BASIC PRINCIPLES OF LIFE AND HEALTH INSURANCE AND ANNUITIES XCEL SOLUTIONS EXAM | QUESTIONS & ANSWERS (VERIFIED) | LATEST UPDATE | GRADED A+

1 BASIC PRINCIPLES OF LIFE AND HEALTH INSURANCE AND ANNUITIES XCEL SOLUTIONS EXAM | QUESTIONS & ANSWERS (VERIFIED) | LATEST UPDATE | GRADED A+ Commercial Insurers "private insurance companies" Correct Answer: sell insurance for a profit. Offers many different lines of insurance. Some sell primarily life insurance and annuities. Commercial insurance is divided into two main groups-Stock and mutual insurers. Multi-Line insurer Correct Answer: An insurance company selling more than one line of insurance. Stock Companies Correct Answer: Organized and incorporated under state laws for the purpose of making a profit for its stockholders/shareholders. When declared, stock dividends are paid to stockholders in a stock company, the Directors & officers are responsible to the stockholders. non-participating insures 2 Correct Answer: traditionally stock insures are called_____________because policyholders do not participate in receiving dividends or electing the board of directors unless they are also a stockholder of the company? terminated mutualization Correct Answer: Transformation of a stock insurer into a mutual insurer. the reverse is termed demutualization. Dividends from stock insurers Correct Answer: Subject to taxation because they are considered profit Mutual companies Correct Answer: they are owned by their policyholders. Mutual insurers are known as participating insurers because policyholders participate in receiving dividends and electing the board of directors. When declared, Mutual company Dividends are paid to the policyholders. Dividends from a mutual insurer are not subject to taxation because the Dividends are considered to be a return of Premium. The Only Exception is if the policyowner chooses to let the dividend sit and collect interest. In this case, only the accumulated interest would be taxable Mixed Insurer Correct Answer: company that operates as both a participating and non-participating ensure dividends can never be guaranteed regardless of the type of company offering them. strong assessment Mutual companies are classified 3 Correct Answer: by the way they charge premiums Pure assessment Mutual company Correct Answer: operates based on laws sharing by group members. No premium is payable in advance. Instead, each member is assessed in individual portion of losses that occur. Advanced premium assessment Mutual Correct Answer: charges the premium at the beginning of the policy period. if the original premiums exceed the operating expenses and losses, the Surplus is returned to the policyholders as dividends. However, if total premiums are not enough to meet losses, additional assessments are levied against the members. Normally, the amount of assessment that may be levied is limited either by state law or simply as a provision in the insurers bylaws fraternal benefit societies Correct Answer: Must be nonprofit, have a lodge system, and offer insurance to its members only. risk retention groups Correct Answer: are mutual companies formed by a group of people in the same industry or profession. Examples would be pharmacists, dentists, and engineers. service providers 4 Correct Answer: offer benefits to subscribers in return for the payment of a premium. He services are packaged into various plans, and those who purchased the plans are known as subscribers. Examples of service providers are Health maintenance organizations like hmos or preferred provider organization PPO reciprocal insurers Correct Answer: unincorporated groups of people that provide insurance for one another through Indemnity contracts. Each member access both insurer and insured and are managed by attorney in fact. reinsurers Correct Answer: make arrangements with other insurance companies to transfer a portion of their risk to the reinsurer. The company transferring the risk is called the Ceding Company and the company assuming the risk is the Reinsurer. reinsurance agreement Correct Answer: the insurance company that transfers is lost exposure to another insurer is called the primary insurer captive insurer Correct Answer: is an insurer established and owned by the parent company to ensure the parent company's loss exposure. Home Service ensures also known as industrial insurance 5 Correct Answer: sold by home service or debit life insurance companies. Face amount for small, usually 1000 to 2000 and premiums are paid weekly government insurance Correct Answer: federal and state government are also ensures. They provide social insurance programs, to protect against Universal Risk by redistributing income to help people who cannot afford the cost of incurring such losses themselves. These programs have far-reaching effects in millions of people depend on them. types of government insurance Correct Answer: Social Security, Medicare, Medicaid, S. G. L. I & B. G. L. (service groups like bets) and Tricare. self-insurers Correct Answer: retain risks and must have a large number of similar risks and enough Capital to pay claims. However, they may save money if the loss experience is lower than the expected cost. Self-insurance Correct Answer: is not a transfer of risk, rather _________ establish their own selffunded plan to cover potential losses. self-funded plan Correct Answer: plan in which an employer pays insurance benefits from a fund derived from the employer's current revenues 6 Lloyd's of London Correct Answer: not an insurer, but a society of members who underwrite insurance in syndicates. to underwrite an issue Insurance like coverage insurance industry oversight and regulations Correct Answer: the insurance industry is primarily regulated on a state-by-state basis with minimal Federal oversight. The primary purpose of this regulation is to promote public welfare and provide consumer protection and ensure Fair Trade Practices, contracts and prices. 1869 Paul vs. Virginia Correct Answer: the US Supreme Court ruled that insurance transactions crossing state lines are not interstate commerce 1905 the Armstrong investigation Act Correct Answer: gave the authority to the states to regulate insurance. 1944 United States vs Southeastern Underwriters Association Correct Answer: that insurance transactions crossing state lines are interstate commerce and are subject to Federal Regulation. Thus, many federal laws were conflicting with existing state laws. However, this decision did not affect the power of states to regulate insurance. 1945 the McCarran Ferguson Act 7 Correct Answer: States that while federal government has the authority to regulate the insurance industry, it would not exercise that right if the insurance industry was run effectively and adequately by the states under the McCarran Ferguson Act Correct Answer: the minimum penalty of the insurance producer who has obtained personal info about a client without having a legitimate reason to do so is a fine of $10,000. 1970 Fair Credit Reporting Act Correct Answer: provides individuals privacy protection and fair and accurate credit reporting. Insurance companies are required to notify applicants if a credit check will be made on them. Under the Fair Credit Reporting Act, the maximum penalty of a producer who has obtained consumer information reports under false pretenses is a fine of $5,000 The 1999 Gramm-Leach-Bliley Act (Financial Services modernization Act) Correct Answer: this law repealed the glass-Steagall act; this allows Banks, retail brokerages and insurance companies to enter each other's line in business 2001 USA Patriot Act Correct Answer: it is related to the insurance industry, is designed to detect and Tudor terrorists and their funding by imposing anti-money-laundering requirements on brokerage firms and financial institutions. 2003 National Do Not Call Registry 8 Correct Answer: insurance calls are not exempt from the no not call registry 2010 Affordable Care Act Correct Answer: This represents one of the most significant regulatory overhauls hand expansions of coverage in US history NAIC or the National Association of insurance commissioners Correct Answer: is an organization composed of insurance Commissioners from all 50 states, the District of Columbia and the four US territories. They're responsible for recommending appropriate laws and regulations. They are responsible for the creation of the advertising code and the unfair Trade Practices Act, and the Medicare supplement insurance minimum standards model act. Correct Answer: the four broad objectives of the NAIC Correct Answer: 1. To encourage uniformity and state insurance laws and regulations 2. To assist in the ministration of those laws and regulations by promoting efficiency 3.To protect the interests of policyowners and consumers. 4. to preserve State regulation of the insurance business advertising code 9 Correct Answer: the code specifies certain words and phrases that are considered misleading and are not to be used in advertising of any kind Unfair Trade Practices Act Correct Answer: gives Chief Financial Officer the power to investigate insurance companies and producers to impose penalties. In addition to that, the act gives officers the authority to seek a court injunction to restrain ensures from using any methods believed to be unfair. NAIFA and NAHU Correct Answer: Members of these organizations are life and health agents dedicated to supporting the industry and advancing the quality of service provided by insurance professionals some of the standards and ethics to selling Insurance, each state requires high level of professionalism and ethics codes some of these are Correct Answer: 1. selling to needs, agents must first determine the consumers needs then determine which policy fits their needs best. 2. suitability of recommended products, and ethical agent must be able to assess the correlation between a recommended product and the consumers needs. 3. full and accurate disclosure, and ethical agent must inform consumers of the benefits and limitations of recommended products. Recommendations must be accurate, complete and clear. 4. Documentation, and ethical agent must document each client to meeting and transaction. 10 5. Client Services and that's a collision must know that is sale does not Mark the end of the relationship, but rather the beginning of the relationship. Follow-up calls are recommended Buyer's Guide Correct Answer: each state requires agents to deliver a buyer's guide to Consumers that explain various types of life insurance products and other information on the recommended policy, such as premiums, dividends, and benefit amounts. Policy Summary Correct Answer: help consumers evaluate the suitability of the recommended product Reserves Correct Answer: Reserves are set aside by the insurance company and designated for the payment of future claims accounting measurement of an insurer's future obligations to its policyholders. They are classified as liabilities on the insurance company's accounting statements since they must be settled at a future date. Liquidity Correct Answer: an insurer's ability to make unpredictable payouts to policyowners basically cashing out all of your policies as fast as you can guaranty associations Correct Answer: established by all states to support ensures and protect consumers in case an insurer becomes insolvent. State life and health Guaranty associations provide 11 a safety net for all member Life, Health and annuities insurers in a particular State. Guaranty associations protecting shirts in the event of an insurer's insolvency or inability to pay claims up to a certain limit independent rating services Correct Answer: are credit rating agencies that rate or "grade" the financial strength and stability of insurers based on claims, reserves, and company profits. The nationally recognized statistical rating organizations that rate insurers are A. M. Best, Moody's, Standard and Poor's, and Fitch Ratings. Each rating service has its own rating system, but most use an A to F letter grading scheme.