Life & Health Insurance Exam (National Portion) flashcards

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.

A flexible premium, adjustable death benefit life insurance policy that allows the policyowner to direct the investment of the cash value into a separate account, which contains various investment funds.

• Flexible premiums and death benefits.
• Cash value tied to performance of separate investment accounts.
• Policyowner bears investment risk.
• Requires securities license for agents to sell.

Memory trick: Permanent protection, with different ways to FLEX and INVEST.

Life insurance that provides coverage for a specific period (the 'term'). If the insured dies within the term, a death benefit is paid. If they outlive the term, coverage ends without a payout.

• Provides temporary coverage.
• No cash value accumulation.
• Least expensive type of life insurance.
• Often convertible to permanent insurance.

Memory trick: TERM = TEMPORARY, like a lease on an apartment.

A receipt given to an applicant for insurance that provides temporary coverage, usually contingent upon the applicant being found insurable as applied for.

• Requires initial premium with application.
• Coverage starts from application or medical exam date (whichever is later).
• Contingent on applicant being insurable as applied for.

Memory trick: Conditional receipt is a 'promise of protection' if you pass the test.

When an applicant does not pay the initial premium with the application, the policy's effective date is typically when the policy is delivered to the applicant and the first premium is collected.

• No premium with application = no conditional coverage
• Policy delivery + first premium payment = effective date
• Applicant accepts the offer at this point

Memory trick: No Money, No Policy - until Delivery and Payment!

The intentional withholding of material facts by an applicant for insurance, which, if known, would have influenced the insurer's underwriting decision.

• Intentional omission.
• Must be a material fact.
• Can void a policy.

Memory trick: Bad agents try to hide, twist, or bribe, but the truth always finds its way out.

An attachment to an insurance policy that eliminates coverage for specific risks, conditions, or causes of loss.

• Removes certain perils from coverage.
• Common for hazardous hobbies or pre-existing conditions.
• Allows policy issuance when risk is otherwise too high.

Memory trick: When risks are high, underwriters wave a 'No-Go' flag for specific dangers.

A non-profit association that collects and shares coded medical information among member insurance companies to help detect and prevent fraud and misrepresentation by applicants.

• Fraud prevention tool
• Shares coded health information (not actual medical records)
• Requires applicant authorization for access

Memory trick: MIB: 'M'isrepresentation 'I's 'B'usted!

An attachment to an insurance policy that excludes coverage for a specific pre-existing condition, allowing the policy to be issued.

• Excludes specific conditions.
• Common for health insurance.
• Allows coverage for other risks.

Memory trick: When risk is too much, the policy gets a special 'tag' to mark what's out.

An applicant who presents a higher-than-average risk to the insurer due to health, occupation, or lifestyle, but is still considered insurable.

• Higher risk than standard.
• Typically pays higher premiums.
• Common for health issues, hazardous jobs, or hobbies.

Memory trick: Risky applicants get sorted into risk 'bins' by the underwriter's keen eye.

A false statement by an applicant on an insurance application that, if known by the insurer, would have caused them to deny coverage or issue the policy on different terms.

• False statement of a material fact
• Can lead to policy voidance
• Intentional or unintentional

Memory trick: Hide the Truth? Policy's 'V'oided, No 'C'overage, 'R'ejected.

A condition that increases the probability of loss due to an individual's dishonest tendencies or character, often involving deliberate actions to cause or inflate a loss.

• Relates to applicant's character/tendencies
• Increases likelihood of deliberate loss
• Examples: fraudulent claims, reckless behavior

Memory trick: Hazards: P.M.M.L. - Physical, Moral, Morale, Legal.

When an insurer requires a medical examination for underwriting, the cost of this exam is typically paid by the insurance company.

• Insurer-required exams are insurer-paid
• Part of underwriting expenses
• Not passed on to applicant in most cases

Memory trick: Underwriting's Medical Bill? The Insurer Pays the 'I'nvestigation.

When an initial premium is not paid with the application, coverage becomes effective upon policy delivery AND collection of the first premium.

• No premium, no immediate coverage.
• Requires delivery and first premium.
• Applicant must still be insurable at delivery.

Memory trick: No money upfront, no coverage 'til it's in your hand and paid for.

An increase in the probability of loss due to an individual's indifference or carelessness concerning loss, because they know they are insured.

• Indifference or carelessness.
• Not intentional fraud.
• Example: frequently filing minor claims.

Memory trick: Hazards are like problem-makers: some are physical, some are mean, some are just careless.

A report from an applicant's physician detailing their medical history, diagnoses, treatments, and current health status, used by underwriters to assess insurability.

• Detailed medical history from physician
• Crucial for assessing health risk
• Requires applicant's authorization to obtain

Memory trick: Underwriters 'A'sk 'M'any 'A'nd 'C'areful 'D'ocuments.

An applicant who meets the insurer's average or normal underwriting requirements and is considered to present an average risk of loss.

• Average health and lifestyle.
• Pays standard premiums.
• No significant adverse factors.

Memory trick: Average Joe gets the 'Standard' label, no fuss, no extra charge.

An applicant whose risk is deemed too high or uninsurable by the insurer, resulting in the refusal to issue a policy.

• Applicant is uninsurable
• No policy issued
• Common reasons: terminal illness, extreme hazardous activities

Memory trick: Too Risky? Decline, Postpone, Rate, or Exclude. But Terminal means NO.

A strict definition of total disability where the insured must be unable to perform any occupation for which they are reasonably suited by education, training, or experience.

• More challenging to qualify for benefits.
• Typical in long-term disability policies after an initial period.
• Focuses on a broader range of potential work.
• Often transitions from 'Own Occupation' after 2-5 years.

Memory trick: Own is easy, Any is harder.

A provision of the IRS Code (Section 2035) that includes the death benefit of a life insurance policy in the deceased's gross estate if the policy was transferred by the insured owner within three years of their death.

• Applies to transfers of ownership.
• Within 3 years of death.
• Death benefit included in gross estate.
• Avoids last-minute estate tax planning.

Memory trick: 3-Year Rule: Transfer Too Soon, Estate Tax Looms.

Distributions from qualified retirement plans (like 401(k)s, 403(b)s, traditional IRAs) are generally taxed as ordinary income upon withdrawal, as contributions were typically pre-tax and growth was tax-deferred.

• Pre-tax contributions.
• Tax-deferred growth.
• Taxed as ordinary income upon withdrawal.
• May be subject to penalties if withdrawn before 59½.

Memory trick: Qualified = Quitting Work, Taxable Income.

Various tax-advantaged retirement plans available to small businesses, each with different administrative complexity, contribution limits, and flexibility.

• 401(k): High limits, employee/employer contributions, moderate complexity.
• SEP IRA: Employer-funded, high limits (as % of salary), very simple.
• SIMPLE IRA: Lower limits, employee/employer contributions, simple.
• Defined Benefit: Highest limits, complex, employer takes investment risk.

Memory trick: Small businesses need a plan that balances Contribution, Simplicity, and Employee involvement.

An employer pays premiums to an insurance company, which then assumes the full financial risk for employee claims, limiting the employer's maximum liability to the premiums paid.

• Insurer bears claim risk.
• Employer pays fixed premiums.
• Predictable costs for the employer.

Memory trick: Fund Your Health: Risk or Reward?

Benefits received from a qualified long-term care insurance policy are generally received income tax-free, up to a specified daily limit.

• Must be a 'qualified' LTC policy.
• Benefits are tax-free up to a per diem limit (indexed for inflation).
• Premiums may be tax-deductible as medical expenses, subject to age-based limits.

Memory trick: LTC benefits are 'Long-Term Care, Tax-Free' (up to the limit).

A type of managed care health insurance plan that allows members to choose any doctor or specialist, often without a referral, but offers lower costs for using in-network providers.

• Offers greater flexibility than HMOs.
• No primary care physician (PCP) required.
• No referrals needed for specialists.
• Higher costs for out-of-network care.

Memory trick: HMOs are locked, PPOs are open, POS is a mix, EPOs are exclusive.

A health insurance policy provision that guarantees the insured's right to renew the policy, but allows the insurer to increase premiums for an entire class of policyholders, not on an individual basis.

• Insurer cannot cancel the policy.
• Insurer cannot refuse to renew the policy.
• Premiums can be increased, but only for an entire class of insureds.
• Common in health insurance policies, especially long-term care and Medicare Supplement.

Memory trick: Noncan is gold, Guaranteed is silver, Conditional is tricky, Optional is risky.

The death benefit paid to a beneficiary from a life insurance policy is generally exempt from federal income tax.

• Applies to all types of life insurance (term, whole, universal).
• Income tax-free to the beneficiary.
• May be included in the deceased's estate for estate tax purposes, but not income tax for the beneficiary.

Memory trick: Death benefits are a 'Tax-Free Gift' to the beneficiary.

If an employer pays all premiums for a group disability income policy, the disability benefits received by the employee are fully taxable as ordinary income.

• Employer premiums are tax-deductible for the employer.
• Employee does not pay tax on the premiums.
• Benefits are fully taxable to the employee when received.

Memory trick: Who pays the 'P'remium determines the 'P'ayment's tax.

Categories of health insurance plans (Bronze, Silver, Gold, Platinum) offered through the Affordable Care Act (ACA) Marketplace, indicating the average percentage of healthcare costs the plan is expected to cover.

• Bronze: 60% covered by plan, 40% by insured.
• Silver: 70% covered by plan, 30% by insured.
• Gold: 80% covered by plan, 20% by insured.
• Platinum: 90% covered by plan, 10% by insured.

Memory trick: Metal levels show how much the plan pays, not just the price tag.

A portion of Social Security benefits (up to 50% or 85%) may be subject to federal income tax depending on the recipient's 'combined income'.

• Combined Income = Adjusted Gross Income + tax-exempt interest + 50% of Social Security benefits.
• Thresholds determine 0%, up to 50%, or up to 85% taxation.
• Thresholds differ for single vs. married filing jointly.

Memory trick: Social Security taxes depend on your 'Combined Income' for the tax bracket.

Group health insurance premiums paid by an employer for employees are generally tax-deductible for the employer and not taxable income to the employees.

• Deductible for the employer as a business expense.
• Not considered taxable income to employees.
• A significant benefit of employer-sponsored health plans.
• Encourages employers to provide health coverage.

Memory trick: Employers deduct, Employees don't declare.

A waiting period before disability income benefits begin, during which the insured must be continuously disabled.

• Also known as a waiting period.
• Must be satisfied before benefits are payable.
• Can be 30, 60, 90, 180 days, or longer.
• The longer the elimination period, the lower the premium.

Memory trick: Elimination first, then calculate the remaining months for payment.

A retirement plan for small businesses and self-employed individuals, allowing employers to contribute to individual retirement accounts (IRAs) set up for their employees.

• Employer-funded only.
• Contributions made to IRAs.
• Simpler administration than 401(k)s.
• Immediate 100% vesting for employees.

Memory trick: SEP: Simple Employer's Plan for Employees.

Health insurance policies sold by private companies to fill 'gaps' in Original Medicare coverage, such as deductibles, copayments, and coinsurance.

• Works with Original Medicare (Parts A & B).
• Standardized plans (A-N).
• Private insurance companies offer them.

Memory trick: Medicare Gaps? Medigap Maps!

A qualified retirement plan for self-employed individuals and small businesses, allowing for substantial tax-deductible contributions.

• For self-employed and unincorporated businesses.
• Higher contribution limits than IRAs.
• Can be defined benefit or defined contribution.
• Subject to ERISA rules.

Memory trick: Keogh: King of High Contributions for Owners.

A type of Medicare health plan offered by a private company that contracts with Medicare to provide all your Part A and Part B benefits, and often includes additional benefits.

• Administered by private insurance companies.
• Must cover all benefits of Original Medicare (Part A & B).
• Often include prescription drug coverage (MA-PD).
• May offer extra benefits like vision, hearing, dental.

Memory trick: Part C is the 'Company' plan, combining A&B.

Premiums paid by an employer for group health insurance coverage for their employees are tax-deductible as a business expense.

• Deductible for employer.
• Not taxable income for employee.
• Encourages employers to offer health benefits.

Memory trick: Employer Pays, Taxman Says: Deduct It, Hooray!

Taking money from a qualified retirement plan (e.g., 401(k), 403(b), IRA) before age 59½, typically results in ordinary income tax plus a 10% penalty.

• Applies to pre-tax contributions and earnings.
• Penalty is 10% of the taxable amount.
• Several exceptions exist (e.g., disability, medical expenses, first-time home purchase).

Memory trick: Early withdrawal means extra taxes and a penalty, like a financial 'time-out'.

A deductible is the amount an insured must pay out-of-pocket before the insurer begins to pay. Coinsurance is the percentage of covered expenses the insured shares with the insurer after the deductible is met.

• Deductible is paid first.
• Coinsurance applies to expenses after the deductible.
• Common coinsurance is 80/20, meaning insurer pays 80%, insured pays 20%.

Memory trick: Don't Deduct, Co-Share the Care!

Key elements insurers assess to determine eligibility and premium rates for Long-Term Care insurance.

• Current health status is paramount.
• Medical history, including pre-existing conditions, is reviewed.
• Age at application significantly impacts premiums.
• Cognitive function assessments are common.

Memory trick: Health and Age are the main stage.

The highest amount an insured will have to pay for covered services in a policy year. Once this limit is reached, the insurance company pays 100% of all additional covered medical expenses for that year.

• Caps insured's annual spending.
• Includes deductibles, copays, coinsurance.
• Protects against catastrophic costs.

Memory trick: Cost Control: Don't Go Over the Top!

The percentage of medical expenses that the insured must pay after the deductible has been satisfied, up to the out-of-pocket maximum.

• A cost-sharing feature of health insurance.
• Paid after the deductible is met.
• Expressed as a percentage (e.g., 80/20 plan).

Memory trick: Co-pay, Co-insurance, Deductible, Oh my!

A type of managed care health insurance plan that provides healthcare services through a network of doctors and hospitals for a fixed monthly premium, typically requiring a Primary Care Physician and referrals for specialists.

• Requires PCP selection.
• PCP referrals for specialists.
• Focus on preventative care.

Memory trick: Managed Care: Network Nudge!

A provision that used to be common in long-term care policies, requiring an insured to be hospitalized for a certain period before becoming eligible for LTC benefits. Modern policies generally do not include this requirement.

• Older policies often had this.
• Modern LTC policies typically waive it.
• Allows direct access to LTC services.

Memory trick: LTC: No Hospital Gate!

A provision in a long-term care insurance policy that restores the insured's maximum policy benefit amount if they recover from a long-term care event and do not require services for a specified period, typically 180 days.

• Restores full original benefits.
• Requires a period of recovery (e.g., 180 days).
• Beneficial for intermittent care needs.

Memory trick: LTC: Re-Store Your Care!

A restrictive definition of total disability in which benefits are paid only if the insured is unable to perform any occupation for which they are reasonably suited by education, training, or experience, not just their current job.

• Most restrictive definition.
• Considers other jobs.
• Harder to qualify for benefits.

Memory trick: Disability: Own Job or Any Job?

The primary goal of Workers' Compensation is to provide prompt and reasonable medical care and income benefits to employees for work-related injuries or illnesses, regardless of fault.

• No-fault system.
• Work-related injuries/illnesses only.
• Exclusive remedy (prevents lawsuits).
• Replaces lost wages and covers medical costs.

Memory trick: Workers' Comp: Care for Work Injuries, Fast and Fair.

An employer-funded health benefit plan that reimburses employees for out-of-pocket medical expenses and sometimes individual health insurance premiums, tax-free.

• Employer-funded, not employee-funded.
• Contributions are tax-deductible for the employer.
• Reimbursements are tax-free to the employee.
• Unused funds can often roll over to the next year.

Memory trick: Employers Reimburse for Health, so HRA is the way.

A tax-advantaged savings account available to individuals enrolled in a High Deductible Health Plan (HDHP), used for qualified medical expenses. It offers tax-deductible contributions, tax-free growth, and tax-free withdrawals for medical costs.

• Paired with HDHP.
• Triple tax advantage.
• Funds roll over annually.

Memory trick: HSA: High Savings Advantage!

A broad type of health insurance that provides comprehensive coverage for a wide range of medical services, including hospital, surgical, and physician expenses, typically with high maximum limits.

• Designed for catastrophic illness or injury.
• Features deductibles, coinsurance, and out-of-pocket maximums.
• Offers high maximum benefit limits.
• Covers both inpatient and outpatient services.

Memory trick: Basic is small, Major is big, Limited is specific.

A federal tax deduction that allows self-employed individuals to deduct 100% of their health insurance premiums from their gross income, provided they are not eligible to participate in an employer-sponsored health plan.

• 100% deduction 'above-the-line'.
• Cannot be eligible for employer plan.
• Applies to health, dental, and long-term care premiums.

Memory trick: Self-Employed: No Employer Plan, No Problem!

The taxability of disability income benefits depends on who paid the premiums and whether those premiums were pre-tax or after-tax.

• Individual pays after-tax premiums: benefits are tax-free.
• Employer pays premiums (pre-tax): benefits are taxable.
• Employer & individual share premiums: benefits are partially taxable.

Memory trick: Who Paid, Who Pays Tax: Employer Pays, Taxman Gains.

A provision in health insurance policies that prevents overpayment when an individual is covered by two or more plans, by determining which plan is primary and which is secondary.

• Prevents duplicate payments.
• Determines primary and secondary payers.
• Employee's own plan is usually primary over dependent plan.

Memory trick: Coordinate Benefits: Employee First!

A mandatory health insurance provision that provides a period of time after the premium due date during which the policy remains in force and the premium can still be paid without penalty.

• Prevents immediate policy lapse.
• Coverage continues during the grace period.
• Length varies by premium payment mode (e.g., 7, 10, or 31 days).

Memory trick: Grace gives you 'TIME' to pay, so your coverage doesn't 'FADE' away.

A provision in health insurance policies that allows the insurer to adjust policy benefits or premiums if the insured changes to a different occupation, particularly one with a higher or lower degree of hazard.

• Protects insurer from increased risk without adequate premium.
• If more hazardous: benefits reduced for same premium.
• If less hazardous: premiums reduced or benefits increased.
• Insured has a duty to inform the insurer of changes.

Memory trick: OCCUPATION: Odds Change, Coverage Changes.

A mandatory health insurance policy provision detailing the insurer's responsibility and timeline for paying benefits once proof of loss is received.

• Mandatory provision
• Specifies payment timeline (e.g., within 30-60 days)
• Requires due written proof of loss

Memory trick: NOTICE, PROOF, PAY, LEGAL

A provision in health insurance that stipulates the percentage of covered medical expenses the insured must pay after the deductible has been met, shared with the insurer.

• Applies after the deductible is satisfied.
• Expressed as a ratio (e.g., 80/20, 70/30).
• Insured pays the second number in the ratio (e.g., 20%).
• Can be subject to an out-of-pocket maximum.

Memory trick: Deductible FIRST, then COINSURANCE, then STOP-LOSS.

A feature of Universal Life policies allowing the policyowner to increase the death benefit, which typically requires the insured to provide evidence of insurability for the additional coverage amount.

• UL policies offer flexible death benefit adjustments.
• Increases usually require proof of good health.
• Prevents adverse selection.
• Decreases are often easier and don't require underwriting.

Memory trick: UL: Underwriting for Larger coverage.

A dividend option where policy dividends are used to purchase additional single-premium, paid-up life insurance.

• Increases death benefit
• Increases cash value
• Purchases paid-up insurance with dividends

Memory trick: CASH for PAID-UP ADDITIONS or REDUCE INTEREST

A standard provision in insurance policies that allows the policyowner to change the designated beneficiary.

• Policyowner typically has this right.
• Revocable beneficiary can be changed at any time by the policyowner.
• Irrevocable beneficiary requires their consent for a change.

Memory trick: The 'OWNER' always rules, unless they gave away their power.