III IC-02 cheat sheet

Life insurance is a contract: the insurer promises to pay a stated benefit on the death of the insured (or at maturity) in exchange for premiums; the policyowner holds the contractual rights, the insured is the life measured, and the beneficiary receives proceeds.

Insurable interest must exist at policy inception (and, for some coverage, at the time of loss); a person may insure own life without limit, and may insure another only where a financial or close-family relationship exists.

Premium = mortality cost + insurer expense loading + reserve/savings component, adjusted for interest earnings; gross premium is what the policyowner pays, net premium excludes expenses.

Mortality tables give the probability of death at each age; insurers use them with assumed interest and expense assumptions to price products, and underwriting classifies applicants (standard, preferred, substandard, declined) to match risk to price.

Application and underwriting: the application, agent's report, medical exam and attending physician statements form the underwriting file; material misrepresentation on the application can allow rescission within the contestability period (typically two years).

Policy provisions to know: free-look period, grace period, reinstatement, incontestability, suicide clause, misstatement of age/sex, assignment, and the entire contract clause; these define the rights and limits of both parties.

Premium payment modes (annual, semiannual, quarterly, monthly) carry different total costs because of lost interest and added administration; the more frequent the mode, the higher the total annual outlay.

Dividends on participating policies are a return of divisible surplus, not guaranteed, and are generally not taxable until they exceed premiums paid; policy loans accrue interest and reduce the death benefit and cash value if unpaid.

Term insurance provides pure death protection for a stated period with no cash value; level term keeps a fixed face amount and premium, while decreasing term reduces the face amount and increasing term raises it.

Whole life is permanent coverage with level premiums, guaranteed cash value, and a guaranteed death benefit; it remains in force for the insured's lifetime as long as required premiums are paid or the policy is otherwise funded.

Universal life separates the policy into a cash value account credited with declared interest and a cost-of-insurance charge deducted monthly; it is flexible in premium and, within limits, in face amount, but is not guaranteed unless a no-lapse guarantee applies.

Variable life and variable universal life place cash value in separate accounts tied to investment performance; the policyowner bears investment risk, and the product is a security requiring a prospectus and appropriate licensing.

Endowment and endowment-like designs pay the face amount at a stated maturity if the insured survives, or at death if earlier; they combine protection with a savings accumulation.

Annuities are the mirror image of life insurance: they liquidate an estate, paying an income the annuitant cannot outlive; immediate annuities begin payments at once, deferred annuities accumulate first, and fixed versus variable describes who bears investment risk.

Riders modify the base contract: waiver of premium, accidental death benefit, guaranteed insurability, accelerated death benefit, long-term care and child term riders each add specified benefits for an extra cost or stated conditions.

Group life insurance covers a class of persons under one master contract; individual evidence of insurability is usually absent, coverage is typically term, and conversion and portability rights apply when the group relationship ends.

Policy delivery completes the contract; constructive delivery occurs when the insurer unconditionally places the policy in the mail or with the agent, and the free-look period generally runs from delivery.

The policyowner controls the contract: the right to name and change the beneficiary, surrender, borrow, assign, and receive dividends belongs to the owner, not necessarily the insured or beneficiary.

Beneficiary designations: primary receives proceeds first, contingent receives them if the primary predeceases; revocable designations can be changed by the owner without beneficiary consent, irrevocable ones cannot.

Per capita distribution splits proceeds equally among named living beneficiaries; per stirpes passes a deceased beneficiary's share to that beneficiary's descendants.

Common disaster and simultaneous death provisions determine the order of death when insured and beneficiary die together, protecting the contingent beneficiary's claim.

A minor cannot give a valid receipt for proceeds; a guardian, trust, or UTMA arrangement is typically used, and many policies allow a spendthrift or facility-of-payment clause.

Creditor protection and taxation of proceeds vary by jurisdiction and by who receives the money; death benefits paid to a named beneficiary are generally income-tax free, while interest paid on delayed settlement is taxable.

Risk classification factors include age, sex where permitted, health history, occupation, avocations, tobacco use, family history, and financial justification for the amount applied for; each factor must be actuarially supported and applied consistently.

Field underwriting is the agent's first-line duty: complete the application accurately, record observations, and forward required medical and financial information promptly; incomplete or altered applications create disputes at claim time.

Standard underwriting actions are issue as applied, issue at a rated (substandard) premium, issue with exclusions or a modified policy, postpone, or decline; conditional receipts determine interim coverage before the policy issues.

Claims process: the beneficiary submits proof of death (death certificate), the insurer verifies coverage and beneficiary status, then pays; most jurisdictions impose prompt-payment deadlines and interest on late payments.

The contestability period (commonly two years) allows the insurer to rescind for material misrepresentation; after it, the policy is generally incontestable except for nonpayment of premium or fraud in some jurisdictions.

Suicide clauses typically limit payment to return of premiums if death by suicide occurs within the first two years; misstatement of age or sex adjusts the benefit to what the premium would have purchased at the correct age or sex.

Fraud indicators at claim include inconsistent statements, timing relative to policy issue, undisclosed material history, and beneficiary irregularities; insurers must still pay legitimate claims promptly and in good faith.

Insurance is regulated primarily at the state level in the United States: licensing of insurers and producers, policy form and rate approval, market conduct exams, and guaranty association protection for insolvencies.

Producer licensing requires prelicensing education, a state exam, appointment by an insurer, and continuing education; soliciting without a license or appointment is unlawful, and commissions may only be paid to licensed, appointed producers.

Twisting is misrepresenting an existing policy to induce replacement; rebating is offering part of the commission or an inducement not in the policy; both are prohibited unfair trade practices.

Replacement rules require a signed notice and comparison when a new policy will replace existing coverage, giving the buyer full disclosure of surrender charges, new contestability and suicide periods, and cost differences.

Fiduciary and suitability duties: recommendations must be based on the client's needs and financial situation, illustrations must be accurate and not misleading, and the producer must disclose compensation and conflicts where required.

Privacy and data rules limit sharing of nonpublic personal financial and health information; the producer must safeguard client data and obtain consent where required for disclosure.

Advertising and sales materials must be truthful, balanced and approved; guarantees cannot be implied where none exist, and policy illustrations must clearly separate guaranteed from non-guaranteed elements.