Life and health insurance is commonly transacted through insurance Producers known either as insurance agents or insurance brokers.  An insurance Agent is authorized by and on behalf of an insurance company to transact life and health insurance.  The insurance company is often referred to as the Principal or Insurer.

An insurance Broker works on behalf of, and is compensated by, the client to transact insurance with, but not on behalf of, an insurance company.  Life and health insurance can be transacted through both agents and brokers, though most states only allow for the licensure of insurance agents, while brokers are more common with property and casualty insurance.

Passing an insurance licensing exam and obtaining an insurance license are the first steps into the insurance industry.  The next step an insurance agent must take is to obtain ‘express authority’ by contracting with each insurance company the agent intends to sell insurance on behalf of and becoming ‘appointed’ by those insurance companies.

Producer Appointments

An Appointment is a legal contract between an insurance company and a licensed agent by which the insurance company gives an agent the Express Authority to conduct insurance business on behalf of the insurer in exchange for compensation, referred to as Commission.

An agency contract defines the terms in which both the agent and insurance company will interact with each other as well as to the industry.

This generally includes the advertising and solicitation guidelines for the company, medical underwriting guidelines to help ensure correct application submission from the field, commission structure for the agent and any other specific regulations of the company, as well as the rights of the agent, under the contract.

In addition to the ‘express authority’ given to an agent through the company’s contract, marketing and selling insurance products, as well as maintaining clients is often performed on a ‘presumed authority’ basis.  Two types of presumed authority are ‘implied’ and ‘apparent’ authority.

Types of Agent Authority

1.  Express Authority – Defined as the contractual agreement between an insurance company and an agent to market and sell the insurer’s products.  An agent’s express authority is clearly defined in words through the company’s contract, or appointment, with the agent.

2.  Implied Authority – Defined as the general Read more

Stock Companies vs. Mutual Companies

A core concept that our insurance school teaches is the concept of insurance risk and corporate profitability in the insurance marketplace.  The majority of private commercial insurance companies in America are considered to be either stock or mutual insurance companies.  While both types of organization provide insurance to consumers, they differ in how they operate.

Stock Insurance Company

(Non-participating Company)
A stock insurance company is a private insurance organization whose main purpose is to make a profit for its stockholders.  This type of insurer is considered to be a non-participating company because the insured policyowners do not own the company nor do they receive any dividends it returns.

Stock insurers do not issue participating policies; therefore, two groups exist: shareholders and policyowners – though a shareholder could also be a policyowner.

Mutual Insurance Company

(Participating Company)
A mutual insurance company is one in which insured policyowners are also Read more

The Purpose of Insurance

An important topic insurance training covers is the function of an insurance company and the legal construction of an insurance policy.  Insurance is a form of ‘risk management’ used to protect the financial well-being of an individual, company, or other entity in the event of unexpected financial loss.  While health, life, and disability insurance provides a financial safety net against the unexpected financial loss associated with illness, disability, or death, the goal of an insurance company is to maintain profitability for it’s shareholders.

Risk Protection

Some small risks can be managed with personal or company finances; however, larger, more catastrophic expenses are best handled by transferring the risk to an insurance company.  The insurer will assume the cost resulting from the insured’s risks, and in exchange, the insurer charges a monthly premium (monthly payment) to the insured.  This is accomplished by purchasing an ‘insurance policy.’

An insurance policy is a binding agreement designed to protect against financial loss, and as a legal contract, it reflects the insurer’s responsibilities of covering such loss.

A life insurance policy is designed to pay a stated sum to the designated policy beneficiary in the unlikely event that the insured dies within the policy’s coverage period.  A health insurance policy is designed to indemnify an insured for medical treatment in the event of an accident, illness, or disease.  And a disability insurance policy is designed to indemnify an insured by replacing lost income during a time of disability.  In all cases, Indemnity refers to the insurance proceeds that are paid to the insured or beneficiary in the event of a loss. 

Insurable Interest

The legality of any insurance policy is based on the concept of insurable interest.  In other words, in order to obtain insurance, an ‘interest’ must exist between two parties where one party has the potential to suffer a loss in the event that a particular outcome occurs (which was covered by the insurance policy). Read more

How Risk Affects an Insurance Application

When an insurance company ‘underwrites’ a health or life insurance application, it assesses the risks associated with the applicant.  As a licensed insurance agent, it is important to understand that the goal of an insurance company is to maintain a profit while providing financial protection to its customers.  In order to measure the amount of risk that is associated with the applicant, the insurer’s underwriting department reviews the application according to its ‘underwriting guidelines.’

Simply stated, an insurance company determines an applicant’s eligibility and premium amount based on the total overall risk, and how it is classified according to the company’s risk limits and standards.

Underwriters are individuals who are employed by the insurance company to review and determine whether an applicant is acceptable or declinable, based on the medical history of the applicant.  The ‘underwriting guidelines’ used to determine the class of risk associated with an applicant can vary from each insurer, according to the amount of risk the insurer can assume.

Each applicant is ‘rated’ according to sex, age, height, weight, medical conditions, medical history, smoking status, occupation, and even hobbies (riding motorcycles, rock climbing, etc).  The policy’s risk classification and associated premium rate (monthly cost) are determined using this rating system.

4 Classifications of Risk: Read more

Outside of federal and state legislature, insurance companies also abide by non-governmental associations that unify the states and help protect consumers.  Industry associations such as the National Association of Insurance Commissioners impose major influence on insurance companies to maintain common industry standards.

Industry Regulation

A major form of self-regulation, the National Association of State Commissioners (NAIC), is widely recognized as a major influence in the insurance industry.  NAIC is not a federal or state legislative body, nor does it regulate insurance law, even though its members are the insurance commissioners (i.e., the chief insurance regulators) of each state in the U.S.

Founded in 1871, the National Association of Insurance Commissioners was created as a non-governmental organization that has since created and maintained a uniform set of laws for states to follow in an attempt to standardize multiple-state insurance laws.  Though it has created a set of ‘by-laws’ to help centralize the state-run insurance industry, NAIC, itself, does not actually regulate insurance law.  The states regulate their respective insurance laws as well as abide by any relevant federal laws. Read more

Planning for Retirement

Individual retirement accounts, or IRAs, were enacted by Congress in 1974 as part of the Employee Retirement Income Security Act (ERISA).  IRAs are popular tax-deferred retirement plans that provide individuals with a method of investing their income and saving money for retirement.  As a licensed insurance agent, it is important to understand the benefits of each type of IRA.  Two types of IRAs include the ‘traditional IRA’ and a ‘Roth IRA.’

Traditional IRA

Simply known as an IRA, individuals and self-employed business owners have the opportunity to save money for retirement while receiving a current tax break.  As the amount contributed accumulates, it grows tax deferred until it is withdrawn at retirement.  Contribution amounts may be fully or partially deducted from current income, which results in a lower current income tax for the individual.

Any individual under the age of 70½ who has earned income can participate in an IRA.  Contribution levels allow up to 100% of an individual’s annual income, but cannot exceed contribution limits set each year by the federal government.  Any contribution that exceeds annual limits will be subject to a 6% “excise” tax.  Individuals who are 50 years or older are allowed to make “catch up” contributions that exceed normal annual limits.

Read more

Tax-Advantaged Health Insurance

Health Savings Accounts, simply called “HSAs,” are a form of health insurance that combines a health ‘savings account’ with a High Deductible Health Plan (HDHP).

Still relatively new to the market, these tax-advantaged medical savings plans are often purchased by self-employed individuals and small employers to provide tax deducted funding as well as tax free withdrawals if used towards qualified medical expenses.  HSAs, were enacted into law in January 2004 by the 108th Congress as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 under Title XII, Section 1201.

This form of medical insurance is exempt from taxation and provides for the accumulation of pre-tax dollars deposited and held in a health savings account that grows and rolls over each year to accumulate a long-term savings fund.  HSA funds are also used to pay for qualified medical expenses, such as doctors visits and prescribed medications, are not considered as gross income, and can be withdrawn from the HSA savings account tax free!  Accumulated funds can also be withdrawn without penalty or tax after the beneficiary (insured) reaches the Social Security retirement age.

Read more

Retirement Cash Flow

An annuity is a financial tool that will provide a succession of payments to a policyowner, or annuitant, in exchange for a single lump sum payment or series of payments to the insurer.  In other words, an annuitant pays an insurance company a certain amount which is then credited with a certain rate of interest, and this is how money grows in an annuity.

Annuities are interest bearing, tax deferred savings vehicles designed to provide future income in exchange for a lump sum or series of payments now.

During this growth period, or accumulation period, the rate of interest is not taxed, which allows for a greater accumulation of funds.  Once an annuitant is ready for the policy to start paying out (payout or annuity period), the annuity concludes its accumulation task and benefits are paid at specified periodic intervals.  These payments can either be paid over a certain amount of time, paid at a specific monetary amount per payment or act as a death benefit to an annuitant’s beneficiary. Read more

Life insurance is similar for a business as it is for an individual in protecting against the financial loss associated with premature death.  Though various kinds of companies exist (sole proprietorships, partnerships and corporations), life insurance is necessary to ensure capital is adequate and available if unexpected loss occurs.

The death of a business owner or partner in a business can also bring the end to the business; life insurance plays a vital part in protecting the integrity of a business if such event were to occur.    Life insurance, in the form of a ‘buy-sell’ agreement, provides the necessary protection to ensure the survival of the business and a disbursement of ownership rights to remaining partners or owners.

As a licensed insurance agent, it is important to understand the basic concept of a buy-sell agreement as well as the types of buy-sell agreements available to properly insure against the loss of a business owner or partner.

The death of a business owner doesn’t necessarily mean the end to the business.  Buy-sell agreements are used to provide structure in the absence of the business owner or partner.

A ‘buy-sell’ agreement, also known as a ‘buyout’ agreement,  is defined as a financial agreement or arrangement that protects business partners against financial loss by securing a predetermined fair market value share of a partner that, upon a predetermined event such as death, is sold to the remaining partners in the business to ensure the continuation of the business.

2 types of Buy-Sell Agreements: Read more

As with any successful business, ongoing commitment to customer satisfaction is the key to business growth.  It is even more important in the insurance industry!  Clients are more likely to renew or continue to use your services, if they are comfortable with you,  the agent.

When an agent earns the trust of a client, a sale is made — and referrals will follow.

Even more important, clients will refer others to the you, helping to build your book of business.  Something as important as protecting one’s family and financial wealth is worth the comfort of knowing they are in good hands.

Health insurance replacement often occurs for may reasons including better benefits, reduced deductible, reduced premium, and better network coverage.  It was common to switch insurance when moving to a different state due to the limited networks maintained by each insurer, though, now more insurers provide for a national network of coverage to eliminate the need to change insurance due to a change in where one moves or travels.

Policy Replacement vs Policy Retention

Due to the many factors involved with issuing a policy based on an insured’s preexisting health concerns or the benefit advantages of one plan over another, as a licensed insurance agent, you should closely exam the advantages and disadvantages of replacing a health insurance policy.

The following factors should be considered: Read more