MA Life & Health cheat sheet

The McCarran-Ferguson Act (1945) leaves the regulation of insurance to the states and exempts the business of insurance from most federal antitrust law.

A producer must hold a license in the state where the applicant resides and where the policy is solicited; soliciting without a license is a criminal offense in most states.

Producers act in a fiduciary capacity: premiums collected belong to the insurer or the applicant, must be held in a separate trust account, and may not be commingled with personal funds.

Appointment is the insurer's authorization for a producer to represent it; a producer cannot submit business for an insurer that has not appointed them.

Unfair trade practices include rebating, twisting, misrepresentation, false advertising, coercion, intimidation, boycott, and unfair discrimination between insureds of the same class.

Rebating is offering any part of the commission or anything of value not stated in the policy to induce a sale; it is illegal in most states.

Typical model guaranty association limits per owner per insolvent insurer: $300,000 death benefit, $100,000 net cash surrender value, and $250,000 present value of annuity benefits.

Continuing education is a condition of license renewal (a common state requirement is 24 credit hours every two years, including ethics hours).

Only pure risk (loss or no loss) is insurable; speculative risk (chance of gain or loss) is not.

Insurable interest for life insurance must exist at the time of application; it does not have to exist at the time of death.

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

Insurance is a unilateral contract (only the insurer makes an enforceable promise), an aleatory contract (unequal exchange), and a contract of adhesion (drafted by the insurer and construed against it).

Utmost good faith requires disclosure of material facts; concealment, fraud, and misrepresentation can void the contract, while waiver and estoppel can prevent the insurer from denying a claim.

A representation is a statement believed true to the best of the applicant's knowledge; a warranty is a statement guaranteed true. Life insurance applications are treated as representations.

The law of large numbers allows an insurer to predict losses more accurately as the number of similar exposure units it pools increases.

A peril is the cause of loss; a hazard increases the chance of loss. Hazards are physical (a tangible condition), moral (a dishonest tendency), or morale (carelessness).

Premium is built from three factors: mortality (expected deaths), interest (earnings on reserves), and expense (operating costs); a higher assumed interest rate or lower expense lowers the premium.

Paying premiums more frequently (monthly versus annual) increases the total annual cost because of added administrative expense and lost interest.

Human life value approach values the insured's future earnings net of taxes and self-maintenance; the needs approach sums specific obligations (debts, education, income needs) and subtracts existing resources.

A conditional receipt provides coverage from the date of the application or the medical exam, whichever is later, if the applicant meets the insurer's underwriting requirements.

The incontestability clause limits the insurer's right to rescind for material misrepresentation to the first two years of policy life.

The suicide clause limits the payout to a refund of premiums if death is by suicide within the first two years of the policy.

Field underwriting duties: gather information, complete the agent's report, obtain required signatures, collect the initial premium, and deliver the policy.

The Fair Credit Reporting Act gives an applicant the right to know the nature and source of a consumer report and to correct inaccurate information.

The entire contract clause makes the policy and the attached application the complete agreement; only an officer of the insurer may modify the policy.

Free-look period: the owner may return a newly issued policy within a stated period (commonly 10 to 30 days) for a full premium refund.

Grace period for life insurance is commonly 31 days; coverage remains in force if the premium is paid within that period.

Reinstatement is normally available within 3 to 5 years of lapse with evidence of insurability and payment of overdue premiums plus interest; new contestability and suicide periods begin.

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

Dividend options: cash, reduce premium, accumulate at interest, paid-up additions, and one-year term.

Settlement options: lump sum, interest only, fixed period, fixed amount, and life income (with period certain or refund features).

Beneficiary rules: a revocable designation may be changed by the owner; an irrevocable designation requires beneficiary consent; per stirpes splits by family branch, per capita splits equally among survivors.

A policy loan accrues interest and is deducted from the death benefit or cash value if unpaid; an automatic premium loan uses cash value to prevent lapse.

Annuities liquidate an estate; life insurance creates one. The annuitant receives income and the owner controls the contract.

The accumulation phase builds contract value; the annuitization (payout) phase converts that value into periodic income.

Fixed annuities guarantee a minimum rate; variable annuities fluctuate with subaccounts and require a securities license; indexed annuities credit interest based on an index subject to caps and participation rates.

An immediate annuity begins payments within one payment interval after purchase; a deferred annuity delays payout to a future date.

Payout options: straight life (life only), life with period certain, life with refund, and joint and survivor.

Exclusion ratio = investment in the contract divided by expected return; that portion of each annuity payment is a tax-free return of basis.

Withdrawals of gain before age 59 1/2 from a nonqualified annuity may incur a 10 percent federal penalty tax in addition to ordinary income tax.

A Section 1035 exchange moves funds tax-free from a life policy or annuity into a new annuity or life policy.

Qualified plans: traditional IRA contributions may be deductible and grow tax-deferred; Roth IRA contributions are after-tax and qualified withdrawals are tax-free.

Cost-sharing order in major medical: deductible first, then coinsurance, until the out-of-pocket maximum is reached, after which the plan pays 100 percent of covered expenses.

HMO: closed panel with a primary care gatekeeper and generally no non-emergency out-of-network coverage. PPO: network with higher out-of-network cost sharing. POS: hybrid of the two.

Coordination of benefits: the plan covering a person as an employee is primary over a plan covering them as a dependent; for dependent children the birthday rule applies.

COBRA applies to employers with 20 or more employees: 18 months for termination or reduced hours, 29 months for disability, 36 months for death, divorce, or Medicare eligibility, with a 60-day election period.

Medicare Part A is hospital insurance, Part B is medical insurance, Part C is Medicare Advantage, Part D is prescription drug coverage, and Medigap supplements Parts A and B.

HIPAA guarantees renewability of group coverage, credits prior creditable coverage against pre-existing condition periods, and requires special enrollment on loss of other coverage.

The ACA requires essential health benefits, bars annual and lifetime dollar limits on essential benefits, covers preventive services without cost sharing, and requires medical loss ratio rebates.

Health claim steps: notice of claim, proof of loss, then payment or denial; a denied claim may be appealed internally and then externally.

Plan types include basic hospital/surgical, major medical, hospital indemnity, specified disease, and short-term medical; HSA eligibility requires a qualifying high-deductible health plan.

Own-occupation pays when the insured cannot perform the duties of their own occupation (often limited to two years); any-occupation pays only when the insured cannot perform any occupation for which reasonably fitted.

The elimination period is the waiting period before disability benefits begin (common choices 30, 60, 90, or 180 days); a longer elimination period produces a lower premium.

Residual (partial) disability pays a reduced benefit proportional to lost income when the insured returns to work at reduced capacity.

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

Long-term care benefits are triggered by inability to perform 2 of 6 activities of daily living (bathing, dressing, toileting, transferring, eating, continence) or by cognitive impairment.

Long-term care policy features: elimination period, daily/monthly benefit maximum, benefit period, inflation protection, nonforfeiture, waiver of premium, and home care or respite benefits.

Business disability uses: buy-sell funding, key person disability insurance, and business overhead expense coverage.

Social Security disability requires a severe impairment expected to last 12 months or result in death, with a 5-month waiting period after onset.

Workers' compensation covers occupational injury and illness; state temporary disability programs and group short-term/long-term disability cover nonoccupational disability.