Life & Health cheat sheet

Insurance is regulated principally by the states; the McCarran-Ferguson Act (1945) confirmed state authority and exempted insurance from most federal antitrust law as long as states regulate it.

A producer must hold a current license for each line sold and generally must be appointed by the insurer before soliciting, negotiating, or selling that insurer's products.

Nonresident producer licensing is usually handled through state reciprocity using the NAIC Producer Database rather than a separate state exam.

Continuing education requirements commonly total about 24 credit hours every two years, including a mandated ethics component.

Premiums collected belong to the insurer or insured, never the producer; commingling premiums with personal funds and failure to remit are fiduciary violations.

Unfair trade practices include rebating, twisting, misrepresentation, defamation, boycott or coercion, and false advertising.

Producer authority may be express (stated in the agency contract), implied (customary to the duties), or apparent (created by the insurer's own conduct).

Regulatory remedies include fines, cease-and-desist orders, license suspension or revocation, and restitution to harmed consumers.

State guaranty associations pay claims of insolvent insurers up to statutory limits, commonly $300,000 in death benefits and $100,000 in cash surrender value.

Pure risk involves only the chance of loss or no loss and is insurable; speculative risk involves the chance of gain or loss and is generally not insurable.

Insurable risks require many similar exposure units, accidental and measurable losses, definite loss in time and amount, and no catastrophic concentration.

Elements of a valid insurance contract: offer and acceptance, consideration, legal purpose, and competent parties.

Insurance is a contract of adhesion (insurer drafts; ambiguity favors the insured), aleatory, unilateral, and one of utmost good faith.

Indemnity restores the insured to approximately the pre-loss financial position; life insurance is treated as a valued contract because a life cannot be priced.

Hazards increase the chance of loss: physical (icy road), moral (dishonesty), and morale (carelessness or indifference).

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

Premium components are mortality or morbidity, interest (investment earnings), and expense loading.

Waiver is the voluntary relinquishment of a known right; estoppel bars a party from asserting a right when earlier conduct led another to rely on it.

Insurable interest must exist at the time of application and policy issue; it does not have to exist at the insured's death for a valid life claim.

Parties: the owner holds all contract rights, the insured is the person whose life is covered, and the beneficiary receives the proceeds.

Underwriting sources include the application, paramedical or medical exams, attending physician statements, MIB reports, and consumer inspection reports.

A conditional receipt provides interim coverage only if the proposed insured proves insurable under the insurer's underwriting rules; otherwise no coverage ever existed.

Policy delivery may be actual (in person) or constructive (mailed); the free-look period is commonly 10 days from delivery.

A revocable beneficiary may be changed by the owner without consent; changing an irrevocable beneficiary requires that beneficiary's written consent.

Per capita distribution pays surviving beneficiaries equally; per stirpes passes a deceased beneficiary's share to that beneficiary's heirs.

Replacement of existing life insurance requires state-specified disclosure notices and triggers a new contestability period on the new policy.

Human life value capitalizes the insured's future earnings; the needs approach totals income replacement, debts, education costs, and final expenses.

Term insurance provides pure death protection with no cash value and pays only if death occurs during the stated term.

Level term has a constant face amount; decreasing term matches a shrinking debt; increasing term rises over the policy period.

Renewable term continues coverage without evidence of insurability at an increased premium; convertible term exchanges for permanent coverage without underwriting.

Whole life charges a level premium for life, builds guaranteed cash value, and endows at the stated maturity age (commonly 100 or 121).

Universal life separates mortality charges, expense charges, and interest credits; death benefit Option A is level, Option B increases by accumulated cash value.

Variable life and variable universal life invest in a separate account, require a prospectus, and require both a life license and a securities registration.

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

Survivorship (second-to-die) insurance pays on the death of the last of two insureds and is used mainly for estate planning.

Business uses include key person coverage, buy-sell funding (entity purchase or cross-purchase), and split-dollar arrangements.

The incontestability clause bars the insurer from contesting the policy after it has been in force two years from the date of issue.

The grace period (commonly 30 or 31 days) keeps coverage in force while a late premium is paid; any unpaid premium may be deducted from the claim.

Reinstatement is generally allowed within three years of lapse with evidence of insurability and payment of back premiums plus interest, but a new contestable period applies.

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

Nonforfeiture options on cash value policies are cash surrender, reduced paid-up, and extended term; the automatic premium loan is a separate provision.

Dividend options include cash, reduction of premium, 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.

Policy loans accrue interest, reduce the death benefit if unpaid, and can cause lapse if the loan plus interest exhausts the cash value.

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

The accumulation phase builds value through contributions and earnings; annuitization converts accumulated value into a stream of income payments.

Immediate annuities begin payouts within one payment period; deferred annuities postpone income until a later contract date.

Fixed annuities credit a declared rate; variable annuities fluctuate with separate-account subaccounts; indexed annuities credit interest linked to an index with caps and floors.

Straight life pays for the annuitant's lifetime and stops at death; life with a period certain guarantees payments for a minimum period to a beneficiary.

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

Surrender charges and market value adjustments apply during the surrender charge period; most contracts permit a limited free withdrawal amount.

Variable annuity sales require a securities registration, a life insurance license, and delivery of a prospectus; suitability review is mandatory.

During accumulation, contributions buy accumulation units; at annuitization they convert to annuity units whose count is fixed while their value fluctuates.

Death proceeds paid to a named beneficiary are generally received free of federal income tax under IRC Section 101(a).

Growth inside a life policy is tax-deferred; withdrawals on a non-MEC policy are treated as a return of basis first, then taxable gain.

A policy that fails the seven-pay test is a modified endowment contract: distributions are taxed LIFO plus a 10% penalty before age 59 1/2.

Policy loans are not taxable events unless the policy lapses or is surrendered with a loan balance exceeding basis.

Individual life premiums are not deductible; employer-paid group term premiums are deductible, with coverage above $50,000 producing imputed taxable income.

Dividends are treated as a return of premium and are tax-free until cumulative dividends exceed total premiums paid.

Annuity contributions are made with after-tax dollars and are not deductible; a 10% penalty applies to pre-59 1/2 withdrawals except for death, disability, or 72(t) payments.

Section 1035 permits tax-free exchange of life insurance, annuity, or qualified long-term care contracts for like-kind contracts.

Proceeds are included in the insured's gross estate when the insured held incidents of ownership at death.

Health premiums reflect morbidity, operating expenses, interest earnings, and the insurer's reserve and margin requirements.

A deductible is the amount the insured pays before benefits begin; coinsurance is the insured's percentage share of covered expenses after the deductible.

Copayments are flat dollar amounts per service, and the out-of-pocket maximum caps the insured's covered cost sharing for the benefit year.

HMOs require in-network care coordinated by a primary care physician; PPOs pay more for in-network care and generally require no referrals.

EPOs cover only network providers; POS plans blend HMO and PPO features with a gatekeeper plus an out-of-network option.

Renewability classifications run from cancellable and optionally renewable to conditionally renewable, guaranteed renewable, and noncancellable.

Guaranteed renewable policies cannot be cancelled and rates may rise only for an entire class; noncancellable policies also fix the premium.

Pre-existing condition limitation periods exclude or limit coverage for a stated time after issue, subject to federal and state restrictions.

Group health underwriting is experience-based with a master policy and individual certificates; individual coverage is medically underwritten.

Required uniform provisions include entire contract, grace period, reinstatement, notice of claim, claim forms, proof of loss, time of payment, and legal action.

Notice of claim is typically 20 days; the insurer must supply claim forms within 15 days; proof of loss is due within 90 days.

Claims must be paid promptly, commonly within 30 or 45 days after proof of loss is received.

The legal action provision bars suits before 60 days after proof of loss and after 3 years from the date proof is required.

The time limit on certain defenses makes the policy incontestable after two years except for fraud or nonpayment of premium.

Coordination of benefits sets a primary and secondary payer order so combined payments do not exceed covered expenses.

The change of occupation provision reduces benefits if the insured moves to a more hazardous occupation than the one rated.

A conversion privilege lets an insured leaving a group plan obtain individual coverage without evidence of insurability.

Disability income replaces part of earned income, typically 60-70%, subject to the policy's maximum monthly benefit limit.

Own-occupation benefits require inability to perform the insured's own job; any-occupation benefits require inability to perform any job for which the insured is suited.

The elimination period acts as a time deductible; choosing a longer elimination period lowers the premium.

Residual or partial disability benefits pay a percentage of the full benefit tied to the percentage of income lost.

Recurrent disability provisions treat a relapse within a stated period, commonly six months, as a continuation of the prior claim.

Presumptive disability pays full benefits for specified losses such as sight, hearing, speech, or two limbs, typically without an elimination period.

Business disability coverages include business overhead expense, key person disability, and disability buy-out.

Qualified long-term care policies pay when the insured cannot perform at least two of six activities of daily living or has severe cognitive impairment; premiums may be deductible within limits.

Basic medical expense plans cover hospital, surgical, and physician costs up to internal limits; major medical adds broad benefits with a deductible and coinsurance.

Group underwriting weighs group size, industry, age and sex mix, and prior claims experience rather than individual health.

COBRA requires employers with 20 or more employees to offer continuation coverage, generally 18 months for termination, 29 months for disability, and 36 months for dependents.

Medicare Part A covers inpatient hospital, skilled nursing after a qualifying stay, hospice, and some home health; Part B covers physician and outpatient services.

Medicare Part C is Medicare Advantage delivered through private plans; Part D covers outpatient prescription drugs.

Medigap policies are standardized by letter and coordinate only with original Medicare, not with Medicare Advantage.

ACA marketplaces require guaranteed issue and essential health benefits, ban pre-existing condition exclusions, and allow dependent coverage to age 26.

HSAs require a qualifying high-deductible health plan; contributions, growth, and qualified withdrawals are tax-free and funds roll over annually.

Medicaid is a joint federal-state program providing coverage based on income and assets, including long-term care for eligible individuals.

Accidental death and dismemberment pays the principal sum for accidental death and a scheduled fraction, often 50%, for loss of a limb or sight.

AD&D pays only for accidental bodily injury and excludes death from illness; it may also exclude aviation, war, or self-inflicted injury.

Workers' compensation is a no-fault statutory benefit covering work-related injury and disease with medical care, wage replacement, and survivor benefits.

Workers' compensation is generally the employee's exclusive remedy against the employer, barring most tort suits.

Hospital indemnity and critical illness policies pay fixed daily or lump-sum benefits regardless of expenses actually incurred.

Dental and vision plans commonly use scheduled benefits or UCR reimbursement, deductibles, and annual maximums.

Business continuation coverages include disability buy-sell, key person disability, and business overhead expense insurance.

Long-term care partnership programs let policyholders who exhaust benefits qualify for Medicaid with protected assets.

Subrogation and coordination of benefits determine how other coverage, auto medical payments, or liable third parties share the cost of care.