MD Life & Health cheat sheet

Insurable interest must exist at policy inception for life insurance; it need not exist at the time of death, but without it at issue the contract is void.

Pure risk involves only the chance of loss and is insurable; speculative risk involves the chance of loss or gain and is generally not insurable.

The law of large numbers holds that as the number of similar exposure units increases, actual losses more closely match predicted losses, producing more stable rates.

Life premiums reflect three factors: mortality and expense charges increase the premium, while the assumed interest rate decreases it.

Stock insurers are owned by shareholders; mutual insurers are owned by policyholders and may pay non-guaranteed dividends, which are treated as a return of premium.

Admitted (authorized) insurers must meet state solvency, rate, and form requirements and are protected by the state guaranty association; non-admitted surplus lines insurers are not.

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

Premiums and funds a producer collects belong to the insurer or insured and are held in a fiduciary capacity; commingling with personal funds is prohibited.

Maryland's insurance industry is regulated by the Maryland Insurance Administration, whose Commissioner is appointed by the Governor and who may examine insurers and licensees.

Term insurance provides death protection for a stated period with no cash value; it pays only if death occurs while the policy is in force.

Renewable term allows continuation at the end of the term without evidence of insurability, but the premium increases at each renewal based on attained age.

Convertible term permits exchange for permanent coverage without evidence of insurability, usually before a specified age or policy duration.

Whole life is permanent coverage with level premiums, guaranteed cash values, and a death benefit that endures for life if premiums are paid; it matures at age 100 or 121.

Limited-pay and single-premium whole life compress premiums into fewer years; policy loans reduce the death benefit and cash value if unpaid.

Universal life separates the policy into a cash value account and a cost-of-insurance charge; Option A is a level death benefit (decreasing net amount at risk) and Option B adds the cash value to the face amount.

Variable life cash value is invested in separate-account subaccounts; the owner bears the investment risk, the policy is a security, and a prospectus must be delivered.

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

A policy that fails the 7-pay test is a modified endowment contract: loans and withdrawals are taxed income first and may incur a 10% penalty before age 59½.

The entire contract clause makes the policy and attached application the complete agreement; only an authorized officer may modify it or waive its terms.

The incontestability clause bars the insurer from contesting the policy after it has been in force generally two years, except for nonpayment of premium.

The suicide clause limits payout to a return of premiums if death by suicide occurs within the stated period, typically two years from issue.

Reinstatement usually requires evidence of insurability, payment of overdue premiums with interest, and application within 3–5 years of lapse; a new contestable period may apply.

Life insurance grace period is typically 30 days; if the insured dies during the grace period, any unpaid premium is deducted from the benefit.

Nonforfeiture options are cash surrender, reduced paid-up (smaller face amount, same maturity), and extended term (same face amount, limited duration).

Dividend options include cash, premium reduction, accumulation at interest, paid-up additions, and one-year term; dividends are not guaranteed.

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

Beneficiaries may be primary or contingent, revocable or irrevocable, and designated per stirpes (by branch) or per capita (by head); an irrevocable beneficiary must consent to a change.

An immediate annuity is bought with a single premium and begins payments within one payment period; a deferred annuity has an accumulation phase before annuitization.

Fixed annuities guarantee a rate and shift investment risk to the insurer; variable annuities invest in a separate account, place risk on the owner, and are securities requiring a prospectus.

Indexed annuities credit interest linked to an index with a cap, participation rate, and floor, protecting principal from market loss.

The exclusion ratio equals the after-tax investment in the contract divided by the expected return; that fraction of each annuitized payment is tax-free.

Life only produces the highest income because payments stop at death; period-certain and refund features lower the payment amount.

Withdrawals from nonqualified annuities are taxed LIFO (earnings first); pre-age 59½ withdrawals generally incur a 10% federal penalty in addition to ordinary income tax.

Required minimum distributions begin at age 73 for those born 1951–1959 and age 75 for those born in 1960 or later.

A 1035 exchange moves funds tax-free between like contracts (life to life, annuity to annuity), carrying over cost basis but not waiving surrender charges.

Qualified annuities are funded with pre-tax dollars and are fully taxable at distribution; nonqualified annuities are funded with after-tax dollars and receive basis recovery.

Cost sharing works in sequence: deductible, then coinsurance or copay, up to the out-of-pocket maximum, after which the plan pays 100% of covered expenses.

HMOs use a closed panel and a primary care gatekeeper with no non-emergency out-of-network coverage; PPOs allow out-of-network care at higher cost; POS plans combine both.

Under the ACA, individual and small group plans are guaranteed issue, exclude pre-existing condition limitations, cover essential health benefits, and cannot impose lifetime or annual dollar limits.

HIPAA portability rules credit prior coverage against a pre-existing condition waiting period; a break in coverage of 63 days or more generally causes loss of credit.

Medicare Part A covers hospital care, Part B covers medical services, Part C is Medicare Advantage, Part D covers prescriptions, and Medigap supplements Original Medicare.

In disability income, an own-occupation definition pays if the insured cannot perform their own job (broader), while any-occupation pays only if unable to work in any suitable job.

A disability policy's elimination period is the waiting time before benefits begin, and the benefit period is how long they last; longer elimination periods reduce premium.

Long-term care benefits are triggered by inability to perform at least 2 of 6 activities of daily living or by cognitive impairment; inflation protection preserves buying power.

COBRA applies to employers with 20 or more employees, offering continuation generally for 18 months (36 months for disability or certain dependents), paid for by the beneficiary.

The change-of-occupation provision reduces benefits if the insured moves to a more hazardous occupation and the premium was based on a less hazardous class.

The Maryland Insurance Administration licenses insurers and producers, reviews rates and forms, conducts market conduct examinations, and enforces the Insurance Article.

A Maryland producer must hold a current license and be appointed by the insurer; a license is renewed on a two-year cycle.

Maryland requires 24 hours of continuing education every two years, including at least 3 hours of ethics, for life and health licensees.

Individual life insurance policies sold in Maryland must give the buyer a free-look period of at least 10 days to return the policy for a full refund.

Maryland life policies must provide a grace period of at least 30 days for premium payment and use a two-year incontestability and suicide period.

When replacing a life policy, the producer must give the applicant a replacement notice, leave a copy with the applicant, and the replacing insurer must notify the existing insurer.

Maryland residents are protected by the Maryland Life and Health Insurance Guaranty Corporation, which pays claims up to statutory limits if an admitted insurer becomes insolvent.

Maryland imposes a state-level individual health insurance mandate; uninsured residents report a penalty on their state income tax return unless an exemption applies, and coverage is available through the Maryland Health Benefit Exchange.

Producers must report administrative actions and criminal prosecutions to the Commissioner, and insurers must report producer terminations for cause.