Life Insurance Applications (LIA) cheat sheet

Term life pays a death benefit only if the insured dies during the stated term; it builds no cash value and expires without value at term end.

Whole life is permanent coverage with level premiums, guaranteed cash value, and a guaranteed death benefit; it matures (endows) at the stated maturity age.

Universal life separates the policy into a cash-value account and a cost-of-insurance charge; the owner bears mortality and interest-rate risk within guaranteed maximum COI and minimum crediting limits.

Variable life and variable universal life place cash value in separate accounts (subaccounts); the owner bears investment risk, and the producer must hold a securities license in addition to a life license.

Indexed universal life credits interest by a formula tied to an external index, subject to a floor (often 0%) and a cap or participation rate; index credits are not direct market returns.

Endowment-style contracts and limited-pay whole life (10-pay, 20-pay, paid-up at 65) compress premiums into fewer years while keeping lifetime coverage.

Survivorship (second-to-die) coverage insures two lives and pays at the second death; it is used for estate liquidity and estate-tax planning.

Joint life (first-to-die) pays at the first death; adjustable life lets the owner change premium, death benefit, and period within policy limits, usually requiring evidence of insurability for increases.

Modified whole life and graded premium whole life start with lower premiums that step up in later years; the lower early outlay is offset by higher lifetime cost.

Incontestability: after the policy has been in force two years from issue, the insurer generally cannot contest the contract for misrepresentation, except for nonpayment of premium; fraud and lack of insurable interest are the usual statutory exceptions.

Suicide clause: death by suicide within the stated period (commonly two years) limits the payout to a refund of premiums paid, often without interest.

Grace period: coverage continues for a set period (commonly 30 or 31 days) after a missed premium; if death occurs in the grace period, the overdue premium is deducted from the benefit.

Reinstatement: a lapsed policy may be restored, typically within three to five years, on evidence of insurability and payment of overdue premiums with interest; a new contestable and suicide period usually applies.

Automatic premium loan (APL): if elected, unpaid premiums at the end of the grace period are borrowed against cash value, preventing lapse as long as sufficient value remains.

Nonforfeiture options on lapse of a cash-value policy: cash surrender, reduced paid-up insurance, or extended term insurance; the default is commonly extended term.

Dividend options: cash, reduce premium, accumulate at interest, paid-up additions, or one-year term (fifth dividend option).

Settlement options: lump sum, interest only, fixed period, fixed amount, and life income (with period-certain or joint-and-survivor variations).

Riders: waiver of premium, disability income, accidental death and dismemberment, guaranteed insurability, cost-of-living, return of premium, term rider, and long-term care or chronic illness acceleration.

Field underwriting begins with the agent: complete, accurate answers on the application and a truthful agent's report are the foundation of risk classification.

The application usually has Part I (general data, including beneficiary and existing coverage) and Part II (medical history); a paramedical exam or attending physician statement may be ordered based on face amount and age.

The Medical Information Bureau is a membership database of coded impairment information; it is not a credit bureau, and an adverse MIB report must be disclosed to the applicant on request.

The Fair Credit Reporting Act governs consumer reporting used in underwriting: adverse action based on a consumer report triggers notice and the applicant's right to know the source.

Standard risk classes are preferred (best), standard, and substandard (table rated); table ratings express extra mortality as a percentage of standard, e.g., Table 4 equals 150% of standard mortality.

Ratings may be temporary (flat extra per $1,000 for a set number of years) or permanent; a flat extra is a dollar charge per thousand of face amount, not a percentage of premium.

Insurable interest must exist at policy issue; it is generally presumed for self, spouse, and dependent children, and must be demonstrated for business or creditor arrangements.

Underwriting decisions: issue as applied, issue with a rating or exclusion rider, postpone, or decline; conditional receipt coverage depends on the applicant being insurable on the insurer's standard terms.

Common declinable or rated conditions include recent cancer, uncontrolled diabetes, significant cardiovascular disease, and hazardous avocations or occupations.

Net premium covers mortality and interest only; gross (loaded) premium adds expense loading for commissions, administration, taxes, and reserves.

Three premium factors: mortality (probability of death), interest (assumed earnings), and expense (loading); higher assumed interest lowers premium, higher assumed mortality raises it.

Mode loading: annual is cheapest; semiannual, quarterly, and monthly (especially monthly direct bill) cost progressively more because of lost interest and added billing expense.

Reserves are insurer liabilities representing the amount needed to fund future guaranteed benefits; they are not a fund of money set aside per policy and are not cash values.

Cash value equals the reserve adjusted for surrender charges and other policy factors; surrender charges typically decline to zero over 10 to 20 years.

Dividends are a return of divisible surplus, are not guaranteed, and are generally not taxable until cumulative dividends exceed cumulative premiums paid (then taxed as ordinary income).

Policy loans accrue interest and reduce the death benefit and cash value if unpaid; if loan plus interest exceeds cash value, the policy can lapse and create taxable gain.

Taxation: death benefits are generally income-tax-free to the beneficiary; cash-value growth is tax-deferred; surrender or lapse with gain produces ordinary income, and a transfer for value can make the death benefit taxable.

MEC rules: a policy that fails the 7-pay test becomes a modified endowment contract; loans and withdrawals are taxed LIFO with a 10% penalty before age 59½.

The application is the insured's and owner's offer to the insurer; the insurer accepts by issuing the policy, and the policy plus application form the entire contract.

Statements on the application are generally representations, not warranties; material misrepresentation that affects the insurer's decision can void coverage within the contestable period.

A conditional receipt provides interim coverage only if the proposed insured meets the insurer's standard underwriting requirements at the time of application; a binding receipt provides immediate coverage regardless of insurability.

Policy delivery: if premium was paid with the application, coverage typically begins at delivery of the policy or the effective date shown; if no premium was paid, coverage begins when the first premium is collected and the policy is delivered.

The free-look period (commonly 10 to 30 days, state-specific) begins at delivery and allows the owner to return the policy for a full refund.

A signed delivery receipt documents the date the free-look and any conditional coverage begin; the agent should confirm the owner's understanding of provisions, riders, and premium obligations.

Ownership rights: name and change the beneficiary, assign the policy, take loans or withdrawals, surrender, and select settlement options; a collateral assignment pledges the policy as security for a loan.

Beneficiary designations: primary, contingent, revocable, irrevocable; per stirpes divides a deceased beneficiary's share among that beneficiary's heirs, per capita divides equally among surviving named beneficiaries.

Policyowner service includes address and beneficiary changes, ownership transfers, reinstatement, absolute or collateral assignment, and replacement disclosure; replacement of existing coverage requires a signed notice comparing the new and old policies.

Term life pays a death benefit only if the insured dies during the stated term; it builds no cash value and expires without value at term end.

Whole life is permanent coverage with level premiums, guaranteed cash value, and a guaranteed death benefit; it matures (endows) at the stated maturity age.

Universal life separates the policy into a cash-value account and a cost-of-insurance charge; the owner bears mortality and interest-rate risk within guaranteed maximum COI and minimum crediting limits.

Variable life and variable universal life place cash value in separate accounts (subaccounts); the owner bears investment risk, and the producer must hold a securities license in addition to a life license.

Indexed universal life credits interest by a formula tied to an external index, subject to a floor (often 0%) and a cap or participation rate; index credits are not direct market returns.

Endowment-style contracts and limited-pay whole life (10-pay, 20-pay, paid-up at 65) compress premiums into fewer years while keeping lifetime coverage.

Survivorship (second-to-die) coverage insures two lives and pays at the second death; it is used for estate liquidity and estate-tax planning.

Joint life (first-to-die) pays at the first death; adjustable life lets the owner change premium, death benefit, and period within policy limits, usually requiring evidence of insurability for increases.

Modified whole life and graded premium whole life start with lower premiums that step up in later years; the lower early outlay is offset by higher lifetime cost.

Incontestability: after the policy has been in force two years from issue, the insurer generally cannot contest the contract for misrepresentation, except for nonpayment of premium; fraud and lack of insurable interest are the usual statutory exceptions.

Suicide clause: death by suicide within the stated period (commonly two years) limits the payout to a refund of premiums paid, often without interest.

Grace period: coverage continues for a set period (commonly 30 or 31 days) after a missed premium; if death occurs in the grace period, the overdue premium is deducted from the benefit.

Reinstatement: a lapsed policy may be restored, typically within three to five years, on evidence of insurability and payment of overdue premiums with interest; a new contestable and suicide period usually applies.

Automatic premium loan (APL): if elected, unpaid premiums at the end of the grace period are borrowed against cash value, preventing lapse as long as sufficient value remains.

Nonforfeiture options on lapse of a cash-value policy: cash surrender, reduced paid-up insurance, or extended term insurance; the default is commonly extended term.

Dividend options: cash, reduce premium, accumulate at interest, paid-up additions, or one-year term (fifth dividend option).

Settlement options: lump sum, interest only, fixed period, fixed amount, and life income (with period-certain or joint-and-survivor variations).

Riders: waiver of premium, disability income, accidental death and dismemberment, guaranteed insurability, cost-of-living, return of premium, term rider, and long-term care or chronic illness acceleration.

Field underwriting begins with the agent: complete, accurate answers on the application and a truthful agent's report are the foundation of risk classification.

The application usually has Part I (general data, including beneficiary and existing coverage) and Part II (medical history); a paramedical exam or attending physician statement may be ordered based on face amount and age.

The Medical Information Bureau is a membership database of coded impairment information; it is not a credit bureau, and an adverse MIB report must be disclosed to the applicant on request.

The Fair Credit Reporting Act governs consumer reporting used in underwriting: adverse action based on a consumer report triggers notice and the applicant's right to know the source.

Standard risk classes are preferred (best), standard, and substandard (table rated); table ratings express extra mortality as a percentage of standard, e.g., Table 4 equals 150% of standard mortality.

Ratings may be temporary (flat extra per $1,000 for a set number of years) or permanent; a flat extra is a dollar charge per thousand of face amount, not a percentage of premium.

Insurable interest must exist at policy issue; it is generally presumed for self, spouse, and dependent children, and must be demonstrated for business or creditor arrangements.

Underwriting decisions: issue as applied, issue with a rating or exclusion rider, postpone, or decline; conditional receipt coverage depends on the applicant being insurable on the insurer's standard terms.

Common declinable or rated conditions include recent cancer, uncontrolled diabetes, significant cardiovascular disease, and hazardous avocations or occupations.

Net premium covers mortality and interest only; gross (loaded) premium adds expense loading for commissions, administration, taxes, and reserves.

Three premium factors: mortality (probability of death), interest (assumed earnings), and expense (loading); higher assumed interest lowers premium, higher assumed mortality raises it.

Mode loading: annual is cheapest; semiannual, quarterly, and monthly (especially monthly direct bill) cost progressively more because of lost interest and added billing expense.

Reserves are insurer liabilities representing the amount needed to fund future guaranteed benefits; they are not a fund of money set aside per policy and are not cash values.

Cash value equals the reserve adjusted for surrender charges and other policy factors; surrender charges typically decline to zero over 10 to 20 years.

Dividends are a return of divisible surplus, are not guaranteed, and are generally not taxable until cumulative dividends exceed cumulative premiums paid (then taxed as ordinary income).

Policy loans accrue interest and reduce the death benefit and cash value if unpaid; if loan plus interest exceeds cash value, the policy can lapse and create taxable gain.

Taxation: death benefits are generally income-tax-free to the beneficiary; cash-value growth is tax-deferred; surrender or lapse with gain produces ordinary income, and a transfer for value can make the death benefit taxable.

MEC rules: a policy that fails the 7-pay test becomes a modified endowment contract; loans and withdrawals are taxed LIFO with a 10% penalty before age 59½.

The application is the insured's and owner's offer to the insurer; the insurer accepts by issuing the policy, and the policy plus application form the entire contract.

Statements on the application are generally representations, not warranties; material misrepresentation that affects the insurer's decision can void coverage within the contestable period.

A conditional receipt provides interim coverage only if the proposed insured meets the insurer's standard underwriting requirements at the time of application; a binding receipt provides immediate coverage regardless of insurability.

Policy delivery: if premium was paid with the application, coverage typically begins at delivery of the policy or the effective date shown; if no premium was paid, coverage begins when the first premium is collected and the policy is delivered.

The free-look period (commonly 10 to 30 days, state-specific) begins at delivery and allows the owner to return the policy for a full refund.

A signed delivery receipt documents the date the free-look and any conditional coverage begin; the agent should confirm the owner's understanding of provisions, riders, and premium obligations.

Ownership rights: name and change the beneficiary, assign the policy, take loans or withdrawals, surrender, and select settlement options; a collateral assignment pledges the policy as security for a loan.

Beneficiary designations: primary, contingent, revocable, irrevocable; per stirpes divides a deceased beneficiary's share among that beneficiary's heirs, per capita divides equally among surviving named beneficiaries.

Policyowner service includes address and beneficiary changes, ownership transfers, reinstatement, absolute or collateral assignment, and replacement disclosure; replacement of existing coverage requires a signed notice comparing the new and old policies.