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Virginia held for 75 years before the Supreme Court again addressed the issue of state versus federal regulation of the insurance industry.
In the SEUA case, the Supreme Court ruled that the business of insurance is subject to a series of federal laws, many of which were in conflict with existing state laws, and that insurance is a form of interstate commerce to be regulated by the federal government. This decision did not affect the power of states to regulate insurance, but it did nullify state laws that were in conflict with federal legislation. The result of the SEUA case was to shift the balance of regulatory control to the federal government.
Today, the insurance industry is considered to be state-regulated. The National Conference of Insurance Legislators NCOIL was formed to help legislators make informed decisions on insurance issues that affect their constituents and to declare opposition to federal encroachment of state authority to oversee the business of insurance, as authorized under the McCarran-Ferguson Act of In the mids the Federal Trade Commission FTC sought to control the advertising and sales literature used by the health insurance industry.
Additional attempts have been made by the FTC to force further federal control, but none have been successful. In this instance, the issue was variable annuities: Are the insurance products to be regulated by the states or securities to be regulated federally by the Securities and Exchange Commission SEC?
The Supreme Court ruled that federal securities laws applied to insurers that issued variable annuities and, thus, required these insurers to conform to both SEC and state regulation. The SEC also regulates variable life insurance. Insurers must inform applicants about any investigations that are being made. If any consumer report is used to deny coverage or charge higher rates, the insurer must furnish to the applicant the name of the reporting agency conducting the investigation.
Any insurance company that fails to comply with this act is liable to the consumer for actual and punitive damages.
The Glass-Steagall Act of , which barred common ownership of banks, insurance companies, and securities firms and erected a regulatory wall between banks and nonfinancial companies, came under repeated attack in the s. The chronology cited reflects the roles the courts and the federal government have played in regulating the insurance industry. Marketing and selling financial products, such as life insurance and annuities, requires a high level of professionalism and ethics. Every state requires its licensed producers to adhere to certain standards designed to protect consumers and promote suitable sales and application of insurance products.
Some of these standards are listed below. Two principles of needs-based selling include find the facts, and educate the client. What product can help meet those needs? Does the client understand the product and its provisions?
Does the client have the capability, financially and otherwise, to manage the product? The ethical agent makes it a practice to inform clients about all aspects of the products recommended, including benefits and limitations.
There should never be an attempt to hide or disguise the nature or purpose of the product nor the company being represented.
Insurance products are highly effective financial planning tools. They should be presented clearly, completely, and accurately.
The ethical agent documents each client meeting and transaction. Some documentation is required by state law. Ethical agents know these laws and follow them precisely. The ethical agent knows that a sale does not mark the end of a relationship with a client, but the beginning.
When clients contact their agents for service or information, these requests are given top priority. Complaints are handled promptly and fully.
These guides explain the various types of life insurance products including variable annuities in a way that the average consumer can understand. In addition, a policy summary containing information about the specific policy being recommended must be given to a potential downloader.
It identifies the agent, the insurer, the policy, and each rider, and includes information about premiums, dividends, benefit amounts, cash surrender values, policy loan interest rates, and life insurance cost indexes of the specific policy being considered. The policy summary also contains cost indexes that help the consumer evaluate the suitability of the recommended product. The net payment cost comparison index gives the downloader an idea of the cost of the policy at some future point in time compared to the death benefit.
The surrender cost comparison index compares the cost of surrendering the policy and withdrawing the cash values at some future time. Because all states are interested in protecting the interests of the downloading public, the actions of individuals soliciting insurance sales are strictly regulated.
However, the laws regarding insurance marketing and trade practices vary from state to state. This organization has committees that work regularly to examine various aspects of the insurance industry and to recommend appropriate insurance laws and regulations.
The NAIC has four broad objectives:. A principal problem of states in the past was regulating misleading insurance advertising and direct mail solicitations. The Code specifies certain words and phrases that are considered misleading and are not to be used in advertising of any kind. Also required under this code is full disclosure of policy renewal, cancellation, and termination provisions.
This act gives chief financial officers the power to investigate insurance companies and producers, to issue cease and desist orders, and to impose penalties. The act also gives officers the authority to seek a court injunction to restrain insurers from using any methods believed to be unfair. Included in the context of unfair trade practices are misrepresentation and false advertising, coercion and intimidation, unfair discrimination, and inequitable administration of claims settlements.
All states have established guaranty funds or guaranty associations to support insurers and to protect consumers if an insurer becomes insolvent. These state associations are funded by insurance companies through assessments. The financial strength and stability of an insurance company are two vitally important factors to potential insurance downloaders and to insurance companies.
You can change your ad preferences anytime. Upcoming SlideShare. Like this presentation? Why not share! An annual anal Embed Size px. A thorough understanding of commercial liability loss exposures and insurance coverages is required for a successful risk management program. Losses attributable to crime take many forms, including burglary, employee theft, arson, shoplifting, embezzlement, robbery, and other types of crime.
In response to the need for coverage of such losses, the Insurance Services Office ISO has developed a number of crime insurance forms that are discussed in this chapter. This chapter also examines surety bonds. These bonds provide monetary compensation if a bonded party fails to perform a promised obligation. A variety of surety bonds, each designed for a special purpose, are discussed. Chapter 16 Fundamentals of Life Insurance Overview This chapter begins a block of material on several important personal risks: This chapter examines premature death and the financial services products designed to address this risk.
We will consider the economic impact of premature death upon various types of families, methods of determining how much life insurance to download, and the various life insurance products available to address this important personal risk, including: To protect the interests of insurers, policyowners, insureds, and third-party beneficiaries, numerous contractual provisions have been developed and incorporated into life insurance contracts over the years.
This chapter examines these important contractual provisions.
Life insurance contracts also offer optional methods of using dividends dividend options , using the cash value if the policy is surrendered nonforfeiture options , and receiving policy proceeds upon the death of the insured settlement options. A thorough understanding of life insurance contractual provisions is necessary for policyowners, insureds, and beneficiaries to maximize the benefits offered by these contracts. Chapter 18 Life Insurance download Decisions Overview Would you download a major appliance, new home, or a new car without shopping around first?
Even though life insurers are pricing the same risk, there are significant variations in the cost of life insurance. In addition to cost, there are a number of other important considerations in downloading life insurance. This chapter discusses the fundamentals of life insurance downloading. Major topics covered include: The appendix at the end of the chapter explains how life insurance premiums are calculated.
A problem set is included with the usual exercises. Chapter 19 Retirement Products: Annuities and Individual Retirement Accounts Overview Thus far we have examined life insurance in great detail. Life insurance companies also market a product that addresses another important personal risk. That personal risk is the risk of outliving the income and assets that you have accumulated. Life annuities provide periodic income to an individual for as long as he or she is living.
These products help many retirees to achieve economic security. In addition to annuities, individuals have another retirement savings vehicle available to them. An individual may establish a tax-advantaged savings plan called an individual retirement account IRA.
In this chapter we will examine the characteristics of individual annuities and IRAs traditional and Roth. Group retirement plans and retirement plans for the self- employed are discussed in Chapter Chapter 20 Individual Health Insurance Coverages Overview In this chapter we examine individual health insurance coverage. After a discussion of major problems with the present health care system, the various forms of individual health insurance are examined.
The most important individual health coverages include: Next, important policy provisions found in individual health insurance coverage are examined. Finally, a number of important guidelines are discussed for downloading individual health insurance coverage. Chapter 21 Employee Benefits: Group Life and Health Insurance Coverages Overview This chapter and the next chapter are devoted to employee benefits. Employee benefits are often taken for granted and you may be surprised by the magnitude of these plans.
In this chapter, we examine group life and health insurance coverages. As an introduction, group insurance underwriting principles and eligibility requirements are discussed. Next, group life and health insurance coverages are examined, as well as group health insurance providers, managed care plans, and group health insurance policy provisions.
Qualified Retirement Plans Overview People spend a longer period of their lives in retirement. The early retirement trend combined with increasing life expectancy makes income during retirement a critical concern. There are three primary sources of retirement income: Social Security old- age benefits, income generated from personal investments and savings, and private retirement plans. This chapter examines the basic features of private retirement plans, the distinctions between defined benefit plans and defined contribution plans, the funding instruments used to finance retirement plans, and the features of several types of retirement plans.
These programs, which are enacted to solve complex social problems, provide a base of economic security to the population. In this chapter we examine social insurance programs. As an introduction, we examine why social insurance programs are needed and basic characteristics of social insurance programs. Next, we examine the provisions and issues relating to social insurance programs.
There are also a variety of insurance marketing systems. The individual marketing insurance may be an independent agent, an exclusive agent, a direct writer, or a general agent. Coverage also may be downloadd through an employer-based group plan or in response to phone or mail solicitation. The prospective downloadr might enlist the services of an insurance broker to download insurance.
In this chapter, we examine the types of private insurers, distinctions between agents and brokers, and types of marketing systems employed by property and liability insurers and life and health insurers.
Chapter 25 Functional Operations of Private Insurers Overview Up until now, your contact with individuals who work in the insurance industry has most likely been with sales and claims personnel. Have you ever seen an insurance company home office or regional office? There are many interesting job opportunities available in the insurance industry.
A reinsurance settlement problem set is included for this chapter. Chapter 26 Financial Operations of Private Insurers Overview This chapter examines the financial operations of insurance companies. In the first portion of the chapter, two important financial statements, the balance sheet and the income and expense statement, are discussed. Important entries on these financial statements are examined, as well as profitability measures.
The remainder of the chapter is devoted to rate making. Life insurance ratemaking is covered in the appendix to Chapter Principles of Risk management and insurance, 12th Edition. Pearson, Rejda McNamara. Fundamentals of Risk and Insurance, Emmett J. Social Insurance and Economic Security, 5th Edition. It is also called nonsystematic or particular risk.
It is also called systematic risk or fundamental risk. They involve the possibility of a loss or reduction in income, extra expenses or depletion of financial assets, due to: Which of the following risks are considered insurable risks? Static Risks II.
Dynamic Risks III. Speculative Risks IV. Pure Risks V. Inflation Risk A. I and IV only B. II and IV only C. I, IV, and V D. A Only pure risks are insurable. Static risks are a type of pure risk that tends to occur with regularity- they can be insured against.
Dynamic, Inflation, and Speculative risks are all uninsurable. Question 2: Which of the following is an element of insurable risk?
The loss must be unexpected or accidental B. The loss must be catastrophic C. The loss produced by the risk cannot be measurable D. The loss must be damage related Answer: A The loss must be unexpected or accidental to be an insurable risk. It cannot be catastrophic and it must be measurable and definitive. This kind of loss is called fortuitous loss.
The loss would be fortuitous. Law of large number is based on the assumption that losses are accidental and occur randomly. Pure risks such as the risk of premature death, poor health, disability, destruction and theft of property, and personal liability lawsuit. If your home burns in a fire, a homeowner policy will indemnify you or restore you to your previous position.
Characteristics of an Ideally Insurable Risk Private insurers only insure pure risks but not all pure risks are insurable. A pure risk ideally should have certain characteristics to be insurable.
Large number of houses in a city can be insured through property insurance on houses. Accurate prediction of losses based on the law of large number is the purpose of first requirement. Therefore, the aim of law of large number is violated due to the prediction of future experience may be highly inaccurate.