NM Life & Health cheat sheet

Risk is uncertainty about loss; peril is the cause of loss (fire, windstorm, death); hazard is a condition that increases the chance or severity of loss (physical, moral, morale).

Only pure risk (loss or no loss) is insurable. Speculative risk (chance of gain or loss) is not insurable.

Insurable risk traits: many similar exposure units, losses definite and measurable, accidental, calculable probability, and an economically feasible premium.

The principle of indemnity restores the insured to the pre-loss financial position, no better; life insurance pays a stated face amount and is not a strict indemnity contract.

Insurable interest in a life is measured by financial benefit or love and affection, and must exist at policy inception (not at death).

Contract characteristics: contract of adhesion (insurer drafts, ambiguity construed against drafter), aleatory (unequal exchange), unilateral (only insurer makes an enforceable promise), conditional (insurer pays only if conditions met).

Utmost good faith imposes a duty of honest disclosure; a representation is believed true, a warranty is guaranteed true, and a material misrepresentation may allow rescission.

Elements of a valid contract: offer and acceptance, consideration, legal purpose, and competent parties.

Law of large numbers lets insurers predict losses as exposure units increase; adverse selection (poorer risks seeking coverage) is controlled by underwriting, exclusions, and waiting periods.

The policyowner holds all rights (naming beneficiaries, loans, surrender, dividends); the insured's life is covered; the beneficiary receives proceeds.

Death proceeds are generally received income-tax free by the beneficiary, while cash value accumulates tax-deferred; loans become taxable if the policy lapses or is surrendered.

Key time limits: incontestability after 2 years, suicide clause typically 2 years, misstatement of age or sex adjusts the benefit at any time.

Grace period of 30 or 31 days keeps coverage in force; reinstatement is usually allowed within 3 to 5 years on evidence of insurability plus payment of overdue premiums with interest.

Nonforfeiture options on a lapsed permanent policy: cash surrender, reduced paid-up insurance, or extended term insurance.

Dividend options for mutual insurers: cash, reduction of premium, accumulation at interest, paid-up additions, or one-year term.

Universal life separates the policy into a cash account and a cost-of-insurance charge; Option A pays a level death benefit, Option B pays face amount plus cash value.

Annuities accumulate then annuitize; fixed annuities guarantee a rate, variable annuities are securities requiring a securities license and prospectus, and early withdrawals face surrender charges.

Policies failing the seven-pay test are modified endowment contracts: distributions are taxed income first with a 10% penalty before age 59 and a half, and 1035 exchanges move funds tax free between like contracts.

Cost sharing layers: premium, deductible (insured pays first), copay (flat fee), coinsurance (percentage split, e.g., 80/20), and out-of-pocket maximum after which the plan pays 100% of covered in-network benefits.

Affordable Care Act rules for individual and small-group major medical: guaranteed issue, no pre-existing condition exclusions, no annual or lifetime dollar limits on essential health benefits, and dependents covered to age 26.

Metal tiers reflect actuarial value: bronze 60%, silver 70%, gold 80%, platinum 90%; preventive services are covered with no cost sharing in network.

Managed care models: HMO uses a primary care gatekeeper and generally no out-of-network coverage; PPO allows out-of-network care at higher cost; POS is a hybrid; EPO has no out-of-network benefits but no gatekeeper.

COBRA continuation periods are generally 18 months (termination or hours reduction), 29 months (Social Security disability extension), and 36 months (divorce, death, dependent aging out); election is within 60 days.

Medicare: Part A hospital (no premium with enough work history), Part B medical (income-related premium), Part C Medicare Advantage, Part D prescription drugs; Medigap supplements original Medicare.

Disability income pays roughly 50-70% of income, uses an elimination period as a time deductible, and defines disability as own occupation (broader) or any occupation (stricter); residual disability pays a reduced proportional benefit.

Long-term care benefits trigger when the insured cannot perform 2 of 6 activities of daily living or has cognitive impairment; benefits are limited by elimination and benefit periods.

Coordination of benefits: the plan covering the person as an active employee pays before COBRA or retiree coverage; for dependent children the birthday rule (earlier birthday in the year) usually governs.

The New Mexico Insurance Code is NMSA 1978, Chapter 59A; it is administered by the Superintendent of Insurance, who heads the Office of Superintendent of Insurance (OSI).

A person must hold a valid producer license and be appointed by the insurer before soliciting, negotiating, or selling insurance; business entities need a designated responsible licensed producer.

Nonresident producers are licensed by reciprocity when their home state license is in good standing; resident and nonresident licenses are generally renewed on a two-year cycle.

A temporary license may be issued for a limited period (up to 180 days) to continue a deceased or disabled producer's business pending a permanent licensee.

Commissions may be shared with another licensed producer but may not be paid to an unlicensed person for selling, soliciting, or negotiating insurance.

Prohibited unfair trade practices include rebating, misrepresentation, twisting, churning, false advertising, boycott or coercion, and unfair claim settlement practices.

A producer must promptly report to the Superintendent changes of name or address and any administrative action against a license, criminal prosecution, or license denial in another jurisdiction (typically within 30 days).

Continuing education must be completed each license term and includes an ethics component; nonresident producers generally satisfy CE through their home state.

The Superintendent may examine insurers and producers, hold hearings, issue cease-and-desist orders, impose fines, and suspend or revoke licenses; fraudulent insurance acts are criminal offenses with immunity for good-faith reporting.