NIA Micro Life Agent cheat sheet

Risk transfer shifts financial uncertainty from an individual to an insurer in exchange for a premium; risk retention and risk avoidance are the alternatives.

Insurable risk requires a large number of similar exposure units, accidental and measurable loss, definable loss, and losses that are not catastrophic to the insurer.

Law of large numbers: as the number of independent similar exposure units increases, actual loss experience converges toward expected loss, improving rate predictability.

Adverse selection is the tendency of higher-risk applicants to seek coverage; underwriting and exclusions control it. Moral hazard is behavior change caused by having insurance.

Principle of indemnity: a property or health indemnity payment restores the insured to approximately the pre-loss financial position, never profit from loss.

Utmost good faith obliges both parties to deal honestly and disclose material facts; in life insurance the applicant bears the disclosure duty at application.

Insurable interest in life insurance must exist at policy issue; it is presumed for self, spouse, and certain dependents, and consent plus relationship is required for others.

Subrogation, contribution, and other insurance clauses prevent double recovery; they generally do not apply to individual life insurance because a death benefit is not indemnity.

Aleatory contract: performance depends on an uncertain event, so premiums paid and benefits received need not be equal.

Elements of a valid contract: offer (application plus initial premium), acceptance (underwriting approval), consideration (premium and promises), legal purpose, and competent parties.

The applicant makes the offer; the insurer accepts by issuing the policy. An agent cannot bind life coverage unless the insurer grants interim or conditional receipt authority.

Conditional receipt: coverage takes effect retroactively to the application or medical-exam date only if the proposed insured was insurable on that date under stated conditions.

Utmost good faith and material misrepresentation: a misstatement that would have changed the underwriting decision can allow rescission, usually within the contestability period.

Entire contract clause: the policy, attached application, and attached riders form the whole agreement; no outside document modifies it.

Free-look provision gives the owner a stated period, commonly 10 to 30 days after delivery, to return the policy for a full premium refund.

Waiver and estoppel: an insurer that knowingly waives a right, such as accepting late premiums, may be estopped from later enforcing that right.

Parol evidence and the agent's limited authority: statements outside the written contract generally cannot alter it, and the agent's apparent authority may still bind the insurer.

Delivery and policy effective date depend on the receipt type, policy date, and any backdating used to lower premium based on younger age.

Term life provides a death benefit for a stated period with no cash value; level term, decreasing term, increasing term, and annually renewable term are common forms.

Whole life is permanent, level-premium coverage with guaranteed cash value, guaranteed death benefit, and policy loan privileges; premiums stay fixed for life.

Universal life separates the account value from the death benefit; credited interest and cost-of-insurance charges vary, and the owner may adjust premium and benefit within limits.

Indexed universal life credits interest linked to an index with a floor and cap or participation rate; it is not a securities product when properly structured.

Variable life and variable universal life place account value in separate accounts; they are securities, require a prospectus, and need a securities license to sell.

Survivorship (second-to-die) life pays on the second death and is used for estate liquidity and estate tax planning.

Modified and graded premium whole life and graded death benefit policies trade lower early cost for reduced early benefits, often used for simplified underwriting.

Juvenile and payor benefit riders, family income riders, and accidental death riders add targeted coverage; accidental death typically pays an additional benefit and may limit time after the accident.

Policy loans reduce cash value and death benefit if unpaid; dividends on participating policies are not guaranteed and are treated as a return of premium for tax purposes.

Annuities accumulate value and then liquidate it; the accumulation phase builds value, and the annuitization phase converts value into periodic income.

Immediate annuity begins income payments within about one year of purchase; a deferred annuity postpones income and accumulates value.

Fixed annuities guarantee a declared interest rate; indexed annuities credit interest by formula with a floor; variable annuities invest in separate accounts and are securities.

Annuity payout options include life only, life with period certain, joint and survivor, and fixed period; a longer guarantee lowers the periodic payment.

Exclusion ratio: the nontaxable portion of each annuity payment equals investment in the contract divided by expected return, multiplied by the payment.

IRS penalty: distributions before age 59 1/2 from a qualified or nonqualified annuity are generally subject to a 10 percent additional tax except for death, disability, or annuitization exceptions.

Surrender charges apply during a declining surrender charge period; free withdrawal provisions usually permit a percentage of value without charge each year.

1035 exchange allows tax-free transfer of an annuity or life policy to a like-kind contract, but basis and surrender schedules carry over.

Qualified retirement plans such as IRAs and 401(k) plans receive tax deferral; required minimum distributions apply to traditional qualified accounts after the stated age.

Major medical pays covered medical expenses after deductible and coinsurance; the out-of-pocket maximum caps the insured's cost sharing for covered in-network care.

Deductible is the amount the insured pays before benefits begin; coinsurance is the insured's percentage share, and copayment is a fixed dollar charge per service.

Health insurance is guaranteed renewable, conditionally renewable, or noncancelable; noncancelable policies cannot be canceled or rate-increased by the insurer.

Disability income insurance replaces a percentage of income, typically 50 to 70 percent, after an elimination period, with benefit duration set by the policy.

Own-occupation disability definition pays if the insured cannot perform their own occupation; any-occupation is stricter and pays only if unable to work in any suitable job.

Accidental death and dismemberment pays a principal sum for accidental death and a stated fraction for loss of limbs or sight, often within 90 or 180 days of the accident.

Coordination of benefits determines which plan pays first when the insured has multiple coverages; the primary plan pays, and the secondary plan pays the remainder up to its limit.

Pre-existing condition clauses limit coverage for conditions treated before the policy effective date; HIPAA and ACA rules restrict their use in group and individual markets.

Long-term care insurance covers custodial care, home care, and nursing facility care, with benefit triggers based on inability to perform activities of daily living.

Incontestability clause bars the insurer from contesting the policy for material misrepresentation after the policy has been in force, commonly two years, except for nonpayment.

Grace period allows premium payment after the due date, commonly 30 or 31 days, with coverage remaining in force during the grace period.

Automatic premium loan provision uses available cash value to pay an overdue premium, preventing lapse if cash value is sufficient.

Reinstatement provision allows a lapsed policy to be restored within a stated period, usually three to five years, on evidence of insurability and payment of overdue premiums.

Suicide clause limits payment to a return of premium if death occurs by suicide within the stated period, commonly two years from issue.

Misstatement of age or sex provision adjusts the benefit to what the premium would have purchased at the correct age or sex rather than voiding the policy.

Waiver of premium rider waives premiums after total disability lasting a stated period, commonly six months, while keeping the policy in force.

Guaranteed insurability rider allows the owner to buy additional coverage at stated option dates without evidence of insurability.

Nonforfeiture options on cash value policies include cash surrender, reduced paid-up insurance, and extended term insurance; these protect value if the owner stops paying.

Underwriting classifies risk by health, occupation, avocation, family history, and financial need; standard, preferred, substandard, and table-rated classes set the premium.

Field underwriting duties include completing the application accurately, reporting material facts, collecting the initial premium, and delivering the policy.

MIB, prescription, motor vehicle, and inspection reports are common underwriting information sources; the applicant must authorize their use.

Premium components: mortality cost, insurer expenses, and interest or reserve earnings; gross premium equals the net premium plus expense loading.

Mode of payment affects total cost: annual premiums are lowest, and monthly, quarterly, or semiannual modes add installment loading.

Claims process: the beneficiary files a claim with proof of death, the insurer verifies coverage and identity, then pays within the time required by state law.

Beneficiary designations: primary and contingent beneficiaries receive proceeds directly, bypassing probate; per capita and per stirpes determine how shares pass.

Facility of payment and spendthrift clauses protect proceeds and allow limited payment when no valid beneficiary exists or when a beneficiary cannot manage funds.

Interest on death proceeds, accelerated death benefits, and viatical settlements affect taxation; death benefits are generally income-tax free to beneficiaries.

Fiduciary and suitability duty requires recommending products consistent with the client's needs, objectives, financial situation, and risk tolerance.

Twisting is inducing a client to lapse or replace a policy through misrepresentation; churning is replacement driven by the agent's commission rather than client benefit.

Rebating gives part of the commission or premium to the buyer as an inducement and is prohibited in most states; illegal inducement includes offering anything of value not in the policy.

Misrepresentation and false advertising about policy terms, dividends, or insurer strength violate unfair trade practice laws.

Commingling and misappropriation of premium funds are prohibited; premiums must be handled through insurer-authorized accounts.

Privacy rules restrict sharing nonpublic personal financial and health information without notice and consent, under state law and federal financial privacy requirements.

Replacement regulations require a signed notice, disclosure of the comparison, and delivery of the new policy documents so the buyer can compare costs and benefits.

Errors and omissions coverage protects the agent from liability for negligent acts; it does not cover intentional misconduct.

Unfair claims settlement practices include unreasonable delay, failure to investigate, and bad-faith denial; states impose penalties and may allow extra-contractual damages.

States regulate insurance under the McCarran-Ferguson Act, which leaves insurance to the states while preserving federal antitrust application where not regulated.

State insurance department enforces the insurance code, licenses producers and companies, examines solvency, and reviews policy forms and rates.

Producer licensing requires prelicensing education, a passing exam, a background check, appointment by an insurer, and continuing education for renewal.

Certificate of authority is the license a company needs to transact insurance in a state; unauthorized insurers may not solicit business there.

Rate regulation requires rates to be adequate, not excessive, and not unfairly discriminatory; prior approval and file-and-use are common rate filing systems.

Guaranty association protects policyholders of insolvent insurers up to statutory limits; it does not protect against market losses or insurer mismanagement.

Market conduct examinations and producer discipline include fines, license suspension or revocation, and cease-and-desist orders for violations.

NAIC model laws and regulations provide uniform standards that states may adopt; they are not federal law and do not bind a state until adopted.

Advertising and policy form filing rules require insurer filings and prohibit false or misleading representations in marketing materials.