Life and Health Insurance Basics

hi and welcome to Life Health exam coach and we are here to share with you the basic principles of life and health insurance if you haven't checked us out already go to lifealth exam coach.com and we will have a video there where you can see how you can sign up we can help guarantee that you pass your life and health exam to become an agent as soon as possible so thanks for joining today let's jump in now to basic principles of life and health insurance so first off let's talk about types of insurance companies there are commercial insurers and these are also known as private insurance companies this is what everyone thinks of when you think of you know insurance company they're selling insurance for a profit um they might specialize in a type of insurance or they can sell many lines which is another word for types of insurance and they could be called multi-line insurers so think of lines as different kinds of insurance like life and annuities or kind of insurance health insurance or Property and Casualty um in this series we're going to focus on life and health all right this is an important fact you know need to know for the test Commercial Insurance falls into two main groups stock companies you see here on the left and then Mutual companies on the right so some of these Concepts good to you know write down uh get clear in your mind stock companies make profit for stockholders everybody's heard of stocks companies you know uh have stockholders and they are called nonparticipating or nonpar and what that means when you say nonparticipating is that uh the people have insurance don't participate in the profits only the stockholders are the ones participa in profits from the company so stockholders in that case and a stock company get dividends which means you know getting some money or share of profits if the company is profitable uh those Dividends are taxed so the other kind of company uh that is not a stock company it's a mutual company now this has a policy holder so a policy holder is somebody who uh has the insurance so if I have an insurance policy I'm a policy holder and those are participating meaning me as the policy owner I get to participate in some of the profit as a company so that's kind of nice right I can get dividends on uh those profits or you know receive some money back in a sense even though I'm paying for that insurance now those divid Dividends are not taxed as long are they as they're just a return for the premium so every policy that you get in the insurance world you do have to pay uh you know premium for I shouldn't say that there are actually some exceptions in health insurance where you where you have Z premium plans but most let's say most uh most insurance policies you pay a premium for certainly in life insurance world you definitely are paying a premium for it and um as long as you're getting the money back it's just a return of Premium then those Dividends are not taxed other words you're not really making a profit on it per se if you've paid premium you get kind of some of that money back so that that's why it's not taxed so mixed insur um is a combination they're both par and nonpar so three concepts here stock company U which is a non-par mutual company which is par and then a mixed insurer who has both par and non-par in other words they could have um some stocks uh that they you know have and stockholders hold but they also could have um some policies that are participating that members or insurance policy holders can get some returns on all right let's look at strong assessment Mutual company that's a pretty long term and these differ based on how they charge the premium so there are two different ways there's what's called a pure assessment Mutual company pure means there's no premium upfront so assessment you can think of as you know you assess the situation you kind of look back and make an assessment and they come up with a charge for that coverage based on company's losses so that could that could vary so it's purely assessed based on performance now an advanced premium assessment Mutual company you pay the premium up front other words they're going to assess for forward they're going to figure out you know what are our costs going to be how much premium do we need to charge and they're paid back you know the policy owners paid back or charged more based on profit and loss so it's you know you're paying up front and then you kind of get um a reckoning or you know balancing that occurs in the end on those Advanced premium assessment models so think of pure assessment as you know waiting to pay they look back and figure figure out how much you should pay on your premium in advance means they're going to come up with a projected amount they'll charge you that and then you know they'll do the actual um reconciling at the end usually end of the year all right another kind of insurance company is called a fraternal benefit society and all of us are familiar with these you know Knights of Columbus kaanis various fraternal benefits societies these are a form of mutual companies they are nonprofits they you know I mean they they make profit but they they have nonprofit status in terms of business and they provide coverage just to their members so there are some religious organizations that do this and there are Charities as I said like Knights of Columbus so these fraternal benefit societies are you can think of as a you know coverage that's created for members so they're really more about you know covering the members rather than of course trying to you know be a a profitable business because again they have to be sustainable so they do take money but um they're design for the care of their members now here's another concept called a risk retention group and this is a you a group of people you usually um an industry or profession that band together it's another form of mutual company so you know it is a par company um you think of professional organizations maybe you know lawyers doctors various industry professionals do this so this group forms um you know together and in a sense they're creating Insurance similar to what we talked about fraternal group but in this case it's you know their common Bond or commonality is their profession so it becomes a way of pulling money pulling risk in a sense as we talked about you know in our in the last training uh and uh called a risk retention group so think of risk retention professionals retaining their own risk in other words they're taking care of the risk thems uh by pulling their money together as a kind of large organization so they take advantage of the fact that there's could be quite a few members uh in the organization and they're covering the risk and that keeps their costs kind of low again because the company doesn't have to make a profit per se right it's designed again for the benefit of its members primarily okay service providers another type of insurance company now you're going to see this uh more so on the health care side some of you may have heard of hmos um and ppos health uh HMO is a health maintenance organization pp's preferred provider organization that's why it's a little tricky to say so these are two plans that have um you know in this case they Health provider organizations that offer a health plan so in a sense that whole doctor organization I guess if you will um is providing a plan with benefits to what are called subscribers so you should know that term service provider companies have subscribers so me if I you know sign up for that HMO I'm a subscriber I'm subscribing to their plan and their benefits provided by those doctors and in a sense you know that Network covered by that same group now a little bit different structure there and again you're really only going to see this um on the health care side of things so good way to remember that think of you know service providers think of Health Care Service Providers that'll help uh trip that memory all right next one reciprocal insurers everybody knows what it means to be reciprocal right you're covering each other so you're seeing some of that commonality in these different kinds of companies that we're talking about so this is a similar kind of idea a group of people that are ensuring each other so the difference here than you know say the Fraternal organization if you will or some of those other organizations that are um you know covering a group to the reciprocal one thing to keep in mind you'll see on the test is it's an agreement of Indemnity they make an agreement of indemnity Indemnity means they're protecting each other and the other key thing you'll see in reciprocal insurers you should know for the test is they use what's called an attorney in fact so what that means is this um rather than it being um a policy per se um they have an attorney write up their agreement together of how they're going to ensure one another so it's very unique sort of situation so so again to remember what's unique about reciprocal reciprocal means you know covering each other and it has an attorney in fact on board that's um I guess if you you could say sort of a referee or somebody who's helping um make that uh work in a in a legal and fair sort of way all right reinsurers uh we've talked about before in previous training reinsurance is insurance for insurance companies and that's pretty important insurance companies uh as you've learned are carrying risks and so they mitigate those risks they protect themselves from having too much risk At Once by purchasing reinsurance so Insurance insuring itself that's why it's called reinsurance and the reinsurer takes on the risk of uh the other seeding company so the reinsurer is kind of the one that's you know taking the risks now the seeding company is another insurance company that's transferring their risk to the reinsurer so uh think of the seeding company is the one um that is uh you know writing the policies with individual policy holders and then the reassurer is the one that's you know above them that's they're transferring the risk to that [Music] reinsurer all right okay captive insurance is another important concept here insurance companies that are created and owned by a parent company to the to ensure the parent company risks and so this is very similar in a sense um to reinsurance but it's all happening within the same company so the example you see here is Physicians Insurance Company is owned by a hospital which is the parent company and it offers Insurance to Physicians so in this case it's not really uh you know in a way it's it is technically a separate company but it's all you know within the same uh framework or you know um combination of company and parent company as opposed to reinsurance where it's you know totally separate entity these entities here these businesses are related so again the physician insurance company is uh developed or owned by the hospital and then it can provide that insurance to their own position that's what it means by captive it's captive means it's holding its own is kind of the best way of thinking of what captive means right here's another unique sort of insurance company it's called home service or industrial and really important thing here is do not confuse this with homeowners insurance if you're a homeowner you probably think of Home Service you might think of something to do that's actually servicing your home and it actually has nothing to do with your house whatsoever it became known as Home Service uh because salesmen visit homes to sell it's kind of like you know you know door knocking it's kind of the original sort of door knocking way of selling uh life insurance insur mostly and so it is a form of life insurance these are uh typically small amounts and premiums are often paid weekly so it's something that's marketed and sold it's easy for people to buy somebody comes along and sells it to you you can afford it uh you you can make those weekly payments so think of home service or industrial as the the agent doing the service in terms of selling a product affordable to to people uh again small amounts of life insurance typically that that people can uh pay for next we have government insurance and I think most everybody is going to be familiar with this um in one form or another I think everyone's heard of Social Security that's government insurance it's the kind of insurance that was uh supposed to be guaranteed once you hit a certain age you know protecting people in uh postretirement uh typically Medicare many of you have probably heard of Medicare it's a government insurance program for people over 65 um Medicaid is a another government insurance that's designed to help people with lowi income to cover health care costs so again all these are funded by the government that's why it's called government insurance and then finally the last one there is TR care and TR care is uh Insurance that's for military career military personnel and uh again it's a form of health insurance so the last three there Medicare Medicaid TR care all forms of health insurance that are backed and paid for by the government and so that's an important part of insurance um and you know we'll learn in other segments you how there are some mixtures of private insurance that can come in there especially with Medicare but uh we'll be studying that at a later time for now just know that there is government insurance okay the next type of insurance company we want to cover is a self-insurer and that simply means uh a company that uses their own money to cover their own risks so in a sense they're not transferring any risk so uh that's what self inssurance usually means it means you're holding that risk yourself you're retaining that risk yourself so a company has its own uh pool of assets right they fund their own plan now they probably earmark it to cover specific things that they want to cover maybe life insurance uh it could be could be Health also and uh so they have a budget for it but they're basically Al taking that risk thems and putting that money aside out of their own profits in order to cover their own risks so why would they do that well it's of course saving them they're not being charged any premium um typically these are only kind of companies that can do this they they have to have a pretty good amount of assets to be able to cover those sort of uh losses right so it's typically going to be a larger company that's able to self-insure and they just calculate that uh it makes money for them financially they calculate that risk is manageable for them and that they're going to come out ahead um by not transferring the risk you know not having to pay premiums to cover everyone so that's self-insuring all right we're going to shift now and talk about how insurance is sold this is really important this is what you're preparing and learning to do right uh so you are going to become an agent or a broker and you know the Distribution Systems is simply a fancy way of saying you know how Insurance products are sold so there are agents and Brokers like yourself and myself uh producers it can be captive or independent and so we talked about you know captive insurance but a captive agent is an agent who is working for one particular carrier so um I was a captive agent myself at one point in my career and I sold you know for one specific carrier I sold just their product so I was captive uh independent means that you are not limited to one product line and so you know Brokers are usually the ones you know uh defined somebody who is brokering means you're able to uh offer products from different carriers you know different insurance companies and uh multiple different sorts of lines of of insurance all right and next concept you have there is that or you know distribution system is a career agency and this is um created by an insurance company so think of career agency who can set up a career uh for you it would be an insurance ins company so the career agency sets up office locations and they hire those captive agents so what I just described you know a captive agent situation uh is usually the organization is going to occur in a career agency now a general agency is not created by insurance company so when you're making your notes here you know to career career just say you know created by insurance company general agency it's not the insurance company company has created uh agents work for the agency and again they can usually represent multiple companies but so an agent here is tied to that particular um General agency so next uh sort of organization is called independent agency so in this case an agent could actually work just on their own or under other agents and they own their Cent client accounts in other words it's not the general agency that's owning those client that book of business it's actually the agents on them themselves or group of agents who own that book of business so that's that's the major distinction there now a managerial system is another distribution system it's like the career except the office is run by a branch manager so it's set up as kind of managerial system um again created by insurance company rather than having a you know local agent run it they create like a manager so they have a management system reports up into that company into that uh insurance company Mass marketing is the only system here that has no agents and we see you know one example of that maybe is you're looking at particular ads you see ads for insurance on TV and uh that company probably has some Representatives that um they have online on the phone but they're not hiring agents they just hire Representatives who handle those direct sales to the consumer so in other words they haven't created any distribution system they uh what I would think of is a kind of inhouse uh way of of selling and um so the agents there's no agent whatsoever in that mass Marketing System all right next here we're going to switch to Industry regulation there quite a lot you need to know on test for regulations I know it's not the most exciting thing but you've got to know these facts so um you know tune in here so Industries are this industry is regulated primarily at the state level so that's important fact to know there's minimal Federal over s it in insurance and this is uh based on several different you know shifts that happened legally in in history and you could see this you know some of these names can show up on a test so it's good to have some Touchstone to it probably not can ask you in-depth questions about these specific Acts or laws but you should have some recognition of of those acts um they're called acts you know these are laws that were passed so the Armstrong investigation act that gave the states the authority to be the regulation for insurance in other words this is the the act that gave that power to the state so think of Armstrong as state Authority now I'd like to try and remember things by your keeping a few keyword phrases helps me remember McCarron Ferguson act um this is that the feds have authority to regulate but they won't do so as long as the states do so mccar is kind of similar to Armstrong and but you know there is some federal oversight but McCarron Ferguson is kind of deferred like yes there's Federal oversight but as long as the state's taking care of it uh the feds aren't going to really step in much this third one is not related as much at all um it is called The Fair Credit Reporting Act and you probably all have um you know been made aware of this some point in your life where you appli for credit and you got a report about you know what your credit standing is um that that act was important to Insurance because you know insurance has to give that information just like every every industry knowes now when you uh go to apply if you're using credit uh they can use credit uh reporting too as a way of sort of assessing risk uh in their potential um clients so as a an applicant your credit history you know can have some bearing on whether you get accepted so the Fair Credit Reporting Act um if they look at your credit if an insurance company or any company looks at your credit then uh they need to uh make sure that they're showing you that what they obtain and how they obtain it and that it's done in a fair Manner and accurately so a couple of other acts here um this is you know three different names Graham leech blly and that Financial Services modernization act um simply allows Financial companies to enter each other's lines of business you can think of it as a way um it's an act that allowed financial and insurance is a financial company banks are another kind of financial company um they're able to enter each other's line of business you know and so they can interrelate so that uh that's an important regulation that occurred this last one occurred uh the Patriot Act I'm sure probably most of you have heard of that it was designed you know after 911 to prevent terrorism now how does that relate to Insurance well one thing that terrorists can try and do is money called money laundering and sometimes they try and use Insurance products as a way of LA in money you know putting funds in that can then be extracted and not traced so uh the Patriot Act applies to Insurance um it is a way of protecting that kind of illicit you know money laundering so um that's how it relates to Insurance Patriot ACC say preventing terrorism by stopping money laundering National Do Not Call Registry I think probably most everyone has heard of that as well uh Insurance businesses just like all businesses have to respect um to do not call uh registry so if um you know you're on if a customer is on that registry um they are not so you know they requested not to be called so that's important you know a lot a fair amount of insurance sales is done over the phone and so of course you have to respect people's privacy if they've um registered their number and don't want to be called all right the ppaca uh mostly we just refer to that as ACA these days the Affordable Care Act this was a a huge change in the health care industry health insurance it was an overhaul of health insurance regulations uh that occurred in uh the 20 around 2010 actually didn't uh go into effect till I 2016 or so and and uh well some elements of it did some didn't but some of you may be aware of ACA also known as Obamacare plans these are actually government backed insurance plans so there's a whole lot to the Affordable Care Act we don't have to get into it here uh for the test you won't really have to know in depth about it just know that it was a big overhaul of health insurance regulations and um you know enable people a lot more people to get covered with health insurance so you know that aspect of it uh was was good so um keep that in mind ACA Affordable Care Act making it made health insurance available and somewhat more affordable uh for people you will I'm sure at some point on test uh come across the niic and that's the National Association of insurance commissioners this is a basically the governing body of of the insurance industry there's Commissioners in all 50 states uh DC and US Territories as well so um these are the people in a sense that are in charge of making sure those remember we talked about state regulations you know State regulated and these are the folks who are making those uh guiding those state regulations enforcing those state regulations so they have these four goals um don't know if you'll see these four goals exactly on the test but good thing to know they're encouraging uniformity in laws and regulations so you'll see that uh even though there are State differences in the insurance industry there's a lot of similarities to because this you know it's a this commission is National so a lot of the regulations are actually fairly similar they do have differences but a lot of them are are similar of course they you know they all that makes sense right they all have sort of the same goal which is to uh protect consumers make sure that they're getting products that are legitimate and fair so they assist in the administration of those laws that are set up at the state level and as I said they're protecting consumers policy owners and they preserve you know by doing a good job right they preserve that uh state based approach to regulating the whole industry all right another industry regulation has to do with advertising so uh this is important right we all know that advertising can be kind of misleading and so advertising code in the industry specifies misleading words or phrases that are banned from advertising a lot of things in Insurance some of the words that you want to stay away from uh now occasionally they are sanctioned they're okay uh like guaranteed there are some things that are guaranteed but it's very important not to use um in at least in advertising certain terms that are you know can blow things a little out of proportion this is the best plan ever you know uh they try the point of this advertising code is to make things uh you know a little more even celed and Ral base rather than Sensational insurance is an important product and um you know the point of this regulation is that it's represented fairly and accurately so saying something's always going to work or this you know will definitely um you know again in certain context you can say that but uh you know for advertising purposes um they frown on those kinds of you any kind of exaggerated or you know blown up kind of presentation unfair Trade Practices Act this is exactly what it says this is probably an easi one of the easiest ones to remember what what are unfair Trade Practices well anything that makes uh is misleading or you know unfair to a consumer so you know again regulation in all industry is designed for protection of the consumer from being taken advantage of remember that you know agents yourself when you're educated you know the industry knows uh what their products are doing a lot of people don't they don't understand how insurance is supposed to work and so insurance industry wants to make sure that people don't get taken advantage you know you don't misrepresent information don't give false information when you're selling uh no of course unfair discrimination and that can relate you know to U usually we think of discrimin discrimination can happen in many forms you know we're well aware of um the know main forms of discrimination like you know maybe uh based on gender or race um but there's also in Insurance other kinds of discrimination you got to be careful you don't discriminate that based on a person's health or occupation um don't assume you know somebody can't get coverage things like that um so you know everything is designed to be as Fair as possible to Consumers and so you know along those same lines there's a a whole code of ethics that's the naifa the Insurance and financial advisor National Association anytime you say na you always know it's National Association in this sort of context so National Association Insurance and financial advisors National Association of Health Underwriters other ones to put together this code of ethics for the industry one of the biggest ones you'll hear this word and you should know this term is suitability uh what does suitability mean it means the right product for the right person you know matching a product with that person's needs is suitability so uh being ethical really means you know choosing products that are suitable they make sense based on that what are they trying to cover and they're not you know you're not selling somebody way more than what they need or giving them products that uh you know covering risks that that that they don't even have right so suitability means it makes sense for that person it's covering a real need for them and it's doing so in the in the right sort of way that's affordable uh and appropriate full and accurate disclosure it means that you tell customers about the benefit and the limits of products you will learn when you start diving into products all of them have you know some aspects of limitations right an insurance company can't cover everything for everybody in all cases so you know um as a sales agent it's important that you're disclosing what a product will do and also what it won't do so the people are clear that's what full and accurate disclosure means you're disclosing um both the benef benefits and the limits um another thing is kind of self-evidence you know document and service your accounts um you know you're not there just to write a policy and and you not take care of people if you're there to help support them make sure they know how to utilize their um insurance that you've gotten for them there is what's called a buyer's guide you should know that term buyer guide It's required information to give to Consumers it's general information about um Insurance products uh for example in life insurance a buyer guide is going to give you an outline of the different kinds of options there are and then the policy summary is a more specific document you know giving actual uh plan information from that policy so uh you know summarizing the benefits and those limitations for them so buyer guide gives them that General overview and policy summary is giving them specifics of the product that you are selling to them all right so some other terms that you need to know here uh a little more random they're not in one category uh when it comes to knowing Insurance business insurance uh companies regulations one of them is called reserves and you might have heard of this before it's reserves exactly what it sounds like it's money that's set aside to pay future claims so insurance companies have to do that they have to uh you know have money allocated or earmarked for paying future claims they can't run my Cedar pants in a sense you know like oh we got money today but you know hopefully we don't get too many claims next week because the pots getting a little thin um they've got to have a a bank there have reserves to make sure they're able to cover those future claims so there's there's laws around that there's regulations around that liquidity means um money to pay unexpected claims so it's similar to reserves um you know Li somebody's liquid right they've got funds they can grab so in a sense you say the reserves are covering sort of what is expected and liquidity means that they also have uh you know the ability to uh cover unex the unexpected as well all right guarantee associations these are protections uh for insured people in case the insur is not

hi and welcome to Life Health exam coach and we are here to share with you the basic principles of life and health insurance if you haven&#39;t checked us out already go to lifealth exam coach.com and we will have a video there where you can see how you can sign up we can help guarantee that you pass your life and health exam to become an agent as soon as possible so thanks for joining today let&#39;s jump in now to basic principles of life and health insurance so first off let&#39;s talk about types of insurance companies there are commercial insurers and these are also known as private insurance companies this is what everyone thinks of when you think of you know insurance company they&#39;re selling insurance for a profit um they might specialize in a type of insurance or they can sell many lines which is another word for types of insurance and they could be called multi-line insurers so think of lines as different kinds of insurance like life and annuities or kind of insurance health insurance or Property and Casualty um in this series we&#39;re going to focus on life and health all right this is an important fact you know need to know for the test Commercial Insurance falls into two main groups stock companies you see here on the left and then Mutual companies on the right so some of these Concepts good to you know write down uh get clear in your mind stock companies make profit for stockholders everybody&#39;s heard of stocks companies you know uh have stockholders and they are called nonparticipating or nonpar and what that means when you say nonparticipating is that uh the people have insurance don&#39;t participate in the profits only the stockholders are the ones participa in profits from the company so stockholders in that case and a stock company get dividends which means you know getting some money or share of profits if the company is profitable uh those Dividends are taxed so the other kind of company uh that is not a stock company it&#39;s a mutual company now this has a policy holder so a policy holder is somebody who uh has the insurance so if I have an insurance policy I&#39;m a policy holder and those are participating meaning me as the policy owner I get to participate in some of the profit as a company so that&#39;s kind of nice right I can get dividends on uh those profits or you know receive some money back in a sense even though I&#39;m paying for that insurance now those divid Dividends are not taxed as long are they as they&#39;re just a return for the premium so every policy that you get in the insurance world you do have to pay uh you know premium for I shouldn&#39;t say that there are actually some exceptions in health insurance where you where you have Z premium plans but most let&#39;s say most uh most insurance policies you pay a premium for certainly in life insurance world you definitely are paying a premium for it and um as long as you&#39;re getting the money back it&#39;s just a return of Premium then those Dividends are not taxed other words you&#39;re not really making a profit on it per se if you&#39;ve paid premium you get kind of some of that money back so that that&#39;s why it&#39;s not taxed so mixed insur um is a combination they&#39;re both par and nonpar so three concepts here stock company U which is a non-par mutual company which is par and then a mixed insurer who has both par and non-par in other words they could have um some stocks uh that they you know have and stockholders hold but they also could have um some policies that are participating that members or insurance policy holders can get some returns on all right let&#39;s look at strong assessment Mutual company that&#39;s a pretty long term and these differ based on how they charge the premium so there are two different ways there&#39;s what&#39;s called a pure assessment Mutual company pure means there&#39;s no premium upfront so assessment you can think of as you know you assess the situation you kind of look back and make an assessment and they come up with a charge for that coverage based on company&#39;s losses so that could that could vary so it&#39;s purely assessed based on performance now an advanced premium assessment Mutual company you pay the premium up front other words they&#39;re going to assess for forward they&#39;re going to figure out you know what are our costs going to be how much premium do we need to charge and they&#39;re paid back you know the policy owners paid back or charged more based on profit and loss so it&#39;s you know you&#39;re paying up front and then you kind of get um a reckoning or you know balancing that occurs in the end on those Advanced premium assessment models so think of pure assessment as you know waiting to pay they look back and figure figure out how much you should pay on your premium in advance means they&#39;re going to come up with a projected amount they&#39;ll charge you that and then you know they&#39;ll do the actual um reconciling at the end usually end of the year all right another kind of insurance company is called a fraternal benefit society and all of us are familiar with these you know Knights of Columbus kaanis various fraternal benefits societies these are a form of mutual companies they are nonprofits they you know I mean they they make profit but they they have nonprofit status in terms of business and they provide coverage just to their members so there are some religious organizations that do this and there are Charities as I said like Knights of Columbus so these fraternal benefit societies are you can think of as a you know coverage that&#39;s created for members so they&#39;re really more about you know covering the members rather than of course trying to you know be a a profitable business because again they have to be sustainable so they do take money but um they&#39;re design for the care of their members now here&#39;s another concept called a risk retention group and this is a you a group of people you usually um an industry or profession that band together it&#39;s another form of mutual company so you know it is a par company um you think of professional organizations maybe you know lawyers doctors various industry professionals do this so this group forms um you know together and in a sense they&#39;re creating Insurance similar to what we talked about fraternal group but in this case it&#39;s you know their common Bond or commonality is their profession so it becomes a way of pulling money pulling risk in a sense as we talked about you know in our in the last training uh and uh called a risk retention group so think of risk retention professionals retaining their own risk in other words they&#39;re taking care of the risk thems uh by pulling their money together as a kind of large organization so they take advantage of the fact that there&#39;s could be quite a few members uh in the organization and they&#39;re covering the risk and that keeps their costs kind of low again because the company doesn&#39;t have to make a profit per se right it&#39;s designed again for the benefit of its members primarily okay service providers another type of insurance company now you&#39;re going to see this uh more so on the health care side some of you may have heard of hmos um and ppos health uh HMO is a health maintenance organization pp&#39;s preferred provider organization that&#39;s why it&#39;s a little tricky to say so these are two plans that have um you know in this case they Health provider organizations that offer a health plan so in a sense that whole doctor organization I guess if you will um is providing a plan with benefits to what are called subscribers so you should know that term service provider companies have subscribers so me if I you know sign up for that HMO I&#39;m a subscriber I&#39;m subscribing to their plan and their benefits provided by those doctors and in a sense you know that Network covered by that same group now a little bit different structure there and again you&#39;re really only going to see this um on the health care side of things so good way to remember that think of you know service providers think of Health Care Service Providers that&#39;ll help uh trip that memory all right next one reciprocal insurers everybody knows what it means to be reciprocal right you&#39;re covering each other so you&#39;re seeing some of that commonality in these different kinds of companies that we&#39;re talking about so this is a similar kind of idea a group of people that are ensuring each other so the difference here than you know say the Fraternal organization if you will or some of those other organizations that are um you know covering a group to the reciprocal one thing to keep in mind you&#39;ll see on the test is it&#39;s an agreement of Indemnity they make an agreement of indemnity Indemnity means they&#39;re protecting each other and the other key thing you&#39;ll see in reciprocal insurers you should know for the test is they use what&#39;s called an attorney in fact so what that means is this um rather than it being um a policy per se um they have an attorney write up their agreement together of how they&#39;re going to ensure one another so it&#39;s very unique sort of situation so so again to remember what&#39;s unique about reciprocal reciprocal means you know covering each other and it has an attorney in fact on board that&#39;s um I guess if you you could say sort of a referee or somebody who&#39;s helping um make that uh work in a in a legal and fair sort of way all right reinsurers uh we&#39;ve talked about before in previous training reinsurance is insurance for insurance companies and that&#39;s pretty important insurance companies uh as you&#39;ve learned are carrying risks and so they mitigate those risks they protect themselves from having too much risk At Once by purchasing reinsurance so Insurance insuring itself that&#39;s why it&#39;s called reinsurance and the reinsurer takes on the risk of uh the other seeding company so the reinsurer is kind of the one that&#39;s you know taking the risks now the seeding company is another insurance company that&#39;s transferring their risk to the reinsurer so uh think of the seeding company is the one um that is uh you know writing the policies with individual policy holders and then the reassurer is the one that&#39;s you know above them that&#39;s they&#39;re transferring the risk to that [Music] reinsurer all right okay captive insurance is another important concept here insurance companies that are created and owned by a parent company to the to ensure the parent company risks and so this is very similar in a sense um to reinsurance but it&#39;s all happening within the same company so the example you see here is Physicians Insurance Company is owned by a hospital which is the parent company and it offers Insurance to Physicians so in this case it&#39;s not really uh you know in a way it&#39;s it is technically a separate company but it&#39;s all you know within the same uh framework or you know um combination of company and parent company as opposed to reinsurance where it&#39;s you know totally separate entity these entities here these businesses are related so again the physician insurance company is uh developed or owned by the hospital and then it can provide that insurance to their own position that&#39;s what it means by captive it&#39;s captive means it&#39;s holding its own is kind of the best way of thinking of what captive means right here&#39;s another unique sort of insurance company it&#39;s called home service or industrial and really important thing here is do not confuse this with homeowners insurance if you&#39;re a homeowner you probably think of Home Service you might think of something to do that&#39;s actually servicing your home and it actually has nothing to do with your house whatsoever it became known as Home Service uh because salesmen visit homes to sell it&#39;s kind of like you know you know door knocking it&#39;s kind of the original sort of door knocking way of selling uh life insurance insur mostly and so it is a form of life insurance these are uh typically small amounts and premiums are often paid weekly so it&#39;s something that&#39;s marketed and sold it&#39;s easy for people to buy somebody comes along and sells it to you you can afford it uh you you can make those weekly payments so think of home service or industrial as the the agent doing the service in terms of selling a product affordable to to people uh again small amounts of life insurance typically that that people can uh pay for next we have government insurance and I think most everybody is going to be familiar with this um in one form or another I think everyone&#39;s heard of Social Security that&#39;s government insurance it&#39;s the kind of insurance that was uh supposed to be guaranteed once you hit a certain age you know protecting people in uh postretirement uh typically Medicare many of you have probably heard of Medicare it&#39;s a government insurance program for people over 65 um Medicaid is a another government insurance that&#39;s designed to help people with lowi income to cover health care costs so again all these are funded by the government that&#39;s why it&#39;s called government insurance and then finally the last one there is TR care and TR care is uh Insurance that&#39;s for military career military personnel and uh again it&#39;s a form of health insurance so the last three there Medicare Medicaid TR care all forms of health insurance that are backed and paid for by the government and so that&#39;s an important part of insurance um and you know we&#39;ll learn in other segments you how there are some mixtures of private insurance that can come in there especially with Medicare but uh we&#39;ll be studying that at a later time for now just know that there is government insurance okay the next type of insurance company we want to cover is a self-insurer and that simply means uh a company that uses their own money to cover their own risks so in a sense they&#39;re not transferring any risk so uh that&#39;s what self inssurance usually means it means you&#39;re holding that risk yourself you&#39;re retaining that risk yourself so a company has its own uh pool of assets right they fund their own plan now they probably earmark it to cover specific things that they want to cover maybe life insurance uh it could be could be Health also and uh so they have a budget for it but they&#39;re basically Al taking that risk thems and putting that money aside out of their own profits in order to cover their own risks so why would they do that well it&#39;s of course saving them they&#39;re not being charged any premium um typically these are only kind of companies that can do this they they have to have a pretty good amount of assets to be able to cover those sort of uh losses right so it&#39;s typically going to be a larger company that&#39;s able to self-insure and they just calculate that uh it makes money for them financially they calculate that risk is manageable for them and that they&#39;re going to come out ahead um by not transferring the risk you know not having to pay premiums to cover everyone so that&#39;s self-insuring all right we&#39;re going to shift now and talk about how insurance is sold this is really important this is what you&#39;re preparing and learning to do right uh so you are going to become an agent or a broker and you know the Distribution Systems is simply a fancy way of saying you know how Insurance products are sold so there are agents and Brokers like yourself and myself uh producers it can be captive or independent and so we talked about you know captive insurance but a captive agent is an agent who is working for one particular carrier so um I was a captive agent myself at one point in my career and I sold you know for one specific carrier I sold just their product so I was captive uh independent means that you are not limited to one product line and so you know Brokers are usually the ones you know uh defined somebody who is brokering means you&#39;re able to uh offer products from different carriers you know different insurance companies and uh multiple different sorts of lines of of insurance all right and next concept you have there is that or you know distribution system is a career agency and this is um created by an insurance company so think of career agency who can set up a career uh for you it would be an insurance ins company so the career agency sets up office locations and they hire those captive agents so what I just described you know a captive agent situation uh is usually the organization is going to occur in a career agency now a general agency is not created by insurance company so when you&#39;re making your notes here you know to career career just say you know created by insurance company general agency it&#39;s not the insurance company company has created uh agents work for the agency and again they can usually represent multiple companies but so an agent here is tied to that particular um General agency so next uh sort of organization is called independent agency so in this case an agent could actually work just on their own or under other agents and they own their Cent client accounts in other words it&#39;s not the general agency that&#39;s owning those client that book of business it&#39;s actually the agents on them themselves or group of agents who own that book of business so that&#39;s that&#39;s the major distinction there now a managerial system is another distribution system it&#39;s like the career except the office is run by a branch manager so it&#39;s set up as kind of managerial system um again created by insurance company rather than having a you know local agent run it they create like a manager so they have a management system reports up into that company into that uh insurance company Mass marketing is the only system here that has no agents and we see you know one example of that maybe is you&#39;re looking at particular ads you see ads for insurance on TV and uh that company probably has some Representatives that um they have online on the phone but they&#39;re not hiring agents they just hire Representatives who handle those direct sales to the consumer so in other words they haven&#39;t created any distribution system they uh what I would think of is a kind of inhouse uh way of of selling and um so the agents there&#39;s no agent whatsoever in that mass Marketing System all right next here we&#39;re going to switch to Industry regulation there quite a lot you need to know on test for regulations I know it&#39;s not the most exciting thing but you&#39;ve got to know these facts so um you know tune in here so Industries are this industry is regulated primarily at the state level so that&#39;s important fact to know there&#39;s minimal Federal over s it in insurance and this is uh based on several different you know shifts that happened legally in in history and you could see this you know some of these names can show up on a test so it&#39;s good to have some Touchstone to it probably not can ask you in-depth questions about these specific Acts or laws but you should have some recognition of of those acts um they&#39;re called acts you know these are laws that were passed so the Armstrong investigation act that gave the states the authority to be the regulation for insurance in other words this is the the act that gave that power to the state so think of Armstrong as state Authority now I&#39;d like to try and remember things by your keeping a few keyword phrases helps me remember McCarron Ferguson act um this is that the feds have authority to regulate but they won&#39;t do so as long as the states do so mccar is kind of similar to Armstrong and but you know there is some federal oversight but McCarron Ferguson is kind of deferred like yes there&#39;s Federal oversight but as long as the state&#39;s taking care of it uh the feds aren&#39;t going to really step in much this third one is not related as much at all um it is called The Fair Credit Reporting Act and you probably all have um you know been made aware of this some point in your life where you appli for credit and you got a report about you know what your credit standing is um that that act was important to Insurance because you know insurance has to give that information just like every every industry knowes now when you uh go to apply if you&#39;re using credit uh they can use credit uh reporting too as a way of sort of assessing risk uh in their potential um clients so as a an applicant your credit history you know can have some bearing on whether you get accepted so the Fair Credit Reporting Act um if they look at your credit if an insurance company or any company looks at your credit then uh they need to uh make sure that they&#39;re showing you that what they obtain and how they obtain it and that it&#39;s done in a fair Manner and accurately so a couple of other acts here um this is you know three different names Graham leech blly and that Financial Services modernization act um simply allows Financial companies to enter each other&#39;s lines of business you can think of it as a way um it&#39;s an act that allowed financial and insurance is a financial company banks are another kind of financial company um they&#39;re able to enter each other&#39;s line of business you know and so they can interrelate so that uh that&#39;s an important regulation that occurred this last one occurred uh the Patriot Act I&#39;m sure probably most of you have heard of that it was designed you know after 911 to prevent terrorism now how does that relate to Insurance well one thing that terrorists can try and do is money called money laundering and sometimes they try and use Insurance products as a way of LA in money you know putting funds in that can then be extracted and not traced so uh the Patriot Act applies to Insurance um it is a way of protecting that kind of illicit you know money laundering so um that&#39;s how it relates to Insurance Patriot ACC say preventing terrorism by stopping money laundering National Do Not Call Registry I think probably most everyone has heard of that as well uh Insurance businesses just like all businesses have to respect um to do not call uh registry so if um you know you&#39;re on if a customer is on that registry um they are not so you know they requested not to be called so that&#39;s important you know a lot a fair amount of insurance sales is done over the phone and so of course you have to respect people&#39;s privacy if they&#39;ve um registered their number and don&#39;t want to be called all right the ppaca uh mostly we just refer to that as ACA these days the Affordable Care Act this was a a huge change in the health care industry health insurance it was an overhaul of health insurance regulations uh that occurred in uh the 20 around 2010 actually didn&#39;t uh go into effect till I 2016 or so and and uh well some elements of it did some didn&#39;t but some of you may be aware of ACA also known as Obamacare plans these are actually government backed insurance plans so there&#39;s a whole lot to the Affordable Care Act we don&#39;t have to get into it here uh for the test you won&#39;t really have to know in depth about it just know that it was a big overhaul of health insurance regulations and um you know enable people a lot more people to get covered with health insurance so you know that aspect of it uh was was good so um keep that in mind ACA Affordable Care Act making it made health insurance available and somewhat more affordable uh for people you will I&#39;m sure at some point on test uh come across the niic and that&#39;s the National Association of insurance commissioners this is a basically the governing body of of the insurance industry there&#39;s Commissioners in all 50 states uh DC and US Territories as well so um these are the people in a sense that are in charge of making sure those remember we talked about state regulations you know State regulated and these are the folks who are making those uh guiding those state regulations enforcing those state regulations so they have these four goals um don&#39;t know if you&#39;ll see these four goals exactly on the test but good thing to know they&#39;re encouraging uniformity in laws and regulations so you&#39;ll see that uh even though there are State differences in the insurance industry there&#39;s a lot of similarities to because this you know it&#39;s a this commission is National so a lot of the regulations are actually fairly similar they do have differences but a lot of them are are similar of course they you know they all that makes sense right they all have sort of the same goal which is to uh protect consumers make sure that they&#39;re getting products that are legitimate and fair so they assist in the administration of those laws that are set up at the state level and as I said they&#39;re protecting consumers policy owners and they preserve you know by doing a good job right they preserve that uh state based approach to regulating the whole industry all right another industry regulation has to do with advertising so uh this is important right we all know that advertising can be kind of misleading and so advertising code in the industry specifies misleading words or phrases that are banned from advertising a lot of things in Insurance some of the words that you want to stay away from uh now occasionally they are sanctioned they&#39;re okay uh like guaranteed there are some things that are guaranteed but it&#39;s very important not to use um in at least in advertising certain terms that are you know can blow things a little out of proportion this is the best plan ever you know uh they try the point of this advertising code is to make things uh you know a little more even celed and Ral base rather than Sensational insurance is an important product and um you know the point of this regulation is that it&#39;s represented fairly and accurately so saying something&#39;s always going to work or this you know will definitely um you know again in certain context you can say that but uh you know for advertising purposes um they frown on those kinds of you any kind of exaggerated or you know blown up kind of presentation unfair Trade Practices Act this is exactly what it says this is probably an easi one of the easiest ones to remember what what are unfair Trade Practices well anything that makes uh is misleading or you know unfair to a consumer so you know again regulation in all industry is designed for protection of the consumer from being taken advantage of remember that you know agents yourself when you&#39;re educated you know the industry knows uh what their products are doing a lot of people don&#39;t they don&#39;t understand how insurance is supposed to work and so insurance industry wants to make sure that people don&#39;t get taken advantage you know you don&#39;t misrepresent information don&#39;t give false information when you&#39;re selling uh no of course unfair discrimination and that can relate you know to U usually we think of discrimin discrimination can happen in many forms you know we&#39;re well aware of um the know main forms of discrimination like you know maybe uh based on gender or race um but there&#39;s also in Insurance other kinds of discrimination you got to be careful you don&#39;t discriminate that based on a person&#39;s health or occupation um don&#39;t assume you know somebody can&#39;t get coverage things like that um so you know everything is designed to be as Fair as possible to Consumers and so you know along those same lines there&#39;s a a whole code of ethics that&#39;s the naifa the Insurance and financial advisor National Association anytime you say na you always know it&#39;s National Association in this sort of context so National Association Insurance and financial advisors National Association of Health Underwriters other ones to put together this code of ethics for the industry one of the biggest ones you&#39;ll hear this word and you should know this term is suitability uh what does suitability mean it means the right product for the right person you know matching a product with that person&#39;s needs is suitability so uh being ethical really means you know choosing products that are suitable they make sense based on that what are they trying to cover and they&#39;re not you know you&#39;re not selling somebody way more than what they need or giving them products that uh you know covering risks that that that they don&#39;t even have right so suitability means it makes sense for that person it&#39;s covering a real need for them and it&#39;s doing so in the in the right sort of way that&#39;s affordable uh and appropriate full and accurate disclosure it means that you tell customers about the benefit and the limits of products you will learn when you start diving into products all of them have you know some aspects of limitations right an insurance company can&#39;t cover everything for everybody in all cases so you know um as a sales agent it&#39;s important that you&#39;re disclosing what a product will do and also what it won&#39;t do so the people are clear that&#39;s what full and accurate disclosure means you&#39;re disclosing um both the benef benefits and the limits um another thing is kind of self-evidence you know document and service your accounts um you know you&#39;re not there just to write a policy and and you not take care of people if you&#39;re there to help support them make sure they know how to utilize their um insurance that you&#39;ve gotten for them there is what&#39;s called a buyer&#39;s guide you should know that term buyer guide It&#39;s required information to give to Consumers it&#39;s general information about um Insurance products uh for example in life insurance a buyer guide is going to give you an outline of the different kinds of options there are and then the policy summary is a more specific document you know giving actual uh plan information from that policy so uh you know summarizing the benefits and those limitations for them so buyer guide gives them that General overview and policy summary is giving them specifics of the product that you are selling to them all right so some other terms that you need to know here uh a little more random they&#39;re not in one category uh when it comes to knowing Insurance business insurance uh companies regulations one of them is called reserves and you might have heard of this before it&#39;s reserves exactly what it sounds like it&#39;s money that&#39;s set aside to pay future claims so insurance companies have to do that they have to uh you know have money allocated or earmarked for paying future claims they can&#39;t run my Cedar pants in a sense you know like oh we got money today but you know hopefully we don&#39;t get too many claims next week because the pots getting a little thin um they&#39;ve got to have a a bank there have reserves to make sure they&#39;re able to cover those future claims so there&#39;s there&#39;s laws around that there&#39;s regulations around that liquidity means um money to pay unexpected claims so it&#39;s similar to reserves um you know Li somebody&#39;s liquid right they&#39;ve got funds they can grab so in a sense you say the reserves are covering sort of what is expected and liquidity means that they also have uh you know the ability to uh cover unex the unexpected as well all right guarantee associations these are protections uh for insured people in case the insur is not

Transcript for:Life and Health Insurance Basics

Transcript for:
Life and Health Insurance Basics