Life and Disability Insurance (CA)

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54 terms · Prep for life and health test in CA

Methods for Handling Risk

Avoid, Reduce, Retain, Transfer

Avoid

Reduce Loss Exposure to zero

Reduce

Not circumventing the situation, but reducing the chance the loss will occur or the severity of the loss

Retain

Self insured, self fund. Assuming responsibility for the loss and becoming self-insured

Transfer

Transferring the risk of loss to another party

Loss

reduction in quality, quantity, or value of something

Peril

Actual cause of loss "fire" or "thieft"

Hazard

anything increasing the chance of loss

Physical Hazards

Build a house next to chemical or dynamite plant

Moral Hazards

Lies on application

Morale hazards

drives fast and reckless

Insurance

Risk transfer.

Tort Law

civil wrong not covered under criminal or breach of contract.

Law of large numbers

theory of probability that states the greater the number of exposures, the more accurate the prediction and greater credibility of the prediction.

Insurable interest

financial interest in having the life of the insured continue at the time of the application.(blood or Money)

insurable interest examples

a person in his/her own life
parent/child
spouses on each other
blood relatives
employer/key employee
partners in a partnership
Creditor/debtor

Criteria of ideally insurable risk

Insurance companies wish to insure pure risk in which there is only a chance of loss and not a chance of gain

criteria of ideally insurable risk

loss must not be catastrophic in nature: catastrophic losses are a large number of losses that occur in a short period of time such as earthquake, flood, or war

insurance contract

a legal agreement between two or more parties. In a contract a certain performance is promised in exchange for a valuable consideration.

mutual assent

offer and acceptance

legal capacity

legal age, sane, sober

consideration

premium. anything of value exchanged for promise of performance.

legal purpose

legal in nature. simply means that the contract cannot be illegal in intent or go against public policy.

aleatory

unequal exchange of money or value

adhesion

ambiguity. If there is a dispute over the meaning of ambiguous language in the contract, a court normally would side with the policyholder.

unilateral

one sided contract. the insurer is obligated to pay the death benefit as long as the premiums have been paid.

utmost good faith

no attempts to deceive or conceal

Express authority

Perspective of the Agent. is the actual authority a principal grants the agent. In writing

Implied authority

Perspective of the Agent. Not spelled out in writing, but it is the authority the agent is assumed to have in order to cary out the contract.

Apparent authority

Perspective of the client. Situation where agent conduct causes a client or perspective insured to believe that the agent has the authority to sell an insurance policy contract on behalf of the principle. "emblems on the door"

Errors and Omissions insurance E&O

provides coverage for an act, error, or omission the agent makes in rendering or failing to render professional services in the conduct of their profession

STATE LEGISLATURE

WRITES THE INSURANCE CODE

Immediate estate

Life insurance creates?

Estate planning

used as a method to cover estate taxes and probate costs

Ordinary insurance -whole life

policy written on an individual basis. More specifically it is considered to be permanent insurance. Provides protection for the entire spanned of life (age 100)

Permanent insurance

provides protection for the insured's entire life span. Living benefits are 1.builds cash values 2.the policy owner can surrender policy for cash value 3. exercise non forfeiture options 4. borrow against cash value

Term Insurance

provides life insurance protection for a designated number of years- anywhere from one year to thirty years. No cash value, pure insurance protection.

Level Term

insurance provides for a level death benefit and a level premium.

Decreasing Term

insurance has a death benefit that decreases, but the premiums remain constant or level. used for home mortgages

Credit life insurance

usually is written as decreasing term

increasing term

The amount of increase can be either a specific amount or a percentage of the original amount. Although this could be a separate policy, it is normally written as a rider to a permanent policy, such as cost of living rider or the return of premium rider.

Renewable term

no proof of insurability when policy is renewed.

Convertible term

insurance allows the policy owner to convert the term coverage to permanent insurance without proof of insurability. Normally when this right is exercised, a new permanent policy will be issued based on attained age (present age) of the insured.

Whole life insurance

builds cash value. Grows on a tax-deferred basis. The cash values will equal the face amount of the policy at age 100. DB=CV

Whole life insurance

An insured may borrow against the cash values in the policy. A policyowner is not required to repay a policy loan. If loan is not repaid, amount is deducted from face value.

Living benefit

A policy owner also may surrender a policy and receive the accumulated cash values.

Limited payment whole life

Policies differ from straight whole life policies in that they allow for the premium to be paid over a shorter period of time. Superfunded

Single premium whole life policies

are paid for with one premium payment. One time with one big check.

Family income policy

Policy that is a combination of whole life insurance with a decreasing term rider. the decreasing term rider provides monthly income benefits to the family.

Family maintenance

Policy that are a combination of whole life insurance with a level term rider. The income period begins on the date of the insured's death.

Family protection policy

The family protection policy is a policy that provides protection for all family members. Normally written as a whole life on the head of household and level term on the spouse and children.

Joint life policy

An insurance contract written on the lives of two or more persons and payable upon the death of the FIRST person to die; also known as a first-to-die policy.

first to die policy

pays the death benefit upon the death of whichever insured person dies first with the death benefit normally being paid to the surviving insured. used by husbands and wives and business partners to fund buy-sell agreement.

second to die policy

This policy is used mostly by husband and wife for estate planning purposes and the face amounts are usually more than one million dollars.

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