DC Life & Health cheat sheet

Insurance in DC is overseen by the Department of Insurance, Securities and Banking (DISB), headed by a Commissioner who licenses insurers and producers and enforces unfair trade practice rules.

Only authorized (admitted) insurers may transact insurance in DC; producers may use unauthorized insurers only through limited surplus lines channels.

A producer must be licensed AND appointed by the insurer before soliciting, negotiating, or selling; commissions may be paid only to licensed producers.

Licenses must be renewed with continuing education (commonly 24 credit hours per 2-year term, including 3 hours of ethics) completed before expiration.

Premiums collected belong to the insurer or insured, not the producer; funds must be held in a fiduciary capacity and never commingled with personal funds.

Prohibited acts include rebating, twisting, misrepresentation, defamation, boycott/coercion, and unauthorized use of an insurer's name.

The DC Life and Health Insurance Guaranty Association pays covered claims of insolvent member insurers up to model limits (life death benefit $300,000, cash value $100,000, health $300,000).

Insurance fraud is a crime; a material misstatement on an application or claim can void coverage and trigger criminal and civil penalties.

Risk is uncertainty about loss; a peril is the cause of a loss (fire, death); a hazard is a condition that increases the chance or severity of loss (physical, moral, morale).

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

Insurable risks are accidental, measurable, definite, numerous, and not catastrophic when pooled, satisfying the law of large numbers.

Indemnity restores the insured to the pre-loss financial position; life insurance is a valued contract that pays the stated face amount instead.

Utmost good faith requires full disclosure; a contract of adhesion is drafted by the insurer and read against it; insurance is aleatory and unilateral.

Methods of handling risk: avoidance, retention, sharing, reduction, and transfer through insurance.

Adverse selection is the tendency of higher-than-average risks to buy or keep coverage; underwriting and participation rules control it.

Reinsurance transfers risk from a primary (ceding) insurer to a reinsurer.

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

Insurable interest must exist at the time of application, not at death; life insurance pays the face amount as a valued, not indemnity, contract.

Gross premium is built from mortality, interest, and expense assumptions; a higher assumed interest rate or lower assumed mortality produces a lower premium.

Rating factors: age, gender, health and medical history, tobacco use, occupation, aviation/avocation hazards, and amount of coverage.

Risk classifications are preferred, standard, substandard (table-rated), and declined; higher risk means a higher premium.

Term covers a stated period with no cash value; whole life covers to age 100/121 with guaranteed cash value; universal life offers flexible premiums and benefits.

Field underwriting duties: complete the application accurately, obtain all required signatures, collect the initial premium, and disclose known risk factors.

A conditional receipt provides interim coverage only if the proposed insured proves insurable under the insurer's underwriting rules.

Premium modes are annual, semiannual, quarterly, and monthly; the more frequent the mode, the higher the total annual cost.

Replacements and 1035 exchanges must be disclosed on the application and supported by a signed comparison notice.

Term insurance: level, increasing, decreasing, renewable, convertible, and return-of-premium variations; pays only if death occurs during the term.

Whole life: level premium for life or to a stated age, guaranteed cash value, guaranteed death benefit, matures/endows at the stated age.

Limited-pay and single-premium whole life compress premiums into fewer years while keeping lifetime coverage.

Universal life: flexible premium, adjustable death benefit, current interest credited with a guaranteed minimum; Option A = level benefit, Option B = increasing benefit.

Variable life: cash value held in a separate account, requires a securities registration plus a life license, and a prospectus must be delivered.

Indexed universal life credits interest based on an external index subject to a floor, a cap, and a participation rate; it is not a registered security.

Joint life pays on the first death; survivorship (second-to-die) pays on the last death and is used for estate planning.

Modified/graded premium policies charge lower early premiums that step up later; indeterminate premium policies charge non-guaranteed current rates.

Core provisions: entire contract, free look, incontestability after 2 years, grace period (typically 30-31 days), reinstatement within 3 years, misstatement of age/sex adjustment.

The suicide clause limits payout to a return of premiums if death occurs within 2 years of issue.

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

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

Beneficiary rules: primary versus contingent, revocable versus irrevocable, per stirpes versus per capita, common disaster clause, and minors requiring a guardian or trust.

Dividend options: cash, reduce premium, accumulate at interest, paid-up additions, and one-year term.

Policy loans accrue interest and reduce the death benefit and cash value if unpaid; the automatic premium loan prevents unintentional lapse.

Riders include waiver of premium, disability income, accidental death, guaranteed insurability, child term, long-term care, return of premium, and accelerated death benefit.

Assignment may be absolute (ownership transferred) or collateral (policy pledged as security for a loan).

An annuity has an accumulation phase (contributions and tax-deferred growth) followed by an annuitization/payout phase (income distributions).

An immediate annuity begins payments within one payment period; a deferred annuity accumulates before payout.

Fixed annuities guarantee a rate; variable annuities invest in separate accounts and require a securities license plus prospectus; indexed annuities credit index-linked interest with a floor.

Annuitization options: life only, life with period certain, installment/refund, and joint and survivor.

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

Nonqualified deferred annuity withdrawals are taxed LIFO (gains first) and may incur a 10% penalty before age 59 1/2.

Surrender charges and market value adjustments apply to withdrawals above the free withdrawal amount during early contract years.

A 1035 exchange moves an annuity or life policy into a new contract without current taxation.

Health insurance is an indemnity (reimbursement) contract; morbidity, not mortality, drives pricing.

Cost-sharing terms: deductible, coinsurance, copayment, and out-of-pocket maximum; preventive care is often covered at 100%.

HMO: closed panel, primary care physician as gatekeeper, referrals required for specialists, emergency care always covered.

PPO: negotiated network discounts with out-of-network benefits at higher cost sharing and no referral requirement.

POS and EPO are hybrids: POS permits out-of-network care with a referral; EPO provides no out-of-network coverage except emergencies.

Premium factors: age, gender, occupation, health status, tobacco use, geography, family size, and plan design.

Individual underwriting may use medical exams, attending physician statements, and MIB reports; group plans generally do not underwrite individuals.

Business uses of health/disability coverage: key person disability, business overhead expense, disability buy-out, and buy-sell funding.

NAIC uniform provisions: entire contract; time limit on certain defenses (2 years); grace period of 7 days (weekly), 10 days (monthly), or 31 days (other modes).

Claims: insurer must furnish claim forms within 15 days, proof of loss is due within 90 days, and claims must be paid immediately or within 30 days.

Legal actions may not begin until 60 days after proof of loss and no later than 3 years after proof is furnished.

Reinstatement revives a lapsed policy, typically with a 45-day window for recurring disability.

Renewability categories: cancelable, optionally renewable, conditionally renewable, guaranteed renewable, and noncancelable (premiums cannot be increased).

Disability definitions: total, partial, residual, and presumptive; own occupation versus any occupation; an elimination period precedes benefits.

Coordination of benefits prevents duplicate payment when two plans cover the same person; the primary plan pays first.

Preexisting condition provisions, probationary periods, and elimination periods each delay when benefits become payable.

One master contract is issued to the employer or sponsor; each participant receives a certificate summarizing coverage.

Eligibility rules: actively-at-work requirement, waiting period, and open enrollment; late entrants may face restrictions.

Contributory plans require a minimum participation level (often 75% of eligible employees); noncontributory plans generally require 100%.

Group underwriting examines group size, industry, prior claims experience, and demographics rather than individual health.

COBRA: 18 months of continuation for termination or reduced hours; 36 months for dependents and certain disability cases.

Group life is usually yearly renewable term, with conversion and portability rights when coverage ends.

Short- and long-term disability typically replace 50-70% of income, with LTD offset by Social Security after an elimination period.

Experience rating uses the group's own claims history; community rating uses the entire pool's experience.

Part A covers inpatient hospital, skilled nursing after a qualifying stay, hospice, and home health; it is premium-free with 40 quarters of Medicare-covered work.

Part B covers physician and outpatient services with an annual deductible and 80/20 coinsurance; enrollment carries a monthly premium.

Part C (Medicare Advantage) is a private-plan alternative delivering A and B, often D, benefits with network rules.

Part D covers outpatient prescription drugs through stand-alone drug plans or Medicare Advantage prescription drug plans.

Initial enrollment period is 7 months: the 3 months before the 65th-birthday month, the birthday month, and the 3 months after.

Medigap Plans A-N cover Medicare cost-sharing; guaranteed-issue open enrollment lasts 6 months, and Plan F is unavailable to those newly eligible after 2020.

Medicare does not pay for custodial long-term care; Medicaid is income- and asset-tested and does cover it.

Other coverage: TRICARE for military, CHAMPVA, VA benefits, workers' compensation, and ACA marketplace plans.