Selling the Correct Health Plan

Health insurance is a vital component to the financial security of any American citizen.  Without it we take the chance of severely and permanently disrupting our financial well-being in the event of a major or catastrophic medical event.

The entire purpose of health insurance is to prevent financial ruin due to a catastrophic medical event such as a heart attack, stroke, catastrophic injury, or any other event that leads to major medical expenses.  It is important to choose the correct type of health plan to prevent this financial scenario and it is the job of the licensed insurance agent to help the applicant apply for the best health plan to fit the applicant’s needs.

A major medical policy includes the following:

  • Lifetime benefits maximum
  • Deductible
  • Coinsurance
  • Stop-loss and out-of-pocket maximums
  • Co-payments
  • Policy limitations and exclusions

In soliciting the correct health insurance policy to clients, it is important to research the correct insurance carriers.  The most popular carriers provide for national coverage, meaning that they protect the insured anywhere they may travel throughout the U.S.  While there are hundreds of insurance companies that offer health coverage, generally it is best to select among the largest, most prominent carriers available. Read More


The Insurance Agent

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


The Benefits of Online Learning (e-learning)

The working class America of today can be characterized as being overly stressed and overworked.  The average worker spends more time at work now than in the past, leading to valuing the concept of time and becoming more efficient in the use of it.  Thus, the trend of online learning is increasing to further an education, acquire a new degree, or attain a government required license.  As Stephen Smith, Professor at Purdue University has stated,

They (workers) value control over and flexibility in scheduling their time.

The reality is that in order to exceed in today’s working economy, individuals must become more flexible and take more initiative towards their success.  In doing so, acquiring a degree or furthering one’s education to increase the ability to earn a higher income has become a task best fulfilled online.

Of the multiple reasons why online learning has become a more popular method of advancing in education, a few main reasons include:

  • Convenience
  • Cost effectiveness
  • Time effectiveness
  • Concentrated educational focus vs group learning flow Read More

The Importance of Disability Insurance

We all know someone who has had a major medical emergency throughout their life.  Medical emergencies such as heart attacks, strokes, and physical accidents can cause victims to become dependent on the help of others for extended periods of time and can cause a significant gap in employment and wage earning.  These long-term medical incapacity scenarios, coupled with the high costs of medical care necessary to recover from such events are the main causes of financial loss.

How do you protect against income loss during a disability period?

While health insurance is designed to protect against financial loss in the event of medical expenses, it does not replace lost income during a period of disability.  Health insurance does not cover monthly mortgage payments, auto and home utility expenses, or food and other daily consumption expenses.

So, how do you protect against income loss during a disability period? Disability insurance.  This specific type of insurance is designed to provide payment of continual, periodic income in the absence of working income due to a qualifying illness or injury disability event. Disability can vary from partial or temporary, to recurrent or permanent, and benefits are paid accordingly.  As a licensed insurance agent, it is important to understand the basics of a disability insurance policy and how to best service your clients.

Also known as disability income insurance or income replacement insurance, it provides for both short and long term protection depending on the nature of the event and is used to provide a continuance of income flow to the insured in the form of monthly payments at around 60% of the pre-disability income level of the insured.  Simply stated, disability insurance provides financial protection against the loss of one’s ability to earn income due to a qualifying injury or illness.

Key Benefits to Consider when Selling Disability Insurance include: Read More


Deductibles, Coinsurance & Out-of-Pocket Limits in a Health Policy

A question that our online insurance school often receives is how to figure out a health insurance policy’s ‘out-of-pocket limit’, or maximum financial limit that an insured must meet in a calendar year based on incurred medical expenses. Before we can understand how to calculate a policy’s out-of-pocket limit, we must first review some key terms used in the insurance industry, namely: deductible, coinsurance, and stop-loss.

How do you calculate a health insurance policy’s out-of-pocket limit?

Deductible – The amount of expense that the insured must pay before benefits are covered by the insurance company.  This amount is covered 100% by the insured and is usually based on a calendar year medical expense basis, meaning that each new calendar year (January 1st – December 31st) the insured is responsible for satisfying a new deductible if medical expenses occur within the year.  This amount varies based on the policy chosen by the insured with common deductible amounts of $500, $1000, $2500, $5000, up to a less common $10,000 deductible.  The higher the deductible of a policy, the lower the monthly premium, so consumers choose a deductible amount within their monthly budget.

Coinsurance – The percentage of additional medical expenses that the insured meets in addition to the deductible.  The insurer and the insured split medical costs, typically with the insurer covering 80% of the cost while the insured covers 20%, also known as 80/20 coinsurance.  Some policies have a 100/0, 90/10, or 70/30 split where the insurance company is always responsible for the higher percentage amount.  A reputable major medical insurance policy will also include a ‘stop-loss’ (defined below), that limits the dollar amount of coinsurance that an insured must pay in a given year. Read More


Life Insurance Beneficiaries

An important topic taught through our insurance license school is understanding what happens to a life insurance policy once an insured dies and what laws govern who receives the death benefit monies provided by the life policy.

A life insurance beneficiary is an individual who receives the policy’s benefit proceeds upon the death of the insured.  The insured has chosen this individual, or individuals when he or she purchased the life insurance contract.  The amount of benefit proceeds as well as distribution percentages are also chosen by the insured and can or cannot be altered during the insured’s lifetime, depending on the designation type that the insured has chosen at the time of policy issuance.

The life insurance beneficiary, designated by the insured, gains control of the death benefit after the insured dies.  This beneficiary can be a person, institution, or charity and though insurable interest is not required to be a beneficiary, family members of the insured are usually named.

Distribution by Descent

 

Per stirpes rule – Death proceeds from an insurance policy are divided equally among the named beneficiaries.  If a named beneficiary is deceased, his or her share then goes to the living descendants of that individual.

Per capita rule – Death proceeds from an insurance policy are divided equally among only the living primary beneficiaries. Read More


The Insurance Marketplace

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


Insurable Interest

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


Insurance Underwriting

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


National Association of Insurance Commissioners (NAIC)

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