LAH 17-Chapter

Crunch Time Facts

Life, Accident And HeALtH

v03

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Crunch Time Facts

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The Crunch Time Facts are a collection of statements that we believe are valuable as you engage in the final preparation to sit for your examination. These facts are not designed to raise questions; instead,

they’re to be part of your final review for use with any notes that you created during your studies.

CHAPTER 1 INTRODUCTION TO LIFE INSURANCE • A certain gain or loss doesn’t need to exist for a risk to be insurable. • A catastrophic exposure makes a risk uninsurable. • A policyowner's (and insured’s) consideration is the premium paid and representations on an application. • Life insurance immediately creates an estate. • Pure risk is the only form of risk that’s insurable. • To be insurable, a risk must be measurable and calculable. • Underwriting large groups or associations reduces adverse selection. • Mortality tables measure the death rate or probability of death. • Insurable interest doesn’t need to exist at the time of loss / death. • When one party makes a proposal for insurance, an offer has been made. • A conditional feature means that both parties must satisfy certain aspects before the agreement is executed. • Insurable interest must exist at the time of application or at the inception of coverage. • Lloyds Organization is a syndicate that shares underwriting information. • A quota share reinsurance arrangement requires the reinsurer to agree to a specific percentage of the risk. • A principal is responsible for any unauthorized acts of an agent as long as the agency contract is in force.

CHAPTER 2 LAW OF CONTRACTS AND OTHER CONTRACT FEATURES • An insurance policy is a unilateral contract since only the insurer draws up the language. • A premium paid for coverage with no guarantee of a benefit being paid symbolizes the aleatory nature of a

contract.

CHAPTER 3 FIELD AND HOME OFFICE UNDERWRITING AND POLICY DELIVERY • MIB is comprised of information that’s shared by insurance companies. • A statement of good health may need to be collected at policy delivery. • If a person is denied insurance, a job, or a loan, results of the consumer report must be disclosed. • On most applications, two signatures are required — the agent and the applicant. • An insurance policy is issued by an insurer, not an agent. • A producer must provide a buyer’s guide and policy summary to a consumer at time of application, but by no later

than at policy delivery. • Substandard risk that’s written will have a higher premium than a standard risk. • The primary purpose of the MIB is to discover misrepresentation and fraud. • When a parent buys insurance on her child, the child must sign the application unless the child is a minor

(generally under the age of 18). • A credit report is a type of consumer report.

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CHAPTER 4 LIFE INSURANCE POLICIES • A modified life policy has a lower premium than traditional whole life in the first few years. • In a Universal Life policy, investment gains are credited to the cash value. • In Universal Life insurance, the space between the death benefit and cash value is referred to as a corridor. • Level term life is renewable without being required to prove insurability. • In any permanent insurance policy, the cash value is tax-deferred. • Universal Life insurance has a flexible premium and provides level renewable term insurance each year. • The amount of credit life insurance purchased may not exceed the amount of any loan. • Joint life insurance pays and terminates when the first insured dies • Survivorship life insurance pays the death benefit when the last survivor dies • Death benefit in a decreasing term policy is reduced each year • The gains in a Universal Life policy are credited to the cash value • Conversion from a term life to a whole life plan is allowed without proving insurability • Renewable term allows you to renew at a higher premium without insurability • For cash value accumulations to receive favorable tax treatment, a specific percentage of UL premiums must be

used to pay for the death benefit • Credit life plans provide decreasing term insurance • Term insurance contains no cash value and has premiums that increase over a period of time • An agent must possess a FINRA license (as well as life insurance license) to sell Variable life insurance

CHAPTER 5 LIFE INSURANCE POLICY PROVISIONS • In life insurance policies, most grace periods are 31 days (although some are 30 days). • When an insured dies, any outstanding policy loan is deducted from the death benefit. • If an insured dies before the primary beneficiary in a common accident, proceeds are paid to the primary

beneficiary’s estate. • An incontestable clause allows the insurer to contest a claim that occurs during the first two years of the contract. • The suicide clause excludes suicide if it’s committed in the first two years of a contract. • The automatic premium loan provision keeps a policy in force when a premium is due and has not yet been paid. • Collateral assignment occurs when a borrower transfers access to a portion of his policy’s death benefit to a

lender. • A change made to a life insurance policy doesn’t need to be countersigned by an agent, but it must be signed by a

company officer.

CHAPTER 6 LIFE INSURANCE POLICY OPTIONS AND BENEFIT RIDERS • When the “paid-up” dividend option is selected, permanent insurance is purchased. • A payor rider is added to a juvenile insurance policy. • The reduced paid-up insurance option provides the same type of insurance as the policy surrendered. • A policy’s cash value is used to pay the premium when a non-forfeiture option is selected (except for cash

surrender). • In a fixed period installment, the insured or beneficiary determines the period during which the benefit is paid.

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• The guaranteed insurability rider allows an insured to buy more insurance in the future without insurability. • The one-year term dividend option provides a different type of insurance than a primary policy. • The extended term insurance non-forfeiture option provides same type of insurance as the policy being

surrendered. • Under a non-forfeiture option, cash value is not used to fund an automatic premium loan. • Life or viatical settlement allows the life insurance policyowner to sell the policy to a firm that wants to buy it. • A whole life policy that’s over funded is a modified endowment contract (MEC).

CHAPTER 7 ANNUITIES • An immediate annuity has no accumulation period. • In a variable annuity, funds are invested in a separate account. • In a fixed annuity, funds are invested in the insurer’s general account. • An equity indexed annuity (EIA) provides a guarantee with the chance of more appreciation. • Parents or grandparents can set up a deferred annuity to provide education funds for children and grandchildren. • In an annuity, the death benefit is the value of the account at the time of the owner’s death. • A certain annuity provides a guaranteed refund. • Market value adjusted annuity is subject to a surrender charge and market value adjustment due to any early

termination by the owner. • An agent or producer determines the suitability of an annuity for a consumer. • To determine the suitability of an annuity, a producer will consider the consumer’s investment objectives, income

level, and tax status. • Regarding the suitability of an annuity, a producer is NOT required to consider the education level of a consumer.

CHAPTER 8 TAX TREATMENT OF LIFE INSURANCE AND ANNUITIES • Dividends paid on a life insurance policy are tax-free. • Cash value that’s credited to a life insurance policy is tax-deferred. • Policy loans are not taxable. • The death benefit from a life insurance policy (or any policy with a death benefit) that’s paid to a beneficiary is

income tax-free. • A life insurance policy is considered a modified endowment contract when it violates the seven-pay test. • Annuity growth is tax-deferred during the accumulation period. • The 1035 exchange provision allows a person to swap an older policy for a more current one. • Proceeds from a life insurance policy will be partially taxable if they’re paid out in installments (interest is

taxable).

CHAPTER 9 QUALIFIED RETIREMENT PLANS AND GROUP LIFE INSURANCE • 401(k) plans involve a matching element. • To comply with ERISA minimum participation standards, qualified retirement plans must allow the enrollment of

all employees who are over the age of 21 and have one-year of full-time service. • A Keogh plan is also referred to as an HR-10 plan. • SEPs and Keogh plans are designed for self-employed persons.

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• At retirement, distributions from a traditional IRA are subject to taxation, while those from a Roth IRA are not. • Withdrawals from qualified plans that are taken prior to the age of 59 1/2 are subject to a tax penalty; however,

some exceptions apply (e.g., death and disability).

CHAPTER 10 BUSINESS USES OF LIFE INSURANCE • An entity plan means that the business buys life insurance on each partner. • A stock redemption plan is a business continuation plan for a corporation that’s funded by life insurance. • Entity and cross purchase plans are types of business continuation plans. • A salary continuation plan is a type of deferred compensation program.

CHAPTER 11 ACCIDENT AND HEALTH INSURANCE BASIC CONCEPTS AND PRINCIPALS • The consideration of an insured in an A&H policy is the premium paid and representations. • A misrepresentation is a false statement that’s made by an applicant or insured. • Policies that pay on a UCR basis refers to a standard range of fees that a physician charges in a specific

geographical area. • A subscriber consults with the Primary Care Physician (PCP) when she has questions about treatment. • A PCP (not the HMO Director or Manager) refers subscribers to a specialist when necessary. • Subscribers are NOT required to notify an HMO when they seek emergency care. • A point of service plan is a combination of a PPO and an HMO. • Employers are NOT required to subscribe to all of the coverages that are offered by a MET or MEWA.

CHAPTER 12 MARKETING, UNDERWRITING, AND POLICY DELIVERY • Non-contributory plans require employers to cover 100% of all eligible employees. • Contributory plans require participation of at least 75%. • MIB is comprised of information that’s shared by insurance companies. • A credit check is a type of consumer report. • The free-look period begins when a policy is delivered to the insured. • Substandard risks can be written with a rated or increased premium. • Both the agent and applicant must sign the application for health insurance.

CHAPTER 13 DISABILITY INCOME INSURANCE • Residual disability pays when an insured cannot earn as much as he did before the disability. • Morbidity data statistically indicates the length of time the average person will be disabled. • “Accidental means” indicates that the cause and the effect of an injury must be accidental or there’s no coverage.

For instance, the act of jumping off of a bus is not unforeseen or accidental. • A broken ankle as the result of jumping off of a ladder is an accident (covered by policies that cover an accidental

bodily injury, but not by those covering accidental means). • Presumptive forms of disability are considered to be total disability. • Business Overhead Expense insurance pays for business expenses when the owner of the business is totally

disabled.

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• Group disability policy benefits (STD or LTD) are reduced by the amount that’s collected from social insurance (e.g., Workers’ Compensation).

• Most disability income plans exclude those who are injured while in military service. • Benefits that are paid to an employee by an employer-paid group disability plan are taxable to the employee. • Short-term disability provides coverage for up to six months. • Loss of sight, hearing, and speech is presumptive disability and is total in nature. • The guaranteed insurability rider allows the insured to buy more insurance in the future without insurability.

CHAPTER 14 INDIVIDUAL AND GROUP MEDICAL EXPENSE POLICIES • A limited policy that’s referred to as a blanket policy can be used to cover members of a sports team or students at

a college or university. • An employer administered plan that’s self-funded uses a third party administrator (TPA). • A PPO is a group of doctors and hospitals in a designated area that negotiate prearranged lower health care costs. • Comprehensive health plans cover all types of losses, with the exception for those that are excluded. • Physical examinations are not required (as in disability or medical plans) when buying AD&D coverage. • Most dental plans include a deductible and coinsurance. • The phrase “fee for service” means that a scheduled amount of benefit for medical services is provided. • In most cases, children may be covered under their parent’s medical plans up to the age of 26. • Group A&H policies (other than medical plans) provide coverage for dependents up to the age of 19, but can

cover full-time students up to the age of 23. • Limited policies may be purchased by consumers who are age 65 and older. • The experience rating is used for the underwriting of larger groups and bases the premiums on the claim

experience of the group. • Medical expenses that are the result of intentionally self-inflicted injuries are excluded. • Medical plans exclude expenses for cosmetic surgery (unless it’s necessary as a result of an accident). • “Guaranteed renewable” means that a person can renew her policy, but the premium can increase based a class

(e.g., occupational class or geographical class). • A flexible spending account can be used for medical expenses, drugs, vision care, and dental care, but NOT for

cosmetic surgery (unless it’s necessary as the result of an accident). • Cost containment provisions, such as a second surgical opinion, are included to contain or reduce medical costs. • The community rating is used for smaller groups and uses an identical premium structure for all subscribers. • Insurers don’t like employers that frequently change insurance companies since it prevents them from recovering

their acquisition (underwriting) costs. • If a person has a high-deductible health plan, he has a Medical or Health Savings Account. • Endodontics means dental coverage for root canals and treatment of diseases of the dental pulp. • Prosthodontics means dental coverage for denture and bridgework. • Polices with a second surgical opinion benefit are advantageous to employers since they help contain costs. • Policies that cover employees in several states are governed by the laws of the state in which the master contract

is delivered. • Preadmission testing is required to ensure hospitalization is necessary. • Concurrent review is necessary to confirm that a hospital stay is necessary. • Trade associations and self-funded groups use Third Party Administrators (TPA) to manage medical coverage. • Small employer medical expense insurance is available in most states for small groups (those with fewer than 51

employees).

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• ERISA protects the interests of plan participants and dependents/beneficiaries.

CHAPTER 15 INSURANCE FOR SENIOR CITIZENS AND SPECIAL NEEDS INDIVIDUALS • Intermediate care is also referred to as intermittent care. • Long-term care insurance is guaranteed renewable. • Respite care is provided when the primary care giver is at work. • Custodial care is provided by a person who has NO medical training. • If LTC coverage is being replaced, both the agent and consumer must sign a notice regarding replacement. • Non-forfeiture options and inflation protection must be offered to purchasers of LTC insurance. • Activities of daily living include dressing, eating, ambulation, bathing, and continence, but NOT activities such as

driving or raking leaves. • The definition of Social Security disability states that the physical or mental impairment must be expected to last

for at least 12 months. • Medicare covers some skilled nursing care, but only after a hospitalization. • Medicaid is used by those who have limited assets or low income. • Medicare is secondary regarding end stage renal disease (kidney disease). • In a Medicare Supplement policy, the 365 additional days of coverage are part of the core benefits. • Medicare Supplement is guaranteed renewable for life.

CHAPTER 16 ACCIDENT AND HEALTH POLICY PROVISIONS • The Time Limit on Certain Defenses provision gives an insurer the opportunity to cancel a policy for material

misrepresentations for a certain period. • Most grace periods are 31 days; however, if the A&H policy premium is paid monthly, the grace period is 10 days

(seven days if it’s paid weekly). • If a policy is returned during free-look period, a full premium refund is provided. • The preexisting condition provision protects an insurer against adverse selection. • When an insurer terminates a policy, it means that coverage is cancelled.

CHAPTER 17 STATE INSURANCE LAW • Offering a consumer something of value in return for the purchase of an insurance policy is considered rebating. • A producer or agent who violates an insurance law will be subject to a possible fine, license suspension, and/or

imprisonment. • An agent who attempts to intimidate a consumer has engaged in coercion. • When the replacement of a policy occurs, the consumer must be made aware of any reduction in benefits. • The Commissioner or Superintendent of Insurance must have access to all books and records upon demand. • Assumed or fictitious names may be used as long as prior approval to use them has been granted by the

Department of Insurance. • A prohibited person may only secure an insurance license if he receives permission from an insurance regulatory

official or the Commissioner. • Twisting is a type of misrepresentation and is illegal. • When an insurer cancels the appointment of a producer (i.e., agent), it must notify the state within 30 days of the

termination.

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• When a producer or agent changes her address, she must provide written notice to the state within 30 days. • Policy forms must be approved by the Commissioner to protect the public from any unfair provisions. • Newborn infants are covered under insurance policies from the moment of birth. • Controlled business occurs when a producer writes insurance primarily on risks of immediate family members or

employees. • The reporting of an administrative action taken against a producer by another Commissioner must be reported to

current state within 30 days of any final disposition or decision. • A temporary license may be issued to the next of kin or a partner when a licensee dies or becomes disabled. • An insurer who attempts to force a claimant to arbitration has engaged in an unfair claim practice. • A producer is responsible for ensuring that a life insurance or annuity product is suitable for a consumer. • Disclosing false information about the financial condition of a competing insurer is referred to as defamation.