54 terms

Life and Disability Insurance (CA)

Prep for life and health test in CA
Methods for Handling Risk
Avoid, Reduce, Retain, Transfer
Reduce Loss Exposure to zero
Not circumventing the situation, but reducing the chance the loss will occur or the severity of the loss
Self insured, self fund. Assuming responsibility for the loss and becoming self-insured
Transferring the risk of loss to another party
reduction in quality, quantity, or value of something
Actual cause of loss "fire" or "thieft"
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
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
spouses on each other
blood relatives
employer/key employee
partners in a partnership
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
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.
unequal exchange of money or value
ambiguity. If there is a dispute over the meaning of ambiguous language in the contract, a court normally would side with the policyholder.
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
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.