SD Life & Health cheat sheet

Insurance is regulated primarily by state insurance departments; the McCarran-Ferguson Act reserves regulation to the states and limits federal antitrust reach where state law regulates insurance.

A producer must hold a license in the state where the solicitation occurs; nonresident licenses are commonly issued through reciprocity when the home-state license is in good standing.

Premiums collected for an insurer are held in a fiduciary capacity; commingling with personal funds and misappropriation are prohibited.

Unfair trade practices include rebating, twisting, churning, misrepresentation, and unfair discrimination; rebating offers any inducement not stated in the policy.

Replacement of existing life insurance requires disclosure and notice to the existing insurer; a 1035 exchange allows tax-free transfer of cash value between qualifying policies.

The state guaranty association pays covered claims up to statutory limits when an admitted insurer becomes insolvent; it is not a government-backed guarantee.

Insurers must be appointed by the insurer for the lines sold; appointments and licenses are renewed through state requirements, including continuing education.

Privacy rules restrict sharing of nonpublic personal financial and health information; opt-out and disclosure requirements apply under state and federal law.

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

Pure risk has only loss or no-loss outcomes and is insurable; speculative risk involves gain or loss and is generally not insurable.

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

The indemnity principle restores the insured to approximately the pre-loss financial position; valued policies and life insurance are exceptions.

Coinsurance formula for property claims: (insurance carried / insurance required) x loss, subject to the policy limit and deductible.

Utmost good faith requires accurate representations; material misrepresentation, concealment, or warranty breach can affect coverage.

Subrogation lets the insurer pursue a third party after paying a loss; contribution and other-insurance clauses allocate loss among insurers.

The law of large numbers supports pooling: a larger number of similar exposure units makes actual losses more predictable.

Elements of a valid contract include offer, acceptance, consideration, legal purpose, and competent parties; insurance contracts are aleatory, adhesion, unilateral, and conditional.

Insurable interest must exist when the life policy is issued, not at death; a policy lacking it at inception is generally void.

Life premiums reflect mortality, interest, and expense; net premium uses mortality and interest, while gross premium adds expenses and profit.

Level-premium whole life overpays early costs and builds a reserve and cash value; term premiums generally rise with attained age.

Need analysis for life insurance includes income replacement, debt, education, and final expenses, less existing resources and survivor income.

Underwriting classifies risks as preferred, standard, substandard, or declined; the Medical Information Bureau provides coded information, not underwriting decisions.

A conditional receipt provides temporary coverage if the proposed insured meets the insurer's underwriting requirements; a binding receipt can provide immediate coverage.

Death benefits are generally income-tax free to beneficiaries; cash value growth is tax-deferred, and loans are not taxable unless the policy lapses.

Beneficiary designations control proceeds over a will; primary and contingent beneficiaries should be named, and irrevocable designations require beneficiary consent to change.

Policy delivery and free-look rules vary by state; the free-look period allows return of the policy for a premium refund.

Term insurance provides pure death protection for a specified period with no cash value; level, decreasing, increasing, renewable, and convertible forms exist.

Whole life provides lifetime coverage, guaranteed premiums, guaranteed cash value, and a death benefit; limited-pay and single-premium versions shorten premium payments.

Universal life separates the policy into a cash-value account and a cost-of-insurance charge; premiums are flexible and the death benefit may be level or increasing.

Variable life cash value is invested in a separate account and fluctuates with market performance; a securities license is required to sell it.

Indexed universal life credits interest based on an index subject to a floor, cap, and participation rate; it is not a direct stock market investment.

Endowment policies mature with cash value equal to the face amount at a stated age; they are less common because of tax and reserve requirements.

Joint life pays at the first death; survivorship or second-to-die pays at the second death and is used for estate liquidity.

Modified and graded-premium policies charge lower early premiums and higher later premiums; they can suit temporary budget limits but cost more long term.

Participating policies may pay dividends, which are not guaranteed and are generally treated as a return of premium; nonparticipating policies do not.

The entire-contract clause makes the policy and attached application the whole agreement; only an authorized officer can modify it, and no agent can waive policy provisions.

Incontestability bars the insurer from contesting the policy after two years from issue for misrepresentation, except nonpayment of premium; the suicide clause typically lasts two years.

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

The grace period allows premium payment after the due date without lapse; reinstatement restores a lapsed policy, often with evidence of insurability and back premiums.

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

Dividend options include cash, reduce premium, accumulate at interest, paid-up additions, and one-year term.

Settlement options include lump sum, interest only, fixed period, fixed amount, and life income; life income with period certain guarantees payments for a minimum period.

Riders include waiver of premium, disability income, accidental death, guaranteed insurability, child term, long-term care, and accelerated death benefit.

Assignment can be absolute, transferring all ownership rights, or collateral, transferring limited rights to secure a loan.

An annuity is a contract that liquidates a sum of money over time; the insurer bears mortality risk during annuitization, while the owner bears investment risk in variable annuities.

Immediate annuities begin payments within one payment period; deferred annuities have an accumulation phase before annuitization.

Fixed annuities guarantee a stated rate and principal; variable annuities use separate-account subaccounts and require a securities license.

Indexed annuities credit interest by formula tied to an index, with a floor protecting principal, a cap limiting gains, and a participation rate.

Payout options include life only, life with period certain, joint and survivor, and refund or installment refund; life-only pays the highest income but ends at death.

Exclusion ratio equals investment in the contract divided by expected return; the excluded portion of each payment is a tax-free return of basis.

Nonqualified annuity contributions are after-tax; qualified annuity contributions may be pre-tax. Distributions before age 59 1/2 generally incur a 10% penalty except for exceptions.

A 1035 exchange moves funds tax-free between qualifying life insurance, annuity, and long-term care contracts; surrender charges and market value adjustments may apply.

Medical expense insurance reimburses covered health costs; managed care plans control cost and use through networks, primary care gatekeepers, and preauthorization.

HMOs are network-based with gatekeepers and fixed copays; PPOs offer network discounts with out-of-network benefits at higher cost; POS plans combine HMO and PPO features; EPOs cover network only except emergencies.

Cost sharing includes deductible, copay, coinsurance, and out-of-pocket maximum; the out-of-pocket maximum caps covered in-network cost sharing.

Coordination of benefits determines primary and secondary plans when a person has multiple coverages; the primary pays first and the secondary pays up to allowable charges.

ACA requires guaranteed issue and renewability, essential health benefits, no annual or lifetime dollar limits on essential benefits, and dependent coverage to age 26.

Metal tiers are bronze, silver, gold, platinum, and catastrophic; actuarial value increases from bronze to platinum.

COBRA continuation lasts 18 months for termination or reduced hours, 29 months for disability extension, and 36 months for certain dependent events.

HIPAA limits preexisting-condition exclusions and provides portability and special enrollment rights in group health plans; creditable coverage reduces exclusion periods.

Underwriting methods include community rating, experience rating, and attained-age rating; group plans often use experience rating or community rating.

Uniform provisions include grace period, reinstatement, incontestability, claim forms, proof of loss, legal actions, change of occupation, and misstatement of age.

Disability income pays a portion of income, typically 50-70%, after an elimination period; benefit period and definition of disability drive cost.

Own-occupation definition is broader for the insured; any-occupation definition pays only if unable to perform any job for which reasonably suited.

Residual disability pays partial benefits for income loss after return to work; partial disability pays for a limited period and reduced duties.

Business disability coverage includes key-person disability, business overhead expense, and disability buy-sell; each addresses a different business risk.

Medicare Part A covers hospital care, Part B covers medical care, Part C is Medicare Advantage, and Part D covers prescription drugs; eligibility is generally at 65 or after 24 months of Social Security disability.

Medicaid is a joint federal-state needs-based program; it covers certain low-income groups and long-term care, and it is not the same as Medicare.

Social Security disability requires work credits, a severe impairment expected to last at least 12 months or result in death, and a five-month waiting period.

Workers compensation is state no-fault coverage for work-related injury or illness; benefits include medical care, disability income, and death benefits.