WebCE Life And Health Insurance Study Guide Latest (2024 / 2025) (Verified by Expert)

WebCE Life And Health Insurance Study Guide Latest (2024 / 2025) (Verified by Expert)

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WEBCE Life And Health Insurance (280 Study Questions)
With 100% Correct Verified Answers
1.Representations and Warranties
: Representations are statements the applicant makes on an application that are deemed to be true to the applicant’s best knowl- edge.
Warranties are statements the insurer makes in the contract.
2.Underwriting vs. Actuarial Departments
: Two related insurance company func- tions. Through the process of ,
applications are assessed for insurability and to assign premium rates.
The department analyzes data to
help estimate future losses and to produce rate tables.
3.Managerial System vs. General Agency System
: Two variations of the career agency system in which producers
represent a single company. One is headed by a company employee
called a general manager (GM), the other by an independent contractor
called a general agent (GA).
4.Fraternal Insurance Company
: A non-profit form of insurance provider spon- sored by an
organization of people who share a common ethnic, religious, or

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vocational affiliation.
5.Peril and Hazard
: Two related general insurance terms:
Peril is the immediate cause of a loss (and the event that is
insured against). Hazard is any condition that increases the risk of
incurring a loss.
6.Contract of adhesion
: A type of contract in which one party (the offeror) drafts the terms
that must be accepted as-is by the offeree. Insurance policies are this
type.
7.Mutual Insurance Company
: A form of insurance company that is owned by policyowners. May
distribute policy dividends (non-taxable) through participating
policies.
8.Independent Agency System
: An insurance distribution system in which the manager and
producers are fully independent and not affiliated with any single
insurer.
9.Buyer’s Guide and Policy Summary
: Two related disclosure documents that are required by most states to

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be presented to life and health insurance applicants at some point
during the buying process.
10.Risk
: A basic insurance term referring to the possibility of incurring a loss11.Law of Large Numbers
: A mathematical principle that is the basis for predicting the odds of a
loss occurring in a certain population in any given year.
12.Social Security (OASDI)
: A federal insurance program that provides disability, death, and
retirement benefits to covered workers and their qualifying
beneficiaries.
13.Agents vs. Brokers
: Two basic types of insurance producer: an
repre- sents a single insurer and a sells
policies from multiple insurers.
14.Reinsurance
: The process through which insurance companies spread large risks
among other insurers.

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15.Domestic, Foreign, and Alien Insurers
: Insurers can be categorized by their state of domicile. There are three
categories, known as , , and
.
16.Stock Insurance Company
: A form of insurance company that is owned by stockholders who may
or may not also be policyowners. May distribute stock divi- dends
(taxable).
17.Admitted Insurer
: An insurer that has a certificate of authority in a given state is said to
be an insurer in that state.
18.Express, Implied, and Apparent Authority
: Express authority—The right to sign an application as an agent for
the insurer.
Implied authority—Using a computer program to identify insurance
needs and to recommend solutions.
Apparent authority—Advising the applicant to not disclose on the
application any important health facts that might reduce his or her
insurability.
19.Indemnity vs. Valued Contract
: Two forms of insurance contract. An indemnity contract bases policy
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Representations are statements the applicant makes on an application that are deemed to be true to the applicant’s best knowledge. Warranties are statements the insurer makes in the contract.
Representations and Warranties

Two related insurance company functions. Through the process of _, applications are assessed for insurability and to assign premium rates. The department analyzes data to help estimate future losses and to produce rate tables.
Underwriting vs. Actuarial Departments

Two variations of the career agency system in which producers represent a single company. One is headed by a company employee called a general manager (GM), the other by an independent contractor called a general agent (GA).
Managerial System vs. General Agency System

A non-profit form of insurance provider sponsored by an organization of people who share a common ethnic, religious, or vocational affiliation.
Fraternal Insurance Company

Two related general insurance terms:
Peril is the immediate cause of a loss (and the event that is insured against).
Hazard is any condition that increases the risk of incurring a loss.
Peril and Hazard

A type of contract in which one party (the offeror) drafts the terms that must be accepted as-is by the offeree. Insurance policies are this type.
Contract of adhesion

A form of insurance company that is owned by policyowners. May distribute policy dividends (non-taxable) through participating policies.
Mutual Insurance Company

An insurance distribution system in which the manager and producers are fully independent and not affiliated with any single insurer.
Independent Agency System

Two related disclosure documents that are required by most states to be presented to life and health insurance applicants at some point during the buying process.
Buyer’s Guide and Policy Summary

A basic insurance term referring to the possibility of incurring a loss.
Risk

A mathematical principle that is the basis for predicting the odds of a loss occurring in a certain population in any given year.
Law of Large Numbers

A federal insurance program that provides disability, death, and retirement benefits to covered workers and their qualifying beneficiaries.
Social Security (OASDI)

Two basic types of insurance producer: an _ represents a single insurer and a sells policies from multiple insurers.
Agents vs. Brokers

The process through which insurance companies spread large risks among other insurers.
Reinsurance

Insurers can be categorized by their state of domicile. There are three categories, known as , , and _.
Domestic, Foreign, and Alien Insurers

A form of insurance company that is owned by stockholders who may or may not also be policyowners. May distribute stock dividends (taxable).
Stock Insurance Company

An insurer that has a certificate of authority in a given state is said to be an___________ insurer in that state.
Admitted Insurer

Express authority—The right to sign an application as an agent for the insurer.
Implied authority—Using a computer program to identify insurance needs and to recommend solutions.
Apparent authority—Advising the applicant to not disclose on the application any important health facts that might reduce his or her insurability.
Express, Implied, and Apparent Authority

Two forms of insurance contract. An indemnity contract bases policy benefits on reimbursement of actual losses. A valued contract bases benefits on a stated amount without regard for the value of the loss.
Indemnity vs. Valued Contract

An unplanned reduction in economic value resulting from the occurrence of a covered peril.
Loss

A federal insurance program that provides medical care benefits to covered workers (retirees).
Medicare

The process by which an insurance company assesses an application to determine if it represents an insurable risk.
Underwriting

The natural process by which people contend with the perils faced daily, of which there are five common techniques.
Risk Management

Offer, acceptance, consideration, competent parties, and legal purpose
The five basic elements of a valid contract

The willful nondisclosure of material facts on an application for the purpose of obtaining insurance.
Concealment

Loss must be definable and measurable.
The covered peril must be accidental or outside the insured’s control.
The risk must be shared by a large group of similar risks.
The loss must not be catastrophic.
The risk must not be generally excluded from coverage.
Insurable Risk (5 Criteria)

The needs approach to determining life insurance needs is based on a detailed review of a person’s specific situation. It examines personal and family income, liabilities, and assets, as well as future financial goals, to calculate the right amount of life insurance.
Needs Approach

In estate planning, this rule requires life insurance policies transferred from the insured within 3 years before death to be returned to the decedent’s estate for valuation purposes.
Bring-Back Rule

Living benefits are made possible by the policy’s cash value, which is always available to the policyowner through policy loans, withdrawals, and partial surrenders. The funds may be used for any purpose.
Life Insurance “Living Benefits”

If a key employee ends his or her employment, the employer can continue the policy in force. However, many employers choose to:
sell the policy to the insured for an amount equal to its cash value
surrender the policy or
change insureds if allowed by the insurance company and applicable state law
Key Person Life Insurance

An insurance contract between a person and an insurer to distribute an accumulated sum of money over a certain period, including the person’s lifetime.

Annuities come in many forms, but they all have two common purposes:
to accumulate money on a tax-deferred basis
to distribute the accumulated money as income in a guaranteed amount for a guaranteed period (including the annuitant’s life)
Annuity

This form of term life features a death benefit that diminishes over time and premium that remains level for the term of the policy.
Decreasing Term Life Insurance

To be considered fully insured, a worker must have 40 quarters of coverage. A fully insured worker is eligible for disability, retirement, and death benefits.
Fully Insured Status (Social Security)

A type of buy-sell agreement in which each owner purchases a life insurance policy on each of the other owners.
Cross-Purchase Buy-Sell Agreement

The Employee Retirement Income Security Act of 1974 (ERISA) protects the rights of employees covered under an employer-sponsored plan by stipulating minimum participation, vesting, and funding requirements.
ERISA

This beneficiary designation cannot be changed by the policyowner without that beneficiary’s permission.
Irrevocable Beneficiary

This life policy rider guarantees that additional coverage can be added to a whole life policy even if the insured has become uninsurable.
Guaranteed Insurability Rider

The person the annuity owner chooses to receive the annuity contract’s values if either the owner or the annuitant dies before annuitization.
Annuity Beneficiary

Whole life insurance features a guaranteed cash value, a fixed guaranteed death benefit, level premiums, and coverage that can remain in effect as long as the insured lives (up to age 120). Its most basic form is called straight (or ordinary) whole life insurance.
Whole Life Insurance

A legal agreement through which two or more owners of a business arrange for the disposition of each owner’s share of the business upon death.
Buy-Sell Agreement

The load factor reflects the costs the insurer expects to incur on the policy. In determining its load factor, an insurer is generally guided by three objectives:
to cover total operating costs
to provide a safety margin
to contribute to profits or surplus
Expense Charge (Load Factor)

This basic form of life insurance provides temporary protection and does not include a cash value while the insured is alive.
Term Life Insurance

The financial interest a policyowner has in a person or property being insured, justifying the purchase of insurance.
Insurable Interest

The process through which a sum of money is converted into periodic payments through an annuity contract.

Different for every age and annuity income option, annuity purchase rates are defined in terms of income dollars per $1,000 of accumulation.
Annuitization

An investment-focused annuity whose contract values vary in response to the contract’s underlying assets and are therefore not guaranteed.
Variable Annuity

Also available through a policy provision, the typical accelerated benefit rider allows up to 50 percent of the death benefit to be available to the eligible insured, though some policies allow up to 100 percent. This money may be used for any purpose.
Accelerated Benefit Rider

A policy ownership situation in which the life insurance policyowner and insured are two different people.

In third-party ownership, the three parties to the contract are: the insurer, the owner, and the insured
Third-Party Policy Ownership

Given to the applicant in return for the initial premium, this item provides interim coverage during underwriting. There are two basic types.

The conditional receipt provides interim coverage only as long as the applicant is found to be insurable. The binding receipt (also called temporary insurance agreement) provides coverage regardless of insurability.
Premium Receipt

The five different ways in which a participating whole life policyowner may elect to receive policy dividends.

Policy dividends are not guaranteed, but when they are paid, there are five common ways the policyowner may elect to receive them:
take the cash
reduce the premium
accumulate at interest
buy paid-up life insurance
buy one-year term insurance
Policy Dividend Options

his contract provision gives new policyowners a certain time within which to decide whether to keep the policy or to return it for a full refund.

The free-look period begins when the policy is delivered to the owner. While 10 days is the shortest free-look period permitted in any state, some states require a longer free-look period in certain situations.
Right to Examine (“Free Look”) Provision

An arrangement in which a noninsurance company or group of investors purchases a life insurance policy from a chronically or terminally ill insured.

Viatical settlements provide chronically or terminally ill insureds a sum of money greater than their policy’s cash value, making it more financially advantageous than simply surrendering the policy. How much is actually paid depends on factors that include the estimated life expectancy.
Viatical Settlement

The basic form of individual retirement plan available to individuals. These plans are also available to employees within certain types of small-employer retirement plans.
Individual Retirement Account (IRA)

This federal law sets forth procedures that credit reporting companies must follow to ensure confidentiality, accuracy of reporting, and proper use of credit information.

The FCRA requires insurers that seek a credit report to notify the applicant about the request within three days. The requestor must disclose what the report will cover and must notify the applicant that s/he may request a summary of what the requestor learned in the credit report. The summary must be provided within five business days of the request.
Fair Credit Reporting Act (FCRA)

An immediate annuity is purchased only to distribute guaranteed income. Because immediate annuities are bought with a lump-sum single premium payment, they are often referred to as a single premium immediate annuities, or SPIAs.)
Immediate Annuity

How a universal life policyowner can access the policy’s cash value for living benefit purposes.

Traditional policy loans are not available with UL insurance. Instead, UL policyowners who want to access their cash value may do so only through a cash value withdrawal, which removes money from the cash value and immediately reduces the policy’s face amount by that same amount.
Cash Value Withdrawal

A disreputable form of third-party ownership of life insurance in which an investor(s) arranges for a consumer to buy a life insurance policy that is then purchased by the investor(s).
STOLI (stranger-originated life insurance)

This flexible permanent life insurance combines the premium flexibility of universal life insurance and the investment opportunity of variable life insurance.

Like variable life, VUL policies invest their premiums in separate (nonguaranteed) investment accounts. Like universal life, VUL policies feature premium flexibility; the policy remains in force as long as its cash value covers the monthly insurance deductions. To sell VUL insurance, a producer must hold both a state life insurance license and a FINRA securities registration.
Variable Universal Life Insurance (VUL)

This Social Security insured status makes workers eligible for death benefits only.

To be considered currently insured, a worker must have 6 quarters of coverage in the 13-quarter period before death. A currently insured worker is not eligible for retirement or disability benefits.
Currently Insured Status (Social Security)

This life insurance policy provision excludes coverage if the cause of the insured’s death within the first two policy years is suicide.
Suicide Clause

This newer form of flexible permanent life insurance ties the policy’s interest rate to a specific equity index (such as the S&P 500).

Equity-indexed life insurance can be one of two basic forms:
universal life, where the premium payments are flexible
whole life, where the premium payments are fixed
Although the interest rate is derived through a stock index, EIL is regulated as a fixed interest product.
Equity-Indexed Life Insurance (EIL)

The basic way in which the owner of a whole life insurance policy may access the policy’s cash value while the insured is alive.

Cash values loans are loans from the insurer, which uses the cash value as loan collateral. With traditional whole life, the entire cash surrender value (less any prior policy debt) may be borrowed. With variable life insurance, loans are usually limited to 90% or less of the cash value.
Cash Value Loan

A form of IRA into which a participant’s retirement plan funds are transferred after the participant leaves the company.

An IRA rollover is the process through which retirement funds are transferred tax free from one IRA to another. Rollover IRAs have no contribution limit. Strict rules govern the transfer, including the need to complete the transaction within 60 days of distribution.
Rollover IRA

A variable annuity rider that guarantees that the owner can withdraw a minimum amount annually without a surrender charge.

Annual withdrawals are usually limited to a specified percentage, such as 5 to 10 percent, of total premiums paid.
Guaranteed Minimum Withdrawal Benefit (GMWB)

A form of whole life insurance that ties its death benefit and premiums to changes in a specified index, most commonly the consumer price index (CPI).

An indexed whole life policy’s face amount increases automatically with CPI increases. Insurers use one of two common pricing methods to cover face amount increases:
The premium increases with each increase in the face amount.
The premium remains level but is higher at policy issue than the first method.
Indexed Whole Life

A form of life insurance that matures (“endows”) at an age younger than age 120, typically age 65, and pays the policy face amount if the insured is alive at that age.
Endowment Policy

In life insurance, this is a person or entity identified as an intended recipient of the policy’s death benefit.
Beneficiary

The different ways a policyowner can receive a whole life insurance policy’s cash value upon policy surrender.

There are three standard life insurance nonforfeiture options:
cash surrender option (lump sum cash payment)
extended term insurance option (coverage continues for a limited time as term insurance with the same face amount)
reduced paid-up insurance option (reduced permanent coverage becomes fully paid up)
Nonforfeiture Options

Refers to the activities producers undertake when completing insurance applications. These activities provide insurers with additional information that is important to the underwriting process.
Field Underwriting

This form of term life features a death benefit that rises over time.

The increasing term insurance death benefit increases over the term to a preset amount or at a preset rate. It is most commonly used as a “cost-of-living increase” rider on a permanent life insurance policy. The premium normally remains level, though at a higher level than either level or decreasing term.
Increasing Term Life Insurance

An annuity payment option that provides guaranteed income for the life of a single annuitant, with payments guaranteed for 10 years.
10-Year Certain and Life Annuity Income Option

These various sources of information about the applicant help the underwriter assess the applicant’s insurance risk.

The primary source of underwriting information is the application and accompanying agent’s report. An APS, inspection report, MIB report and/or medical exam may also be requested.
Sources of Underwriting Information

An employer-sponsored retirement plan that does not meet the requirements of ERISA and therefore does not qualify for favorable income tax treatment.
Nonqualified Retirement Plan

A nonqualified benefit plan under which an employee agrees to defer a portion of his or her salary until a future date (typically retirement).
Deferred Compensation Plan

Standard risk—Standard risks pay standard premium rates.
Preferred risk—Above-standard risks are rewarded with a discounted premium.
Substandard risk—Below-standard risks are issued a rated policy with a higher-than-standard premium (and/or restricted coverage).
Declined risk—Extremely high risks are considered uninsurable, and coverage is declined.
Risk Classifications (underwriting)

This whole life policy rider waives the need to pay premiums if the policyowner becomes totally disabled.

Most WP riders have a waiting period before the waiver begins, during which time premiums must be paid. If the policyowner is still disabled at the end of the waiting period, the insurer refunds the premiums paid during the waiting period and waives future premiums as long as the disability continues.
Waiver of Premium (WP) Rider (Life Insurance)

Refers to the different ways that a life insurance death benefit may be paid out to the beneficiary.

Proceeds from a life insurance policy can be paid out in a variety of ways. There are two general categories of settlement options:
those without a life contingency (i.e., lump sum cash or payments for a fixed period)
those with a life contingency (i.e., straight life income or joint and survivor life income)
Settlement Options (Life Insurance)

A form of whole life insurance in which the death benefit and cash value rise and fall in response to the underlying investment subaccounts the policyowner selects.

VLI policyowners choose their policy’s investment subaccounts, which are managed in a separate account apart from the insurer’s general account. The VLI cash value is not guaranteed, but the VLI death benefit is guaranteed never to be less than its amount at policy issue.
Variable Life Insurance (VLI)

Surrendering a portion of a whole life policy to access a portion of the cash value and/or to reduce the premium.

A partial surrender reduces the death benefit in proportion to the percentage of cash value withdrawn. For example, if 40 percent of the cash value is withdrawn, the face amount is reduced 40 percent. This contrasts with the UL cash value withdrawal, which reduces the death benefit dollar-for-dollar by the amount of the withdrawal.
Partial Surrender (Life Insurance)

This annuity income option continues annuity payments to a second named annuitant when the first annuitant dies.

Common joint and survivor settlement options include:
Joint and 100% survivor—The survivor continues to receive the same amount for his or her life.
Joint and two-thirds survivor—Payments made to the survivor are reduced to two-thirds of the original amount.
Joint and one-half survivor—Payments made to the survivor are reduced to one-half of the original amount.
Joint and Survivor Annuity Income Option

Purchased by lenders, this type of group life insurance insures borrowers for the amount of their outstanding loans.

Decreasing term life insurance is the type of life insurance coverage underlying credit life insurance. The coverage is matched to the declining balance on the loan. As the insured’s loan balance decreases, so does the coverage.
Credit Life Insurance

One of the three basic life insurance premium factors, this one covers the risk of death posed by the insured in the current policy year. It increases with age.
Mortality Charge

A nonvariable market-linked annuity that adjusts the interest rate when the contract is renewed, annuitized, or surrendered.

An interest rate adjustment feature makes it possible for an MVA contract to lose money if the contract is surrendered before the end of its term. At the end of an interest rate term (usually 10 years), an MVA annuity owner may:
renew the contract at the same rate (likely if the contract rate is higher than the current rate)
transfer funds to a new MVA (likely if the new rate is higher)
withdraw funds without a surrender charge
Market-Value Adjusted Annuity (MVA)

A category of life insurance, most commonly sold by mutual insurance companies, that features the distribution of policy dividends to policyowners.
Participating Life Insurance

A class of insurance featuring a single policy covering multiple people associated with a common employer, labor union, trade, or professional association.
Group Insurance

A category of life insurance, common with employers and labor unions, in which multiple individuals are provided benefits through a single master policy.

Group life is most often provided in the form of annually renewable term insurance (though a form of group permanent life insurance is available).
Group Life Insurance

The most basic type of life insurance. It provides temporary protection for a specified, limited time and does not generate a cash value.

Term life is pure insurance, with no cash value (or “savings element”) associated with it, and is available in three basic forms:
level term insurance
decreasing term insurance
increasing term insurance
Term Life Insurance

The two ways in which a life insurance policyowner may transfer policy ownership to another party.

A policy may be assigned only if the current beneficiary designation is revocable (not irrevocable). The two types of assignments are:
absolute assignment (effectively full and permanent ownership transfer)
collateral assignment (partial temporary transfer, i.e., loan collateral)
Absolute Assignment and Collateral Assignment

The two stages of a life insurance premium calculation, the first of which includes only the mortality charge and interest credit, and the second of which is the actual premium charged to the policyowner.

Two-step process:
Calculate the net premium using the factors of mortality and interest.
Calculate the gross premium charged to the policyowner by adding an expense load to the net premium.
Net Premium and Gross Premium

This policy provision states that, except for nonpayment of premiums, the insurer may not cancel or void the contract after a specified period.
Incontestability Clause

The person upon whose life an annuity’s payout is based, in terms of both the payment amount and duration.
Annuitant

This most extreme of the flexible permanent life policies lets the policyowner change the premium amount without first notifying or gaining approval of the insurer.
Universal Life Insurance (UL)

This federal law imposes strict disclosure requirements on entities who collect, transfer, and exchange health and medical information about consumers.

Insurers are subject to HIPAA. Insurers must notify applicants of their right to privacy and must allow them to either consent to or refuse to disclose personal medical information to other parties.
The Health Insurance Portability and Accountability Act of 1996 (HIPAA)

This group plan feature lets terminating participants change their group term life coverage into an individual whole life policy without having to prove insurability.

The maximum conversion amount is the amount of coverage the person had under the group plan. Conversions must be requested within 31 days following termination or retirement from the group. Group life coverage remains in effect for the terminated participant during this 31-day period.
Conversion Privilege (Group Life)

This class of individual life insurance features policies with face amounts generally less than $25,000 and premiums frequently paid weekly.

Originally sold as burial insurance, industrial life generally has a death benefit of $25,000 or less. Also known as debit life insurance, it is sold by home service insurance companies, so-called because agents frequently pick up the weekly premium at the policyowner’s home
Industrial (Debit) Life Insurance

A variable annuity rider that provides a guaranteed minimum life income regardless of the contract’s accumulated value.
Guaranteed Minimum Income Benefit (GMIB)

This tax rule subjects a portion of a life policy’s death benefit to income taxation if that policy had previously been sold to a different owner.

The transfer-for-value rule states that the taxable portion of the death benefit equals the gain in the policy (i.e., death benefit minus total amount paid by the new owner for the policy, including future premiums). Exceptions to the transfer-for-value rule include sales to the insured individual or a business partner of the insured.
Transfer-for-Value Rule

This optional policy provision prevents a whole life policy from lapsing by directing the insurer to pay overdue premiums through a policy loan.

The APL provision authorizes the insurer to pay a policy’s overdue premium through a policy loan at the end of the grace period. The premium loan is then treated like any other policy loan.
Automatic Premium Loan (APL) Provision

Refers to the different frequencies over which policyowners may pay their insurance premium (i.e., monthly, quarterly, or annually).
Premium Payment Mode

A form of permanent life insurance that features a guaranteed death benefit and a guaranteed minimum rate of return on the policy’s cash value.

Fixed life insurance can guarantee a fixed death benefit and a minimum rate of return on the policy’s cash value by investing premiums in the company’s general account.
Fixed Life Insurance

A variety of riders that add coverage for more than one person on a single whole life policy.

Term life riders insure people other than the primary insured under a base whole life policy. The three most common types of term life riders are:
other insured term rider
children’s term rider
family term rider
Term Life Riders

Paid to owners of participating whole life insurance policies, this is essentially a return of unearned premiums.

Policy dividends are paid out of an insurance company’s divisible surplus. Dividends are a return of premiums that exceed the insurer’s actual expenses and mortality experience and are treated as a tax-free return of premium.
Policy Dividend (Life Insurance)

This life policy rider provides additional death benefit coverage if the insured dies as a result of an accident.

An ADB rider pays its benefit only if death is a direct result of an accident. Death resulting from illness, physical disability, or a self-inflicted wound does not qualify for the additional benefit. Also, the death must occur within a stated period following the accident, such as 60 or 90 days.
Accidental Death Benefit (ADB) Rider

Single sum and monthly benefit payments from a federal social insurance program to the surviving family members of a deceased worker.

Available to all currently insured workers, Social Security provides for a lump-sum payment of $255 (payable only to a spouse or dependent children). It also provides monthly payments to eligible family members of the deceased worker (spouse, children, dependent parents).
Social Security Survivor Benefits

A type of buy-sell agreement in which the business purchases a life insurance policy on each of the owners.

When there are more than a few owners, an entity-purchase buy-sell agreement usually makes the most sense. If there are five owners, the business purchases and owns five policies. If the business is a close corporation, this type of agreement is called a stock redemption agreement.
Entity-Purchase Buy-Sell Agreement

These two types of specialized life insurance policies are similar in one respect: both provide some form of monthly income benefit in addition to the face amount death benefit.

Both types of specialized policies use a whole life policy to provide the face amount coverage. To fund the monthly income benefit:
The family income policy adds a decreasing term life rider.
The family maintenance policy adds a level term life rider.
Family Income Life Policy and Family Maintenance Life Policy

Any type of annuity that guarantees both the annuity principal and a specified rate of interest to be credited to the contract.

Like whole life insurance, fixed annuities provide the peace of mind that comes with knowing all future values are guaranteed, in part because premiums are invested in the insurer’s general account.
Fixed Annuity

This optional form of level term life insurance lets the policyowner renew the policy without having to prove insurability.
Renewable Term Life Insurance

A type of permanent life coverage that insures two persons under one policy and that pays the death benefit when the first insured dies.
Joint (First-to-Die) Life Insurance

Any retirement plan that meets the requirements of ERISA and therefore qualifies for favorable income tax treatment.

To qualify for favorable tax treatment, a retirement plan must comply with a number of ERISA-mandated requirements, including:
must be in writing and communicated to employees
must require consistent contributions
cannot discriminate in coverage
must set limits on contributions and benefits
must provide a minimum vesting schedule
Qualified Retirement Plan

This policy provision states that the contract consists only of the policy document (including riders) and the completed application.
Entire Contract Provision

A qualified savings plan that provides a way to save in a tax-favored way for a child’s college education.

There are two forms of Section 529 plan:
prepaid tuition plan
savings plan
Section 529 Plan

This basic form of life insurance features a cash value and provides lifelong protection, usually with level premiums.

Unless surrendered by the owner, permanent life insurance coverage is provided until the insured dies or reaches age 120, whichever comes first.
Permanent Life Insurance

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This term life policy rider pays a sum equal to a portion of premiums paid if the insured is alive at the end of the policy term.

If the insured dies during the policy term, the policy face amount is paid to the beneficiary but no return-of-premium benefits are payable. If the policy is canceled before the end of the policy term, no premiums are returned.
Return of Premium Rider

An annuity payment option that provides guaranteed income for the life of a single annuitant, with payments ceasing upon the annuitant’s death.
Straight Life Annuity Income Option

This popular form of term life features a death benefit and premium that remain level for the term of the policy.
Level Term Life Insurance

These terms refer to the first and second orders of succession in a beneficiary designation.

The primary beneficiary is the first person (or class of persons) in line to receive the death benefits. Contingent beneficiaries receive the proceeds only if the primary beneficiaries die before the insured.
Primary and Contingent Beneficiaries

Any form of whole life insurance in which premiums are paid for some period other than the insured’s entire life, either a set number of years or to a certain age.

At the end of the premium period, the policy is paid up.
Limited Payment Whole Life Insurance

The process through which a traditional IRA is converted into a Roth IRA.

Anyone can convert a traditional IRA to a Roth IRA. However, income taxes must be paid on the traditional IRA when the account is converted. From that point on, funds can be withdrawn tax free.
Roth Conversion

This is a type of whole life insurance designed for young insureds (under age 21) in which the face amount increases significantly upon reaching a specified age in adulthood.
Juvenile Life Insurance

This basic form of annuity is purchased first to accumulate funds on a tax-deferred basis, which may be annuitized at a later date designated by the owner.

Deferred annuities may be funded in two different ways:
Single premium deferred annuity—Purchased with a single payment.
Flexible premium deferred annuity—Purchased through periodic premium payments over time.
Deferred Annuity

This individual retirement plan is noted for “back-end” tax benefits that allow withdrawals to be made tax free.

Contributions to a Roth IRA are paid with after-tax dollars and cannot be deducted, but the earnings on those contributions, when withdrawn, are entirely tax free, provided the withdrawal meets the requirements for a qualified distribution.
Roth IRA

The three basic factors that make up a life insurance premium.

The mortality charge covers the risk of death posed by the applicant in the current year. It increases with age. Interest, a credit, is the amount the insurer expects to earn on invested premiums. The insurer covers its expenses through an expense charge that is added to the net premium, resulting in the gross premium.
Mortality charge, interest credit, and expense charge

This life policy rider waives the premiums if the adult owner of a juvenile life insurance policy dies or becomes disabled.

If the adult owner of a juvenile life policy is unable to pay premiums, the policy will lapse because minors cannot pay the premium. The payor benefit rider avoids this problem.
Payor Benefit (Juvenile life Insurance)

Dating an application with a past date so that the insured’s age is lower, thus qualifying for a lower premium.

Also called “save age,” backdating an application results in a lower premium due to the applicant’s younger age. Most insurers permit backdating up to 6 months. Premiums due from the back date to the present must be paid with the application.
Backdating Applications

This life policy rider pays a monthly benefit to the insured if s/he becomes permanently disabled.

The monthly income provided under a disability income benefit rider may be paid for as long as the disability lasts or for a limited time. Most disability income benefit riders also include a provision for a waiver of premium.
Disability Income Benefit Rider

This occurs when an applicant purchases a new annuity or insurance policy and a current, similar, one is surrendered, terminated, or otherwise reduced in value.
Replacement

A form of life insurance in which policy values may rise and fall to reflect changes in equity-based subaccounts. The cash value is not guaranteed.

Variable life insurance premiums are invested in investment subaccounts selected by the policyowner and managed by the insurer in its separate account. The policy guarantees a minimum death benefit, but the cash values and the death benefit rise and fall based on the subaccounts’ investment performance.
Variable Life Insurance

A variable annuity rider that guarantees that the VA’s accumulated value will be at least equal to the sum of premiums paid.

The GMAB rider guarantees that the VA’s accumulated value will be at least equal to the sum of premiums paid after a specified period (typically five to ten years) minus previous withdrawals.
Guaranteed Minimum Accumulation Benefit (GMAB)

General term referring to uses for permanent life insurance while the insured is alive.

Permanent life insurance policies accumulate a cash value that represents a “living benefit” because it is available to the policyowner through a policy loan, withdrawal, or surrender. These funds may be used for virtually any purpose, including: college, retirement, and a source of emergency funds.
Living Benefits (Life Insurance)

This class of individual life insurance has many flexible options and features policies with face amounts greater than $25,000.
Ordinary Life Insurance

This life policy rider provides funds to help pay the costs of long-term medical and nursing care.

Like the accelerated benefits provision, the LTC rider allows a portion of the life policy’s face amount to be paid out should the insured require long-term care. With the LTC rider, benefits become payable if the insured requires long-term care and meets the conditions for payment.
Long-Term Care (LTC) Rider

Like traditional whole life insurance, UL Death Benefit Option 1 features decreasing pure insurance protection that, with a rising cash value, produces a level death benefit. UL Option 2 features a level amount of pure insurance protection that, with a rising cash value, produces an increasing death benefit.
UL Death Benefit Option 1 and Option 2

This first of the new generation of flexible permanent life insurance products lets the policyowner adjust the policy by changing the premium, face amount, or coverage term.

Change requests must be formally presented to the insurer, which then amends the policy. Whichever policy factor the policyowner adjusts (premium, face amount, or coverage term), the effect is usually felt across other factors.
Adjustable Life Insurance

This is the insurance company’s asset account into which fixed annuity and whole life insurance premiums are invested.

Fixed annuities and whole life insurance are able to guarantee future contract values because general account assets are invested conservatively, which allows the insurer to guarantee:
principal
a minimum interest rate return
a fixed level of lifelong annuitized payments (annuity)
a death benefit and cash value (fixed permanent life insurance)
General Account

Two similar forms of whole life insurance in which premiums start at a lower level than standard but rise in time to a higher level.

Modified premium whole life has a single increase (typically five years after policy issue), with premiums remaining level thereafter. Graded premium whole life starts with an even lower premium, but premiums increase in a series of steps until they, too, become level for the remainder of the premium period.
Modified and Graded Premium Whole Life

Located on the schedule of benefits page of the insurance policy, this policy provision defines the insurance agreement between the policyowner and the company.
Insuring Clause

A type of whole life policy that becomes paid up with one premium payment at the time of application.

Single premium whole life policies are deemed to be modified endowment contracts (MECs), which subject the policy proceeds to potential taxation that is avoided with standard non-MEC life insurance policies.
Single Premium Whole Life (SPWL)

The process by which a sum of money is converted into periodic payments through a variable annuity contract.

Variable annuitization uses an annuity purchase rate that is based on an assumed interest rate (AIR) selected by the owner (for example, 3% and 5%).
A lower AIR (i.e., 3 percent) makes it easier to maintain level payments and to realize an increase over time.
A higher AIR (i.e.., 5 percent) produces a higher starting payment that requires consistently good investment returns to maintain and is at higher risk for a reduction.
Variable Annuity Annuitization

The section in the US Tax Code that exempts certain insurance contract exchanges from taxation.

IRC Section 1035 permits the following tax-free exchanges:
an annuity for an annuity
a life insurance policy for an annuity
a life insurance policy for another life insurance policy
a life insurance policy for an endowment policy
an endowment policy for another endowment policy
Note that an annuity cannot be exchanged tax-free for a life insurance policy.
Section 1035 Exchange

This is a type of permanent life coverage that insures two persons under one policy and that pays the death benefit only when the second insured dies.
Survivorship (Second-to-Die) Life Insurance

This policy provision describes how the death benefit proceeds are distributed if the insured and the primary beneficiary die in a common accident.

The common disaster provision stipulates that if the primary beneficiary does not survive the insured more than a minimum period (commonly five days) following a common accident, then proceeds are payable to the contingent beneficiary.
Common Disaster Provision

A form of flexible whole life insurance in which premiums can change over time in response to the insurer’s actual mortality, interest, and expense experience.
Current Assumption Whole Life

This term refers to putting a date on a life insurance application that is earlier than its actual date of completion in order to obtain a lower premium.
Backdating

A group life insurance plan in which the plan sponsor (employer) pays the full premium without requiring participant contributions.

Insurers require noncontributory plans to cover all eligible group members (that is, a 100% participation rate). They require only a 75% participation rate with contributory plans.
Noncontributory Group Life Insurance Plan

This optional form of term life insurance lets the policyowner convert the policy to a whole life policy without having to prove insurability.

The new policy’s face amount cannot exceed the term policy’s face amount at the time of conversion. Typically, the option to convert must be exercised no later than a certain date, such as two or three years before the policy expires.
Convertible Term Life Insurance

A tax classification that is assigned to a life insurance policy that violates tax code funding rules, resulting in loss of some tax advantages common with life insurance.

Any permanent life insurance policy becomes a MEC (and is thus subject to less favorable income tax treatment) if it fails to meet the 7-pay test. Do not confuse a MEC with a traditional endowment contract.
Modified Endowment Contract (MEC)

A nonvariable annuity whose interest return is tied to the performance of a stock index, such as the S&P 500.

Simply called indexed annuities, EIAs are tied closely to the performance of a stock index but are not variable contracts. While they may produce interest returns higher than their fixed interest counterparts, they have a guaranteed rate that helps avoid losses to principal.
Equity Indexed Annuity (EIA)

An old method of determining life insurance needs based on the discounted value of a person’s future income.
Human Life Value Approach

The percentage of an annuity payment that is excluded from income taxation.

Based on the principle of a tax-free return of basis, the exclusion ratio identifies the percentage of an annuity payment that is excluded from income taxation.
Exclusion Ratio

An optional health insurance contract provision that requires the insurer to adjust benefits or premiums if the insured changes to a more or less hazardous occupation.

If the insured changes to a more hazardous occupation, this provision allows the insurer to reduce benefits. If the insured changes to a less hazardous occupation, this provision requires the insurer to reduce the premium.
Change of Occupation Provision

A definition of total disability that automatically qualifies for the policy’s full benefit if the insured suffers a loss that, by definition, is deemed total and permanently disabling.

Several common examples of disabilities that are presumed total and permanent include:
quadriplegia and paraplegia
loss of eyesight or speech
loss of any two limbs
Presumptive Total Disability

The most common medical expense indemnity policy today, featuring coverage of medical expenses that exceed an annual deductible.
Major Medical Expense Policy

A form of disability insurance that pays the lender if a borrower becomes disabled and thus unable to make loan payments.
Credit Disability Insurance

An employer-sponsored program that lets employees set money aside on a pre-tax basis, through payroll deduction, to pay for medical costs.

An employee may submit an FSA reimbursement request for the full amount of the calendar year’s planned contribution at any time during the year. The employer makes up the difference and recoups the advanced payment through later payroll deductions.
Flexible Spending Account (FSA)

Federal law that consists of a number of privacy and security regulations designed to protect an individual’s personal health information.

HIPAA impacts the completion of health insurance applications.
Health Insurance Portability and Accountability Act (HIPAA)

A type of DI policy purchased by a business to cover its outstanding loans if the owner becomes disabled.
Disability Reducing Term Insurance

Part B (Medical Insurance) covers physicians’ services, outpatient hospital care, physical therapy, ambulance trips, medical equipment, and some preventive services. The recipient pays a premium for Part B coverage, and there are special deductibles and co-insurance requirements.
Medicare Part B

Part A (Hospital Insurance) covers institutional medical care, including inpatient hospital care, skilled nursing home care, post-hospital home health care, and hospice care. There is no premium charged for Part A, though there are special deductibles and co-insurance requirements.
Medicare Part A

A rider that an insurer may add to a health policy to reduce coverage for specific medical conditions.
Impairment Rider

A mandatory health insurance contract provision that defines all components of the contract.

Only an executive officer of the company can make changes to the policy.
Entire Contract Provision

A form of accident-only health insurance that covers members of a defined group (i.e., a school’s sport team) only when they are part of that organization.
Blanket Health Insurance

A group insurance plan that effectively makes Medicare the primary payor for senior workers.
Medicare Carve-Out Plan

A newer form of medical care plan that combines a high-deductible medical insurance plan with a tax-exempt savings account to pay for the high deductible.
Consumer-Driven Health Plan (CDHP)

A mandatory health insurance contract provision that limits the time an insurer can void a contract or deny a claim for material misrepresentations on the application.

The time limit on certain defenses provision in a health insurance policy is very similar to the incontestability clause in life insurance. Most states limit it to two years.
Time Limit on Certain Defenses Provision

A process that assesses the need for health care services for managed care plan members.

Utilization reviews support medical cost containment. They may occur before (prospective), during (current), or after (retrospective) medical treatment. Prospective reviews require insurer approval before a member may undergo expensive, nonemergency medical treatment.
Utilization Review

An optional health insurance provision that addresses the situation in which an insured misstates his or her age on the application for insurance.

Benefits payable will be those the insured’s premium would have bought at his or her actual age. In some states, the misstatement of age provision is a mandatory provision.
Misstatement of Age Provision

The percentage of covered medical costs above the deductible for which the insured is responsible for paying.

Sometimes called a co-payment requirement, the insured’s coinsurance requirement is typically 20 or 30 percent of the covered medical cost. An “80/20” policy means the insurer pays 80 percent of the cost; the insured pays 20 percent.
Coinsurance (Co-payment)

A state-administered program that provides health care services to low-income individuals.

Jointly funded by the federal and state governments, Medicaid protects children, the disabled, and elderly Medicare recipients who fall below federal poverty guidelines.
Children in low-income families are generally eligible for the Children’s Health Insurance Program (CHIP).
Those individuals who are blind, disabled, or age 65 and older are eligible for Medicaid if they meet income and financial resource requirements.
Medicaid

A common health policy provision that defines the terms under which the policy may be renewed, canceled, or subject to a premium increase.

The five standard renewability provisions, which vary by type or class of policy, are:
noncancelable
guaranteed renewable
conditionally renewable
optionally renewable
cancelable
Renewability Provision

A disability insurance policy provision that waives the elimination period for a second disability recurring shortly after the end of the first disability.

A recurrent disability has both an advantage and a disadvantage:
Advantage—The recurring disability is not subject to a new waiting period.
Disadvantage—When determining the remaining benefit period, the recurring disability is treated as a continuation of the initial disability.
Recurrent Disability Provision

In LTC insurance, a way of valuing policy benefits as a single sum from which all expenses are paid.
Pool of Money Concept

Used by DI insurers to determine proper disability insurance protection for an insured based on his or her occupation.

Usually ranking applicants between 5A (professionals) at the top and B (manual labor) at the bottom, with three or four categories in between, this classification system considers the likelihood of insureds:
becoming disabled because of their job risks
returning to their own job following a period of disability
Occupation Classification Table

Group disability income insurance that provides benefits for two years and longer.

Coverage for group disability income benefits takes two forms: short-term disability (STD) and long-term disability (LTD). Plans with maximum benefit periods of two years or more are long-term disability plans. LTD plans usually cover both occupational and nonoccupational-related losses.
Long-Term Disability (LTD) coverage

Policy benefit taxation is variable based on the ratio of employer-paid premiums to total premiums.

Whatever percentage of the premium the employer pays is the percentage of plan benefits taxed to the employee. If employer pays 75% of premium, then 75% of benefit is taxable to the employee.
Group Disability Income Insurance Taxation

A method of group medical insurance renewal underwriting that focuses on the group’s past claims experience.

Group insurance contracts are issued on either an experience-rated or community-rated basis:
Experience rating focuses on the individual group—its makeup and, most important, its past claims experience.
Community rating assesses the community or region in which the group operates.
Experience Rating

A type of DI policy that provides funds to help pay a business’s overhead expenses if the owner becomes disabled.

A BOE policy covers scheduled overhead costs, such as rent, utility bills, insurance, and even taxes if the owner becomes disabled and is unable to run the business. The owner’s salary cannot be covered with a BOE policy.
Business Overhead Expense (BOE) Policy

A definition of disability that allows DI benefits to be paid to insureds that have been on total disability and are returning to work on a partial basis.

Sometimes called a recovery benefit, the partial disability provision continues benefit payments at a reduced level as the insured returns to work on a partial basis. The benefit reduction is determined by the ratio of the insured’s current reduced income to the pre-disability income.
Partial Disability

A DI policy benefit that pays a reduced benefit if the insured suffers a reduction in income due to a less-than-total disability.

Unlike the partial disability benefit, the residual disability benefit does not require the insured to have first been totally disabled to qualify for benefits. It supplements the residual income an insured is able to earn after an accident or illness forces a cut-back in hours worked.
Residual Disability Benefit

Designed for the white-collar market, this coverage is a variation of the BOE policy that covers employee salaries if the owner becomes disabled.
Professional Overhead Expense (POE) Policy

State and regional associations that were the original managed care programs.

BC/BS associations—the “Blues”—offer basic, major, and comprehensive medical plans as well as HMO plans. In many states they also administer the Medicare program. They offer both individual (family) and group plans.
Blue Cross/Blue Shield Associations

A long-term care insurance policy that qualifies for federal income tax advantages.

A tax-qualified LTC policy is one that meets HIPAA requirements associated with policy benefits in return for tax advantages not available to nonqualified policies. Insurers can sell both qualified and nonqualified LTC policies.
Tax-Qualified Long-Term Care Policy

A DI policy that pays a benefit if the insured becomes unable to perform his or her own duties because of a disability but can work in a less demanding job with reduced pay.

If an insured qualifies as totally disabled under the income replacement policy but chooses to work in another occupation, the policy will provide a benefit based on the amount of income the insured lost by working at another job.
Income Replacement Policy

Federal insurance law, passed in 2010, that requires every American to be covered under a medical insurance plan.

The PPACA (or simply ACA) provides a variety of mandates, subsidies, and tax credits to employers and individuals to increase overall participation in the program. It also imposes tax penalties for noncompliance.
Patient Protection and Affordable Care Act (PPACA)

The amount of Social Security retirement income a worker will receive at full retirement age or upon total disability.

A worker’s PIA is determined by applying a formula to the worker’s average indexed monthly earnings (AIME). All other Social Security benefits are based off the worker’s PIA.
Primary Insurance Amount (PIA)

Two terms distinguishing people covered under an indemnity policy from those covered under a managed care plan.

Those who are covered under a traditional indemnity policy are called insureds. People covered under a managed care plan (i.e., Blue Cross and Blue Shield plans and HMOs) are called members (also, subscribers or participants).
Insured vs. Member/Subscriber

An optional health insurance provision that excludes coverage for losses due to intoxication or the illegal use of narcotic drugs.

A common theme with all optional health policy provisions is that they generally benefit the insurer, not the insured. If the insurer does not feel a provision is needed, it may exclude it from the policy. On the other hand, mandatory provisions benefit the insured and may not be excluded from the policy.
Intoxicants and Narcotics Provision

A disability that is not the result of job-related activities.

Most DI policies (both individual and group) cover only nonoccupational disabilities. That is, they cover disabilities that arise outside of work. Workers’ compensation provides benefits for workers who are injured on the job.
Nonoccupational Disability

The process by which an insurance company seeks reimbursement from another party for benefit payments that exceed its liability.
Subrogation

Monthly payments from a federal social benefits program to eligible workers who become totally disabled.

Fully insured workers are eligible for Social Security disability benefits if they remain totally disabled after a five-month waiting period. Spouses and young children may also be eligible for a family benefit, which is a percentage of the retired worker’s benefit.
Social Security Disability Benefits

A managed care health plan sponsored by an HMO that functions like a PPO.

The HMOs’ answer to PPOs. As with an HMO, members of a POS select a primary care physician (PCP) who becomes their primary contact for medical care. As with a PPO, POS plan members may go outside the network (though higher co-payments and even deductibles will usually apply).
Point-of-Service Plan (POS)

Common functions of daily life. Difficulties in performing them can trigger LTC insurance benefits.

Six common activities of daily living:
dressing
eating
transferring (moving from a bed to a chair, for example)
bathing
toileting
continence
Activities of Daily Living (ADL)

The federal health insurance program for seniors and some disabled individuals.

Medicare is a Social Security program that provides medical care expense coverage for people age 65 and older and for certain disabled individuals. It is a pay-as-you-go system funded by payroll taxes and premiums for some parts of Medicare coverage.
Medicare

A health insurance corporation that delivers health care services on a prepaid basis through a network of associated doctors and participating hospitals and clinics.

HMOs enter into a contractual payment arrangement (called capitation) with each participating health care provider. The HMO pays the provider a set amount for each member assigned to it. In some states, HMOs are called health insurance corporations (HICs).
Health Maintenance Organization (HMO)

A system of health care delivery that combines elements of a health care provider and an insurer.

Premiums paid into a managed care plan are pre-payment for medical care services received through the plan’s network of providers. Managed care providers include HMOs and PPOs (preferred provider organizations).
Managed Care Plan

Whether policy premiums are tax deductible depends on who pays the policy premiums.

Medical expense policy benefits are never taxable. If and how premiums are deductible depends on who pays them:
Employer-paid premiums—Tax deductible by the employer; not taxable to the employee.
Employee-paid premiums—Tax deductible to the extent all nonreimbursed medical expenses exceed the AGI medical deduction threshold.
Group Medical Insurance Taxation

The seven-month period during which a newly eligible recipient enrolls in Medicare.

Enrollment in Medicare is permitted up to three months before or up to three months after the month the enrollee first becomes eligible for Medicare, which for most is age 65.
Medicare Initial Enrollment Period (IEP)

The four different levels of essential health benefit coverage provided by medical insurance plans (as mandated by the Affordable Care Act).

Each metal level denotes the percentage of coverage provided for Essential Health Benefits (EHBs):
Platinum plan pays 90%, insureds pay 10% through deductibles and copays
Gold plan pays 80%, insureds pay 20%
Silver plan pays 70%, insureds pay 30%
Bronze plan pays 60%, insureds pay 40%
Metal Levels (ACA)

A group insurance plan in which plan participants contribute to the premium.
Contributory Group Insurance Plan

A basic category of group insurance that provides health insurance benefits in various forms.

Practically speaking, there is a group insurance equivalent to every common form of individual health insurance:
medical expense insurance
long-term and short-term disability insurance
dental insurance
long-term care insurance
accidental death and dismemberment (AD&D) insurance
vision insurance
Group Health Insurance

A traditional form of medical expense insurance policy that pays claims on a scheduled “first dollar” basis.

Basic medical expense policies reimburse 100 percent of covered expenses, up to a maximum amount that is scheduled in the policy. There are three general types of basic policies:
hospital expense insurance
surgical expense insurance
physician expense insurance
Basic Medical Policy

BOE insurance premiums are tax deductible, and policy benefits are taxable.
Business Overhead Expense (BOE) Insurance Taxation

Four distinct levels of medical insurance coverage as stipulated by the Patient Protection and Affordable Care Act.

The four metal levels, ranked by level of coverage:
Platinum plan (best)—90% of expenses paid by plan/10% paid by insured
Gold plan—80% plan/20% insured
Silver plan—70% plan/30% insured
Bronze plan (worst)—60% plan/40% insured
Metal Levels (PPACA)

Definition of total disability that requires the disabled insured to be unable to perform any job for which he or she is qualified in order to qualify for benefits.

The any occupation (or any occ) definition of total disability is more restrictive for the insured (and thus less attractive than the own occ definition). Disability products marketed to blue-collar workers generally use an any occupation definition of total disability.
Any Occ Total Disability

The tax treatment of policy premiums and benefits depends on who pays the policy premium.

Disability income insurance policy taxation:
When insureds pay premiums, the premiums are not tax deductible, and benefits are income tax-free.
When employers pay premiums, the employer can deduct premiums, and benefits are taxable to the insured.
Disability Income Insurance Taxation

A mandatory health insurance contract provision that allows the policyholder limited time beyond the due date to pay a late premium.

Grace periods vary by premium mode (i.e., frequency):
7-day grace period for weekly mode
10-day grace period for monthly mode
31-day grace period for quarterly, semi-annual, or annual mode
Grace Period Provision

A common health policy provision that lets new policyowners return a policy to the insurer for a full refund within a limited period of time.

The standard free-look period is 10 days beginning on the date the policy is delivered. Depending on the type of coverage and the state, the free-look period can be 20 or 30 days. Most states require a 30-day free-look period for LTC and Medicare supplement insurance policies.
Right to Examine (“Free Look”) Provision

A restrictive form of PPO that only covers care within the network.
Exclusive Provider Organization (EPO)

A category of employee group with fewer than 10 employees. These groups are eligible for special group medical insurance policies.
Small Group Market

A basic form of insurance that provides financial protection against risks posed by the perils of illness and accidental injury.

Depending on the type of policy, medical expenses associated with accidental injury and illness may or may not be covered equally. Health insurance insures against many risks that could impact the insured’s:
personal health
personal quality of life
family’s quality of life
Health Insurance

The annual six-week period during which Medicare recipients can change their Medicare plan election.

Sometimes called the open enrollment period, there are actually two separate election periods: one for Medicare Advantage and Part D plans, and one for Original Medicare (Parts A and B) plans.
October 15 – December 7—Medicare Advantage (changing plans or switching from an Original Medicare plan) and Plan D (changing plans)
January 1 – February 14—Original Medicare (switching from a Medicare Advantage plan)
Medicare Annual Election Period (AEP)

Health insurance that provides financial protection against the costs of long-term nursing care.

Nursing and medical care services covered by LTC insurance include:
diagnostic and preventive services
therapeutic and curative services
treatment and rehabilitative services
personal care
Long-Term Care (LTC) Insurance

A form of health insurance that provides a lump sum benefit if the insured suffers an accident resulting in death or dismemberment.
Accidental Death and Dismemberment (AD&D) Insurance

A health insurance renewability provision in which the insurer guarantees that it will not cancel the policy, though it does have the right to increase premiums.

The insurer cannot raise the premium on a selective basis; it may only increase the premiums provided it does so for all policies in that class issued in the state.
Guaranteed Renewable Policy

A state-mandated and managed benefits program for workers who become sick or injured on the job and are thus unable to work.

While laws vary by state, most employers are required either to contribute to the state program or to buy workers’ compensation coverage from commercial insurers. It is unnecessary to sue the employer for workers’ compensation benefits; any unintentional work-related injury or illness qualifies for benefits, which include wage replacement, medical treatment, and rehab services.
Workers’ Compensation

The basis upon which a major medical insurance policy determines the amount of a medical fee it will cover.

UCR rates are based on the amount that is usual or common for the geographical area in which the service is performed or that is based on the usual fee charged by most other health care providers of similar training or experience.
Usual, Customary, and Reasonable (UCR)

Federal law that requires employers to protect an employee’s job while the employee is on leave for family or medical reasons.

All businesses with 50 or more employees are subject to FMLA, which gives certain employees up to 12 weeks of unpaid leave per year while protecting their employed status. Group health benefits must be maintained for the employee through the FMLA period.
Family and Medical Leave Act (FMLA)

A managed care alternative to Medicare supplement insurance.

As a managed care plan, seniors are required to receive their care exclusively from the provider network established by the Medicare SELECT plan. In return, coverage is generally more affordable than traditional Medigap insurance.
Medicare SELECT

The period that must pass between a health insurance policy’s effective date and the date when losses will be covered.

Probationary periods help insurers avoid adverse selection by not insuring people with known illnesses. Because they cannot be foreseen, accident-related losses are covered at policy issue. They are most common with disability insurance and long-term care insurance policies.
Probationary Period

A mandatory health insurance contract provision that requires insureds to notify their insurer within 20 days following a covered loss.

A notice of claim serves as a notice for the insurer to send the insured the required claims forms. Insureds who cannot notify the insurer within 20 days are expected to do so “as soon as reasonably possible.”
Notice of Claim Provision

A health insurance premium factor that represents the risk of the applicant suffering a disabling injury or serious medical condition.

Health insurance premiums are based on three factors:
Morbidity charge (cost of insurance)—Covers the anticipated claims from the policy.
Interest credit—Interest earned on insurer investments.
Expense load—Covers the insurer’s expenses.
Morbidity Charge

A type of DI policy that provides funds to a business if a key employee becomes totally disabled.
Key-Person Disability Policy

document the applicant must sign upon policy delivery if a premium was not paid with the application.

A signed statement of continued good health, which states that no health change has occurred since the application was signed, becomes part of the application. It gives the insurer the right to void the contract during the contestability period if the applicant misrepresented the truth when signing this form.
Statement of Continued Good Health

Group disability income insurance that provides benefits for less than two years.

Coverage for group disability income benefits takes two forms: short-term disability (STD) and long-term disability (LTD). Group plans with maximum benefit periods of less than two years are short-term disability plans. Short-term plans usually only cover nonoccupational-related losses.
Short-Term Disability (STD) coverage

An optional health insurance provision that allows the insurer to prorate benefits if another insurer also covers the loss.

This is one of several related provisions dealing with coverage from multiple insurers. In all instances the intent is the same—to prevent the insured from profiting by collecting more benefits than the amount of loss.
Insurance with Other Insurer Provision

Premiums are tax deductible to the extent all nonreimbursed medical expenses exceed certain AGI thresholds.

A person is allowed to deduct medical expenses—including medical insurance premiums—that exceed 10% of adjusted gross income (AGI). (Through 2016, the threshold for seniors is 7½% of AGI. Beginning in 2017 it is 10% of AGI for all people.)
Medical Expense Insurance Taxation

physician’s report, requested by an underwriter, that provides detailed information on a specific condition for which the physician treated the applicant.

An APS is requested if the applicant has been treated for a medical condition for which the underwriter needs additional information before approving an application for insurance.
Attending Physician’s Statement (APS)

A type of limited risk health insurance that reimburses insureds for the cost of noncosmetic dental care.

While some insurers sell individual dental insurance policies, most coverage is provided through group insurance plans. Group dental coverage may be in the form of an indemnity plan or a prepaid plan.
Dental Insurance

A health insurance renewability provision in which the insurer guarantees that it will neither cancel the policy nor increase premiums.

Because they lock the insurer into a fixed premium, “non-can” policies represent an increased risk for insurers. They are not available with medical insurance policies and are most commonly used with disability income insurance geared to the low-risk professional market.
Noncancelable Policy

In an LTC insurance policy, the period that must pass before benefit payments begin following a triggering event.

Also called a waiting period, the elimination period is selected by the applicant. Its length impacts the policy premium:
Shorter elimination periods, like a smaller deductible, cost more.
Longer elimination periods, like a bigger deductible, cost less.
Elimination Period

The benefits provided by Medicare supplement Plan A, which must also be part of every other standard plan.

Core benefits include most Medicare Part A and B coinsurance amounts, blood, and additional hospital benefits not covered by Original Medicare. Core benefits do not include coverage of Medicare deductibles.
Medicare Supplement Core Benefits

In an LTC insurance policy, a loss that results in payment of policy benefits.

Benefit triggers commonly include any of the following:
inability to perform two or more activities of daily living (ADLs)
loss of cognitive ability
medical necessity
Benefit Trigger

A managed care health plan that contracts with “preferred” providers, which a plan member may contact directly for medical care.

Sponsored by insurance companies as their alternative to HMOs, PPOs are a network of “preferred” medical care providers (who are not employees of the PPO) to provide services to plan members at agreed-upon prices. A primary care physician’s referral is usually not necessary to see a specialist.
Preferred Provider Organization (PPO)

Term used to describe the original Medicare program, consisting of Parts A and B.

Medicare coverage is divided into four parts (A, B, C, and D). Parts A and B, still called “Original Medicare,” work in tandem to provide complete medical care coverage that is subject to deductibles and coinsurance (much like a reimbursement insurance policy).
“Original Medicare”

Disability buy-out insurance premiums are not tax deductible, and policy benefits are received tax free.
Key Person Disability Insurance Taxation

A mandatory health insurance contract provision that requires the insurer, within 15 days of being notified of a loss, to provide to the insured any forms needed to file a claim.

If the insurer does not receive claim forms within 15 days of being notified of a loss, the insured may submit a written statement describing how the loss occurred, the nature of the loss, and the medical expenses incurred.
Claim Forms Provision

An individual tax-favored savings account used to fund medical costs associated with high-deductible insurance plans.

Available only in conjunction with a high-deductible health plan (HDHP), HSAs can be set up through banks and other financial institutions. HSAs feature:
tax-deferred growth
tax-free
distribution (when used to pay qualified medical costs)
availability as an individual account or a group plan
Health Savings Account (HSA)

The annual three-month period during which an eligible person may enroll in Medicare.

Qualified individuals who did not sign up for Medicare during the initial enrollment period (IEP) can sign up during a general enrollment period (GEP) between January 1 and March 31 each year. Coverage begins July 1, and a higher Part B premium may be charged.
Medicare General Enrollment Period (GEP)

A fee, commonly required with all HMO and PPO plans, that a plan member must pay up-front before receiving medical care.

By shifting part of the financial responsibility for routine visits onto the member, co-payments help to control medical care costs by discouraging frivolous use of medical care. In this respect a co-payment is like an insurance deductible.
Co-payment (Managed Care Plan)

Definition of total disability that requires the disabled insured to be unable to perform his or her own job in order to qualify for benefits.
Own Occ Total Disability

A type of limited risk health insurance that pays benefits in the event of accidental death or dismemberment.

Accidental death and dismemberment (AD&D) insurance, which is available as an individual policy, a group insurance policy, or as a rider to some other form of insurance, provides two forms of benefit:
principal sum, payable in the event of an accidental death
capital sum, a percentage of the principal sum payable in the event of accidental dismemberment
AD&D Insurance

A type of DI policy that provides surviving business owners with the funds needed to execute a buy-sell agreement upon a co-owner’s disability.

Disability buy-out policies typically pay benefits in a lump sum that is then used to buy the disabled owner’s business interest. These policies typically have a long elimination period (i.e., 18 to 24 months or more).
Disability Buy-Out Policy

A form of major medical insurance that provides complete medical expense coverage in a single policy.

Unlike supplemental major medical policies, comprehensive major medical policies exist as stand-alone plans that are not combined with any other form of medical expense coverage.
Comprehensive Major Medical

A form of health insurance that provides an income should the insured suffer a disabling accident or illness that prevents employment.

Disability income insurance provides income replacement when the insured cannot work because of a disability.
Disability Income (DI) Insurance

Also called Part C, this is a managed care plan alternative to original Medicare Parts A and B.

Provided through commercial insurance companies, Medicare Advantage is all-encompassing plan that combines the coverage of Parts A and B in managed care format similar to a PPO.
Medicare Advantage

The maximum time during which a disability insurance policy’s benefits will be paid.

The benefit period is the time during which benefits will be paid. It begins at the end of the elimination period and is usually expressed in the contract as the maximum period benefits will be paid for a single disability.
Benefit Period

A medical condition existing before health insurance coverage was applied for.

It was long a standard practice for health insurance policies to exclude coverage of medical expenses associated with a pre-existing condition. The Affordable Care Act changed that by forbidding insurers from excluding coverage for pre-existing conditions (with some exceptions).
Pre-existing Condition

A method of group medical insurance renewal underwriting that focuses on the claims experience of multiple groups in the same geographical region.
Community Rating

A disability insurance provision that pays for therapy and workplace modifications to accommodate an insured’s return to work from a total disability.

Also called a return-to-work provision, the rehabilitation provision pays for occupational therapy, training, or modifications to the insured’s workplace to support a disabled insured’s return to work. This is not a standard policy provision.
Rehabilitation Provision

An employer-sponsored program, funded solely by employer contributions, that reimburses employees for some of their qualified medical expenses.

Employer contributions are excluded from employees’ gross income, and reimbursements are made with tax-free distributions.
Health Reimbursement Account (HRA)

state-based organizations that help consumers shop for, compare, and buy health insurance from private insurance companies.

States are required under the PPACA to establish health insurance exchanges (or marketplaces). They use navigators, exchange enrollment facilitators (EEFs), and certified application counselors (CACs) to assist consumers with enrollment in a qualified health insurance plan.
Health Insurance Exchange (or Marketplace)

A type of limited risk health insurance that pays a cash benefit directly to the policyowner in the event of hospitalization.
Hospital Indemnity Insurance

A mandatory health insurance contract provision that allows a policyowner to reinstate a lapsed policy.

Reinstatement must be requested within three years from the lapse date. To be reinstated, all past-due premiums must be paid with interest. In addition, the insured must present proof of insurability. The insurer must accept or reject the reinstatement within 45 days of a request.
Reinstatement Provision

As long as a policy is tax qualified, premiums may be deductible and benefits are not taxable to a certain limit.

Individually owned, qualified long-term care (LTC) policies get favorable tax treatment in two ways:
Benefits paid are not taxable (within limits).
Premiums are deductible (within limits) to the extent total unreimbursed medical expenses exceed the AGI medical deduction threshold.
Qualified Long-Term Care Insurance Taxation

A form of health insurance that covers the costs of long-term medical care and related expenses.

Long-term care insurance provides financial protection against the cost of medical services associated with long-term care, including:
diagnostic and preventive services
therapeutic and curative services
treatment and rehabilitative services
personal care
Long-Term Care (LTC) Insurance

A form of health insurance that reimburses the insured for expenses incurred in obtaining medical care.
Medical Expense Insurance

mandatory health insurance contract provision that requires the insured, within 90 days of claiming a loss, to provide the insurer with the documentation proving the loss.

In the case of disability income insurance policies, the proof of loss provision allows the insurer to require proof of continuing disability no more frequently than every 90 days.
Proof of Loss Provision

The process by which group medical insurance companies coordinate benefit payments to prevent overinsurance.

COB prevents the duplication of benefits when a participant is covered by more than one group plan (i.e., when working spouses are covered under both plans).
The primary plan is the employee’s own plan.
For children, the primary plan covers the parent with the earliest birthday in the calendar year.
Coordination of Benefits (COB)

The amount of covered medical expenses that the insured or subscriber is responsible for paying before any policy or plan benefits are paid.

Most policies have annual deductibles. There are two types: flat and corridor. Comprehensive major medical policies and managed care plans use the flat deductible approach.
Deductible (Medical Insurance)

his Medicare plan adds prescription drug coverage to Medicare Parts A and B.

Provided through Medicare-approved commercial insurers, Medicare Part D (prescription drug plan) is available to anyone covered under the Original Medicare Plan. Part D coverage is also available to anyone participating in a Medicare medical savings account
Medicare Part D

Every Medicare supplement policy must conform to one of these 10 forms, labeled “A” through “N.”

Each standard plan offers a different set of benefits, with benefits generally increasing as plans advance from A to N. All companies selling Medicare supplement policies must sell Plan A and either Plan C or Plan F. They may sell any or all of the other plans as well.
Flip Card
Standard Plans (Medicare Supplement)

Remove Card
An HMO physician, selected by the member, who controls the member’s access to specialists.

Also called a gatekeeper, the PCP manages health care utilization and thereby reduces health care costs by coordinating and directing members’ health care treatment. PCPs are a standard part of an HMO plan but are generally not required with a PPO plan.
Primary Care Physician (PCP)

A type of health insurance that fills the gaps in Medicare Parts A and B coverage.

Also called Medigap policies, Medicare supplement (MS) policies are designed solely to supplement Original Medicare. There is no need for MS insurance with Medicare Advantage, which already has more complete coverage than Original Medicare.
Medicare Supplement Insurance

Once underwriting is completed, applicants are assigned one of these, which indicates their level of risk.

There are four basic risk classifications:
Standard risk—Standard risks pay standard premium rates.
Preferred risk—Above-standard risks are rewarded with a discounted premium.
Substandard risk—Below-standard risks are issued a rated policy with a higher-than-standard premium (and/or restricted coverage).
Declined risk—Extremely high risks are considered uninsurable, and coverage is declined.
Risk Classifications (Underwriting)

A medical expense insurance policy that reimburses the insured for the cost of medical care.

Associated with traditional medical insurance, indemnity policies let insureds select any doctor or medical care provider they prefer. These fee-for-service policies reimburse the insured for the cost of covered medical care received. Coverages are defined in the policy.
Indemnity Policy

A type of health insurance that covers multiple people through a single master contract.

Each participant’s evidence of coverage is provided through a certificate of insurance. Just about every individual type of coverage has a corresponding group form of insurance. Popular forms include:
group medical insurance
group disability insurance
group dental insurance
group AD&D insurance
group vision insurance
Group Health Insurance

Any health insurance policy that covers a narrowly defined set of perils.
Limited Risk Policy

A medical insurance policy feature that limits the total out-of-pocket costs the insured must pay in any single year.

Once an insured’s total deductibles and co-payments equal the stop-loss limit, the policy pays 100 percent of all other covered costs for that year.
Stop-Loss

A reciprocal insurer is a group of people or businesses that exchange this promise: each member agrees to pay a pro-rata share of any loss suffered by any other member. A reciprocal insurer is essentially a formal risk-sharing arrangement.
reciprocal insurer

when the policy’s cash value equals its face amount
When is a whole life insurance policy designed to mature or endow?

A life settlement sale is reserved for seniors age 65 or older who are not facing a life-threatening illness. Life settlements offer a way for an owner to sell a policy and derive the largest possible value from the policy, short of its death benefit.
a life settlement

decreasing term
Which type of insurance is typically used for credit life insurance?

year
The Privacy of Consumer Financial Information Regulation requires an insurer to notify its current customers of its privacy policies or practices at least every

term rider
Which provides an additional death benefit for death due to any cause?

Premiums that a business pays for business life insurance on the lives of a business owner or key executive are not tax deductible.
The premiums paid for life insurance are tax deductible in all of the following situations EXCEPT:

45 inpatient days
Minimum inpatient benefits for mental disorders when treatment or services are rendered by a licensed health-care provider include which of the following per individual in a calendar year?

prohibited in all cases.
Any sale of a Medicare supplement policy that results in the insured having more than one such policy is

Withdrawals from an IRA taken before age 59 1/2 will be taxed and are also subject to a 10 percent penalty. Distributions cannot be taken without penalty before age 59 1/2. However, they must begin by age 70 1/2.
Premature withdrawals from an IRA are subject to additional penalties when taken before the owner is what age?

the employer
Before people can join an employer’s group health plan, they have to meet the criteria for eligibility. Which of the following usually sets these criteria?

managed care plan
Which health-care delivery plans shares the cost of the service and treatment with the provider?

30
Medicare free-look period

30
Medicare free-look period