MT Life & Health cheat sheet

The McCarran-Ferguson Act gives states primary authority to regulate insurance and exempts insurance from most federal antitrust laws where state regulation exists.

Producers must hold a state license for each line sold and generally must be appointed by the insurer before soliciting or selling that insurer's products.

Premiums and client funds are held in a fiduciary capacity; commingling with personal funds and rebating are prohibited unfair trade practices.

Twisting is misrepresentation that induces a policyholder to lapse or replace coverage; churning is replacement financed by existing policy values.

State guaranty associations provide limited protection when an insurer is insolvent, commonly up to $300,000 in death benefits and $100,000 in cash surrender value, subject to state limits.

Replacements generally require a disclosure notice to the applicant, a comparison or replacement form, and adherence to the replacing insurer's and existing insurer's procedures.

Continuing education is required for license renewal, commonly 24 credit hours every two years, with separate annuity training requirements in many states.

Insurers must use approved policy forms and truthful illustrations; misleading advertising, unfair discrimination, and defamation of competitors are prohibited.

Risk is uncertainty about loss; peril is the cause of loss; hazard is a condition that increases the chance or severity of loss.

Insurable risks are typically pure, accidental, measurable, definite, and spread over a large number of similar exposure units.

The indemnity principle restores the insured to approximately the pre-loss financial position; insureds cannot profit from a loss.

Insurable interest must exist at policy inception for life insurance and at the time of loss for property insurance.

Utmost good faith requires honest disclosure; the contract is one of adhesion because the insurer drafts terms and the insured accepts or rejects them.

The law of large numbers helps insurers predict losses; adverse selection occurs when poorer-than-average risks seek coverage.

Reinsurance transfers risk from a ceding insurer to a reinsurer; retention is the amount the ceding insurer keeps, and cession is the amount transferred.

Gross premium equals the net premium for expected claims plus expense loading, with interest assumptions reducing the required premium.

Life insurance requires insurable interest at application; the death benefit is generally income tax free to beneficiaries under IRC section 101(a).

Mortality tables estimate death rates by age and sex; net premium is based on mortality and interest, while gross premium adds expenses and profit.

Ordinary whole life provides lifetime coverage with level premiums and guaranteed cash value; term provides temporary coverage without cash value.

Premium mode affects total cost: annual usually costs least, and more frequent modes such as monthly generally cost more per year.

Policy dividends are a return of divisible surplus and are not guaranteed; they are generally not taxable until they exceed premiums paid.

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

Cash value grows tax-deferred, and policy loans are generally not taxable while the policy remains in force.

Needs analysis methods include human life value, which discounts future earnings, and the needs approach, which subtracts existing resources from projected needs.

The entire contract clause makes the policy and attached application the complete agreement; only an authorized officer can modify it.

The incontestability clause generally bars the insurer from contesting the policy for misrepresentation after two years in force, except for nonpayment.

The grace period allows premium payment after the due date, commonly 30 or 31 days, and coverage remains in force during that time.

Reinstatement generally is available within three years of lapse upon evidence of insurability and payment of overdue premiums with interest.

Misstatement of age or sex adjusts the death benefit to what the premium would have purchased at the correct age or sex.

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

Beneficiary designations can be primary or contingent and revocable or irrevocable; per stirpes divides by family branch, while per capita divides equally among survivors.

Settlement options include lump sum, interest only, fixed period, fixed amount, and life income arrangements.

Riders add or modify coverage and usually increase premium; common examples include waiver of premium, disability income, and accidental death.

The waiver of premium rider waives premiums after a waiting period when the insured is totally disabled, keeping the policy in force.

The guaranteed insurability rider lets the insured buy additional coverage at specified ages or events without new evidence of insurability.

Accelerated death benefits pay part of the death benefit early for terminal illness or qualifying chronic conditions, reducing the final death benefit.

A term rider adds temporary coverage, often to a whole life policy, at a lower cost than permanent coverage.

The payor benefit rider waives premiums if the payor dies or becomes disabled, commonly used on juvenile policies.

Convertible term allows conversion to permanent coverage without proof of insurability; renewable term allows renewal without proof of insurability.

Substandard risks may be issued with rated premiums, exclusions, or modified benefits rather than declined.

An annuity accumulates funds and then annuitizes them into income; the accumulation phase precedes the payout phase.

Immediate annuities begin payments within one payment period; deferred annuities delay income until a future date.

Fixed annuities guarantee principal and a minimum interest rate; variable annuities fluctuate with separate account investments; indexed annuities tie crediting to an index.

Variable annuities are securities and generally require both a life insurance license and a securities registration.

Nonqualified annuity withdrawals are taxed gain first under LIFO, and a 10% penalty generally applies before age 59½ unless an exception applies.

The exclusion ratio determines the tax-free portion of each annuitized payment by dividing investment in the contract by expected total payments.

Surrender charges and market value adjustments may reduce early withdrawals; most contracts allow a free withdrawal amount.

Payout options include life only, life with period certain, joint and survivor, and installment refund.

Health policy renewal classifications include cancelable, optionally renewable, conditionally renewable, guaranteed renewable, and noncancellable.

A noncancellable policy guarantees renewal and fixed premiums; guaranteed renewable guarantees renewal but allows class-wide premium increases.

A deductible is the amount paid by the insured before benefits begin; coinsurance is the insured's share of covered expenses after the deductible.

An elimination period is a waiting period before disability or long-term care benefits begin; a benefit period is the maximum time benefits are paid.

Coordination of benefits designates a primary plan and limits total payments so benefits do not exceed covered expenses.

HIPAA portability rules limit preexisting condition exclusions when the insured has creditable coverage, subject to federal requirements.

ACA-compliant individual and small group plans must cover essential health benefits and cannot deny coverage or charge more based on preexisting conditions.

Managed care models include HMO, PPO, POS, and EPO, which differ in network use, referrals, and out-of-network coverage.

Disability income replaces part of earned income, commonly 60% to 70%, and benefits are limited by the definition of disability and benefit period.

Own-occupation disability pays if the insured cannot perform their own occupation; any-occupation pays only if unable to perform any occupation for which reasonably suited.

A residual or partial disability benefit pays a proportionate amount when the insured returns to work at reduced income.

A longer elimination period lowers premium; a longer benefit period raises premium.

Individually paid disability premiums are generally not tax deductible, and resulting benefits are tax free.

Medical expense policies may be basic, such as hospital and surgical, or major medical, which covers catastrophic expenses with deductibles and coinsurance.

A stop-loss or out-of-pocket maximum caps the insured's covered expenses after deductibles and coinsurance.

Long-term care benefits commonly trigger when the insured cannot perform two or more activities of daily living or has cognitive impairment.

Group insurance uses a master policy issued to the employer or association; participants receive certificates.

Eligibility often requires active employment, a waiting period, and enrollment within the initial enrollment period.

In contributory group plans, eligible employees must meet a participation percentage, commonly 75%, for the plan to be valid.

COBRA requires employers with 20 or more employees to offer continuation coverage, generally 18 months for termination, 29 months for disability, and 36 months for dependents.

COBRA continuation generally costs up to 102% of the group premium.

Group life insurance is usually term insurance and may include conversion or portability rights when employment ends.

Group health underwriting considers group size, industry, age and sex mix, claims experience, and participation.

Self-funded group health plans are governed by ERISA and may not be subject to state insurance mandates.

Life insurance death benefits are generally income tax free to beneficiaries; cash value grows tax-deferred.

Policy loans are generally not taxable while the policy remains in force, but lapse or surrender can create taxable gain.

MEC distributions are taxed gain first and may incur a 10% penalty before age 59½.

Individual life and health insurance premiums are generally not deductible; employer-paid group coverage is generally deductible as a business expense.

Employer-paid group term life coverage above $50,000 creates imputed income for the employee.

Self-employed individuals may deduct health insurance premiums, subject to earned income and other limits.

HSA contributions are deductible, growth is tax-deferred, and qualified medical withdrawals are tax free when paired with an HDHP.

Disability benefits are taxable when employer-paid premiums were deductible; benefits are tax free when the employee paid premiums with after-tax dollars.