NJ Life & Health cheat sheet

Insurable interest must exist at the time the policy is issued (not at death) for an individual life contract to be valid.

Gross premium = mortality cost (expected claims) + expense loading − interest earnings assumed on reserves.

Human life value approach measures the present value of the insured's future earnings; the needs approach totals specific obligations such as debt, income replacement and education funds.

Level premium design overcharges in early years, building a reserve that funds the rising mortality cost in later years.

Mutual insurers are owned by policyholders and may pay dividends, which are treated as a return of premium and generally not taxable until cumulative dividends exceed premiums paid.

Stock insurers are owned by shareholders; dividends to shareholders are not policy dividends and are fully taxable to the recipient.

Reinsurance transfers risk above the ceding insurer's retention limit to an assuming insurer; the original policyowner is not a party to the reinsurance agreement.

Business uses: key person insurance indemnifies a firm for the loss of a vital employee; buy-sell funding purchases a deceased owner's interest; split dollar shares premium and cash value between employer and employee.

Death proceeds paid to a named beneficiary are generally free of federal income tax, but interest paid on those proceeds is taxable to the beneficiary.

Term insurance is pure death protection: no cash value, no loan value, and coverage ends when the term expires with no refund.

Annually renewable term charges a premium that increases each year with attained age; renewal is allowed without new evidence of insurability.

Convertible term permits exchange for a permanent policy without evidence of insurability, usually before a stated age or policy year.

Whole life provides a level premium for life, guaranteed cash value, and matures at the stated endowment age (age 121 under the 2001 CSO table).

Limited-pay whole life (20-pay, paid-up at 65) and single premium compress premium payments, producing higher annual cost but earlier paid-up status.

Universal life offers flexible premiums and an adjustable death benefit; Option A pays a level amount, Option B pays face amount plus the accumulated cash value.

Variable life and variable universal life place cash value in separate-account subaccounts; the owner bears investment risk and the producer needs both a state life license and a securities registration.

Indexed universal life credits interest by formula tied to an external index, subject to a guaranteed floor and a cap or participation rate; it is not a registered security.

Survivorship (second-to-die) coverage pays at the death of the last insured and is commonly used for estate liquidity and estate tax funding.

Entire contract clause: the policy plus the attached application and riders form the whole agreement, and nothing outside it can be incorporated by reference.

Incontestability: after two years from issue the insurer cannot void the policy for misrepresentation on the application; nonpayment of premium remains actionable.

Suicide clause typically runs two years; if death is by suicide within that period the insurer refunds premiums rather than paying the face amount.

Grace period (usually 30 or 31 days) keeps coverage in force after a missed premium; the premium may be deducted from any claim during that period.

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

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

Nonforfeiture options on lapse or surrender: cash surrender value, reduced paid-up insurance (smaller face, no more premiums), or extended term (full face for a limited period).

Settlement options: lump sum, interest only, fixed period, fixed amount, and life income variants (straight life, life with period certain, refund life, joint and survivor).

Waiver of premium pays premiums during total disability after an elimination period (often six months), typically continuing to age 65; the death benefit and cash value continue to grow.

Two phases: the accumulation period builds contract value, and the annuity (annuitization) period converts it into periodic income payments.

Immediate annuity is bought with a single premium and begins payments within one payment interval; a deferred annuity delays income to a future date.

Fixed annuities guarantee a stated interest rate and level payments, with the insurer bearing investment risk.

Variable annuities pay income that fluctuates with separate-account subaccount performance; the contract owner bears investment risk and the product is a registered security.

Exclusion ratio = investment in the contract ÷ expected return; that fraction of each annuity payment is a tax-free return of basis until basis is fully recovered.

Nonqualified annuity withdrawals are taxed last-in, first-out (gains first); distributions before age 59½ generally add a 10% federal penalty.

Straight life income yields the largest payment but ends at death with nothing to survivors; period-certain, refund, and joint-and-survivor features reduce the payment.

Surrender charges usually decline over a multi-year surrender period, and most contracts permit a free withdrawal amount (commonly 10%) each year.

Section 1035 exchange allows a life policy or annuity to be exchanged for an annuity or another annuity without current taxation of gain.

Health premiums are driven by morbidity (expected claims), interest, expenses and reserve needs, rather than mortality alone as in life insurance.

Indemnity (fee-for-service) plans reimburse a percentage of usual, customary and reasonable charges and allow any provider; managed care plans use networks and utilization review.

HMO: care must be received from network providers, a primary care physician usually serves as gatekeeper, and in-network care typically has copays instead of deductibles and coinsurance.

PPO: benefits available in and out of network, with higher cost sharing outside; specialists generally accessible without a referral.

Deductible is the insured's outlay before benefits begin; coinsurance is the insured's share of the remaining covered charge, e.g., 20% in an 80/20 plan.

Out-of-pocket maximum caps covered in-network cost sharing (deductible, coinsurance, copays) for the year but does not include premiums.

HSA requires enrollment in a qualifying high-deductible health plan; funds are portable, roll over, and can be invested, unlike a use-it-or-lose-it FSA.

Disability income replaces a portion of earned income (often 60–70%) and is taxed to the insured when the employer paid the premium; benefits are tax-free when the insured paid.

Medicare parts: A hospital, B medical, C Medicare Advantage, D prescription drugs; Medicaid is a separate needs-based state and federal program.

Noncancellable: the insurer cannot cancel the policy or raise the premium; guaranteed renewable: the insurer cannot cancel but may raise premiums by class.

Conditionally renewable lets the insurer decline renewal only for stated reasons; optionally renewable lets the insurer refuse renewal at each anniversary or premium due date.

Time limit on certain defenses (incontestability) generally bars the insurer from contesting the application after two years, except for fraud or nonpayment.

Preexisting condition provisions limit benefits for conditions treated before coverage started; HIPAA restricts exclusion periods for group and portability situations.

Coordination of benefits decides order of payment when a person has two plans; the primary plan pays its full benefit and the secondary plan pays the remainder up to its limit.

COBRA requires group health plans with 20 or more employees to offer continuation for up to 18 months, extended to 29 months for disability or 36 months for certain dependent events.

Conversion privilege lets a person losing group coverage buy an individual policy without evidence of insurability, usually within 31 days of termination.

Change of occupation provision reduces benefits proportionally if the insured moves to a more hazardous occupation than the one on which the premium was based.

Elimination period is a time deductible on disability income benefits; probationary period is the initial period of a health policy during which sickness benefits are not payable.

The New Jersey Department of Banking and Insurance licenses producers, approves policy forms and rates, and enforces the Insurance Fraud Prevention Act.

A producer must hold a valid New Jersey license and be appointed by the insurer before soliciting or selling its products; commissions may be paid only to licensed, appointed producers.

New Jersey life policies must give the owner a free-look right of at least 10 days after delivery, with a full premium refund if the policy is returned.

Life policies delivered in New Jersey must include a grace period of at least 30 days, and coverage becomes incontestable after two years from issue.

Producers must complete continuing education each renewal cycle, including an ethics component, as a condition of biennial license renewal.

Replacing existing life insurance requires delivery of a notice regarding replacement and a comparison disclosure to the applicant before the new policy is taken.

Rebating (offering any inducement not stated in the policy) and twisting (misrepresenting an existing policy to cause a lapse or replacement) are prohibited unfair trade practices.

A producer who collects premiums holds them in a fiduciary capacity; commingling premium funds with personal funds is prohibited.

The New Jersey Life and Health Insurance Guaranty Association pays covered claims of policyholders of insolvent member insurers, subject to statutory limits such as $300,000 of death benefit and $100,000 of cash surrender value.

New Jersey's individual health market is guaranteed issue with modified community rating; carriers cannot decline or rate individuals based on health status.

The small employer health benefits program applies similar guaranteed-issue and rating rules to employers with 2 to 50 eligible employees.

New Jersey operates a state-based marketplace and imposes a state individual health insurance mandate with a penalty reported on the state tax return.

Insurers must file individual and small group rates and forms with the Department of Banking and Insurance for review before use.

Producers selling Medicare-related health products in New Jersey must comply with state marketing and appointment rules in addition to federal Medicare requirements.