Life & Health Insurance Exam (National Portion) flashcards

COBRA beneficiaries typically pay 100% of the premium (employer and employee share) plus an additional 2% administrative fee.

• Total cost can be up to 102% of the premium.
• The 2% covers administrative expenses.
• The employer is no longer subsidizing the premium.

Memory trick: COBRA's bite is 102, 100 for the plan, 2 for the crew.

COBRA allows certain employees and their families to continue group health benefits offered by their former employer for a limited time after a qualifying event.

• Applies to employers with 20 or more employees (some states have 'mini-COBRA' for smaller employers).
• Qualifying events include termination, reduction in hours, divorce, death of an employee.
• Continuation is temporary, usually 18 or 36 months, and the beneficiary pays the full premium plus an administrative fee.

Memory trick: HIPAA protects, COBRA connects, ERISA inspects, GLBA respects.

The HIPAA Privacy Rule establishes national standards to protect individuals' medical records and other personal health information.

• Applies to health plans, healthcare clearinghouses, and healthcare providers.
• Gives individuals rights over their health information.
• Requires safeguards to protect the privacy of PHI.

Memory trick: Health information is HIPAA's domain; financial info is GLBA's claim.

Certain welfare benefit plans that are 'fully insured,' meaning all benefits are provided exclusively through insurance contracts, may be exempt from some ERISA reporting and disclosure requirements.

• Applies to welfare benefit plans, not typically retirement plans for full exemption.
• Reduces administrative burden for employers.
• Still subject to other ERISA provisions like fiduciary duty.

Memory trick: ERISA's rules are for most, but some plans don't boast the full host.

The GLBA Safeguards Rule requires financial institutions to develop a written information security plan to protect customers' nonpublic personal information.

• Mandates administrative, technical, and physical safeguards.
• Applies to financial institutions, including insurance companies.
• Aims to ensure confidentiality and integrity of customer data.

Memory trick: Safeguards stand, a security plan in hand.

Employees terminated due to gross misconduct are typically ineligible for COBRA continuation coverage. This is a significant exception to COBRA's general requirements.

• Gross misconduct is a specific disqualifying event.
• Employer must prove gross misconduct.
• No COBRA rights for the employee or their dependents.

Memory trick: COBRA has rules for when you get to 'SLITHER' into continued coverage.

The Employee Retirement Income Security Act (ERISA) sets minimum standards for most voluntarily established retirement and health plans in private industry.

• Protects participants in employee benefit plans.
• Establishes fiduciary responsibilities for plan administrators.
• Requires reporting and disclosure of plan information.

Memory trick: ERISA plans are sound, with fiduciaries all around.

The USA PATRIOT Act mandates financial institutions to implement measures to detect and prevent money laundering and terrorist financing.

• Requires Customer Identification Programs (CIP).
• Mandates Suspicious Activity Reports (SARs).
• Aims to enhance national security by disrupting financial crimes.

Memory trick: Patriot's watch, money's caught, terror's fought.

ERISA mandates that individuals managing employee benefit plans act as fiduciaries, meaning they must act solely in the best interests of plan participants and beneficiaries.

• Highest standard of care.
• Acts solely for participants' benefit.
• Requires prudence and diversification of investments.

Memory trick: ERISA ensures plan managers are 'RIGHT' for participants.

COBRA generally allows employees and their dependents to continue group health coverage for up to 18 months following job termination (other than gross misconduct) or reduction in hours.

• Applies to voluntary or involuntary termination.
• Also applies to reduction of hours.
• Maximum duration is 18 months for this specific event.

Memory trick: COBRA's 'CLOCK' ticks differently for each event.

HIPAA ensures that individuals who change or lose their jobs can maintain health insurance coverage, preventing pre-existing conditions from blocking new coverage.

• Guarantees health insurance portability.
• Limits exclusions for pre-existing conditions.
• Applies to group health plans and some individual plans.

Memory trick: HIPAA helps you HOP over job changes with your health plan.

The GLBA Financial Privacy Rule governs the collection and disclosure of customers' nonpublic personal financial information by financial institutions.

• Requires privacy notices to customers.
• Explains information sharing practices.
• Provides customers with the right to opt-out of certain disclosures.

Memory trick: GLBA's three rules: Privacy tells, Safeguards dwells, Pretexting repels.

The USA PATRIOT Act mandates that financial institutions establish a Customer Identification Program (CIP) to verify the identity of individuals and entities opening accounts.

• Prevents money laundering and terrorist financing.
• Requires identity verification for new accounts.
• Part of broader AML efforts.

Memory trick: PATRIOT Act: Police Against Terrorist Racket, ID is Key.

When an employee dies, their surviving spouse and dependent children can elect COBRA continuation coverage for a maximum of 36 months.

• Death of employee is a COBRA qualifying event.
• Other 36-month events include divorce/legal separation and loss of dependent status.
• 18 months is for termination/reduced hours; 29 months for disability extension.

Memory trick: 18 for job loss, 29 for a pause, 36 for family's cause.

The Gramm-Leach-Bliley Act (GLBA) requires financial institutions to explain their information-sharing practices to customers and to safeguard sensitive data.

• Applies to financial institutions, including insurance companies.
• Mandates Privacy Notices detailing information sharing.
• Requires a Safeguards Rule to protect customer data.

Memory trick: GLBA guards your money data, HIPAA hides your health data.

A life insurance rider that allows the policyowner to purchase additional coverage at specific times or life events without providing evidence of insurability.

• Allows future coverage increases
• No medical exam required at the time of increase
• Available at specified ages or life events

Memory trick: Some riders help your policy grow or adapt without new hurdles.

Term life insurance is suitable for individuals with temporary protection needs, limited budgets, and a desire for maximum death benefit coverage at the lowest initial cost.

• Affordable premiums.
• High death benefit for specific period.
• No cash value accumulation.
• Ideal for young families or temporary debt coverage.

Memory trick: Match the client's Life stage, Income, Family, and Expense goals.

A type of deferred compensation plan that does not meet the requirements of ERISA and is typically offered to a select group of management or highly compensated employees. These plans offer flexibility but do not receive the same tax benefits as qualified plans.

• Not subject to most ERISA rules (participation, vesting, funding).
• For a 'select group' of employees (e.g., executives).
• Contributions are not tax-deductible for employer until paid to employee.
• Employee defers income and tax until distribution.

Memory trick: ERISA compliance: Qualified plans follow all rules, Non-Qualified plans bend them for flexibility.

The ethical obligation of an insurance producer to inform clients about all available options and alternatives for their existing policies, especially when a client is considering actions that would have significant negative financial consequences, such as surrendering a policy.

• Includes explaining policy loans, partial withdrawals, and grace periods.
• Aims to preserve policy benefits and cash value where possible.
• Protects client from irreversible financial decisions.

Memory trick: Explore ALL Paths, Protect the Client.

The amount of money a policyholder receives when they voluntarily terminate a permanent life insurance policy before its maturity or the insured's death.

• Available for whole life and other permanent policies.
• Policy terminates upon surrender.
• Value is the accumulated cash value minus any outstanding loans or surrender charges.

Memory trick: When the policy 'CASHES OUT', it's the end of the road.

A beneficiary designation method where the death benefit is divided equally among the surviving named beneficiaries. If a named beneficiary predeceases the insured, their share is typically redistributed among the remaining living beneficiaries.

• Death benefit divided equally among living beneficiaries.
• If a beneficiary dies, their share goes to the other surviving beneficiaries.
• Opposite of 'per stirpes' where the share would go to the deceased beneficiary's heirs.

Memory trick: Per Capita: Count the Heads, Share the Bread.

A life insurance policy that fails the 7-pay test and loses some of its favorable tax treatment, specifically regarding withdrawals and loans, which are taxed on a 'last-in, first-out' (LIFO) basis and may be subject to a 10% penalty before age 59½.

• Fails the 7-pay test.
• Cash value withdrawals and loans are taxed LIFO.
• Gains are taxed first.
• 10% penalty on taxable distributions before age 59½.

Memory trick: MEC: LIFO and a penalty, non-MEC: FIFO and no penalty.

A material fact is any information that would influence an insurer's decision to accept a risk, set a premium, or determine policy terms. Agents must ensure all material facts are disclosed accurately.

• All material facts must be disclosed.
• Omission can invalidate a policy.
• Agent's duty to ensure accuracy.

Memory trick: Always complete applications with Utmost Good Faith and Full Disclosure.

Agents must clearly explain the liquidity features and limitations of annuities, including potential surrender charges and tax penalties for early withdrawals, to ensure suitability for the client's financial goals.

• Annuities are long-term savings products.
• Early withdrawals may incur surrender charges.
• Early withdrawals may be subject to income tax and a 10% penalty if taken before age 59½.

Memory trick: Annuities are long-term; disclose ALL fees and access limits clearly.

A life insurance rider that waives future premium payments if the insured becomes totally disabled, ensuring the policy remains in force.

• Requires total disability (as defined in the policy)
• Premiums are waived, not due
• Policy benefits remain intact

Memory trick: Riders add special powers to your policy, like a shield against premium payments when you can't work.

One of the nonforfeiture options available to a policyowner when a permanent life insurance policy lapses or is surrendered. The cash value is used as a single premium to purchase a new, fully paid-up policy with a lower death benefit.

• Policy remains in force for life (or until age 100/121).
• No further premium payments are required.
• The death benefit is reduced from the original face amount.
• The new policy is a whole life policy.

Memory trick: Nonforfeiture: Don't Lose Your Value, Choose Your Path.

The risk that a party to a contract has not entered into the contract in good faith or has provided misleading information about its assets, liabilities, or credit capacity; or has an incentive to take unusual risks in a contract because they will not bear the full costs of those risks.

• Increases the likelihood of a loss occurring.
• Often involves undisclosed information or intent.
• Producers have a duty to identify and report potential moral hazards.

Memory trick: Red Flags: Risk, Intent, Disclosure.

Provisions in a cash value life insurance policy that protect the policyowner from forfeiting their accumulated cash value if they stop paying premiums.

• Available upon policy surrender or lapse
• Choices include cash surrender, reduced paid-up, extended term
• Mandated by law

Memory trick: When you stop paying premiums, nonforfeiture options give you a choice of exits for your cash value, so you don't lose it.

A type of deferred annuity that offers a minimum guaranteed interest rate combined with an interest rate linked to a market index, providing potential for growth without direct market risk.

• Combines features of fixed and variable annuities.
• Interest credited based on performance of a stock market index (e.g., S&P 500).
• Includes a guaranteed minimum interest rate or principal protection.
• Suitable for those seeking growth potential with risk mitigation.

Memory trick: Equity-Indexed: GROWTH from stocks, SAFETY from fixed.

A rider typically attached to juvenile life insurance policies that waives the premiums if the adult premium payor (e.g., parent or guardian) becomes totally disabled or dies before the insured child reaches a specified age.

• Protects the child's policy from lapsing.
• Applies in case of payor's death or total disability.
• Premiums are waived usually until the child is 18 or 21.
• Ensures the child's coverage continues.

Memory trick: Riders that PROTECT your premiums when life gets tough.

The pure cost of a life insurance policy, calculated based on mortality tables and assumed interest earnings, excluding all expenses and loading charges.

• Pure cost of insurance
• Uses mortality tables (probability of death)
• Uses assumed interest earnings
• Excludes expenses, commissions, and taxes

Memory trick: Think of premium as two layers: the 'net' core, then the 'gross' outer shell with all the extras.

The ethical obligation of an insurance producer to promptly acknowledge, apologize for, correct, and make restitution for any errors or mistakes made in their professional capacity that negatively impact a client.

• Demonstrates accountability and professionalism.
• Builds client trust and maintains integrity.
• Requires immediate action and transparent communication.

Memory trick: Hear, Apologize, Rectify, Follow-up.

An employer-sponsored qualified retirement plan allowing employees to make pre-tax contributions, often matched by the employer, with tax-deferred growth.

• Employee salary deferrals (pre-tax)
• Employer matching contributions common
• Investment choice by employee

Memory trick: These plans are like different gears in a retirement engine; the 401(k) is the most common, versatile gear.

The act of making false, misleading, or deceptive statements or omissions of material facts regarding an insurance policy, its benefits, terms, or conditions, to a current or prospective client.

• Prohibited by state insurance laws and ethical codes.
• Can result in fines, license suspension, or revocation.
• Undermines client trust and informed decision-making.

Memory trick: Don't Mislead, Don't Twist, Don't Rebate.

An ethical dilemma where an insurance producer's personal interests (e.g., higher commissions, sales quotas) could potentially influence their professional judgment or advice, leading to recommendations that may not be solely in the client's best interest.

• Requires disclosure to the client.
• Can undermine trust and fiduciary duty.
• Producers must manage or avoid such conflicts.

Memory trick: Don't Let Your Wallet Blind Your Wisdom.

The ethical principle requiring insurance producers to be truthful, transparent, and morally sound in all business dealings, ensuring full disclosure and accurate representation.

• Crucial for maintaining public trust in the insurance industry.
• Involves accurate representation of facts to both clients and insurers.
• Prevents fraud and misrepresentation.

Memory trick: Trust is built on Truth and Transparency.

A flexible premium, adjustable death benefit life insurance policy that offers permanent coverage and accumulates cash value, allowing the policyowner to modify payments and coverage.

• Offers flexible premiums (can vary payments).
• Adjustable death benefit (can increase or decrease).
• Accumulates cash value, often with a guaranteed minimum interest rate.
• Provides permanent coverage.

Memory trick: Universal Life: UNIVERSAL flexibility for your changing life.

Methods of distributing death benefits to beneficiaries. Per capita means 'by the head,' distributing equally among living beneficiaries. Per stirpes means 'by the branch,' distributing to the descendants of a deceased beneficiary.

• Per capita: Surviving beneficiaries share equally.
• Per stirpes: Deceased beneficiary's share passes to their heirs.
• Per capita is often the default if not specified.

Memory trick: Who gets the GOLD? Follow the beneficiary flow.

A retirement plan where the employer (and sometimes employee) contributes a specified amount, but the final retirement benefit depends on the investment performance of the contributions, with the employee bearing the investment risk.

• Employer contributes a set amount.
• Employee bears investment risk.
• Examples: 401(k), 403(b), Profit-Sharing, SEP IRA.

Memory trick: Contribution: EMPLOYEE takes the investment ride; Benefit: EMPLOYER guarantees the destination.

An underwriting category for applicants who present a higher than average risk to the insurer due to health issues, hazardous occupations, or avocations. These policies are typically issued with higher premiums or modified terms.

• Also known as 'rated' policies.
• Higher premiums compensate for increased risk.
• Can include health impairments, dangerous jobs, or risky hobbies.
• Opposite of 'preferred' or 'standard' risks.

Memory trick: Underwriting sorts risks: Preferred, Standard, Substandard, or just NO.

A group insurance plan where both the employer and the employees share the cost of the premiums.

• Employees contribute a portion of the premium.
• Requires a higher percentage of employee participation (e.g., 75%).
• Contrasts with non-contributory plans where the employer pays 100%.

Memory trick: Contributory: Employees CONTRIBUTE to the cost.

A producer's ethical and legal obligation to act in the client's best financial interest, which includes identifying and advising against unnecessary or duplicate insurance coverage that does not provide additional value.

• Prevents clients from overpaying for coverage.
• Requires thorough review of existing policies.
• Demonstrates client advocacy and trust.

Memory trick: FIDO: Always Act FOR the Client.

An agent's ethical and legal obligation to fully and clearly explain all material facts, terms, conditions, benefits, and risks of an insurance policy to a client before purchase.

• Ensures the client makes an informed decision.
• Includes explaining surrender charges, fees, and investment risks.
• Prevents misrepresentation or omission of facts.

Memory trick: FIDO's Duties: Loyalty, Disclosure, Care.

A life insurance policy that pays the face amount as a death benefit if the insured dies within a specified period, or pays the face amount to the policyowner if the insured is still alive at the end of that period.

• Combines insurance protection with a savings component.
• Cash value equals the face amount at the end of the endowment period.
• Less common today due to unfavorable tax treatment (MEC rules).

Memory trick: Endowment: A GIFT at the end, dead or alive.

A loan taken by the policyowner against the cash value of a permanent life insurance policy. If not repaid, it reduces the death benefit.

• Loan interest accrues
• Does not require credit check
• Reduces death benefit if outstanding at death

Memory trick: Taking a loan is like borrowing from your future death benefit; if you don't pay it back, the future payout shrinks.

A principle of insurance contracts requiring all parties to be completely honest and disclose all material facts relevant to the contract.

• Applies to both the applicant and the insurer.
• Requires full disclosure of material information.
• Violation can lead to contract voidance.

Memory trick: Insurance contracts hinge on TRUST, like a good faith handshake.

Rules specifying the minimum percentage of eligible employees who must enroll in a group life insurance plan to prevent adverse selection, varying based on whether the plan is contributory or non-contributory.

• Contributory plans (employees pay part of premium) typically require 75% participation.
• Non-contributory plans (employer pays 100% of premium) typically require 100% participation.
• These rules help ensure a sufficiently large and diverse risk pool.
• Adverse selection occurs when only high-risk individuals enroll.

Memory trick: Group plans: All or most must join to prevent 'bad risks' from taking over.

A state law that provides a legal presumption for the order of death when an insured and a primary beneficiary die in the same accident and the order of death cannot be determined. It presumes the primary beneficiary died first, allowing proceeds to go to contingent beneficiaries.

• Applies when order of death is unclear.
• Presumes primary beneficiary died first.
• Directs proceeds to contingent beneficiary or insured's estate.
• Prevents proceeds from going to primary beneficiary's estate.

Memory trick: Who gets the money? Primary, then Contingent, unless a common accident makes it tricky.

When replacing an insurance policy, agents have a fiduciary duty to fully disclose all material facts, including the advantages and disadvantages of both the existing and proposed policies, and any associated costs or penalties.

• Must explain potential loss of benefits from old policy.
• Must disclose new fees, surrender charges, and waiting periods.
• Must compare both policies fairly.
• Client must understand all implications before replacing.

Memory trick: Replacements demand Radical Transparency and Clear Communication.

An insurance agent, as a fiduciary, must always act in the client's best interest, prioritizing their needs, goals, and financial well-being above their own commissions or convenience.

• Put client's interest first.
• Provide suitable recommendations.
• Avoid conflicts of interest.
• Act with utmost good faith.

Memory trick: Fiduciaries Always Care Intensely, Directly, and Ethically for their client's needs.

A provision in a life insurance policy that limits the insurer's liability to a refund of premiums paid if the insured commits suicide within a specified period (usually one or two years) from the policy's issue date.

• Typically a 2-year exclusion period.
• If suicide occurs within the period, only premiums are returned.
• If suicide occurs after the period, the full death benefit is paid.
• Designed to deter individuals from purchasing policies with the intent of suicide.

Memory trick: Policy rules: who, what, when, and how claims are handled.

A rider that pays an additional sum of money if the insured dies as a result of a covered accident, typically doubling or tripling the face amount.

• Paid in addition to the base policy's death benefit.
• Death must be due to a covered accident.
• Often called 'double indemnity' or 'triple indemnity'.

Memory trick: Riders ADD protection, like extra armor on a knight.

A refund of an overpayment of premium from a participating life insurance policy, resulting from favorable mortality, interest, and expense experience.

• Not guaranteed.
• Generally not taxable income (considered a return of premium).
• Can be taken in cash, applied to premiums, used to buy paid-up additions, or left to accumulate interest.

Memory trick: Dividends are like a 'premium rebate' – not new money, just a refund.

A rider typically attached to a term life policy that, upon the expiration of the term, refunds the premiums paid for the rider (and sometimes the base policy) if the insured is still alive.

• Refunds premiums if insured outlives the term.
• Can also apply upon surrender of the policy.
• Adds significantly to the premium cost.
• Not available on all policy types.

Memory trick: PREMIUMS 'P-R-E-M-I-U-M-S' returned, not the big death benefit.

The ethical and regulatory requirement to ensure that any recommended adjustments to an existing insurance policy (e.g., changes in death benefit, premium) remain appropriate for the client's current financial situation, needs, and goals.

• Requires ongoing client needs assessment.
• Balances affordability with adequate protection.
• Demonstrates client advocacy and responsible advising.

Memory trick: Review, Adjust, Re-Suit.

A life insurance policy provision that specifies how the death benefit will be distributed if the insured and primary beneficiary die in the same accident and the order of death cannot be determined.

• Assumes primary beneficiary died first
• Ensures proceeds go to contingent beneficiary
• Prevents proceeds from going to primary beneficiary's estate

Memory trick: When disaster strikes and no one knows who died first, the Common Disaster Clause directs the money to the next in line.

A type of permanent life insurance that provides a guaranteed death benefit and accumulates cash value on a guaranteed basis, with level premiums payable for the insured's entire life.

• Guaranteed death benefit.
• Guaranteed cash value accumulation.
• Level premiums for life.
• Coverage lasts for the insured's entire life (to age 100 or 121).

Memory trick: Whole Life: The Whole Package of Guarantees.

A term life insurance policy that includes a provision allowing the policyowner to convert it into a permanent (whole life or universal life) policy without providing proof of insurability.

• Conversion must occur within a specified period.
• No proof of insurability required for conversion.
• New policy premiums are typically based on the insured's attained age.
• Allows for transition from temporary to permanent coverage as needs change.

Memory trick: Convert term to perm: No health check, but your age matters for price.

An annuity that begins paying out a guaranteed, level income stream within one year of purchase, typically for the annuitant's lifetime.

• Payments start immediately (within 1 year)
• Payments are fixed and guaranteed
• Provides predictable income

Memory trick: Annuities are like streams of money: some start now, some later, some are steady, some flow with the market.

The ethical obligation of an insured to inform the insurer of significant changes in risk factors after a policy has been issued, which may impact coverage or claims.

• Often relates to changes in occupation, hobbies, or health status.
• Failure to disclose can lead to policy adjustments, increased premiums, or claim denial.
• Agents have a duty to advise clients on such disclosures.

Memory trick: Stay Transparent, Don't Be Silent.