Types of LIFE insurance plans and policies:No Standard Policies
differences in client needs and wants, no one applicant is
identicalTerm Insurance - Temporary life insurance that is
generally designed to afford coverage for a limited number of
years. The policy includes no cash value and can be described as
pure protection.Level Term Insurance A term life insurance policy
characterized by a level death benefit every time coverage is
renewed. The premium will increase at each renewal as well.
Coverage is usually renewable up to a specified age such as
70.Decreasing Term Insurance decreasing face amount of death
benefit each year, premium remains level. A type of temporary or
pure protection characterized by a reducing face amount each year.
The cost for this coverage remains constant. Sometimes called
mortgage redemption or mortgage protection insurance since it is
primarily used in conjunction with a debt or loan.Return of Premium
Term Insurance provides the advantage of buying less costly term
insurance with the potential to receive 100% of premiums paid, if
insured lives to end of the policy periodWhole Life Insurance
provides death benefit for the whole of ones life or to age 100.
Combination of death benefit protection (term insurance) with cash
value. Level death benefit and premium. Can be referred to as
straight life, continuous premium life, permanent life insurance of
ordinary life. Endowment a whole life policy that, following an
endowment period, pays a stated amount to the insured. If the
insured dies during the endowment period, the face amount of the
policy is paid to the primary beneficiary.Straight Life Policy
combination of death protection plus a cash value. The maximum
fixed interest rate that can be charged by an insurer for apolicy
loanby the contract owner is currently 8%. Policies may include an
adjustable policy loan interest rate.Limited Pay Whole Life same
characteristics as straight or continuous premium whole life except
there is a limited payment period; instead of paying to age 100. A
plan of life insurance under which the premiums are payable for a
specified number of years after which the policy remains in effect
for life without any additional payments. However, the policy still
does not mature until age 100.Single Pay Whole Life fully funded
with one payment. Provides death benefit coverage until death or
age 100Modified Whole Life Policy - characterized by a lower
premium during the initial years of the contract to make it more
affordable for the policy owner. The premium then increases after
this introductory period and remains level for the life of the
contract.Graded Premium Whole Life Policy premiums less in years 1
to 5, increase each year for a number of years, remain higher for
the remainder of policy term.Enhanced ordinary whole life
(economatic/extraordinary) face amount/death benefit reduces each
year. Dividends used to offset decrease via Paid-up additions or
one-year term. Guaranteed death benefit in early years of
contactIndeterminate Premium Whole Life low premium for stated
period of time. Future premiums based on insurers investment
performance. Premium may increase or decrease, but can never exceed
a guaranteed maximumCurrent Assumption Whole Life (Interest
Sensitive Whole Life) non-traditional, low premium/ cost life
policy. Utilizes current interest rates: low premium type: which
can be reconfigured by insurer. High premium type: with an optional
pay-up provisionIndexed Whole Life non-traditional face amount
increases with CPI. Policyowner assumes risk by paying higher
annual premium to offset increasing death benefit. Insurer assumes
risk by charging higher than normal annual premium, in anticipation
of offsetting increasing death benefit.Ordinary Life Insurance -
Insurance policies of $1,000 or multiples thereof that provide
coverage for the entire life of the policyholder and for which the
premiums are payable until death. It is also referred to as whole
life insurance, straight life insurance, or continuous premium
life, and is different from term insurance in that it includes a
cash value build-up.Equity Indexed Life Insurance universal life
product that offers all the benefits and flexibility of universal
life. Cash values are interest rate driven. Interest provided on
account is determined by changes in the underlying equity stock
index account, most commonly S&P 500 or the minimum guarantee
amount.Flexible Premium PoliciesAdjustable Life permanent policy
with all characteristics of whole life except it includes: an
Adjustment Provision whereby the actual death benefit can be
adjusted. The premium or face amount may be adjusted up or down,
increasing the death benefit almost always requires underwriting.
It can also alter the: 1) type of coverage (term or whole life), 2)
premium payment period, 3) premium payment, 4) protection
timeframe. Universal Life plans nontraditional type of insurance
also known as Flexible Premium Adjustable Life. Policyowner can
change the coverage amount.1) Combination of Annuity Renewable Term
(ART) and a Cash Value Fund2) Death Benefit can be altered up or
down3) Owner can over-fund the contact, thus lowering or
eliminating the need for premium, as long as cash value is
present.4) Owner determines the target premiums at the time of
application . Target premiums are used to pre-determine amount of
coverage or cash value accumulation.5) Partial cash value
withdrawals are allowed6) Considered a transparent policy because
it has an unbundled premium. The owner receives annual statement
indicating the breakdown of: premiums, death benefit, mortality
charges, expenses, and cash values7) Find a guaranteed interest
rate as well as current rate. The higher of the two rates will be
credited to the cash value. 8) 2 death benefit options. Option A
provides a level death benefit. Option Boffer level benefit plus
cash valueSEC Regulated PoliciesVariable Life has all the
characteristics or ordinary whole life, with on distinct
difference, the cash value is directed into separate account or
sub-accounts and invested in stocks, bonds, mutual funds
etcVariable universal - a permanent life insurance contract. The
cash value of the policy is invested in the stock market, so it may
also be described as an investment product as well.Specialized
PoliciesFamily Income Policy - A policy that combines a whole life
policy with a decreasing term rider in order to provide a death
benefit together with monthly income payments to the beneficiary.
Monthly income payments are made only from the date of death until
the maturity date of the contract. Then the lump-sum part of the
whole life coverage is paid.Family Maintenance Policy - This type
of policy combines whole life insurance and a level term rider. It
provides for the payment of a monthly income during a stated period
of years once the insured dies. The monthly income is payable from
the date of death to the end of the preselected period. The payment
of the face amount of the policy is payable at the end of the
preselected period.Family Policy - A policy covering the entire
family. Whole life insurance covers the primary insured (i.e.,
breadwinner) with varying amounts of level term on the rest of the
family.Joint Life (First to Die) covers two or more people under
one contract. When the first insured dies, death benefit is paid to
the beneficiary. Policy ends upon first death.Survivorship Life
(Last to Die) covers two or more people under one contract. No
benefit payable upon death of first person. Death benefit payable
after last person dies.Juvenile Life policy placed on the life of a
child. Used for burial expenses or to protect the childs
insurability or to begin a savings plan for their child.Credit Life
Insurance protects a lender against the premature death of a
borrower before the latter party has the opportunity to pay off a
debt or loan.buy-sell agreement - An agreement between partners in
a business or between an owner and a key employee. The agreement
provides for the continuation of the business when, for example,
one of the partners dies. The remaining partners "buy out" the
interest of the deceased partner by paying an agreed-upon amount of
funds to the deceased's survivors. Life insurance is generally used
to fund or support the agreement.
Provisions in LIFE insurance policies:Incontestable clause -
insurer to void a policy already issued if it finds that the owner
or insured engaged in material misrepresentation especially
concerning health history. (1737)Payment of Premium (Premium paying
provision) premiums must be paid to an insurer or its reps in order
for coverage to be provided Grace period provision if the payment
is not received by the 31st day after its due, coverage will
lapse.Reinstatement provision if a policy lapses because premiums
are not paid, many life contracts allow reinstatement as long as it
is requested within three years after the policy lapse.Ownership
Provision - This is a provision in a life insurance policy that
identifies the owner rights in the contract. The policy owner
possesses the right to name or change the beneficiary, select the
premium payment mode, or assign one or more rights to another
party. In a whole life policy the owner also has the right to
borrow against the cash value and receive dividends.Assignment
Provision - The act of transferring ownership rights of a life
insurance policy by the owner to a third party (i.e., the
assignee). If all rights and the entire contract are assigned to
another party, an absolute assignment has occurred. If one or some
of the rights in the policy are transferred to another party but
not all, a collateral or conditional assignment has taken
place.Entire Contact policyowner is entitled to the policy,
application and any riders, waivers or endorsements which
constitutes the entire contractConversion Option Provision allows
the policyowner the right to make changes in the type of policy
owned. Allows the policyowner to convert.Modification Provision any
changes made to the contract must be endorsed and attached to the
policy. It also states that only an officer of the insurer or
authorized home office personnel posses the authority to make any
changes or modifications, or waive a policy provision.Free Look
Provision the owner possesses the ability to review the contract
for a specified period of days. She can change her mind about
keeping the policy and return it to the insurer within 10 days of
the delivery date.Exclusion Provision war and aviation are excluded
from life insurance.Beneficiary provision allows the policyowner to
designate the person who will receive the death benefit revocable
beneficiary policyowner may change the beneficiary at any time and
requires a form irrevocable beneficiary beneficiary designation
cannot be altered with the permission from beneficiarySpendthrift
provision protects a beneficiary from creditors. Prevents any
entity from attaching a lien or any other encumbrance to the policy
proceeds when the beneficiary leaves proceeds with the insurer.
Trusts can be named as a beneficiaryFacility of Payment permits the
insurer to pay another party who paid for the funeral expenses of
the deceased insured.Insuring Clause - The policy provision that
describes the scope and limits of the coverage afforded. It also
identifies the parties to the contract and the annual
premium.Consideration clause Exchange of Values premium paid and
his or her representations regarding health history which appear in
the application.Settlement option provision - Methods by which a
beneficiary may choose to receive life insurance policy
proceeds.Suicide Clause a provision specifying that in the event
the insured commits suicide within two years from the date the
policy was issued, the insurers liability is limited to the payment
of a single sum equal to the premiums actually paidNon-forfeiture
options 1) surrender for cash 2) extended level term insurance
allows to purchase a policy with a identical term death benefit for
as long a period of time that the cash value amount will provide
coverage for. 3) paid up permanent insurance allows a policyowner
to use existing cash value from the surrendered policy to purchase
a smaller, fully paid-up whole life policy with a smaller face
amount or death benefit.Cash Value ProvisionsPolicy Loan Provision
A loan made by an insurer to a policy owner under his or her policy
permanent insurance policy. A policy loan is not taxable. However,
if the whole life plan has been designated as a modified endowment
contract, such a loan will be subject to taxation.An insurer may
delay the request for a policy loan for up to 6 months.Automatic
Premium Loan authorizes insurer to borrow from the cash value to
pay unpaid premium after grace period expires
Contract OptionsNon-forfeiture Values - Benefits required by law
to be made available to the policy owner in the event that he
surrenders the policy by discontinuing premium payments. These
values state that the owner will not forfeit or lose all that he
has invested in the policy. Also referred to as non-forfeiture
options, they include surrender for cash the cash value that
exceeds premiums paid is considered taxable extended term insurance
- allows to purchase a policy with a identical term death benefit
for as long a period of time that the cash value amount will
provide coverage for. reduced paid-up insurance - allows a
policyowner to use existing cash value from the surrendered policy
to purchase a smaller, fully paid-up whole life policy with a
smaller face amount or death benefit.Dividend options in a
participating life insurance policy: Receive the dividend in cash
tax free Use it to reduce the premium Accumulate at Interest
dividends placed in a separate account, insurer pays interest
(taxable); dividend tax-free Apply it to purchase paid-up
additional amounts of life insurance pay additional for whole life
policies and will increase overall death benefit (inflation offset)
Paid-up option apply the dividend directly to cash value to attempt
to pay the policy earlier than expected one year term insurance use
value of dividend to purchase a on year term policyCash; Reduce
Future Premium; Accumulate at Interest; Paid-up Permanent
Additions; Paid-up Option; One Year Term CRAPPO Settlement Options
(5 death benefit options)1. Lump Sum tax-free2. Fixed Period fixed
# of payments over a specific timeframe. primary concern is having
income for definite period3. Fixed amount specific dollar amount
for indefinite amount of time. Primary concern monthly income /
dollar amount4. Interest Only death benefit proceeds are left with
insurer, only interest is paid to beneficiary. Beneficiary receives
guaranteed interest rate and has the right to withdraw anytime.5.
Life Income single premium immediate annuity. Several payout
options from which to choose from. (Ch. 7)
Types of Life Riders:Waiver of premium prevents policy lapse
upon disability of policyowneraccelerated benefits rider - This
rider may be added to a life insurance policy that permits the
policy owner to "accelerate" or receive a certain percentage of the
death benefit while the insured is still alive when he or she has
been diagnosed with a terminal illness. Whatever amount is paid to
the owner under the rider is subtracted from the face amount when
death occurs and the remainder is paid to the designated
beneficiary.long-term care rider - Attached to a life insurance
policy and allows for the payment of a percentage of the death
benefit if an individual is not terminally ill but requires
long-term care.Dependent or family rider - added to a life
insurance policy specifically to provide coverage for dependents of
the primary insured. Dependent riders may cover a spouse, children
or dependent parents. A family rider, for instance, may cover the
primary insured's spouse and children (natural and
adopted).accidental death Indemnity Rider provides an additional
death benefit if cause of death is accidental. Death must occur
within 90 days after the accident, added premium, death benefit
called principal sumGuaranteed insurability allows child to
purchase future insurance without evidence of insurability without
a medical exam.cost of living adjustment rider for disability
income and long-term care policies. Will increase the disability
benefit each year as determined by the CPI or a specific percentage
listed in the contract itself. (1342) Automatically increase death
benefit based upon CPI.Return of Premium Rider an increasing term
rider is added to a term or permanent policy, which increases death
benefit in proportion to premiums paidReturn of Cash value an
increasing term rider is added to a permanent whole life policy,
increases the death benefit equal to the Cash Value accumulation
increase each year.Payor rider - A rider that provides for the
waiver of premiums on a policy covering a child following the death
or the total disability of the adult owner (i.e., premium
payor).Increasing Term Insurance Rider - characterized by an
increasing amount of term life coverage each year. There are two
primary types, including a return of premium rider and a return of
cash value rider.living benefits rider Attached to a life insurance
policy and allows for the payment of a percentage of the death
benefit for terminally ill insureds. Normally there is no cost for
this rider.Viatical settlement - This is a transaction where the
owner of a life insurance policy decides to sell the contract to a
viatical settlement company (i.e., a viatical settlement provider).
This company buys the contract for a percentage of the face amount
from the policy owner. The provider or company then changes the
name of the beneficiary to itself since it is the new owner of the
contract. When the insured dies, the provider receives the death
benefit. The amount paid to the policy owner is a percentage of the
face amount in the contract (e.g., 85% of the face amount). The
owner is allowed to accelerate a portion of the death benefit while
he is still alive when they have been diagnosed with a terminal
illness. A viatical settlement is one of three ways in which to
accelerate benefits. The other two include an accelerated benefit
rider and a long-term care rider added to a life insurance policy.
The amount paid to the viator is free from federal tax.
Types of annuities:Qualified Annuity - tax deferral of interest
and contributions that are tax-deductible.Nonqualified Annuity -
description is based upon the fact that interest or earnings paid
into the contract are tax-deferred and the contributions to the
contract are not tax deductible.fixed minimum rate guaranteed or a
predetermined amount of income every month to the annuitant. Limits
policy owners risk and insurer assumes risk. fixed amount option
pays a specified dollar amount per month to the annuitant. If the
recipient dies before the accumulated value has been paid out, the
balance is paid to thebeneficiaryin the same monthly installments.
(1616)variable annuity - contributions (to its subaccount) are
maintained in the insurer's separate asset account and credited
with a specific number of accumulation units. These units are used
to determine the annuity owner's interest in the separate account
and ultimately, the value of the investment. When the annuity
enters the pay-out phase, the accumulation units are converted into
annuity (i.e., income) units. straight life - pays income for life.
Theoretically, this protects the individual against outliving his
or her income. Outliving one's income is also called
superannuation. (1594)life with period certain income for life,
with survivor benefit if annuitant dies before end of term or
designated period.Life with 20 years certain if annuitant dies
within the 20 years the beneficiary receives the remaining as
installment refund remainder of monthly income, or cash refund lump
sum paymentAnnuity certain pays an income for a stated period of
time only. Does not guarantee income for life. Single premium
annuity lump sum payment. Tax-deferredFlexible or periodic premium
periodic premiums that may be variable are paid until policy owner
wishes to begin receiving income at retirement time.immediate
annuity - This is a type of annuity contract that pays a monthly
income commencing one, three, six, or twelve months after purchase.
This type of contract must be funded with a lump-sum or single
premium.deferred annuity - A classification of an annuity where
income payments commence more than one year after the payment of
the first (or single) premium to the insurer, usually at
retirement.tax-sheltered annuity - This is a type of qualified plan
that receives tax deferral through a salary reduction. Those
eligible for this type of plan include educational employees,
clergymen and women, employees of non-profit organizations and
employees of charitable organizations. This may also be referred to
as a tax-deferred annuity.joint and last survivor - An annuity
issued on the lives of two or more persons that is payable as long
as the survivor lives.installment refund - The same as a cash
refund annuity, except that money is refunded in installment
payments and the insurer makes payments to the designated
beneficiary until the total of the payments made to the annuitant
and the beneficiary equals the consideration paid.level premium
premium remains constant throughout the life of a policycash refund
- A life annuity contract which provides that upon the death of the
annuitant, a beneficiary will receive a lump-sum payment that
represents the difference between the amount the annuitant paid to
the insurer and the total income payments received by the
annuitant.Market value adjusted or Modified Guaranteed annuity -
This type of annuity shifts some but not all of the investment risk
from the insurer to the policy owner since the annuity account
value will fluctuate as market interest rates fluctuate. It is a
single premium deferred annuity that allows the contract owner to
lock in a guaranteed interest rate over a specified maturity
period. These annuity contracts pass along more risk to the policy
owner.equity-indexed annuity - This is a type of fixed or
non-variable annuity. The contract pays a guaranteed minimum
interest rate and account assets are tied to an index such as
Standard & Poor's. If the index is higher than the guaranteed
rate each year, the contract owner receives the greater return. If
the index is lower than the guaranteed rate, the contract owner
receives the minimum guaranteed rate.
Qualified Retirement Plans ch9This is a retirement type vehicle
that receives favorable tax treatment. Contributions to the plan
are tax-deductible while earnings credited are tax-deferred. In
order to be classified as a qualified plan according to IRS
guidelines, the plan must (1) be in writing, (2) must be
communicated to all employees, (3) cannot discriminate against any
employees and (4) must provide survivor benefits, (5) it must be
provided for the benefit of employees and their dependents and (6)
must provide survivor benefits.Employee contributions to a
qualified plan and earnings received are exempt from current
taxation, but will become taxable when eventually received by the
employee as retirement income. This would also include employer
contributions being taxed when received. Distributions prior to age
59 1/2 are not deductible from gross earnings, nor does an employer
receive a tax-deduction when the employer receives a benefit. The
employer deduction takes place when and if they make a contribution
into the employee program. Rollover must be within 60 days of the
withdrawal. An employer must follow established vesting rules that
conform to state standards where the policy originates. An employer
cannot make its own schedule. Employees contributions are 100%
vested from the first contribution. Employer contributions are
vested over a pre-determined and state approved period of time,
which is usually defined by years of service.Individual Retirement
Account (IRA) individuals who have earned income. Sold by banks,
insurance companies and investment firms. An annuity can fund an
IRA. Contributions cannot exceed $5,000 per yearEducation IRA
(Coverdell Savings Account) provide college funding with a
non-deductible contribution of $2,000.Section 529 Savings Plan
state provided investment plan that provides families with a
federal tax-free method to save money for college.Roth IRA all
individuals who have earned income, subject to certain income
eligibility. Tax-free gains if account is five years old and owner
is 59.5 or dies or becomes disabled, or first time home purchase.
It does not require that the owner begin to make minimum
distributions prior to age 70.5 and allows an owner to leave behind
accumulated value a as a legacy to future generations.Nonqualified
Plan - This is a type of retirement plan that permits tax deferral
of interest but contributions are not tax-deductible. The reason
for the latter is due to the fact that the employer sponsoring the
plan may legally discriminate and provide the plan for specific
employees only, such as highly paid executives.Simple Plan - is a
savings incentive match plan for employees who work for small
employers. Contributions to the plan are tax-deductible to the
employer making them. An employer will be eligible to contribute if
he or she has no more than 100 employees who received at least
$5,000 each in compensation for the preceding year. A Simple Plan
may be used if no other qualified plan is present. An employer is
also required to match any elective contributions by an employee on
a dollar-for-dollar basis up to a limit of 3% of the employee's
compensation. (1518)Keogh Plan a non-corporate retirement plan of
self-employed persons and partnerships. This plan may be arranged
as either a defined benefit or defined contribution plan.
Simplified Employee Pension aka an employer sponsored IRA with an
expanded contribution rate. It is a defined contribution plan for a
small business. 401k Plan available for employees of profit
companies. Salary reduction/pre-tax contribution. Can be invested
in different investment vehicles on a tax deferred basis and is
taxable upon withdrawal.403(b) Plan available for employees of
non-profit companies.457 Deferred Compensation employees of a
municipality like a city or town. Different from 401k and 403b
because it is owned by the employer.Defined Contribution Plan -
This is an employee benefit plan under which each participant's
benefits are based solely upon the contributions made to the
participant's account. The amount of the contributions will
determine the future benefit at retirement.Profit Sharing Plan part
of a defined contribution plan. Annual profits shared among
employees with no guarantee of paymentPension Plan retirement plan
that calculates benefit based upon years of service and income
averages.Employee Stock Ownership Plan (ESOP) defined contribution
plan that provides employer stock to employee based upon their
income and profits of a company.Defined Benefit Plan A employee
benefit retirement plan that uses a definite formula to determine
the exact benefit amount. Employer contributions to the plan are
actuarially determined. The benefit to be paid in the future will
determine the amount of the contributions. It is a combination of
the employees length of service and an average of their yearly
income
Group Life Insurance Concepts ch9 and 15Conversion Option upon
termination an employee can convert group policy to individual
policy within 31 days of termination. Attained or actual age
determines the whole life premium. No medical exam or underwriting
process.Group Premium Payment Non-Contributory employer pays all
premium, must cover 100% of employees Contributory employee pays
all or part of premium and must cover 75% of employee. Protects
against adverse selection.Group Insurance Taxation Employer paid
premiums are deductible to employer as a business expense Death
benefit is received tax-free Cost of first $50,000 group life is
tax-exempt to employee Cost of coverage (employer paid) for death
benefit that exceeds $50,000 will be taxable as ordinary income to
employee (this is the premium paid for coverage exceeding
$50,000)Premium Structures: Experience Rating actual claim
experience of actual group will affect future premium. The tendency
of a disproportionate number of poor risks to seek or buy insurance
or maintain existing insurance in force (i.e., the selection
against the insurance company). Sound underwriting reduces adverse
selection. Community rating used for smaller groups, use of
identical premium rates for all subscribers in a community
regardless of loss experience Rating factors: demographics,
industry, location, carrier history, medical history of group,
contributory or non-contributory, participation rate of employees
and dependentsMarketing: Doctrine of Comity state in which the
contract is accepted or delivered is the state that possesses
regulatory jurisdictionSmall Employer Medical Expense employer with
2 to 50 employees. Must offer medical expense coverage to all
eligible employees. Preexisting conditions cannot be excluded. Must
offer at least two medical plan optionsAlternative Funding:1.
Modified Fully Insured Plansa. Premium delay arrangements employer
can defer payment beyond normal 30 day grace period to 60 or 90
days. Use premiums for other purposes and/or earn more interestb.
Reserve reduction arrangements similar to premium delay. After 1
year, employer can retain amount of premium equal to claim
reserve.c. Retrospective rating arrangements insurer charges lower
than expected premium. If claims exceed premiums paid, employer is
assessed an additional fee at end of year that justifies actual
claims.2. Partially Self-Funded plansa. Stop-loss coverage plan is
self-funded to a stated dollar amount. Insurer assumes losses
beyond a predetermined stop loss amount. Large employer onlyb. ASO
Contracts employer pays 100% of claims but hires paid third party
to provide administrative services. More cost effective. Pays
claims from employer created bank account.c. 501 (c) (9) Trust
Voluntary Employee Benefit Account. Provide for a tax-deductibility
of employee contributions, tax-deferred growth of any earnings and
tax-free benefits.3. Fully self-funded (self-administered) plans
(Fully Employer-Funded)a.
Individual and Group Medical Expense Policies (health insurance)
ch15Service Plans HMO, PPO, BC/BS Contract between hospitals &
doctors Prepaid benefitIndemnity Basic, Major Medical Fee for
service benefit, usual customary and reasonableMedical Expense
Policies Premiums are not deductible, benefits are not taxable
Employer paid group premiums are deductible to the employer,
benefits received tax-free by employee1. Basic first dollar plan.
No deductible, low overall limits, specific benefits per category
of coverage Daily Board and Room (DBR) Miscellaneous/Ancillary
Expenses Surgical Expense Coverage added premium Physicians expense
added premium2. Major Medical protects against catastrophic losses
with much higher benefits High coverage limits; deductibles: front
end, pay first; co-insurance; blanket coverage; stop loss; inside
limitations Exclusions: war, cosmetics, routine dental, workers
compensation, intentional, self inflicted injuries, care at
government facility, LTC, and private nursing3. Comprehensive major
medical combines basic medical and major medical Corridor
deductible deductible that exists after basic has paid, and before
major medical pays Supplemental major medical eliminates
deductible, so more expensiveDental Insurance Scheduled (Basic)
Plan no deductibles or co-payments and include first dollar
coverage Non-Scheduled (Comprehensive) Plan most common, includes
deductibles and co-payments Diagnostic and preventative services
Basic services such as fillings and oral surgery at 80% Major
services such as crowns, orthodontics, facial reconstruction at 50%
Combination Plans Diagnostic/Preventative services Basic dental
plans generally include coverage for X-rays, cleanings and fluoride
treatments. Restorations or fillings can be added to the plan if
desired. Routine dental care is not covered by medical plans,
disability income and other types of accident and health policies.
Categories Restorative filings and crowns Oral surgery Endodontics
root canals and treatment of pulp within teeth Periodontics
perimeter care of tissue surrounding teeth Prosthodontics dentures,
bridgework, implants Orthodontics braces Probationary period is
designed to reduce adverse selection and the claims associated with
pre-existing conditionsLimited Policies specific risks (11):
hospital indemnity, accident only, AD&D, Cancer or Specified
Disease Policies, travel accident, blanket policy, credit
disability/life, diagnostic and preventative care, prescription
drug, vision care, scheduled benefits Managed Care (Medical Cost
Containment) helps control increasing medical costs and delivery of
healthcare Method available: (1) controlled access to providers
Gatekeeper approach, (2) case management, (3) preventative care,
(4) risk sharing, (5) quality care, (6) alternative delivery
systems
Senior Citizen and Special Needs ch16Social Security (ch9) Old
Age Survivors Disability Health Insurance (OASDHI) Benefits:
Medicare, Retirement Benefits, Lump Sum Death Benefit ($255),
disability benefits, survivors benefits, dependent benefits (paid
until age 18) Funding: FICA payroll tax employer and employee:
7.65% each self employed: 15.3% Fully Insured = they paid 40
quarters or 10 years; entitled to retirement and survivors
benefits. Fully and Disability Insured = 40 quarters with 20 of the
last taken place immediately prior to their disability Currently
Insured = 6 of the last 13 Quarters paid (Survivors Benefit only)
Primary Insurance Amount calculation that factors FICA contribution
averages and determines the amount of retirement or disability
benefit. Benefits are based upon contribution. Blackout Period -
The time during which a surviving spouse stops receiving Social
Security survivors benefits (when the youngest child is no longer
eligible for benefits) and begins receiving Social Security
retirement benefits.Disability Benefit Under Social Security Very
restrictive: unable to engage in any gainful employment whether
that employment exists in ones immediate area. Disability is
expected to last 12 months or result in death 5 month waiting
period, benefit begins in 6th month Benefit based on Primary
Insurance Account
Medicare 2 part federal health insurance designed for people age
65 and older and eligible for Social Security benefits and have
certain disabilities, including Renal Kidney disease requiring
dialysis. They are also eligible if they are under 65 who have been
receiving Social Security disability for more than 24 months Part A
Hospital Insurance automatic upon age 65 Includes inpatient
hospitalization for 60 days less the per-benefit period deductible,
skilled nursing only, home health care following hospital
confinement, 210 days of hospice care, Common charges include room
and board, x-rays, lab tests, meals, nursing services and inpatient
drugs John pays the deductible amount for the first 60 days in the
hospital, a daily coinsurance charge for days 61 through 90, and an
increased daily coinsurance charge for days 91 through 110, if the
lifetime reserve days are used Part B Supplemental Medical
Insurance (SMI), must enroll and pay monthly premium which is
deducted from social security check Includes: (1) physicians and
surgeons services, (2) home health services even if the insured has
not been in the hospital, (3) diagnostic lab tests, surgical
dressings, splints, and medical equipment, and (4) outpatient
services and office visits Enrollment starts during 7 month period
after they turn 65, can delay it if they are still employed and
covered. Annual deductible amount = $135 Approved and Reasonable
Charge rate set, and the amount paid by Medicare in for Part B pays
80% of all approved charges Exclusions: expenses incurred for
routine foot care, eye exams, hearing exams, eyeglasses, hearing
aids, routine dental care or dentures, routine cosmetic surgery and
routine physical exams. Part C Medicare Advantage Program Offers
expanded benefits through private carries, as an alternative to
Medicare A&B. Requires an additional premium Enrollment is
within 6 months of turning 65 and must be currently enrolled in
Part A&B. Part D Prescription Drug Plan Includes deductibles
and co-payments. 7-month Open Enrollment and Medicaid beneficiaries
automatically enrolled Eligible: over 65, kidney failure, ALS,
Medicaid beneficiaries Standard Plans available where there are no
private plans $35/month premium, $310/year annual deductibleMedigap
Policies / Medicare Supplements Purpose provide benefits not
provided by Medicare and are sold by private commercial insurers
must be written on at least a guaranteed-renewable-for-life basis.
Although rare, it is possible for such plans to include a
non-cancellation provision. Plans D,G,I and J = short term personal
care services Plans E and J = preventative screening Plans K and L
= co-pay of 50% and 75% respectively Plans F and J = high
deductible option 12 Requirements - 30 day free look 6 months
enrollment
Long Term Care (LTC) Purpose chronic benefits; provide medical
and personal service for assistance with Activities of Daily Living
(ADL) after 90 days Sold as Individual or Group plan, or as rider
to Life Insurance policy Reimbursement basis pays provider of
service directly Indemnity basis pays insured directly There are
generally two standard options that may be purchased including
return of premium and guarantee of insurability. 4 Major Levels:
Skilled nursing care 24 hour series, highest level of care and cost
intermediate nursing care occasional nursing and rehabilitation
care in an approved facility custodial care non-medical care -
daily life: eating, dressing, bathing; does not need a trained
medical pro home health care - all of above except in patients home
Other Benefits: Assisted Living Care Respite Care provide breaks
for major caregiver Hospice Care for terminally ill. Covers pain
management but not curative measures Adult Care - live at home but
whose family members are not able to remain at home during the day
to provide needed care. The care provided at an adult day care
center is similar to that provided by home health care. Adult day
care centers sometimes provide transportation to and from the
center as well. Excludes: intentionally self-inflicted injuries,
treatment for drug addiction or alcoholism, mental and nervous
disorders, attempted suicide, medical treatment payable by the
government, or illness due to war. Shared Care couples who are
insured with same company can pool benefits from each others
policies No long-term carepolicymay be issued by an insurer unless
it offers a non-forfeiture benefit option to the applicant. Free
Look is 30 days Must provide benefits for 12 months Tax deductible
if paid by employer Riders available guaranteed insurability allow
owner to increase value of policy return of premium If LTC is never
needed inflation protection most common is increase daily value by
5%. The insurer determines what inflationary options must be
provided in the contract non-forfeiture allows policyowner to buy a
LTC contract with reduced benefit Reduced paid-up non forfeiture
allows company to calculate previously paid premiums in determining
fully paid up for life LTC policy with smaller overall benefits in
order for an LTC policy to be "qualified", the plan cannot pay
expenses that are reimbursable by Medicare, can only provide LTC
services, include a renewal provision of guaranteed renewable or
better, cannot include a cash value or any sort, and must include
at least five activities of daily living. (1115)Medicaid Public
assistance based on need or very limited income or savings Hospital
and doctor costs, lab and x-rays, early diagnosis for children
under 21, family planning, nursing home care, benefits provided by
a Federal Health Center clinic, and certified midwives and nurse
practitioners
Cost Containment - or cost savings methods provide medical plans
with controlled access of providers,preventive care,
hospitalization alternatives, second surgical opinions,risk
sharingand preadmission testing.
Business Plans ch10Split-dollar life insurance - not a type
oflife insurance policy. It is a business arrangement that a firm
embarks upon in order to provide life insurance coverage to an
employee. This arrangement must be funded with a whole life policy.
Business Continuation (Buy-Sell) makes money available to purchase
deceased partners beneficiaries interest. There is a pre-arranged
purchase price contractual agreement to sell. Entity Plan =
agreement between corporate owners. Cross-Purchase Plan = agreement
between partners only (N-1 x N) = # of policiesDeferred
Compensation non-qualified plan. Between employer and employee.
Portion of current compensation is deferred to later date.Salary
Continuation employer funded. Employer agrees to continue salary
after retirement in exchange for consultative services.Corporate
Owned Life Insurance change of insured provision. Allows to change
named insured and is less expensive due to lower fees and
commissions.Executive Bonuses (Section 162 Bonus Plans) use
compensation bonuses to purchase life insurance.
Accident and Health Insurance Includes: ch12 +15 Accident and
Health (3 primary forms) Disability Income provides income should
the insured become disabled (either by injury or illness) and
become unable to earn a paycheck Medical Expense Insurance pays
hospital and doctor bills resulting from injury or illness Long
Term Care pays for cost of Nursing Home Care and other related
Senior Care Accident and Sickness Sickness Only Medical Disability
Income Accident Only Travel Accident Long Term Care Medicare
Supplement Accidental Death and Dismemberment (AD&D)
Dental/Vision/Prescription Limited Policies (cancer
only)Replacement Considerations ch 12 Things that need to be
carefully considered are: policy exclusions, definitions, waiting
periods Waiting/elimination period time at the beginning of each
new disability where no benefit is paid. Longer the period of time
insured goes without benefit, the less expensive the policy.
Increasing elimination period, decreases the premium of the policy.
Probationary period one time event at issuance of policy, during
which time coverage for illness is not covered. (usually 30 days)
Existing coverage should never be terminated until the new policy
has been approved and issued. If this happened there would be a gap
in coverage
Insurance Providers: ch12 Private Companies Health Maintenance
Organizations (HMO) alternative for fee for service. Preventative
care with a wide variety of preventative programs like annual
exams, immunizations, mammograms, and well baby care.
Enrollees/members are make a pre-paid premium. gate-keeper
philosophy. Closed Panel Blue cross/ Blue shield blue cross =
hospital benefits; blue shield = physician expenses. Limited
geographically, operates on a service basis, members are considered
subscribers Preferred provider organization (PPO) enters into
contractual agreements with hospitals and doctors.
Employees/Insureds will pay a lower deductible or co-pay. Preferred
Provider Agreement establishes an exchange for services provided
with discount pricing to increase volume of business Point of
Service Plan - managed care provides benefits of an HMO and PPO
Employer-sponsored plans employer self-funds up to a specific
dollar amount per person. Used as a method to reduce costs and
insurance premiums but with a high deductible Government Multiple
Employer Trust (MET) vehicle used by small employers who group
together Multiple Employer Welfare Association (MEWA) method for
small employers to band together with other similar groups to buy
group insurance CHAMPUS aka Tricare provides health care benefits
for dependents of military personnel
COBRA ch13
Provisions in Accident and health plans: ch17non-cancelable -
one that may not be cancelled as long as the premium is paid on a
timely basis. In addition, no policy language or benefits can be
altered nor does the premium increase. guaranteed renewable - one
that cannot be cancelled nor have its benefits modified as long as
premiums are paid on time. However, thepremiummay be increased on a
class basis. For example, if the policy in question is
adisabilitypolicy, the class is occupational. (1426)conditionally
renewablecoordination of benefits - A provision found in group
health policies specifying how benefits will be paid when other
health insurers cover an insured. designed to prevent an
insuredfrom profiting on a health insuranceclaim. An insurer will
usually inquire whether an applicant is covered by any otherhealth
insuranceplan. This allows the insurer to determine which plan is
primary and secondary. (1421)waiver of premium provision (health) -
included in some policies that exempts the insured from the payment
of premiums after he has been totally disabled for a period of at
least 90 consecutive days. This varies from the life insurance
waiver, which is 180 days.No Loss, No Gain Provision - is that
claims should be paid neither more liberally nor less liberally
than if no transfer of coverage had taken place. A No Loss, No Gain
provision is also referred to as a prior coverage credit.
(1224)
12 A&H mandatory uniform policy provisionsgrace period
protects from unintentional lapse due to their failure to pay the
premiumreinstatement The act of restoring a lapsed life insurance
policy to its original status. Normally, reinstatement involves
payment of back premiums with interest, payment of all policy loans
and providing evidence of insurability within a specified time. It
must occur within three years of the due date of the defaulted
premium. Statements on the reinstatement provisions are contestable
for another two years.notice of claim policyowner must notify
insurer of loss within 20 days after loss occurred. claim form -
known as the "proof of loss form" provision, it requires that an
insurer send a claim form to the insured within 15 days after it
has been notified of the covered illness or accident. (1394)proof
of loss policyowner has 90 days from date of loss to submit proof
of loss to insurerlegal actions insured can seek legal action
against insurance agency if they feel they have been denied a
claim. No sooner than 60 days after proof of loss has been
provided.entire contract policyowner is entitled to the policy,
application and any riders, waivers, endorsements time limit on
certain diseases insurer may challenge misstatements on an
application, but only during the first 2 years of the policy. Must
be material misrepresentations. Same as Incontestable Clause in
Life Insurance.time payment of claims claim must be paid
immediately upon proof of loss. Disability claims must be paid at
least monthlypayment of claims unless assigned to hospital or
doctor, claim is paid to insuredphysical exams and autopsy insurer
has the right to conduct to determine validity of claim. Insurance
company pays the costchange of beneficiary owner of contract can
change beneficiary at any time unless it he is irrevocable.
Disability Insurance Concepts (ch14)1) presumptive Disability a
type of total and permanent disability upon loss of sight, hearing,
speech and loss of limb use. Paid even though insured is still
working.2) Loss of earnings test Short term disability
policyElimination period - the purposes of an elimination period,
as in a disability income policy, is to lower the cost of coverage
to a policyowner. It also reduces the risk to an insurer and thus
provides a lower premium to the consumer.Workers Compensation Any
payment received from Workers' Compensation or any other type of
social insurance would reduce the benefit being paid by the group
insurance plan.
Disability Provisions Relation of earnings to Insurance - A
provision in the policy that permits the insurer to reduce the
monthly income disability benefits payable if the insured's total
income from benefits exceeds either his current monthly earnings or
his average monthly earnings during the two-year period immediately
preceding the disability.
TYPES of risks for an underwriter:Preferred risk considered to
be in perfect healthStandard risk normal health. The classification
of a person applying for life, health, and/or disability income
insurance who fits the physical, occupational, and life style
standards (four DWI convictions is not a standard life style) on
which normal premium rates are based.Substandard risk risk that has
a much greater potential for loss and would e the risk least likely
to be assumed by an insurer. Usually includes a higher
premiumDeclined risk a substandard risk. This is an individual
whose application for coverage was rejected by an insurance
company.Speculative risk - This is a type of risk that presents the
chance for gain or loss. It is not legal to insure such risks
(e.g., betting on a race).
participating policies - A life insurance policy that entitles
the policyholder to share in the divisible surplus of the insurer
through dividends.group credit plan - benefits payable for loss are
always payable back to the originator of the loan, meaning the bank
or the creditor
receipts:unconditional (binding) receipt - This receipt
indicates that the proposedinsuredis covered immediately as of the
date of the receipt for a specified period of time. If
theapplicationis approved byunderwriting, coverage continues beyond
this period. (1948approval receipttentative receiptinsurability
receipt conditional receipt - A form, normally required to be
signed by the agent and given to the prospective owner at the time
a new application is completed. The issuing of a receipt is subject
to individual company rules. Most require that the agent collect an
initial premium and most usually grant some level of limited
coverage, under special conditions, before issuance of the policy.
Without a valid Conditional Receipt, no coverage is in force until
the policy is issued, delivered, and accepted (initial premium
paid).
waiver - To voluntarily relinquish or abandon a known right
under an insurance contract. This is a legal principle that
protects the consumer if an insurer waives its rights under an
insurance contract. A common type of waiver occurs when an insurer
makes a mistake or fails to enforce a policy provision.Estoppel -
This is a legal principle that protects an insured if the insurer
or its producers make an error and later the insurer attempts to
deny a claim. For instance, a producer makes a false representation
to an applicant who relies on the statement. Later, harm is caused
to the policy owner when a claim is denied because of this
reliance. The insurer will then be "estopped" or prevented from
denying the claim.Warranty and representation - Most State laws
specify that all statements by the applicant on the application are
considered to be representations and not warranties. A warranty
must be absolutely and literally true. A breach of warranty may be
sufficient to void the policy whether or not the warranty is
material and whether or not such breach of warranty had contributed
to the loss. A representation need only be substantially true to
the best of the applicant's knowledge. Generally, a representation
is considered to be fraudulent if it relates to a situation that
would be material to the risk and that the applicant made with
fraudulent intent.
Modified Endowment Contract - This is a whole life policy that
fails to satisfy a seven pay test. When a policy owner overfunds
the contract, attempting to use the policy as a short-term
investment vehicle, the policy will be designated for tax purposes
as a MEC. This means that any cash distributions from the contract
will be subject to taxation. In addition, if the withdrawal is made
prior to age 59 1/2 , the policy owner will be subject to an age
based penalty of 10%.
Hazard - This is a condition present that increases the chance
of a possible loss. There are three primary types of hazards
including physical hazards (e.g., faulty wiring in a building),
moral hazards (i.e., dishonest or criminal activities) and morale
hazards (e.g., leaving keys in the ignition, carelessness).
Medical Information Bureau-#38 The Medical Information Bureau
(MIB) is an organization that stores information concerning the
health history of life insurance applicants. Its purpose is to help
the insurer avoid high-risk applicants for insurance.-The primary
purpose of the MIB data is to allow the insurer to avoid high-risk
applicants by comparing recently collected information against the
historical data of the applicant. It has nothing to do with
information regarding the malpractice history of the reporting
doctor.
Taxation ch8 Domestic insurers be audited at least every fifth
year to ensure solvency. When funds are withdrawn from
anannuitycontract during the accumulation period, the amount
received may be taxable on a last-in, first-out basis. In addition,
if the withdrawal is made prior to age 59 1/2, a penalty may be
assessed as well. (1563) Disability - Whatever percentage of the
totalpremiumis paid by the employer, that same proportion of
benefits paid to theinsuredis taxable. Premiums paid on an
individual disability policy are tax-free. (2055) A taxable event
occurs after the surrender of a whole lifepolicyif the surrender
value exceeds the cumulative total of premiums paid. The gain would
be taxable asordinary income. Employer-paid premiums are deductible
to the employer as a tax deduction. This would be true for all
premiums paid for all employees regardless of tenure. (1237)
Premiums paid for an individuallife insurancepolicyare considered
an individual expense and are not tax-deductible. Thedeath
benefitis paid to a designatedbeneficiaryincome-tax-free. (1540)
Interest credited tolife insuranceproceeds, when left with an
insurer, is taxable asordinary income. Theprincipal(i.e., proceeds)
is income-tax-free to thebeneficiary. (1533) Estate types of
property that are included in an insureds estate for federal estate
tax purposes include: the value of the insureds residence, the
death benefit amount of an owned life insurance policy, and the
value of a mutual fund owned by the insured. Most property owned by
an insured is included in one's estate at death including the face
amount of a life insurance policy even though the proceeds are paid
to a beneficiary income-tax-free. Qualified Plans employer
contributions are tax deductible to employer. Employee
contributions are tax-deductible to employee. Growth of the account
accumulates tax deferred. Benefits are taxable upon withdrawal.
Sole proprietors can deduct 100% of the premiums paid for their
medical benefits