DE Life & Health cheat sheet

The McCarran-Ferguson Act (1945) gives states primary authority to regulate insurance; state insurance commissioners oversee licensing, solvency, market conduct, and rates.

Producer licensing typically requires prelicensing education, a state exam, an insurer appointment, and continuing education, commonly 24 hours every two years.

A producer who handles premiums acts in a fiduciary capacity; commingling premium funds with personal or business funds is prohibited.

Unfair trade practices include misrepresentation, false advertising, coercion, intimidation, rebating, twisting, unfair discrimination, and unfair claim settlement.

Twisting is inducing a policyholder to lapse or replace coverage through misrepresentation; churning is replacement done mainly to generate new commissions.

Rebating is offering money or anything of value not stated in the policy as an inducement to buy; it is illegal in most states.

State guaranty associations pay covered claims when an admitted insurer becomes insolvent, subject to statutory limits such as a maximum death benefit per insured.

Rates must not be excessive, inadequate, or unfairly discriminatory; life rates are based on mortality, interest, and expense assumptions.

A certificate of authority is the license an insurer needs to transact business in a state; unauthorized insurers are subject to penalties.

Insurable interest in life insurance must exist at application; it need not continue after the policy is issued.

Life insurance is a valued contract rather than a strict indemnity contract: the face amount is agreed in advance instead of reimbursing actual loss.

The law of large numbers lets insurers predict losses more accurately as the number of similar independent exposure units increases.

Adverse selection is the tendency of higher-risk applicants to seek or retain coverage more than lower-risk applicants.

A peril is the cause of a loss, such as fire, accident, or death; a hazard is a condition that increases the chance or severity of a loss.

Hazards are classified as physical, moral, and morale; moral hazard involves dishonesty, while morale hazard involves carelessness because insurance exists.

Insurable risks are accidental, definite, measurable, large in number, and unlikely to produce catastrophic losses to the insurer.

Insurance contracts are contracts of utmost good faith; material misrepresentation or concealment can allow rescission.

Reinsurance is insurance for insurers; ceding risk reduces the primary insurer's retention and may increase underwriting capacity.

Death benefits paid to a named beneficiary are generally excluded from the beneficiary's gross income under IRC section 101(a).

Net death benefit equals face amount plus dividends or paid-up additions, minus outstanding policy loans and unpaid interest.

Ownership rights include naming or changing the beneficiary, borrowing cash value, surrendering the policy, and assigning ownership.

Gross premium is built from mortality cost, interest earnings, and expense loading; a higher assumed interest rate lowers the premium.

More frequent premium modes, such as monthly versus annual, usually increase total annual cost because of added administrative expense and lost interest.

A conditional receipt provides coverage from the date of application or medical exam if the stated underwriting conditions are met.

Underwriters classify risks as preferred, standard, or substandard; substandard risks may be charged rated or extra premiums.

The suicide clause limits payment, usually to return of premium, if death by suicide occurs within the first two years.

The incontestability clause generally prevents the insurer from contesting the policy after it has been in force two years, except for nonpayment.

Term insurance provides death protection for a specified period and generally has no cash value; it may be renewable, convertible, level, decreasing, or increasing.

Whole life is permanent coverage with level premiums, guaranteed cash value, and a guaranteed death benefit; participating policies may pay dividends.

Universal life separates premium payment, cash value, and cost of insurance; premiums and death benefits are flexible within policy limits.

Variable life cash value is invested in a separate account and is not guaranteed; sales require a prospectus and securities registration.

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

Survivorship, or second-to-die, life insurance pays on the death of the second insured and is often used for estate planning.

Joint life, or first-to-die, insurance pays on the first death among the insureds.

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

Modified whole life typically charges lower premiums in early years and higher premiums later.

The free-look period allows the owner to return a new policy for a full premium refund, commonly within 10 to 30 days of delivery.

The grace period is commonly 30 or 31 days after a premium due date; coverage remains in force during that time.

Reinstatement typically requires evidence of insurability, payment of overdue premiums with interest, and must occur within a stated period such as three years.

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

Dividend options include cash, premium reduction, accumulation at interest, paid-up additions, and one-year term insurance.

Settlement options include lump sum, interest only, fixed period, fixed amount, and life income with or without a period certain.

A policy loan accrues interest and reduces both cash value and death benefit if unpaid; it may cause taxable income if the policy lapses.

The waiver of premium rider waives premiums when the insured becomes totally disabled, usually after a waiting period.

The guaranteed insurability rider allows the insured to buy additional coverage at specified ages or events without proving insurability.

An annuity is a contract that accumulates funds and then liquidates them through a series of payments, protecting against outliving income.

The accumulation phase builds account value; the annuitization phase converts that value into periodic income.

Immediate annuities begin payments within about one payment period; deferred annuities start payments at a later date.

Fixed annuities guarantee principal and a minimum interest rate; variable annuities invest in separate-account subaccounts with market risk.

Annuitization options include straight life, life with period certain, installment refund, and joint and survivor.

A straight life annuity pays the highest income because payments stop at death with no refund or survivor benefit.

Surrender charges and market value adjustments can reduce withdrawals during early contract years.

The exclusion ratio determines the nontaxable portion of each annuity payment: investment in the contract divided by expected return.

Qualified annuities are funded with pre-tax dollars and distributions are generally ordinary income; nonqualified annuities have cost basis.

Death proceeds are generally income-tax-free to beneficiaries under IRC 101(a); estate tax may apply if the insured held incidents of ownership.

Cash value growth inside a life policy is tax-deferred while the policy remains in force.

Policy loans are not taxable unless the policy lapses or is surrendered with outstanding loan interest exceeding basis.

On surrender, gain equals cash value received minus cost basis, which is generally premiums paid; the gain is ordinary income.

A modified endowment contract fails the 7-pay test; distributions are taxed income-first and may incur a 10% penalty before age 59½.

The transfer-for-value rule makes death proceeds taxable to a buyer who acquires an existing policy, with exceptions for certain related-party transfers.

Premiums for personal life insurance are generally not deductible; employer-paid group term coverage above $50,000 creates imputed income.

Nonqualified annuity withdrawals are taxed income-first, or LIFO, and may incur a 10% penalty before age 59½ unless an exception applies.

Section 1035 exchanges allow tax-free transfer of life insurance, endowment, annuity, or qualified long-term care contracts into like-kind contracts.

Health insurance provisions commonly include entire contract, free look, grace period, reinstatement, incontestability, and claims provisions.

A deductible is the amount the insured pays before benefits begin; coinsurance is the percentage of covered costs shared after the deductible.

A copayment is a fixed dollar amount for a service; an out-of-pocket maximum caps covered in-network spending for the year.

An elimination period is a waiting period, or time deductible, before disability or long-term care benefits begin.

Coordination of benefits determines primary and secondary payers when a person is covered by more than one health plan.

Incontestability in health insurance generally limits the insurer's ability to rescind coverage after two years for misstatements, except fraud.

Preexisting condition limitations and waiting periods restrict coverage for conditions existing before the effective date, subject to law.

Indemnity plans reimburse usual, reasonable, and customary charges; managed care plans use networks and utilization review.

HIPAA provides portability, guaranteed renewability, and privacy protections for health coverage.

HMOs use a defined provider network, a primary care gatekeeper, and capitation; non-emergency out-of-network care is generally not covered.

PPOs allow out-of-network care at higher cost and do not require a gatekeeper; EPOs cover only the network except for emergencies.

POS plans combine HMO and PPO features, often requiring a primary care referral for in-network specialist care.

A high-deductible health plan paired with a health savings account offers tax-advantaged savings for qualified medical expenses.

Disability income policies replace a portion of earned income; own-occupation coverage is broader than any-occupation coverage.

Residual or partial disability benefits pay a reduced amount when the insured can work but earns less than before the disability.

Long-term care benefits are triggered by inability to perform a specified number of activities of daily living or by cognitive impairment.

Critical illness and specified disease policies pay a lump sum on diagnosis of a covered condition rather than reimbursing actual bills.

Group health plans often provide conversion rights and COBRA continuation when coverage would otherwise end.

Medicare Part A covers inpatient hospital, skilled nursing facility, hospice, and some home health care; most people qualify premium-free with 40 work quarters.

Medicare Part B covers physician services, outpatient care, and preventive services and requires an income-related monthly premium.

Medicare Part C, or Advantage, is private-plan Medicare; Part D provides outpatient prescription drug coverage.

Medicare initial enrollment lasts seven months around age 65; annual open enrollment runs October 15 to December 7.

Medicaid is a joint federal-state program for low-income people and is the largest payer of long-term care services.

CHIP provides health coverage to eligible children in families with incomes too high for Medicaid but below program limits.

The ACA requires guaranteed issue, prohibits preexisting condition exclusions, covers essential health benefits, and allows dependents to remain on a parent's plan to age 26.

COBRA continuation generally lasts 18 months for termination or reduced hours, with longer periods for disability or certain family events.

ERISA sets minimum standards for employer-sponsored health and welfare plans and requires summary plan descriptions and fiduciary duties.