LOMA 291 cheat sheet

Risk is uncertainty about loss; pure risk (loss or no loss only) is insurable, speculative risk (gain or loss possible) is not.

Insurable risk criteria: large number of similar exposure units, accidental and measurable losses, definite loss in time and amount, losses not catastrophic to the insurer, and premiums that are affordable.

Law of large numbers: as the number of independent similar exposure units increases, actual loss experience converges toward expected loss, improving predictability.

Indemnity principle: insurance restores the insured to approximately the pre-loss financial position, never to a profit position.

Adverse selection occurs when those most likely to suffer loss buy or retain coverage most; underwriting and pricing controls mitigate it.

Moral hazard is behavior change caused by the presence of insurance; morale hazard is carelessness or indifference caused by it.

Utmost good faith: both parties must disclose material facts; concealment, misrepresentation, and warranty breach can affect coverage.

Reinsurance transfers risk from a ceding insurer to a reinsurer; facultative covers a single risk, treaty covers a class of risks automatically.

Elements of a valid contract: offer and acceptance, consideration, legal purpose, competent parties; insurance adds insurable interest and utmost good faith.

Term life pays a death benefit only if death occurs during the term; no cash value; level, decreasing, and increasing term variants exist.

Whole life provides lifetime coverage with guaranteed cash value, fixed premium, and a guaranteed death benefit; it is a form of permanent insurance.

Universal life separates the mortality charge, expense charge, and interest credit; the cash value grows at a credited rate subject to a guaranteed minimum.

Variable life and variable universal life cash values are invested in separate accounts; the policyowner bears investment risk and must receive a prospectus.

Endowment contracts mature at a stated age or period; if the insured survives, the face amount is paid to the policyowner.

An annuity is a contract that pays an income stream; accumulation phase builds value, payout phase distributes it; life annuities address longevity risk.

Fixed annuities guarantee a minimum interest rate; indexed annuities credit interest linked to an index subject to cap, participation rate, and floor.

Riders modify coverage: waiver of premium, accelerated death benefit, accidental death benefit, guaranteed insurability, and child term rider.

Nonforfeiture options on a lapsed permanent policy: cash surrender, reduced paid-up, extended term; policy loans reduce cash value and death benefit.

Underwriting classifies applicants by risk: preferred, standard, substandard, and declined; substandard risks may be accepted with extra premium, exclusion, or lien.

Field underwriting duties: complete the application accurately, report material facts, collect the initial premium, and deliver the policy.

Policy issue cycle: application, underwriting review, requirement gathering (medical, financial, MIB), approval, policy issuance, and delivery.

Conditional receipt provides interim coverage only if the premium was paid and the conditions stated (for example, insurability) are met.

Claims process: notice of death, proof of death, beneficiary identification, contestability review, and settlement; suicide clause typically limits payment in the first two years.

Contestability clause allows the insurer to rescind for material misrepresentation during the first two years of the policy's life.

Premium components: mortality cost, expense loading, and reserve contribution; gross premium equals net premium plus loading.

Reserves are liabilities, not funds set aside in a separate account; they represent the insurer's obligation for future benefits.

Financial statements: assets, liabilities, and surplus on the balance sheet; income statement shows premium income, investment income, benefits, and expenses.

Insurance is regulated primarily by states under the McCarran-Ferguson Act; state insurance departments license insurers, agents, and products.

The NAIC develops model laws and regulations that states may adopt; it has no direct enforcement authority itself.

Producer licensing requires prelicensing education, a passing exam, a background check, and continuing education for renewal.

Fiduciary duty: premiums collected belong to the insurer or insured, not the producer; commingling is prohibited.

Twisting is misrepresentation that induces a policyholder to lapse or surrender a policy; churning is replacement of a policy by the same insurer for the agent's benefit.

Rebating is offering part of the commission or an inducement not stated in the policy; it is illegal in most states.

Unfair trade practices include misrepresentation, false advertising, boycott, coercion, and unfair claim settlement practices.

Suitability and best interest standards require producers to recommend products appropriate to the consumer's needs and financial situation.

Recordkeeping and privacy rules: the Gramm-Leach-Bliley Act governs consumer financial privacy; state laws govern producer records and advertising approval.

Needs analysis identifies the client's goal (income replacement, education, retirement, estate liquidity) before a product is selected.

Human life value and needs-based approaches are two methods for estimating the amount of coverage required.

Customer relationship stages: prospecting, approach, fact-finding, presentation, objection handling, closing, and service.

Suitability documentation: record the client's goals, financial data, risk tolerance, and the rationale for the recommendation.

Service quality dimensions include reliability, responsiveness, assurance, empathy, and tangibles; reliability matters most to clients.

Complaint handling: acknowledge promptly, investigate, document, and respond within regulatory time limits; escalate unresolved complaints.

Client communication must be clear, accurate, and compliant; avoid guarantees of investment returns and disclose costs and limitations.

Retention and loyalty are driven by trust, proactive contact, and policy reviews at life events such as marriage, birth, or retirement.

Digital service channels must protect personal data and maintain records of client instructions and transactions.