RI Life & Health cheat sheet

The McCarran-Ferguson Act (1945) gives states primary authority to regulate insurance; federal antitrust law applies only to the extent the states do not regulate.

The state insurance commissioner/director licenses producers, approves policy forms and rates, conducts market-conduct examinations, and may fine, suspend, or revoke licenses.

A producer may transact business only in a state where an active license is held for that line of authority, and must satisfy continuing education requirements to renew.

Unfair trade practices include misrepresentation, false advertising, defamation of an insurer, boycott/coercion, intimidation, and illegal inducements.

Twisting is misrepresenting an existing policy to induce a policyholder to replace it; rebating is offering part of the commission or anything of value not stated in the contract.

Premiums collected on behalf of an insurer are held in a fiduciary capacity; commingling producer and insurer funds is prohibited.

Replacement of life insurance requires disclosure to the applicant and notification to the existing insurer so the old coverage is not needlessly lapsed.

State guaranty associations pay claims of insolvent insurers up to statutory limits, commonly $300,000 in life death benefits and $100,000 in cash surrender value.

Federal statutes that shape insurance include ERISA, COBRA, HIPAA, and the Affordable Care Act, which set minimum health coverage and portability standards.

Insurance transfers pure risk from an individual to a pool of many similar exposure units; speculative risk (chance of gain or loss) is not insurable.

Requirements of an insurable risk: many similar units, accidental loss, definite and measurable loss, calculable probability, and losses that are not catastrophic.

Adverse selection is the tendency of high-risk applicants to seek or retain coverage more eagerly than average risks; underwriting and exclusions control it.

Hazards are classified as physical (tangible condition), moral (dishonesty), morale (carelessness), and legal (court-awarded damages).

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

Insurance contracts are contracts of adhesion, aleatory, unilateral, conditional, and personal in nature.

Indemnity restores the insured to the pre-loss financial position; life insurance is a valued contract and pays the stated face amount rather than reimbursing loss.

Utmost good faith means both parties disclose material facts; material misrepresentation or concealment can make the contract voidable by the insurer.

Reinsurance transfers risk above a primary insurer's retention limit to a reinsurer, protecting solvency and capacity.

Insurable interest must exist at the time of application and policy issue; it does not have to continue until the insured's death.

Premium is built from three factors: mortality (cost of insurance), interest (earnings assumed on reserves), and expense (loading).

Modal premium loading: annual is the least expensive, then semiannual, quarterly, and monthly, which produces the highest total annual outlay.

A conditional receipt provides interim coverage if the applicant proves insurable and is approved as applied for (or a standard risk).

Personal uses of life insurance include income replacement, final expenses, mortgage protection, and estate liquidity; business uses include key person, buy-sell, and split-dollar plans.

The needs approach builds a face amount from income needs, expenses, and debts minus existing resources; human life value uses the present value of future earnings.

Death proceeds are generally income-tax-free to beneficiaries but are included in the insured's estate if the insured held incidents of ownership.

Beneficiary designations may be primary or contingent, per stirpes or per capita; a revocable designation can be changed by the owner, an irrevocable one cannot without consent.

Policyowner rights include naming and changing beneficiaries, taking loans, surrendering the policy, and assigning ownership.

Level term has a fixed face amount and level premium for a stated period and builds no cash value.

Decreasing term has a face amount that declines on a schedule with a level premium and is commonly used for mortgage protection.

Renewable term may be continued without new evidence of insurability at a higher premium, up to a stated age limit.

Convertible term may be exchanged for permanent coverage without evidence of insurability, generally at the same or a reduced face amount.

Whole life charges level premiums for life, guarantees a cash value, and endows at the stated maturity age.

Limited-pay whole life (for example 20-pay or paid-up at 65) compresses premiums into fewer years while coverage lasts for life.

Universal life offers flexible premiums and an adjustable death benefit, credits current or guaranteed interest, and deducts monthly cost of insurance from cash value.

Variable life and variable universal life invest in a separate account, are securities requiring a prospectus and securities license, while indexed UL credits index-linked interest subject to a floor and cap.

Group life is issued as one master contract to the employer with individual certificates, and includes a conversion privilege on termination.

Entire contract clause: the policy plus the attached copy of the application make up the whole agreement.

Incontestability: after two years the insurer cannot void the policy for misstatements on the application; incorrect age or sex is corrected by adjusting the benefit.

Grace period for life insurance is typically 31 days, during which the policy remains fully in force.

Reinstatement is generally allowed within 3 years with evidence of insurability and payment of overdue premiums plus interest; a new contestable period usually begins.

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

Dividend options are cash, reduction of premium, accumulation at interest, paid-up additions, and one-year term.

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

Common riders: waiver of premium, disability income, accidental death, guaranteed insurability, accelerated death benefit, and long-term care or chronic illness.

Waiver of premium normally requires total disability and applies after a waiting period, often six months, with premiums credited retroactively.

An annuity has two phases: accumulation (premiums paid, values build) and the annuity period (income is paid out).

An immediate annuity begins payments within one payment interval of the single premium; a deferred annuity postpones payout to a future date.

A fixed annuity guarantees a stated interest rate; a variable annuity invests in a separate account and is a security requiring a prospectus.

Indexed annuity interest is tied to an external index and limited by a participation rate, a cap, and a floor that protects against negative index returns.

Annuitization options include life only, life with period certain, installment refund, straight refund, fixed period, fixed amount, and joint and survivor.

Life-only produces the largest payment because nothing is payable to survivors; refund and joint-and-survivor options pay less.

Variable annuity accumulation units are converted into annuity units when the contract is annuitized.

Nonqualified annuity payments are taxed under the exclusion ratio (investment in the contract divided by expected return); qualified annuity payments are fully taxable.

Withdrawals before age 59½ may trigger a 10% federal penalty, and a 1035 exchange moves annuity values to another contract without current taxation.

Indemnity plans reimburse a percentage of covered charges; managed care plans control cost and access through provider networks and utilization review.

An HMO uses a primary care physician as gatekeeper, requires referrals for specialists, covers in-network care, and may pay providers by capitation.

A PPO offers a discounted network, generally requires no referrals, and permits out-of-network care at a higher cost share.

Cost-sharing elements are the deductible, coinsurance (a percentage), copayment (a flat dollar amount), and the out-of-pocket maximum.

Basic medical coverage includes hospital, surgical, and physician expense; major medical adds broad catastrophic protection with high maximums.

Disability income replaces a portion of earned income, commonly 60% to 70%, and is defined by own occupation or any occupation.

Long-term disability has a longer elimination period and benefit period than short-term disability; benefits are taxable to the employee when the employer paid the premium.

Long-term care benefits are triggered by inability to perform 2 of 6 activities of daily living or by cognitive impairment; care levels are skilled, intermediate, and custodial.

The Affordable Care Act requires guaranteed issue, bans pre-existing condition exclusions, mandates essential health benefits, and permits dependent coverage to age 26.

Free look is typically 10 days for individual health policies and 30 days for Medicare supplement policies.

Grace period is commonly 7 days for weekly premium mode, 10 days for monthly mode, and longer for quarterly or annual modes.

Incontestability bars the insurer from contesting the policy after two years in force for misstatements, except for fraud or nonpayment of premium.

The time limit on certain defenses provision stops the insurer from denying a claim for misstatements after a stated period, usually two years.

Reinstatement is generally available within a stated period, often 5 years, with evidence of insurability; a new preexisting condition period may then apply.

The change of occupation provision lets the insurer reduce benefits or raise premium if the insured moves to a more hazardous occupation.

Coordination of benefits determines which plan pays primary and secondary and caps total payments at no more than 100% of the covered expense.

Standard claim provisions require notice of claim within 20 days, claim forms within 15 days, and proof of loss within 90 days.

Renewability classifications are noncancellable (premium and renewal guaranteed), guaranteed renewable, conditionally renewable, and optionally renewable.