Life and Health Insurance Exam Xcel Solutions

Concept of insurance - The transfer of risk from one party to another through a legal contract. Law of Large Numbers - The larger the number of risks insured in the same risk pool; the more predictable losses become. Peril - An immediate, specific event that causes a loss. Loss - An unintended, unforeseen reduction, or destruction of financial or economic value. Hazard - Creates an increased possibility that a peril (a cause of a loss) will actually occur. Occurrence - Is any event that causes a loss. Risk - Risk is defined as thepotential or uncertainty for loss. Speculative risk - A situation in which either profit or loss is possible, not insured. Industrial life insurance - Issues very small face amounts, such as $1,000 or $2,000. Premiums are paid weekly and collected by debit agents. They were designed for burial coverage. Ordinary life insurance - Life insurance of commercial companies not issued on the weekly premium basis. It is made up of several types of individual life insurance, such as temporary (term), permanent (whole). Group life insurance - Insurance written for members of a group, such as a place of employment, association, or a union. Coverage is provided to the members of that group under one master contract. The group is underwritten as a whole, not on each individual member. One of the benefits of group life coverage is usually there is no evidence of insurability required. Term life insurance - Life insurance that pays a death benefit if the policyholder dies within a specific time period but has no remaining value at the end of this time. Whole life insurance - Sometimes called straight life insurance or ordinary life insurance; can provide lifetime insurance coverage; in this case, fixed premiums are paid for life; pays interest on the cash value portion with a guaranteed minimum interest rate during life of the contract. Joint survivor or last survivor life policies - Cover the lives of two individuals and saves on premium costs by averaging the ages of the two insureds. Joint Life Survivor or Last Survivor policies only pay the death benefit upon the death of the last insured person. For example, say B and M purchase a joint life survivor policy. If B were to die first and then M died 10 years later, no benefits would be paid out from the policy until M died. A Joint Life and Survivor policy covers two lives but only pays benefits after the death of the last insured. Family maintenance policy - Pays a monthly income from the date of death of the insured to the end of the preselected period. Family income policy - Combines Whole Life insurance with a Decreasing Term Rider also written on the same person. Adjustable life policy - Whole life insurance policy, but you can change your policy as your needs change. You can change your premium payments to increase or decrease coverage. Universal life insurance policy - Incorporates flexible premiums and an adjustable death benefit. The investment gains from a Universal Life Policy usually go toward the cash value. The policy owner can use the cash value to manipulate the flexible aspects of a universal life insurance policy. A customer who wants a policy that gives them the most options and the most control would be looking for a Universal Life Policy. Universal policies use gains to fund the cash value and give the policy owner options for flexible premiums and adjustable death benefits. Variable Life Insurance - Life insurance in which the benefits are a function of the returns being generated on the investments selected by the policyholder. Equity index universal life insurance - Combines most of the features, benefits, and security of traditional life insurance with the potential of earned interest based on the upward movement of an equity index. Cash value - The equity amount or "savings" accumulation in a whole life policy. Endowment policy - Is a contract providing for payment of the face amount at the end of a fixed period, at a specified age of the insured, or at the insured's death before the end of the stated period. Face amount plus cash value policy - Contract that promises to pay at the insured's death the face amount of the policy plus a sum equal to the policy's cash value. Juvenile Insurance - Written on the lives of children who are within specified age limits and generally under parental control. Non-medical life insurance - Typically does not require a medical exam and tends to be more expensive than medically underwritten policies. The insurer will average out everyone's risk and charge accordingly. Although insurers typically will not require a medical exam, they will still inquire about the applicant's medical history and lifestyle. Target premium - Is a suggested premium used in Universal Life policies. It does not guarantee there will be adequate funds to maintain the policy to any time, especially to life. It may give an indication of what will be needed (under conservative estimates), to maintain the policy. Accidental death benefit rider - Pays a multiple of the death proceeds if the cause of death is a covered accidental event. Accelerated benefits rider - Allows the insured to receive a portion of the death benefit before death if the insured has a terminal illness and is expected to die within 1-2 years. Whatever amount is withdrawn in an accelerated death benefit will decrease the death benefit when death occurs. Accumulate interest options - Allows dividends to accumulate interest. Interest is the ONLY thing you can be charged tax on. Automatic premium loan provision - An overdue premium is automatically borrowed from the cash value after the grace period expires. Cash option - The "cash" dividend option allows the policy owner to cash out the dividends they receive. Cash surrender option - A nonforfeiture option that allows whole life insurance policy owners to receive a payout of their policy's cash values. Collateral assignment - Assignment of part of the proceeds of an insurance policy to a bank as collateral to settle the loan balance that may exist at the insured's death. Consideration clause - A clause in a Life policy specifying the premium due for the insurance protection and the frequency of payment (also called Mode). The more frequent the Mode of Payment, the higher the cost, since most insurers charge service fees for budget payments. The cheapest Mode is annual. Dependent riders - (Other Insureds Rider): Dependents may be added to as additional (other) insureds through the use of a dependent rider. Other insured riders are typically used for spouses and children. Entire contract provisions - The entire contract provisions (or clause) states the insurance policy itself, any riders and endorsements/amendments, and the application comprises the entire contract between all parties. Extended term option - Permits the policy owner to use the policy's cash value to buy level, extended term insurance for a specified period. No premium payments are made. The coverage provided with the extended term nonforfeiture option is equal to the net death benefit of the lapsed policy. Free look period - States the policy owner is permitted a certain number of days once the policy is delivered to look over the policy and return it for a refund of all premiums paid. Grace period - A time period during which no finance charges will be added to your account. Guaranteed insurability rider - Permits Insured to buy specific amounts of additional insurance at specified intervals (usually 3 years) without evidence of insurability. Incontestable provision - Makes a life insurance contract incontestable after it has been in force for two years during the lifetime of the insured. Insuring clause - The insuring agreement is the insurer's basic promise to pay specified benefits to a designated person in the event of a covered loss. States the scope and limits of coverage, "We ensure to INSURE you for...." Misstatement of age or sex provisions - The Misstatement of Age or Sex Provision allows the insurer to adjust the policy benefits if the insured's age or sex is misstated on the policy application. The misstatement of age provision allows the insurer to adjust the benefits payable if the age of the insured was misstated when the application for the policy was made. If the insured were older at the time of application than is shown in the policy, benefits would be reduced accordingly. The reverse would be true if the insured were younger than listed in the application. Nonforfeiture options - Nonforfeiture options are the options you have for your cash value if you terminate a policy that has a cash value. You are closing your account (surrendering your policy); what do you want us to do with your cash (so you don't forfeit it)? When a policy owner decides he does not want his insurance policy anymore, he has the option to surrender his policy. One year term options - The dividend is used to purchase a one year level term policy. the face amount of the term policy cannot exceed the cash amount (cash value) of the base policy. Paid up additions option - The dividend is used to purchase a small amount of paid-up whole life insurance. Payor provision - Typically attached to Juvenile Insurance Policies, provides that in the event of death or disability of the adult premium-payor, the premiums will be waived until the insured child reaches a specified age or until the maturity date of the contract which ever comes first. Policy Loan Provision - Describes the conditions by which a policyowner can borrow from the policy's cash value. Reduced paid up option - Allows the policy owner to reduce the policy's benefit amount and, in turn, cease making premium payments. Reduced premium option - Allows the policy owner to return the dividend payment to the insurer in exchange for a reduction in the following year's premium payments. Reinstatement provisions - Reinstatement is putting a lapsed policy back in force by producing satisfactory evidence of insurability and paying any past-due premiums required. It Permits the policy owner to reinstate a policy that has lapsed as long as the policy owner can provide proof of insurability and pays all back premiums, outstanding loans, and interest. Return of premium rider - The return of premium rider pays the total amount of premiums paid into the policy in addition to the face value, as long as the insured dies within a specific period specified in the policy. It may also return premiums to the insured at the end of a specified period. Suicide clause - The suicide clause states that the policy will be voided, and no benefit will be paid if the insured commits suicide within two years from policy issuance. The primary purpose of a suicide provision is to protect the insurer from applicants contemplating suicide. Waiver of premium rider - The waiver of premium rider allows the policy owner to waive premium payments during a disability and keeps the policy in force. The waiver of premium rider is not a loan and does not provide cash payments to the policy owner. The insurance company is "waiving" the premiums." It's just as if the insured made the premiums every month. Blanket health policies - Blanket health policies are issued to cover a group who may be exposed to the same risks, but the composition of the group (the individuals within the group) are continually changing. A blanket health plan may be issued to an airline or a bus company to cover its passengers or to a school to cover its students. No certificates of coverage are issued in a blanket health plan, as compared to group insurance. Certificate of insurance - A certificate of insurance is a document issued by an insurance company/broker that is used to verify the existence of insurance coverage under specific conditions granted to listed individuals. With group insurance, the group (typically employer) is the policy owner and maintains a master policy. The insureds (typically employees) receive a certificate of insurance instead of a policy. Contributory plan - Group insurance plan under which the employees contribute to the payment of premiums. Conversion privilege - Allows the policy owner, before an original insurance policy expires, to elect to have a new policy issued that will continue the insurance coverage. Conversion may be effected at attained age (premiums based on the age attained at time of conversion) or at original age (premiums based on age at time of original issue). Credit policies - typically purchased using a decreasing term life insurance policy, with the term matched to the length of the loan period and the decreasing insurance amount matched to the declining loan balance. Franchise insurance - Life or health insurance plan for covering groups of persons with individual policies uniform in provisions, although perhaps different in benefits. Solicitation usually takes place in an employer's business with the employer's consent. Generally written for groups too small to qualify for regular group coverage. May be called wholesale insurance when the policy is life insurance. Master policy - The policy contract issued to the employer under a Group insurance plan. Remember, the employees covered by a group plan are considered to be insureds, but they only receive certificates. Noncontributory plan - Employee benefit plan under which the employer bears the full cost of the employees' benefits; must insure 100% of eligible employees. Persistancy - As it pertains to insurance, persistency is the percentage of policies an insurer has in force after a specified period of time. Persistency is negatively impacted by policies replaced by other insurers, canceled by the policy owner, or laps due to nonpayment. Companies with higher persistency are more stable and profitable than those with lower persistency. Generally speaking, companies aim for 80% persistency after three-years and 60% after five years. Meaning, 60% of the policies written five years ago should still be active. Accelerated benefit rider - The accelerated benefit rider allows the insured to receive a portion of the death benefit prior to death if the insured has a terminal illness and is certified by a physician as expected to die within 1-2 years. Class Designation - A class designation is a beneficiary group designation (for example, all of my children), opposed to specifying one or more beneficiaries by name. Common Disaster Provision - Sometimes added to a policy and designed to provide an alternative beneficiary in the event that the insured as well as the original beneficiary dies as the result of a common accident. Contingent (Secondary) Beneficiary - The beneficiary second in line to receive death benefit proceeds if the primary beneficiary dies before the insured. Earned Premium - The amount of the premium for which the policy protection has been given. Expense Factor - The expense factor, also known as the loading charge, is a measure of what it costs an insurance company to operate. Excess intrest - The excess interest provision in life insurance means that the cash value will increase faster than the guaranteed rate if the insurer earns a greater return than the guaranteed rate. Fixed amount installment options - A fixed amount installment option pays a fixed death benefit in specified installment amounts until the principal and interest are exhausted. Fixed/level premium - Fixed or level premium is a concept of averaging what would be the total single premium for a policy over periodic payments. More periodic payments = higher total premium. Fixed period - A fixed period or period certain settlement option pays the death benefit proceeds in equal installments over a set period of years. The dollar amount of each installment depends upon the total number of installments.