LUTCF flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

1035 exchange

A tax-free exchange of a life insurance policy, annuity, or endowment contract for another qualifying contract under IRC Section 1035; annuity-to-life exchanges do not qualify.

Modified endowment contract

A life policy that fails the 7-pay test, so lifetime distributions are taxed like annuity withdrawals: income first, then basis, plus a 10% penalty before age 59½.

Exclusion ratio

For a nonqualified annuitized payout, the ratio of investment in the contract to expected return; it sets the portion of each payment excluded from gross income as return of basis.

Incontestability clause

A policy provision generally barring the insurer from contesting the policy after it has been in force for two years, except for nonpayment of premiums.

Life-only payout

An annuity settlement option that pays income for the annuitant's lifetime and stops at death, with no refund or survivor benefit; it produces the largest periodic payment.

Policy loan

A loan from an insurer secured by a life policy's cash value; it is not taxable while the policy remains in force, but unpaid principal and interest reduce cash value and death benefit.

Nonforfeiture options

Choices available when a whole life policy is surrendered or lapses, including cash surrender value, reduced paid-up insurance, and extended term insurance.

Contingent beneficiary

A person or entity designated to receive policy proceeds if the primary beneficiary dies before the insured; proceeds are paid directly and generally avoid probate.

COBRA qualifying event

An event such as termination of employment, reduction in hours, divorce, death, or Medicare eligibility that lets a covered person continue group health coverage for a limited period.

HSA eligibility

To contribute to a health savings account, a person must be covered by a qualified high-deductible health plan, have no disqualifying coverage, and not be enrolled in Medicare.

Metal tier actuarial value

The ACA levels-bronze 60%, silver 70%, gold 80%, and platinum 90%-measure the share of covered essential health benefits a plan is expected to pay.

Own-occupation definition

A disability policy standard that pays benefits when the insured cannot perform the duties of their own occupation, even if they could work in another occupation.

Elimination period

The waiting period after a disability or illness begins before benefits become payable; longer elimination periods lower the premium for a given benefit amount.

Medicare Part A

Hospital insurance covering inpatient hospital stays, skilled nursing facility care after a hospital stay, hospice, and some home health care; most beneficiaries receive it premium-free.

Coordination of benefits

Rules that determine which health plan pays first when a person is covered by two plans; the secondary plan pays up to its limit, not exceeding total charges.

FSA grace period

An optional employer plan feature allowing unused flexible spending account funds to be used for qualified expenses for up to 2½ months after the plan year ends.

Cross-purchase buy-sell

A business succession arrangement in which each owner buys a policy on the other owners, so surviving owners purchase the deceased owner's interest directly and generally take a basis equal to the purchase price.

Entity redemption buy-sell

A buy-sell arrangement in which the business entity owns policies on the owners and buys back a deceased owner's interest; the entity's basis may not step up.

Key person insurance

Life or disability coverage owned by a business on an essential employee; premiums are generally not deductible, and death proceeds are usually income-tax-free to the business.

Section 79 imputed income

For employer-provided group term life insurance above $50,000 of coverage, the value of the excess coverage is imputed income to the employee under IRC Section 79.

Split-dollar plan

An arrangement in which a business or trust and an insured share premium payments and death benefit; economic benefit treatment or loan treatment determines the insured's taxable income.

Business overhead expense

Disability insurance that reimburses a business for covered fixed operating expenses, such as rent and utilities, while an owner is disabled; benefits are taxable if premiums were deducted.

Annual gift exclusion

The amount one person may give another each year without using the unified credit or filing a gift tax return; for 2025 it is $19,000 per donee.

Nonqualified deferred comp

An employer promise to pay compensation in a future year; it is not tax-deductible by the employer until paid and is subject to IRC Section 409A rules.

Fiduciary duty

A legal obligation to act in the client's best interest, disclose conflicts, and avoid self-dealing; for insurance producers the exact scope varies by state and activity.

Suitability standard

A requirement that an insurance or annuity recommendation be appropriate for the client's needs, objectives, financial situation, and risk tolerance, based on disclosed information.

Twisting

An unfair trade practice of inducing a policyholder to lapse or surrender a policy through misrepresentation or incomplete comparison in order to sell a replacement policy.

Rebating

Offering part of a producer's commission or any inducement not stated in the policy to a buyer as an incentive; it is generally illegal and can lead to license discipline.

Misrepresentation

Making a false or misleading statement about policy terms, benefits, or insurer finances; it is an unfair trade practice and may support rescission or regulatory action.

Producer licensing

A producer must hold a state license for the lines of insurance sold and, where required, be appointed by the insurer before soliciting or transacting business.

Confidentiality

An ethical and legal duty to protect client nonpublic personal information and use it only for authorized purposes, consistent with privacy laws and insurer policies.

Unfair claim settlement

Improper claims handling such as unreasonable delay, failure to investigate, or offering far less than owed; state laws prohibit these practices and may impose penalties.