life policy or annuity is surrendered for its cash value

Answer 252

are a return of excess premiums, and for that reason they are not taxable to the policyowner. Insurance companies cannot guarantee dividends. The first dividend could be paid as early as the 1st policy anniversary, but must occur no later than the 3rd policy year. From then on dividends are usually paid on an annual basis.

Answer 253

cash payments - the insurer simply sends the policyowner a check for the amount of the dividend as it is declared, usually annually Reduced Premium Payment - The insurer uses the dividend to reduce the next year's premium. For example, if the policyowner usually pays an annual premium of $1,000 and the insurer declares a $100 dividend, the policyowner would only pay a $900 premium that year Accumulation at Interest - The insurance company keeps the dividend in an account where it accumulates interest. The policyowner is allowed to withdraw the dividends at anytime. The amount of interest is specified in the policy and compounds annually. Although the dividends themselves are not taxable, the interest on the dividends is taxable to the policyowner when credited to the policy, whether or not the policyowner receives the interest Paid-Up Additions - The dividends are used to purchase a single premium policy in addition to the face amount of the permanent policy. No new separate policies are issued; however, each of these small single premium payments will increase the death benefit of the original policy by whatever amount the dividend will buy. In addition, each of these paid-up policies will accumulate cash value and pay dividends. The amount of additional coverage that can be purchased with the dividend is based on the insured's attained age at the time the dividend is delcared

Answer 254

The insurance company uses the dividend to purchase additional insurance in the form of one-year term insurance that increases the overall death benefit. The policyowner's choice is to either use the dividend as a single premium on as much one-year term insurance as it will buy, or to purchase term insurance equal to the policy's cash value for as long as it will last. If the insured dies during the one-year term, the beneficiary receives both the death benefit of the original policy and the death benefit of the one-year term insurance

Answer 255

Cash payment - Upon the death of the insured, or at the point of endowment, the contract is designed to pay the proceeds in cash, called a lump sum, unless the recipient chooses a different mode of settlement. As a rule, payments of the principal face amount after the inured's death are not taxable as income Life income - The life-income option, also known as straight life, provides the recipient with an income that he or she cannot outlive. Installment payments are guaranteed for as long as the recipient lives, irrespective of the date of death. The amount of each installment paid is based on the recipient's life expectancy and the amount of principal.. If the beneficiary lives for a very long time, payments may exceed the total principal. However, if the beneficiary dies shortly after he or she begins receiving installments, the balance of the principal is forfeited to the insurer. Because there is a chance that the beneficiary may not live long enough to receive all the life insurance proceeds, insurers make options available which provide at least a partial guarantee that some or all of the proceeds will be paid out

Answer 256

can provide a single beneficiary income for the rest of his/her life. Upon the death of the beneficiary, the payments stop

Answer 257

guarantees an income for two or more recipients for as long as they live. Most contracts provided that the surviving recipients will receive a reduced payment after the first recipient dies

Answer 258

comes in either a cash refund form or installment refund form. Both options guarantee that the total annuity fund will be paid out to the annuitant or to the beneficiary. The difference between the two options is that under the cash refund option, if the annuitant dies before the annuity fund is depleted, a lump-sum settlement of the remainder would be made to the beneficiary, while under the installment refund option, the beneficiary would receive the remaining funds in the form of continued annuity payments

Answer 259

under this option, the recipient is provided with the "best of both worlds" in terms of a lifetime income and a guaranteed installment period. Not only are the payments guaranteed for the lifetime of the recipient, but there is also a specified period that is guaranteed.

Answer 260

the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals (monthly, quarterly, semiannually, or annually). The insurer usually guarantees a certain rate of interest and will often pay interest in excess of the guaranteed rate. The interest option is considered to be a temporary option since the proceeds are retained by the insurer until some later point when the proceeds are paid out in a lump sum or paid under one of the other settlement option.

Answer 261

a specified period of years is selected, and equal installments are paid to the recipient. The payments will continue for the specified period even if the recipient dies before the end of that period. In the event of the recipient's death, the payments would continue to the beneficiary. The size o each installment is determined by the amount of the principal, guaranteed interest, and the length of period selected. This option does not guarantee income for the life of the beneficiary' however, it does guarantee that the entire principle will be distributed

Answer 262

pays a fixed, specified amount in installments until the proceeds (principle and interest) are exhausted. The recipient selects a specified fixed dollar amount to be paid until the proceeds are all gone. If the beneficiary dies before the proceeds are exhausted, installments will continue to be paid to a contingent beneficiary until all the proceeds are paid out. With this option, the size of each installment will determine how ling benefits will be received. The larger the installment, the shorter the income period will be. This option does not guarantee payments for the life of the beneficiary, but does guarantee that all proceeds will be paid out

Answer 263

waives the premium for the policy if the insured becomes totally disabled. Coverage remains in force until the insured is able to return to work. If the insured is never able to return to work, the premiums will continue to be waived by the insurance company. Most insurers impose a 6-month waiting period from the time of disability until the first premium is waived. If the insured is still disabled after this waiting period, the insurer will refund the premium paid by the insured for the start of the disability. This rider usually expires when the insured reaches age 65

Answer 264

Or waiver of monthly deductions rider is found in Universal Life Insurance. In the event of disability of the insured, this rider waives the cost of the insurance and other expenses, but does not waive the cost of premiums necessary to accumulate cash values

Answer 265

In the event of disability, the insurer will waive the policy premiums and pay a monthly income to the insured. The amount paid is normally based on a percentage of the face amount of the policy to which it is attached

Answer 266

Pays some multiple of the face amount if death is the result of an accident as defined in the policy. Death must usually occur within 90 days of such an accident. The benefit is normally two times (double indemnity) the face amount. Some policies pay triple the face amount (triple indemnity) for accidental death. Usually expires at the insured's age 65

Answer 267

pays the principle (face amount) for accidental death, and pays a percentage of that amount, or a capital sum, for accidental dismemberment. The accidental death portion is the same as that already discussed with the accidental death rider. The dismemberment portion of the rider will usually determine the amount of the benefit according to the severity of the injury. The full principal amount will usually determine the amount of the benefit according to the severity of the injury. The full principal amount will usually be paid for loss of two hands, two arms, two legs or the loss of vision in both eyes. A capital amount is usually limited to half the face value and is payable in the event of the loss of one hand, arm, leg, or eye.

Answer 268

Addresses the inflation factor by automatically increasing the amount of insurance without evidence of insurability from the insured. The face value of the policy may be increased by a cost of living factor tied to an inflation index such as the Consumer Price Index (CPI)

Answer 269

The accelerated Benefit or Living Needs Rider provided for an early payment of part of the policy death benefit if the insured is diagnosed with a terminal illness that will result in death within 2 years, or has other qualifying conditions. It does not cover disability. The purpose of this rider is to provide the insured with the necessary funds to take care of necessary medical and nursing home expenses that incur as a result of the terminal illness. Many insurance companies do not charge for this rider since it is simply an advance payment of the death benefit. The remainder of the policy proceeds are payable to the beneficiary at the time of the insured's death

Answer 270

allows the insured to purchase additional coverage at specified future dates (usually every 3 years) or events (such as marriage or birth of a child), without evidence of insurability, for an additional premium. When this option is exercised, the insured purchases the additional coverage at his or her attained age. This rider usually expires at the insured's age 40. The guaranteed insurability rider is not modified or defeated by the existence of other riders.

Answer 271

is often purchasdd as a separate policy and can also be marketed as a rider to a life insurance policy. These riders provide for the payment of part of the death benefit (called accelerated benefits) in order to take care of the insured's health care expenses, which are incurred in a nursing or convalescent home. As with the living needs rider, payment of LTC benefits will reduce the amount payable to the beneficiary upon the insured's death. Benefits from an LTC policy or rider are often triggered by an impairment of activities of daily living (ADLs) regardless of the cause. ADLs include bathing, dressing, toileting, transferring positions (also called mobility), continencer, and eating. Once the insured has passed the elimination period, benefits are then paid from the policy

Answer 272

a contract that provides income for specified period of years, or for life. An annuity protects the person against outliving his or her money. Annuities are not life insurance, but rather a vehicle for the accumulation of money and the liquidation of an estate. Annuities are marketed by life insurance companies and licensed insurance agents are authorized to sell some types of annuities. Annuities use mortality tables, but these table reflect a longer life expectancy than the mortality tables used for life insurance.

Answer 273

the purchaser of the annuity contract, but no necessarily the one who receives the benefits. The owner of the annuity has all of the rights, such as naming the beneficiary and surrendering the annuity. The owner of the annuity may be a corporation, trust, or other legal entity

Answer 274

The person who receives the benefits or payments from the annuity, whose life expectancy is taken into consideration, and for whom the annuity is written. The annuitant and the contract owner do not need to be the same person, but most often are. A corporation, trust or legal entity may own an annuity, but the annuitant mus be a natural person

Answer 275

the period of time over which the owner makes payments (premiums) into an annuity. Furthermore, it is the period of time during which the payments earn interest on a tax-deferred basis

Answer 276

the time during which the sum that has been accumulated during the accumulation period is converted into a stream of income payments to the annuitant. The annuity period may last for the lifetime of the annuitant or for a specific period, which could be longer or shorter. The annuitization date is the time when the annuity benefit payouts begin (trigger for benefits)

Answer 277

- The amount of the premium paid or cash value accumulated - the frequency of the payment - the interest rate - the annuitant's age and gender

Answer 278

the insurer is obligated to return to the beneficiary either the cash value or the total premiums paid, whichever is greater. If a beneficiary is not names, the benefit will be paid to the annuitant's estate

Answer 279

one-time lump-sum payment

Answer 280

premiums are paid in installments over a period of time. Periodic payment annuities can be either level premium, in which the annuitant/owner pays a fixed installment, or flexible premium, in which the amount and frequency of each installment varies

Answer 281

one that is purchased with a single, lump-sum payment and provides income payments that start within on year form the date of purchase. Typically, an immediate annuity will make the first payment as early as 1 month from the purchase date. Most commonly, this type of annuity is known as a Single Premium Immediate Annuity (SPIA)

Answer 282

an annuity in which the income payments begin sometime after one year from the date of purchase. Deferred annuities can be funded with either a single limp sum (Single Premium Deferred Annuities -- SPDAs) or through periodic payments (Flexible Premium Deferred Annuities -- FDPAs). Periodic payments can vary from year to year. The longer the annuity is deferred, the more flexibility for payments of premiums it allows

Answer 283

The nonforfeiture law stipulates that a deferred annuity must have a guaranteed surrender value that is available if the owner decides to surrender the annuity prior to annuitization (e.g. 100% of the premium paid, less an prior withdrawals and related surcharges). However, a 10% penalty will be applied for early withdrawals (prior to age 59 1/2)

Answer 284

The purpose of the surrender charge is to help compensate the company for loss of the investment value due to an ear surrender of a deferred annuity. A surrender charge is levied against the cash value, and is generally a percentage that reduces over time. At surrender, the owner gets the premium, plus interest (the value of the annuity), minus the surrender charge

Answer 285

- guaranteed minimum rate of interest to be credited to the purchase payment(s) - Income (annuity) payments that do not vary from one payment to the next - the insurance company guarantees the specified dollar amount for each payment and the length of the period of payments as determined by the settlement option chosen by the annuitant With fixed annuities, the annuitant knows the exact amount of each payment received from the annuity during the annuity period. This is called level benefit payment amount. A disadvantage to fixed annuities is that the purchasing power that they afford may be eroded over time due to inflation

Answer 286

Fixed annuity premiums are deposited into the life insurance company's general account. The general account is comprised mostly of conservative investments like bonds. These investments are secure enough to allow the insurance company to guarantee a specified rate of interest, as well as assure the future income payments that the annuity will provide

Answer 287

in fixed annuities, the insurer bears the investment risk. Future interest rates actually paid by an insurer are based upon the performance of the insurance company's general account. However, the rate may not drop below a policies guaranteed minimum (typically 3%). Should interest rates drop below the guaranteed rate, the insurer is obligated to pay the guaranteed amount. During the accumulation phase, the insurer will invest the principal, or accumulation, and give the annuitant a guaranteed interest rate based on a minimum rate as specified in the annuity, or the current interest rate, whichever is higher. The minimum rate is the lowest rate that the principle can contractually earn

Answer 288

are fixed annuities that invest on a relatively aggressive basis to aim for higher returns. Like a fixed annuity, the indexed annuity has a guaranteed minimum interest rate. The current interest rate that is actually credited is often tied to a familiar index like the standard and poor's 500. Generally, the insurance companies reserve the initial returns for themselves but pay the excess to the annuitant. For example, the company may keep the first 4% earned for itself, but any accumulation in excess of 4% is credited to the annuitant's account. So if the interest earned is 12%, the company keeps 4% and credits the client's account with 8% Equity indexed annuities are less risky than a variable annuity or mutual fund but are expected to earn a higher interest rate than a fixed annuity

Answer 289

serves as a hedge against inflation, and is variable for the standpoint that the annuitant may receive different rates of return on the funds that are paid into the annuity.

Answer 290

underlying investment - the payments that the annuitant makes into the variable annuity are invested in the insurer's separate account, not their general account. The separate account is not part of the insurance company's own investment portfolio, and is not subject to the restrictions that are applicable to the insurer's own general account Interest Rate - issuing insurance company does not guarantee a minimum interest rate License Requirements - a variable annuity is considered a security and is regulated by the Securities Exchange Commission (SEC) in addition to state insurance regulations. An agent selling variable annuites must hold a securities license in addition to a life insurance license. Agents or companies that sell variable annuities must also be properly registered with FINRA

Answer 291

Variable premiums purchase accumulation units in the fund, which is similar to buying shares in a Mutual Fund. Accumulation units represent ownership interest in the separate account. Upon annuitization, the accumulation units are converted into annuity units. The income is then paid to the annuitant based on the value of the annuity units. The number of annuity units received remains level, but the unit values will fluctuate until actually paid out to the annuitant

Answer 292

A market value or market value adjusted annuity (MVA), also know as a modified guaranteed annuity (MGA), is a single-premium deferred annuity that allows the owner to lock in a guaranteed interest rate over a specified maturity period, anywhere between 3 to 10 years. In MVA, penalties for a premature surrender depend upon current interest rates at the time of surrender

Answer 293

also known as life-only or straight life, this payment ceases at the annuitant's death (no matter how soon in the in the annuitization period that occurs). This option provides the highest monthly benefits for an individual annuitant, there is no guarantee that all the proceeds will be fully paid out

Answer 294

if the annuitant dies before the principle amount has been paid out, the remainder of the principal amount will be refunded to the beneficiary. This option is also called refund life. It guarantees that the entire principle amount will be paid out. For cash refund, the beneficiary receives a lump-sum refund of the principal minus benefit payments already made to the annuitant. This option does not guarantee to pay any interest. For Installment refund, the beneficiary will continue to receive guaranteed installments until the entire principle amount has been paid

Answer 295

is another life contingency payout option. Under this option, the annuity payments are guaranteed for the lifetime of the annuitant, and for a specified period of time for the beneficiary.

Answer 296

covers one life, and annuity payments are made with reference to one life only. Contributions can be made with single premium or on a periodic premium basis with subsequent values accumulating until the contract is annuitized

Answer 297

covers 2 or more lives. The most common multiple life annuities are joint life, and joint and survivor

Answer 298

guarantees an income for two recipients that neither can outlive. Although it is possible for the surviving recipient(s) to receive payments in the same amount as the first recipient to die, most contracts provide that the surviving recipients will receive a reduced payment after the first recipient dies. Most commonly, this option is written as "joint and 1/2 survivor" or "joint and 2/3 survivor," in which the surviving beneficiary receives 1/2 or 2/3 of what was received when both beneficiaries were alive. Commonly selected by a couple in retirement. There is no guarantee that all the proceeds will be paid out if both beneficiaries die shortly after the installments begin

Answer 299

In contrast with life contingency benefit payment options, annuities certain are short-term annuities that limit the amounts paid to certain fixed period or until a certain fixed amount is liquidated

Answer 300

With fixed period installments, the annuitant selects the time period for the benefits, and the insurer determines how much each payment will be, based on the value of the account and future earnings projections. This option pays for a specified amount of time only, whether or not the annuitant is living

Answer 301

With fixed-amount installments, the annuitant selects how much each payment will be, and the insurer determines how long the benefits will be paid bay analyzing the value of the account and future earnings. This option pays a specific amount until funds are exhausted, whether or not the annuitant is living

Answer 302

one that conforms to the requirements of federal tax laws and for which the IRS recognizes contributions to the plan as tax-deductible expenses to the employer. When a plan is qualified, it receives favorable tax treatment. Employer contributions are tax-deductible expenses at the time they are made, and the employee is not taxed on the employer's contribution until the benefits are actually received. Another requirement for qualified plans is that they cannot discriminate in coverage, contributions or benefits in favor of highly compensated employees, shareholders, or company officers

Answer 303

one in which the contributions are not exempt from taxation. However, increase of the funds during the accumulation period are not taxed until they are actually received

Answer 304

With this option, the annuitant can withdraw a maximum percentage of his or her investment annually until the initial investment has been recovered. This option protects the annuitant against investment losses

Answer 305

Anyone with earned income who has not attained age 70 1/2 can have an IRA. An individual can contribute 100% of earned income up to a specified amount. A married couple could contribute a specified amount that is double the individual amount, even if only one person had earned income, but each must maintain a separate account not exceeding the individual limit. The excess contribution penalty for traditional IRAs is 6%, until withdrawn. Earned income means salary, wages, and commissions, but would not include income from investments, unemployment benefits, income from trust funds, etc. Regardless of the deductible status of the IRA contribution, IRA assets grow tax deferred

Answer 306

A TSA is a plan available to employees of certain nonprofit organizations under section 501(c)(3) of the Internal Revenue Code, and to employees of public school systems. Contributions can be made by the employer or by the employee through salary reduction and are excluded for the employee's current income. As with any other qualified plan, 403(b) limits employee contributions to a maximum amount that charges annually, adjusted for inflation

Answer 307

Annuities can also be used to accumulate funds for college education. An annuity can provide savings on a tax-deferred basis for the educations expenses of the annuitant

Answer 308

Under the Pension Protection Act of 2006, annuitants are allowed to transfer money form an annuity to pay for long-term care insurance premiums, tax free. In the past, distributions from nonqualified annuities were taxed; however, now,distributions can be used to pay for long-term care premiums and, in many cases, eliminate the taxes on the annuity gains. As a result, many insurers now offer hybrid annuity with a long-term care feature. These policies provide for income, long-term care, or both

Answer 309

Because of the various uses of annuities, agents should always assess how well a recommended product will meet the applicant's needs and resources -- the suitablily of a product. To insure suitability, producers must make a reasonable effort to obtain relevant info from the consumer and evaluate the following factors: - age - marital status - occupation and occupational status - number and types of dependents - annual income and sources of income - insurance needs and objectives - existing assets and insurance products, including investment and life insurance holdings - whether of not the consumer has long-term care (LTC) insurance - Source of funds to pay premiums - Costs to the consumer and the consumer's ability to pay for the proposed transaction - investment savings - liquid net worth - tax status and need for tax advantages - financial and investment experience - need for preservation of principle - intended use of the annuity - product/financial time horizon

Answer 310

As required by the California Insurance Code, all insurers, agents and brokers who solicit insurance to insured age 65 or older, owe those insured a duty of honesty, good faith and fair dealing

Answer 311

if the insured on the individual life policy or the annuitant of an annuity contract is 60 years of age or older, the insured has a right to cancel the policy for a full refund within 30 days. Each individual life policy annuity contract (other than variable contract and modified guaranteed contracts) delivered to a senior consumer must have the following notice either prined on the cover page or policy jacket in 12-point bold print with one inch of space on all sides, or printed on a sticker attached to the cover page or policy jacket: "IMPORTANT - YOU HAVE PURCHASED A LIFE INSURANCE POLICY OR ANNUITY CONTRACT. CAREFULLY REVIEW IT FOR LIMITATIONS. THIS POLICY MY BE RETURNED WITHIN 30 DAYS FROM THE DATE YOU RECEIVED IT FOR A FULL REFUND BY RETURNING IT TO THE INSURANCE COMPANY OR AGENT WHO SOLD YOU THIS POLICY. AFTER 30 DAYS, CANCELLATION MAY RESULT IN A SUBSTANTIAL PENALTY, KNOWN AS A SURRENDER CHARGE." The words "know as a surrender charge" may be deleted if the policy does not contain surrender charges or penalties

Answer 312

The free look or right-to-return period allowed for new individual life policies must last for at least 10 days. By law, insurers may give up to 30 days but not less than 10. This does not apply to term conversions or credit life policies If the policy is a replacement, a minimum 30-day period is required because this required even more time for evaluation

Answer 313

During the 30-day cancellation (free look) period, the premium for a variable annuity may only be invested in fixed-income investments and money-market funds underlying the variable annuity contract

Answer 314

must include a notice stating that the policy may be returned to the owner for cancellation by delivering it or mailing it to the insurer or to the agent through whom it was purchased. The insurer can establish how long the owner will have to return the policy. This amount of time must be between 10 and 30 days

Answer 315

replacement means any transaction i which new lie insurance or a new annuity is purchased and , as a result. the existing life insurance or annuity has been or will be any of the following: - lapsed, forfeited, surrendered, or otherwise terminated - reissued with any reduction in cash value - Converted to reduced paid-up insurance, continued as extended term insurance or otherwise reduced in value by the use of nonforfeiture benefits or other policy values - amended so as to affect either a reduction in benefits or in the term for which coverage would otherwise remain in force or for which benefits would be paid - used in a financed purchase

Answer 316

- present to the applicant a Notice Regarding Replacement that is signed by both the applicant and the producer. A copy must be left with the applicant - obtain a list of all existing life insurance and/or annuity policies to be replaced including policy numbers and the names of all companies being replaced - Leave the applicant with the original or copy of written or printed communications used for presentation to the applicant - submit to the replacing insurance company a copy of the replacement notice with the application

Answer 317

- require from the producer a list of the applicant's life insurance or annuity contracts to be replaced and a copy of the replacement notice provided to the applicant - send each existing insurance company a written communications advising of the proposed replacement within a specified period of time of the date that the application is received in the replacing insurance company's home or regional office. A policy summary or ledger statement containing policy data on the proposed life insurance or annuity mus be included

Answer 318

means any attempt by the existing insurer or its producers, or by a broker to dissuade a current policyowner from the replacement of existing life insurance or annuity. This does not include such routine administrative procedures as late payment reminders, late payment offers or reinstatement offers

Answer 319

- The replacing insurer must provide a notice to the applicant of the right to an unconditional refund of all premiums within 30 days starting from the date of policy delivery (free-look period). - the replacing and existing insurers must retain evidence of all signed applications and disclosures, as well as other materials used in replacement or conservation, for no less than 3 years - to maintain this standard, the insurer should still ask on the application what life insurance the applicant currently has, as well as whether a replacement is involved. Not using agents does not excuse companies of their replacement responsibility

Answer 320

- credit life - group life and group annuities - converting or changing the current policy with the same insurer - new policy transactions where the replacing insurer and the existing insurer are the same

Answer 321

Agents: - a minimum of $1,000 for first violation - no less than $5,000 and no more than $50,000 per violation for a second or subsequent violation Insurer: - $10,000 for the first violation - no less than $30,000 and no more than $300,000 per violation for a second or subsequent violation The commissioner may suspend or revoke the license of any person or entity that violates the articles of the code

Answer 322

is a legal term used to identify an individual or entity that is not an insured under the contract, but that has a legally enforceable right under it. Most policies involving third-party ownership are written in business situations or for minors in which the parent owns the policy

Answer 323

the application process for group insurance means any steps required of a named insured in applying for a certificate under a group life policy, such as completing an enrollment form or submitting to medical examination if required bu the insurer

Answer 324

at least 10 eligible group members

Answer 325

when the employer may pay all of the premiums with the employees. Insurers require 100% of the eligible employees be included in the plan

Answer 326

when the premiums for insurance are shared between the employer and employees. Insurers require 75% of eligible employees be included in the plan

Answer 327

Insurers issuing group life policies in this state are required to keep records of all transactions (original copies) for a minimum period of 5 years following the delivery of the policy or contract. The records must include the following: - the original policy application - Records showing the premiums received by the insurer - any correspondence, written solicitations or proposals sent by the insurer to a prospect, applicant , or insured, or received by the insurer - a copy of outline of coverage or disclosure statement - any other pertinent records

Answer 328

A policy issued to a labor union, or similar organization to insure members of the organization for the benefit of persons other than the union or organization are subject to the following requirements: - The members eligible for insurance under the policy must be all the members of the union or organization, or all of any class or classes thereof - The premiums of the policy must be paid either from funds of the union, or from funds contributed by the insured members specifically for their insurance, or from both. A policy on which no part of the premiums is to be derived from funds contributed by the insured members specifically for their insurance must insure all eligible members, except those who reject such coverage in writing - An insurer may exclude or limit the coverage on any person as to whom evidence of individual insurability is not satisfactory to the insurer

Answer 329

An association group (alumni or professional) can buy group insurance for its members. The group must have been active for at least two years, have a constitution, by-laws, and must hold at least annual meetings. These groups include, but are not limited to, trade associations, professional associations, college alumni associations, veteran associations, customers of large retail chains, and saving account depositors, to name a few. Association group plans may be either contributory or noncontributory

Answer 330

A group life policy may be issued to a credit union or to a trustee, or trustees or agent designated by two or more credit unions to insure members of such credit unions for the benefit of persons other than the policyholder, subject to the following requirements: - The members eligible for insurance will be all of the members of the credit union(s), or all of any class or classes thereof - the premium for the policy will be paid by the policyholder from the credit unions funds and must insure all eligible members - An insurer may exclude or limit coverage on any member as to whom evidence of individual insurability is not satisfactory to the insurer

Answer 331

A policy issued to a creditor or its parent holding company or to a trustee, trustees or agent designated by tow or more creditors, which are deemed to be the policyholder, is subject to the following requirements: - the debtors eligible for insurance under the policy must all be the debtors of the creditor - the premium for the policy must be paid either form the creditors funds, or from charges collected from the insured debtors, or from both - an insurer may exclude any debtors as to whom evidence of individual insurability is not satisfactory to the insurer - the amount of insurance on the life of any debtor may at no time exceed the greater of the scheduled or actual amount of unpaid indebtedness to the creditor

Answer 332

the term dependents includes the insured's spouse and all children from birth until 26 years of age, or children older than 26 years of age who are both incapable of self-sustaining employment by reason of an intellectual disability or physical handicap, and are mainly dependent upon the insured employee for support and maintenance. A disabled child must first be insured within 31 days of having reached the limiting age. Proof of the incapacity and dependency may be required once a year after the first 2 years of the child's attainment of the limiting age. The premiums for the insurance of the dependents may be paid by the employer, the employee, or the employer and the employee jointly

Answer 333

An insurer in California is required to provide the registered domestic partner of an employee, insured or policyholder the same coverage that would be provided to a spouse. The insurer must inform employers and guaranteed associations of this coverage

Answer 334

a blanket life policy would cover a group of people that are exposed to the same hazard. It differs from traditional group insurance in that it doesn't name individual insureds and doesn't issue certificates of insurance. The coverage under a blanket policy is temporary and only for the time the group is exposed to the hazards specified in the policy. The California code permits insurers to offer blanket insurance to the following entities: - Newspapers, magazines, or other similar publications for the purpose of insuring the following persons: 1. those who deliver publications 2. those who supervise the deliveries or collections 3. those who are wholesalers 4. others in the distribution, sales, or marketing process of the publication - religious, charitable, recreational, educational, athletic, or civic organizations - employers who pay the benefits to any group of workers, dependents, or guests, limited to specified hazards incident to activities or operations of the policyholder - an entertainment production company that provides benefits to any group of participants, volunteers, audience members, or contestants Blanket life insurance may be issued for a term not exceeding one year with premium rates less than the usual rates for such insurance. Blanket policies may be renewed When the insured pays the policy premiums, the insured may request from the insurer a copy of the policy in the form of a certificate A person may elect not to be covered by a blanket insurance plan by submitting a written request to the insurer. If more than 10% of the persons eligible for coverage elect not to participate, the insurance contract cannot be put into effect, or if it has been in effect, it cannot be renewed

Answer 335

Another characteristic of group insurance is the conversion privilege. If an employee terminates membership in the insured group, the employee has the right to convert to an individual policy without proving insurability at a standard rate, based on the individual's attained age. The group life policy can convert to any form of insurance issued by the insurer (usually whole life), except for term insurance, The face amount or death benefit will be equal to the group term face amount but the premium will be higher. The employee usually has a period of 31 days after terminating from the group in order to exercise the conversion option. During this time, the employee is still covered under the original group policy. Also, if the employee is not given notice by the employer or the insurer of his or her right to convert within 15 days of termination of employment, the insurance code requires that he or she be given an additional 25 days following the notice to apply for a conversion policy. In no event, however, will an employee have more than 60 days following the end of any conversion period to elect to convert and pay the first premium for individual coverage, and there is no coverage after the initial 31-day conversion period until a new premium is paid. A spouse or child who was coverd by the group policy as a dependent has the same privilege to convert to an individual plan of insurance without evidence of insurability

Answer 336

The incontestability clause states that the insurer cannot contest the statements on the application after a policy has been in effect for a given length of time (2 years in the state of California).

Answer 337

The policy must contain a provision for the equitable adjustment of the premium or the amount of insurance payable in the event of a misstatement of the age of an employee

Answer 338

Insurers may reduce or exclude liability for losses arising from war, military or naval service, and aviation

Answer 339

uses the quarter of coverage (QC) system to determine whether or not an individual is qualified for social security benefits. The type and amount of the benefits are determined by the amount of credits or QCs a worker has earned. Anyone working in jobs covered by social security or operating his/her own business may earn up to a maximum of 4 credits for each year of work. The term fully insured refers to someone who has earned 40 quarters of coverage (the equivalent of 10 years of work), and is therefore entitled to receive social security retirement, Medicare, and survivor benefits An individual can attain a currently insured status (or partially insured), and by that qualify for certain benefits if he or she has earned 6 credits (or quarters of coverage) during the 13-quarter period ending with the quarter in which the insured: - dies - becomes entitled to disability insurance benefits - becomes entitled to old-age insurance benefits For younger workers, the number of quarters required to qualify for the benefits differs by age according to a table established be Social Security

Answer 340

to qualify for disability benefits under Social Security, the disabled person must have earned a certain amount of credits. A maximum of 4 work credits can be earned each year. Generally, an individual needs 40 credits, 20 of which have been earned in the last 10 years before the disability. In other circumstances, the amount of required credits varies by age: - before age 24: earned 6 credits in the 3 years prior to start of disability - ages 24-31: if they have credit for having worked half of the time between age 21 and the start of disability - after age 31: at least 20 of those credits must have been earned in the 10 years immediately prior to becoming disabled

Answer 341

- Premiums are not tax deductible - Death benefit: 1. tax free if taken as a lump-sum distribution to a named beneficiary 2. principal is tax free; interest is taxable if paid in installments (other than lump sum)

Answer 342

Since dividends are a return of unused premiums, they are not considered income for tax purposes. When dividends are left with the insurer to accumulate interest, the interest earned on the dividend account is subject to taxation as ordinary income each year interest is earned, whether or not the interest is paid out to the policyowner

Answer 343

Any cash value accumulations in the policy can be borrowed against by the policyowner, or may be paid to the policyowner upon surrender of the policy. Cash values grow tax deferred. Upon surrender or endowment, any cash value in excess of cost basis (premium payments) is taxable as ordinary income. Upon death, the face amount is paid, and there is no more cash value. Death benefits generally are paid to the beneficiary income tax free

Answer 344

the policyowner may borrow against the policy's cash value. Money borrowed against the cash value is not income taxable; however, the insurance company charges interest on outstanding policy loans. Policy loans, with interest, can be repaid in the following ways: - by the owner while the policy is in force - at policy surrender or maturity, subtracted from the cash value - at the insured's death, subtracted from the death benefit

Answer 345

When a policyowner surrenders a policy for cash value, some of the cash value received may be taxable as income if the cash surrender value exceeds the amount of the premiums paid for the policy. When the owner withdraws cash value from a universal life policy (partial surrender), both the cash value and the death benefit are reduced by the surrender

Answer 346

When accelerated benefits are paid under a life insurance policy to a terminally ill insured, the benefits are tax free. When accelerated benefits are paid to a chronically ill insured (for example, someone who has cancer, alzheimer's disease or other severe illness), these benefits are tax free up to a certain limit. Any amount received in excess of this dollar limit must be included in the insured's gross income

Answer 347

Life insurance proceeds paid to a named beneficiary are generally free of federal income taxation if taken as a lump sum. An exception to this rule would apply if the benefit payment results from a transfer for value, meaning the life insurance policy is sold to another party prior to the insured's death

Answer 348

With settlement options, when the beneficiary receives payments consisting of both principle and interest, the interest portion of the payments is taxable income

Answer 349

The premiums that an employer pays for life insurance on an employee, whereby the policy is for the employee's benefit, are tax deductible to the employer as a business expense. If the group life policy coverage is $50,000 or less, the employee does not have to report the premium paid by the employer as income (not taxable to the employee)

Answer 350

any time a business is the named beneficiary of a lif insurance policy, or has a beneficial interest in the policy, any premiums that the business pays for such insurance are not tax deductible. Such plans include: - Key-employee - Stock redemption or entity purchase agreement - Split-dollar insurance

Answer 351

Accumulates on a tax-deferred basis and is taxed in the same manner as individually owned policy

Answer 352

are not tax deductible to a business. Unlike an individual taxpayer, a corporation may deduct interest on a life insurance policy loan for loans up to $50,000

Answer 353

policy death benefits paid under a business owned or an employer provided life insurance policy are received income tax free by the beneficiary (in the same manner as in individually owned policies).

Answer 354

In accordance with section 1035 of the Internal Revenue Code, certain exchanges of life insurance policies and annuities may occur as nontaxable exchanges. When a policyowner exchanges a cash value life insurance policy for another cash value life insurance policy, or a cash value life policy for an annuity, or an annuity for an annuity, the policies or annuities must be on the same life. There will be no income tax on these transactions. The following are allowable exchanges: - a life insurance policy for another life insurance policy, an endowment contract, or an annuity contract - an endowment contract for another endowment contract or an annuity contract - an annuity contract for another annuity contract Note that a policyowner may not exchange funds from any annuity into a cash value life policy. Nor would term life be used in a 1035 exchange since it has no cash value. The key is that the contract exchange may not be form a less tax-advantaged contract to a more tax-advantaged contract. "Same to same" is acceptable

Answer 355

a portion of each annuity benefit payment is taxable and a portion is not. The portion that is nontaxable is the anticipated return of the principal paid in. This is know as the tax base

Answer 356

The accumulation phase is the period after an annuity has been purchased but before distribution begin

Answer 357

The cost base represents the premium dollars that have already been taxed and will not be taxed again when withdrawn from the contract. The interest accumulated in an annuity is the tax base, but the taxes are deferred during the accumulation period

Answer 358

When money is withdrawn from the annuity during the accumulation phase, the amounts are taxed on a last in, first out basis (LIFO). Therefore, all withdrawals will be taxable until the owner's cost basis is reached. After all of the interest is received and taxed, the principal will be received with no additional tax consequences

Answer 359

Cash surrender of an annuity results in immediate taxation of the interest earned

Answer 360

The IRS imposes a penalty for certain premature distributions under annuity contracts. In addition to ordinary income tax that may be due, a 10% penalty is imposed on the annuity tax base for early withdrawals prior to age 59 1/2

Answer 361

The exclusion ratio is used to determine the annuity amounts to be excluded from taxes.T he annuitant is able to recover the cost basis nontaxable. The cost basis is the principle amount, or the amount that was paid into the annuity, which is excluded for taxes. The rest of each annuity payment is interest that has been earned and is taxable

Answer 362

When an annuity is used to fund a traditional IRA, distributions are fully taxable if contributions were made with pretax dollars. If there are no distributions at the required age, or if the distributions are not large enough, the penalty is 50% of the shortfall from the required annual amount

Answer 363

If the annuity contract owner dies before the annuitization date, the interest accumulated in the annuity becomes taxable. If the beneficiary of the annuity is a spouse, however, the tax can continue to be deferred

Answer 364

Corporate-owned annuities have different tax implications than individual annuities: - growth in the annuity is not tax deferred - interest income is taxed annually unless the corporation owns a group annuity for its employees and each employee receives a certificate of participation

Answer 365

A split-dollar plan is an arrangement where the employer and employee agree to purchase and fund life insurance on an employee. In the most common form, the employer pays the part of the premiums that equals the annual increase in the cash value of the policy, while the employee pays the balance. Should the employee die, the employer recovers the total of its payments from the policy proceeds, with the balance being paid to the employee's beneficiary

Answer 366

Deferred compensation funding refers to any employer retirement, savings, or other deferred compensation plan that is not a qualified retirement plan. Funding involves a contractual commitment between the employer and employee to pay compensation in the future years. Usually, finding is mad with cash deposits to a life insurance and/or annuity contact. Deferred compensation funding falls into two major classes: - In-addition funding plans: designed to pay an amount in addition to the employee's qualified retirement plan - Elective plans: permit the employee to defer part of their salary or bonus as a tax-deferred savings

Answer 367

a test that determines if a policy is an MEC (Modified Endowment Contract). Once the policy falis the 7-pay test and becomes an MEC, it remains an MEC. All life insurance policies are subject to the 7-pay test, and any time there is a material change to a policy (such as an increase in death benefit), a new 7-pay test is required. Whether from a life insurance policy or a MEC, the death benefit received by the beneficiary is tax free

Answer 368

- Tax-deferred accumulations - Any distributions are taxable, including withdrawals and policy loans - Distributions are taxed on LIFO basis - known as "interest-first" rule - Distributions before age 59 1/2 are subject to a 10% penalty

Answer 369

There are two major causes of loss (perils) under health insurance policy. Policies may cover both accident and sickness or accident only

Answer 370

is an unforeseen and unintended injury that resulted from an accident rather than a sickness

Answer 371

is normally defined as an illness, which first manifests itself while the policy is in force. The majority of health insurance claims result from sickness farther than accidental injury

Answer 372

the injury and its cause must be unexpected and unintended. (Man loses leg in car accident)

Answer 373

only the injury must be unexpected and unintended (Man is cliff-diving and breaks his neck). He intentionally jumped off the cliff, but not with the intention of breaking his neck

Answer 374

a provision that provides for the sharing of expenses between the insured and the insurance company. After the insured satisfies the policy deductible, the insurance company will usually pay the majority of the expenses, typically 80%, with the insured paying the remaining 20%. Others are 90/10; 75/25; or 50/50. The larger the percentage that is paid by the insured, the lower the required premium will be

Answer 375

a specified dollar amount that the insured must pay before the insurance company will pay the policy benefits. The purpose of a deductible is to have the insured absorb the smaller claims, while the coverage provided under the policy will absorb the larger claims. The larger the deductible, the lower the premium that is required to be paid

Answer 376

A deductible that is paid once a year not matter the amount of claims that year

Answer 377

each insured is personally responsible for a specified deductible amount each year

Answer 378

the annual deductible is satisfied if two or more family members pay a deductible in a given year, regardless of the amount of claims incurred by additional family members

Answer 379

the insured is required to pay for each claim, possibly resulting in more than one deductible being paid in a given year

Answer 380

applies when more than one family member is injured in a single accident. In this case, only one deductible applies for all family members involved in the same accident

Answer 381

the amount of the deductible may be satisfied by the amount paid under basic medical expense coverage. (supplemental coverage included $1000 integrated, and the insured incurs $1000 in basic medical expenses, the deductible will be satisfied

Answer 382

States that if the insured did not incur enough expenses during the year to meet the deductible, any expenses incurred during the last 3 months may be carried over to the next policy year to satisfy the new annul deductible

Answer 383

are arrangements where the insured pays a specified dollar amount for a claim, typically at the time of receiving the service, and the insurance company pays the remaining amount. Copayments differ form coinsurance because copayments are typically expressed in dollar amounts, while coinsurance is usually expressed as a percentage of the cost

Answer 384

Initially the member chooses a primary care physician orf gatekeeper. If the member needs the attention of a specialist, the primary care physician must refer the member. This helps keep the member away from the higher priced specialists unless it is truly necessary

Answer 385

any medical expense plan that attempts to contain costs by controlling the behavior of participants. A true managed care plan should have 5 basic characteristics: 1. Controlled access of providers 2. Comprehensive case management 3. Preventive Care 4. Risk sharing 5. High quality care

Answer 386

continuation of coverage under a specified benefit after discontinuance of original coverage to an employee or dependent. This provision protects a disabled person from becoming uninsured due to a loss of coverage for any reason. Basic medical expense benefits will usually be extended for 3 months, while major medical expense benefits will usually be extended for 12 months. In order for extension of benefits to be provided, the insured must have been disabled before the policy was discontinued and must continue to be disabled

Answer 387

a specified dollar amount beyond which the insured no longer participates in the sharing of expenses. The insurance company pays 100% of the expenses that are above the specified stop-loss limit

Answer 388

stipulates how long a person must wait to receive benefits for a period of disability. The elimination period begins on the effective date of the policy and lasts for 5 months Benefits can be received at the beginning of the 6th month. Benefits cannot be offered retroactively for a period of disability that began during the elimination period

Answer 389

Is a provision or rider that is usually included with guaranteed renewable and noncancellable disability income policies. It provides that in the event of permanent and total disability, premiums will be waived for the duration of the disability. To qualify, the insured must be totally disabled for a specified period of time, usually 3 to 6 months. During the 3-6 months waiting period, the insured must continue to pay the policy premium, but usually the waiver is retroactive to the date the disability began and any premiums paid during the waiting period will be refunded. The rider general expires when the insured attains age 65; however, as long as the insured becomes disabled prior to age 65, the premiums will continue to be waived for the duration of the disability

Answer 390

In group insurance, the policy is called the master policy, and is issued to the policyowner, which could be the employer, an associations, a union, or a trust

Answer 391

are conditions for which the insured has received a diagnosis, advice, care, or treatment during a specific time prior to the applications for health coverage.

Answer 392

when an individual may need health insurance for a specified period of time. These policies are not renewable and the insurer must buy a new policy once the term expires. Examples are: - travel accident policies - short term health plans - accident only policies

Answer 393

The insurance company cannot cancel a noncancellable policy, nor can the premium be increased beyond what is stated in the policy (note that the policy may call for an increase in a certain year, such as age 65, but that must be stated in the original contract. The guarantee to renew coverage usaully only applies until the insured reaches age 65, at which time the insured is usually eligible for medicare

Answer 394

This provision is similar to the noncancellable provision, with the exception that the insurer can increase the policy premium on the policy anniversary date. The insured, however, has the unilateral right to renew the policy for the life of the contract. Coverage is generally not renewable beyond the insured's age 65.

Answer 395

The insurer may terminate the contract only at renewal for certain conditions that are stipulated in the contract. For example, the insured must be employed to collect disability payments. In addition, the policy premiums may be increased. The company may not deny renewal due to claims experience

Answer 396

similar to conditional renewability, except that the insurer may cancel the policy for any reason, on certain homogeneous classes (not individuals within a class). Renewability is at the option of the insurer. The insurer can only decide not to renew a policy on the policy anniversary date or premium due date (renewal date). If the insurer elects to renew the policy, it may also increase the policy premium

Answer 397

Blue Cross and Blue Shield organizations have a contractual agreement with physicians and hospitals. The physicians and hospital are the producers in the cooperative. Blue plans are non-profit health care organizations and are not insurance companies. Blue cross provides payments to hospitals and Blue Shield covers the physician charges

Answer 398

When dealing with group plans, both blues and insurance companies use experience rating to determine rates to be charged. These rates thus based on the overall experience of the group. The blues, however, still use community rating in pricing products for smaller employers and individuals. Community rating involves a pooling of the experience of all groups in all areas and then the setting of an average rate that will be sufficient to support this experience

Answer 399

Increasing health care costs during the 70's and 80's helped stimulate the rapid growth of Health Maintenance Organizations (HMOs). HMOs were established to manage heath care and the associated costs by providing prepaid care that emphasizes preventive care. Traditional health care did not provide preventive care and only covered illness only after it has manifested. The HMO provides benefits in the form of services rather than in the form of reimbursement for the services of the physician or hospital. Traditionally, the insurance companies provide the financing, while the doctors and hospitals have provided the care. The HMO concept is unique in that the HMO provides both the financing and patient care for its members.

Answer 400

pays health insurance benefits to the insured based on a predetermined rate set for medical services. The amount of actual expense for those services does not matter. The policy will pay a fixed amount stated on the contract. Usually an indemnity plan will pay a stated amount for each day the insured is hospitalized as an inpatient; it does not usually pay the cost of medical expenses, specific hospital bills, or specific doctor bills

Answer 401

is made up of two or more employers in similar or related businesses who do not qualify for group insurance on their own. Before HIPAA defined small employers, many small companies were unable to get health insurance at a reasonable cost due to the fact that there weren't enough people in the company to insure. In situations like this, several small companies banded together to create a large pool of people so that the insurance company will provide coverage.

Answer 402

The Preferred Provider Organizations (PPOs) could be seen as the traditional medical systems' answer to HMOs. In the PPO system, the physicians are paid fees for their services rather than a salary, but the member is encouraged to visit approved member physicians that have previously agreed upon the fees to be charged. PPO's may provide 90% of the cost of a physician on their approved list while possibly only covering 70% of the cost if the member chooses a physician not included on the PPO's approved list

Answer 403

An Exclusive Provider Organization (EPO) is a type of PPO. The members of an EPO, however, do not choose health care providers from a list of prederred providers. Instead, insureds under an EPO plan use specific providers who are paid on a fee-for-service basis

Answer 404

Are funded by the insured (usually the employer) and administered by a third party. A successful self-funded program will have the following characteristics: - A group large enough to reasonably predict future loss experience - Sound statistical data to support the self-funding concept - A stop-loss contract to assume losses beyond the insured's retention - A third party administrator who services claims - Flexibility in plan design and administrative procedures

Answer 405

An association group can buy group insurance. The group must have at least 100 member, be organized for a reason other than buying insurance, have been active for at leas two years, have a constitution, by-laws, and must hold at least annual meetings. These groups include but are not limited to, trade associations, professional associations, college alumni associations, veteran associations, customers of large retain chains, and saving account depositors, to name a few. Association group plans may be either contributory or noncontributory

Answer 406

Group health insurance policies cover groups of persons, with or without their dependents, and may be issued to one of the following types of groups: - an employer insuring at least 5 employees for the benefit of persons other than the employer - a labor union or association that insures at least 25 members, has a constitution and bylaws, and has been organized and maintained for purposes other than that of obtaining insurance - any other substantially similar group which, at the descretion of the state Department of Insurance, may be subject to the issuance of a group health insurance policy

Answer 407

provides coverage for death or injury resulting from accidents occurring while a fare-paying passenger is on a common carrier. The benefits are only paid if the loss occurs during the time of travel

Answer 408

provides a variety of benefits for a specific disease such as cancer policy or heart disease policy. Benefits are usually paid as a scheduled, fixed-dollar amount of indemnity for specified events or medical procedures, such as hospital confinement or chemotherapy

Answer 409

covers multiple illnesses, such as heart attack, stroke, renal failure, and pays a lump-sum benefit to the insured upon the diagnosis (and survival) of any of the illnesses covered by the policy. The policy usually specified a minimum number of days the insured must survive after the illness was first diagnosed

Answer 410

are limited policies that provide coverage for death, dismemberment, disability or hospital and medical care resulting from an accident. Because it is a limited medical expense policy, it will only pay for losses resulting from accidents and not sickness

Answer 411

is issued only to those in debt to a specific creditor. In case of the borrower's disability, payments to the creditor will be made on the loan until the disabled borrower is able to return to work

Answer 412

underwriting is the first step in the total process of insuring health risks. The basic purpose of health insurance underwriting is to minimize the problem of adverse selection. Adverse selection involves the fact that those most likely to have claims are those who are most likely to seek insurance. An insurance company that has sound underwriting guidelines will avoid adverse selection more often than not.

Answer 413

is far more important than in life insurance. The basic purpose of health insurance underwriting is to minimize the problem of adverse selection. Adverse selection involves the fact that those most likely to have claims are those who are most likely to seek insurance. An insurance company that has sound underwriting guidelines will avoid adverse selection more often than not. Note that the specific underwriting requirements will vary by insurer.

Answer 414

An insurance company or an agent cannot disclose any personal or privileged information about an individual unless any of the following occurs: A written authorization by the individual dated and signed within the past 12 months has been provided; The information is being provided to all of the following: An insurance regulatory authority or law enforcement agency, pursuant to the law; An affiliate for an audit, but no further disclosure is to be made; A group policyholder for the purpose of reporting claims experience; To an insurance company or self-insured plan for coordination of benefits; A lien holder, mortgagee, assignee or other persons having a legal or beneficial interest in a policy of insurance.

Answer 415

At any time during the sales process there can be a misunderstanding or misrepresentation that could lead to legal action being taken by the insured. Agents should document everything: interviews, phone conversations, requests for information, etc. The sales interview and the policy delivery are the most common occasions for errors and omissions (E&O) situations to occur that may result in providing inadequate coverage or failure to maintain and service coverage.

Answer 416

The underwriter’s function is to select risks, which are acceptable to the insurance company. The selection criteria used in this process, by law, must be only those items that are based on sound actuarial principles or expected experience. The underwriter cannot decline a risk based on blindness or deafness, genetic characteristics, marital status, or sexual orientation. When underwriting health insurance policies, the prime considerations are age, gender, occupation, physical condition, avocations, moral and morale hazards, and financial status of the applicant.

Answer 417

- Application - Attending Physician's Statement - Investigative Consumer Report - Medical Information Bureau (MIB) - Medical Examinations and Lab Tests (Including HIV Consent)

Answer 418

Only the agent/producer is involved in completing the agent’s (producer's) report. It asks questions about the length of time that the applicant has been known to the agent, an estimate of the applicant’s income and net worth and whether the agent knows of any reason that the contract should not be issued. The agent’s statement does not become part of the entire contract.

Answer 419

If the underwriter deems it necessary, an attending physician’s statement (APS) will be sent to the applicant’s doctor to be completed. This source of information is best for accurate information on the applicant’s medical history. The physician can explain exactly what the applicant was treated for, the treatment required, the length of treatment and recovery, and the prognosis. When an attending physician's report reveals a condition that requires more information for underwriting purposes, and if this information is not available from that physician, then the insurer can require that the applicant be examined by a physician of the insurer's choice and at the insurer's expense.

Answer 420

An investigative consumer report includes information on an applicant’s character, general reputation, personal habits, and mode of living that is obtained through investigation. For example, this report could include interviews with associates, friends, and neighbors of the applicant. Such reports may not be performed unless the applicant is clearly and accurately informed of the report in writing. The consumer report notification is usually part of the application. At the time that the application is completed, the agent will separate the notification and give it to the applicant.

Answer 421

The Medical Information Bureau (MIB) is a membership corporation owned by member insurance companies. It is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals. Reports on previous insurance information can be obtained from the Medical Information Bureau. Members of MIB can request a report on an applicant and receive coded information from any other applications for insurance submitted to other MIB members. MIB information cannot be used in and of itself to decline a risk, but it can give the underwriter important additional information.

Answer 422

If tests were performed correctly, insurers may decline a potential insured for coverage if his/her medical sample comes back “positive for HIV/AIDS” after 2 different tests have been performed. The applicant can also be declined if he/she has already been diagnosed with AIDS/HIV by another medical professional. These tests must be paid for by insurer, not insured. If an insurer tests for HIV, it must first obtain from the insured informed, written consent. This often entails a separate disclosure form signed by all insureds and the agent. A copy of this duplicate form should then be left with the client. The information includes written details on the tests performed, their purposes and uses, and how results will be returned to the insured. The form often asks for a physician’s name and address so that the client’s doctor can get involved should a positive result come back. If the client has no physician, the insurer should urge the client to consult a physician or government health agency. Informed consent also includes supplying the client with information concerning AIDS/HIV counseling from third-party sources. The information that is gathered must be handled correctly and in compliance with confidentially requirements by authorized personnel. If an insured correctly obtains coverage, but later dies due to AIDS or AIDS-related conditions, coverage cannot be limited or denied.

Answer 423

From an ethical and nondiscrimination standpoint, no insurer or its agents may consider the individual’s gender, sexual orientation, marital status, living arrangements, occupation, zip code, or other such related demographic characteristic in determining whether to take an application, provide coverage, or perform any medical testing. The insurers cannot ask if the insured has been tested before, unless it was for insurance purposes. None of this information should be either on the application or implied. This is so the underwriter can make a clearly unbiased determination and avoid overt or apparent discrimination. The only allowable criterion that a company may use to determine whether to test for HIV is the amount of insurance the applicant has applied for at certain age ranges.

Answer 424

egligently disclosing confidential results or underwriting information to unauthorized third parties may result in a civil fine of up to $1,000 plus court costs. The fine may go up to $5,000 plus costs for willful violations. If the violation causes economic, bodily, or psychological harm to the other party, the penalty may include a misdemeanor charge, one year in jail, and/or a fine of up to $10,000.

Answer 425

Department of Motor Vehicles -- Since statistically half of all accidental deaths in the United States occur as the result of traffic collisions, insurers are very interested in the driving records of their applicants. A poor driving record can result in a rated policy. Additional medical testing /Current physical --The insurer can request that the applicant be examined by a physician and the results submitted for consideration. It is also common to require examination by a paramedical company and the use of blood, urine or saliva samples to check for nicotine or other drug use and the presence of HIV. An EKG (electrocardiogram) or a treadmill examination may also be required. Hazardous activity questionnaire - The insurer may also ask the applicant to fill out a separate hazardous activity questionnaire to determine the applicant's risk classification. The questionnaire may include questions regarding hobby aviation, scuba diving, and auto, boat, or motorcycle racing.

Answer 426

Genetic characteristics means any scientifically or medically identifiable gene or chromosome that is known to be a cause of a disease or disorder, and that is determined to be associated with a statistically increased risk of development of a disease or disorder. Examples of genetic conditions include Tay-Sachs, sickle cell, and X-linked hemophilia. Insurers cannot require a test of the presence of a genetic characteristic for the purpose of determining insurability (except in policies that are contingent on testing for other diseases or medical conditions). Whenever a genetic characteristic test is conducted, the insurer must first obtain the applicant’s written consent. The insurer must also notify the applicant of a test result directly or through a designated physician.

Answer 427

Morbidity is the incidence or probability of sicknesses or accidents within a given group of people.

Answer 428

The probationary period provision states that a period of time must lapse before coverage for specified conditions goes into effect. This provision is most commonly found in disability income policies. The probationary period also applies to new employees who must wait a certain period of time before they can enroll in the group plan. The purpose of this provision is to avoid unnecessary administrative expenses in cases of employee turnover.

Answer 429

The elimination period is a type of deductible that is commonly found in disability income policies. It is a period of days which must expire after the onset of an illness or occurrence of an accident before benefits will be payable. The longer the elimination period, the lower the cost of coverage.

Answer 430

The insured must notify the company of the loss. The insurer's agent will mail claim forms to the insured. The insured completes the forms and returns them with the proof of loss to the insurer. The insurer pays the claims as soon as possible (or within the time limit specified in the policy or by state law).

Answer 431

Basic hospital, surgical and medical policies and the major medical policies (which will be discussed next) are commonly grouped into what are referred to as Medical Expense Insurance. They provide benefits for the cost of medical care that results from accidents or sickness. The three basic coverages (hospital, surgical and medical) may be purchased separately or together as a package. These types of coverage are often referred to as first-dollar coverage because they usually do not require the insured to pay a deductible. This differs from Major Medical Expense insurance. However, the basic medical coverages usually have more limited coverage than the Major Medical Policies.

Answer 432

Basic hospital expense coverage: Hospital expense policies cover hospital room and board, and miscellaneous hospital expenses, such as lab and x-ray charges, medicines, use of operating room and supplies, while the insured is confined in a hospital. There is no deductible and the limits on room and board are set at a specified dollar amount per day up to a maximum number of days. These limits may not provide for the full amount of hospital room and board charges incurred by the insured. For example, if the hospital expense benefit was $500 per day, and the hospital actually charged $650 per day, the insured would be responsible for the additional $150 per day.

Answer 433

The miscellaneous hospital expenses normally have a separate limit. This amount, which pays for other miscellaneous expenses associated with a hospital stay, can be expressed either as a multiple of the room and board charge (such as 10 times the room and board charge) or as a flat amount. In addition, the policy may specify a maximum limit for certain types of expenses, such as $100 for drugs or $150 for use of the operating room. As with the room and board charges, the hospital miscellaneous expense limits may not pay for the full amount needed by the insured in the event of a lengthy hospital stay.

Answer 434

Basic medical expense coverage is often referred to as Basic Physicians' Nonsurgical Expense Coverage because it provides coverage for nonsurgical services a physician provides. However, the benefits are usually limited to visits to patients confined in the hospital. Some policies will also pay for office visits. There is no deductible with benefits, but coverage is usually limited to number of visits per day, limit per visit, or limit per hospital stay. In addition to nonsurgical physician’s expenses, basic medical expense coverage can be purchased to cover emergency accident benefits, maternity benefits, mental and nervous disorders, hospice care, home health care, outpatient care, and nurses’ expenses. Regardless of what type of plan or coverage is purchased, these policies usually offer only limited benefits that are subject to time limitations. The insured is often required to pay a considerable sum of money in addition to the benefits paid by the medical expense policies.

Answer 435

Basic surgical expense coverage: This coverage is commonly written in conjunction with Hospital Expense policies. These policies pay for the costs of surgeons’ services, whether the surgery is performed in or out of the hospital. Coverage includes surgeons’ fees, anesthesiologist, and the operating room when it is not covered as a miscellaneous medical item. As with the other types of basic medical expense coverage, there is no deductible, but coverage is limited. Each contract has a surgical schedule that lists the types of operations covered and their assigned dollar amounts. If the operation is not listed, the contract may pay for a comparable operation. Special schedules may express the amount payable as a percentage of the maximum benefit, list a specified amount, or assign a relative value that when multiplied by its conversion factor gives the benefit payable.

Answer 436

A comprehensive major medical plan is a combination of basic expense coverage and major medical coverage, sold as one policy. They cover practically all medical expenses, hospital, physicians, surgical, nursing, drugs, laboratory tests, etc. Comprehensive major medical policies include a deductible (usually a single deductible per person and per family, but corridor deductible may also apply) and coinsurance, and are generally sold on a group basis.

Answer 437

Supplementary Major Medical Policies are used to supplement the coverage payable under a basic medical expense policy. After the basic policy pays, the supplemental major medical will provide coverage for expenses that were not covered by the basic policy, and expenses that exceed the maximum. If the time limitation is used up in the basic policy, the supplemental coverage will provide coverage thereafter.

Answer 438

The HMO offers services to those living within specific geographic boundaries, such as county lines or city limits. If individuals live within the boundaries, they are eligible to belong to the HMO, but if they do not live within the boundaries they are ineligible.

Answer 439

The HMO tries to limit costs by only providing care from physicians that meet their standards and are willing to provide care at a prenegotiated price.

Answer 440

A copayment is a specific part of the cost of care or a flat dollar amount that must be paid by the member. For example, the member may be required to pay $5, $10 or $25 for each office visit.

Answer 441

The main goal of the HMO Act was to reduce the cost of health care by utilizing preventive care. While most insurance plans offered no benefits for preventive care prior to 1973, HMOs offer free annual check-ups for the entire family. In this way, the HMOs hope to catch diseases in the earliest stages, when treatment has the greatest chance for success. The HMOs also offer free or low-cost immunizations to members in an effort to prevent certain diseases.

Answer 442

When an individual becomes a member of the HMO they will choose their primary care physician (PCP) or gatekeeper. Once chosen, the primary care physician or HMO will be regularly compensated for being responsible for the care of that member, whether care is provided or not. It should be in the primary care physician’s best interest to keep this member healthy to prevent future time for treatment of disease.

Answer 443

In order for the member to get to see a specialist, the primary care physician (gatekeeper) must refer the member. The referral system keeps the member away from higher priced specialists unless it is truly necessary. In many HMOs, there is a financial cost to the primary care physician for referring a patient to the more expensive specialist, thus the primary care physician may be inclined to use an alternative treatment before approving a referral. HMOs must have mechanisms to handle complaints which sometimes result in a delay of referral, or complaints about other patient care or coverage concerns.

Answer 444

The HMO provides the member with inpatient hospital care, in or out of the service area. The services may be limited for treatment of mental, emotional or nervous disorders, including alcohol or drug rehabilitation or treatment. Emergency care must be provided for the member in or out of the HMOs service area. If emergency care is being provided for a member outside the service area, the HMO will be eager to get the member back into the service area so that care can be provided by salaried member physicians.

Answer 445

When a medical caregiver contracts with a health organization to provide services to its members or subscribers, but retains the right to treat patients who are not members or subscribers, it is referred to as open panel. In an open panel arrangement, the doctors are not considered to be employees of the health organization. When the medical caregiver provides services to only members or subscribers of a health organization, and contractually is not allowed to treat other patients, it is referred to as closed panel. In a closed panel arrangement, the doctors are considered employees of the health organization.

Answer 446

Any physician or hospital that qualifies and agrees to follow the PPO’s standards and charge the appropriate fees that the PPO has established can be added to the PPO’s approved list at any time. Physicians and providers may belong to several PPO groups simultaneously.

Answer 447

In a PPO, the insured does not have to select a primary care physician. The insured may choose medical providers not found on the preferred list and still retain coverage. The insured is allowed to receive care from any provider, but if the insured selects a PPO provider, the insured will realize lower out-of-pocket costs. Conversely, if a non-network provider is used, the insured's out-of-pocket costs will be higher. In a PPO, all network providers are considered "preferred," and you can visit any of them, even specialists, without first seeing a primary care physician. Certain services may require plan pre-certification, an evaluation of the medical necessity of inpatient admissions and the number of days required to treat your condition.

Answer 448

The Point-Of-Service (POS) plan is merely a combination of HMO and PPO plans. With the Point-Of-Service plan the employees do not have to be locked into one plan or make a choice between the two plans. A different choice can be made every time a need arises for medical services. Similarly, in a POS plan the individuals can visit an in-network provider at their discretion. If they decide to use an out-of-network physician, they may do so. However, the member copays, coinsurance and deductibles may be substantially higher.

Answer 449

An Exclusive Provider Organization (EPO) is a type of preferred provider organization in which individual members use particular preferred providers rather than having a choice of a variety of preferred providers. An EPO is characterized by a primary physician who monitors care and makes referrals to a network of providers.

Answer 450

A Medical Savings Account (MSA) is an employer-funded account linked to a high-deductible medical insurance plan. The employer raises the medical plan deductible and returns all or part of the premium savings to the employees to contribute to the MSA. The employee then uses the funds from the MSA to cover health insurance deductibles during the year. If there is a balance at the end of the year, the employee may leave in the account and earn interest or withdraw the remaining amount (as taxable income). If a distribution is made for a reason other than to pay for qualified medical expenses, the amount withdrawn will be subject to an income tax and an additional 20% tax. Medical savings accounts are only available to small employers (with 50 or fewer employees) or a self-employed person. Generally, participants in the plan cannot have Medicare or any other health coverage that is not a high deductible health plan (HDHP). The following additional coverages are permitted: ``` Workers compensation; Specific disease or illness; A fixed amount per day of hospitalization; Accidents and/or disability; Dental care; Vision care; and Long-term care. ```

Answer 451

consist of funds set aside by employers to reimburse employees for qualified medical expenses, such as deductibles or coinsurance amounts. Employers qualify for preferential tax treatment of funds placed in an HRA in the same way that they qualify for tax advantages by funding an insurance plan. Employers can deduct the cost of a health reimbursement account as a business expense. The following are key characteristics of HRAs: They are contribution healthcare plans, not defined benefit plans; Not a taxable employee benefit; Employers' contributions are tax deductible; Employees can roll over unused balances at the end of the year; Employers do not need to advance claims payments to employees or healthcare providers during the early months of the plan year; Provided with employer dollars, not employee salary reductions; Permit the employer to reduce health plan costs by coupling the HRA with a high-deductible (and usually lower-cost) health plan; Balance the group purchasing power of larger employers and smaller employers.

Answer 452

are often used in coordination with Medical Savings Accounts (MSAs), Health Savings Accounts (HSAs), or Health Reimbursement Accounts (HRAs). The high-deductible health plan features higher annual deductibles and out-of-pocket limits than traditional health plans, which means lower premiums. Except for preventive care, the annual deductible must be met before the plan will pay benefits. Preventive care services are usually first dollar coverage or paid after copayment. The HDHP credits a portion of the health plan premium into the coordinating MSA, HSA, or HRA on a monthly basis. The deductible of the HDHP may be paid with funds from the coordinating account plan.

Answer 453

are designed to help individuals save for qualified health expenses that they, their spouse, or their dependents incur. An individual who is covered by a high deductible health plan can make a tax-deductible contribution to an HSA, and use it to pay for out-of-pocket medical expenses. Contributions by an employer are not included in the individual's taxable income. To be eligible for a Health Savings Account, an individual must be covered by a high deductible health plan (HDHP), must not be covered by other health insurance (does not apply to specific injury insurance and accident, disability, dental care, vision care, long-term care), must not be eligible for Medicare, and can't be claimed as a dependent on someone else's tax return. HSAs are linked to high deductible insurance. A person may obtain coverage under a qualified health insurance plan with established minimum deductibles ($1,350 for singles and $2,700 for families in 2019). Each year eligible individuals (or their employers) are allowed to save up to certain limits, regardless of their plan's deductible (current contribution limits are $3,500 for singles and $7,000 for families). When opening an account, an individual must be under the age of Medicare eligibility. For taxpayers aged 55 and older, an additional contribution amount is allowed (up to $1,000). An HSA holder who uses the money for a nonhealth expenditure pays tax on it, plus a 20% penalty. After age 65, a withdrawal used for a nonhealth purpose will be taxed, but not penalized. HSAs are portable, so an individual is not dependent on a particular employer to enjoy the advantages of having an HSA. Like an individual retirement account (IRA), the HSA is owned by the individual, not the employer. If the individual changes jobs, the HSA goes with the individual. Some high deductible health insurance policies have what is called an embedded deductible. As well as a non-embedded, or aggregate deductible that applies to the whole family covered, an individual deductible (smaller than the aggregate) applies to each covered family member. For example, a family can have an aggregate deductible of $2,000 and embedded deductible of $1,000. If one family member exceeds $1,000 in medical expenses, the insurer will cover further medical costs for that individual while other family members' medical expenses apply towards the aggregate deductible. When a health plan has both the aggregate deductible and embedded deductibles, the annual contribution limit for a HSA is the lesser of The maximum annual contribution limit; The aggregate deductible; or The embedded deductible multiplied by the number of covered family members.

Answer 454

Consumer Driven Plans (also known as Consumer Driven Health Plans, CDHP, High-deductible plans, or patient directed plans) are health care plans that are controlled by the employer. Basically the employee member receives first-dollar coverage from a designated health account (can be an HRA or HSA) until funds are depleted, then a deductible gap must be met before an insurance plan is available to cover additional cost. While other types of plans restrict certain types of coverage, members of a consumer driven plan may use funds from the plan to pay for costs associated with genetic testing or a special nursery school for a child, for instance, without being denied coverage. The employer determines eligibility of the employees. There are no national qualifying requirements for consumer driven plans. The employer determines the contribution, the growth percent and the exit rules. Funds are allowed to rollover from year to year at the discretion of the employer.

Answer 455

is covered up to an annual maximum without a deductible or copayment. This coverage benefit usually includes routine examinations and teeth cleaning once a year, and perhaps full-mouth X-ray once every 3 years. (The absence of a deductible and copayment is intended to encourage preventive maintenance.)

Answer 456

includes such as treatment of cavities, oral surgery, bridges and dentures. These procedures are covered up to a specific maximum, subject to an annual deductible per insured family member and a coinsurance.

Answer 457

if included, will have a separate maximum and a separate deductible, which may differ from the deductible for restorative care. Pediatric dental coverage is an essential health benefit under the Affordable Care Act that must be available as part of a health plan or as a stand-alone plan for children 18 or younger. However, insurers do not have to offer adult dental coverage. Depending on the state, pediatric dental benefits may be offered through one of the following types of plans: A qualified health plan that includes dental coverage; A stand-alone dental plan purchased in conjunction with a qualified health plan; or A contracted/bundled plan.

Answer 458

Some employers provide this form of group health insurance to their employees to cover eye examinations and eyeglasses, or hearing aids on a limited basis. Know that per the Affordable Care Act, pediatric vision benefits are mandatory.

Answer 459

Accidental Death and Dismemberment (AD&D) coverage can be written as a rider or as a separate policy. It is, however, most frequently part of group life and group health plans. It provides for the payment of a lump sum benefit, in the event that the insured dies from an accident as defined in the policy, or in the event of loss of certain body parts caused by an accident. Accidental Death and Dismemberment coverage only pays for accidental losses and is thus considered a pure form of accident insurance. The principal sum is paid for accidental death. This amount is usually equal the amount of coverage under the insurance contract, or the face amount. In case of loss of sight or accidental dismemberment, a percentage of that principal sum will be paid by the policy, often referred to as the capital sum. The amount of the benefit will vary according to the severity of the injury. The policy will usually pay the full principal for the loss of sight in both eyes, or two or more limbs; however, it may only pay 50% for the loss of one hand or one foot. In addition, some policies will pay double or triple indemnity, meaning the policy will pay twice or three times the face amount in the event of accidental death. Most policies will pay the accidental death benefit as long as the death is caused by the accident and occurs within 90 days.

Answer 460

The family deductible is written so that any claim filed by a family member within a year applies to the deductible for the entire family. Family deductibles are also usually written with a common accident provision. This provision states that if more than one family member is injured in the same accident, only one deductible will apply.

Answer 461

The grace period is the period of time after the premium due date in which premiums may still be paid before the policy lapses for nonpayment of the premium. Although the grace period may differ according to individual state laws, in most cases the grace period can be not less than 7 days for weekly premium policies (industrial policies), 10 days for monthly premium policies, and 31 days for all other modes. Coverage will continue in force during the grace period.

Answer 462

The waiting period is the period of time before insurance benefits begin. During the waiting period, the policy is in effect, but insurance company has not started paying benefits for covered events.

Answer 463

The elimination period is the same as the waiting period. Insureds can choose elimination periods of 30, 60, 90, 180, or 365 days. Some policies, however, will begin paying benefits after only a 7 or 14-day elimination period. Longer elimination periods will lower premiums for disability policies. Giving clients a choice of the length of their elimination period allows them to make their own value judgment in regard to balancing premium expense and benefits.

Answer 464

The carry-over provision allows an insured who incurs medical expenses during the last 90 days (calendar quarter) of a calendar year to apply the expenses toward the new year's deductible.

Answer 465

When a health policy is replaced for a client with an ongoing claim, the no-loss/no-gain law says that the pre-existing condition provision in the new policy is not allowed to apply. The new policy must automatically take over payment of the claim immediately.

Answer 466

Policies designed around either a corridor or integrated deductible each provide first dollar coverage. With first dollar coverage, up to 100% of covered claims are covered beginning with the first dollar of actual expense incurred by an insured. A corridor plan provides basic medical expense coverage of 100% for all covered expenses, but only to a pre-established limit, such as $3500, $5000, $7500, or perhaps as high as $10,000. After the basic benefits are spent, and before the major medical benefits take over, the next $3500-$10,000 of covered expenses are paid by the insured. So first dollar coverage provides coverage to a certain limit, followed by 100% insured expense, followed once again by 100% major medical coverage. Plans using an integrated deductible also offer first dollar coverage in that all covered expenses up to a pre-established limit will be shared by the insurer and the insured using an 80-20 (%) coinsurance split, with the stop-loss limit set between $5000 and $25,000. Under this type of plan, an insured will pay $1000-$5000 of the total first dollar claims expenses.

Answer 467

The restoration of benefits provision allows an insured to regain his or her full lifetime benefit level over a period of time after a large or catastrophic loss.

Answer 468

The purpose of policy exclusions is to protect the insurer from claims for losses which were not included in the initial risk assessment. The insurer is entitled to control its risk, and by specifically excluding certain types of intentional, catastrophic, criminal or excess losses, this is possible. The most common types of losses excluded from coverage are those resulting from the following: Military service; War or acts of war; Attempted suicide; Intentionally self-inflicted injuries; Attempting to commit or committing a felony; and Serving as the pilot or crew member of an aircraft. Most insurance policies will cover an insured as a fare-paying passenger on a regularly scheduled airline.

Answer 469

With an employer-sponsored group, the employer (a partnership, corporation or a sole proprietorship) provides group coverage to its employees. Eligible employees usually must meet certain time of service requirements and work full-time. The same as group life insurance, group health insurance may be either contributory or noncontributory.

Answer 470

An association group (alumni or professional) can buy group insurance for its members. The group must have at least 100 members, be organized for a reason other than buying insurance, have been active for at least two years, have a constitution, by-laws, and must hold at least annual meetings. These groups include, but are not limited to, trade associations, professional associations, college alumni associations, veteran associations, customers of large retail chains, and saving account depositors, to name a few. Association group plans may be either contributory or noncontributory.

Answer 471

also called credit life and health insurance, is a specialized use of group life and group health insurance that covers debtors (borrowers). It protects the lending institution from losing money as the result of a borrower’s death or disability. Generally, the borrower is the premium payor but the lending institution is the beneficiary of the policy. The amount of insurance cannot exceed the amount of indebtedness.

Answer 472

Small employer means any person, firm, corporation, partnership or association that is actively engaged in business that, on at least 50% of its working days during the preceding calendar year, employed no more than 50 eligible employees, the majority of whom were employed within the state. As a condition of transacting business in this state with small employers, every small employer carrier is required to actively offer to small employers at least 2 health benefit plans: Basic health benefit plan; and Standard health benefit plan.

Answer 473

are funded by the insured (usually the employer) and administered by a third party. A successful self-funded program will have the following characteristics: A group large enough to reasonably predict future loss experience; Sound statistical data to support the self-funding concept; A stop-loss contract to assume losses beyond the insured’s retention; A third party administrator who services claims; Flexibility in plan design and administrative procedures.

Answer 474

The same as group life insurance, group health insurance may be either contributory or noncontributory. With a contributory plan the eligible employees contribute to payment of the premium (both the employee and employer pay part of the premium). If a plan is contributory, at least 75% of all eligible employees must participate in the plan. If the plan is noncontributory, 100% of the eligible employees must be included, and the participants do not pay part of the premium. The employer pays the entire premium. The reason for these participation requirements is to guard the insurer against adverse selection and to reduce administrative costs.

Answer 475

Nonoccupational policies exclude coverage of claims that arise from job-related accidents. (Usually the employer is covered by workers compensation, which is the primary coverage for employee disability and medical costs for claims arising out the performance of a job.) Occupational policies would cover accidents on or off the job.

Answer 476

The purpose of the coordination of benefits (COB) provision, found only in group health plans, is to avoid duplication of benefit payments and overinsurance when an individual is covered under multiple group health insurance plans. This provision limits the total amount of claims paid from all insurers covering the patient to no more than the total allowable medical expenses. The COB provision establishes which plan is the primary plan, or the plan that is responsible for providing the full benefit amounts as it specifies. Once the primary plan has paid its full promised benefit, the insured submits the claim to the secondary, or excess, provider for any additional benefits payable (including deductibles and coinsurance). In no case will the total amount the insured receives exceed the costs incurred or the total maximum benefits available under all plans.

Answer 477

If all policies have a COB provision, the order of payments is determined as follows: If a married couple both have group coverage in which they are each named as dependents on the other's policy, then the person’s own group coverage will be considered primary. The secondary coverage (the spouses' coverage) will pick up where the first policy left off. If both parents name their children as dependents under their group policies, then the order of payment will usually be determined by the birthday rule, i.e. the coverage of the parent whose birthday is earlier in the year will be considered primary. Occasionally, the gender rule may also apply, according to which the father's coverage is considered primary. If the parents are divorced or separated, the policy of the parent who has custody of the children will be considered primary.

Answer 478

Under group insurance policies that offer hospital, medical, or surgical expense benefits, insurance may be extended to insure dependents, and in amounts in accordance with some plan which precludes individual selection. If a group disability insurance policy pays dividends or refunds premiums, the dividend or excess premium must be applied by the policyholder for the benefit of insured employees or their dependents. Group policies must provide equal benefits for the registered domestic partner of an employee, insured, or policyholder as to a spouse of an employee, insured, or policyholder. Insurers cannot discriminate in coverage between spouses or domestic partners of a different sex and spouses or domestic partners of the same sex.

Answer 479

A blanket policy covers members of a particular group when they are participating in a particular activity. Such groups include students, campers, passengers on a common carrier, or sports teams. Often the covered insureds names are not known because they come and go. Unlike group health insurance the individuals are automatically covered, and they do not receive a certificate of insurance. Blanket policies are commonly written and pay on an accident-only basis. The California Insurance Code permits insurers to offer blanket insurance to the following entities: Newspapers, magazines, or other similar publications for the purpose of insuring the following persons: Those who deliver publications or collect payments for the publication; Those who supervise the deliveries or collections; Those who are wholesalers; or Others in the distribution, sales, or marketing process of the publication; Religious, charitable, recreational, educational, athletic, or civic organizations; Employers who pay the benefits afforded by a voluntary plan of unemployment compensation disability insurance; Employers who provide benefits to any group of workers, dependents, or guests, limited to specified hazards incident to activities or operations of the policyholder; An entertainment production company that provides benefits to any group of participants, volunteers, audience members, or contestants. Blanket life insurance may be issued for a term not exceeding one year with premium rates less than the usual rates for such insurance. Blanket policies may be renewed. When the insured pays the policy premiums, the insured may request from the insurer a copy of the policy in the form of a certificate. A person may elect not to be covered by a blanket insurance plan by submitting a written request to the insurer. If more than 10% of the persons eligible for coverage elect not to participate, the insurance contract cannot be put into effect, or if it has been in effect, it cannot be renewed.

Answer 480

When a group is applying for medical expense insurance, there are several factors insurers will take into consideration in determining the group's eligibility and rating structure.

Answer 481

The underwriter’s function is to select risks, which are acceptable to the insurance company. The selection criteria used in this process, by law, must be only those items that are based on sound actuarial principles or expected experience. The underwriter cannot decline a risk based on blindness or deafness, genetic characteristics, marital status, or sexual orientation. When underwriting health insurance policies, the prime considerations are age, gender, occupation, physical condition, avocations, moral and morale hazards, and financial status of the applicant.

Answer 482

In determining an applicant's eligibility for insurance, insurers will consider the specific duties of the applicant's occupation. Such things as high employee turnover or dangerous job duties may affect an applicant's rating. Insurers will take into consideration the types of industry applying for group coverage.

Answer 483

Insurers will also take into consideration the location of the business (city or county). These factors aide insurers because they can use information based both on industrial classification and the demographics and health care costs in a particular area or zip code to assess risks and possible losses.

Answer 484

Insurers will also look at a group's carrier history. "Carrier" is another term for insurer or insurance company. In looking at a group's carrier history, insurers will look at the group's "stability," or how many different insurers a group has used in the past. "Longevity" is another factor insurers take into consideration when looking at a group's carrier history. Longevity refers to the amount of time a group has been with a certain carrier. The longer the group has been with a carrier, the lower the group's rates will be.

Answer 485

When writing medical expense insurance, insurers will take into consideration whether the applicant has any chronic or ongoing conditions. Chronic or ongoing is defined as prolonged, continuing, or lingering illness or disability. Issuance of health policies to insureds with chronic or ongoing conditions could result in immediate or very high claims within a short period of time. This results in adverse selection and, consequently, higher overall costs and premiums.

Answer 486

Catastrophic conditions (i.e. earthquakes, floods, fires, etc.) are also taken into consideration when writing medical expense insurance. Unusually large numbers of catastrophic losses in a very short period of time from the types of perils which are usually excluded from coverage and which do not allow for an accurate pattern of predictability will adversely slant the law of large numbers.

Answer 487

Insurers will also take into consideration whether the group applying for medical expense insurance is providing benefits for disabled employees who are not actively at work or disabled dependents of employees. As discussed earlier, the extension of benefits provision allows disabled employees to be treated the same as if they were not disabled at the time of termination of the previous group policy (from a former carrier).

Answer 488

Another factor insurers will use in determining a group's eligibility for medical expense insurance is whether or not the policy will be contributing or noncontributing. Contributing means that the cost of the insurance is shared by the employer and employees. If the policy will be contributing, insurers require that at least 75% of all eligible members of the group elect to participate and be covered by the plan. Insurers do this to avoid adverse selection because naturally people with poor health will elect to be in the plan. The "75% requirement" insures that some good and average risks will also elect to be covered, thus balancing out the poorer risks.

Answer 489

Finally, insurers will consider the number of employees participating in the group plan. As discussed in the last section, insurers have a participation percentage requirement. The number of employees and their eligible dependents is also taken into consideration. There should be no consideration of the disability of a dependent when the group member qualifies for coverage, beyond set guidelines which will apply to all dependents of those covered, so the dependent's insurability doesn't enter into rating or eligibility.

Answer 490

Some medical expense insurance plans contain a benefit schedule, which very specifically states exactly what is covered in the plan and for how much. Other plans may incorporate the term usual/reasonable/customary. Usual/reasonable/customary means that the insurance company will pay an amount for a given procedure based upon the average charge for that procedure in that specific geographic area.

Answer 491

Note that California Department of Insurance is the primary regulator of issuers of most PPO and EPO plans and other disability insurance companies. However, the Department of Managed Health Care, which began operation in July 2000, is the primary regulator of activities, management, and operations of HMOs and other providers of managed health care services, such as Point of Service plans, and some PPO and EPO plans. Because this agency has primary responsibility for enforcing the Insurance Code and other laws concerning the managed health care industry, the Department of Insurance exercises only limited oversight over providers in this area.

Answer 492

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that requires those who establish and maintain group health insurance and KEOGH Plans to file annual reports with the Department of Labor and the IRS. The annual reports must detail the following information: ``` Documentation of the trust agreement; The method of investment; Claim and benefit denials; Enrollment forms; Certificates of Participation; Annual statements; and Administrative records. ``` While the law does not require an employer to establish and maintain a pension plan, if such a plan exists, it must conform to the provisions of the law. The law prescribes which employees must be included in a plan, establishes minimum vesting requirements, specifies the amounts that must be contributed, and sets forth minimum funding requirements. In addition to the Secretary of Labor and to the Internal Revenue Service, the plan must disclose information regarding its operation and financial condition to those covered under the plan, as well as their beneficiaries.

Answer 493

The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) requires any employer with 20 or more employees to extend group health coverage to terminated employees and their families after a qualifying event. Qualifying events include the following: Voluntary termination of employment; Termination of employment for reasons other than gross misconduct (e.g. company downsizing); Employment status change: from full time to part time. For any of these qualifying events, coverage is extended up to 18 months. The terminated employee must exercise extension of benefits under COBRA within 60 days of separation from employment. The employer is permitted to collect a premium from the terminated employee at a rate of no more than 102% of the individual’s group premium rate. The 2% charge is to cover the employer’s administrative costs. For events such as death of the employee, divorce or legal separation, the period is 36 months for the dependents. It is important to remember that COBRA benefits apply to group health insurance, not group life insurance. In addition, unlike the conversion privilege in which the individual converts coverage to an individual health insurance policy, COBRA continues the same group coverage the employee had and the employee pays the group premium that the employer paid (or employer and employee paid if the plan was contributory). Note that under the Patient Protection and Affordable Care Act, coverage for children of the insured must extend until the adult child reaches the age of 26. The same age limit applies to COBRA coverage for eligible children of the insured. In addition, in the event of loss of dependent child status under the group plan, the dependent child qualifies for a maximum period of continuation coverage of 36 months. There are also several disqualifying events under which the COBRA benefits may be discontinued. These include failure to make a premium payment, becoming covered under another group plan, becoming eligible for Medicare, or if the employer terminates all group health plans.

Answer 494

Federal COBRA regulations apply only to companies with 20 or more employees. If the company has 2-19 employees, however, it falls under a state program called Cal-COBRA. Cal-COBRA is a state program modeled after the federal program and is administrated by the health insurance company directly. People signed up for COBRA or Cal-COBRA are eligible for up to 36 months of continuation coverage. Cal-COBRA requirements do not apply to the following individuals: Eligible to Medicare benefits (even if it's only Medicare Part A); Covered by another hospital, medical or surgical plan, or another group plan; Eligible for federal COBRA; Covered or eligible under Chapter 6A of the Public Health Service Act; Those who fail to submit the required premium.

Answer 495

Under the Family Medical Leave Act of 1993, an eligible employee is entitled to a total of 12 workweeks of leave during any 12-month period for one or more of the following: The birth of a child of the employee and in order to care for the newborn child within one year of birth; The placement of a child for adoption or foster care with the employee for adoption within one year of placement; In order to care for the spouse, child, or parent of the employee who has a serious health condition; Because of a serious health condition that makes the employee unable to perform the duties of his/her job; or Any qualifying need arising out of the fact that the employee's spouse, child, or parent is a covered military member on covered active duty. Except if the employee takes leave on an intermittent or reduced-leave schedule, any eligible employee who takes leave under FMLA for the intended purpose of the leave is entitled, on return from leave to following: To be restored to the position of employment held when the leave began; or To be restored to an equivalent position with equivalent employment benefits, pay, and other terms and conditions of employment. According to the law, taking leave under FMLA cannot result in the loss of any employment benefit, such as group medical expense insurance, earned prior to the date on which the leave began.

Answer 496

prohibits employers from rejecting job applicants with disabilities on the foundation that disabled employees will increase costs of group health care benefits. Additionally, this law prohibits employers from rejecting applicants for employment whose spouses, children, or dependents are disabled on the grounds that they would be covered by the group plan.

Answer 497

California's Fair Employment and Housing Act (FEHA) prohibits employers from discriminating against an employee who has become pregnant or who is requesting leave associated with pregnancy. According to the California Pregnancy Disability Leave Act (PDLL), employers are required to provide up to 4 months of leave for an employee whose disability was caused by pregnancy or pregnancy-related conditions.

Answer 498

The Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA) is a federal law that requires coverage parity for mental health benefits with benefits under the insured's medical/surgical coverage. The following coverage requirements apply to large group plans (with more than 50 employees) that offer mental health benefits along with medical/surgical benefits: Deductibles, copayments, and treatment limitations for mental health benefits cannot be more restrictive than for any other medical benefit; Providers cannot impose separate cost sharing requirements for mental health benefits. The Affordable Care Act enacted rules on how health insurance issuers carry out these requirements.

Answer 499

Legislation that took effect in July 1997 ensures "portability" of group insurance coverage and includes various required benefits that affect small employers, the self-employed, pregnant women, and the mentally ill. HIPAA (Health Insurance Portability and Accountability Act) regulates protection for both group health plans (for employers with 2 or more employees) and for individual insurance policies sold by insurance companies. HIPAA includes the following protection for coverage: Group Health Plans Prohibiting discrimination against employees and dependents based on their health condition; Allowing opportunities to enroll in a new plan to individuals in special circumstances. Individual Policies Guaranteeing access to individual policies for qualifying individuals; Guaranteeing renewability of individual policies. Eligibility HIPAA has regulations regarding eligibility for employer-sponsored group health plans. These plans cannot establish eligibility rules for enrollment under the plan that discriminate based on any health factor relating to an eligible individual or the individual's dependents. A health factor includes any of the following: Health status; Medical conditions (both physical and mental); Claims experience; Receipt of health care; Medical history; Genetic information; Disability; or Evidence of insurability, which includes conditions arising out of acts of domestic violence and participation in such activities as motorcycling, skiing, snowmobiling, etc. Employer-sponsored group health plans may apply waiting periods prior to enrollment as long as they are applied uniformly to all participants.

Answer 500

an individual must meet the following criteria: Have 18 months of continuous creditable health coverage; Have been covered under a group plan in most recent insurance; Have used up any COBRA or state continuation coverage; Not be eligible for Medicare or Medicaid; Not have any other health insurance; Apply for individual health insurance within 63 days of losing prior coverage. Such HIPAA-eligible individuals are guaranteed the right to purchase individual coverage.

Answer 501

If the new employee meets the requirements, the employer must offer coverage on a guaranteed issue basis.

Answer 502

Under HIPAA, a pre-existing condition is a condition for which the employee has sought medical advice, diagnosis, or treatment within a specified period of time prior to the policy issue.

Answer 503

The concept of creditable coverage means that an insured must be given day-for-day credit for previous health coverage against the application of pre-existing condition exclusion period when moving from one group health plan to another, or from a group health plan to an individual plan. Prior to the enactment of the Affordable Care Act (ACA), individual insureds were entitled to receive credit for previous creditable coverage that occurred without a break of 63 (or more) consecutive days. The ACA has prohibited pre-existing condition exclusions and eliminated waiting period in excess of 90 days; it also eliminated the requirement to issue HIPAA group health plans certificates of creditable coverage after December 31, 2014.

Answer 504

At the plan sponsor's option, the issuer offering group health coverage must renew or continue in force the current coverage. However, the group health coverage may be discontinued or nonrenewed because of nonpayment of premium, fraud, violation of participation or contribution rules, discontinuation of that particular coverage, or movement outside the service area or association membership cessation.

Answer 505

The Patient Protection and Affordable Care Act (PPACA), or the Affordable Care Act (ACA), for short, was signed into law on March 23, 2010, as part of the Health Care and Education Reconciliation Act of 2010, to be implemented in phases until fully effective in 2018. Since the bill is a federal law, state regulations are superseded by the PPACA and must conform accordingly. The Affordable Care Act has mandated increased preventive, educational, and community-based health care services, and was designed to do the following: Set up a new competitive private health insurance market; Hold insurance companies accountable by keeping premiums low, preventing denials of care and allowing applicants with pre-existing conditions to obtain coverage (pre-existing conditions exclusions have been eliminated as of January 2014); Help stabilize budget and economy through reducing the deficit by cutting government overspending; and Extend coverage for adult children in both individual and group health plans until age 26.

Answer 506

The Health Insurance Marketplace makes health coverage available to any uninsured individuals. To be eligible for health coverage through the Marketplace, the individual Must be a U.S. citizen or national or be lawfully present in the United States; Must live in the United States; and Cannot be currently incarcerated. If an individual has Medicare coverage, that individual is not eligible to use the Marketplace to buy a health or dental plan.

Answer 507

A group health plan or a health insurance issuer offering group or individual health insurance coverage may not establish rules for eligibility based on any of the following health status-related factors related to individuals or their dependents: Health status; Medical condition (including both physical and mental illnesses); Claims experience; Receipt of health care; Medical history; Genetic information; Evidence of insurability (including conditions arising out of acts of domestic violence); Disability; or Any other health status related factor. When health insurers set their premium rates, they are only permitted to base those rates on 4 standards: Geographic rating area (location of residence within the state); Family composition (single or family enrollment); Age; and Tobacco use. For individual plans, the location is the insured's home address; for small group plans, the location is the employer's principal place of business.

Answer 508

Essential benefits include hospitalization, maternity, emergency services, wellness and preventive services, and chronic disease management. Note that all Health Insurance Marketplace plans must cover pregnancy and childbirth, even if pregnancy begins before the coverage takes effect.

Answer 509

Insurance companies must accept any eligible applicant for individual or group insurance coverage. Enrollment for coverage may be restricted to open or special enrollment periods.

Answer 510

An insurance company that offers either group or individual health insurance coverage must renew or continue the policy at the option of the plan sponsor or the individual.

Answer 511

The law creates a new program, the Pre-Existing Condition Insurance Plan, to make health coverage available to individuals who have been denied health insurance by private insurance companies because of a pre-existing condition.

Answer 512

If insurers rescind individual or group coverage for reasons of fraud or an intentional misrepresentation of material facts by the insured, they must provide at least 30 days' advance notice to allow the insured time to appeal. An enrollee or insured has the right to review their file, to present evidence and testimony as part of the appeal process, and to keep their coverage in force pending the outcomes of the appeals process

Answer 513

The law extends coverage for children of the insured to age 26 regardless of their marital status, residency, financial dependence on their parents, or eligibility to enroll in their employer's plan.

Answer 514

Health plans are restricted from applying a dollar limit on essential benefits, nor can they establish a dollar limit on the amount of benefits paid during the course of an insured's lifetime.

Answer 515

Emergency services must be covered, even at an out-of-network provider, for amounts that would have been paid to an in-network provider for the same services.

Answer 516

The ACA requires that 100% of preventive care be covered without cost sharing. Preventive care includes routine checkups, screenings, and counseling to prevent health problems.

Answer 517

A group health plan must ensure that any annual cost-sharing imposed does not exceed provided limitations. The ACA has established insurance exchanges that will administer health insurance subsidies and facilitate enrollment in private health insurance, Medicaid and the Children's Health Insurance Program (CHIP). An exchange can help the applicant to do the following: Compare private health plans; Obtain information about health coverage options to make educated decisions; Obtain information about eligibility or tax credits for most affordable coverage; Enroll in a health plan that meets the applicant's needs.

Answer 518

Under PPACA, plans are classified into 5 categories of coverage in the Marketplace: four "metal level" plans and catastrophic plans. The metal levels plans pay different amounts of the total costs of an average person's care. The actual percentage the insured will pay in total or per service will depend on the services used during the year. On average, the metal level plans will pay as follows: ``` Bronze: 60% Silver: 70% Gold: 80% Platinum: 90% Under the bronze plan, for example, the health plan is expected to cover 60% of the cost for an average population, and the participants would cover the remaining 40%. Participants with severe disease may pay significantly more. ``` All insurers that offer adult and family coverage under the metal levels must also offer child-only coverage. Young adults under age 30, and individuals who cannot obtain affordable coverage (have a hardship exemption) may be able to purchase individual catastrophic plans that cover essential benefits. These plans offer lower monthly premiums but also feature high deductibles (several thousand dollars). The insured is usually required to pay all medical costs up to a certain amount. After the insured reaches the deductible, costs for essential health benefits will be by the catastrophic plan.

Answer 519

The Medical Loss Ratio (MLR) indicates how much of the health coverage premium must go toward actual medical care, as opposed to administrative costs and profits. Under the Affordable Care Act, consumers will receive more value for their premium dollar because insurance companies are required to spend 80% (individual and small group markets) or 85% (large group markets) of premium dollars on medical care and health care quality improvement, rather than on administrative costs. That means that only 15%-20% of the premium may be applied to administrative expenses. Insurers who fail the MLR test for a calendar year will be required to provide a rebate to their customers and refund excess premiums.

Answer 520

State insurance exchanges offer coverage through qualified health plans (QHPs). Qualified health plans may not have pre-existing condition limitations, lifetime maximums, or annual limits on the dollar amount of essential health benefits. health plan's status as a qualified health plan will be based on the following characteristics of the plan: Benefit design; Marketing practices; Provider networks, including community providers; Plan activities related to quality improvement; and The use of standardized formats for consumer information.

Answer 521

As mandated by the Affordable Care Act, all private health insurance plans offered in the Marketplace must provide the same set of essential health benefits. All health care plans must include at least the following 10 essential benefits: Ambulatory patient services; Emergency services; Hospitalization; Pregnancy, maternity and newborn care; Mental health and substance use disorder services, including behavioral health treatment; Prescription drugs; Rehabilitative and habilitative services and devices; Laboratory services; Preventive and wellness services and chronic disease management; and Pediatric services, including oral and vision care.

Answer 522

State insurance exchanges must provide for an initial open enrollment period, annual open enrollment periods after the initial period (currently scheduled from November 1 through January 31), and special enrollment periods. Unless specifically stated otherwise, individuals or enrollees have 60 days from the date of a triggering event to select a qualified health plan. Triggering, or qualifying, events include marriage, divorce, birth or adoption of a child, change in employment, or termination of health coverage. Qualified individuals and enrollees may enroll in or change from one qualified health plan to another as a result of the following triggering events: A qualified individual or dependent loses minimum essential coverage; A qualified individual gains a dependent or becomes a dependent through marriage, birth, adoption or placement for adoption; An individual who was not previously a citizen or lawfully present individual who gains such status; A qualified individual's enrollment or non-enrollment in a qualified health plan is unintentional or erroneous and is the result of the error, misrepresentation, or inaction of an officer, employee, or agent of the exchange; An enrollee adequately demonstrates that the qualified health plan in which he or she is enrolled substantially violated a material provision of its contract; An individual is determined newly eligible or newly ineligible for advance payments of the premium tax credit or has a change in eligibility for cost-sharing reductions, regardless of whether such individual is already enrolled in a qualified health plan; A qualified individual or enrollee gains access to new qualified health plans as a result of a permanent move; A Native American, as defined by the Indian Health Care Improvement Act, may enroll in a qualified health plan or change from one qualified health plan to another one time per month; and A qualified individual or enrollee demonstrates that he or she meets other exceptional circumstances as the exchange may provide.

Answer 523

Enrollment in the Health Insurance Market place began in October 2013, and tax credits for those who qualify became available in 2014. After submitting an application for health insurance for a qualified health plan, individuals will be able to take an advance tax credit to reduce the cost of their health care coverage if purchased through an exchange. For the purposes of the premium tax credit, household income is defined as the Modified Adjusted Gross Income (MAGI) of the taxpayer, spouse, and dependents. The MAGI calculation includes income sources such as wages, salary, foreign income, interest, dividends, and Social Security. Legal residents and citizens who have incomes between 100% and 400% of the Federal Poverty Level (FPL) are eligible for the tax credits. States have the option of extending Medicaid coverage to people under 138% of the FPL. Persons who receive public coverage like Medicare or Medicaid are not eligible for the tax credits. Persons who are eligible for a premium tax credit and have household incomes between 100% and 250% of FPL are eligible for cost-sharing subsidies (reductions). Eligible individuals will be required to purchase a silver level plan in order to receive the cost-sharing subsidy. The tax credit is sent directly to the insurance company, and reduces the insured's monthly health care premiums. Tax credits are based upon the individual's or family's expected annual income.

Answer 524

offer health plans may be eligible for federal tax credits, depending on the average wages and size of the employer. These tax credits, available to low-wage employers (under $50,000 average per employee) with 25 or fewer workers, may cover up to 50% of premiums paid for small business employers and 35% of premiums paid for small tax-exempt employers. To be eligible for the credit, a small employer must pay premiums on behalf of employees enrolled in a qualified health plan offered through a Small Business Health Options Program (SHOP). The credit is available to eligible employers for 2 consecutive taxable years. Know that in California, advance premium tax credits (APCTs) may be available to most households with income not exceeding 400% FPL. The credit is calculated by California Health Benefit Exchange (Covered California) and paid by the Exchange to insurers.

Answer 525

The Affordable Care Act requires all U.S. citizens and legal residents to have qualifying health care coverage. This is known as the individual mandate, and is part of the Act's Shared Responsibility Provision. If the individual does not have qualifying health care, a tax penalty will be assessed, based on the individual's taxable income, number of dependents, and joint filing status. The shared responsibility payment for not obtaining or maintaining the minimum essential benefits coverage will be required to be paid for each month an individual went without coverage or an exemption. If coverage was active for at least one day within the taxable year, then the individual will not owe the payment for that month. Certain groups, such as members of Indian tribes, religious objectors, persons in prison, undocumented aliens, and those with severe financial hardship or who are below the tax filing threshold (those who are not required to file income tax returns) are exempt from the penalty.

Answer 526

Covered California is the state's benefit Exchange under reform law. It provides coverage to households above 138% of FPL, with subsidies available up to 400% FPL. Covered California offers 4 health plan levels: platinum, gold, silver, or bronze, that range from 10% to 40% of the customer's share of health care costs. Subsidies are available for low income households: Advanced Premium Tax Credit (APTC) for households under 400% FPL and Cost-Sharing Reductions (CSR) for households under 250% FPL.

Answer 527

Small Business Health Options Program (SHOP) is a health insurance marketplace available from Covered California for businesses with 1 to 50 eligible employees. Enrollment in SHOP is available year round. Employers may choose plans from 4 levels of coverage: Bronze, Silver, Gold, and Platinum, as well as Dual Tier Choice, which allows them to select 2 adjoining metallic tiers. Small businesses that buy health insurance through Covered California may qualify for federal tax credits to offset part of their costs. To qualify for the credits, employers must have fewer than 25 full-time equivalent employees, pay employees an average annual salary of less than $50,000, and contribute at least 50% towards qualified employee premium costs.

Answer 528

All agents interested in selling for the Covered California marketplace must have a valid license with the California Department of Insurance and complete Covered California's training and certification program. Initial agent certification training is provided entirely online through a computer-based system and covers a range of information and instruction on the following topics: The Affordable Care Act; Covered California for Small Business; Agent roles and responsibilities; Eligibility for individuals and families; and Privacy requirements. Upon completion, agents must pass the certification exam with a score of 80% or better. After the initial training, Certified Insurance Agents must be recertified every 5 years.

Answer 529

is designed to replace lost income in the event of this contingency, and is a vital component of a comprehensive insurance program. It may be purchased individually or through an employer on a group basis.

Answer 530

To pay benefits, a disability income policy will require for the insured to not be able to perform the duties of his or her occupation. The benefits will also depend on the definition of disability chosen for the policy.

Answer 531

This definition is usually limited to the first 24 months after a loss. It allows insureds (claimants) to receive benefits if, because of disablement, they cannot perform the duties of their normal occupation even though they might be able to earn income from a different occupation. After 24 months, if the insured is still unable to perform the duties of his or her own occupation, the definition of disability narrows to mean the inability to perform any occupation for which the insured is reasonably suited by education, training, or experience. This is a dramatic reduction in the insurer's liability because it is very likely that claimants can find something they can do for financial gain. The “own occ” definition is generally used for highly trained, skilled occupations such as surgeons, trial attorneys, etc.

Answer 532

A policy that has an "any occupation" provision will only provide benefits when the insured is unable to perform any of the duties of the occupation for which they are suited by reason of education, training, or experience. "Own occupation" is the more liberal definition and therefore provides a better benefit for the insured. Although some companies still utilize the two-tier approach by combining both definitions in a single disability income policy, from an underwriting standpoint, it is much easier for an insurance company to justify the "any occupation" definition when agreeing to issue a policy.

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