AL Life & Health cheat sheet

Insurance is regulated chiefly by the states under the McCarran-Ferguson Act; Alabama's regulator is the Alabama Department of Insurance.

The Alabama insurance commissioner is appointed by the governor and enforces the state Insurance Code, including market conduct and producer licensing.

An insurer must hold a certificate of authority to transact insurance in Alabama; unauthorized insurers may not issue policies there.

Insurer domicile classification: domestic (same state), foreign (other U.S. state), alien (outside the U.S.).

Unfair trade practices include misrepresentation, twisting, rebating, coercion, and unfair claim settlement; violations can lead to fines, suspension, or revocation.

Alabama producers must complete 24 hours of continuing education every two years, including ethics hours, to renew a license.

Premiums and other funds received by a producer are held in a fiduciary capacity; commingling with personal funds is prohibited.

The Alabama Life and Disability Insurance Guaranty Association provides limited protection for policyholders of insolvent member insurers.

A producer may not solicit, negotiate, or sell insurance for a line of authority for which the producer is not licensed and appointed.

A producer must hold a line-of-authority license (life, accident and health, etc.) and be appointed by the insurer before soliciting business.

Commissions may be paid only to licensed and properly appointed producers; sharing commissions with unlicensed persons is prohibited.

Rebating is offering any inducement not stated in the policy, such as cash, gifts, or premium discounts, to buy insurance.

Twisting is a misrepresentation that induces a policyholder to lapse or surrender an existing policy.

Replacement rules require disclosure and notice when a sale will replace existing life insurance or annuity coverage.

Advertising and sales illustrations must be truthful, balanced, and not misleading; guaranteed and nonguaranteed elements must be identified.

Alabama requires life insurance buyers to receive a 10-day free-look period; the policy may be returned for a full premium refund.

Marketing must comply with Do-Not-Call, TCPA, CAN-SPAM, and privacy rules; unsolicited faxes and robocalls are restricted.

Violations of licensing and marketing laws can result in cease-and-desist orders, civil fines, license suspension, or criminal penalties.

Risk is uncertainty about loss; pure risk involves only chance of loss, while speculative risk involves chance of gain or loss.

Insurable risks generally require a large number of similar exposure units, accidental loss, measurable loss, and no catastrophic concentration.

Hazards increase the chance of loss: physical, moral (dishonesty), and morale (carelessness); perils are the causes of loss.

Risk management methods: avoidance, loss reduction, retention, sharing, and transfer (insurance is a transfer method).

The law of large numbers allows insurers to predict losses more accurately as the number of similar independent exposures increases.

Adverse selection is the tendency of poorer-than-average risks to buy insurance; underwriting and exclusions help control it.

Insurance contracts are contracts of adhesion, aleatory, and utmost good faith; they require insurable interest and indemnity (except life).

Agent authority may be express, implied, or apparent; apparent authority arises from the insurer's conduct that leads a third party to believe authority exists.

Reinsurance is insurance for insurers; the ceding insurer transfers part of its risk to a reinsurer.

Life insurance creates an estate at death; the death benefit is generally paid income-tax-free to the named beneficiary.

Insurable interest in life insurance must exist at application; it need not continue until the insured's death.

Three premium factors are mortality, interest, and expense; higher assumed interest or lower expenses reduces the premium.

Human life value estimates economic value of future earnings; needs analysis adds debts, income replacement, education, and final expenses.

Term insurance provides pure death protection for a specified period and generally has no cash value.

Whole life provides lifetime coverage with level premiums and guaranteed cash value; universal life allows flexible premiums and adjustable benefits.

Policyowner rights include naming beneficiaries, taking loans, surrendering the policy, assigning ownership, and selecting settlement options.

A modified endowment contract (MEC) fails the 7-pay test and loses favorable tax treatment for loans and withdrawals.

Group life insurance usually provides term coverage under a master policy; individual evidence of insurability is often waived.

Underwriting classes: preferred, standard, substandard, and declined; substandard risks may be issued with higher premiums or exclusions.

The application has Part I (general information), Part II (medical history), and Part III (agent's report); all answers are representations.

Underwriters may use the MIB, attending physician statements, paramedical exams, inspection reports, and prescription databases.

A conditional receipt provides coverage from the application date or medical exam date if the proposed insured proves insurable under company rules.

Primary beneficiaries receive proceeds first; contingent beneficiaries receive proceeds if the primary beneficiary dies before the insured.

A revocable beneficiary may be changed by the policyowner without consent; an irrevocable beneficiary must consent to a change.

Per stirpes distributes a deceased beneficiary's share to that beneficiary's heirs; per capita divides proceeds equally among surviving beneficiaries.

A common disaster clause delays payment briefly to determine the order of death; a spendthrift clause protects proceeds from beneficiaries' creditors.

Minors cannot receive policy proceeds directly; a guardian, trust, or UTMA arrangement is used.

Level term insurance has a constant face amount; decreasing term has a face amount that declines over time; increasing term rises.

Renewable term guarantees renewal without evidence of insurability; convertible term allows exchange for permanent coverage without new underwriting.

Whole life is permanent, has level premiums, guaranteed cash value, and a guaranteed death benefit; limited-pay plans compress premiums into fewer years.

Universal life separates the death benefit from the cash value; it credits interest and deducts mortality and expense charges monthly.

Variable life cash value is invested in separate accounts and fluctuates with market performance; selling it requires a securities license.

Indexed universal life credits interest based on an index subject to a floor and cap; it is not a direct stock market investment.

Endowment policies pay the face amount at a stated maturity date or at death, whichever occurs first.

Modified whole life charges lower premiums in early years and higher premiums later; graded premium whole life increases premiums over time.

Policy loans accrue interest and reduce the death benefit and cash value if unpaid; surrender charges may apply in early policy years.

The incontestability clause bars the insurer from contesting the policy after two years, except for nonpayment of premium or fraud in some cases.

The suicide clause limits payment to return of premiums if the insured dies by suicide within two years of issue.

The grace period (typically 30 or 31 days) keeps coverage in force after a missed premium; the premium is still owed.

Reinstatement is generally allowed within three years with evidence of insurability, payment of overdue premiums, and interest.

A misstatement of age or sex adjusts the death benefit to what the premium would have purchased at the correct age or sex.

Nonforfeiture options: cash surrender, reduced paid-up insurance, and extended term insurance.

Settlement options include lump sum, interest only, fixed amount, fixed period, and life income; a life income option guarantees payments for life.

Common riders: waiver of premium, disability income, guaranteed insurability, accidental death, term rider, and payor benefit.

An automatic premium loan provision uses cash value to pay overdue premiums to prevent lapse.

An annuity is a contract that accumulates funds and then pays income; accumulation phase builds value; annuitization converts value to payments.

Immediate annuities begin payments within one payment period; deferred annuities accumulate before payout.

Fixed annuities guarantee a credited rate; variable annuities invest in separate accounts and carry market risk; indexed annuities credit based on an index with limits.

Annuitization options: life only, life with period certain, joint and survivor, and fixed period; life only pays the highest income.

Variable annuity accumulation units are converted into payout units at annuitization; unit values fluctuate with separate account performance.

Nonqualified annuity withdrawals are taxed as interest first under LIFO until basis is recovered; qualified annuities are generally fully taxable.

A 10% additional tax applies to taxable annuity withdrawals before age 59½, with exceptions such as death, disability, or substantially equal payments.

Required minimum distributions generally begin at age 73 for traditional IRAs and qualified plans under SECURE 2.0.

The exclusion ratio determines the tax-free portion of each nonqualified annuity payment by dividing investment in the contract by expected return.

Death benefits paid to a beneficiary are generally excluded from gross income under IRC §101(a).

Cash value inside a life insurance policy grows tax-deferred; policy loans are generally not taxable while the policy remains in force.

Premiums for personal life insurance are not deductible; employer-paid group life premiums are deductible as a business expense.

A MEC distribution is taxed LIFO and may incur a 10% penalty before 59½; the 7-pay test determines MEC status.

The transfer-for-value rule makes the death benefit taxable to a buyer, with exceptions for certain transfers such as to the insured or a partner.

Life insurance proceeds are included in the insured's estate if the insured held incidents of ownership at death.

A 1035 exchange allows tax-free transfer of life insurance or annuity values into a like-kind contract.

Gifts of life insurance policies may be subject to gift tax; the annual exclusion and lifetime exemption may apply.

Annuity income is taxed under the exclusion ratio for nonqualified contracts; once basis is recovered, payments are fully taxable.

Health insurance pays medical expenses or provides services; indemnity plans reimburse, while managed care plans use networks and care coordination.

Cost-sharing terms: deductible (amount paid before benefits), copayment (fixed amount), coinsurance (percentage), and out-of-pocket maximum.

A pre-existing condition is a medical condition existing before coverage; ACA plans must cover pre-existing conditions without waiting periods.

Individual health policies typically include a free-look period, grace period, reinstatement, claims provisions, and renewal conditions.

Renewal classifications: noncancellable, guaranteed renewable, conditionally renewable, and optionally renewable.

A waiting period is the time before coverage begins for a condition; an elimination period is the time before benefits begin after a loss.

Coordination of benefits prevents double payment when a person is covered by more than one health plan; primary and secondary plans pay in order.

Rescission of ACA coverage is allowed only for fraud or intentional misrepresentation; advance notice is required.

Essential health benefits include hospitalization, outpatient care, emergency services, maternity, mental health, and prescription drugs.

Disability income insurance replaces a portion of earned income, typically 50% to 70%, during illness or injury.

The elimination period is the waiting time before disability benefits begin; the benefit period is how long benefits last.

Own-occupation disability pays if the insured cannot perform their own occupation; any-occupation pays only if unable to perform any reasonable occupation.

Residual disability benefits pay a partial benefit when income is reduced; partial disability benefits pay for a limited time after return to work.

Disability income benefits may be integrated or offset by Social Security, workers' compensation, or employer sick pay.

Medical expense plans include hospital, surgical, major medical, and comprehensive coverage; major medical has high limits and cost sharing.

An HSA-compatible high-deductible health plan must meet minimum deductible and maximum out-of-pocket limits set annually by the IRS.

Accidental death and dismemberment pays a principal sum for death or loss of limbs or sight; it is not a general health plan.

Critical illness insurance pays a lump sum on diagnosis of a covered condition, such as cancer or heart attack.

Group health insurance uses a master policy issued to the employer; employees receive certificates of coverage.

Group underwriting considers group size, industry, participation, and prior claims; individual evidence is usually waived for large groups.

Eligibility often requires a probationary period and active-at-work status before coverage begins.

COBRA requires employers with 20 or more employees to offer continuation coverage for 18, 29, or 36 months depending on the qualifying event.

HIPAA limits pre-existing condition exclusions for creditable coverage, provides special enrollment rights, and protects health privacy.

Group term life insurance provides death benefits during employment; conversion and portability privileges may continue coverage after termination.

Contributory plans require eligible employees to pay part of the premium; noncontributory plans are employer-paid and require higher participation.

Coordination of benefits and Medicare secondary payer rules determine which plan pays first when multiple plans cover the same person.

Experience rating sets group premiums based on the group's claims history; community rating sets premiums on the broader pool.

Medicare supplement (Medigap) policies fill gaps in Original Medicare; plans are standardized by letter across most states.

The Medigap open enrollment period is six months starting when the person is 65 and enrolled in Part B; guaranteed issue applies.

Long-term care insurance covers custodial care when the insured cannot perform at least two of six activities of daily living or has cognitive impairment.

Long-term care benefit triggers include ADL deficiency, cognitive impairment, and a plan of care; elimination periods are typically 0 to 90 days.

Medicare Advantage (Part C) replaces Original Medicare with a private plan network; it may include Part D drug coverage.

Medicare Part D provides outpatient prescription drug coverage through standalone or Medicare Advantage plans.

Final expense and senior life insurance provide small face amounts for funeral and burial costs; simplified issue may use health questions.

Medicaid is the primary payer for long-term custodial care for people with limited income and assets; spend-down rules apply.

Annuities can provide retirement income for seniors; suitability and elder financial abuse protections apply to sales.

Medicare Part A covers inpatient hospital, skilled nursing facility, hospice, and some home health care.

Medicare Part B covers physician services, outpatient care, preventive services, and durable medical equipment.

Medicare eligibility generally begins at age 65 for citizens or lawful permanent residents with five years of residency; disability and ESRD also qualify.

The Initial Enrollment Period is seven months: three months before the birthday month, the birthday month, and three months after.

Medicare Advantage and Part D annual election period runs October 15 to December 7, with coverage effective January 1.

Medicare Secondary Payer rules require Medicare to pay secondary when another plan is primary, such as active employer coverage for certain workers.

The ACA requires guaranteed issue and community rating for individual and small-group health insurance and prohibits annual/lifetime limits on essential benefits.

HIPAA privacy rules protect individually identifiable health information; COBRA and ERISA govern group health continuation and plan fiduciary duties.

Medicare does not generally cover routine dental, vision, hearing aids, or long-term custodial care.