MGA cheat sheet

Risk is uncertainty about loss; pure risk offers only loss or no loss and is insurable, speculative risk offers gain or loss and is not insurable.

Insurable risk tests: large number of similar exposure units, accidental and measurable loss, definite in time and amount, not catastrophic to the insurer, and premium must be affordable.

Law of large numbers: as the number of independent similar exposure units increases, actual loss experience converges toward expected loss, which supports predictable pricing.

Indemnity principle: insurance restores the insured to approximately the pre-loss financial position, never better; valued policies and replacement-cost endorsements are exceptions.

Utmost good faith (uberrimae fidei) requires both parties to disclose material facts; concealment, misrepresentation, and warranty breach are the classic defenses.

Insurable interest must exist at policy inception for property and at the time of loss for life; without it the contract is void.

Subrogation transfers the insured's right of recovery against a negligent third party to the insurer after payment, preventing double recovery.

Hazards: physical (icy steps), moral (dishonesty or intent to collect), and morale (carelessness because insured); each raises expected loss frequency or severity.

Handling techniques: avoidance, reduction, retention (deductibles, self-insurance), transfer (insurance, hold-harmless contracts), and sharing.

Level premium concept: premiums stay constant while mortality cost rises, so early overpayment builds a reserve that funds later years.

Term life pays only if death occurs during the stated term; it has no cash value and is the lowest-cost way to buy a large death benefit temporarily.

Whole life: level premium, guaranteed death benefit, guaranteed cash value, and nonforfeiture options (cash surrender, reduced paid-up, extended term).

Universal life is unbounded flexible-premium, interest-sensitive permanent coverage; cost of insurance is deducted monthly from the account value and may erode it.

Variable life and variable universal life shift investment risk to the owner; separate account values fluctuate and are regulated as securities (FINRA plus state license).

Endowment and limited-pay designs (20-pay, life paid-up at 65) compress premium payments while keeping coverage for life.

Mortality tables show deaths per 1,000 lives at each age; mortality rate rises with age, while a level premium is the average cost spread over the payment period.

Dividends are a return of divisible surplus on participating policies; they are not guaranteed and are not taxable until they exceed premiums paid.

Settlement options: lump sum, life income, fixed-period, fixed-amount, and interest only; the interest-only option leaves principal to beneficiaries.

Morbidity (accident and sickness) rates measure claim frequency and duration by age and occupation; they replace mortality as the pricing basis.

Total disability definitions: own occupation (most liberal, usually limited to 2 years), any occupation (own-occupation plus training/experience), and gainful occupation.

Residual or partial disability pays a percentage of the benefit when income loss is a stated fraction (commonly 50-80 percent) of prior earnings.

Benefit periods run from 2 years to age 65 or lifetime; longer benefit periods and shorter elimination periods raise premium.

Elimination (waiting) period is the days before benefits begin; it functions as a time deductible and reduces short-duration claims.

Occupational vs nonoccupational policies: nonoccupational coverage excludes work-related injury, which is covered by workers compensation.

Accident policies pay for accidental bodily injury; sickness policies cover illness; both usually require treatment by a physician within a stated period.

Business uses: disability buy-out, key person disability, and business overhead expense coverage replace income or fixed costs during owner disability.

Social Security disability requires a five-month waiting period plus inability to perform any substantial gainful activity; private coverage supplements it.

Contract elements: offer, acceptance, consideration, legal purpose, and competent parties; insurance is a unilateral contract because only the insurer makes an enforceable promise.

Insurance is a contract of adhesion, drafted by the insurer, so ambiguities are construed against the insurer (contra proferentem).

Incontestability: after two years from issue, the insurer cannot deny a life claim for material misstatement, except fraud or nonpayment in some states.

Grace period (typically 31 days for life, 7-10 for health) keeps coverage in force while a late premium is paid; reinstatement requires evidence of insurability and back premiums.

Suicide clause excludes death by suicide within two years; misstatement of age or sex adjusts the benefit to what the premium would have purchased.

Free-look period (10-30 days) lets the owner return a policy for a full refund; it is mandatory for replacements and variable products.

Riders: waiver of premium, accidental death and dismemberment, guaranteed insurability, child term, long-term care, and return of premium.

Beneficiary rules: primary and contingent, revocable vs irrevocable; per capita (equal shares) vs per stirpes (by branch) distribution.

Entire contract clause limits the policy to the document plus the application; only an authorized officer may modify it in writing.

Needs analysis sequence: gather facts, identify goals, quantify the gap, recommend a product, and document the rationale (fact-find, analysis, recommendation, service).

Human life value method capitalizes expected future earnings net of self-maintenance; needs approach sums final expenses, debt, income replacement, and education minus resources.

Capital needs (needs approach) subtract existing assets and coverage from total obligations to produce the coverage gap.

Buy term and invest the difference vs permanent insurance: compare cost, cash value guarantees, tax treatment, and length of need.

Disability need equals roughly 60-70 percent of gross income; consider group long-term disability, Social Security, and personal savings before recommending individual coverage.

Suitability requires matching product features to time horizon, risk tolerance, liquidity needs, and tax status; replacements demand a comparison and disclosure.

Annuities address longevity risk: accumulation, annuitization, and payout options; fixed vs variable shifts investment risk to the insurer vs the owner.

Group insurance underwriting uses a master contract, certificate of coverage, and experience rating; individual underwriting uses medical and financial evidence.

Fiduciary duty: place the client's interest above the agent's compensation; disclose commissions, conflicts, and any ownership interest.

Twisting is misrepresentation that induces a policyholder to lapse or surrender existing coverage; churning is replacing policies mainly to generate new commissions.

Rebating gives part of the commission or something of value not stated in the policy; illegal in most states and grounds for license revocation.

Coercion and intimidation, false advertising, and misrepresentation of policy terms or insurer financial condition are prohibited unfair trade practices.

Suitability and needs-based selling require documented fact-finding; recommending a product the client cannot afford or does not need is unsuitable.

Privacy: collect only necessary nonpublic personal information, safeguard it, and honor opt-out rights under federal privacy rules.

Anti-money-laundering: agents report suspicious transactions, follow customer identification procedures, and never help structure cash to evade reporting.

Errors and omissions exposure grows with undocumented advice; keep records of recommendations, disclosures, and client acknowledgments.

Insurance is regulated primarily by states under the McCarran-Ferguson Act; the NAIC drafts model laws that states may adopt.

Agents need a state license for each line and authority (life, accident and health, property and casualty); a surety bond or appointment by an insurer is often required.

Fiduciary handling of premiums: commingle never; premiums held in trust, remitted promptly, and records retained per state rules.

Continuing education hours, license renewal, and reporting of address changes and administrative actions are mandatory; failure can trigger suspension.

Unfair claim settlement practices include unreasonable delay, failure to investigate, and low offers without basis; states impose penalties and bad-faith liability.

Replacements require a notice, a comparison, and disclosure to both the existing and replacing insurer; free-look rights apply.

Commissioner authority includes licensing, market conduct exams, rate and form review, cease-and-desist orders, fines, and license revocation.

Federal overlay: securities laws for variable products, ERISA for employer plans, HIPAA for health privacy, and tax rules under IRC sections 72, 101, and 7702.

Risk is uncertainty about loss; pure risk offers only loss or no loss and is insurable, speculative risk offers gain or loss and is not insurable.

Insurable risk tests: many similar exposure units, accidental and measurable loss, definite in time and amount, not catastrophic to the insurer, affordable premium.

Law of large numbers: as independent similar exposure units increase, actual loss converges toward expected loss, supporting predictable pricing.

Indemnity restores the insured to approximately the pre-loss financial position and never better; valued policies and replacement-cost endorsements are exceptions.

Utmost good faith requires disclosure of material facts; concealment, misrepresentation, and warranty breach are classic defenses.

Insurable interest must exist at policy inception for property and at the time of loss for life; otherwise the contract is void.

Subrogation transfers the insured's recovery right against a negligent third party to the insurer after payment, preventing double recovery.

Hazards are physical (icy steps), moral (dishonesty or intent to collect), and morale (carelessness because insured); each raises expected loss frequency or severity.

Handling techniques: avoidance, reduction, retention (deductibles, self-insurance), transfer (insurance, hold-harmless contracts), and sharing.

Level premium concept: premiums stay constant while mortality cost rises, so early overpayment builds a reserve that funds later years.

Term life pays only if death occurs during the stated term; it has no cash value and is the lowest-cost way to buy a large death benefit temporarily.

Whole life: level premium, guaranteed death benefit, guaranteed cash value, and nonforfeiture options (cash surrender, reduced paid-up, extended term).

Universal life is flexible-premium, interest-sensitive permanent coverage; cost of insurance is deducted monthly from the account value and may erode it.

Variable life and variable universal life shift investment risk to the owner; separate account values fluctuate and are regulated as securities (FINRA plus state license).

Limited-pay designs (20-pay, life paid-up at 65) compress premium payments while keeping coverage for life.

Mortality tables show deaths per 1,000 lives at each age; the mortality rate rises with age, while a level premium is the average cost spread over the payment period.

Dividends are a return of divisible surplus on participating policies; they are not guaranteed and are not taxable until they exceed premiums paid.

Settlement options: lump sum, life income, fixed-period, fixed-amount, and interest only; the interest-only option leaves principal to beneficiaries.

Morbidity (accident and sickness) rates measure claim frequency and duration by age and occupation; they replace mortality as the pricing basis.

Total disability definitions: own occupation (most liberal, usually limited to 2 years), any occupation (own-occupation plus training and experience), and gainful occupation.

Residual or partial disability pays a percentage of the benefit when income loss is a stated fraction (commonly 50-80 percent) of prior earnings.

Benefit periods run from 2 years to age 65 or lifetime; longer benefit periods and shorter elimination periods raise premium.

Elimination (waiting) period is the days before benefits begin; it functions as a time deductible and reduces short-duration claims.

Occupational vs nonoccupational policies: nonoccupational coverage excludes work-related injury, which is covered by workers compensation.

Accident policies pay for accidental bodily injury; sickness policies cover illness; both usually require treatment by a physician within a stated period.

Business uses: disability buy-out, key person disability, and business overhead expense coverage replace income or fixed costs during owner disability.

Social Security disability requires a five-month waiting period plus inability to perform any substantial gainful activity; private coverage supplements it.

Contract elements: offer, acceptance, consideration, legal purpose, and competent parties; insurance is unilateral because only the insurer makes an enforceable promise.

Insurance is a contract of adhesion, drafted by the insurer, so ambiguities are construed against the insurer (contra proferentem).

Incontestability: after two years from issue, the insurer cannot deny a life claim for material misstatement, except fraud or nonpayment in some states.

Grace period (typically 31 days for life, 7-10 for health) keeps coverage in force while a late premium is paid; reinstatement requires evidence of insurability and back premiums.

Suicide clause excludes death by suicide within two years; misstatement of age or sex adjusts the benefit to what the premium would have purchased.

Free-look period (10-30 days) lets the owner return a policy for a full refund; it is mandatory for replacements and variable products.

Riders: waiver of premium, accidental death and dismemberment, guaranteed insurability, child term, long-term care, and return of premium.

Beneficiary rules: primary and contingent, revocable vs irrevocable; per capita (equal shares) vs per stirpes (by branch) distribution.

Entire contract clause limits the policy to the document plus the application; only an authorized officer may modify it in writing.

Needs analysis sequence: gather facts, identify goals, quantify the gap, recommend a product, and document the rationale (fact-find, analysis, recommendation, service).

Human life value method capitalizes expected future earnings net of self-maintenance; needs approach sums final expenses, debt, income replacement, and education minus resources.

Capital needs (needs approach) subtract existing assets and coverage from total obligations to produce the coverage gap.

Buy term and invest the difference vs permanent insurance: compare cost, cash value guarantees, tax treatment, and length of need.

Disability need equals roughly 60-70 percent of gross income; consider group long-term disability, Social Security, and personal savings before recommending individual coverage.

Suitability requires matching product features to time horizon, risk tolerance, liquidity needs, and tax status; replacements demand a comparison and disclosure.

Annuities address longevity risk: accumulation, annuitization, and payout options; fixed vs variable shifts investment risk to the insurer vs the owner.

Group insurance underwriting uses a master contract, certificate of coverage, and experience rating; individual underwriting uses medical and financial evidence.

Fiduciary duty: place the client's interest above the agent's compensation; disclose commissions, conflicts, and any ownership interest.

Twisting is misrepresentation that induces a policyholder to lapse or surrender existing coverage; churning is replacing policies mainly to generate new commissions.

Rebating gives part of the commission or something of value not stated in the policy; illegal in most states and grounds for license revocation.

Coercion and intimidation, false advertising, and misrepresentation of policy terms or insurer financial condition are prohibited unfair trade practices.

Suitability and needs-based selling require documented fact-finding; recommending a product the client cannot afford or does not need is unsuitable.

Privacy: collect only necessary nonpublic personal information, safeguard it, and honor opt-out rights under federal privacy rules.

Anti-money-laundering: agents report suspicious transactions, follow customer identification procedures, and never help structure cash to evade reporting.

Errors and omissions exposure grows with undocumented advice; keep records of recommendations, disclosures, and client acknowledgments.

Insurance is regulated primarily by states under the McCarran-Ferguson Act; the NAIC drafts model laws that states may adopt.

Agents need a state license for each line and authority (life, accident and health, property and casualty); a surety bond or appointment by an insurer is often required.

Fiduciary handling of premiums: never commingle; premiums held in trust, remitted promptly, and records retained per state rules.

Continuing education hours, license renewal, and reporting of address changes and administrative actions are mandatory; failure can trigger suspension.

Unfair claim settlement practices include unreasonable delay, failure to investigate, and low offers without basis; states impose penalties and bad-faith liability.

Replacements require a notice, a comparison, and disclosure to both the existing and replacing insurer; free-look rights apply.

Commissioner authority includes licensing, market conduct exams, rate and form review, cease-and-desist orders, fines, and license revocation.

Federal overlay: securities laws for variable products, ERISA for employer plans, HIPAA for health privacy, and tax rules under IRC sections 72, 101, and 7702.