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LIFE

Life Insurance Policy Provisions, Options, and Riders  

B. Beneficiaries

Retained Asset Account

A Retained Asset Account (RAA) is an interest-bearing money market checking account that is established for the beneficiary of a life insurance policy. The insurer deposits the policy's death benefit into this account, from which the beneficiary can draft the funds as needed. The purpose of creating an RAA is to allow the beneficiary time to consider available financial options.

In most states, insurers must disclose the interest rate that is paid on RAAs. The disclosure must include a description of how the interest is determined and how it is credited to the account.

Spendthrift Clause

The spendthrift clause, when included in a life insurance policy, protects beneficiaries from the claims of their creditors, as well as prevents the beneficiary's reckless spending of benefits by requiring that the benefits be paid in a fixed period or fixed-amount installments. The beneficiary does not have the right to select a different settlement option and is not allowed to assign or borrow any of the proceeds. The spendthrift clause is designed to protect life insurance policy proceeds that have not yet been paid to a named beneficiary from the claims of the creditors of the beneficiary or policyowner.

Federal Tax Considerations for Life Insurance and Annuities

B. Taxation of Personal Life Insurance

2. Amounts Received by Beneficiary

Estate Value

The death benefit or face amount of a life insurance policy may be included in the insured's taxable estate at death and subject to the federal estate tax. There are essentially 3 situations that will result in life insurance being included in the insured's taxable estate.

1.       Incidents of ownership — An incident of ownership is defined as any one of the rights of policy ownership, such as the right to cash value, the right to change the beneficiary, the right to obtain policy loans, or the right to assign the policy. If the insured/policyowner possessed any one of these incidents of ownership at the time of the insured's death, the entire face amount of the policy will be included in the insured's taxable estate, even though the actual proceeds were paid out to the beneficiary.

2.     Estate as beneficiary — If the insured's estate is the designated beneficiary at the time of the insured's death, the entire face amount of the policy will be included in the insured's taxable estate.

3.     Transfer of ownership — If the insured, as policyowner, assigns or transfers ownership of the policy or makes a gift of the policy within 3 years prior to the insured's death, the entire face amount of the policy will be included in the insured's taxable estate.

HEALTH

Producer Authority, Contracts, and Customer Relations (Health Course)

Underwriting, Customer Relations and Privacy (Life and Health course)

B. Producer Authority and Powers / Producer Responsibilities in Individual Health Insurance

3. Recording, Reporting, and Securing Client Information 

Security Rules

The Security Rules of HIPAA apply to electronically protected health information that is individually identifiable in electronic form. This includes information about a patient's past, present or future medical condition and payment for health care provision. The Security Rules were established to protect confidentiality, integrity, and availability of electronically protected health information.

Covered entities must comply with the security provisions of HIPAA by maintaining reasonable administrative, physical, and technical safeguards against any reasonably anticipated risks.

HIPAA regulations require the use of an electronic data interchange (EDI), an electronic way of transmitting information and documentation between health care providers and insurance providers. The rule establishes specifications for transferring data between computers, including the precise format for each exchange.

The following transactions are governed by the EDI Rule:

• Health care claims or equivalent encounter information;
• Health care payment and remittance advice;
• Coordination of benefits;
• Health care claim status;
• Enrollment and disenrollment in a health plan;
• Eligibility for a health plan;
• Health plan premium payments; and
• Referral certification and authorization.

Medical Plans

I. Affordable Care Act (ACA) – addition to the existing text:

State insurance exchanges must provide for an initial open enrollment period, annual open enrollment periods after the initial period (currently scheduled from November 1 through January 31), and special enrollment periods. Unless specifically stated otherwise, individuals or enrollees have 60 days from the date of a triggering event to select a qualified health plan. Triggering, or qualifying, events include marriage, divorce, birth or adoption of a child, change in employment, or termination of health coverage.

Qualified individuals and enrollees may enroll in or change from one qualified health plan to another as a result of the following triggering events:

• A qualified individual or dependent loses minimum essential coverage;
• A qualified individual gains a dependent or becomes a dependent through marriage, birth, adoption or placement for adoption;
• An individual who was not previously a citizen or lawfully present individual who gains such status;
• A qualified individual's enrollment or non-enrollment in a qualified health plan is unintentional or erroneous and is the result of the error, misrepresentation, or inaction of an officer, employee, or agent of the exchange;
• An enrollee adequately demonstrates that the qualified health plan in which they are enrolled substantially violated a material provision of its contract;
• An individual is determined newly eligible or newly ineligible for advance payments of the premium tax credit or has a change in eligibility for cost-sharing reductions, regardless of whether such individual is already enrolled in a qualified health plan;
• A qualified individual or enrollee gains access to new qualified health plans as a result of a permanent move;
• A Native American, as defined by the Indian Health Care Improvement Act, may enroll in a qualified health plan or change from one qualified health plan to another one time per month; and
• A qualified individual or enrollee demonstrates that they meet other exceptional circumstances as the exchange may provide.

Termination of Coverage

A Health Insurance Exchange may cancel an enrollee’s coverage in the event of any of the following:

• The enrollee is no longer eligible for coverage;
• Premiums are no longer being paid and grace periods have been exhausted;
• The enrollee’s coverage has been rescinded;
• The health plan terminates or is decertified; or
• The enrollee changes from one plan to another.

Insurance for Senior Citizens and Special Needs Individuals

D. Long-term Care (LTC) Policies

Cost of Living

Insureds can also use life insurance products to help pay for long-term care services. The cost of living rider attached to a life insurance policy allows the policyowner purchase increasing term insurance coverage to keep up with expected increases in the cost of living. This rider addresses the inflation factor by automatically increasing the amount of insurance without evidence of insurability from the insured. The face value of the policy may be increased by a cost of living factor tied to an inflation index such as the Consumer Price Index (CPI).

The Gramm-Leach-Bliley Act requires 2 disclosures to a customer (a consumer who has an ongoing financial relationship with a financial institution):

• When the customer relationship is established (i.e., a policy is purchased); and
• Before disclosing protected information.
• The customer must also receive an annual privacy disclosure, and have the right to opt out, or choose not to have their private information shared with other parties.

General Insurance

B. Insurers

2. Marketing (Distribution) Systems 

Wholesale Insurance Brokers

Wholesale brokers serve as intermediaries between retail brokers and insurers for specific, hard-to-place risks. They work primarily in the excess and surplus market. Unlike retails brokers, wholesale brokers do not have contact with the insured; the coverage they write is on business retail agents bring them.

Aggregators

An insurance aggregator is just what it sounds like: It groups, or aggregates, independent agencies. They combine premiums to give members benefits that they would not be able to offer as individual entities. In the aggregate model, consumers have the opportunity to compare the offerings from several agencies at once.

Managing General Agent (MGA)

A managing general agent (MGA) is an agency that is contracted to perform various business functions, such as underwriting, binding, policy administration, claims, and distribution, on behalf of insurance companies.

MGAs are different from insurance brokers in that they are given the authority to underwrite and perform various other tasks that would normally be performed by the insurers themselves. MGA's fiduciary duty is to the insurance company.

PROPERTY

Commercial Package Policy (CPP)

B. Commercial Property

3. Causes of Loss Forms 

Earthquake 

The Earthquake and Volcanic Eruption Endorsement must be used with one of the Cause of Loss forms (Basic, Broad, or Special). It adds two perils for coverage:

• Earthquake; and
• Volcanic eruption (eruption, explosion, or pouring forth of a volcano).

The volcanic eruption coverage provided by the other cause of loss forms is limited to above ground type volcanic action, clearly excluding ground shock waves. All earthquake shocks or volcanic eruptions occurring within any 168-hour period (7 days) are considered one earthquake or explosion. The deductible is a percentage of the loss as shown on the property Declarations page.

The Exclusions and Limitations sections of the Causes of Loss Form apply to coverage provided under this endorsement.

C. Commercial General Liability

1. CGL Coverage Forms 

Endorsements 

There are many endorsements available to modify the coverage provided under the General Liability Coverage Part. Some of these endorsements are used to remove some of the standard coverages included in the policy. Coverages that can be deleted include personal and advertising injury; medical payments, products/completed operations and fire legal liability. Other endorsements are used to exclude specific exposures, such as designated products, work or premises, explosion collapse and underground property damage (referred to as X,C,U), or bodily injury coverage for participants in a sponsored athletic sport.

Other endorsements are used to add coverage or to amend the policy limits. Endorsements which are used to amend policy limits include endorsements that modify the aggregate limit to apply on a per location or per project basis. Another endorsement, called the deductible liability endorsement, establishes deductibles that apply to bodily injury and property damage either separately or combined. These deductibles can be written either on a per claim (per person or organization) or per occurrence (regardless of the number of persons or organizations) basis.

There are also several endorsements available which will provide coverage for other persons or organizations who may be held liable because of their business relationship with the insured. These additional insureds include club members, concessionaires, managers or lessors of premises, condominium unit owners, controlling interests, volunteer workers, lessors of leased equipment, and other designated individuals.

CASUALTY

Casualty Insurance Basics

A. Principles and Concepts

7. Loss Valuation 

Actual Loss Sustained 

The phrase actual loss sustained refers to the full cost of a loss, no matter what the insurance company ultimately pays out. Considerations factored into this calculation can range from repairs and replacements to additional living expenses or loss of income.

Binders

A binder is a temporary agreement issued by an agent or insurer providing temporary coverage until a policy can be issued. A binder is usually in writing, but may be verbal. Binders expire when the policy is issued. However, the policy effective date would be the same as the date when the binder was issued. If the insurer declines to issue the policy, the binder expires on the date after receipt of the notice of cancellation.

State Plans and Regulations

Assigned Risk Plans

An assigned risk is one that is not ordinarily acceptable to insurers and assigned to members of an assigned risk plan.

An assigned risk plan (or automobile insurance plan) is a group of insurers who share the assigned risks, thereby providing the required auto insurance for those who cannot obtain it in the normal market.

Joint Underwriting Association (JUA) 

A joint underwriting association is an unincorporated association of insurers formed to provide a particular form of insurance to the public. Insureds under an association pay assessments with their premiums to provide monies for the operation of the association.

C. Common Policy Provisions 

5. Coinsurance 

The coinsurance clause states that, in consideration of a reduced rate, the insured agrees to maintain a certain minimum amount of insurance on the insured property. This encourages the insured to insure the property closer to its full value. In case of a partial loss, the insurer will pay the partial loss in full if the insured has maintained the required percentage of insurance with relation to the value of the property. If the amount of insurance maintained is less than the coinsurance clause requirement, the insurer will only pay the percent of the loss that the insurance bears in relation to the amount of insurance that should have been carried. In the event of a total loss, the coinsurance clause does not operate, and the face amount of the policy is paid.

The formula for calculating coinsurance penalties is the amount of insurance carried over the amount of insurance the insured should have had, multiplied by the loss, which equals the reduced payment for loss.

(Insurance Carried ÷ Insurance Required) X Loss Amount = Loss Payment

For a $100,000 building insured with an 80% coinsurance percentage, the insured would have to carry at least $80,000 ($100,000 x .80) of insurance to meet the coinsurance requirement. If, instead, the insured only carried $40,000 of insurance and had a $10,000 loss, he would have to bear 50% of the loss due to the deficiency, or $5,000, and any deductible.

Commercial Package Policy (CPP)

D. Farm Coverage

Crop Insurance

Crop insurance is designed to meet the needs of farmers and other crop growers who desire protection against loss to their investment in planted crops resulting from damage by the elements and other perils. The original crop insurance policy provided coverage against loss by hail only, and although this is still the major peril, coverage is now written to cover loss against fire and lightning as well. Insurance on growing crops is sold by specialty crop-hail insurers. In addition, coverage against loss from most any peril (multi-peril) is available from the Federal Crop Insurance Corporation (FCIC) through a federally subsidized multi-peril crop insurance program. Private insurers which are reinsured by the Federal Crop Insurance Corporation also offer multi-peril crop insurance.

Covered Perils

The perils covered under the standard crop-hail policy are hail, fire and lightning. Coverage against fire and lightning applies before the crop is harvested and while it is still in the field or being transported to first storage. The policy does not cover losses or damage caused by wind, rain, flood or frost.

Limits of Coverage

Crop-hail insurance coverage can be purchased in any amount up to the full value of the expected crop. On early pre-season contracts, the coverage is usually for an average crop yield, but adjusted for the expectation of the individual insured. Some insured purchase coverage for potential value of the expected crop, while others may only insure for the cost of production.

Most crop-hail insurance is written on a "percentage plan". The insurer permits the insured to place a valuation on the crop, which is then the amount of insurance purchased. In the event of a loss, the indemnity is based on the percentage of the crop damaged by hail, fire, or lightning.

Federal Crop Insurance Program (FCIP) 

The Federal Crop Insurance Program (FCIP) offers farmers the opportunity to purchase insurance against losses due to adverse growing or market conditions, including losses resulting from natural disasters. Coverage applies to most field crops, grazing lands, and a variety of specialty crops.

Crop insurance provided by the FCIP covers losses due to:

• Drought;
• Heat;
• Hail;
• Excess moisture;
• Precipitation or rain;
• Frost;
• Freeze;
• Cold;
• Wet weather;
• Wind;
• Tornados;
• Cyclones;
• Hurricane or tropical depression;
• Certain fires;
• Earthquake;
• Insect or wildlife damage;
• Plant disease;
• Volcanic eruption; and
• Other covered causes of loss.

Businessowners Policy

D. Selected Endorsements 

Protective Safeguards 

Protective safeguards endorsement adds a policy condition requiring the insured to maintain protective safeguards (e.g., automatic sprinkler system or fire alarm) as a condition for coverage. If the automatic sprinkler system is shut down due to breakage, leakage, freezing, or opening of the sprinkler heads, the insured has 48 hours to restore the system before the insured must notify the insurer.

Utility Services — Direct Damage and Time Element

Utility services — direct damage endorsement provides coverage for direct damage caused by utility service disruption stemming from a covered peril. The insured's location and utility service must be indicated in the endorsement. Utility services include water services, communication services, and power supply services.

The utility services — time element endorsement covers the insured's loss of business income or extra expense in the event of a direct physical loss to a utility service. The insured's location and utility service must be indicated in the endorsement. 

Other Coverages and Options

B. Specialty Liability Insurance 

Construction Wrap-Up

Wrap-up insurance policies provide coverage for any contractors or subcontractors working on a construction project. This ensures uniform liability coverage for all parties involved and that all risks are covered adequately.

Active Assailant

Active assailant coverage provides a combination of property and casualty coverage to help organizations respond to mass shootings. This can come in the forms of coverage for business interruption, loss of attraction, extra expenses, and 24/7 crisis consultancy.