Insurance Terminology Flashcards

Questions and Answers

What is the name given to causes or conditions listed in the policy that are not covered and for which no benefits are payable?

Exclusions

Which of the following types of limited policies would a common carrier purchase to provide medical and surgical benefits in excess of any primary coverage?

Blanket Plan (correct)

Health Savings Account

Major Medical Plan

Indemnity Plan

The insured has a financial incentive to use providers who have agreed to predetermined reimbursements for medical services rendered.

True

When payment under a Medical Expense policy is based on the average fee charged by all doctors in a given geographical area, what is this payment known as?

Usual, customary, reasonable (UCR) payment Signup and view all the answers

Which is not a classification of a healthcare plan?

Blue Cross/Blue Shield Signup and view all the answers

What is needed to qualify for a Social Security Disability Benefit?

Be either currently or fully insured Signup and view all the answers

To reduce its exposure to claims from a substandard disability risk, an insurer may take all of the following actions, except:

Remove all of the exclusion riders Signup and view all the answers

A Short-Term Disability Policy generally is for a disability lasting for?

Not more than 2 years Signup and view all the answers

What type of disability income insurance provides funds to cover business expenses when the business owner becomes disabled?

Business overhead expense Signup and view all the answers

What is the term for a period of deductibility immediately following a disability during which time benefits are not payable?

Elimination Period Signup and view all the answers

Which rider would eliminate coverage for a preexisting condition?

Impairment Rider Signup and view all the answers

What provision allows Penelope to start receiving her disability payments immediately after returning to work but finding she cannot continue?

Recurrent Disability Provision Signup and view all the answers

Residual Disability Income pays funds to the insured, to make up for what the insured would have earned after returning to work, and while recovering from ___________.

Total disability Signup and view all the answers

Why is the insurance contract said to be a contract of Utmost Good Faith?

Each party is entitled to rely upon the representations of the other that there is nothing concealed or dishonest. Signup and view all the answers

What is a good example of Risk Reduction?

When one takes action to minimize the severity of a potential loss. Signup and view all the answers

What may result from a breach under the Doctrine of Warranty?

Voidance of the contract. Signup and view all the answers

Why will courts usually interpret an unclear insurance policy in favor of the insured?

The policy is a Contract of Adhesion. Signup and view all the answers

How can insurance be placed with an authorized/non-admitted insurer?

By a Surplus Lines broker. Signup and view all the answers

___________ insurance is used to provide coverage when insurance is not available from an admitted carrier.

Surplus Signup and view all the answers

Which might be considered a physical hazard?

The storage of flammables near a furnace. Signup and view all the answers

The prediction of individual losses is based upon past experience according to the Law of Large Numbers.

False Signup and view all the answers

Who is the principal in the agency relationship between John, the agent for ABC Insurance, and Jane, the insured?

ABC Insurance. Signup and view all the answers

Which insurer's owner receives taxable corporate dividends as a return of profit?

Stock. Signup and view all the answers

What type of producer authority is specified in the agency contract?

Express. Signup and view all the answers

In California, who may manufacture and sell insurance coverage by way of insurance policies or contracts?

Insurer. Signup and view all the answers

Who is primarily responsible for determining acceptable risks in insurance?

Underwriter. Signup and view all the answers

An insurer that is not approved by the state Department of Insurance is called a(n) ___________ insurer.

Non-admitted Signup and view all the answers

What is a group plan designed to insure?

All except creditors. Signup and view all the answers

A personalized computer-generated illustration detailing premiums, cash values, interest rates, and surrender values is called __________.

A policy summary Signup and view all the answers

What is the insurer's responsibility if a producer submits a completed application and the applicant dies before a policy is issued?

To pay the claim in full since the conditions of the receipt were fully satisfied. Signup and view all the answers

When does coverage start if a life insurance application is completed but not paid for?

On the date the policy is delivered and premium collected. Signup and view all the answers

What is the primary reason for outlawing Stranger/Investor Originated Life Insurance (STOLI) transactions?

At policy inception, there is a lack of insurable interest. Signup and view all the answers

What happens to the total premium due if an insured changes from annual to monthly payments?

Increase. Signup and view all the answers

Whose signature is not required on a life insurance application?

Beneficiary. Signup and view all the answers

What happens if an applicant for life insurance dies before a substandard policy is issued?

The insurer will refund any premiums paid. Signup and view all the answers

Where does the initial benefit money come from if a participating life insurance policy has a long-term care rider?

It is an advance of the face amount of the policy. Signup and view all the answers

All policies end when an insured dies, except a Joint Survivorship policy.

True Signup and view all the answers

Which statement is TRUE of a term rider when attached to a permanent life policy?

It can provide additional temporary coverage on the insured or on other members of the family. Signup and view all the answers

What best describes a Straight Whole Life Policy?

Level guaranteed premium and face value for the life of the insured. Signup and view all the answers

Whole Life is also known as ________ protection.

Permanent Signup and view all the answers

What is the amount payable to the survivor under a $250,000 Joint Life Policy?

$250,000. Signup and view all the answers

What does the Cash Value in a permanent policy refer to?

Money accumulated in a permanent policy that the policyowner may borrow against or receive if surrendered. Signup and view all the answers

What premium paying method is used if the first few years of premiums are lower than an ordinary whole life policy?

Modified. Signup and view all the answers

Which Whole Life policy is designed to provide substantial immediate cash value?

Single Premium Whole Life Policy. Signup and view all the answers

Term Life insurance is designed to provide coverage for ___________.

A specified period of time Signup and view all the answers

Equity Universal, Variable, and Variable Universal all have which characteristic in common?

The overall policy performance is tied to the stock market in general. Signup and view all the answers

What happens to the overall policy premium when most riders on a life insurance policy expire?

It goes down. Signup and view all the answers

Why did the overall premium increase for Sara's life insurance policy?

Sara now has added a waiver of premium rider, which requires an additional premium payment. Signup and view all the answers

How can Bert obtain necessary funds while maintaining coverage on his life insurance policy?

Take a policy loan from the insurer. Signup and view all the answers

The insurer is obligated to pay out death benefits if the premiums have not been paid and have been overdue for 3 years.

False Signup and view all the answers

What will happen to a universal life policy if there is a $5,000 partial withdrawal?

The death benefit or cash accumulation will be reduced by the partial withdrawal. Signup and view all the answers

How much will the beneficiary receive from a life insurance policy used as collateral for a bank loan?

$90,000. Signup and view all the answers

Which Dividend Option is Lucy exercising by using her dividends to purchase additional permanent benefits?

Paid-up Additions. Signup and view all the answers

What rider must a policy have if it pays double or triple benefits upon accidental death?

Accidental Death Rider. Signup and view all the answers

Who has the authority to drop a rider from a policy?

An executive officer of the insurer. Signup and view all the answers

Who has the right to change beneficiaries and access the cash value of a life insurance policy?

The policyowner. Signup and view all the answers

Which beneficiary designations is a class designation?

Any children of this marriage. Signup and view all the answers

What is the best way to ensure life insurance proceeds do not end up in probate court?

List a primary and contingent beneficiary by their full name and relationship to the insured. Signup and view all the answers

Which beneficiary designation prevents a policyowner from taking a policy loan or assigning the policy without consent?

Irrevocable. Signup and view all the answers

How many days does a client have to review and return a disability income policy to receive a full refund?

<ol start="10"> <li></li> </ol> Signup and view all the answers

Once issued, if the application is attached to the policy, it becomes part of the __________.

Entire contract Signup and view all the answers

What is one option for an annual dividend received by a life insurance policyowner?

Premium Reduction. Signup and view all the answers

What option has the insured chosen if she uses her dividends to enhance her insurance amount?

Paid-Up Additions. Signup and view all the answers

What does the Fixed Amount Settlement Option specify?

The owner specifies the amount of each periodic payment. Signup and view all the answers

When Harry's annuity pays $1,000 each month and he dies, how much will Lucille receive?

Zero. Signup and view all the answers

What is the difference between cash value and cash surrender values in a variable universal life policy?

The surrender charge. Signup and view all the answers

What does a Joint Life Payment Option provide upon the first annuitant's death?

Nothing. Signup and view all the answers

What disclosure must a life agent provide when selling financial products based on Medi-Cal treatment?

Notice Regarding Standards for Medi-Cal Eligibility. Signup and view all the answers

Which product is designed to distribute an individual's savings over their entire life?

Annuities. Signup and view all the answers

Which type of annuity is not generally backed by the insurer's general account assets?

Variable. Signup and view all the answers

What is the waiting period to apply for social security disability?

5 months. Signup and view all the answers

What happens to policy values if a policyowner stops funding their annuity?

They are protected by the nonforfeiture provision. Signup and view all the answers

What is used to compute the Social Security Survivor Benefit?

PIA. Signup and view all the answers

What could happen if a buy-sell agreement is not in place when a partner dies?

The surviving spouse of the deceased becomes the other partner. Signup and view all the answers

What is an agreement among business owners that provides continuation upon certain events called?

Buy-Sell Agreement. Signup and view all the answers

Buy-Sell agreements are used for all business entities.

False Signup and view all the answers

What must an insurer do if a life insurance policy premium exceeds MEC guidelines?

Refund the excess within 60 days of the end of the contract year. Signup and view all the answers

ERISA sets minimum standards for pension plans primarily in which industry?

Private. Signup and view all the answers

Life insurance proceeds are income taxable when ownership is transferred while the insured is alive.

True Signup and view all the answers

What are the tax ramifications if a corporation owns an annuity?

There is no tax deferral benefit on any earnings. Signup and view all the answers

When are earnings on the cash value increase in a permanent policy taxable?

When they exceed the cash values based on premium payments and interest credits. Signup and view all the answers

What penalty applies to premature withdrawals from a Modified Endowment Contract (MEC)?

10% on any gains. Signup and view all the answers

All statements about Group Life Insurance are true.

False Signup and view all the answers

All transactions qualify for IRC Section 1035 exchange tax treatment.

False Signup and view all the answers

What information must an insurer provide if an insured receives a periodic benefit as a result of the Accelerated Death Benefit Rider?

The amount of the accelerated payment, the remaining death benefit, and cash values. Signup and view all the answers

What type of definition is needed if Tim must prove his injury was unforeseen?

Accidental Bodily Injury. Signup and view all the answers

What can be used to reflect higher risk exposure in insurance policies?

Higher premiums, not declined applications. Signup and view all the answers

What is included in Part II of a Health Insurance Application?

Present health and medical background of the applicant and family. Signup and view all the answers

What is it considered when a policy is mailed to an insured by an insurer?

Delivered. Signup and view all the answers

What are statements made on the application considered if they are true to the best of the applicant's knowledge?

Representations. Signup and view all the answers

How can the insurer's underwriter find information about an applicant's moral character, hobbies, and reputation?

Through a Consumer Investigative Report. Signup and view all the answers

What is the waiting age for tax penalties on withdrawals from a Modified Endowment Contract (MEC)?

59 1/2. Signup and view all the answers

Who has primary responsibility for ensuring applications are filled out completely?

Producer. Signup and view all the answers

Stating that 'We have been in business for over 50 years' is a prohibited form of advertising.

False Signup and view all the answers

Long-term care is one of the basic benefits required of all HMOs.

False Signup and view all the answers

What does Accidental Death and Dismemberment provide?

The face amount, or principal sum, if the insured dies due to an accident within 90 days. Signup and view all the answers

How are HMOs established in terms of doctor participation?

Open panel, which means the doctor can work with anyone; or closed panel, where the doctor can only work with HMO members. Signup and view all the answers

What is a facility where outpatient surgery is performed for patients requiring general anesthesia called?

Surgicenter. Signup and view all the answers

What major medical plan deductible results in the lowest premium?

[Answer Pending] Signup and view all the answers

Study Notes

Insurance Contracts and Principles

Utmost Good Faith: Insurance contracts rely on honesty; both parties must not conceal or misrepresent information.
Risk Reduction: Actions taken to minimize potential loss severity are examples of risk reduction.
Doctrine of Warranty Breach: Breaching a warranty can render the insurance contract void.

Policies and Interpretations

Contract of Adhesion: In ambiguous insurance policies, courts usually favor the insured due to the nature of being a take-it-or-leave-it contract.
Surplus Lines Insurance: When insurance cannot be secured from licensed insurers, a surplus lines broker can facilitate placement with authorized/non-admitted insurers.

Risks and Hazards

Physical Hazards: Situations like the storage of flammables near a furnace present physical hazards that can increase risk.

Fundamental Concepts

Law of Large Numbers: Individual loss predictions are not based on past experience, contradicting some beliefs about insurance pools.
Underwriter Role: Underwriters are responsible for assessing and determining acceptable risks.
Irrevocable Beneficiary Designation: This designation prevents the policy owner from making certain decisions without beneficiary consent.

Beneficiary and Policyowner Rights

Life Insurance Application: Beneficiaries do not need to sign the application for life insurance.
Policy Loans and Cash Value: The policy owner can borrow against the cash value accumulated in their permanent policy.
Beneficiary Rights: The policyowner retains rights to change beneficiaries and access cash value unless otherwise stated.

Premiums and Payments

Premium Adjustments: Changing premium payment frequency from annually to monthly typically leads to an increased total premium.
Modified Premiums: Policies may offer lower initial premiums to make them more affordable.
Premium Reduction Option: Policyowners can use dividends to offset annual premium obligations.

Life Insurance Types and Features

Joint Life Policy: Pays $250,000 upon the death of either insured in a couple.
Term Life Insurance: Provides coverage for a specified period; riders can offer additional temporary coverage.
Paid-Up Additions: Lucy's use of dividends to purchase additional insurance benefits reflects this option.

Annuities and Retirement Plans

Annuities Defined: Specifically designed to provide a lifetime income regardless of lifespan.
Variable Annuities: Not backed by the insurer's general account assets; their performance is market-dependent.
Joint Life Payment Option: No payment is made to a survivor upon the first annuitant's death.

Disability Policies

Business Overhead Expense Policy: Provides benefits for business expenses when an owner is disabled.
Short-Term Disability: Generally covers disabilities lasting no more than two years.
Medicare Eligibility: Social Security Disability requires current or fully insured status.

Health Insurance and HMOs

Basic HMO Benefits: Does not include long-term care as a basic requirement for coverage.
Usual, Customary, Reasonable Payments: In a medical expense policy, payments are based on average charges in a geographical area, leaving excess costs to the insured.
Exclusions in Policies: Defined causes or conditions that are not covered and for which no benefits are payable.

Miscellaneous Concepts

Buy-Sell Agreements: Ensure business continuity upon an owner’s death or disability; not typically used for large public corporations.
MEC Guidelines: Overpayment beyond these guidelines can be refunded within 60 days after the contract year ends.
Consumer Investigative Reports: Underwriters use these to gather insights into an applicant's character and background for risk assessment.

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Test your knowledge of important insurance terms and concepts with these flashcards. Each card provides a definition for key vocabulary, ensuring you understand foundational principles in the insurance industry.