SD Life & Health common mistakes
SD Life & Health · Understand the traps and how to avoid them.
Reads a scenario in which a producer persuades a client to drop an existing policy by misstating its features, and answers 'rebating' instead of 'twisting'.
Rebating, twisting, churning, and coercion are all taught together as unfair trade practices, and the stem usually describes the conduct without ever naming the term, so the four blur into one another.
What to do instead
Attach each term to a single required element and search for that element: rebating = offering something of value not stated in the contract; twisting = misrepresentation used to induce a lapse or replacement; churning = replacement driven by the producer's commission; coercion = pressure or threat. Identify the one element present in the stem and eliminate the other three before answering.
Applies state insurance rules to a question about an employer-sponsored benefit plan, when the plan's funding structure means federal ERISA rules govern instead.
Nearly every other item in the regulation domain is state law, so candidates default to the state rule and never re-check when the stem mentions an employer or a group plan.
What to do instead
Before choosing on any group item, ask who funds and administers the plan. A self-funded employer plan is generally not subject to state insurance mandates, while a fully insured plan still is. Scan the stem for 'employer', 'group plan', or 'plan administrator' as a cue to test the federal answer first.
Labels a life insurance contract 'conditional' when the stem asks which contract characteristic describes the unequal exchange of value between the premium paid and the benefit received.
The characteristics of insurance contracts are memorised as a list, and 'conditional' feels right because the insurer's duty to pay does depend on conditions, so the definitions bleed together.
What to do instead
Learn one trigger phrase per characteristic and match the phrase, not the general feel: aleatory = unequal exchange of value; adhesion = contract drafted by one party, ambiguity resolved against the drafter; unilateral = only the insurer makes a legally enforceable promise; conditional = the insurer's obligation depends on stated conditions being met; utmost good faith = material facts must be disclosed.
Answers beneficiary-change and policy-control questions by naming the insured rather than the policyowner.
The insured's life is what is covered, so the insured feels like the central figure, especially in stems that mention signing the application or giving consent to a change.
What to do instead
Tie every ownership right to the owner: naming and changing the beneficiary (subject to an irrevocable designation), assigning the policy, taking loans, surrendering for cash value, and receiving dividends. The insured's role is limited to insurability and to consent where a third-party irrevocable beneficiary or assignment is involved.
Treats variable life and variable universal life as interchangeable, picking either one when the stem stresses flexible premiums with cash value held in a separate account.
Both products use separate accounts and both are securities-regulated, so the one feature that separates them is easy to skip over while reading.
What to do instead
Split them on the premium: variable life has a fixed, level premium with a guaranteed minimum death benefit; variable universal life has flexible premiums and an adjustable death benefit. If the stem says 'flexible' or 'adjustable', it is VUL; if it says 'fixed premium', it is VL.
Chooses a dividend option or a settlement option when the stem describes what happens to the cash value of a whole life policy that lapses after several years of premium payment.
Nonforfeiture options, dividend options, and settlement options are three separate option families usually studied back to back, and all of them contain reduced paid-up, extended term, or cash-sounding language.
What to do instead
Sort the stem first by one of three situations: policy lapsed with value = nonforfeiture options (cash surrender, reduced paid-up, extended term, automatic premium loan); policy in force with surplus = dividend options (cash, reduce premium, accumulate at interest, paid-up additions, one-year term); money being paid out on death or surrender = settlement options. Only then choose within the family.
Answers annuity taxation items by treating withdrawals from a nonqualified annuity as tax-free until the owner's cost basis is recovered.
Life insurance policy loans and withdrawals are generally received tax-free, and candidates carry that rule straight across to annuity contracts.
What to do instead
Apply LIFO to annuity withdrawals: earnings are distributed first and are taxable as ordinary income, with a 10% penalty before age 59½ absent an exception. The exclusion ratio applies only once the contract is annuitized, and then only to the investment portion of each periodic payment.
Computes coinsurance on the full billed charge, or applies the coinsurance percentage before subtracting the deductible, in a cost-sharing problem.
A single stem supplies three numbers (deductible, coinsurance percentage, out-of-pocket maximum) and candidates apply them in the order they appear in the sentence rather than in the order the plan pays.
What to do instead
Use one fixed sequence every time: allowed charge minus deductible equals the remaining balance; remaining balance times the coinsurance percentage equals the insurer's share; the difference is the insured's share; stop counting once the insured's cumulative outlays reach the out-of-pocket maximum. Write the three lines out before selecting an option.
Selects an own-occupation or any-occupation definition without checking whether the stem's facts or stated benefit duration point to the other definition.
Stems describe a claimant who cannot perform their prior job but could perform another, and candidates answer from the label they remember rather than from the facts in the stem.
What to do instead
Restate the stem as a question: can the insured perform the duties of their own occupation, or only some other occupation for which they are suited? Also check duration, because many policies use own-occupation for an initial period and then shift to any-occupation, so a stated benefit period can change which definition applies.
Starts Medicare or Social Security disability benefits from the date of disability or from the date the claim was filed.
The 5-month disability waiting period and the 24-month wait for Medicare after SSDI entitlement are learned as bare numbers without an anchor event to count from.
What to do instead
Draw the timeline: established onset of disability, then 5 full months of waiting, then SSDI cash benefits begin, then 24 months of SSDI entitlement, then Medicare eligibility. Count from the established onset date, never from the application date, and note that a worker with enough work credits pays no Part A premium.