KY Life & Health cheat sheet

Insurance in Kentucky is regulated by the Kentucky Department of Insurance under the Commissioner of Insurance, who administers the state Insurance Code and issues, suspends, and revokes producer licenses.

A producer must hold a valid Kentucky license for the specific line of authority (life, health, etc.) before soliciting, negotiating, or selling; soliciting without a license is a prohibited act.

Resident producers must complete 24 hours of approved continuing education every two years, including at least 3 hours of ethics.

Rebating - offering part of a commission or any value not stated in the policy to induce a sale - and similar inducements are prohibited unfair trade practices.

Premiums collected from applicants belong to the insurer; a producer holds them in a fiduciary capacity and may not commingle them with personal or business funds.

Individual life policies delivered in Kentucky carry a free-look right of at least 10 days, during which the owner may return the policy for a full refund of premium.

Replacing an existing life policy requires a signed replacement notice and disclosure comparison given to the applicant, with a copy forwarded to the replacing insurer.

Misrepresentation of policy terms, twisting, defamation of an insurer, and unfair claim settlement practices are defined unfair trade practices subject to fines and license action.

A producer must notify the Department within 30 days of a change of name or address and of any administrative action taken against the license in another jurisdiction.

Risk is uncertainty about loss; insurance transfers pure risk (loss or no loss) but cannot insure speculative risk, which carries a chance of gain.

Peril is the cause of a loss (death, fire, illness); hazard is a condition that increases the chance or severity of loss - physical, moral, or morale.

Insurable interest is a financial interest that would suffer loss from the event; for life insurance it must exist at policy issue, not at the insured's death.

Indemnity restores the insured to the pre-loss financial position; life insurance pays a stated face amount because human life value cannot be measured as indemnity.

Insurers are classified by ownership (stock vs. mutual), by domicile (domestic, foreign, alien), and by authorization (admitted vs. nonadmitted).

Reinsurance transfers risk from a ceding insurer to a reinsurer; it does not change the original insured's contract or rights.

The law of large numbers allows more accurate loss prediction as the number of similar exposure units grows; adverse selection is the tendency of higher risks to buy coverage.

Insurance contracts are contracts of adhesion, aleatory, unilateral, and of utmost good faith; ambiguities are construed against the insurer.

A material misrepresentation, an intentional concealment, or breach of warranty may allow the insurer to void coverage; representations are believed true to the best of the applicant's knowledge.

Gross premium equals the net premium for mortality and interest plus expense loading; a higher assumed interest rate or lower assumed mortality produces a lower premium.

Human life value sets coverage at the present value of the insured's future earnings; the needs approach totals survivor income, debts, education, and final expenses minus existing resources.

Underwriting places applicants in preferred, standard, substandard (rated), or declined classes based on health, occupation, avocations, and family history.

The producer acts as field underwriter, gathering the application, medical and paramedical evidence, and personal observations; the insurer makes the final decision.

A policy obtained by someone without insurable interest in the insured is void from inception.

Personal uses of life insurance include survivor protection, estate creation and liquidity, cash accumulation, and retirement income; business uses include key person, buy-sell funding, split dollar, deferred compensation, and executive bonus.

A conditional receipt gives interim coverage from the date the application and initial premium are submitted, provided the applicant proves insurable under the insurer's rules.

Premium modes are annual, semiannual, quarterly, and monthly; more frequent modes cost more in total because of lost interest and added billing expense.

If the premium was paid with the application and the policy is issued as applied for, coverage dates to the application or conditional receipt; if the insurer changes the offer, coverage begins only when the new policy is accepted and paid for.

Term insurance provides pure death protection for a stated period with no cash value; annual renewable term charges premiums that increase each year with age.

Level term keeps a constant face amount and premium; decreasing term reduces the face amount over time and is often matched to a mortgage.

Renewable term guarantees renewal without new evidence of insurability up to a stated age; convertible term allows exchange to permanent coverage without evidence of insurability.

Whole life provides level premiums for life, guaranteed cash value, and a guaranteed death benefit; limited-pay and single-premium versions compress premium payments into fewer years.

Universal life separates the cash value from the cost of insurance; Option A keeps a level death benefit, while Option B adds the cash value to the face amount.

Variable life cash value is invested in separate-account subaccounts, so the owner bears investment risk; selling it requires a securities registration and a prospectus.

Indexed universal life credits interest linked to an external index, subject to a participation rate, a cap, and a guaranteed floor (often 0%).

Survivorship (second-to-die) coverage pays on the second of two deaths and is commonly used to fund estate settlement costs; joint life pays on the first death.

Juvenile policies insure minors and often include a payor benefit rider that waives premiums if the adult payor dies or becomes disabled.

The entire contract clause states that the policy plus the attached copy of the application form the whole agreement; no other documents are part of the contract.

Under the incontestability clause, after the policy has been in force two years the insurer generally cannot contest it for misstatement, except for nonpayment of premium.

A misstatement of age or sex provision adjusts the death benefit to the amount the premium paid would have purchased at the correct age or sex.

The grace period (commonly 31 days for life) allows a late premium payment while coverage continues; the policy may lapse if the premium is not paid within it.

Reinstatement, usually available within 3 years of lapse, requires evidence of insurability, payment of overdue premiums with interest, and repayment or reinstatement of any loan.

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

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

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

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

An annuity has an accumulation phase and an annuitization (payout) phase; a deferred annuity grows tax deferred, while an immediate annuity begins payments within about one year of purchase.

A fixed annuity guarantees a stated interest rate; a variable annuity's value follows separate-account performance and the owner bears the investment risk.

Indexed annuities credit interest tied to an index, limited by a cap and participation rate and protected by a floor.

Accumulation units are bought during the accumulation phase; annuity units measure each payout during annuitization of a variable annuity.

Payout options include straight (pure) life, life with a period certain, installment or refund life, joint and survivor, fixed period, and fixed amount.

Straight life produces the largest periodic income because payments stop at death and nothing passes to survivors.

The exclusion ratio equals the investment in the contract divided by the expected return and determines the tax-free portion of each annuity payment.

Surrender charges usually decline over a surrender charge period, and most contracts permit a free withdrawal of about 10% of value each year.

A Section 1035 exchange moves an annuity to another annuity or a life policy to an annuity tax free; an annuity cannot be exchanged into a life policy.

Death proceeds paid to a beneficiary are generally free of income tax, and cash value inside a life policy grows tax deferred.

Premiums for personal life insurance are not deductible; employers may deduct group and business-related life premiums, and coverage above $50,000 creates imputed income to the employee.

Policy loans are not taxable while the policy stays in force; a surrender or lapse with an outstanding loan creates taxable gain to the extent value exceeds basis.

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

A transfer for value - selling a policy for consideration - removes the income-tax-free death benefit, except for transfers to the insured, a basis partner, a partnership, or a corporation of which the insured is a shareholder or officer.

Dividends are treated as a return of premium and are not taxed until cumulative dividends exceed total premiums paid.

Incidents of ownership, such as the right to change the beneficiary, surrender, or borrow, cause death proceeds to be included in the insured's gross estate.

A gift of a policy made within three years of death is generally pulled back into the insured's estate.

Annuity payments are taxed under the exclusion ratio, and if the annuitant dies before recovering basis, the unrecovered amount may be deducted on the final return.

A deductible is the amount the insured pays before benefits begin; coinsurance is the percentage of covered expenses the insured pays after the deductible, such as 20% under an 80/20 plan.

An out-of-pocket maximum caps the insured's covered spending, typically including deductible, coinsurance, and sometimes copays, within a benefit period.

A copayment is a fixed dollar amount per service or prescription and is often not subject to the deductible.

Under the ACA, individual and small group plans cannot exclude or rate for preexisting conditions and cannot impose annual or lifetime dollar limits on essential health benefits.

Renewability classifications are noncancellable (no cancellation and no premium increase), guaranteed renewable (premiums may rise by class), conditionally renewable, and optionally renewable.

Coordination of benefits rules decide which plan pays first when a person has two coverages; for dependent children the birthday rule generally applies.

An elimination period is a time deductible that must pass before benefits are payable; a probationary period delays coverage for specified conditions in new policies.

Accidental death and dismemberment pays the principal sum for accidental death and a stated capital sum percentage for a covered dismemberment.

Health claims require notice of claim, proof of loss within the policy time limit, and prompt payment; unfair claim practices are regulated by the state.

An own-occupation definition pays when the insured cannot perform the duties of their own occupation; an any-occupation definition is stricter and less expensive.

The benefit period is the maximum duration of benefits, and the elimination period is the waiting period before benefits begin; a longer elimination period lowers the premium.

Residual disability pays a proportionate share of the benefit when the insured returns to work at reduced income; partial disability usually pays a flat percentage.

Presumptive disability pays full benefits for specified losses such as sight, hearing, speech, or limb loss, regardless of the insured's income.

Benefits are limited to a percentage of prior earned income (commonly 60–80%) to preserve the incentive to return to work; benefits are income-tax free when the insured paid the premiums.

Business overhead expense insurance reimburses fixed business costs during an owner's disability, while key person disability reimburses the business for lost services.

Social Security integration, or offset, reduces the policy benefit by the amount of Social Security disability benefits received.

Medical expense plan types include indemnity (fee-for-service), HMO (prepaid, closed panel, gatekeeper), PPO (network with in- and out-of-network costs), POS (hybrid), and EPO.

Critical illness policies pay a lump sum on diagnosis of a covered condition; hospital indemnity policies pay a fixed daily or per-admission amount.

Group underwriting considers group size, industry, participation percentage, and prior claims; contributory plans require at least 75% participation, while noncontributory plans require 100% of eligible employees.

COBRA applies to employers with 20 or more employees and provides 18 months of continuation for termination or reduced hours, 29 months for disability, and 36 months for dependent events.

A conversion privilege lets a departing group member obtain an individual policy without evidence of insurability within a stated period after group coverage ends.

Long-term care benefits are triggered when the insured cannot perform 2 of 6 activities of daily living (bathing, dressing, transferring, toileting, eating, continence) or has a cognitive impairment requiring substantial supervision.

Long-term care premium is driven by the daily or monthly benefit amount, the benefit period, the elimination period, and inflation protection; nonforfeiture provisions add cost.

Medicare Part A covers inpatient hospital care, Part B covers medical services, Part C is Medicare Advantage, and Part D covers outpatient prescription drugs; eligibility generally begins at age 65.

Medigap supplements original Medicare, cannot be used with Medicare Advantage, and has a six-month open enrollment period beginning when the person is 65 and enrolled in Part B.

Kentucky operates a state-based health exchange (kynect) and expanded Medicaid eligibility under the ACA.

Other health coverages include dental, vision, cancer and critical illness policies, short-term medical plans, and specified-disease policies that pay fixed benefits.