Life-Only cheat sheet

Insurable interest must exist at policy issue; it need not continue afterward unless the policy is being reinstated or the beneficiary is being changed to someone without an insurable interest.

Applicant representations are warranties only if the contract says so; in California, statements in an application are generally treated as representations, not warranties, and must be material to void the policy.

Incontestability clause: after the policy has been in force two years from issue, the insurer generally cannot contest the policy based on misstatements in the application, except for nonpayment of premium.

Grace period in California is 30 days for individual life policies; coverage continues during the grace period, and the premium may be deducted from any claim or surrender value.

Reinstatement: California allows reinstatement within 3 years of lapse; the insurer may require evidence of insurability and payment of overdue premiums with interest.

Suicide clause: California limits the suicide exclusion to 2 years from policy issue; after that period, the insurer pays the death benefit even if death is by suicide.

Misstatement of age or sex adjusts the benefit to what the premium would have purchased at the correct age or sex; it does not void the policy.

Nonforfeiture options on cash value policies: cash surrender, reduced paid-up insurance, and extended term insurance.

Free-look period: California requires at least 10 days after delivery (30 days for policies sold with a life insurance consumer disclosure, and for replacement policies) to return the policy for a full refund.

Term insurance pays a death benefit only if death occurs during the term; it builds no cash value and is the lowest-cost form per dollar of face amount at issue.

Level term: face amount and premium stay fixed for the term; decreasing term reduces the face amount while the premium stays level; increasing term raises the face amount.

Renewable term guarantees the right to renew without evidence of insurability, usually to a stated age; convertible term allows exchange to permanent coverage without evidence of insurability.

Whole life: level premium, guaranteed cash value, guaranteed death benefit, and coverage to age 100 or to death under current products; premiums are higher than term because they fund permanent coverage.

Universal life separates the policy into a cash value account and a cost-of-insurance charge; the premium is flexible, and the policy may lapse if cash value is insufficient to cover monthly deductions.

Universal life death benefit options: Option A (level) pays a fixed face amount; Option B (increasing) pays face amount plus accumulated cash value.

Annuities: accumulation phase versus annuitization phase; fixed annuities guarantee a rate, variable annuities pass investment risk to the contract owner, and indexed annuities credit interest based on an index with caps, participation rates, and floors.

Annuity settlement options: life only (highest payment, no refund), life with period certain, joint and survivor, and straight life versus installment refund.

Qualified vs. nonqualified annuities: qualified plans receive tax deferral from the plan itself; nonqualified annuities receive tax deferral from the annuity contract, and gains are taxed as ordinary income on withdrawal.

Fiduciary and suitability duties: a producer must have reasonable grounds to believe a recommendation is suitable based on the consumer's financial situation, insurance needs, and objectives.

Twisting is inducing a policyholder to lapse, surrender, or replace a policy through misrepresentation or incomplete comparison; it is prohibited.

Churning is replacing a policy with another policy from the same insurer primarily to generate new commissions; it is prohibited.

Rebating is offering any inducement not specified in the policy, such as cash, gifts, or paying premiums, to induce a purchase; California prohibits rebating except for certain permitted items of small value.

Commingling: premiums collected on behalf of an insurer must be held separately and remitted promptly; a producer must not deposit premiums into a personal account.

Advertising rules: an advertisement must identify the insurer and the policy, must not use misleading statistics, and must not imply that dividends are guaranteed.

Replacement: when a sale involves replacing existing life insurance, the producer must give the applicant a replacement notice and submit the required forms to the replacing and existing insurers.

Recordkeeping: California requires producers to keep records of transactions for at least 5 years, and insurers must maintain policy records for the duration of the policy plus 5 years.

The California Insurance Commissioner heads the Department of Insurance; the Commissioner enforces the Insurance Code, issues licenses, conducts examinations, and may impose fines and license suspensions or revocations.

Producer licensing: a life-only license authorizes life insurance and annuities but not accident and health, property, casualty, or workers' compensation coverage.

Prelicensing education for a life-only license is 20 hours; the license term is 2 years, and 24 hours of continuing education are required every 2 years, including at least 3 hours of ethics.

A producer must notify the Commissioner of a change of address within 30 days and must report administrative actions or criminal convictions as required by law.

California prohibits an insurer from cancelling or refusing to renew a life insurance policy based solely on the applicant's or insured's status as a victim of domestic violence.

Unfair practices under Insurance Code section 790.03 include misrepresentation, false advertising, boycott, coercion, intimidation, unfair discrimination, and unfair claim settlement practices.

Insurance fraud, including knowingly presenting a false claim or false application information, is a crime and may be reported to the Department of Insurance fraud division.

California requires insurers to provide a notice of the right to return the policy within the free-look period and, for life policies, a buyer's guide and policy summary at or before delivery.

Premium financing and commission rules: commissions may not be paid to an unlicensed person, and a producer may not share commissions with a non-licensee except as permitted by law.