AZ Life & Health cheat sheet

Regulator: the Arizona Department of Insurance and Financial Institutions (DIFI), led by a Governor-appointed Director, enforces A.R.S. Title 20.

Licensing rule: soliciting, negotiating, or selling life or health insurance requires an active Arizona producer license for that line; nonresidents use reciprocity.

CE rule: 24 credit hours every two years, including at least 3 hours of ethics, are required to renew a producer license.

Notification rule: a producer must report a change of address and any administrative action taken by another insurance regulator to DIFI within 30 days.

Fiduciary rule: premiums and returned premiums held by a producer are trust funds; commingling with personal or business funds is prohibited.

Replacement rule: the producer must deliver a replacement notice comparing existing and proposed life coverage, and the replacing insurer must notify the existing insurer.

Free-look rule: a newly delivered life insurance policy may be returned within 10 days for a full premium refund.

Unfair trade practice rule: misrepresentation, twisting, rebating, coercion, and false advertising are prohibited and subject to fines, suspension, or revocation.

Guaranty fund: the Arizona Life and Disability Insurance Guaranty Fund pays covered claims of insolvent member insurers up to statutory limits.

Risk = uncertainty of loss; peril = cause of loss; hazard = condition increasing chance or severity of loss.

Pure risk (loss or no loss) is insurable; speculative risk (loss or gain) is generally not insurable.

Insurable risks need many similar exposure units, accidental and measurable losses, definite time and amount, and non-catastrophic loss potential.

Indemnity formula: actual cash value = replacement cost minus depreciation; indemnity restores pre-loss financial position, not profit.

Utmost good faith: both parties disclose material facts; concealment or material misrepresentation can void the contract.

Contract traits: adhesion (insurer drafts), aleatory (unequal exchange), unilateral (only insurer enforceable), conditional (duties required), and personal.

Subrogation: after paying a loss, the insurer acquires the insured's right to recover from the at-fault third party to prevent double recovery.

Rate-making methods: class rating for similar groups, experience rating from past losses, and merit rating from individual characteristics.

Stock insurers are owned by shareholders and may pay dividends; mutual insurers are owned by policyholders and may pay policy dividends.

Insurable interest must exist at policy issue, not at death; absence of insurable interest makes the contract void.

Incontestability: after 2 years in force, the insurer cannot contest the policy for misrepresentation, except nonpayment of premium.

Suicide clause: within the stated period, usually 2 years, the insurer refunds premiums rather than paying the death benefit.

Misstatement of age or sex: the death benefit is adjusted to the amount the premium paid would have purchased at the correct age or sex.

Grace period: 30 or 31 days after the due date; coverage continues, and any unpaid premium is deducted from a death claim.

Reinstatement: requires evidence of insurability and back premiums with interest, and may restart contestability and suicide periods.

Nonforfeiture options: cash surrender, reduced paid-up, or extended term insurance when a cash-value policy lapses or is surrendered.

MEC rule: a policy failing the 7-pay test is a modified endowment contract; distributions are taxed LIFO with a 10% penalty before age 59½.

Policy loan: borrow up to cash value; unpaid loan plus interest reduces the death benefit and can cause lapse if it exceeds cash value.

Annuity phases: accumulation builds value; annuitization converts value into periodic payments.

Immediate annuity: payments begin within one payment period; deferred annuity: payments begin at a future date.

Fixed annuity guarantees a minimum interest rate; variable annuity value fluctuates in a separate account; indexed annuity credits index gains subject to cap and participation rate.

Exclusion ratio = investment in the contract divided by expected return; that fraction of each annuitized nonqualified payment is tax-free.

Tax rule: annuity accumulation is tax-deferred; taxable withdrawals before age 59½ generally incur a 10% federal penalty, with exceptions.

Qualified annuities are funded with pre-tax dollars and fully taxable; nonqualified annuities have after-tax basis recovered under the exclusion ratio.

Settlement options: life only, life with period certain, joint and survivor, and refund life; joint and survivor continues until the second death.

Variable annuity sales require both a life insurance license and a securities license, plus delivery of a prospectus.

Surrender charges decline over time; free withdrawal provisions and market value adjustments affect early withdrawals.

Cost-sharing order: deductible first, then coinsurance or copays, until the out-of-pocket maximum is reached; covered care then pays 100%.

HMO: closed network, gatekeeper PCP, capitation; PPO: open network with in-network and out-of-network benefits and no gatekeeper; EPO: network only; POS: hybrid.

Coordination of benefits: the primary plan pays first, then the secondary plan pays up to its limit; dependent children often use the birthday rule.

Medicare: Part A inpatient hospital, Part B physician and outpatient, Part C Medicare Advantage, Part D prescription drugs; eligibility generally at 65 or after 24 months of disability.

Medigap supplements Original Medicare cost-sharing; it cannot be paired with Medicare Advantage, and plans are standardized by letter.

Medicaid is income-tested and jointly funded; in Arizona it is administered as AHCCCS.

COBRA: 18 months for termination or reduced hours, 29 months for disability, 36 months for divorce, death, or a child aging out.

ACA rules: guaranteed issue, no preexisting-condition exclusions, essential health benefits, no annual or lifetime dollar limits, dependent coverage to age 26.

Disability income: own-occupation pays if unable to perform own job; any-occupation pays if unable to perform any suitable job; elimination period is the waiting time before benefits.