Life & Health Insurance Exam (National Portion) flashcards

Two definitions of total disability in disability income policies: 'Own Occupation' means unable to perform one's specific job, and 'Any Occupation' means unable to perform any job for which one is reasonably suited by education, training, or experience.

• Own Occupation is more generous to the insured.
• Any Occupation is more restrictive for the insured.
• Policies often combine them, starting with Own Occupation.

Memory trick: Your 'OWN' job matters most at first, then 'ANY' job becomes the test.

A life insurance policy provision that protects the death benefit proceeds from the claims of the beneficiary's creditors and prevents the beneficiary from assigning, pledging, or commuting the proceeds before they are actually received.

• Protects proceeds from beneficiary's creditors.
• Prevents beneficiary from assigning or selling future payments.
• Ensures the policy's purpose of providing for the beneficiary.
• Only applies to proceeds held by the insurer under a settlement option.

Memory trick: SPENDTHRIFT: Shielding Payouts, Ensuring No Debt.

A life insurance settlement option where the death benefit is paid out in equal installments over a specified period of time, chosen by the policyowner or beneficiary, until the entire principal and interest are exhausted.

• Installments paid for a fixed number of years.
• Total payout includes principal and interest.
• Amount of each installment depends on principal, period, and interest.
• If beneficiary dies, remaining payments go to their estate or contingent beneficiary.

Memory trick: LIFE: Lump, Installments, Fixed, or Interest.

In long-term care insurance, the elimination period (or waiting period) is the number of days an insured must receive covered care before the policy begins to pay benefits. The insured is responsible for costs during this period.

• Deductible in terms of time, not money.
• Must be satisfied before benefits are paid.
• Can vary (e.g., 30, 60, 90 days).
• Longer elimination periods result in lower premiums.

Memory trick: LTC: Long Time Care, Elimination's the Start.

A mandatory health insurance provision that limits the period (usually 2 years) during which an insurer can deny a claim or void a policy due to misstatements in the application, except in cases of fraudulent misstatements.

• Similar to Life Insurance's Incontestable Clause.
• Typically a 2-year period.
• After 2 years, policy cannot be voided for non-fraudulent misstatements.
• Fraudulent misstatements are an exception; policy can be voided at any time.

Memory trick: TIME LIMIT: Two Years for Truth, Forever for Fraud.

A rider that automatically increases the death benefit of a life insurance policy to offset the effects of inflation, usually tied to an index like the Consumer Price Index (CPI), without requiring evidence of insurability.

• Increases death benefit to maintain purchasing power.
• Typically linked to an inflation index (e.g., CPI).
• No evidence of insurability required for increases.
• Usually involves a small additional premium.

Memory trick: COLA makes your coverage COLD (Cost Of Living Defense) against inflation.

A nonforfeiture option where the policy's cash value is used to purchase a single-premium term policy for the same face amount as the original policy, for as long a period as the cash value will buy.

• Automatic default if no option chosen
• Maintains original face amount
• Coverage for a limited duration

Memory trick: CASH for REDUCED TERM

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 life insurance dividend option where the policyowner uses the dividends to offset the cost of the next premium payment.

• Reduces out-of-pocket premium costs.
• Commonly selected option for dividend-paying policies.
• Dividends are not guaranteed.

Memory trick: Dividends can REDUCE your premium, like a helpful discount.

Any outstanding policy loan, plus accrued interest, is deducted from the death benefit when the insured dies.

• Loan is against cash value
• Reduces beneficiary payout
• Interest accrues on loan

Memory trick: LOAN OUT, DEATH BENEFIT DOWN

PPOs provide coverage for services from providers outside their network, but at a higher cost to the plan member.

• Higher deductibles and/or coinsurance
• No referral typically needed
• Still offers some flexibility and choice

Memory trick: PPO FLEX, HMO NO

A life insurance policy provision that, if selected, automatically pays an overdue premium from the policy's available cash value at the end of the grace period, preventing the policy from lapsing.

• Prevents unintentional policy lapse.
• Requires sufficient cash value to cover the premium.
• Creates a policy loan against the cash value.

Memory trick: APL is your policy's 'SELF-PAY' safety net.

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.

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 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 legal duty to act solely in another party's best interests. For insurance producers, this includes proper handling of premiums.

• Involves trust and confidence.
• Applies to handling client funds.
• Requires acting in the insurer's and client's best interest.

Memory trick: F.A.C.T.S. - Fiduciary, Agent, Compliance, Trust, Service

Calculating the insured's responsibility in a major medical policy involves applying the deductible, coinsurance, and considering the out-of-pocket maximum.

• Deductible is paid first by the insured.
• Coinsurance is applied to the remaining balance.
• Out-of-pocket maximum limits the insured's total annual cost.

Memory trick: Deductibles first, then coinsurance, but don't forget the out-of-pocket ceiling!

An insurance company owned by its policyholders, who typically receive dividends as a return of excess premiums.

• Policyholders are owners.
• Often issues participating policies.
• Dividends are not guaranteed and are not taxable.

Memory trick: S.M.F.R. - Stock, Mutual, Fraternal, Reciprocal

A period of time after the premium due date during which a policy remains in force without payment of the premium. If the insured dies during this period, the death benefit is paid, minus the overdue premium.

• Typically 30 or 31 days
• Policy remains in force
• Overdue premium deducted from claim if death occurs

Memory trick: Life policies have built-in safety nets, like a soft landing for late payments.

Producers (agents) have different types of authority granted by their insurers: Express, Implied, and Apparent.

• Express: Written in contract.
• Implied: Assumed to carry out express authority.
• Apparent: Perceived by others due to insurer's actions.

Memory trick: E.I.A. - Express, Implied, Apparent

Rules and guidelines that govern the business practices of insurance companies and producers in their interactions with consumers, ensuring fair and ethical treatment.

• Covers sales, advertising, underwriting, claims
• Aims to protect consumers
• Enforced by state insurance departments

Memory trick: Regulators watch the market's every move to ensure fair play.

The legal authority of a state's insurance commissioner to enforce insurance laws and regulations, including imposing penalties on producers and insurers for violations.

• Includes license actions (suspension, revocation)
• Can issue cease and desist orders
• May levy monetary fines

Memory trick: The Commissioner rules the insurance kingdom, but not the jailhouse.

The section of an insurance policy that outlines the duties and rights of both the insured and the insurer.

• Defines terms for coverage to apply.
• Includes provisions like premium payment, notice of loss, policy loans.
• Often specifies what the insured must do to receive benefits.

Memory trick: D.I.C.E. - Declarations, Insuring, Conditions, Exclusions

Specific rules determining whether Medicare or a group health plan pays first for individuals with End-Stage Renal Disease (ESRD) or when the employer has fewer than 20 employees.

• For ESRD, Medicare is secondary for a 30-month coordination period if the employer has 20+ employees.
• If the employer has fewer than 20 employees, Medicare is primary for ESRD from the start.
• For non-ESRD, if employer has <20 employees, Medicare is typically primary.

Memory trick: Medicare Payer: Size matters for the employer, especially with ESRD.

Making or disseminating untrue, deceptive, or misleading statements in an advertisement or sales material regarding the business of insurance or any person in the conduct of their insurance business.

• Includes oral and written statements
• Concerns policy benefits, terms, or conditions
• Aims to induce purchase or exchange of policies

Memory trick: Don't play dirty in the insurance game; keep it fair and square.

A statistical principle stating that as the number of similar exposure units increases, the actual loss experience will approach the expected loss experience.

• Enables accurate loss prediction.
• Forms the basis for actuarial science.
• Crucial for setting equitable premiums.

Memory trick: I.L.A.U. - Indemnity, Law, Adverse, Utmost

Insurers are classified based on their place of incorporation relative to where they are doing business: Domestic, Foreign, or Alien.

• Domestic: In-state.
• Foreign: Out-of-state but in-country.
• Alien: Out-of-country.

Memory trick: D.F.A. for Domicile, Foreign, Alien

The transfer of ownership and servicing rights for a collection of existing insurance policies from one licensed producer to another, typically requiring regulatory approval.

• Requires state DOI/Commissioner approval
• Ensures consumer protection
• Transfers servicing responsibilities and sometimes renewal commissions

Memory trick: Passing the torch requires the state's blessing, not just a handshake.

Ongoing training required for licensed insurance producers to maintain their licenses, ensuring they stay current with industry practices, laws, and ethical standards.

• Mandatory for license renewal
• Includes general and specific (e.g., ethics) hours
• Failure leads to non-renewal or suspension

Memory trick: Keep learning, or your license will be yearning for renewal.

A group health insurance plan where the employer pays a fixed premium to an insurance carrier, and the carrier assumes all financial risk for the payment of claims and provides all administrative services.

• Insurer bears 100% of the claims risk.
• Employer pays a predictable, fixed premium.
• Insurer handles all claims processing, regulatory compliance, and administrative tasks.

Memory trick: Fully Insured: The insurer takes 'full' responsibility.

An actuary is a business professional who deals with the measurement and management of risk and uncertainty. They apply mathematical and statistical methods to assess risk in insurance, finance, and other industries.

• Calculates premium rates
• Determines reserves
• Analyzes mortality/morbidity data

Memory trick: Each pro has a specific role, like gears in a well-oiled machine.

Rules established by state insurance departments to ensure consumers are fully informed and protected when replacing an existing life insurance policy with a new one.

• Aims to prevent 'twisting' or other detrimental practices.
• Requires specific disclosures to the policyholder.
• Protects against loss of benefits, new waiting periods, higher costs.

Memory trick: R.P.D.C. - Replacement Prevents Detrimental Changes

Any communication that disseminates information about an insurer's products, services, or financial condition to the public, typically for the purpose of influencing a decision to purchase insurance.

• Must be truthful and not misleading
• Includes oral and written statements
• Subject to state regulatory oversight

Memory trick: What you say about your company is advertising, plain and simple.

A type of insurance purchased by self-funded employers to protect themselves from large, unpredictable claims. It limits the employer's financial liability for health care costs.

• Designed for self-funded group health plans.
• Protects against catastrophic claims, either per individual (specific) or for the entire group (aggregate).
• Allows employers to manage risk while retaining control over their health plan.

Memory trick: Stop-Loss stops the bleeding from big claims.

Making false statements about the terms, benefits, or dividends of any insurance policy to induce a person to purchase or exchange a policy.

• Involves false or misleading statements.
• Aims to induce policy purchase or change.
• Can lead to penalties for the producer.

Memory trick: M.D.B.T.U. - Misrepresentation, Defamation, Boycotting, Twisting, Unfair discrimination

A definition of total disability in a disability income policy where the insured is considered totally disabled if they cannot perform the duties of their own occupation for a specific initial period, and then, after that period, if they cannot perform any occupation for which they are reasonably suited by education, training, or experience.

• Starts with 'Own Occupation' (usually 12 or 24 months).
• Transitions to 'Any Occupation' definition after the initial period.
• Offers more liberal benefits initially than a pure 'Any Occupation' definition.

Memory trick: Disability: Own, Any, or a Combo.

Rules that determine whether Medicare or a group health plan pays first for medical expenses for individuals aged 65 or older who are actively working and covered by an employer's group health plan.

• If employer has 20+ employees, group health plan is primary.
• If employer has fewer than 20 employees, Medicare is primary.
• Applies to individuals 65+ who are actively working.

Memory trick: Who pays first? It depends on the group size and the reason for coverage.

A health insurance policy provision where the insurer cannot cancel the policy, but can increase premiums for an entire class of policyholders.

• Insurer cannot cancel the policy.
• Premiums can be increased, but only for the entire class of insureds.
• Common in health insurance policies.

Memory trick: Renewing health means knowing if they can hike your rates or kick you out.

A core principle of suitability requiring insurance product recommendations to align with a client's ability to afford premiums and maintain policies without significant financial strain or compromising other essential financial goals.

• Considers income, existing debt, and discretionary funds.
• Ensures premiums are affordable.
• Prevents recommendations that lead to policy lapse or financial hardship.

Memory trick: For Suitability, consider Capacity, Objectives, and Tolerance, and don't forget Needs!

A false statement of a material fact made by an applicant for insurance. If intentional and material, it can lead to contract voidance.

• Must be a statement of fact, not opinion.
• Must be false.
• Must be material to the insurer's decision.
• Can be innocent or intentional.

Memory trick: Don't lie on the form, or your policy won't be warm!

An illegal and unethical practice where an insurance producer persuades a policyholder to cancel an existing policy and purchase a new one, typically with another insurer, to the policyholder's detriment.

• Involves replacement of an existing policy.
• Often uses misrepresentation or incomplete comparisons.
• Results in financial disadvantage to the client (e.g., new surrender charges, loss of accumulated value).

Memory trick: Don't Twist, Churn, or Rebate; that's Unfair to your mate!

In an insurance contract, consideration refers to the exchange of value. The insured's consideration is the premium payment and statements in the application, while the insurer's consideration is its promise to pay covered benefits.

• Insured's consideration: premium payment and application statements.
• Insurer's consideration: promise to pay benefits.
• Must be present for a contract to be legally binding.

Memory trick: CALC: Competent, Agreement, Legal, Consideration.

An insurance contract is a contract of adhesion because it is prepared by the insurer and accepted or rejected by the insured, who has little to no ability to negotiate the terms. As a result, any ambiguities are typically interpreted in favor of the insured.

• Insurer drafts the contract terms.
• Insured accepts or rejects without negotiation.
• Ambiguities are usually resolved in favor of the insured by courts.

Memory trick: Adhesion: stick to the rules, but courts stick up for you.

Variable life insurance and variable annuities are products where the policyowner bears the investment risk, and the cash value or death benefit fluctuates based on the performance of a separate account.

• Policyowner directs investments in sub-accounts.
• Cash value and death benefit are not guaranteed.
• Requires dual regulation by state insurance departments and the SEC.

Memory trick: Variable means separate accounts and investment plays.

A foundational principle in insurance requiring all parties to an insurance contract to act with the highest degree of honesty and to disclose all material facts relevant to the contract.

• Applies to both the insured and the insurer.
• Requires full disclosure of material facts.
• Breach can lead to contract voidance or denial of claims.

Memory trick: Insurance contracts need Utmost Good Faith for a Fair Exchange.

The ethical and regulatory requirement for insurance producers to recommend products that are appropriate for a client's financial situation, needs, and objectives.

• Considers client's income, assets, existing coverage, and risk tolerance.
• Protects consumers from inappropriate or detrimental product recommendations.
• Is a cornerstone of ethical sales practices in insurance.

Memory trick: Always Fit the Policy to the Pockets and Plans.

Withdrawals from a non-qualified annuity before age 59½ are taxed on a 'last-in, first-out' (LIFO) basis, meaning earnings are taxed first, often incurring a 10% penalty.

• LIFO rule applies to early withdrawals.
• Earnings are taxed before principal.
• Additional 10% penalty usually applies before age 59½.
• Principal contributions are generally tax-free upon withdrawal.

Memory trick: Annuity withdrawals have a 'LIFO' line for taxes, especially if you're not old enough to 'FIFO' out.

A qualified distribution from a Roth IRA is completely tax-free and penalty-free. It occurs when the account has been open for at least 5 years AND the owner is age 59½ or older (or meets other specific criteria like disability or first-time home purchase).

• Must meet a 5-year waiting period.
• Must meet a qualifying event (e.g., age 59½, disability, first-time homebuyer).
• If qualified, both contributions and earnings are tax-free.
• If not qualified, contributions are always tax-free, but earnings may be taxed and penalized.

Memory trick: Roth IRA: '5' years and '59½' and you're 'FREE' to take your money!

A cafeteria plan, or Section 125 plan, allows employees to choose between cash and certain qualified benefits. Employee contributions for these benefits are made on a pre-tax basis, reducing their taxable income.

• Allows employees to pay for benefits with pre-tax dollars.
• Reduces federal, state, and FICA taxes.
• Common benefits include health insurance, dependent care, flexible spending accounts.
• Must offer a choice between cash and benefits.

Memory trick: In a 'CAFETERIA' plan, you 'CHOOSE' to 'SAVE' taxes by paying 'PRE-TAX'.

Social Security disability benefits are potentially taxable based on the recipient's provisional income, similar to Social Security retirement benefits. Up to 85% of benefits may be subject to federal income tax.

• Taxability depends on provisional income thresholds.
• Provisional income = AGI + tax-exempt interest + ½ of SS benefits.
• Up to 50% or 85% of benefits may be taxable.
• Thresholds are different for single, married filing jointly, etc.

Memory trick: Social Security isn't always a 'FREE' ride; your 'PROVISIONAL' income determines if you 'PAY'.

A Savings Incentive Match Plan for Employees (SIMPLE) IRA is a retirement plan designed for small businesses (100 or fewer employees) that allows both employer and employee contributions with minimal administrative burden.

• For businesses with 100 or fewer employees.
• Employer contributions are mandatory (matching or non-elective).
• Employee salary deferrals are permitted.
• Lower administrative costs and complexity compared to 401(k)s.

Memory trick: For small businesses, 'SIMPLE' is often the 'BEST' choice when 'EASY' is the goal.

Medicare Supplement Plan G is a popular Medigap plan that covers most Medicare Part A and Part B cost-sharing expenses, with the exception of the Medicare Part B deductible.

• Covers Medicare Part A deductible.
• Covers Medicare Part B excess charges.
• Covers 20% coinsurance for Part B services.
• Does NOT cover the Medicare Part B deductible.

Memory trick: Plan G: 'G'reat coverage, 'G'enerally covers all but 'G'aps in Part B deductible!

A mandatory uniform provision in health insurance policies that limits the period (typically 2 years) during which an insurer can deny a claim or void a policy due to misstatements in the application, even if fraudulent.

• Mandatory health insurance provision.
• Standard limit is 2 years from policy issue.
• Applies to misstatements, including fraudulent ones.
• Protects insureds from indefinite policy contestability.

Memory trick: Health Policies have a Time Limit to Defend Against Old Lies.

A nonforfeiture option where the policy's cash value is used to purchase a new, fully paid-up life insurance policy for a reduced face amount, but for the same term as the original policy.

• Uses cash value to buy a new policy.
• New policy is fully paid-up (no more premiums).
• Face amount is reduced.
• Coverage term remains the same.

Memory trick: Cash Value Helps Keep Your Policy Alive, One Way Or Another.

An ethical and legal obligation for insurance producers to act solely in the best interest of their clients, placing the client's needs and welfare above their own.

• Producer acts as a trusted advisor.
• Prioritizes client's needs over personal gain (e.g., commissions).
• Requires full disclosure and transparent advice.

Memory trick: FIDO: Fiduciary is For Individuals' Desires Only.

The cost of employer-provided group term life insurance coverage up to $50,000 is tax-free to the employee. The cost of coverage exceeding $50,000 is considered taxable income to the employee, calculated using IRS Table I rates.

• First $50,000 of coverage is tax-free to the employee.
• Coverage above $50,000 is taxable to the employee.
• Taxable amount is calculated using IRS Table I uniform premium rates.
• Employer can deduct the premiums paid.

Memory trick: Group life has a '50K' sweet spot; 'MORE' means 'TAX' for the employee.

A life insurance rider that provides a beneficiary with a regular income stream for a specified period if the insured dies during the rider's term.

• Provides income, not a lump sum.
• Paid for a pre-determined duration.
• Designed to replace lost income for dependents.

Memory trick: Riders add 'Extra' protection, like a 'Family' needs 'Income' after a loss.

If a universal life policy lapses due to non-payment, the policyowner receives the accumulated cash value, less any outstanding loans and surrender charges.

• Cash value is not forfeited.
• Payment is a lump sum.
• Subject to surrender charges and outstanding loans.

Memory trick: When the 'Universal' coverage 'Lapses', your cash 'Returns' to you, not the insurer's 'Vault'.