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Life and HealthInsuranceLicense
800 East 96th Street, Indianapolis, Indiana 46240
Life and Health Insurance License Exam CramCopyright © 2005 by Que Publishing
All rights reserved. No part of this book shall be reproduced, stored ina retrieval system, or transmitted by any means, electronic, mechanical,photocopying, recording, or otherwise, without written permissionfrom the publisher. No patent liability is assumed with respect to theuse of the information contained herein. Although every precautionhas been taken in the preparation of this book, the publisher andauthor assume no responsibility for errors or omissions. Nor is any lia-bility assumed for damages resulting from the use of the informationcontained herein.
International Standard Book Number: 0-7897-3260-2
Library of Congress Catalog Card Number: 2004112114
Printed in the United States of America
Fifteenth Printing: June 2013
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Warning and DisclaimerEvery effort has been made to make this book as complete and as accu-rate as possible, but no warranty or fitness is implied. The informationprovided is on an “as is” basis. The author(s) and the publisher shallhave neither liability nor responsibility to any person or entity withrespect to any loss or damages arising from the information containedin this book or from the use of the CD or programs accompanying it.
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PublisherPaul Boger
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Property and Casualty Insurance Exam CramBISYS® Education Services0-7897-3264-5$34.99 US/$49.99 CAN/£24.99 Net UK
About the Authors
About BISYSThe BISYS Group, Inc. (NYSE: BSG), headquartered in New York City, pro-vides solutions that enable insurance companies, investment firms, and banksto expand their businesses and run their operations more profitably. BISYScurrently supports more than 22,000 domestic and international financialinstitutions and corporate clients through several business units.
BISYS Education Services is the nation’s premier provider of licensing prepa-ration, continuing education, and professional development courses for life,health, long-term care, annuity, and property-casualty insurance products aswell as investments. This unit complements its education services with acomprehensive compliance management solution that supports insuranceand investment firms and professionals with a sophisticated suite of servicesthat automate the entire licensing process.
BISYS Insurance Services is the nation’s largest independent distributor of lifeinsurance and provider of support services required to sell traditional andvariable life and annuity products as well as long-term care and disabilityinsurance. This unit is also the nation’s second largest independent wholesaledistributor of commercial property/casualty insurance.
BISYS Investment Services group provides administration and distributionservices for approximately 380 clients, representing more than 2,200 mutualfunds, hedge funds, private equity funds, and other alternative investmentproducts, with approximately $750 billion in assets under administration. Italso provides retirement services to more than 18,000 companies in partner-ship with 40 of the nation’s leading banks and investment management com-panies and offers analytical research and competitive information through itsFinancial Research Corporation (FRC) subsidiary.
BISYS’ Information Services group supports approximately 1,450 banks,insurance companies, and corporations with industry-leading information
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processing and imaging solutions, turnkey asset retention solutions, and spe-cialized corporate banking solutions. Additional information is available atwww.bisys.com.
Eric Alan Anderson is Director of Insurance Education for BISYSEducation Services, based in Indianapolis, Indiana. He has almost 25 years ofexperience creating training and test preparation materials for the financialservices industry. In addition to authoring 17 insurance training texts andediting 8 others, he has written newsletters and magazine articles and hasdeveloped materials for audio cassette/workbook, videotape, computer disk,and the Web. He has also taught basic English skills courses at the collegelevel and has made presentations to national conferences of insurance asso-ciations.
Matt McClure is Editor of Life/Health Products for BISYS EducationServices. He maintains 42 titles on BISYS Education Services’ course list,including the Life/Health Concepts license preparation text and its supple-mentary review materials. Formerly a freelance writer and editor, his workhas appeared in numerous nationally published books and magazines. He isa licensed life and health insurance producer.
Richard A. Morin, CIC, is a contract author based in Los Angeles,California. He has 35 years of experience writing and training on a broadrange of subjects for the financial services industry. For several years he wasan editor for a major insurance training publisher, and he has also worked asan insurance underwriter, a rating supervisor, and a licensed insurance andmutual fund sales representative.
About the ReviewerTeresa Chapman has been in the insurance business since 1996, upon grad-uation from Ball State University in Muncie, IN. She started her career withState Farm Insurance Company as a Life and Health Underwriter. A seriesof moves with State Farm led to a variety of jobs; supervisor of Life andHealth Policy Changes, and Life and Health compliance officer, and culmi-nated in her decision to be a State Farm insurance agent located in Carmel,IN. Teresa now lives in Noblesville, IN, with her husband Trent, a StateFarm auto claim representative, and their son, Christian.
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As the reader of this book, you are our most important critic and commenta-tor. We value your opinion and want to know what we’re doing right, whatwe could do better, what areas you’d like to see us publish in, and any otherwords of wisdom you’re willing to pass our way.
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When you write, please be sure to include this book’s title and author as wellas your name, email address, and phone number. I will carefully review yourcomments and share them with the author and editors who worked on thebook.
Email: [email protected]
Mail: Dave DusthimerEditor in ChiefPearson IT Certification800 East 96th StreetIndianapolis, IN 46240 USA
For more information about this book or another Que Certification title,visit our Web site at www.examcram.com. Type the ISBN (excludinghyphens) or the title of a book in the Search field to find the page you’relooking for.
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Contents at a Glance
Introduction xxvii
Self-Assessment xxxv
Chapter 1 Introduction to Insurance 1
Chapter 2 Insurance Regulation 23
Chapter 3 Insurance Law 55
Chapter 4 Underwriting Basics 73
Chapter 5 Group Insurance 91
Chapter 6 Selling Life Insurance 101
Chapter 7 Policy Issuance and Delivery 121
Chapter 8 Types of Insurance Policies 137
Chapter 9 Policy Provisions 177
Chapter 10 Policy Options 205
Chapter 11 Annuities 221
Chapter 12 Group Life Insurance 239
Chapter 13 Social Security and Tax Considerations 247
Chapter 14 Retirement Plans 265
Chapter 15 Health Insurance Basics 281
Chapter 16 Health Insurance Policy Underwriting, Issuance,and Delivery 309
Chapter 17 Health Insurance Policy Provisions 321
Chapter 18 Disability Income Insurance 345
Chapter 19 Medical Expense Insurance 363
Chapter 20 Special Types of Medical Expense Policies 385
Chapter 21 Group Health Insurance 397
Chapter 22 Social Health Insurance 411
Chapter 23 Long-Term Care 433
Chapter 24 Health Insurance Taxation 451
Chapter 25 Practice Exam 1 461
Chapter 26 Answer Key 1 471
Chapter 27 Practice Exam 2 477
Chapter 28 Answer Key 2 487
Appendix A What’s on the CD-ROM 493
Appendix B Need to Know More 497
Glossary 501
Index 527
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Table of Contents
Introduction...................................................................xxvii
Self-Assessment .............................................................xxxv
Chapter 1Introduction to Insurance ......................................................1
Risk 2Perils and Hazards 3Managing Risk 3Law of Large Numbers 4Insurable Interest 5Insurable Risks 6
Insurance Coverage Concepts 7Indemnity 7Limit Of Liability 8Deductibles 8Coinsurance 9
Types of Insurance 9Types of Insurers 10
Commercial Insurers 11Nonprofit (Service) Organizations 11Other Types of Private Insurers 12Self-Insurers 13The United States Government as an Insurer 13
Domicile and Authorization 14Insurer’s Domicile (Domestic, Foreign, and Alien Insurers) 14Authorized Versus Unauthorized (Admitted VersusNonadmitted) 15
Types of Distribution Systems 15Agency System 15Mass Marketing 16Internet Insurance Sales 17
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .x Table of Contents
Insurance Producers 17Categories of Producers 17
Exam Prep Questions 19Exam Prep Answers 22
Chapter 2Insurance Regulation .........................................................23
Federal Regulation 24Paul Versus Virginia 24South-Eastern Underwriters Decision 24McCarran-Ferguson Act 25Privacy Act Of 1974 25Fair Credit Reporting Act 27False or Fraudulent Statements 30Financial Services Modernization Act Of 1999 31Other Regulating Agencies 32
State Insurance Regulation 32Commissioner’s Scope and Duties 32
Regulating Insurance Companies 33Insurer Solvency 34Investments 34Taxation of Life Insurance Companies 34Company Ratings 35Examination of Insurers 35Guaranty Associations 36Marketing and Advertising Life and Health Insurance 36
Producer Regulation 37Licensing Regulation 37License Required 37Exceptions To License Requirements 38Nonresident Producer Licensing 39
Obtaining a License 40Application for Examination 40Issuance of License 40Temporary Agent Licenses 40
Maintaining a License 41Change of Address 41Assumed Names 41Office and Records 41Continuation, Expiration, and Renewal of License 42Notice of Appointment 42Termination of Appointment 43License Denial, Nonrenewal, or Revocation 43
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiTable of Contents
Regulated Practices 44License for Controlled Business Prohibited 45Unfair Trade Practices 45Unfair Claims Practices 47
Self-Regulation 49The NAIC 49
Exam Prep Questions 50Exam Prep Answers 53
Chapter 3Insurance Law ..................................................................55
Agency Law 56Agency Law Principles 56
Formation of a Life and Health Insurance Contract 60Contract Elements 60Parts of the Insurance Contract 62
Legal Requirements 63Contract Construction 63Contract Characteristics 64
Exam Prep Questions 68Exam Prep Answers 71
Chapter 4Underwriting Basics ...........................................................73
The Underwriting Process 74Selection Criteria 75Sources of Underwriting Information 75Field Underwriting 80
Classification of Risks 81Standard Risks 81Preferred Risks 82
Determination of Premiums (Rating Considerations) 83Mortality or Morbidity 83Interest 84Expenses 84Premium Mode 86
Loss Ratios 86Insurance Fund Reserves 87Exam Prep Questions 88Exam Prep Answers 90
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xii Table of Contents
Chapter 5Group Insurance ...............................................................91
Types of Groups 92Group Premiums 93Group Underwriting Considerations 93
Adverse Selection 94Probationary Period 94Eligibility Period 95
Requirements in Group Underwriting 95Statutory Requirements 95Optional Requirements 96
Funding of Group Insurance 97Exam Prep Questions 98Exam Prep Answers 100
Chapter 6Selling Life Insurance .......................................................101
Meeting Consumer Needs 102The Importance of Insurance 102Costs Associated with Death 102Human Life Value Approach 103Needs Approach 104Income Periods 104Capital Conservation and Capital Liquidation 105Estate Planning 105Other Sources of Funds 106Living Benefits 107Advantages as Property 107
Comparing Insurance Policies 108Comparative Interest Rate Method 109Interest-Adjusted Net Cost Method 109
Personal Uses of Life Insurance 110Charitable Uses of Life Insurance 111
Business Uses of Life Insurance 111Sole Proprietorship 112Partnership 112Corporations 113
Exam Prep Questions 117Exam Prep Answers 120
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Table of Contents xiii
Chapter 7Policy Issuance and Delivery ..............................................121
Collection of Premium 122Receipts for Premium 122
Conditional Receipt 122Binding Receipt 123Inspection Receipt 124Temporary Insurance Agreement 124
Submitting the Application and Initial Premium 124Issuing the Policy 125
Delivering and Servicing the Policy 125Personal Delivery 125Mailing the Policy 126
Handling a Claim 126Payment of Claims 126Payment Less than Face Amount 127Producer Responsibilities upon Insured’s Death 128
Policy Replacement 129Duties of Producers 130Duties of the Insurer 130
Policy Retention 131Professionalism and Ethics 131
Fiduciary Responsibility 131Summary of the Producer’s Responsibilities 132
Exam Prep Questions 133Exam Prep Answers 135
Chapter 8Types of Insurance Policies ................................................137
Term Insurance 138Characteristics of Term Policies 138Types of Term Policies 139Advantages and Uses of Term Insurance 141Disadvantages of Term Insurance 142
Whole Life Insurance 143Characteristics of Whole Life Policies 143Types of Whole Life Policies 145Advantages and Uses of Whole Life Insurance 147Disadvantages of Whole Life Insurance 147
Flexible Policies 147Adjustable Life Insurance 147Universal Life 148
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Variable Life Insurance 151Variable Universal Life 153Advantages and Uses of Flexible Policies 154Disadvantages Of Flexible Policies 154
Industrial Life Insurance 155Industrial Life Policy Provisions 155
Credit Life Insurance 156Credit Life Policy Provisions 156
Specialized Policy Forms 157Endowments 157Family Income Policies 158Family Maintenance Policies 159The Family Policy (Family Protection Policy) 159Retirement Income Policy 160Joint Life Policies 160Juvenile Policies 161Minimum Deposit Policies 161Modified Premium Policies 161Graded Premium Plan 162Mortgage Redemption 162Multiple Protection 162Index-Linked Policies 162Deposit Term Insurance 163Pre-need Funeral Insurance 163Advantages and Uses of Specialized Policies 163Disadvantages of Specialized Policies 164
Insurance Policy Riders 164Accidental Death (Double Indemnity) 164Waiver of Premium 165Disability Income Rider 167Payor Rider 168Guaranteed Insurability 168Return of Premium 169Return of Cash Value 169Cost of Living 169Additional Insureds 170Substitute Insured Rider 170
Accelerated Benefits 171Living Benefit Provisions 171Viatical Settlements 172
Exam Prep Questions 173Exam Prep Answers 176
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Table of Contents xv
Chapter 9Policy Provisions .............................................................177
Standard Provisions 178Insuring Clause 178Consideration Clause 178Execution Clause 179Payment of Premium 179Ownership Rights 179Applicant Control or Ownership Clause 180Grace Period 181Reinstatement 181Policy Loan Provisions 182Automatic Premium Loan Provision 183Incontestability Clause 183Suicide Clause 184Entire Contract 184Assignment Clause 185Misstatement of Age or Sex 187Medical Examinations and Autopsy 188Modifications Clauses 188Policy Change Provision (Conversion Option) 189Free Look 189
Beneficiary Provisions 189Revocable Versus Irrevocable 190Succession of Beneficiaries 191Naming of Beneficiaries 192Designation Options 192Class Designations 194Per Capita and Per Stirpes 195The Uniform Simultaneous Death Act 196Spendthrift Clause 197Facility of Payment Provision 198
Exclusions and Limitations 198Aviation Exclusion 198War or Military Service Exclusion 199Hazardous Occupation or Hobby Exclusion 199
Prohibited Provisions 200Exam Prep Questions 201Exam Prep Answers 204
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Table of Contentsxvi
Chapter 10Policy Options ................................................................205
Settlement Options 206Interest Only Option 207Fixed Period Option 207Fixed Amount Option 208Life Income Option 209Withdrawal Provisions 209Other Settlement Arrangements 210Third-Party Rights and Creditor’s Rights 210Advantages of Settlement Options 211
Nonforfeiture Options (Guaranteed Values) 211Cash Surrender Value 211Reduced Paid-Up Insurance Option 212Extended Term Option 213
Insurance Dividends 213Policy Dividend Sources 214Dividend Options 214
Cash Dividend Option 215Accumulation at Interest Option 215Paid-Up Additions Option 215Reduce Premium Dividend Option 216Accelerated Endowment 216Paid-Up Option 216One-Year Term Dividend Option 217
Exam Prep Questions 218Exam Prep Answers 220
Chapter 11Annuities ......................................................................221
Purposes of Annuities 222Distribution of a Lifetime Income 222Accumulation of a Retirement Fund 222
How Annuities Work 223The Accumulation Period 223The Annuity Period 223Nonforfeiture Options 224
Immediate and Deferred Annuities 225Deferred Annuity Death Benefits 225Annuity Premiums 226
Single Premium 226Level Premium 226
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Flexible Premium 226Determining Annuity Payouts 227
Variable Annuities 228Regulation as Securities 228Accumulation Units 229Annuity Units 230
Annuity Settlement Options 231Life Annuities 231Guaranteed Minimum Payouts 231Joint Life and Survivorship and Joint Life Annuities 232Temporary Annuity Certain 233
Two-Tiered Annuities 233Tax-Sheltered Annuities 234Retirement Income Annuities 234Equity-Indexed Annuities 234Market-Value Adjusted Annuities 235Exam Prep Questions 236Exam Prep Answers 238
Chapter 12Group Life Insurance ........................................................239
Legal Requirements 240Standard Provisions 241Certificates of Insurance 241Policy Forms 242Dependent Coverage 242Group Conversion Option 243FEGLI and SGLI 244Exam Prep Questions 245Exam Prep Answers 246
Chapter 13Social Security and Tax Considerations ..................................247
Social Security 248Covered Workers 248Types of Benefits 248Eligibility for Social Security 248Insured Status 249Primary Insurance Amount 250Normal Retirement Age 250Dual Benefit Eligibility 251Retirement Benefits 251Survivor Benefits 251
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Disability Benefits 252Maximum Family Benefit 253Earnings Limit 253
Social Security Payroll Taxes 253Taxation of Social Security Benefits 254
Income Tax Treatment of Life Insurance 254Individual Life Insurance 254Group Life Insurance Proceeds 258
Doctrine of Economic Benefit 258Federal Estate Tax 259Charitable Uses of Life Insurance 259Other Gifts of Life Insurance 260Transfer for Value Rules 260Section 1035 Policy Exchanges 261Business Insurance 261Exam Prep Questions 262Exam Prep Answers 264
Chapter 14Retirement Plans .............................................................265
Qualified and Nonqualified Retirement Plans 266Vesting Rules 266Defined Benefits Plans 267
Group Deferred Annuity 267Individual Deferred Annuity 267
Defined Contribution Plans 268Profit-Sharing Plans 268Pension Plans 268
Individual Retirement Accounts and Annuities—IRAs 269Roth IRAs 271Savings Incentive Match Plan for Employees (SIMPLE) 271Simplified Employee Pensions (SEPs) 272
KEOGH Plans 273Tax-Deferred Annuity Arrangements—403(B) Arrangements 273Plan Distributions 273Incidental Limitations 274Taxation of Plan Benefits 274
Rollovers 275The Employee Retirement Income Security Act (ERISA) 275
Fiduciary Responsibility 275Reporting and Disclosure 276
Exam Prep Questions 277Exam Prep Answers 279
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Chapter 15Health Insurance Basics ....................................................281
Types of Losses and Benefits 282Loss of Income from Disability 282Accidental Death and Dismemberment (AD&D) 282Medical Expense Benefits 282Dental Expense Benefits 283Long-Term Care Insurance (LTC) 283Limited Health Exposures and Insurance Contracts 283Prescription Coverage 284
Determining Insurance Needs 284Health Care Providers 285Health Care Plans 285
Commercial Insurers 285Blue Cross and Blue Shield 286Health Maintenance Organizations (HMOs) 287Federal Requirements 288HMO Organization 289Basic and Supplemental Services 291Important Features Of HMOs 293
Preferred Provider Organizations (PPOs) 295Point-of-Service Plans 296
Exclusive Provider Organizations (EPOs) 296Emerging Variations 297Multiple Option Plans 297
Employer-Administered Plans 297Self-Funding 297501(c)(9) Trusts 299Small Employers 299Cafeteria Plans 300Multiple Employer Trusts (METs) 300Multiple Employer Welfare Arrangements (MEWAs) 300
Other Forms of Group Insurance 301Blanket Policies 301Franchise Policies 301
Government Health Insurance 302Workers Compensation 302Medicaid 303TRICARE 304
Exam Prep Questions 305Exam Prep Answers 307
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Chapter 16Health Insurance Policy Underwriting, Issuance, and Delivery ......309
Underwriting Objectives 310Premium Payments 310
Definition of Premium 310Earned and Unearned Premium 310Payment Modes 311Initial Premium 311Policy Effective Date 312Policy Term 312Policy Fee 312
Delivering the Policy 313Servicing the Policy 314Replacement Policies 314Professionalism and Ethics 315
Fiduciary Responsibility 316Summary of the Producer’s Responsibilities 316
Exam Prep Questions 317Exam Prep Answers 319
Chapter 17Health Insurance Policy Provisions .......................................321
Mandatory Provisions 322Required Provision 1: Entire Contract; Changes 322Required Provision 2: Time Limit on Certain Defenses;Incontestability 323Required Provision 3: Grace Period 323Required Provision 4: Reinstatement 324Required Provision 5: Notice of Claim 325Required Provision 6: Claim Forms 326Required Provision 7: Proof of Loss 326Required Provision 8: Time of Payment of Claims 327Required Provision 9: Payment of Claims 327Required Provision 10: Physical Examination and Autopsy 329Required Provision 11: Legal Actions 329Required Provision 12: Change of Beneficiary 329
Optional Policy Provisions 330Optional Provision 1: Change of Occupation 330Optional Provision 2: Misstatement of Age 331Optional Provision 3: Other Insurance in This Insurer 331
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Optional Provisions 4 and 5: Insurance with Other Insurers 332Optional Provision 6: Relation of Earnings to Insurance—Average Earnings Clause 333Optional Provision 7: Unpaid Premium 334Optional Provision 8: Cancellation 334Optional Provision 9: Conformity with State Statutes 335Optional Provision 10: Illegal Occupation 335Optional Provision 11: Narcotics 336
Other Health Insurance Provisions 336The Policy Face 336Free Look 336Insuring Clause 337Consideration Clause 337Policy Continuation 337Benefit Payment Clause 339Preexisting Conditions 339Nonoccupational Coverage 339Case Management Provisions 340
Exam Prep Questions 341Exam Prep Answers 343
Chapter 18Disability Income Insurance ...............................................345
Financial Planning Considerations 346Alternatives to Disability Income Insurance 346Definitions and Benefits 347
Probationary Period 347Elimination Period 347Benefit Period 348Defining Total Disability 348Presumptive Disability 349Partial Disability 349Residual Disability 350Recurrent Disability 350Permanent Disability 350Temporary Disability 350Confining Versus Nonconfining Disability 351Accidental Means 351Definition of Sickness 351
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Types of Disability Benefits 351Short-Term Disability 352Long-Term Disability (LTD) 352Lump-Sum Benefits 352
Disability Exclusions 352Optional Disability Income Policy Benefits and Riders 353
Rehabilitation Benefit 353Future Increase Option 353Cost of Living Benefit 353Lifetime Benefits 354Social Security Rider 354Social Insurance Supplements 355Additional Monthly Benefit (AMB) Riders 355Hospital Confinement Rider 355Impairment Rider 355Nondisabling Injury Rider 355Waiver of Premium (with Disability Income) 356Accidental Death and Dismemberment (AD&D) 356Other Provisions 356
Business Uses of Disability Income Insurance 357Business Overhead Expense (BOE) 357Key Person Disability Insurance 357Disability Buy-Sell Insurance 358Disability Reducing Term Insurance 358
Exam Prep Questions 359Exam Prep Answers 361
Chapter 19Medical Expense Insurance ................................................363
Basic Medical Expense 364Hospital Expense Benefits 364Surgical Expense Benefits 365Regular Medical Expense Benefits 366Other Medical Expense Benefits 367Common Exclusions and Limitations 369
Major Medical Insurance 371Comprehensive Major Medical Benefits 371Supplemental Major Medical Benefits 372Covered Expenses 372Other Major Medical Concepts 373Medical Expense Limitations 375
Benefits for Other Practitioners 377Medical Expense Exclusions 377
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Optional Features and Benefits 379Prescription Drugs 379Vision Care 379Hospital Indemnity Rider 380Nursing/Convalescent Home 380Organ Transplants 380
Exam Prep Questions 381Exam Prep Answers 383
Chapter 20Special Types of Medical Expense Policies .............................385
Dental Care Insurance 386Traditional Dental Coverage 386Exclusions and Limitations 388Minimizing Adverse Selection 388Prepaid Dental Plans 389
Limited Policies 390Dread Disease 390Travel Accident Insurance 390Hospital Income (Indemnity) Insurance 391Vision Care Insurance 391Prescription Drug Policies 391
Credit Insurance 392Notice of Proposed Insurance 393Credit Life: A Corollary Coverage 393
Exam Prep Questions 394Exam Prep Answers 396
Chapter 21Group Health Insurance .....................................................397
Group Health Insurance Policy Types 398Group Coverage Provisions 398
Conversion Privilege 399Dependent Coverage 400Coordination of Benefits Provision 400Records and Clerical Errors 401
Federal and State Regulations Affecting Group Policies 401Health Insurance Portability and Accountability Act (HIPAA) 401Continuation of Benefits (COBRA) 402
Omnibus Budget Reconciliation Act (OBRA) 404Tax Equity and Fiscal Responsibility Act (TEFRA) 405
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Table of Contentsxxiv
Employee Retirement Income Security Act (ERISA) 405Age Discrimination in Employment Act (ADEA) 406The Americans with Disabilities Act (ADA) 406Pregnancy Discrimination 406State Regulation 407
Exam Prep Questions 408Exam Prep Answers 410
Chapter 22Social Health Insurance .....................................................411
Medicare 412Enrollment 412Benefits Under Medicare Part A 413What Part A Does Not Cover 415Benefits Under Medicare Part B 415What Part B Does Not Cover 418Claims and Appeals 418
Medicare Supplement Insurance 419Standardized Medicare Supplement Benefits 419
Core Benefits 419Optional Benefits 420Standardized Policy Forms 420Other Standard Provisions 421
Medicare+Choice 422Fee-for-Service Plans 422Health Maintenance Organizations (HMOs) 423Preferred Provider Organizations (PPOs) 423Provider-Sponsored Organizations (PSOs) 423
Medicare and Employer Coverage 424Medicaid 425
Financial Tests 425Spousal Impoverishment Rule 425Medicare Cost Assistance 425
Social Security Disability 426TRICARE 426Workers Compensation 427
Types of Benefits 427Compensable Injuries 427Occupational Diseases 427Types of Disability 428Compulsory and Elective Compensation Laws 428Extraterritorial Provisions 428Second Injury Funds 429
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Exam Prep Questions 430Exam Prep Answers 432
Chapter 23Long-Term Care ..............................................................433
History of LTC Coverage 434Suitable Purchasers 435Probability of Needing Care 437Options Other than Insurance 437Rating Factors 438Types of Benefits 438Common Provisions 439
Eligibility 439Renewability 439Premiums 440Waiver of Premium 440Prior Hospitalization 440Care Level 440Hospice Care 441Respite Care 441Home Health Care 441Adult Day Care 441Professional Care Advisor 442Benefit Amount 442Benefit Periods 442Exclusions 443Preexisting Conditions 443Elimination Period 443
Benefit Triggers 443Activities of Daily Living (ADL) 443Cognitive Impairment 444Medical Necessity 444
Qualified Plans 444Regulation 445Emerging LTC Issues 445
Inflation Protection 445Nonforfeiture Provisions 446
Marketing LTC Coverage 446Exam Prep Questions 447Exam Prep Answers 449
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Table of Contentsxxvi
Chapter 24Health Insurance and Taxation .............................................451
Social Security Disability Benefits 452Tax Treatment of Social Security Contributions 452
Health Insurance 452Individual Policies 452Group Policies 453Sole Proprietors and Partnerships 454Business Policies 454
Disability Insurance 455Medicare Supplement and Long-Term Care Insurance 455Exam Prep Questions 457Exam Prep Answers 459
Chapter 25Practice Exam 1 ..............................................................461
Chapter 26Answer Key 1 .................................................................471
Chapter 27Practice Exam 2 ..............................................................477
Chapter 28Answer Key 2 .................................................................487
Appendix AWhat’s on the CD-ROM ......................................................493
Review Questions and Exam Simulator 493Installing the CD 494Customer Service and Ordering 495
Appendix BNeed to Know More? ........................................................497
Glossary .......................................................................501
Index ............................................................................527
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Introduction
Welcome to Life and Health Insurance Licensing Exam Cram! Whether this isyour first or your fifteenth Exam Cram series book, you’ll find informationhere that will help ensure your success as you pursue knowledge, experience,and certification. This introduction explains state insurance licensing pro-grams in general and talks about how the Exam Cram series can help you prepare for your state insurance licensing exam. Chapters 1 through 19 aredesigned to remind you of everything you need to know in order to take—and pass—your state insurance licensing exam. The two sample tests at theend of the book should give you a reasonably accurate assessment of yourknowledge—and, yes, we provide the answers and their explanations to thetests. Read the book and understand the material, and you stand a very goodchance of passing the test.
Exam Cram books help you understand and appreciate the subjects andmaterials you need to pass state insurance licensing exams. Exam Cram booksare aimed strictly at test preparation and review. They do not teach youeverything you need to know to pass the exam. Instead, we present and dis-sect the questions and problems I’ve found that you’re likely to encounter ona test. I’ve worked to bring together as much information as possible aboutstate insurance licensing exams.
Nevertheless, to completely prepare yourself for any state insurance licens-ing test, we recommend that you begin by taking the Self-Assessment that isincluded in this book, immediately following this introduction. The Self-Assessment tool will help you evaluate your knowledge base against therequirements for a state insurance licensing exam under both ideal and realcircumstances.
Based on what you learn from the Self-Assessment, you might decide tobegin your studies with some more comprehensive self-study or classroomtraining, some practice with state insurance exam simulators, or an audioreview program. On the other hand, you might decide to pick up and readone of the many study guides available from third-party vendors on certaintopics. We also recommend that you supplement your study program with avisit to your state insurance department’s website to get all the details about
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how to get your insurance license as well as how to schedule and take yourinsurance licensing exam.
Getting an Insurance LicenseLicensing is the way governments assure that only qualified individuals areallowed to practice certain important professions, such as being an insuranceproducer. Because insurance is regulated primarily at the state level, the rulesfor getting an insurance license vary somewhat from state to state.
Every state requires individuals to pass a qualification exam to get an insur-ance license. In addition, most states require individuals to meet a prelicens-ing education requirement before they can take the qualification exam. Insome states, the prelicensing education requirement can be met through anapproved self-study course—that is, you buy a book that has been approvedin advance by the state insurance department and take an exam (not to beconfused with the licensing qualification exam) that you send in to be grad-ed. In other states, the prelicensing education requirement can be met onlyby attending an approved classroom course.
Introduction
This Exam Cram text is not approved to meet the prelicensing education requirementin any state. It is designed only as a supplementary aid to help you pass the stateinsurance licensing exam.
Besides fulfilling any prelicensing education requirement and passing thelicensing exam, insurance license candidates must also submit a license appli-cation to their state insurance department and have it approved. In somestates, the license application must be submitted before taking the licensequalification exam; in some states, it must be submitted after passing theexam. Call your state insurance department’s licensing division or visit itswebsite to find out what you need to do in your state.
Taking a Licensing ExamAs with other aspects of insurance licensing, specific instructions on how toregister for your qualification exam are available from the insurance depart-ment. Ask for a licensing information bulletin or a licensing candidate hand-book, which will describe where and when exams are given, the fees you mustpay, and the testing procedures.
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One thing all state insurance qualification exams have in common is that theyare closed-book exams. You will not be allowed to take any study materialsor notes into the testing room. Even phones and calculators might not beallowed. In some states, the only items exam candidates are permitted to takeinto the testing room are their wallet and keys.
In most states, insurance qualification exams are given on computers.However, you will not need any computer or typing skills to take the exam.You will be instructed on how to answer questions and given a short practicetest to get comfortable with the equipment before the actual qualificationexam begins.
When you complete a computer-administered exam, the software tells youimmediately whether you passed or failed. Your states will have its own rulesfor retesting in the event you don’t pass. Those rules will be described inyour licensing information bulletin/candidate handbook.
How to Prepare for an ExamWhether or not your state has a prelicensing education requirement, you’llwant to study in preparation for the license qualification exam. And even ifyour state has a prelicensing education requirement, you’ll probably want todo some additional studying to make sure you are fully prepared for theexam. Your options for additional study include the following:
➤ Self-study courses—Publishers such as BISYS Education Services offercourses designed to allow you to study on your own for the licensing qual-ification exam. BISYS license training packages are available in eitherweb-based or print-based formats and contain a number of components:
➤ A Property-Casualty Concepts text, which covers all the non–state-specif-ic topics on the licensing exam
➤ Practice exams, which help you evaluate your comprehension of thematerial in the Concepts text
➤ Explanations to answers on the practice exams, so you know why eachof your responses was right or wrong
➤ A state insurance law digest, which covers all the state-specific topics onthe licensing exam
➤ An optional audio CD review program, which reviews the key infor-mation contained in the Concepts text
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➤ An optional exam simulator, which gives you additional question-and-answer practice over the material covered in the Concepts text and thestate insurance law digest
➤ Classroom training—Many colleges and commercial training companiesoffer classroom training for insurance license exams. Although classroomtraining generally costs considerably more than self-study, some individ-uals find that they learn best in a classroom situation. And of course, inmany states, the prelicensing education requirement must be met withclassroom study in any case.
➤ Other sources—There’s no shortage of materials available on insurancetopics. The “Need to Know More?” resource appendix at the end of thisbook will give you an idea of where we think you should look for furtherdiscussion.
In addition, you will surely find Que Publishing’s Exam Cram insurancelicensing preparation materials useful in your quest for insurance knowledge.Exam Cram books provide you with a review of the essential information youneed to know to pass the tests. They focus on the detailed information in theConcepts texts available from BISYS Education Services. Together, the BISYSEducation Services license training packages and the Exam Cram reviewmaterials create a powerful exam preparation program.
This set of required and recommended materials represents an unparalleledcollection of sources and resources for insurance licensing qualification and related topics. Our hope is you’ll find that this book belongs in that company.
What This Book Will Not DoThis book by itself will not teach you everything you need to know to passyour insurance licensing exam. It does not cover the state-specific topics thatappear on the exam, usually dealing with laws that apply only in your partic-ular state. That information, although it represents a small proportion of theentire exam, is critical to passing the exam. State-specific topics are coveredin the state insurance law digests available from BISYS Education Services.This book reviews the rest of what you need to know before you take the test,with the fundamental purpose dedicated to reviewing the non–state-specificinformation on the insurance licensing exam.
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What This Book Is Designed to DoThis book uses a variety of teaching and memorization techniques to analyzethe exam-related topics and to provide you with ways to input, index, andretrieve what you need to know in order to pass the test.
This book is designed to be read as a pointer to the areas of knowledge onthe test. In other words, you may want to read the book through once to getan insight into how comprehensive your knowledge of insurance is. Thebook is also designed to be read shortly before you go for the actual test andto give you a distillation of the topics covered by the exam in as few pages aspossible. We think you can use this book to get a sense of the underlyingcontext of any topic in the chapters—or to skim-read for Exam Alerts, bul-leted points, summaries, and topic headings.
We draw on material from each state’s exam outlines and from other prepa-ration guides, in particular, BISYS Education Services’ Property-CasualtyConcepts text. Our aim is to walk you through the knowledge you will needand point out those things that are important for the exam (Exam Alerts,practice questions, and so on).
We demystify insurance jargon, acronyms, terms, and concepts. Also, wher-ever we think you’re likely to blur past an important concept, we define theassumptions and premises behind that concept.
About This BookWe structured the topics in this book to build on one another. Therefore, thetopics covered in later chapters might refer to previous discussions in earlierchapters. We suggest you read this book from front to back.
After you read the book, you can brush up on a certain area by using theIndex or the Table of Contents to go straight to the topics and questions youwant to reexamine. We use headings and subheadings to provide outlineinformation about each given topic. After you pass the exam and obtain yourinsurance license, we think you’ll find this book useful as a tightly focusedreference and an essential foundation of insurance information.
Chapter FormatsEach Exam Cram chapter follows a regular structure, with graphical cuesabout especially important or useful material. The structure of a typicalchapter is as follows:
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➤ Opening hotlists—Each chapter begins with lists of the terms you need tounderstand and the concepts you need to master before you can be fullyconversant with the chapter’s subject matter.
➤ Topical coverage—After the opening hotlists, each chapter covers the top-ics related to the chapter’s subject.
➤ Alerts—Throughout the topical coverage section, we highlight materialmost likely to appear on the exam by using a special Exam Alert layoutthat looks like this:
Even if material isn’t flagged as an Exam Alert, all the content in this bookis associated in some way with test-related material. What appears in thechapter content is critical knowledge.
➤ Notes—This book is an overall examination of entry-level insuranceknowledge. As such, we touch on many aspects of insurance that opendoors for further inquiry. Where a topic goes deeper than the scope of thebook, we use notes to indicate areas of concern or further training.
This is what an Exam Alert looks like. An Exam Alert stresses concepts or terms thatwill most likely appear in one or more license exam questions. For that reason, wethink any information found offset in Exam Alert format is worthy of special atten-tion.
Cramming for an exam will get you through a test, but it won’t make you a fully com-petent insurance professional. Although you can memorize just the facts you need inorder to become licensed, your daily work in the field will rapidly put you in water overyour head if you don’t continue your insurance education.
➤ Tips—Besides Alerts and Notes, we also include tips to help you remem-ber or distinguish certain information that may appear on your licenseexam.
Pay special attention to Tips because they provide you with various techniques thatmay improve your exam score!
➤ Exam Prep Questions—This section presents a short list of multiple-choicetest questions related to the specific chapter topic. Each question has afollowing explanation of both correct and incorrect answers. The practicequestions highlight the areas we found to be most important on the exam.
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➤ Need to Know More?—At the end of the book is a section titled “Need toKnow More?” This section provides pointers to resources that we foundto be helpful in offering further details on the book’s subject matter. If youfind a resource you like in this collection, use it, but don’t feel compelledto use all these resources. We use this section to recommend resourcesthat we have used on a regular basis, so none of the recommendations willbe a waste of your time or money. These resources may go out of print orbe taken down (in the case of websites), so we reference widely acceptedresources.
The bulk of the book follows this chapter structure, but there are a few otherelements that we would like to point out:
➤ Practice Exams—The sample tests, which appear in Chapters 25 and 27(with answer keys in Chapters 26 and 28), are intended to test your com-prehension of the material in this book. They are also intended to be in asimilar format and degree of difficulty as the questions you are likely tosee on the license exam. However, because the questions on the actualexam are kept highly confidential, you should expect that the questions onthe actual license exam will be ones that you have never seen before.
➤ Answer Key—These provide the answers to the sample tests, com-plete with explanations of both the correct responses and the incorrectresponses.
➤ Glossary—This is an extensive glossary of important terms used in thisbook.
➤ Cram Sheet—This appears as a tear-away sheet inside the front cover ofthis Exam Cram book. It is a valuable tool that represents a collection ofthe most difficult-to-remember facts, terms, and concepts we think youshould memorize before taking the test.
You might want to look at the Cram Sheet in your car or in the lobby ofthe testing center just before you walk into the testing center. The CramSheet is divided under headings, so you can review the appropriate partsjust before each test.
➤ CD-ROM—The CD contains the BISYS Education Services ExamSimulator, Preview Edition software. The preview edition exhibits mostof the functionality of the commercially available version, but offers areduced number of unit review questions and a 25-question practice exam.To get the complete set of practice questions and 100-question exam func-tionality, visit www.bisyseducation.com or call 800-241-9095.
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Contacting the SourceLife and Health Insurance Licensing Exam Cram is a real-world tool that youcan use to prepare for and pass your state insurance licensing exam. We’reinterested in any feedback you would care to share about the book, especial-ly if you have ideas about how we can improve it for future test-takers. We’llconsider everything you say carefully and will respond to all reasonable sug-gestions and comments. You can reach us via email [email protected].
Let us know if you found this book to be helpful in your preparation efforts.We’d also like to know how you felt about your chances of passing the exambefore you read the book and then after you read the book. Of course, we’dlove to hear that you passed the exam—and even if you just want to shareyour triumph, we’d be happy to hear from you.
Thanks for choosing us as your license exam preparation coach, and enjoythe book. We wish you luck on the exam, but we know that if you readthrough all the chapters and work with the product, you won’t need luck—you’ll pass the test on the strength of real knowledge!
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Self-Assessment
We include a Self-Assessment in this Exam Cram to help you evaluate yourreadiness to take and pass your state insurance license qualification exam. Itshould also help you understand what you need to master for an entry-levelknowledge of the industry in which you are about to embark on a career.
Getting PreparedWhether you attend a class to get ready for your exam or use self-study mate-rials, some preparation for your insurance license qualification exam is essen-tial. You want to do everything you can to pass on your first try.
You can get all the confidence you need from knowing that many others havegone before you. If you’re willing to tackle the process seriously and do whatit takes to gain the necessary knowledge, you can take—and pass—the insur-ance license qualification exams. In fact, the Exam Crams and the companionstate license training packages from BISYS Education Services are designedto make it as easy as possible for you to prepare for these exams—but pre-pare you must!
You can obtain an outline of exam topics, practice questions, and other informationabout insurance qualification exams from your state insurance department’s web-site. If your state has contracted with an exam administration company to admin-ister its insurance licensing exams (which is usually the case) you can get the examinformation from the exam administrator’s website. Contact your state insurancedepartment for more information.
Put Yourself to the (Practice) TestWe have included in this book several review exam questions for each chap-ter and two practice exams at the end of the book. If you don’t score well onthe chapter questions, you can study more and then retake the review ques-tions at the end of each part. When you have gone through all the chapters,take the first practice exam and then score yourself. Review by reading the
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explanations that accompany the answer key in the chapter following thatexam. If you don’t earn a score of at least 80% on the first practice exam,you’ll want to do some additional study. Go back through this book, and alsoconsult your notes and/or your text from any licensing exam preparationcourse you took. Then try the second practice exam in this book. Again,shoot for a score of 80% or better on your first try.
There is no better way to assess your exam readiness than to take a high-qualitypractice exam and pass with a score of 80% or better on your first try for that exam.When you take the same practice exam over and over, you begin to memorize theanswers to the specific questions on that exam. It may help you improve yourknowledge, but it spoils the value of the exam as an indication of how well youmight respond to an exam containing questions over the full range of topics onyour state’s exam outline. Even though you must score only 70% to pass the actu-al exam, shoot for 80% on a practice exam to leave room for the fact that you mightbe nervous during the actual exam and that the questions on the actual exam mightbe more difficult than those on your practice exam.
If you did not score 80% or better on your first try, investigate the otherstudy resources available (see the “Need to Know More?” addendum at theend of this book).
If you’ve given your utmost to self-study materials and then taken the examand failed anyway, consider taking a class. For some people, self-study is notthe optimal learning format. The opportunity to interact with an instructorand fellow students can make all the difference. For information about class-es available in your area, ask your state insurance department or call BISYSEducation Services (800-241-9095) to see whether there are schools usingBISYS insurance licensing textbooks nearby.
One last note: Do not use practice exams as your only means of study for theexam. Next to not preparing at all, the best way to assure you’ll fail yourlicense qualification exam is to skip studying and go directly to taking ques-tion-and-answer practice tests to assess your readiness to take the exam.Practice exams are a gauge of how well you’ve comprehended your studymaterial—they are not an accurate reflection of the questions you will see onyour license qualification exam.
Other PreparationBesides studying for the exam, there are some other things you should do tomake sure you perform well on the exam:
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➤ Get a good night’s sleep the night before the exam. When you’re tired, you’remore likely to make careless—that is, needless—mistakes. Getting a goodnight’s sleep will help assure that you feel refreshed and at your best.
➤ Eat a nourishing breakfast the morning of the exam. Your brain needs nutri-ents to function at its best—make sure you provide them! At the very least,you don’t want your attention to be distracted by hunger while you’re try-ing to concentrate on a question.
➤ Give yourself plenty of time to get to the exam site. Rushing to get somewherecan put you in a less-than-optimum frame of mind even if you end uparriving on time. Leave early to allow for unforeseen problems such astraffic delays. If you arrive well before the exam is scheduled to start, youcan always use the extra time to go over your notes.
No Experience RequiredInsurance license exams are designed so that they can be passed by individu-als with no insurance industry experience or formal insurance schooling,other than any state-required prelicensing education requirement. So if youare completely new to this business, don’t worry. Everything you need toknow to pass your qualification exam can be obtained in the study materialsreferenced here.
In terms of having a successful insurance career after you pass your exam, themost important requirement is a sincere desire to help people solve theirfinancial problems and reach their financial goals. However, there is certainbackground that can be an asset as you start out in the job. If you have runyour own business, you already understand the type of self-discipline andmotivation that will help you succeed in your insurance sales activities. If youhave some prior sales experience—such as a customer service representative,real estate agent, or some other sales position—you’ll probably have a com-fort level with meeting people to discuss and solve their needs. But again, ifyou’re new to insurance or to sales, have no fear on that account. You willhave ample opportunity and resources for learning everything you need toknow.
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Onward to Exam and CareerSuccess!After you’ve undertaken the right studies and reviewed the many sources ofinformation to help you prepare for the license qualification exam, you’ll beready to take a practice exam. When your scores are positive enough to indi-cate that you will get through the exam, you’re ready to go after the realthing. Good luck!
Self-Assessment
Insurance LawTerms you need to understand:
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3
✓ Express authority✓ Implied authority✓ Apparent authority✓ Waiver✓ Estoppel✓ Policy face✓ Insuring clause✓ Conditions✓ Exclusions✓ Aleatory contract
✓ Contract of adhesion✓ Unilateral contract✓ Executory contract✓ Conditional contract✓ Personal contract✓ Warranty✓ Representation✓ Misrepresentation✓ Concealment
Concepts you need to master:
✓ Presumption of agency✓ Agent errors and omissions exposure✓ Contract formation✓ Offer and acceptance✓ Consideration
✓ Competent parties✓ Legal purpose✓ Utmost good faith✓ Parol evidence rule
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Agency LawAn understanding of the law of agency is important because an insurancecompany, like other companies, must act through agents.
Agency Law PrinciplesAgency is a relationship in which one person is authorized to represent andact for another person or for a corporation. Although a corporation is a legal“person,” it cannot act for itself, so it must act through agents. An agent is aperson authorized to act on behalf of another person, who is called the prin-cipal.
In the field of insurance, the principal is the insurance company and the salesrepresentative or producer is the agent. When one is empowered to act as anagent for a principal, he or she is legally assumed to be the principal in mat-ters covered by the grant of agency. Contracts made by the agent are the con-tracts of the principal. Payment to the agent, within the scope of his or herauthority, is payment to the principal. The knowledge of the agent isassumed to be the knowledge of the principal.
Presumption of AgencyIf a company supplies an individual with forms and other materials (signs andevidences of authority) that make it appear that he or she is an agent of thecompany, a court will likely hold that a presumption of agency exists. Thecompany is then bound by the acts of this individual regardless of whether heor she has been given this authority.
AuthorityAn agent has one of three types of authority:
➤ Express authority is an explicit, definite agreement. It is the authority theprincipal gives the agent as set forth in his or her contract.
➤ Implied authority is not expressly granted under an agency contract, but itis actual authority that the agent has to transact the principal’s businessin accordance with general business practices. For example, if an agent’scontract does not give him or her the express authority of collecting andsubmitting the premium, but the agent does so on a regular basis, andthe company accepts the premium, the agent is said to have impliedauthority.
Lingering implied authority means that the agent carries “signs or evi-dences of authority.” By having these evidences of authority, an agent
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who is no longer under contract to an insurer could mislead applicantsor insureds. When the agency relationship between agent and companyhas been terminated, the company will try, or should try, to get back allthe materials it supplied to the former agent, including sales materials.
On the other hand, the public cannot assume that an individual is anagent merely because he or she says so. The agent must carry the cre-dentials (for example, the agent’s license and appointment) and companydocuments (such as applications and rate books) that represent him orher as being an agent for an insurance company.
➤ Apparent authority is the authority the agent seems to have because ofcertain actions undertaken on his or her part. This action may misleadapplicants or insureds, causing them to believe the agent has authoritythat he or she does not, in fact, have. The principal adds to this impres-sion by acting in a manner that reinforces the impression of authority.For instance, an agent’s contract usually does not grant him the authori-ty to reinstate a lapsed policy by accepting past due premiums. If, in thepast, the company has allowed the agent to accept late premiums forthat purpose, a court would probably hold that the policyowner had theright to assume that the agent’s acceptance of premiums was within thescope of his or her authority.
Collection of PremiumAll premiums received by an agent are funds received and held in trust. Theagent must account for and pay the correct amount to the insured, insurer,or other agent entitled to the money. Any agent who takes funds held in trustfor his or her own use is guilty of theft and will be punished as provided bylaw.
Agent’s Responsibility to Insured/ApplicantAn agent has a fiduciary responsibility to the insured, the insurer, the appli-cant for insurance, current clients, and so forth. The agent has a fiduciaryduty to just about any person or organization that he or she comes into con-tact with as part of the day-to-day business of transacting insurance.
By definition, a fiduciary is a person in a position of financial trust. Thus, attorneys,accountants, trust officers, and insurance agents are all considered fiduciaries.
As a fiduciary, the agent has an obligation to act in the best interest of theinsured. The agent must be knowledgeable about the features and provisions
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of various insurance policies and the use of these insurance contracts. Theagent must be able to explain the important features of these policies to theinsured. The agent must recognize the importance of dealing with the gen-eral public’s financial needs and problems and offer solutions to these prob-lems through the purchase of insurance products.
As a fiduciary, the agent must collect and account for any premiums collect-ed as part of the insurance transaction. It is the agent’s duty to make certainthat these premiums are submitted to the insurer promptly. Failure to sub-mit premiums to the insurer, or putting these funds to one’s own personaluse, is a violation of the agent’s fiduciary duties and possibly an act of embez-zlement.
The insured’s premiums must be kept separate from the agent’s personalfunds. Failure to do this can result in commingling—mixing personal fundswith the insured or insurer’s funds.
Waiver and EstoppelThe legal doctrines of waiver and estoppel are directly related to the respon-sibilities of insurance agents. An insurer may, by waiver, lose the right ofmaking certain defenses that it might otherwise have available.
Waiver is defined as the intentional and voluntary giving up of a known right. An insur-ance company may waive its right to cancel a policy for nonpayment by accepting latepayments.
Waiver and estoppel often occur together, but they are separate and distinctdoctrines.
Estoppel means that a party may be precluded by his or her acts of conduct fromasserting a right that would act to the detriment of the other party, when the otherparty has relied upon the conduct of the first party and has acted upon it. An insurermay waive a right, and then after the policyowner has relied upon the waiver and actedupon it, the insurer will be estopped from asserting the right.
The agent must be alert in his or her words, actions, and advice to avoid mis-takenly waiving the rights of the insurance company. As a representative ofthe company the agent’s knowledge and actions may be deemed to be knowl-edge and actions of the company.
Agent’s Responsibilities to CompanyThe agent’s contract or agency agreement with the insurer will specify theagent’s duties and responsibilities to the principal. In all insurance transac-
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tions, the agent’s responsibility is to act in accordance with the agency con-tract and thus for the benefit of the insurer. In accordance with the agent’sfiduciary obligation to the insurer and his or her agency agreement, theagent has a responsibility of accounting for all property, including moneythat comes into his or her possession. As part of the agent’s working rela-tionship with the insurer, it is important that pertinent information be dis-closed to the insurer, particularly with regard to underwriting and risk selec-tion. If the agent knows of anything adverse concerning the risk to beinsured, it is his or her responsibility to provide this information to the insur-er. To withhold important underwriting information could adversely affectthe insurer’s risk selection process. In accordance with agency law, informa-tion given to the agent is the same as providing the information to the insur-er.
It is the agent’s responsibility to obtain necessary information from the insur-ance applicant and to accurately complete the application for insurance. Asigned and witnessed copy of the application becomes part of the legal con-tract of insurance between the insured and the insurer.
Finally, the agent has a responsibility to deliver the insurance policy to theinsured and collect any premium that might be due at the time of delivery.
The agent must be prepared to provide the insured with an explanation ofsome of the policy’s principal benefits and provisions. If the policy is issuedwith any changes or amendments, the agent will also be required to explainthese changes and obtain the insured’s signature acknowledging receipt ofthese amendments.
Company’s Responsibility to AgentThe company is required to permit the agent to act in accordance with theterms of the agent’s employment contract, and the company must recognizeall the provisions of that contract.
In addition, the company must pay the agent the compensation agreed uponin the contract, must reimburse the agent for proper expenditures made onbehalf of the principal, and must indemnify the agent for any losses or dam-ages suffered without fault on the part of the agent but occurring on accountof the agency relationship.
Potential Liabilities of Agent/Errors and Omissions (E&O)ExposureErrors and omissions (E&O) insurance is needed by professionals who giveadvice to their clients. It covers negligence, error, or omission by the insur-er or producer who is the insurer’s representative. E&O policies protect pro-
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ducers from financial losses they may suffer if insureds sue to recover fortheir financial loss due to a producer giving them incorrect advice (error) ornot informing them of an important issue (omission). Because a producer’soffice is very busy, he or she must take special care to follow strict proceduresin regard to taking applications, explaining coverages, collecting premiums,submitting changes to policies upon an insured’s request, and preparingclaim forms.
Formation of a Life and HealthInsurance ContractThe formation of a life or health insurance contract differs from the forma-tion of other insurance contracts because the life or health producer usuallydoes not have the authority to bind the insurer.
Contract ElementsInsurance policies are legal contracts and are subject to the general law ofcontracts. This is a distinct body of law that is separate from criminal law(crimes against society) and tort law (legal liability issues usually involvingdamages for negligence). A contract is a legal agreement between two ormore parties promising a certain performance in exchange for a valuableconsideration. Under the law, the following elements are necessary for theformation of a valid contract:
➤ Agreement (offer and acceptance)
➤ Consideration
➤ Competent parties
➤ Legal purpose
Agreement (Offer and Acceptance)There can be no contract without the agreement or mutual assent of the par-ties. A common intention on all terms of the contract is essential to an agree-ment and no essential terms of the contract may be left unsettled. Further,the intention of the parties to a contract must be communicated to oneanother.
The parties to an insurance contract are the insurance company and theapplicant, who may become the insured or may name another person to be
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Insurance Law 61
insured. Unless otherwise indicated, it is assumed that the applicant is theprospective insured.
OfferAn offer is a proposal that creates a contract if accepted by another partyaccording to its terms. If an applicant gives the insurer a completed applica-tion and pays the first premium, the application is an offer. If the policy isissued as applied for, the insurer accepts the offer.
There is no offer if the applicant sends the application to the insurance com-pany without payment of the premium. Such an application is merely an invi-tation to the company to make an offer. The insurance company makes anoffer by issuing the policy. The applicant accepts it by paying the first pre-mium.
AcceptanceAn acceptance must be unconditional and unqualified. If an insurance com-pany, after receiving an application and premium payment, issues a policywith more restrictive coverage than that applied for, the company has madea counter offer.
For example, a counter offer occurs if an applicant applies for a standard healthinsurance policy, pays the premium, and receives a policy containing anexclusionary endorsement for specified physical conditions. The applicantmust decide whether to accept the policy as modified. If he or she accepts thepolicy, there is a contract. If he or she rejects the modified policy, there is nocontract, and the applicant is entitled to a return of his or her premium.
ConsiderationEach party to the contract must give valuable consideration. In the insurancecontract, the value given by the insurer consists of the promises contained inthe policy contract. The consideration given by the insured consists of thestatements made in the application and the payment of the initial premium.
The consideration may consist of any of the following:
➤ A monetary payment
➤ An act
➤ A forbearance from action
➤ The creation, modification, or destruction of a legal right
➤ A return promise
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It is important to know that part of the applicant’s consideration consists ofthe statements in the application. A great deal of importance is placed on therepresentations in the application because the insurance company’s entiredecision of whether to contract is based on its evaluation of the informationin the application.
Competent PartiesFor a contract to be binding, both parties must have the legal capacity tomake a contract. To have the legal capacity to make insurance contracts, aninsurance company must have authority under its charter to issue contractsand be authorized by the state to issue contracts. The company’s representa-tive must also be licensed by the state.
The insured or applicant must be of legal age and be mentally competent to makean insurance contract. Applications of minors must usually be signed by an adultparent or guardian to comply with the legal age requirement for making contracts.
Legal PurposeTo be valid, a contract must be for a legal purpose and not contrary to pub-lic policy. An insurance contract is not against public policy where an insur-able interest exists.
Parts of the Insurance ContractAlthough it is not a legal requirement that all contracts be in writing, insur-ance contracts always are because of their complex nature. The number ofpages that make up an insurance contract varies because of the types of insur-ance and the individual risks being insured, but all life/health insurance con-tracts contain four basic parts:
➤ Policy face (Title page)
➤ Conditions
➤ Insuring clause
➤ Exclusions
Policy Face (Title Page)The policy face is usually the first page of the insurance policy. It includes thepolicy number, name of the insured, policy issue date, the amount of premi-
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um and dates the premium is due, and the limits of the policy. The policyface also includes the signatures of the secretary and president of the issuinginsurance company. In addition, there are generally clauses required by lawto give the insured information on his or her right to cancel, and a warningto the insured to read the policy carefully.
Insuring ClauseThe insuring clause generally also appears on the policy face. It is a statementby the insurance company that sets out the essential element of insurance—the promise to pay for losses covered by the policy in exchange for theinsured’s premium and compliance with policy terms.
ConditionsThis section spells out in detail the rights and duties of both parties.Conditions are provisions that apply to the insured and insurer. For example,the conditions include the reinstatement provision, suicide clause, paymentof claim provision, and similar standard policy provisions.
ExclusionsIn this section, the company states what it will not do. The exclusions are abasic part of the contract and a complete knowledge of them is essential to athorough understanding of the agreement. Certain risks must be excludedfrom insurance contracts because they are not insurable.
Legal RequirementsWhen the courts have a case involving contracts, it looks at the “rules of con-struction” to interpret the contract. The rules of construction help identifyand establish the intent of the parties to the contract.
Contract ConstructionThere are five major areas that the courts review in order to interpret thecontract, establish the intent of the parties, and hand down a ruling.
Plain Language and Word DefinitionsIf the language of the contract is clear the courts do not have to interpret themeaning of the contract. The courts give the words in the contract their“ordinary meaning.” In cases where ordinary words have been used in a tech-nical capacity, the technical meaning of the word is accepted.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Chapter 364
The Entire ContractThe courts look at the entire contract to determine the intent of the parties.It does not consider material added to the basic contract, nor does it takeonly parts of the contract to make a determination.
Interpretation in Favor of Valid ContractBecause the courts assume that when people make a contract they intend forit to be valid, the courts will, if possible, render an interpretation of the con-tract that makes it valid rather than invalid.
Unclear Contract of Adhesion Interpreted Against the InsurerIf a contract contains wording that is unclear the courts will interpret thelanguage used against the writer of the contract, unless the wording used isrequired by law to be stated in a specific manner. Insurance contracts are con-tracts of adhesion, which means the insured had no part in determining thewording of the contract; therefore, the courts will interpret the contract infavor of the policyholder, insured, or beneficiary.
Written ContractsIf a contract contains unclear or inconsistent material between printed,typed, or handwritten text in the contract, the typed or handwritten materi-al will determine intent.
Contract CharacteristicsThe insurance contract has certain characteristics not typically found inother types of contracts.
Utmost Good FaithThe insurance contract requires utmost good faith between the parties. Thismeans that each party is entitled to rely on the representations of the otherand each party should have a reasonable expectation that the other is actingin good faith without attempts to conceal or deceive. In a contact of utmostgood faith, the parties have an affirmative duty to each other to disclose allmaterial facts relating to the contract. That is not just a duty not to lie, butalso a duty to speak up. Failure to do so usually gives the other party groundto void the contract.
AleatoryAn insurance contract is said to be aleatory, or dependent upon chance oruncertain outcome, because one party may receive much more in value than
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Insurance Law 65
he or she gives in value under the contract. For example, an insured who hasa loss may receive a greater payment from an insurer for the loss than he orshe has paid in premiums. On the other hand, an insured might pay his orher premiums and have no loss, so the insurer pays nothing.
AdhesionIn insurance, the insurer writes the contract and the insured adheres to it.When a contract of adhesion is ambiguous in its terms, the courts will inter-pret the contract against the party who prepared it.
UnilateralInsurance contracts are unilateral. This means that after the insured hascompleted the act of paying the premium, only the insurer promises to doanything further. The insurer has promised performance and is legallyresponsible. The insured has made no legally enforceable promises and can-not be held for breach of contract. For example, the insured may stop pay-ing premium because he is not legally responsible to continue paying premi-um.
ExecutoryAn insurance contract is an executory contract in that the promises describedin the insurance contract are to be executed in the future, and only after certainevents (losses) occur.
ConditionalInsurance contracts are also conditional contracts because when the lossoccurs certain conditions must be met to make the contract legally enforce-able. For example, a policyholder might have to satisfy the test of having aninsurable interest and satisfy the condition of submitting proof of loss.
Personal ContractGenerally, insurance policies are personal contracts between the insured andinsurer. Generally, insurance is not transferable to another person withoutthe consent of the insurer. Fire insurance, for example, does not follow theproperty.
Warranties and RepresentationsA warranty is something that becomes part of the contract itself and is a state-ment that is considered to be guaranteed to be true. Any breach of warrantyprovides grounds for voiding the contract.
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A representation is a statement believed to be true to the best of one’s knowl-edge. An insurer seeking to void coverage on the basis of a misrepresentationusually has to prove that the misrepresentation is material to the risk.
Under most state laws, an applicant’s statements or responses to questions on anapplication for insurance (in the absence of fraud) are considered to be representa-tions and not warranties.
An example would be a question on the application asking for your sex ordate of birth. You represent yourself to the insurance company as being maleor female and a certain age. The accuracy of these items is very important tothe insurance company issuing the policy. If they are incorrect, they may beconsidered misrepresentations, and the policy may be voided as a result.
There is a difference between representation of a fact and an expression ofopinion. A good example is a question on many applications: “Are you nowto the best of your knowledge and belief in good health?” If the applicantanswers “yes” while knowing in fact that he or she is not, there is a misrep-resentation of actual fact. If, on the other hand, he or she has had no med-ical opinion and suffers from no symptoms recognizable to a layman, his orher answer is an opinion and thus not a misrepresentation.
ImpersonationImpersonation means assuming the name and identity of another person forthe purpose of committing a fraud. The offense is also known as false pre-tenses. In the case of life insurance, an uninsurable individual applying forinsurance may ask another person to substitute for him to take the physicalexamination.
Misrepresentation and ConcealmentA misrepresentation is a written or oral statement that is false. Generally, inorder for a misrepresentation to be grounds for voiding an insurance policy,it has to be material to the risk.
Concealment is the failure to disclose known facts. Generally, an insurer maybe able to void the insurance if it can prove that the insured intentionally con-cealed a material fact.
Material information or a material fact is crucial to acceptance of the risk. Forexample, if the correct information about something would have caused theinsurance company to deny a risk or issue a policy on a different basis, theinformation is material.
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FraudFraud is an intentional act designed to deceive and induce another party topart with something of value.
Fraud may involve misrepresentation and/or concealment, but not all acts of misrep-resentation or concealment are acts of fraud. If someone intentionally lies in order toobtain coverage or to collect on a false claim, that would be a matter of fraud. If some-one misrepresents something on an application (perhaps a medical treatment the per-son is embarrassed to talk about) without any intent to obtain something of value, nofraud has occurred.
Parol (Oral) Evidence RuleThe parol evidence rule limits the impact of waiver and estoppel on contractterms by disallowing oral evidence based on statements made before the con-tract was created. It is assumed that any oral agreements made before con-tract formation were incorporated into the written contract. After contractformation, earlier oral evidence will not be admitted in court to change orcontradict the contract. An oral statement may waive contract provisionsonly when the statement occurs after the contract exists.
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Exam Prep Questions1. Ralph is a producer for Hoosier Insurance Company. His contract
states that he is allowed to put the company’s logo on his business cardsand the door to his office. This is an example of❍ A. Express authority❍ B. Implied authority❍ C. Lingering implied authority❍ D. Apparent authority
2. Tom has always made a practice of having his policyholders mail theirpremium checks directly to him, and forwarding them on to the insur-er, so that he is aware of anyone missing a payment and can contactpolicyowners directly if that should happen. His contract does notallow this, but the insurer is aware of the practice and has not askedhim to stop. This practice is an example of❍ A. Express authority❍ B. Implied authority❍ C. Lingering implied authority❍ D. Apparent authority
3. Gina accepts the initial premium when she sells an insurance policyand sends it to the company with the application. Nothing in her con-tract mentions handling of initial premiums. This is an example of❍ A. Express authority❍ B. Implied authority❍ C. Lingering implied authority❍ D. Apparent authority
4. Albert’s life insurance premium is due on the 10th of the month.Because he gets paid at the end of the month, he has always sent thepremium late. The insurer has been accepting his premium this wayfor 3 years. A new CEO comes in and decides to crack down on latepremiums, canceling Albert’s policy for nonpayment of premium.Albert contests this decision legally and gets the policy reinstated. Thedecision to reinstate the policy is an example of❍ A. Estoppel❍ B. Waiver❍ C. Contract of adhesion❍ D. Express authority
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Insurance Law 69
5. When representing an insurer, a producer acting as an agent has aresponsibility to act with the degree of care that❍ A. A licensed insurance producer would apply under similar circumstances❍ B. A reasonable person would apply under similar circumstances❍ C. A lawyer would apply under similar circumstances❍ D. Any person would apply under similar circumstances
6. Which element is not necessary for the formation of a valid contract?❍ A. Consideration❍ B. Competent parties❍ C. Written document❍ D. Legal purpose
7. The initial premium payment sent with an application constituteswhich part of the formation of an insurance contract?❍ A. Consideration❍ B. Acceptance❍ C. Offer❍ D. Legal purpose
8. Life insurance contracts contain all the following except❍ A. Policy folder❍ B. Insuring clause❍ C. Conditions❍ D. Exclusions
9. Ken has paid only four premiums on his health insurance policy whenhe is hit by a car. The insurance company pays out nearly half a milliondollars to cover his treatment and a lengthy stay in intensive care. Thisis an example of❍ A. Contract of adhesion❍ B. Aleatory contract❍ C. Unilateral contract❍ D. Utmost good faith
10. Carol applies for a life insurance policy and pays the initial premium.Carol has❍ A. Accepted an offer from the insurer❍ B. Made an offer to the insurer❍ C. Accepted a counter offer from the insurer❍ D. Made a counter offer to the insurer
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11. The insurer looks at Carol’s application and decides to offer Carol amodified policy, including an exclusion Carol did not request. Theinsurer has❍ A. Accepted an offer from Carol❍ B. Made an offer to Carol❍ C. Accepted a counter offer from Carol❍ D. Made a counter offer to Carol
12. The failure to disclose known facts is❍ A. Misrepresentation❍ B. Concealment❍ C. Fraud❍ D. Impersonation
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Insurance Law 71
Exam Prep Answers1. A is correct. Express authority is spelled out in an agent’s written con-
tract.2. D is correct. Apparent authority is the authority an agent appears to
have because of past actions that have not been challenged by theinsurance company.
3. B is correct. Implied authority is not expressly stated in an agent’scontract but it is actual authority related to common business practices,such as accepting premiums for the insurer.
4. A is correct. Under the principal of estoppel, a pattern of past behav-ior may prevent the insurer from exercising a right it might have had ifit had exercised it earlier.
5. B is correct. A producer has a duty to act with a reasonable degree ofcare when representing an insurer.
6. C is correct. Valid contracts do not need to be in writing. Oral con-tracts are legally binding.
7. A is correct. The premium is the consideration given by the insuredin exchange for the insurer’s promise to pay if a loss occurs.
8. A is correct. All life insurance policies include an insuring clause, con-ditions, and exclusions. There is no requirement for a policy folder.
9. B is correct. An aleatory contract is one that depends on chance or anuncertain outcome. Ken may have received far more in benefits thanhe paid as premiums, but others who pay premiums may never have aloss and never receive even a dollar in benefits.
10. B is correct. The act of submitting an application with a premiumpayment is an offer that is still subject to acceptance by the insurer.
11. D is correct. By not accepting the initial offer and offering alternativeterms, the insurer has made a counter offer.
12. B is correct. The failure to disclose known facts is concealment.Intentionally giving false answers or misstating facts would be misrep-resentation, and possibly fraud.
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NUMBERS12% rule, VLI policies, 15340-quarter rules, 250401(k) pension plans, 268, 271-272403(b) arrangement plans, 273501(c) (9) trusts, 299
Aabsolute assignment provisions, 186absolute assignments (policies), 179-180absolute values (surgical benefits), 366accelerated benefit riders, 171, 446accelerated benefits, 111, 257accelerated endowment options (life insur-
ance), 216accident and health insurance. See health
insuranceaccident and health or sickness insurance,
defining, 10accident and sickness insurance. See health
insuranceaccident only insurance, 284accidental bodily injury (total disability),
351accidental death, 398accidental death and dismemberment
(AD&D) rider (disability), 356accidental death benefits, credit health
insurance policies, 392accidental means (total disability), 351accumulation at interest options (life insur-
ance), 215accumulation periods (annuities), 223accumulation units, 229
acquisition costs (expense loading), 85Activities of Daily Life (ADL), 438, 443-444actuaries, defining, 5AD&D (accidental death and dismember-
ment) insurance, 282, 356ADA (Americans with Disabilities Act), 406ADB (accidental death benefit) riders,
164-165, 172additional insured riders, 170additional monthly benefit (AMB) rider
(disability), 355address, changes of (insurance licenses), 41ADEA (Age Discrimination in Employment
Act), 405-406adhesion, contracts of, 65adjustable life insurance policies, 147ADL (Activities of Daily Life), 438, 443-444admitted insurers, defining, 15adult day care, LTC (long-term care), 441adverse selection
defining, 75group insurance, underwriting, 94
advertising, insurance company regulations,36-37
advertising files, 36Age Discrimination in Employment Act
(ADEA), 405-406Agency law, principles of
agent’s responsibilities to company, 58-59
agent’s responsibilities to insured/appli-cant, 57
authority, 56-57collection of premium, 57company’s responsibilities to agent, 59E&O insurance, 59
Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Agency law528
presumption of agency, 56waiver and estoppel, 58
agent statements (applications), 78agents
apparent authority, 57defining, 56express authority, 56fiduciary responsibilities, Agency law, 57
aggregate claims (morbidity), 84AIDS, insurance, 77-78aleatory contracts, 64alien insurers, defining, 14all or nothing rider (disability), 354all-cause deductibles, 373AMB (additional monthly benefit) rider
(disability), 355ambulatory outpatient care, 340amendments, 185Americans with Disabilities Act (ADA), 406AMT (alternative minimum taxes), 261annual renewable term rider (disability), 356annuitants, 223annuities
accumulation periods, 223annuitants, 223beneficiaries, 223compound interest, 223contract owners, 223deferred, 225defining, 10equity-indexed, 234fixed, 223-224flexible premium, 226-227group deferred, retirement plans, 267guaranteed minimum payouts, 231-232immediate, SPIA, 225income distribution, 222individual deferred, retirement plans,
267IRA
contribution limits, 269funding, 270income deductibility limits, 270Roth IRA, 271taxes, 269
level premium, 226life insurance taxes, 257-258MVA, 235nonforfeiture options, 224payouts, determining, 227-228retirement fund accumulation, 222retirement income, 234settlement options, 231-233single premium, 226tax-deferred, 273TSA, 234
two-tiered, 233variable, 223
accumulation units, 229annuity units, 230defining, 10payouts, 224securities regulations, 228-229
annuity units, 230answer keys
practice exam 1, 471-474practice exam 2, 487-491
any occupation (total disability), 348apparent authority, 57appeals, Medicare, Part B, 418applicant control clause provisions, 180applicants, defining, 74applications
agent statements, 78attending physician statements, 77examination applications, obtaining
insurance licenses, 40field underwriting, 81general information section, 76inspection reports, 79investigative consumer reports, 79medical examinations/testing, 77medical information section, 76risk selection (underwriting), 76submitting, 124
appointment, 42-43Aspen Publishers Web site, 499assessment insurers, defining, 12assignment, 415assignment clause provisions, 185association groups, 92assumed names, insurance licenses, 41assumed rates of interest (annuity payouts),
227attending physician statements (applica-
tions), 77attornies-in-fact, 12authority (agents)
apparent authority, 57defining, 15express authority, 56
automatic premium loan provisions, 183autopsy provisions, 188aviation exclusions, 198-199
Bbaby-care, medical expense insurance, 378back-end sales loads, 149banks, insurance distribution, 16basic HMO health care services
certificates of coverage, 292copayments, 292
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .benefits 529
evidence of coverage, 292exclusions/limitations, 292-293impatient hospital and physician servic-
es, 291in and out of area emergency services,
292outpatient medical services, 291preventive health services, 291
basic medical expense insurance policiesemergency accident expense benefits,
369emergency first-aid expense benefits,
368exclusions/limitations, 369-370home health care expense benefits, 369hospice care expense benefits, 369hospital expense benefits, 364-365in-hospital physician expense benefits,
367maternity expense benefits, 368mental infirmity expense benefits, 369outpatient care expense benefits, 369regular medical expense benefits, 366surgical expense benefits, 366
beneficiariesannuities, 223contingent, 191defining, 74irrevocable, 187, 190naming
class designations, 194estates, 194minors, 192per capita designations, 195per stirpes designations, 195trusts, 193
primary, 191qualified, COBRA (Consolidated
Omnibus Budget Reconciliation Act),403
revocable, 187, 190succession of, 191tertiary, 191Uniform Simultaneous Death Act, 196
beneficiary provisions, 187-189common disaster, 197contingent beneficiaries, 191facility of payment, 198irrevocable beneficiaries, 190naming beneficiaries
class designations, 194estates, 194minors, 192per capita designations, 195per stirpes designations, 195trusts, 193
primary beneficiaries, 191revocable beneficiaries, 190spendthrift clause, 197-198tertiary beneficiaries, 191
benefit payment clause, 339benefit periods
deductibles, 374disability income insurance, 348
benefit triggers, LTC (long-term care), 443-444
benefitsaccelerated, 111comprehensive major medical expense
benefitslimitations, 375-376restoration of benefits, 374
Coordination of Benefits Provision, 400-401
credit health insurance, accidental death,392
credit life insurance, death, 393deferred compensation, 115dental care insurance, payments, 387disability, 453disability income insurance, 351-352extension of, 407group medical expense, 399inside limits, 374internal limits, 374living, 107LTC (long-term care), 438-439, 442mandated, HIPPA (Health Insurance
Portability and Accountability Act),402
medical expense insurance, 379-380Medicare, Part A
home health care, 414hospice care, 414-415inpatient hospital care, 413respite care, 415SKN (skilled nursing facility), 413-414uncovered expenses, 415
Medicare, Part Bdeductibles/copayments, 415-416doctors’ services, 416home health care, 417outpatient services/supplies, 417-418
optional, disability income insurance,353-354
restoration of, 374social security disability, payroll taxes,
452split-dollar plans, 116standardized supplemental (Medicare)
core benefits, 419
How can we make this index more useful? Email us at [email protected]
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .benefits530
optional benefits, 420provisions, 421-422standardized policy forms, 420
supplemental major medical expensebenefits
limitations, 375-376restoration of benefits, 374
workers compensation, 427binding receipts, 123birthday rules, 249BISYS Education Services contact informa-
tion, 495-497blackout periods
income, 105survivor benefits, 252
blanket insurance, 284blanket policies (group health care plans),
301Blue Cross and Blue Shield, 286-287BOE (business overhead expense), 357boycotts, Unfair Trade Practices Act, 47brokers, defining, 18business continuation agreements. See buy-
sell agreementsbusiness life insurance, taxes, 261business overhead expense (BOE), 357, 454business uses, disability income insurance,
357-358businesses
corporationsdeferred compensation, 115key person life insurance, 115life insurance, 113-116split-dollar plans, 116stock purchase plans, 114stock redemption plans, 115
partnerships, 112-113sole proprietorships, 112
buy-sell agreements, 112buy-sell disability income insurance, 358Buyers Guides, 37
Ccafeteria health care plans, 300calendar year deductibles. See all-cause
deductiblescancelable policies, 338Cancellation provision (Uniform Individual
Accident and Sickness Policy ProvisionsLaw), 334-335
capital conservation (income), 105capital liquidation (income), 105capital sums, 356capitation fees (HMO), 290captive producers, defining, 15care level, LTC (long-term care), 440
career agents, defining, 15carriers, 412carryover provisions, 374case management provisions, 339-340cash dividend options (life insurance), 215cash surrender options (life insurance), 211cash surrender values, life insurance taxes,
257cash value accumulation tests, 255casualty insurance, defining, 9CD
customer service information, 495exam simulator, 493-494installing, 494review questions, 493-494
certificates of coverage (HMO), 292certificates of insurance (group insurance),
92, 241CHAMPUS (Civilian Health and Medical
Program of the Uniformed Services). SeeTRICARE
Change of Beneficiary provision (UniformIndividual Accident and Sickness PolicyProvisions Law), 329-330
Change of Occupation provision (UniformIndividual Accident and Sickness PolicyProvisions Law), 330-331
changes of address, insurance licenses, 41charitable gifts, life insurance as, 259child-care, medical expense insurance, 378chiropractic services, major medical expense
benefits, 376chronically ill, defining, 456churning, 46. See also misrepresentationsCIR (Comparative Interest Rate) method
(life insurance cost comparisons), 109Claim Forms provision (Uniform Individual
Accident and Sickness Policy ProvisionsLaw), 326
claim frequency rates (morbidity), 84claims
defining, 2life insurance claims
partial payment, 127payment, 126-127producer responsibilities upon
insured’s death, 128-129Medicare, Part B, 418
clausesbenefit payment, 339consideration clauses, 337insuring clauses, 337results, war/military service exclusions,
199status, war/military service exclusions,
199
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .corporations 531
closed panel contracts (prepaid dentalplans), 389
closed panel HMO, 291COBRA (Consolidated Omnibus Budget
Reconciliation Act), 402-404CODA (cash or deferred arrangements),
268Coercion, Unfair Trade Practices Act, 47cognitive impairment, LTC (long-term
care), 444coinsurance
comprehensive major medical expensebenefits, 371-372
defining, 9dental care insurance, 386
collateral assignment provisions, 186collecting premiums, 122commercial insurers, 11Commissioner of Insurance, Privacy Act of
1974, 26Commissioners
NAIC, 49state insurance regulation, duties, 33
Commissions, rebating, 46common disaster provisions, 197common injury or illness provisions, 374comparing life insurance costs, 109-110Comparison Statements (replacements), 130compensable injuries, workers compensa-
tion, 427compensation laws, workers compensation,
428complete assignment provisions, 186compound interest (annuities), 223comprehensive benefits (major medical
expense insurance), 371-372comprehensive dental care insurance poli-
cies, 386-387comprehensive expense benefits (major
medical expense insurance), 371compulsory compensation laws, workers
compensation, 428concealment in contracts, 66concurrent review, 340conditional assignment provisions, 186conditional contracts, 65conditional receipts, 122-123conditions (life and health insurance con-
tracts), 63confining disability (total disability), 351Conformity with State Statutes provision
(Uniform Individual Accident andSickness Policy Provisions Law), 335
consideration clause, 178, 337Consolidated Omnibus Budget
Reconciliation Act (COBRA), 402-404
constructive deliveries, 126, 313consultants, defining, 18consumer reporting agencies, 28-29consumer reports. See also investigative con-
sumer reportsFair Credit Reporting Act of 1970, 27investigative consumer reports, 79
consumer rights, consumer reporting agen-cies, 29
consumers, defining, 31consumers cooperatives, 289contingency fund loading (expense loading),
85contingent beneficiaries, 191continuation (policies)
cancelable policies, 338guaranteed renewable policies, 338noncancelable policies, 338renewability, 337-338term policies, 339
continuous premium whole life insurancepolicies, 145
contract owners (annuities), 223contracts
concealment, 66fraud, 67life and health insurance contracts
characteristics of, 64-67elements of, 60-62legal requirements, 63-64parts of, 62-63
material information, 66misrepresentations, 66parol evidence rule, 67representations, 66warranties, 65
contracts of adhesion, 64-65contributions
Roth IRA, 271SIMPLE, 272
contributory groups, 93, 96controlled business, defining, 45convalescent home benefits, medical
expense insurance, 380conversion privilege, 399-400convertible term insurance policies, 139converting coverage. See conversion privi-
legeCoordination of Benefits Provision,
400-401Copayments, Medicare, Part B, 415-416corporations
deferred compensation, 115key person life insurance, 115life insurance, 113-116split-dollar plans, 116
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .corporations532
stock purchase plans, 114stock redemption plans, Section 303
stock redemption plans, 115corridor deductibles, 372corridor tests, 255cosmetic exclusions (dental care insurance),
388cosmetic surgery, medical expense insur-
ance, 378cost assistance, Medicaid, 425cost comparisons, life insurance, 109-110cost indexes, 109-110cost of living benefit (disability), 353cost of living riders, 169cost plans, 424coverage
converting. See conversion privilegedependent, 400duration of, COBRA (Consolidated
Omnibus Budget Reconciliation Act),403-404
employer, Medicare, 424nonoccupational, 339
CPI (Consumer Price Index), index-linkedlife insurance policies, 162
credit agencies, 28credit group insurance, 93credit health insurance, 392-393credit insurance, 10, 284credit life insurance, 156, 393creditors, policy rights, 210cross-purchase plans, 113cumulative deductibles. See all-cause
deductiblescurrent assumption whole life insurance
policies, 146current wage bases, benefit taxation, 452currently insured status (social Security),
250custodial care
LTC (long-term care), 438medical expense insurance, 378
customer service information, 495customers, defining, 31
Ddeath
costs of, 102insureds, producers responsibilities
upon, 128-129death benefits, 138
ADB riders, 164-165, 172credit health insurance policies, 392credit life insurance policies, 393deferred annuities, 225
family income life insurance policies,159
life insurance taxes, 256Social Security survivor benefits, 252universal life insurance policies, 150viatical settlements, 172workers compensation, 303
deceptive advertising, Unfair TradePractices Act, 45
decreasing term insurance, 140-141, 162deductibles
all-cause, 373benefit periods, 374carryover provisions, 374common injury or illness provisions, 374comprehensive major medical expense
benefits, 371-374corridor, 372cumulative. See deductibles, all-causedefining, 8family, 374first dollar coverage, 371integrated, 386Medicare, Part B, 415-416per-cause, 373supplemental major medical expense
benefits, 372-374defamation, Unfair Trade Practices Act, 46deferred annuities, 225deferred compensation, 115defined benefit retirement plans, 266-267defined contribution retirement plans,
266-268delivering policies
constructive deliveries, 126, 313mailing, 126personal deliveries, 125
dental care, medical expense insurance, 378dental care insurance
benefit payment, 387coinsurance, 386comprehensive policies, 386-387exclusions/limitations, 388nonroutine treatments, 387prepaid plans, 389-390provisions, 388scheduled policies, 386service areas, 388-389underwriting, 388
dental expense insurance, 283denying insurance licenses, 43-44Department of Defense, TRICARE, 304dependent coverage, 400dependents, group insurance, 242deposit term life insurance policies, 163
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .elective compensation laws 533
determining premiumsexpenses, 84-85interest, 84morbidity, 83-84mortality, 83premium mode, 86
direct writing companies, defining, 16direct-response marketing, defining, 16Directors (state insurance regulation). See
Commissionersdisabilities
social security, 426workers compensation, 428
disability benefitsFICA, 453FUTA, 453social security, 252, 452workers compensation, 303
disability income insurance, 282, 398alternatives, 346-347benefit periods, 348benefits, 351-352business uses, 357-358elimination periods, 347exclusions, 352financial planning, 346optional benefits, 353-354probationary periods, 347riders, 353
accidental death and dismemberment(AD&D), 356
additional monthly benefit (AMB),355
annual renewable term, 356hospital confinement, 355impairment, 355nondisabling, 355return of premium, 356social security, 354waiver of premium, 356
social security supplements, 355total disability, defining
accidental means, 351any occupation, 348confining versus nonconfining, 351injury versus sickness, 349loss of earnings, 348medically defined, 349occupational versus nonoccupational,
349own occupation, 348partial, 349permanent, 350presumptive, 349recurrent, 350
residual, 350sickness, 351temporary, 350
disability income riders, 167disability insurance
elimination periods, 8taxes, 455
disability insured status (Social Security),250
disability payments, credit health insurancepolicies, 392
disability reducing term insurance, 358disclosure authorization, 25-26discrimination
pregnancy, ERISA (EmployeeRetirement Income Security Act of1974), 406
Unfair Trade Practices Act, 46dismemberment, 398dismemberment coverage (disability), 356disqualifying events, COBRA (Consolidated
Omnibus Budget Reconciliation Act), 403dividends, 213
accelerated endowment option, 216accumulation at interest option, 215cash dividend option, 215fund sources, 214life insurance taxes, 257one-year term option, 217paid-up additions option, 215-216paid-up option, 216reduce premium dividend option, 216
doctors, Medicare Part B covered/excludedservices, 416
doctrine of economic benefit rule, 258domestic insurers, defining, 14domiciles (insurers), 14-15double indemnity. See ADB ridersdread disease insurance, 283, 390dual choice laws, 289dual premiums, 146dual-benefit eligibility (Social Security), 251duration of coverage, COBRA
(Consolidated Omnibus BudgetReconciliation Act), 403-404
dying intestate, defining, 106
EE&O (errors and omissions) insurance, 59earned premiums, 310-311economatic whole life insurance policies,
146elective compensation laws, workers com-
pensation, 428
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .eligibility534
eligibilitybuy-sell disability income insurance, 358disability income insurance, 347group insurance, underwriting, 95group health insurance, 399LTC (long-term care), 439, 443Medicaid, 425
emergency accident expense benefits (basicmedical expense insurance), 369
emergency dental treatment (dental careinsurance), 388
emergency first-aid expense benefits (basicmedical expense insurance), 368
emotional disorders, major medical expensebenefits, 375-376
employee groups, 92Employee Retirement Income Security Act
of 1974 (ERISA), 405-406employees, key, 405employer coverage, Medicare, 424employer-administered health care plans
501(c) (9) trusts, 299cafeteria, 300MET, sponsors, 300MEWA, 300self-funded, 297-298small business, 299
endodontics, 387endorsements, 185endowment life insurance policies, 157-158endowments, accelerated endowment divid-
ed option, 216entire contract provisions, 184-185Entire Contract: Changes provision
(Uniform Individual Accident andSickness Policy Provisions Law), 322
entity type plans, 113EPO (exclusive provider organizations), 296equity-indexed annuities, 234ERISA (Employee Retirement Income
Security Act of 1974), 405-406disclosures, 276fiduciary responsibility, 275
error provisions, 401estate planning, 106-108estates, beneficiaries, 194estoppels, defining, 58events, COBRA (Consolidated Omnibus
Budget Reconciliation Act), 403evidence of coverage (HMO), 292evidence of insurability, group health insur-
ance, 399exam simulator (CD), 493-494examination applications, obtaining insur-
ance licenses, 40
examspractice exam 1
answers, 471-474questions, 461-469
practice exam 2answers, 487-491questions, 477-485
resources, 497-499excess and surplus lines, defining, 13exchange privilege riders, 170exclusions
aviation, 198-199dental care insurance, 388hazardous occupation/hobby, 199life and health insurance contracts, 63LTC (long-term care), 443military service, 199war, 199
exclusive producers, 15-16execution clause provisions, 179executory contracts, 65expense loading, 84-85expense ratios, 86expenses
BOE (business overhead expense), 357group medical expense benefits, 399hospital expense, 398premiums, determining, 84-85uncovered, Medicare, Part B, 418
expenses-incurred basis payments, medicalexpense insurance, 365
expired insurance licenses, renewing, 42Explanation of Medicare Benefits, 418exposure units, defining, 4express authority, 56extended term options (life insurance), 213extension of benefits, 407extra risk insurance, 81extraterritorial provisions, workers compen-
sation, 428eyeglasses, medical expense insurance, 378
Fface amounts (policies), 336
defining, 8term insurance, 139whole life insurance, 143
face values (policies)term insurance, 139whole life insurance, 143
facility of payment clause (Payment ofClaims provision), 328
facility of payment provisions, 198factors, LTC (long-term care), rating, 438
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .franchise policies 535
Fair Credit Reporting Act of 1970consumer reporting agencies, 28-29consumer reports, 27credit agencies, 28investigative consumer reports, 27penalties for violation, 30pretext interviews, 28
false advertising, Unfair Trade PracticesAct, 45
false financial statements, Unfair TradePractices Act, 46
false pretenses, contracts, 66family deductibles, 374family dependency periods (income), 104family income life insurance policies,
158-159family maintenance life insurance policies,
159family protection life insurance policies,
159-160federal employees, group insurance, 244federal government as insurers, 13-14federal income taxes, social security disabili-
ty benefits, 452federal Rating Services, insurance company
ratings, 35federal regulation
Fair Credit Reporting Act of 1970consumer reporting agencies, 28-29consumer reports, 27credit agencies, 28investigative consumer reports, 27penalties for violation, 30pretext interviews, 28
Financial Services Modernization Act of1999, 31-32
fraud, 30LTC (long-term care), 445McCarran-Ferguson Act, 25Paul v. Virginia, 24Privacy Act of 1974, 25-26
federal taxes, life insurance, 259federal/state regulation, group health insur-
ance, 407COBRA (Consolidated Omnibus Budget
Reconciliation Act), 402-404ERISA (Employee Retirement Income
Security Act of 1974), 405-406HIPPA (Health Insurance Portability
and Accountability Act), 401-402OBRA (Omnibus Budget Reconciliation
Act of 1989), 404-405TEFRA (Tax Equity and Fiscal
Responsibility Act of 1982), 405fee-for-service plans, Medicare+Choice,
422-423
fees, policy fees, 312-313FEGLI (Federal Employees’ Group Life
Insurance), 244FICA, disability benefits, 453fiduciaries, 131, 316
defining, 57ERISA responsibilities, 275
field underwriting, 81financed insurance life insurance policies,
161financial planning, disability income insur-
ance, 346Financial Services Modernization Act of
1999, 32federal regulations, 31producer regulations, 37
financial tests, Medicaid, 425first dollar coverage (deductibles), 371first-to-die joint life insurance policies, 160five-year replacement exclusions (dental
care insurance), 388fixed amount settlement option (life insur-
ance), 208-209fixed annuities, 223-224fixed period settlement option (life insur-
ance), 207-208flat additional premiums (substandard risks),
82flat cancellations, 335flexible life insurance
adjustable life insurance policies, 147advantages of, 154disadvantages of, 154universal life insurance policies, 148
cash value adjustments, 149-150death benefits, 150loans/withdrawals, 150-151premium requirements, 151sales loads, 149
variable universal life insurance policies,154
12% rule, 153cash values, 152death benefits, 151premiums, 152regulation as insurance, 153regulation as securities, 152-153
flexible premium annuities, 226-227flexible premium variable life insurance
policies. See variable universal life insur-ance policies
foreign insurers, defining, 14forms, group insurance policies, 242franchise marketing, defining, 16franchise policies (group health care plans),
301-302
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .fraternal insurers536
fraternal insurers, defining, 12fraud
contracts, 66federal regulation, 30in contracts, 67
free look provisions, 189, 336free-look periods, 335fully insured status (Social Security), 249funeral insurance, 163FUTA (federal unemployment tax), disabili-
ty benefits, 453future increase option (disability). See GIR
Ggatekeeper systems (HMO), 293general agents, defining, 16general information section (applications),
76general overhead loading (expense loading),
85gift taxes, life insurance, 260GIR (guaranteed insurability riders),
168-169GLBA (Gramm-Leach-Bliley Act). See
Financial Services Modernization Act of1999
government health insuranceMedicaid, 303TRICARE, 304workers compensation, 302-303
Grace Period provision (Uniform IndividualAccident and Sickness Policy ProvisionsLaw), 323-324
grace period provisions, 181graded death benefits (substandard risks), 82graded premium life insurance policies, 162Gramm-Leach-Bliley Act. See Financial
Services Modernization Act of 1999gross annual premiums, 85group accidental death and dismemberment
policies, taxing premiums, 453group credit health insurance, 392-392group credit life insurance, 393group deferred annuities, retirement plans,
267group disability insurance, premiums, 453group health care plans, 301-302group health insurance
eligibility, 399evidence of insurability, 399federal/state regulations, 407
COBRA (Consolidated OmnibusBudget Reconciliation Act), 402-404
ERISA (Employee RetirementIncome Security Act of 1974), 405-406
HIPPA (Health Insurance Portabilityand Accountability Act), 401-402
OBRA (Omnibus BudgetReconciliation Act of 1989), 404-405
TEFRA (Tax Equity and FiscalResponsibility Act of 1982), 405
policy types, 398provisions, 398-401taxes, 453-454
group insuranceassociation groups, 92certificates of insurance, 92, 241contributory groups, 93, 96credit group insurance, 93dependent coverage, 242employee groups, 92FEGLI, 244funding, 97individual permanent life insurance,
converting to, 243labor union groups, 92legal requirements, 240multiple employer groups, 92noncontributory groups, 93
eligibility periods, 95enrollment percentages, 96
policy forms, 242policyowners, premium payments, 240premiums, 93SGLI, 244standard provisions, 241trust groups, 92underwriting, 93
adverse selection, 94eligibility periods, 95optional requirements, 96-97probationary periods, 94statutory requirements, nondiscrimi-
natory classifications, 95-96group life insurance policies, taxes, 258group medical expense benefits, 399group model HMO, 289-290group practice model HMO, 289-290guaranteed insurability option (disability),
353guaranteed purchase option (disability), 353guaranteed renewable policies, 338guaranty associations, insurance company
regulations, 36guideline premium tests, 255-256
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .health insurance 537
HHarcourt Legal and Professional Publishing
Web site, 499hazardous occupation/hobby exclusions, 199hazards, defining, 3HCFA (Health Care Financing
Administration), 412health care plans
ASO contracts, 298-299Blue Cross and Blue Shield, 286-287commercial insurers, 285employer-funded
501(c) (9) trusts, 299cafeteria, 300MET, 300MEWA, 300self-funded, 297
group, 301-302HMO
basic health care services, 291-293closed panel, 291consumers cooperatives, 289development of, 288employer/employee contributions,
289enrollment, 289federal requirements, 288gatekeeper systems, 293grievance procedures, 294group model, 289-290HMO Act of 1973, 289IPA model, 290member access, 293network model, 290nondiscrimination, 294open enrollment, 293open panel, 291open-access plans, 295open-ended plans, 295producers cooperatives, 289prohibited practices, 294quality assurance, 294selecting PCP, 293service areas, 289staff model, 290supplemental health care services,
292-293POS, 296-297PPO, 295prepaid, 286reimbursement plans, 285
health care providers, 285-287
health insurance. See also group healthinsurance
accident only insurance, 284AD&D insurance, 282blanket, 284Blue Cross and Blue Shield, 286-287commercial insurers, 285credit, 284death benefits, 303dental expense insurance, 283disability benefits, 303disability income insurance, 282dread disease insurance, 283dual choice laws, 289elimination periods, 303employer-administered plans
501(c) (9) trusts, 299cafeteria, 300MET, 300MEWA, 300self-funded, 297-298small business, 299
governmentMedicaid, 303TRICARE, 304workers compensation, 302
group, 301-302health care providers
home health care, 285managed health care, 285-287skilled nursing facilities, 285surgicenters, 285urgent care centers, 285
HMObasic health care services, 291-293closed panel, 291consumers cooperatives, 289development of, 288employer/employee contributions,
289enrollment, 289federal requirements, 288gatekeeper systems, 293grievance procedures, 294group model, 289-290HMO Act of 1973, 289IPA model, 290member access, 293network model, 290nondiscrimination, 294open enrollment, 293open panel, 291open-access plans, 295open-ended plans, 295producers cooperatives, 289prohibited practices, 294
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .health insurance538
quality assurance, 294selecting PCP, 293service areas, 289staff model, 290supplemental health care services,
292-293hospital income insurance, 283income benefits, 303LTC insurance, 283medical benefits, 302medical expense insurance, 282needs, determining, 284policies
delivering, 313policy terms, 312replacement policies, issuing,
314-315servicing, 314underwriting, 310
POS, 296-297PPO, 295prescription coverage, 284rehabilitation benefits, 302-303reimbursement plans, 285specified disease insurance, 283taxes
group policies, 453-454individual policies, 452sole proprietors/partnerships, 454
travel accident insurance, 283Health Insurance Portability and
Accountability Act of 1996 (HIPPA), 401-402, 455
hearing aids, medical expense insurance, 378HIPPA (Health Insurance Portability and
Accountability Act), 401-402History, LTC (long-term care), 434-435HMO (health maintenance organizations)
basic health care servicescertificates of coverage, 292copayments, 292evidence of coverage, 292exclusions/limitations, 292-293in and out of area emergency servic-
es, 292inpatient hospital and physician serv-
ices, 291outpatient medical services, 291preventive health services, 291
closed panel, 291consumers cooperatives, 289development of, 288employer/employee contributions, 289enrollment, 289, 293federal requirements, 288gatekeeper systems, 293
grievance procedures, 294group model, 289-290HMO Act of 1973, 289IPA model, 290member access, 293Medicare+Choice, 423network model, 290nondiscrimination, 294open panel, 291open-access plans, 295open-ended plans, 295PCP, selecting, 293producers cooperatives, 289prohibited practices, 294quality assurance, 294service areas, 289staff model, 290supplemental health care services,
292-293HMO Act of 1973, 289home health care, 285
LTC (long-term care), 439-441Medicare, Part A, 414Medicare, Part B, 417
home health care expense benefits (basicmedical expense insurance), 369
home service life insurance policies, 156homogeneous risks, 6hospice care
expense benefits (basic medical expenseinsurance), 369
LTC (long-term care), 441Medicare, Part A, 414-415
hospital confinement rider (disability), 355hospital expense, 398hospital expense benefits (basic medical
expense insurance), 364-365hospital income insurance, 283, 391hospital indemnity insurance. See hospital
income insurancehospital indemnity riders, medical expense
insurance, 380hospitalization, prior (long-term care), 440hospitalization insurance. See medical
expense insurancehuman life value concept (life insurance,
selling), 103-104
IIllegal Occupation provision (Uniform
Individual Accident and Sickness PolicyProvisions Law), 335-336
illegal premiums/charges, Unfair TradePractices Act, 47
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .insurance 539
immediate annuities, SPIA, 225immediate payment of claims (expense load-
ing), 85impairment rider (disability), 355impersonation, in contracts, 66in and out of area emergency services
(HMO basic services), 292in-hospital physician benefits (basic medical
expense insurance), 367income
benefits (workers compensation), 303blackout periods, 105capital conservation, 105capital liquidation, 105disability income insurance, 398family dependency periods, 104preretirement periods, 104retirement periods, 105
income taxes, life insurance, 254accelerated benefits, 257annuities, 257-258cash surrender values, 257cash value accumulation, 258cash value accumulation tests, 255corridor tests, 255death benefits, 256dividends, 257group life insurance policies, 258guideline premium tests, 255-256MEC, 256premiums, 256transfer for value rules, 260
incontestability clause provisions, 183increasing term insurance policies, 141indemnity, defining, 7independent insurance producers, defining,
15indeterminate premium term insurance
policies, 141indeterminate premium whole life insurance
policies, 146index-linked life insurance policies, 162-163individual credit health insurance, 392-393individual deferred annuities, retirement
plans, 267individual employer groups. See employee
groupsindividual health insurance policies, taxes,
452individual medicare supplement insurance,
premiums, 455individual permanent life insurance, group
insurance, 243industrial life insurance, 155-156inflation protection, LTC (long-term care),
445
information (personal)disclosure authorization, 25-26sharing, opt outs, 31-32
initial premiums, 311injury versus sickness (total disability), 349inpatient hospital and physician services
(HMO basic services), 291inpatient hospital care, Medicare, Part A,
413inside limits (benefits), 374inspection receipts, 124inspection reports (applications), 79installing CDs, 494insurable interest, defining, 5insurable risks, characteristics of, 6-7insurance. See also disability income insur-
ance; group health insurance; social healthinsurance
accident and health or sickness, defining,10
annuitiesdefining, 10income distribution, 222retirement fund accumulation, 222variable annuities, 10
casualty, defining, 9credit, defining, 10credit life, provisions of, 156defining, 2excess and surplus lines, defining, 13flexible
adjustable life insurance policies, 147advantages of, 154disadvantages of, 154life, 147universal life insurance policies,
148-151variable universal life insurance poli-
cies, 153-154VLI policies, 151-153
healthaccident only, 284AD&D income, 282blanket, 284Blue Cross and Blue Shield, 286-287commercial insurers, 285credit, 284dental expense, 283determining needs, 284disability income, 282dread disease, 283dual choice laws, 289employer-administered plans, 501(c)
(9) trusts, 297-300government, 302-304
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .insurance540
group, 301-302health care providers, 285-287HMO, basic health care services,
291-293HMO, closed panel, 291HMO, consumers cooperatives
(HMO), 289HMO, development of, 288HMO, employer/employee contribu-
tions, 289HMO, enrollment, 289HMO, federal requirements, 288HMO, gatekeeper systems, 293HMO, grievance procedures, 294HMO, group model, 289-290HMO, HMO Act of 1973, 289HMO, IPA model, 290HMO, member access, 293HMO, network model, 290HMO, nondiscrimination, 294HMO, open enrollment, 293HMO, open panel, 291HMO, open-access plans, 295HMO, open-ended plans, 295HMO, producers cooperatives, 289HMO, prohibited practices, 294HMO, quality assurance, 294HMO, selecting PCP, 293HMO, service areas, 289HMO, staff model, 290HMO, supplemental health care
services, 292-293hospital income, 283LTC, 283medical expense, 282POS, 296-297PPO, 295prescription coverage, 284reimbursement plans, 285specified disease, 283travel accident, 283
industrial life, 155-156juvenile life insurance policies, payor
riders, 168life
beneficiary provisions, 189beneficiary provisions, class designa-
tions, 194beneficiary provisions, common dis-
aster, 197beneficiary provisions, contingent
beneficiaries, 191beneficiary provisions, facility of pay-
ment, 198beneficiary provisions, irrevocable
beneficiaries, 190
beneficiary provisions, naming bene-ficiaries, 192-194
beneficiary provisions, per capitadesignations, 195
beneficiary provisions, per stirpesdesignations, 195
beneficiary provisions, primary bene-ficiaries, 191
beneficiary provisions, revocablebeneficiaries, 190
beneficiary provisions, spendthriftclause, 197-198
beneficiary provisions, tertiary bene-ficiaries, 191
as charitable gifts, 259creditor rights, 210defining, 9dividends, 213-217doctrine of economic benefit rule,
258exclusions, 198-199federal taxes, 259gift taxes, 260income taxes, 254
cash value accumulation tests, 255as charitable gifts, 259corridor tests, 255guideline premium tests, 255
income taxes, 256-258nonforfeiture options, 211-213prohibited provisions, 200provisions, withdrawal provisions
settlement option, 209Section 1035 policy exchanges
(Internal Revenue Code), 261settlement options, 206-211standard provisions, 178standard provisions, absolute assign-
ment, 186standard provisions, applicant con-
trol clause, 180standard provisions, assignment
clause, 185standard provisions, automatic pre-
mium loan, 183standard provisions, autopsy, 188standard provisions, beneficiary
assignment, 187standard provisions, collateral assign-
ment, 186standard provisions, complete assign-
ment, 186standard provisions, conditional
assignment, 186standard provisions, consideration
clause, 178
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .insurance 541
standard provisions, entire contract,184-185
standard provisions, execution clause,179
standard provisions, free look, 189standard provisions, grace periods,
181standard provisions, incontestability
clause, 183standard provisions, insuring clause,
178standard provisions, medical exami-
nation, 188standard provisions, misstatement of
age clause, 187-188standard provisions, misstatement of
sex clause, 188standard provisions, modification
clause, 188standard provisions, ownership
rights, 179-180standard provisions, partial assign-
ment, 186standard provisions, payment of pre-
mium, 179standard provisions, policy change,
189standard provisions, policy loan, 182standard provisions, reinstatement
clause, 181-182standard provisions, suicide clause,
184standard provisions, voluntary
assignment, 186taxes, policy exchanges, 261third-party rights, 210transfer for value rules, 260
packages, 9property, defining, 9riders
accelerated benefit, 171ADB, 164-165, 172additional insured, 170cost of living, 169disability income, 167GIR, 168-169living needs, 171LTC, 171payor, 168return of cash value, 169return of premium, 169substitute insured, 170
specialized lifeadvantages of, 164deposit-term life insurance policies,
163
disadvantages of, 164endowment life insurance policies,
157-158family income life insurance policies,
158-159family maintenance life insurance
policies, 159family protection life insurance poli-
cies, 159-160graded premium life insurance poli-
cies, 162index-linked life insurance policies,
162-163joint life insurance policies, 160juvenile life insurance policies, 161minimum deposit life insurance poli-
cies, 161modified premium life insurance
policies, 161mortgage redemption life insurance
policies, 162multiple protection life insurance
policies, 162pre-need funeral life insurance poli-
cies, 163retirement income life insurance
policies, 160supplemental (Medicare), 419term
advantages of, 141convertible term policies, 139decreasing term policies, 140-141deposit term life insurance policies,
163disadvantages of, 142face amounts, 139family protection life insurance poli-
cies, 160increasing term policies, 141indeterminate premium term poli-
cies, 141interim term policies, 141level term policies, 140premiums, 138reentry term policies, 140
renewable, defining, 10waivers, 164
waivers of monthly deductions, 167waivers of premiums, 165-167
whole lifeadvantages of, 147continuous premium whole life poli-
cies, 145current assumption whole life poli-
cies, 146disadvantages of, 147
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .insurance542
economatic whole life policies, 146face amounts, 143guaranteed cash values, 143indeterminate premium whole life
policies, 146limited payment whole life policies,
145nonforfeiture values, 144policy loans, 144premiums, 143single premium whole life policies,
145straight life policies, 145
insurance agreements. See temporary insur-ance agreements
Insurance Code, defining, 32insurance companies
liquidation, 34regulations, 33
guaranty associations, 36insurer examinations, 35insurer solvency, 34investments, 34marketing/advertising, 36-37ratings, 35taxes, 34
rehabilitation, 34insurance consultants, defining, 18insurance coverage
coinsurance, defining, 9deductibles, defining, 8indemnity, defining, 7limit of liability, defining, 8
insurance distributionagency systems, 15-16Internet sales, 17mass marketing, 16
Insurance Information Institute Web site,499
insurance licensesdenial of, 43-44issuing, 40maintaining, 41-43obtaining, examination applications, 40revocation of, 43-44temporary agent licenses, 40-41
insurance producer regulation, licensing, 37exceptions to requirements, 38-39nonresident reciprocity, 39requirements, 38
insurance producers, 17brokers, defining, 18claims, 126fiduciary responsibilities, 131insurance consultants, defining, 18life and health agents, defining, 17
life insurancepolicy retention, 131replacements, 129-130
life insurance claimspartial payment, 127payment, 126-127responsibilities upon insured’s death,
128-129life insurance, selling
advantages as property, 107-108business uses for life insurance,
111-116charitable uses for life insurance, 111cost comparisons, 109-110estate planning, 106human life value concept, 103-104income analysis, 104-106living benefits, 107needs analysis, 103-104personal uses for life insurance,
110-111recommendations, 103
policy delivery, 125-126policy issuance, 122-124property and casualty agents, defining,
17responsibilities, 132solicitors, defining, 18
insurance regulation, AIDS, 77-78Insurance with Other Insurers provision
(Uniform Individual Accident andSickness Policy Provisions Law), 332-333
insuredsdefining, 2life insurance claims, producer responsi-
bilities upon death, 128-129insurer examinations, insurance company
regulations, 35insurer solvency (insurance company regula-
tions), 34insurers
commercial, 11defining, 2domiciles, 14-15life insurance, replacements, 130nonprofit, 11primary, 400private, 12self-insurers, 13service, 11U.S. Government, 13-14
insuring clause, 337life and health insurance contracts, 63provisions, 178
integrated deductibles, 386inter vivos transfers (estate planning), 106
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .laws 543
inter vivos trusts, 194interest, determining premiums, 84interest only settlement option (life insur-
ance), 207interest-adjusted net cost method (life insur-
ance cost comparisons). See net paymentcost index method
interest-sensitive whole life insurance poli-cies, 146
interim term insurance policies, 141intermediaries, 412intermediate care, LTC (long-term care),
438internal limits (benefits), 374Internal Revenue Code
retirement plans, vesting rules, 266-267Section 1035 policy exchanges, 261
Internet insurance distribution, 17intimidation, Unfair Trade Practices Act, 47intracompany replacements (policies), 315investigative consumer reports
applications, 79Fair Credit Reporting Act of 1970, 27
Investment Company Act of 1940, 153investments (insurance company regula-
tions), 34IPA (Individual Practice Association) model
HMO, 290IRA (Individual Retirement Accounts and
Annuities)contribution limits, 269distributions, 273-274funding, 270income deductibility limits, 270rollovers, 275Roth IRA, 271SEP, 272SIMPLE, 271-272taxes, 269
IRA Plus. See Roth IRAirrevocable beneficiaries, 187, 190
J - K - Ljoint life and survivorship settlement
options, 232joint life annuity settlement options, 232joint life insurance policies, 160jumping juvenile life insurance policies, 161juvenile life insurance policies, 161, 168
Keogh plans, 273key employees, 405key person disability insurance, 357key person life insurance, 115Kluwer Academic Publishers Web site, 498
labor union groups, 92lapsing policies, 324last survivor settlement options. See joint
life and survivorship settlement optionsLaw of Agency, principles of
agent’s responsibilities to company, 58-59
agent’s responsibilities to insured/appli-cant, 57
authority, 56-57collection of premium, 57company’s responsibilities to agent, 59E&O insurance, 59presumption of agency, 56waiver and estoppel, 58
law of large numbersdefining, 4example of, 83
lawscompensation, workers compensation,
428Uniform Individual Accident and
Sickness Policy Provisionsmandatory provisions, 322mandatory provisions, Change of
Beneficiary, 329-330mandatory provisions, Claim Forms,
326mandatory provisions, Entire
Contract; Changes, 322mandatory provisions, Grace Period,
323-324mandatory provisions, Legal Actions,
329mandatory provisions, Notice of
Claim, 325-326mandatory provisions, Payment of
Claims, 327-328mandatory provisions, Physical
Examination and Autopsy, 329mandatory provisions, Proof of Loss,
326-327mandatory provisions,
Reinstatement, 324-325mandatory provisions, Time Limit
on Certain Defenses;Incontestability, 323
mandatory provisions, Time ofPayment of Claims, 327
optional provisions, 330optional provisions, Cancellation,
334-335optional provisions, Change of
Occupation, 330-331optional provisions, Conformity with
State Statutes, 335
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .laws544
optional provisions, IllegalOccupation, 335-336
optional provisions, Insurance withOther Insurers, 332-333
optional provisions, Misstatement ofAge, 331
optional provisions, Narcotics, 336optional provisions, Other Insurance
in This Insurer, 331-332optional provisions, Relation of
Earnings to Insurance—AverageEarnings Clause, 333-334
optional provisions, UnpaidPremium, 334
leaky HMO plans. See open-ended HMOplans
Legal Actions provision (UniformIndividual Accident and Sickness PolicyProvisions Law), 329
legal hazards, defining, 3legal requirements
certificates of insurance, 241group insurance, 240life and health insurance contracts,
63-64standard provisions, 241
level premiums, 85, 226level term insurance policies, 140liability, face amounts, 8licensed insurers, defining, 15licenses
denial of, 43-44issuing, 40maintaining, 41-43obtaining, examination applications, 40revocation of, 43-44temporary agent licenses, 40-41
licensing, producer regulation, 37-39life and health agents, defining, 17life and health insurance contracts
characteristics ofaleatory contracts, 64concealment, 66conditional contracts, 65contracts of adhesion, 65executory contracts, 65fraud, 67impersonation, 66material information, 66misrepresentations, 66parole evidence rule, 67personal contracts, 65representations, 66unilateral contracts, 65utmost good faith, 64warranties, 65
elements of, 60-62
legal requirements, 63-64parts of, 62-63
life annuity settlement options, 231life annuity with period certain settlement
options, 232life income settlement option (life insur-
ance), 209life insurance
business life insurance, taxes, AMT, 261business uses for, 111
corporations, 113-116partnerships, 112-113sole proprietorships, 112
as charitable gifts, 259charitable uses for, 111claims
partial payment, 127payment, 126-127producer responsibilities upon
insured’s death, 128-129credit life insurance, provisions of, 156creditor rights, 210death benefits, 138defining, 9dividends, 213
accelerated endowment option, 216accumulation at interest option, 215cash dividend option, 215fund sources, 214one-year term option, 217paid-up additions option, 215
loading charges, 216doctrine of economic benefit rule, 258exclusions, 198-199federal taxes, 259fiduciary responsibilities, 131flexible life insurance
adjustable life insurance policies, 147advantages of, 154disadvantages of, 154universal life insurance policies,
148-151variable universal life insurance poli-
cies, 153-154VLI policies, 151-153
gift taxes, 260income taxes, 254
accelerated benefits, 257annuities, 257-258cash surrender values, 257cash value accumulation, 258cash value accumulation tests, 255corridor tests, 255death benefits, 256dividends, 257group life insurance policies, 258guideline premium tests, 255-256
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .life insurance 545
MEC, 256premiums, 256
industrial life insurance, 155-156juvenile life insurance policies, payor
riders, 168nonforfeiture options, 211-213personal uses for, 110-111policy retention, 131producer responsibilities, 132provisions
absolute assignment, 186applicant control clause, 180assignment clause, 185automatic premium loan, 183autopsy, 188beneficiary assignment, 187beneficiary, class designations, 194beneficiary, common disaster, 197beneficiary, contingent beneficiaries,
191beneficiary, facility of payment, 198beneficiary, irrevocable beneficiaries,
190beneficiary, naming beneficiaries,
192-194beneficiary, per capita designations,
195beneficiary, per stirpes designations,
195beneficiary, primary beneficiaries,
191beneficiary, revocable beneficiaries,
189-190beneficiary, spendthrift clause, 197-
198beneficiary, tertiary beneficiaries, 191collateral assignment, 186complete assignment, 186conditional assignment, 186consideration clause, 178entire contract, 184-185execution clause, 179free look, 189grace periods, 181incontestability clause, 183insuring clause, 178medical examination, 188misstatement of age clause, 187-188misstatement of sex clause, 188modification clause, 188ownership rights, 179-180partial assignment, 186payment of premium, 179policy change, 189policy loan, 182prohibited, 200
reinstatement clause, 181-182suicide clause, 184voluntary assignment, 186withdrawal provisions settlement
option, 209replacements, 129-130Section 1035 policy exchanges (Internal
Revenue Code), 261selling
advantages as property, 107-108business uses for life insurance,
111-116charitable uses for life insurance, 111cost comparisons, 109-110costs of death, 102estate planning, 106human life value concept, 103-104importance of insurance, 102income analysis, 104-106living benefits, 107needs analysis, 103-104personal uses for life insurance,
110-111recommendations, 103
settlement options, 206advantages of, 211fixed amount, 208-209fixed period, 207-208interest only, 207life income, 209withdrawal provisions, 209
specialized life insuranceadvantages of, 164deposit term life insurance policies,
163disadvantages of, 164endowment life insurance policies,
157-158family income life insurance policies,
158-159family maintenance life insurance
policies, 159family protection life insurance poli-
cies, 159-160graded premium life insurance poli-
cies, 162index-linked life insurance policies,
162-163joint life insurance policies, 160juvenile life insurance policies, 161minimum deposit life insurance poli-
cies, 161modified premium life insurance
policies, 161mortgage redemption life insurance
policies, 162
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .life insurance546
multiple protection life insurancepolicies, 162
pre-need funeral life insurance poli-cies, 163
retirement income life insurancepolicies, 160
taxes, policy exchanges, 261term insurance
advantages of, 141convertible term policies, 139decreasing term policies, 140-141disadvantages of, 142face amounts, 139family protection life insurance poli-
cies, 160increasing term policies, 141indeterminate premium term poli-
cies, 141interim term policies, 141level term policies, 140premiums, 138reentry term policies, 140renewable term policies, 139
third-party rights, 210transfer for value rules, 260whole life insurance
advantages of, 147continuous premium whole life poli-
cies, 145current assumption whole life poli-
cies, 146disadvantages of, 147economatic whole life policies, 146face amounts, 143guaranteed cash values, 143indeterminate premium whole life
policies, 146limited payment whole life policies,
145nonforfeiture values, 144policy loans, 144premiums, 143single premium whole life policies,
145straight life policies, 145
lifetime benefit (disability), 354limit of liability, defining, 8limitations
dental care insurance, 388hospital income insurance, 391vision care insurance, 391
limited payment whole life insurance poli-cies, 145
limited policies, 390-391liquidation (insurance companies), 34
living benefit riders, 171, 446living benefits, 107, 257living needs riders, 171Lloyd’s of London, 12loading for contingency funds (expense
loading), 85lock-in requirements, managed care plans,
424long-term disability (LTD), 352loss of earnings (total disability), 348loss of time coverage. See disability income
insuranceloss of time insurance. See disability income
insuranceloss ratios, 86loss versus risk, 2losses, defining, 2LTC (long-term care), 238
accelerated benefits riders, 446alternatives, 437-438benefit triggers, 443-444benefits, 438-439chronically ill, defining, 456emerging issues, 445-446factors, rating, 438federal/state regulations, 445history, 434-435nonqualified policies, 445policies, 435premiums, taxes, 455-456probability of care, 437provisions
adult day care, 441benefit amounts, 442benefit periods, 442care level, 440eligibility, 439elimination periods, 443exclusions, 443home health, 441hospice, 441preexisting conditions, 443premiums, 440prior hospitalization, 440professional care advisors, 442renewability, 439respite care, 441waiver of premium, 440
qualified policies, 444suitable purchasers, 435-436
LTC (long-term care) riders, 171LTD (long-term disability), 352lump-sum benefits (disability), 352
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Medicare 547
Mmajor medical expense insurance policies
all-cause deductibles, 373benefit limitations, 375-376benefit periods, 374carryover provisions, 374common injury or illness provisions, 374comprehensive expense benefits,
371-372covered expenses, 372-373family deductibles, 374per-cause deductibles, 373restoration of benefits, 374supplemental expense benefits, 371-372
managed care plans, 424managed health care, 285
Blue Cross and Blue Shield, 287POS, 296-297
managing risk, 3-4mandated benefits, HIPPA (Health
Insurance Portability and AccountabilityAct), 402
market conduct, defining, 35marketing, insurance company regulations,
36-37master policies, 242material facts, 66material information, in contracts, 66maternity, major medical expense benefits,
376maternity expense benefits (basic medical
expense insurance), 368maximum benefit limits, major medical
expense benefits, 372maximum benefits, sublimits, 8Maximum Family Benefit, 253, 426maximum taxable wage bases (Social
Security), 254McCarran-Ferguson Act, 25McGraw-Hill/Irwin Web site, 499MEC (modified endowment contracts), 256Medicaid, 14, 303, 425medical benefits (workers compensation),
302medical examination provisions, 188medical examinations/testing (applications),
77medical expense insurance, 282
alternative practitioners, 377baby-care, 378basic coverage
emergency accident expense benefits,369
emergency first-aid expense benefits,368
exclusions/limitations, 369-370home health care expense benefits,
369hospice care expense benefits, 369hospital expense benefits, 364-365in-hospital physician expense bene-
fits, 367maternity expense benefits, 368mental infirmity expense benefits,
369outpatient care expense benefits, 369regular medical expense benefits, 366surgical expense benefits, 366
benefits, 379-380child-care, 378cosmetic surgery, 378custodial care, 378dental care, 378exclusions, 377-378eyeglasses, 378hearing aids, 378major coverage
all-cause deductibles, 373benefit limitations, 375-376benefit periods, 374carryover provisions, 374common injury or illness provisions,
374comprehensive expense benefits,
371-372covered expenses, 372-373family deductibles, 374per-cause deductibles, 373restoration of benefits, 374supplemental expense benefits,
371-372payments, 364-365workers compensation, 378
medical group model HMO, 289-290medical information section (applications),
76medical necessity, LTC (long-term care),
444medically defined disability (total disability),
349Medicare
employer coverage, 424Medicare+Choice
fee-for-service plans, 422-423HMOs (health maintenance organi-
zations), 423PPOs (preferred provider organiza-
tions), 423PSOs (provider-sponsored organiza-
tions), 423-424
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Medicare548
Part Abenefits, 413-415enrolling, 412
Part Bbenefits, 415-418claims/appeals, 418enrolling, 412uncovered expenses, 418
standardized supplemental benefitscore benefits, 419optional benefits, 420provisions, 421-422standardized policy forms, 420
supplemental insurance, 419Medicare Part C. See Medicare+ChoiceMedicare SELECT, 422medicare supplement insurance, premiums,
455Medicare+Choice
fee-for-service plans, 422-423HMOs (health maintenance organiza-
tions), 423PPOs (preferred provider organizations),
423PSOs (provider-sponsored organiza-
tions), 423-424Medigap policies, 419-422mental disorders, major medical expense
benefits, 375-376mental infirmity expense benefits (basic
medical expense insurance), 369MET (multiple employer trusts), 92, 300MEWA (multiple employer welfare
arrangements), 300MGA (managing general agents), defining,
16MIB (Medical Information Bureau), 79military
group insurance, 244service exclusions, 199TRICARE, 426
minimum deposit life insurance policies,161
minimum premium plans (group insurance),97
minors, naming beneficiaries as, 192miscellaneous medical benefits (basic med-
ical expense insurance), 365misrepresentations. See also churning
contracts, 66Unfair Trade Practices Act, 45
missing tooth provisions (dental care insur-ance), 388
Misstatement of Age provision, 187-188,331
misstatement of sex clause provisions, 188mode of premium payment, 311Model Life Insurance Replacement
Regulation, 130modification clause provisions, 188modified premium life insurance policies,
161money-purchase pension plans, 268moral hazards, defining, 3morale hazards, defining, 3morbidity, 83-84mortality rate, 83mortality tables, 83mortality, risk rating (underwriting), 83mortgage redemption life insurance policies,
162multiple employer groups, 92multiple protection life insurance policies,
162mutual insurers, defining, 11MVA (market-value adjusted) annuities, 235
NNAIC (National Association of Insurance
Commissioners), 49, 130, 434NAIC Model Group Life Insurance Bill,
240-241NAIC Model Privacy Act, 27naming beneficiaries, 192-194Narcotics provision (Uniform Individual
Accident and Sickness Policy ProvisionsLaw), 336
NASD (National Association of SecuritiesDealers), 229
National Association of Insurance andFinancial Advisors Web site, 499
National Association of InsuranceCommissioners (NAIC), 434
needs analysis, life insurance, 103-104net payment cost index method (life insur-
ance cost comparisons), 109-110net premiums, 85network model HMO, 290no loss-no gain laws, 314, 370nonadmitted insurers, defining, 15noncancelable policies, 338nonconfining disability (total disability), 351noncontributory groups, 93
eligibility periods, 95enrollment percentages, 96
nondisabling rider (disability), 355nonforfeiture annuity options, 224nonforfeiture options (life insurance),
211-213
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Payment of Claims provision 549
nonforfeiture provisions, LTC (long-termcare), 446
noninsurance sponsors (insurance distribu-tion), 16
nonlicensed insurers, defining, 15nonoccupational coverage, 339nonoccupational disability (total disability),
349nonparticipating policies, 213nonprofit insurers, 11nonqualified policies, LTC (long-term care),
445nonroutine dental care treatments, 387normal retirement age (Social Security),
250, 253Notice of Claim provision (Uniform
Individual Accident and Sickness PolicyProvisions Law), 325-326
notices of appointment, insurance licenses,42
notices of proposed insurance, credit healthinsurance policies, 393
Notices to Applicants RegardingReplacement of Life Insurance (replace-ments), 130
notification statements, COBRA(Consolidated Omnibus BudgetReconciliation Act), 403
nursing home benefits, medical expenseinsurance, 380
OOASDI (Old Age Survivors and Disability
Insurance), benefits of, 248OBRA (Omnibus Budget Reconciliation Act
of 1989), 404-405occupational disability (total disability), 349occupational diseases, workers compensa-
tion, 427offices, insurance licenses, 41-42offset rider (disability), 354Omnibus Budget Reconciliation Act of
1989(OBRA), 404-405one-year term dividend options (life insur-
ance), 217ongoing relationships, defining, 31open panel contracts (prepaid dental plans),
389open panel HMO, 291open-access HMO, 295open-ended HMO plans, 295opt outs, information sharing, 31-32oral hygiene instructions (dental care insur-
ance), 388
oral pathology, 387oral surgery, 387ordinary insurance. See whole life insuranceorgan transplant benefits, medical expense
insurance, 380orthodontics, 387Other Insurance in This Insurer provision
(Uniform Individual Accident andSickness Policy Provisions Law), 331-332
out-of-pocket limits. See stop-loss limitsOutlines of Coverage, 37outpatient care expense benefits (basic med-
ical expense insurance), 369outpatient medical services (HMO basic
services), 291outpatients, services/supplies (Medicare,
Part B), 417-418own occupation (total disability), 348ownership clause provisions, 180ownership rights provisions, 179-180
Ppackages (policies), 9paid-up additions options (life insurance),
215-216paid-up options (life insurance), 216parol evidence rule, 67Part A (Medicare)
benefitshome health care, 414hospice care, 414-415inpatient hospital care, 413respite care, 415SNF (skilled nursing facility), 413-
414uncovered expenses, 415
enrolling, 412Part B (Medicare)
benefits, 415-418claims/appeals, 418enrolling, 412uncovered expenses, 418
partial assignment provisions, 186partial disability (total disability), 349partial disability benefits (workers compen-
sation), 303partial payment, life insurance claims, 127participating policies, dividends, 213partnerships, health insurance policies, 454partnerships (business), 112-113Paul v. Virginia, 24Payment of Claims provision (Uniform
Individual Accident and Sickness PolicyProvisions Law), 327-328
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .payment of premium provisions550
payment of premium provisions, 179payment options. See settlement optionspayments
credit health insurance, disability, 392life insurance claims, 126-127medical expense insurance, 364-365premiums, mode of premium payment,
311payor riders, 168payroll taxes
Social Security, 253-254Social Security disability benefits, 452
PCP (primary care physicians), HMO, 293pediatric dentistry, 387penalties
Fair Credit Re, 30Privacy Act of 1974 violations, 26Unfair Claims Practices provisions
(Unfair Trade Practices Act), 49pension plans, 268per capita beneficiary designations, 195per stirpes beneficiary designations, 195per-cause deductibles, 373percentage participation. See coinsuranceperils, defining, 3periodontics, 387periods, benefits (long-term care), 442permanent disability (total disability), 350,
356permanent insurance. See whole life insur-
ancepermanent life insurance, converting from
group insurance, 243permanent partial disability benefits (work-
ers compensation), 303permanent total disability benefits (workers
compensation), 303personal contracts, 65personal information
disclosure authorization, 25-26sharing, opt outs, 31-32
Pfingsten Publishing LLC Web site, 499PHO (physician hospital organizations), 297Physical Examination and Autopsy provision
(Uniform Individual Accident andSickness Policy Provisions Law), 329
physical hazards, defining, 3physician statements (applications), 77physician’s nonsurgical expenses. See regular
medical expense benefitsphysicians. See doctorsPIA (primary insurance amount), 250-252,
426PIR (insurance protection riders). See GIRplaces of business, insurance licenses, 41-42
plan termination, COBRA (ConsolidatedOmnibus Budget Reconciliation Act), 404
planning financially, disability income insur-ance, 346
plaque control programs (dental care insur-ance), 388
PLMA (Producer Licensing Model Act), 37license requirements, 38-39license revoking, 43-44
PMO (practice management organizations),297
policiesabsolute assignments, 179-180amendments, 185basic medical expense insurance
emergency accident expense benefits,369
emergency first-aid expense benefits,368
exclusions/limitations, 369-370home health care expense benefits,
369hospice care expense benefits, 369hospital expense benefits, 364-365in-hospital physician expense bene-
fits, 367maternity expense benefits, 368mental infirmity expense benefits,
369outpatient care expense benefits, 369regular medical expense benefits, 366surgical expense benefits, 366
benefits, restoration of, 374blanket, group health care plans, 301business overhead expense insurance,
454constructive deliveries, 313credit health insurance, 392-393creditor rights, 210defining, 2delivering
constructive deliveries, 126, 313mailing policies, 126personal delivery, 125
dental care insurancebenefit payment, 387coinsurance, 386comprehensive policies, 386-387exclusions/limitations, 388nonroutine treatments, 387prepaid plans, 389-390provisions, 388scheduled policies, 386service areas, 389underwriting, 388
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .policy provisions 551
disability insurance, taxes, 455dread disease, 390effective dates, 312endorsements, 185exchanges, taxes, 261face amounts
defining, 8term insurance, 139whole life insurance, 143
fees, 312-313franchise, group health care plans,
301-302group health insurance
accidental death, 398dismemberment, 398group health insurance, 398hospital expense, 398
group life insurance, taxes, 258health insurance
issuing replacement policies, 314-315servicing, 314taxes, 453-454underwriting, 310
hospital income insurance, 391lapsing, 324life insurance
replacements, 129-130retention of, 131
LTC (long-term care) insurance, 435,455-456
major medical expense insuranceall-cause deductibles, 373benefit limitations, 375-376benefit periods, 374carryover provisions, 374common injury or illness provisions,
374comprehensive expense benefits,
371-372covered expenses, 372-373family deductibles, 374per-cause deductibles, 373restoration of benefits, 374supplemental expense benefits,
371-372maximum benefits, sublimits, 8MEC, 256medical expense insurance, benefits,
379-380medicare supplement insurance, premi-
ums, 455Medigap, 419-422nonparticipating, 213nonqualified, LTC (long-term care), 445packages, 9participating, dividends, 213
policy terms, 312prescription drug, 391qualified, LTC (long-term care), 444qualified group long-term care insur-
ance, taxes, 454riders, 185
accelerated benefit, 171ADB, 164-165, 172additional insured, 170cost of living, 169disability income, 167GIR, 168-169living needs, 171LTC, 171payor, 168return of cash value, 169return of premium, 169substitute insured, 170
third-party rights, 210travel accident insurance, 390vision care insurance, 391waivers, 164
waivers of monthly deductions, 167waivers of premiums, 165-167
policy change provisions, 189policy continuation, 337-339policy distribution, 15-17policy effective dates, 312policy face, 62, 336policy forms, group insurance, 242policy issuance
applications, submitting, 124premiums, 122-124
policy loan provisions, 182policy provisions
benefit payment clause, 339case management, 339-340consideration clause, 337free look, 336insuring clause, 337nonoccupational coverage, 339policy continuation, 337-339policy face, 336precertification, 340preexisting conditions, 339second surgical opinion, 340Uniform Individual Accident and
Sickness Policy Provisions Lawmandatory provisions, 322mandatory provisions, Change of
Beneficiary, 329-330mandatory provisions, Claim Forms,
326mandatory provisions, Entire
Contract; Changes, 322
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .policy provisions552
mandatory provisions, Grace Period,323-324
mandatory provisions, Legal Actions,329
mandatory provisions, Notice ofClaim, 325-326
mandatory provisions, Payment ofClaims, 327-328
mandatory provisions, PhysicalExamination and Autopsy, 329
mandatory provisions, Proof of Loss,326-327
mandatory provisions,Reinstatement, 324-325
mandatory provisions, Time Limiton Certain Defenses;Incontestability, 323
mandatory provisions, Time ofPayment of Claims, 327
optional provisions, 330optional provisions, Cancellation,
334-335optional provisions, Change of
Occupation, 330-331optional provisions, Conformity with
State Statutes, 335optional provisions, Illegal
Occupation, 335-336optional provisions, Insurance with
Other Insurers, 332-333optional provisions, Misstatement of
Age, 331optional provisions, Narcotics, 336optional provisions, Other Insurance
in This Insurer, 331-332optional provisions, Relation of
Earnings to Insurance—AverageEarnings Clause, 333-334
optional provisions, UnpaidPremium, 334
Policy Summaries, 37policyowners
defining, 74group insurance, premium payments,
240master policies, 242
portability, HIPPA (Health InsurancePortability and Accountability Act), 401-402
POS (point-of-service) health care plans,296-297. See also open-ended HMO plans
PPOs (preferred provider organizations),295, 423
practice exam 1answers, 471-474questions, 461-469
practice exam 2answers, 487-491questions, 477-485
pre-need funeral life insurance policies, 163precertification authorization, 340precertification provision, 340preexisting conditions, 339
disability income insurance, 347LTC (long-term care), 443major medical expense benefits, limita-
tions of, 376Medigap policies, 421
preferred provider organizations (PPOs),295, 423
preferred risks, 82pregnancy discrimination, ERISA
(Employee Retirement Income SecurityAct of 1974), 406
premature distributions (retirement plans),274
premium mode, determining premiums, 86premiums
Agency law, 57annuities, 226-227automatic premium loan provisions, 183business overheard expense insurance,
454collecting, 122defining, 2, 310determining, 83-86dual, 146earned, 310-311flat additional premiums (substandard
risks), 82graded premium plan life insurance poli-
cies, 162gross annual premiums, 85group accidental death and dismember-
ment policies, taxing in, 453group disability insurance, 453group insurance, 93, 240initial, 124, 311level premiums, 85life insurance taxes, 256LTC (long-term care), 440LTC (long-term care) insurance policies,
taxes, 455-456medicare supplement insurance policies,
taxes, 455mode of premium payment, 311modified premium life insurance poli-
cies, 161net, 85payment of premium provisions, 179policy effective dates, 312
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .provisions 553
policy fees, 312-313policy terms, 312qualified group long-term care insurance
policies, taxes, 454receipts, 122-124return of premium riders, 169term insurance, 138unearned, 310-311Unfair Trade Practices Act, 47universal life insurance policies, 151waivers of premiums, 165-167whole life insurance, 143
Prentice Hall Web site, 498prepaid dental plans, 389-390prepaid health care plans, 286preretirement periods (income), 104prescription coverage (health insurance),
284prescription drug benefits, medical expense
insurance, 379prescription drug policies, 391presumptive disability (total disability), 349pretext interviews, 28preventive health services (HMO basic serv-
ices), 291primary beneficiaries, 191primary insurance amount (PIA), 426primary insurers, 400principals, defining, 56prior hospitalization, LTC (long-term care),
440Privacy Act of 1974, 25-26Privacy Protection Study Commission, Privacy
Act of 1974, 25-26private insurers, 12probationary periods
disability income insurance, 347group insurance, underwriting, 94
Producer Licensing Model Act. See PLMAproducer regulation
controlled business, 45licenses
denial of, 43-44maintaining, 41-42revoking, 43-44
licensing, 37-39producers
brokers, defining, 18claims, 126as fiduciaries, 316fiduciary responsibilities, 131field underwriting, 81insurance consultants, defining, 18life and health agents, defining, 17life insurance, 129-131
life insurance claimspartial payment, 127payment, 126-127responsibilities upon insured’s death,
128-129life insurance, selling
advantages as property, 107-108business uses for life insurance,
111-116charitable uses for life insurance, 111cost comparisons, 109-110estate planning, 106human life value concept, 103-104income analysis, 104-106living benefits, 107needs analysis, 103-104personal uses for life insurance,
110-111recommendations, 103
policy delivery, 125-126policy issuance, 122-124property and casualty agents, defining,
17responsibilities, 132, 316solicitors, defining, 18
producers cooperatives, 286, 289professional care advisors, LTC (long-term
care), 442profit-sharing plans, 268, 272prohibited provisions, 200Proof of Loss provision (Uniform Individual
Accident and Sickness Policy ProvisionsLaw), 326-327
property and casualty agents, defining, 17property insurance, defining, 9property
life insurance policies as, 107-108safety of principal, 108
prospective review, 340prosthodontics, 387provider-sponsored organizations (PSOs),
Medicare+Choice, 423-424provisions. See also policy provisions
beneficiary, 189common disaster, 197contingent beneficiaries, 191facility of payment, 198irrevocable beneficiaries, 190naming beneficiaries, 192-195primary beneficiaries, 191revocable beneficiaries, 190spendthrift clause, 197-198tertiary beneficiaries, 191
common disaster, 197facility of payment, 198
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .provisions554
group health insurance, 398conversion privilege, 399-400Coordination of Benefits Provision,
400-401dependent coverage, 400errors, 401Records, 401
LTC (long-term care)adult day care, 441benefit amounts, 442benefit periods, 442care level, 440eligibility, 439elimination periods, 443exclusions, 443home health, 441hospice, 441preexisting conditions, 443premiums, 440prior hospitalization, 440professional care advisors, 442renewability, 439respite care, 441waiver of premium, 440
Medicare, 421-422Nonforfeiture, LTC (long-term care),
446prohibited, 200spendthrift clause, 197-198standard
absolute assignment, 186applicant control clause, 180assignment clause, 185automatic premium loan, 183autopsy, 188beneficiary assignment, 187collateral assignment, 186complete assignment, 186conditional assignment, 186consideration clause, 178entire contract, 184-185execution clause, 179free look, 189grace periods, 181incontestability clause, 183insuring clause, 178medical examination, 188misstatement of age clause, 187-188misstatement of sex clause, 188modification clause, 188ownership rights, 179-180partial assignment, 186payment of premium, 179policy change, 189policy loan, 182reinstatement clause, 181-182
suicide clause, 184voluntary assignment, 186
withdrawal provisions settlement option,209
PSOs (provider-sponsored organizations),Medicare+Choice, 423-424
purchasers, LTC (long-term care), 435-436pure risks, defining, 3
Qqualification periods, disability income
insurance, 347qualified group long-term care insurance,
taxes, 454qualified policies, LTC (long-term care),
444qualified retirement plans
403(b) arrangement, 273CODA, 268defined benefit, 266-267defined contribution, 266-268distributions, 273-274ERISA, 275-276IRA, 269-271Keogh, 273life insurance, incidental limitations, 274SEP, 272SIMPLE, 271-272vesting rules, 266-267
qualifying beneficiary, COBRA(Consolidated Omnibus BudgetReconciliation Act), 403
qualifying events, COBRA (ConsolidatedOmnibus Budget Reconciliation Act), 403
quarters of coverage (Social Security insuredstatus), 249
questionsCD review, 493-494practice exam 1, 461-469practice exam 2, 477-485
Rrated-up age (substandard risks), 82rating
insurance companies, 35LTC (long-term care) factors, 438
rating risks (underwriting)expenses, 84-85interest, 84morbidity, 83-84mortality, 83premium mode, 86
rebating, Unfair Trade Practices Act, 46
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .retirement income life insurance policies 555
receipts (premiums), 122-124reciprocal insurers, 12reciprocity, defining, 39recordkeeping, insurance licenses, 42Records provision, 401recurrent disability (total disability), 350reduce premium dividend options (life
insurance), 216reduced paid-up insurance options (life
insurance), 212reentry term insurance policies, 140reference Web sites (exams), 497-499references (exam), 497refund life annuity settlement options, 231regular medical expense benefits (basic med-
ical expense insurance), 366regulated practices
controlled business, 45Unfair Trade Practices Act, Unfair
Claims Practices, 45-49regulation
federalFair Credit Reporting Act of 1970,
27-30Financial Services Modernization Act
of 1999, 31-32fraud, 30McCarran-Ferguson Act, 25Paul v. Virginia, 24Privacy Act of 1974, 25-26
insurance, AIDS, 77-78insurance companies, 33
guaranty associations, 36insurer examinations, 35insurer solvency, 34investments, 34marketing/advertising, 36-37ratings, 35taxes, 34
producerscontrolled business, 45denying licenses, 43-44licensing, 37-39maintaining licenses, 41-43revoking licenses, 43-44
self, NAIC, 49state
AIDS, 77-78Commissioners, scope of duties, 33Insurance Code, 32insurance companies, 33-37producers, 37-39statutes, 32
rehabilitation (insurance companies), 34
rehabilitation benefitsdisability, 353workers compensation, 303
reimbursement basis payments, medicalexpense insurance, 364
reimbursement plans, health insurance, 285reinstatement clause provisions, 181-182reinstatement of benefits, 374Reinstatement provision (Uniform
Individual Accident and Sickness PolicyProvisions Law), 324-325
reinsurers, defining, 12reissue term insurance policies, 140Relation of Earnings to Insurance—Average
Earnings Clause provision (UniformIndividual Accident and Sickness PolicyProvisions Law), 333-334
relative values (surgical benefits), 366renewability
guaranteed renewable policies, 338LTC (long-term care), 439policy continuation, 337-338
renewable term insurance policies, 139renewing insurance licenses, 42replacement policies, health insurance poli-
cies, 314-315replacements (life insurance), 129
Comparison Statements, 130insurer duties, 130Model Life Insurance Replacement
Regulation, 130Notices to Applicants Regarding
Replacement of Life Insurance, 130producer duties, 130
representations (contracts), 66requirements (legal), life and health insur-
ance contracts, 63-64reserves, unpaid premium reserves, 87residential care, LTC (long-term care), 438residual disability (total disability), 350resource Web sites (exams), 497-499resources (exam), 497respite care
LTC (long-term care), 441Medicare, Part A, 415
restoration of benefits, 374restorative dental care, 387results clauses, war/military service exclu-
sions, 199retaining life insurance policies, 131retirement, ERISA (Employee Retirement
Income Security Act of 1974), 405-406retirement benefits (Social Security), 251retirement income annuities, 234retirement income life insurance policies,
160
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .retirement periods556
retirement periods (income), 105retirement plans
403(b) arrangement, 273CODA, 268defined benefit, 266-267defined contribution, 266-268distributions, 273-274ERISA, 275-276IRA, 269-271Keogh, 273life insurance, incidental limitations, 274SEP, 272SIMPLE, 271-272vesting rules, 266-267
retrospective premium arrangements (groupinsurance), 97
return of cash value riders, 169return of premium riders, 169, 356review questions (CD), 493-494revocable beneficiaries, 187, 190revoking insurance licenses, 43-44riders, 162, 185
accelerated benefit, 171, 446ADB, 164-165, 172additional insured, 170cost of living, 169disability income, 167disability income insurance, 353-356examples of, family protection life insur-
ance policies, 159GIR, 168-169living needs, 171LTC, 171payor, 168return of cash value, 169return of premium, 169substitute insured, 170viatical settlements, 172waivers, 164
waivers of monthly deductions, 167waivers of premiums, 165-167
rights (consumer), consumer reportingagencies, 29
riskdefining, 2excess and surplus lines, 13hazards, 3insurable interest, defining, 5law of large numbers, defining, 4managing, 3-4perils, defining, 3pure risks, defining, 3speculative risks, defining, 2versus loss, 2
risk avoidance, defining, 3risk classification (underwriting), 81-82
risk plans, 424risk rating (underwriting)
expenses, 84-85interest, 84morbidity, 83-84mortality, 83premium mode, 86
risk reduction, defining, 4risk retention
defining, 4self-insurance, 13
risk selection (underwriting), 74adverse selection, 75AIDS, 77-78criteria for, 75resources for, 75-79
risk transfers, defining, 4risks
homogeneous risks, 6insurable risks, characteristics of, 6-7LTC (long-term care), rating, 438
rollovers, 275room and board benefits (basic medical
expense insurance), 364-365Roth IRA, 271
Ssafety of principal (property), 108sales loads, 149scheduled dental care insurance policies,
386scheduled premium variable life insurance
policies. See VLI policiessecond injury funds, workers compensation,
429second surgical opinion provision, 340second-to-die life insurance policies, 160Section 1035 policy exchanges (Internal
Revenue Code), 261Section 303 stock redemption plans, 115Securities Act of 1933, 153, 229Securities and Exchange Act of 1934, 153securities, VLI policies as, 152-153self-employed persons, health insurance
policies, 454self-funded health care plans, 297-298self-insurers, defining, 13self-regulation, NAIC, 49selling life insurance
advantages as property, 107-108business uses for life insurance, 111
corporations, 113-116partnerships, 112-113sole proprietorships, 112
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .specialized life insurance 557
charitable uses for life insurance, 111cost comparisons, CIR method, 109-110costs of death, 102estate planning, 106human life value concept, 103-104importance of insurance, 102income analysis, 104-106living benefits, 107needs analysis, 103-104personal uses for life insurance, 110-111recommendations, 103
SEP (Simplified Employee Pensions), 272service areas
dental care insurance, 388HMO, 289
service basis payments, medical expenseinsurance, 364
service insurers, 11service organizations, 286servicing health insurance policies, 314settlement options (life insurance), 206
advantages of, 211fixed amount, 208-209fixed period, 207-208interest only, 207life income, 209withdrawal provisions, 209
SGLI (Servicemen’s Group Life Insurance),244
shared funding arrangements (group insur-ance), 97
sharing personal information, opt outs, 31-32
short-rate returns, 335short-term disability, 352sickness, defining (total disability), 351SIMPLE (Savings Incentive Match Plan for
Employees), 271-272single premium annuities, 226single premium whole life insurance poli-
cies, 145skilled nursing care, LTC (long-term care),
438SKN (skilled nursing facilities), 285,
413-414small business health care plans, 299social health insurance
Medicaid, 425Medicare, 412
employer coverage, 424Medicare+Choice, 422
PPOs (preferred provider organizations),423
PSOs (provider-sponsored organiza-tions), 424
Medicare+Choice, 422-423Part A, 412-415Part B, benefits, 412, 415-418standardized supplemental benefits,
419-422supplemental insurance, 419
social security disability, 426TRICARE, 426workers compensation
benefit types, 427compensable injuries, 427compensation laws, 428disability types, 428extraterritorial provisions, 428occupational diseases, 427second injury funds, 429
social insurance, 14Social Security, 14
benefitsdisability, 252dual-benefit eligibility, 251maximum family, 253retirement, 251survivor, 251-252taxes, 254types of, 248
covered workers, 248earnings limits, 253eligibility, 248, 251insured status
currently insured, 250disability insured, 250fully insured, 249quarters of coverage, 249
payroll taxes, 253-254PIA, 250-252
Social Security Act, 248, 405social security disability, 354, 426, 452social security supplements (disability), 355sole proprietors, health insurance policies,
454sole proprietorships, 112solicitors, defining, 18solvency
insurance company regulations, 34reserves, 87
SPDA (single premium deferred annuity),225
specialized life insuranceadvantages of, 164deposit term life insurance policies, 163disadvantages of, 164
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .specialized life insurance558
endowment life insurance policies, 157-158
family income life insurance policies,158-159
family maintenance life insurance poli-cies, 159
family protection life insurance policies,159-160
graded premium life insurance policies,162
index-linked life insurance policies, 162-163
joint life insurance policies, 160juvenile life insurance policies, 161minimum deposit life insurance policies,
161modified premium life insurance poli-
cies, 161mortgage redemption life insurance
policies, 162multiple protection life insurance poli-
cies, 162pre-need funeral life insurance policies,
163retirement income life insurance poli-
cies, 160specified disease insurance, 283speculative risks, defining, 2spendthrift clause provisions, 197-198SPIA (single premium immediate annuity),
225split-dollar plans (corporations), 116sponsors, MET, 300spousal impoverishment rule, Medicaid, 425staff model HMO, 290standard provisions
absolute assignment, 186applicant control clause, 180assignment clause, 185automatic premium loan, 183autopsy, 188beneficiary assignment, 187collateral assignment, 186complete assignment, 186conditional assignment, 186consideration clause, 178entire contract, 184-185execution clause, 179free look, 189grace periods, 181incontestability clause, 183insuring clause, 178medical examination, 188misstatement of age clause, 187-188misstatement of sex clause, 188modification clause, 188
ownership rights, 179-180partial assignment, 186payment of premium, 179policy change, 189policy loan, 182reinstatement clause, 181-182suicide clause, 184voluntary assignment, 186
standard risks, defining, 81standardized policy forms, Medicare, 420standardized supplemental benefits
(Medicare)core benefits, 419optional benefits, 420provisions, 421-422standardized policy forms, 420
state regulationsAIDS, 77-78Commissioners, scope of duties, 33group health insurance, 407
COBRA (Consolidated OmnibusBudget Reconciliation Act), 402-404
ERISA (Employee RetirementIncome Security Act of 1974), 405-406
HIPPA (Health Insurance Portabilityand Accountability Act), 401-402
OBRA (Omnibus BudgetReconciliation Act of 1989), 404-405
TEFRA (Tax Equity and FiscalResponsibility Act of 1982), 405
Insurance Code, 32insurance companies, 33
guaranty associations, 36insurer examinations, 35insurer solvency, 34investments, 34marketing/advertising, 36-37ratings, 35taxes, 34
LTC (long-term care), 445producers, licensing, 37-39statutes, 32
status clauses, war/military service exclu-sions, 199
statutes, defining, 32stock insurers, defining, 11stock purchase plans. See cross-purchase
plansstock redemption plans, Section 303 stock
redemption plans, 115stop-loss limits, 372straight life annuity settlement options. See
life annuity settlement options
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .term insurance 559
straight life insurance, 145sublimits (maximum benefits), 8submitting applications, 124subscribers, 12, 286substance abuse, major medical expense
benefits, 376substandard risks, 81-82substitute insured riders, 170suicide clause provisions, 184suitable purchasers, LTC (long-term care),
435-436Superintendents (state insurance regula-
tion). See Commissionerssupplemental benefits (major medical
expense insurance), 372supplemental expense benefits (major med-
ical expense insurance), 371-372supplemental HMO health care services,
292-293supplemental insurance (Medicare), 419supplemental standardized benefits
(Medicare)core benefits, 419optional benefits, 420provisions, 421-422standardized policy forms, 420
supplements, social security (disability), 355surgical benefits, 366surgical expense benefits (basic medical
expense insurance), 366surgicenters, 285surrender cost index method (life insurance
cost comparisons), 109surrender values, life insurance taxes, 257survivor benefits (Social Security), 251-252survivor life insurance policies, 160suspending insurance licenses, 43-44
Ttarget benefit pension plans, 268Tax Equity and Fiscal Responsibility Act of
1982 (TEFRA), 405Tax Reform Act of 1984, 157tax-deferred annuities, 273taxes
business life insurance, AMT, 261business overheard expense insurance
policies, 454disability insurance, 455federal, life insurance, 259gift, life insurance, 260group accidental death and dismember-
ment policies, 453
health insurancegroup policies, 453-454individual policies, 452sole proprietors/partnerships, 454
income, life insurance, 260insurance company regulations, 34IRA contributions, 269life insurance, 254
accelerated benefits, 257annuities, 257-258cash surrender values, 257cash value accumulation, 258cash value accumulation tests, 255corridor tests, 255death benefits, 256dividends, 257group life insurance policies, 258guideline premium tests, 255-256MEC, 256policy exchanges, 261premiums, 256
LTC (long-term care) insurance policies,455-456
medicare supplement insurance policies,455
payroll, social security disability benefits,452
qualified group long-term care insurancepolicies, 454
retirement plan distributions, 274Roth IRA, 271Social Security benefits taxes, 254Social Security payroll taxes, 253-254
TEFRA (Tax Equity and FiscalResponsibility Act of 1982), 405
temporary agent licenses, 40-41temporary annuity certain settlement
options, 233temporary disability (total disability), 350temporary insurance agreements, 124temporary total disability benefits (workers
compensation), 303term insurance
advantages of, 141convertible term policies, 139decreasing term policies, 140-141deposit term life insurance policies, 163disadvantages of, 142face amounts, 139family protection life insurance policies,
160increasing term policies, 141indeterminate premium term policies,
141interim term policies, 141
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .term insurance560
level term policies, 140premiums, 138reentry term policies, 140renewable term policies, 139
term policies, 339termination of appointment, insurance
licenses, 43tertiary beneficiaries, 191test resource Web sites, 497-499test resources, 497testamentary transfers (estate planning), 106testamentary trusts, 194tests
practice test 1answers, 471-474questions, 461-469
practice test 2answers, 487-491questions, 477-485
third-party ownership, defining, 74third-party ownership rights provisions, 180third-party policy rights, 210Time Limit on Certain Defenses:
Incontestability provision (UniformIndividual Accident and Sickness PolicyProvisions Law), 323
Time of Payment of Claims provision(Uniform Individual Accident andSickness Policy Provisions Law), 327
total disability, definingaccidental means, 351any occupation, 348confining versus nonconfining, 351injury versus sickness, 349loss of earnings, 348medically defined, 349occupational versus nonoccupational,
349own occupation, 348partial, 349permanent, 350presumptive, 349recurrent, 350residual, 350sickness, 351temporary, 350
transfer for value rules, 260travel accident insurance, 283, 390TRICARE, 304, 426trust groups, 92trusts, 193-194TSA (tax-sheltered annuities), 234twisting
defining, 46Unfair Trade Practices Act, 46
two-tiered annuities, 233
UU.S. Government as an insurer, 13-14UCR (usual, customary and reasonable) val-
ues (surgical benefits), 366unauthorized insurers, defining, 15unconditional receipts. See binding receiptsunderwriting
dental care insurance policies, 388expense ratios, 86field underwriting, 81group insurance, 93
adverse selection, 94eligibility periods, 95optional requirements, 96-97probationary periods, 94statutory requirements, nondiscrimi-
natory classifications, 95-96health insurance policies, 310loss ratios, 86reserves, 87risk classification, 81-82risk rating
expenses, 84-85interest, 84morbidity, 83-84mortality, 83premium mode, 86
risk selection, 74adverse selection, 75AIDS, 77-78criteria for, 75resources for, 75-79
unpaid premium reserves, 87unearned premiums, 310-311Unfair Claims Practices provisions (Unfair
Trade Practices Act), 48boycotts, 47churning, 46coercion, 47defamation, 46discrimination, 46false financial statements, 46false/deceptive advertising, 45illegal premiums/charges, 47intimidation, 47misrepresentations, 45penalties, 49rebating, 46twisting, 46
Unfair Trade Practices ActUnfair Claims Practices provisions, 48
boycotts, 47churning, 46coercion, 47defamation, 46
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .whole life insurance 561
discrimination, 46false financial statements, 46false/deceptive advertising, 45illegal premiums/charges, 47intimidation, 47misrepresentations, 45penalties, 49rebating, 46twisting, 46
Uniform Individual Accident and SicknessPolicy Provisions Law, 322
mandatory provisionsChange of Beneficiary, 329-330Claim Forms, 326Entire Contract; Changes, 322Grace Period, 323-324Legal Actions, 329Notice of Claim, 325-326Payment of Claims, 327-328Physical Examination and Autopsy,
329Proof of Loss, 326-327Reinstatement, 324-325Time Limit on Certain Defenses;
Incontestability, 323Time of Payment of Claims, 327
optional provisionsCancellation, 334-335Change of Occupation, 330-331Conformity with State Statutes, 335Illegal Occupation, 335-336Insurance with Other Insurers,
332-333Misstatement of Age, 331Narcotics, 336Other Insurance in This Insurer,
331-332Relation of Earnings to Insurance—
Average Earnings Clause, 333-334Unpaid Premium, 334
Uniform Simultaneous Death Act, 196unilateral contracts, 65universal life insurance policies, 148
cash value adjustments, 149-150death benefits, 150loans/withdrawals, 150-151premium requirements, 151sales loads, 149
unlimited liability (sole proprietorships),112
Unpaid Premium provision (UniformIndividual Accident and Sickness PolicyProvisions Law), 334
unpaid premium reserves, 87urgent care centers, 285utilization review, 340
Vvariable annuities, 223
accumulation units, 229annuity units, 230payouts, 224securities regulations, 228-229
vending machines (insurance distribution),16
vertical dimension, splinting, and restoringocclusion exclusion (dental care insur-ance), 388
vesting rules, retirement plans, 266-267viatical settlements, 111, 172viators, 172vision care benefits, medical expense insur-
ance, 379vision care insurance, 391VLI (variable life insurance) policies, 154
12% rule, 153cash values, 152death benefits, 151defining, 10insurance, regulation as, 153premiums, 152securities, regulation as, 152-153
voluntary assignment provisions, 186
W - X - Y - Zwaiting periods, 8waivers, 164
defining, 58waivers of monthly deductions, 167waiver of premiums, 165-167, 356, 440
war exclusions, 199warranties (contracts), 65Washburn School of Law Web site, 499Web sites
Aspen Publishers, 499BISYS Education Services, 495-497Harcourt Legal and Professional
Publishing, 499Insurance Information Institute, 499Kluwer Academic Publishers, 498McGraw-Hill/Irwin, 499National Association of Insurance and
Financial Advisors, 499Pfingsten Publishing LLC, 499Prentice Hall, 498Washburn School of Law, 499
whole life insuranceadvantages of, 147continuous premium whole life policies,
145
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .whole life insurance562
current assumption whole life policies,146
disadvantages of, 147economatic whole life policies, 146face amounts, 143guaranteed cash values, 143indeterminate premium whole life poli-
cies, 146limited payment whole life policies, 145nonforfeiture values, 144policy loans, 144premiums, 143single premium whole life policies, 145straight life policies, 145
withdrawal provisions settlement option(life insurance), 209
workers compensationbenefit types, 427compensable injuries, 427compensation laws, 428death benefits, 303disability benefits, 303disability types, 428eligibility, 302elimination periods, 303extraterritorial provisions, 428income benefits, 303medical benefits, 302medical expense insurance, 378occupational diseases, 427rehabilitation benefits, 303second injury funds, 429