Missouri Life and Health Insurance

Missouri Life and Health Insurance Insurance transaction includes - -By mail or other means: - Solicitation - Negotiation - Sale - Advising an individual about coverage Elements of a legal contract - - -Agreement (offer and acceptance) - Consideration - Competent parties - Legal purpose - Negotiation does NOT need to happen Who make the offer in an insurance application - -- Applicant When does acceptance take place - -- An insurers underwriter approves the application and issues a policy The binding force in any contract - -- Consideration - insurer promises to pay in the event of a loss Contract of adhesion - -- Prepared by the insurer and accepted or rejected by the insured - "Take it or leave it" basis Insurance contracts are - -- Aleatory - exchange of unequal amounts of values Unilateral contract - -- only one of the parties is legally bound - "one-way contract" "When does an insurance policy go into effect" - -- When the insured receives it Conditional contract - -- certain conditions must be met by the policy owner Warranty - -- An absolutely true statement upon upon which the validity of the insurance policy depends Representions - -- Statements believed to be true Misrepresentation - -- Untrue statements on the applications MISSOURI MISSOURI MISSOURI - Can void the contract Material misrepresentation - -- Would alter the underwriting decision of insurance company Part 1- General Information - -- Name, age, address, birth date, gender, income, marital status, and occupation Part 2- Medical Information - -- Medical background, present health - Medical visits in recent years - Medical status of relatives/ causes of deaths Field underwriter - -- Solicited the potential insured - Analyzes health - Gets info on client Agents report - -- Observations concerning the proposed insured - Does not become a part of the entire contract - communicate with underwriter and provide info about the applicant known by the agent Required signatures - -- the proposed insured - the agent - the policy owner (if not proposed insured) Changes in the application - -- Applicant must initial the change Consequences of incomplete applications - -- Must return to applicant for completion - If a policy is issued with questions left unanswered, the contract will be interpreted as if the insurer waived its right to have an answer to the question Premium receipt - -- Agent must issue - Will determine when coverage will be effective Conditional receipt - -- effective either on the date of application or medical exam - Most common type of receipt - used when applicant submits prepaid application Replacement - -- Terminating an existing policy or letting it lapse and obtaining a new one - Nothing illegal about replacing life insurance Underwriting - -- The risk selection process - Avoid adverse selection Adverse selection - -- Risks which are more likely to suffer a loss - Protects the insurer MISSOURI MISSOURI Insurable interest - -- Must exist between policy owner and insured at time of application - Cannot buy on anyone - Suffer financially if someone dies Application - -- Submit an application to the insurer for approval for a policy to be issued Fair Credit Reporting Act - -- Consumer-reporting agencies must follow in order to ensure that records are properly used - Protects consumers - Insurance rated by states - "At the time of application" - If willingly violates Act penalty up to $2,500 Consumer report - -- Written and/or oral information regarding a consumers credit, character, habits collected by a reporting agency from employment records, credit reports, and other public sources Investigative consumer reports - -- Visit with neighbors/employers - insured or reporting agency has 5 days to provider the consumer with additional informtion Medical Information Bureau (MIB) - -- Insurance company looks at - Nonprofit trade organization which received medical info from insurance companies and maintains confidential medical information - "Rated or declined" - "Glucose tolerance test" - No privacy Attending Physicians Statement (APS) - -- From a medical practitioner who treated the applicant for prior medical problem "Insurance company will do all of the following except" - -- Inform MIB HIV testing - -- Cannot test without permission and written consent - Common among insurers to require HIV test when an applicant is applying for a large amount of coverage Health Insurance Probability and Accountability Act (HIPPA) - -- Federal law that protects health information Privacy Rule - -- Have a right to view their own medical records - Have the right to see who accessed them over previous 6 years Preferred risk - -- lower premiums than standard risk - "Skinny, non smokers" MISSOURI MISSOURI Standard risk - -- Majority of people at their age and similar lifestyles - Average risk Substandard (High Exposure) risk - -- Not accepted at standard risk - Poor physical condition, personal history of disease or dangerous habits - "Premium rated-up" resulting in higher premiums Declined risk - -- Applicants who are rejected - "There is no insurable interest" - "The applicant is medically unacceptable" Delivering the policy - -- When the insurer mails the policy to the policy owner it is considered legally delivered - Advised to obtain a delivery receipt - "Policy delivered when we received it" Buyer's guide - -- Provides basic, generic information about life insurance policies, language approved by the Department of Insurance Policy summary - -- Written statement describing the features and elements of the policy being issued - Includes premium, cash value, dividend, surrender value and death benefits for specific policy years Illustration - -- A presentation that includes non guaranteed elements of a policy of individual or group life insurance Delivering the policy test Q: "All of the following except" - -- Illustration When coverage begins - -- The policy does not go into effect until the premium is paid - If the initial premium is not paid with the application the agent will be required to collect the premium at the time of delivery Statement of good health - -- Must be signed by the insured - Verifies that the insured has not suffered injury or illness since the application date - "If there is no money then no coverage, must have a statement of good health" USA patriot act - -- Fight and prevent terrorist activities - 9/11 initiated it - Patriot act must be more than $10,000 Term Insurance - -- Also known as pure life/whole life insurance - Temporary protection for a specific period of time - Greatest amount of coverage for the lowest premiums compared to other forms of protection MISSOURI MISSOURI Term insurance provisions - -- If the insured dies during this term, the policy pays the death benefit to beneficiary - Nothing is payable if policy is cancelled or expires prior to insured death - No cash value 3 types of term coverage - -- Level - Increasing - Decreasing - The premium is level throughout the term of the policy - Only the death benefit may fluctuate Level term insurance - -- Most common type of temporary protection - Level refers to death benefits that does not change throughout life of policy Level premium term - -- Level premium and death benefit during the policy term Annually Renewable Term - -- Purest form of term insurance - Death benefits remain level - Guaranteed renewable each year without proof of insurability - Premium increases annually according to age Decreasing term - -- Death benefit decreases each year over the duration of the policy - Purchased to insure the payment of a morgage or other debts if the dies prematurly - Level premium Return or premium - -- Premium is paid if the death occurs within a specified period of time or the insured outlives the policy term - In increasing term policy that pays an additional death benefit to the beneficiary equal to the amount of premiums paid What authorities regulate variable life policies? - -" Regulated by state and federal government" Renewable policy - -- Policyowner has the right to renew the coverage at the experation date without evidence of insurability - Have to do no matter your health Convertible policy - -- Policyowner has the right to convert the policy to a permanent insurance policy without evidence of insurability - Can convert from term to whole life Permanent whole life - -- Build cash value and remain in effect for the entire life of the insured (or until age 100) - Most common type is whole life MISSOURI MISSOURI Life insurance - -- Premiums paid so you can earn annuities paid to the beneficiary after you die Whole life insurance - -- Lifetime protection and includes a savings element - Endow at the insured's age 100 (Writes check to insured) "How much can you borrow from whole life" - -- Up to cash value Straight life (ordinary life) - -- Policyowner pays the premium from the time the policy is issued until the insured's death or age 100 - Lowest annual premium Limited-pay life - -- Designed so that the premiums for coverage are completly paid up well before 100 - 20-pay life; coverage is paid for in 20 years - Life paid up at 65; "Which of the following is limited pay life" - -- Life paid-up at 65 "A 30 year old wants to buy a policy that pays at 100 but stops paying by 65" - -- 30 pay-life Term Life - -- Temporary protection - Level premium - Level, increasing, decreasing death benefits - NO living benefits Whole life - -- Permanent until age 100 - Level premium - Level death benefit Whole life living benefits - -- Cash values - Policy loans Adjustable life - -- "Adjustable life can be term or whole life" - Increase or decrease the premium - Increase or decrease the face amount - Change the period of protection Universal life (flexible premium adjustable life) - -- Policyowner has the flexibility to increase or decrease the amount of premium paid into the policy - CAN skip paying a premium - If policy runs out of cash it dies - ALLOWS partial withdrawal Universal life components (2) - -- Insurance component and cash account MISSOURI MISSOURI - Insurance component: Annually renewable term insurance Universal life death benefit options (2) - -- Option A: level death benefit - Option B: increasing death benefit Option A: level death benefit - -- Death benefit remains level while the cash value increases Option B: increasing death benefit - -- Annual increase in cash value of the death benefit - Death benefit increases each year with the increase of cash value - Death benefit= Face amount of policy + cash value Variable whole life - -- Products are "dually regulated" - "Souped up" putting mutual funds in cash value - Level fixed premium - Cash value fluctuates "Which non-forfeiture option is default selected in the policy owner has not made a selection" - -- Extended term Variable whole life TEST Q's - -- "Securities license to sell" - "Mutual finds will not be in companies investment portfolio" Variable contracts - -- Securities Variable universal life - -- Combo of whole life with flexible premium of universal life - Investment component of variable life - Securities version of universal life Variable universal life features - -- Flexible premium that can be increased, decreased or skipped as long as long as there is enough value to fund death benefits - Increase or decrease the amount of insurance - Cash withdrawals on policy loans Joint life - -- 2 or more lives - Premium is based on joint average age - death benefit paid upon first death only Joint life mortgage policy - -- If both spouses work and earn close to the same amount of income Survivorship life "2nd to die" - -- Pays on last death - Premium is based on joint age - Offset the liability of the estate tax upon death of the last insured MISSOURI MISSOURI Annuity owner - -- Has all the annuity rights - Can be a corporation, trust and ect... - Owners-Annuity-Annuitant Annuity - -- Provide income for amount of years or for life - Protects person outliving their money - Do not pay face amount upon death of annuitant - Use mortality tables - Not life insurance - Used for accumulation of money and liquidation of an estate Annuitant - -- Person who receives benefits or payments from the annuity - A corporation, trust, or legal entity may own an annuity but the annuitant bust be a person Annuity period (annuitized period) - -- When payments from accumulation turn into income payments to the annuitant - Period may last for the lifetime of the annuitant or a specified period Annuity income amount - -- Cash value accumulated - Frequency of payment - The interest rate - The annuitants age and gender Beneficary - -- The person who receives annuity assets if the annuitant dies during period "Which of the following is a type of deductible for a disability income policy" - -- Elimination period Annuity classification - -- Fixed or variable based on premium payments Premium payment modes - -- Frequency the policy owner pays premium - If insured selects other mode than annual additional charge will be added to offset the loss of earning to company If the insured dies during a period for which the premium has been paid - -- The insurer must refund any unearned premiums along with the policy proceeds Mortality tables - -- number of individuals within specified group (men, woman, smokers, non-smokers) Deferred annuity - -- Income payments begin after 1 year of purchase date - For young people (saving) - Tax deferred MISSOURI MISSOURI Fixed annuity - -- Interest rate guaranteed - Income payments guaranteed Level benefit payment amount (annuities) - -- Disadvantage of fixed annuity - Eroded over time due to inflation Variable annuity - -- Considered a security Variable annuity TEST Q - -- "Number of shares stay constant but value can go up or down" Indexed annuitites - -- Fixed annuiteis - Aggressive basis to aim for higher returns - Guaranteed minimum interest rate Standard and Poor's 500 TEST Q - -- "Equity index annuity" Immediate annuity - -- Single, lump-sum payment - Provide income payments within 1 year Entire contract - -- Policy and a copy of application along with any riders or amendments constitute the entire contract Insuring clause - -- Agreement between the insurer and the insured - Insurers promise to pay the death benefit upon insureds death - located on face page Free look - -- Has 10 days from when the policyowner receives the policy to return for full refund of premium Consideration - -- Both parties must provide some value or consideration - Promise to pay in accordance with the terms of the contract Owners rights - -- Policyowner has ownership rights under the policy, not the insured or the beneficiary - Owner has responsibility of paying the policy premiums Absolute assignment - -- Transferring all rights of ownership to another person or entity Collateral assignment - -- Transferring partial rights to another person - Portion in the amount of the debt Primary beneficiary (spouse) - -- Has first claim to the policy proceeds following the death of the insured MISSOURI MISSOURI Contingent beneficiary (children) - -- Has second claim to policy if primary dies before the insured Revocable - -- Policyowner can change designation without consent of the beneficiary Irrevocable - -- Cannot be changed without written consent of the beneficiary Premium mode - -- Insurer must refund any unearned premiums if the insured dies during time for which premiums has been paid Grace period - -- Gives 30-31 days to pay premium before the policy lapses Reinstatement-Life policy - -- Max time limit is 3 years after the policy lapsed Incontestibility - -- Prevents insurer from denying a claim due to statements in the application - During first 2 years insurer can contest a claim - After 2 years misrepresentation are grounds to contest "What can keep a whole life policy in force" - -- So it doesn't last premium Status clause - -- Excludes all deaths while the insured is on active duty in the military Results clause - -- Only excludes the death benefit if the insured is killed as a result of an act of war Suicide - -- 1 year in Missouri Waiver of premium - -- Waives premium if the insured becomes totally disabled - 6 month waiting period from time of disability until the first premium is waived "If you become disabled within 7 months" - -- "Waived premium" Children's term rider - -- Minor reaches 18 or 21 Accidental death rider - -- Pays a multiple of face amount (2x or 3x) - Death must occur within 90 days of accident Accidental death and dismemberment rider - -- pays principle (face amount) - pays capital sum (percentage amount) Capital one - -- One hand, foot, ear, eye Principle amount - -- Both hands, feet, eye, or power of speech MISSOURI MISSOURI Guaranteed insurability - -- Allows insured to purchase additional coverage every 3 years - rider usually expires at age 40 Accelerated (living) benfits - -- Accelerated living benefits allow early payment of a portion of the death benefit if: - Terminally ill - Needs organ transplant - Inability to perform daily activities - Permanent institutionalization Nonforfiture options - -- Only full-life has this option Includes: cash surrender value, reduced paid-up, extended term Extended term - -- Policy cash value to convert to term insurance for the same face amount as the former permanent policy - Insurer automatically implement the extended-term option in the event of termination of original policy Reduced paid-up - -- Lower death benefits - Last up to 100 - Single premium to purchase a paid-up permanent policy