MS Life & Health cheat sheet

Insurance is regulated primarily by the states through insurance departments; the McCarran-Ferguson Act (1945) preserves state authority over the business of insurance.

Stock insurers are owned by shareholders; mutual insurers are owned by policyowners and may pay policy dividends.

A domestic insurer is chartered in this state, a foreign insurer in another state, and an alien insurer outside the United States.

Admitted insurers hold a certificate of authority; nonadmitted (surplus lines) insurers do not and generally cannot be used unless admitted markets are unavailable.

Principal contract characteristics: insurable interest, indemnity, utmost good faith, contract of adhesion, aleatory, and subrogation.

Law of large numbers: as the number of similar exposure units increases, actual loss experience approaches expected loss experience.

Producers owe a fiduciary duty; commingling of premium funds and rebating are prohibited.

Concealment, material misrepresentation, and breach of warranty can void coverage; warranties are stricter than representations.

Gross premium reflects three factors: mortality (decreases premium with age tables), interest (earnings assumption reduces premium), and expense loading (increases premium).

Insurable interest must exist at the time of application but need not exist at the time of death.

Policyowner rights include naming and changing the beneficiary, surrendering, assigning, borrowing against cash value, and selecting dividend options.

Death proceeds are generally received income tax free; cash value grows tax deferred; policy loans are not taxable income unless the policy lapses or is surrendered with gain.

The 7-pay test determines modified endowment contract status; a MEC taxes distributions on a LIFO basis and imposes a 10% penalty on gains before age 59½.

Premium mode affects total cost: annual is least expensive, monthly (or payroll deduction) is most expensive.

Personal uses: survivor protection, estate creation, estate conservation, liquidity, and cash accumulation.

Business uses: key person coverage, buy-sell funding, executive bonus (IRS Section 162), and split-dollar arrangements.

Term insurance provides pure protection with no cash value; it pays only if death occurs during the stated term.

Annual renewable term (ART) renews each year at an increasing premium; convertible term permits exchange to permanent coverage without new evidence of insurability.

Whole life features level premiums, guaranteed cash value, and endows (cash value equals face amount) at age 100 or 121.

Universal life offers flexible premiums and adjustable death benefits, credited current interest with a guaranteed minimum, and monthly cost-of-insurance deductions.

Universal life Option A is a level death benefit; Option B is an increasing death benefit equal to the specified amount plus accumulated cash value.

Variable life and variable universal life invest in a separate account, are securities requiring a prospectus, and must be sold by a registered representative.

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

Survivorship (second-to-die) coverage pays on the death of the last insured; joint life pays on the first death.

Entire contract clause: the policy plus the attached copy of the application constitutes the whole agreement; only an authorized officer may modify it.

Free look provision allows return of the policy within a stated period (commonly 10 days, longer in some states) for a full premium refund.

Incontestability is 2 years, the suicide exclusion is typically 2 years, and misstatement of age or sex is adjusted at any time.

Grace period is typically 31 days; coverage remains in force and any unpaid premium may be deducted from the death benefit.

Reinstatement is generally allowed within 3 to 5 years with evidence of insurability plus back premiums and interest.

Nonforfeiture options: cash surrender, reduced paid-up (smaller face, same duration), and extended term (same face, shorter duration).

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).

Common riders: waiver of premium, disability income, accidental death benefit, guaranteed insurability, term, long-term care, and return of premium; the automatic premium loan prevents unintentional lapse.

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

Flexible premium deferred annuities allow varied deposits; single premium annuities are funded with one lump sum.

Fixed annuities guarantee a rate; variable annuities invest in a separate account and require a securities license and prospectus; indexed annuities credit based on an index with a floor.

Payout options: life only (largest payment), life with period certain, installment refund, joint and survivor, fixed period, and fixed amount.

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

A 10% penalty applies to taxable annuity gains withdrawn before age 59½; annuitizing eliminates the withdrawal penalty.

Deferred contracts impose surrender charges during early years, allow a free withdrawal amount, and may include a market value adjustment.

The agent acts as field underwriter; the home office underwriter makes the final risk classification decision.

Information sources: the application (Part I general, Part II medical), paramedical or medical exam, attending physician statement, MIB, inspection report, and prescription database.

Risk classifications: preferred, standard, substandard (table rating or flat extra premium), and declined.

A conditional receipt provides coverage from the application date only if the proposed insured proves insurable under the insurer's rules.

Coverage ordinarily takes effect when the policy is delivered and the first premium is paid, along with a statement of good health when required.

Beneficiary types: primary, contingent, revocable, irrevocable, class designation, per capita, per stirpes, and minor (paid to a guardian or trust).

A revocable beneficiary has no vested rights; an irrevocable beneficiary's consent is required to change the designation or take certain policy actions.

The Fair Credit Reporting Act requires notice and disclosure when consumer reports are used; HIPAA requires authorization for medical information.

Morbidity measures the incidence of illness and accident; mortality measures death; health premiums are based primarily on morbidity.

Cost-sharing elements: premium, deductible, coinsurance, copayment, and out-of-pocket maximum.

Indemnity (fee-for-service) plans reimburse expenses; managed care plans contract with provider networks to control cost and utilization.

HMO: primary care gatekeeper, capitation, generally no non-emergency out-of-network coverage. PPO: no gatekeeper, out-of-network allowed at higher cost. POS: hybrid with a gatekeeper. EPO: network only, no gatekeeper.

Employer-paid premiums are deductible to the business and employer-paid benefits are tax free to employees.

Individual premiums are generally not deductible; self-employed individuals may deduct premiums above the line.

ACA market reforms: guaranteed issue, no annual or lifetime dollar limits, preventive care with no cost sharing, and dependent coverage to age 26.

Uniform (mandatory) provisions set minimum standards; optional provisions may be included by the insurer and must be consistent with state law.

Grace period: 7 days for weekly premiums, 10 days for monthly, and 31 days for all other modes.

Notice of claim within 20 days; claim forms furnished within 15 days; proof of loss within 90 days (extendable).

Time of payment of claims: immediately after proof of loss, with periodic payments at least monthly.

Legal actions: no suit may be filed before 60 days after proof of loss or after 3 years.

Incontestability is 2 years; reinstatement restores a lapsed policy upon evidence of insurability and payment of overdue premiums.

Change of occupation adjusts benefits to what the premium would have purchased in the new class; misstatement of age adjusts benefits to the correct age.

Optional provisions include other insurance with this insurer, relation of earnings to insurance, unpaid premium, and cancellation with stated notice.

Own-occupation definition pays if unable to perform the duties of the insured's own occupation; any-occupation is stricter and less expensive.

Presumptive disability (loss of sight, hearing, speech, or two limbs) typically pays benefits without satisfying the elimination period.

Benefit amounts are generally 60% to 80% of gross income; benefits may be offset (integrated) with Social Security and other coverage.

A longer elimination period and shorter benefit period reduce premium; benefit periods include 2 years, 5 years, to age 65, and lifetime.

Total disability means inability to perform duties; partial or residual disability pays a proportional benefit based on lost income.

Renewability ranking: noncancellable (guaranteed premiums and renewal) is strongest, then guaranteed renewable, conditionally renewable, and optionally renewable.

Benefits are received income tax free when premiums are paid with after-tax dollars; they are taxable when the employer paid the premium.

Basic medical expense covers hospital, surgical, and non-surgical physician services; major medical adds high limits and cost sharing.

Comprehensive major medical combines basic and major coverage under one deductible and one coinsurance provision.

A stop-loss or out-of-pocket limit caps the insured's share of covered expenses for the year.

ACA metal tiers by actuarial value: bronze 60%, silver 70%, gold 80%, platinum 90%.

Silver-tier plans provide cost-sharing reductions for eligible enrollees at certain income levels.

Essential health benefits include hospitalization, ambulatory care, prescription drugs, maternity/newborn care, mental health, and preventive services.

Critical illness and hospital indemnity products pay lump-sum or fixed daily benefits regardless of other coverage in force.

Group underwriting evaluates the group rather than individuals; actively-at-work rules limit individual evidence of insurability.

Noncontributory plans (employer pays all) generally require 100% employee participation; contributory plans typically require about 75%.

COBRA applies to employers with 20 or more employees: 18 months for termination or reduced hours, 29 months for disability, 36 months for dependent events; premium up to 102%.

Conversion privilege allows a departing group member to obtain an individual policy without evidence of insurability within a stated period at a higher premium.

Coordination of benefits determines the primary plan; the secondary plan pays up to, but not beyond, 100% of allowable expenses.

Experience rating bases premium on the group's own claims history; community rating uses area-wide averages.

HIPAA provides special enrollment rights on loss of other coverage, prohibits discrimination based on health status, and credits prior creditable coverage.

FMLA applies to employers with 50 or more employees and provides 12 weeks of unpaid leave with continued health coverage.

Medicare Part A covers inpatient hospital (premium free with 40 quarters of work); Part B covers medical services for a premium; Part C is Medicare Advantage; Part D covers prescription drugs.

Initial enrollment period is 7 months (3 before, the birthday month, 3 after) at age 65; late enrollment can trigger Part B and Part D penalties.

Medigap open enrollment is 6 months beginning with Part B enrollment at age 65 or later, with guaranteed issue rights; there are 10 standardized plans (A, B, C, D, F, G, K, L, M, N).

Medicaid is jointly funded by state and federal government, is income and asset based, and is the primary payer for long-term nursing home care.

Long-term care benefit triggers: unable to perform 2 of 6 activities of daily living for at least 90 days, or severe cognitive impairment.

LTC policy features: elimination period, benefit period, daily or monthly maximum, inflation protection, and tax-qualified status.

Dental plans divide services into preventive, basic, and major categories with an annual maximum and waiting periods; vision plans cover an exam plus an allowance for frames and lenses.