VT Life & Health cheat sheet

McCarran-Ferguson Act (1945): states keep primary authority to regulate insurance; the federal antitrust exemption applies only while the state actually regulates the business.

Rate standards under state law: rates must be adequate to keep the insurer solvent, not excessive, and not unfairly discriminatory among similar risks.

Commissioner (Director) powers: license and revoke producers and insurers, examine books, issue cease-and-desist orders, hold hearings, adopt rules, and impose fines.

The NAIC drafts model laws and regulations but has no legal authority; a model binds only after a state legislature or regulator adopts it.

Producers handle insurer money as fiduciaries: premiums must be remitted promptly and must not be commingled with personal funds.

Prohibited unfair trade practices include rebating, twisting, misrepresentation, false advertising, and unfair claim settlement practices.

A non-admitted (unauthorized) insurer holds no certificate of authority, so its policyholders are not protected by the state guaranty association.

Federal overlays: ERISA governs employer benefit plans, the ACA sets health market reforms, GLBA created functional regulation, and TRIA backstops terrorism losses.

State guaranty associations pay covered claims of insolvent licensed insurers up to statutory limits; they are not general guarantors of insurer performance.

Risk is uncertainty about loss; insurance transfers pure risk from the insured to the insurer in exchange for a premium.

Characteristics of an insurable risk: many similar exposure units, accidental loss, measurable and definite loss, losses not catastrophic, and an affordable premium.

Law of large numbers: as the number of similar exposure units grows, actual losses converge on expected losses, making rates more predictable.

Adverse selection is the tendency of higher-risk buyers to seek coverage; underwriting, exclusions, and waiting periods control it.

Hazards are conditions that increase the chance of loss (physical, moral, morale); perils are the actual causes of loss such as fire, death, or illness.

Insurable interest in life insurance must exist at application or issue; in property insurance it must exist at issue and at the time of loss.

Indemnity restores actual loss and governs property and health benefits; life insurance pays a stated face amount rather than indemnifying a loss.

Retention is the portion of risk an insurer keeps; reinsurance cedes the excess risk to a reinsurer.

Moral hazard involves dishonesty or intent; morale hazard involves carelessness or indifference to loss.

Insurable interest must exist when the policy is applied for or issued; it does not have to continue for the death benefit to be paid.

Human life value approach = present value of future earnings the dependents would lose; needs approach = income replacement plus debts, education, and final expenses.

Premium components are mortality, interest earnings, and expense; cost rises with payment frequency (annual is cheapest, monthly is highest).

A conditional receipt provides interim coverage from the date of application or medical exam only if the proposed insured proves insurable under the insurer's rules.

Delivery plus payment starts the free look period; during the free look the owner may return the policy for a full premium refund.

Representations are statements believed true; warranties are guaranteed true; an insurer may void coverage only for a material misstatement.

Ownership rights include naming and changing the beneficiary, taking loans, surrendering, assigning, selecting dividend and settlement options.

Reinstatement requires overdue premiums with interest plus evidence of insurability, typically within 3-5 years of lapse; a lapse within the grace period needs no evidence.

Replacement occurs when a new policy is bought using values from an existing life policy, triggering disclosure and comparison requirements to the buyer.

Term insurance provides pure protection for a limited period with no cash value: level, decreasing, increasing, renewable, convertible, and return-of-premium forms.

Converting term to permanent requires no new evidence of insurability; attained-age conversion costs more than original-age conversion.

Whole life charges a level premium for life and builds guaranteed cash value; nonforfeiture options are cash surrender, reduced paid-up, and extended term.

Limited-pay whole life (20-pay, paid-up at 65) and single-premium whole life keep coverage for life while shortening the premium-paying period.

Universal life has flexible premiums and an adjustable death benefit; Option A is a level benefit, Option B adds the growing cash value to the face amount.

Variable life and variable universal life place cash value in a separate account, so the policyholder bears investment risk and the sale requires a securities license and prospectus.

Dividend options on participating policies: cash, reduce premium, accumulate at interest, paid-up additions, and one-year term.

Common riders include waiver of premium, accidental death benefit, accelerated death benefit, guaranteed insurability, payor benefit, and long-term care.

A modified endowment contract fails the 7-pay test; lifetime distributions are taxed as income first and before age 59½ may face a 10% penalty.

Life insurance creates an estate; an annuity liquidates an estate by converting accumulated funds into a guaranteed stream of income.

Immediate annuities begin income within one payment period after a single premium; deferred annuities accumulate before any payout begins.

Fixed annuities credit a guaranteed minimum rate and place investment risk on the insurer; variable annuities place investment risk on the contractholder.

A variable annuity's cash value is held in a separate account, must be sold with a prospectus, and requires a securities license in addition to a life license.

Indexed annuities credit interest by a formula tied to an index, limited by a cap or participation rate and protected by a floor, usually 0%.

Accumulation units measure contract value during accumulation; annuity units measure the amount of each income payment after annuitization.

Income options: straight life pays the most but ends at death; life with period certain, installment refund, and joint and survivor reduce income to add guarantees.

Exclusion ratio = investment in the contract divided by expected return; that fraction of each payment is tax-free until basis is fully recovered.

Withdrawals before age 59½ generally incur a 10% federal tax penalty, and early withdrawals may also trigger surrender charges.

Indemnity (fee-for-service) plans let members choose any provider and pay a deductible plus coinsurance; managed care plans control cost through provider networks.

HMO: prepaid closed network with a primary care physician gatekeeper and referrals required for specialists; EPO covers network providers only with no referral requirement.

PPO: higher benefits in network, out-of-network care allowed at greater member cost; POS plans blend HMO and PPO features.

Group coverage is underwritten on the whole group and is generally guaranteed issue; individual coverage is medically underwritten.

ACA market reforms: guaranteed issue, no preexisting condition exclusions, essential health benefits, dependent coverage to age 26, and no annual or lifetime dollar limits on essential benefits.

Medicare: Part A hospital, Part B medical, Part C Medicare Advantage, Part D prescription drugs; Medigap policies supplement Original Medicare.

Medicaid is a joint federal-state program for low-income persons; eligibility rules are set by the state.

COBRA continuation generally provides 18 months of group health coverage after a qualifying event, with longer periods for some dependent events.

Disability income replaces part of earned income; own-occupation is broader than any-occupation, and the elimination period is the waiting time before benefits begin.

Renewability ladder from least to most protective: cancellable, optionally renewable, conditionally renewable, guaranteed renewable, noncancellable.

Guaranteed renewable: the insurer must renew while premiums are paid but may raise rates by class; noncancellable also locks the premium and cannot be cancelled.

Free look gives the buyer a set number of days after delivery (commonly 10) to return the policy for a full refund.

Incontestability: after two years from issue, the insurer cannot void the policy for misstatements on the application, except for fraud or nonpayment.

Grace period keeps coverage in force after a due date: 7 days for weekly, 10 days for monthly premiums, and typically 31 days on individual policies.

Reinstatement requires evidence of insurability within 45 days of lapse; a reinstated policy may limit benefits for sickness or injury beginning within 10 days.

Claim rules: notice of claim within about 20 days, proof of loss within 90 days, insurer payment within 30-45 days, and no lawsuit before 60 days after proof.

Coordination of benefits and subrogation prevent duplicate recovery; the 'other insurance with this insurer' provision limits total benefits.

Misstatement of age or sex adjusts the benefit amount, change of occupation adjusts benefits or premium, and the unpaid premium provision allows deduction from a claim.

Vermont insurance law is codified in Title 8 of the Vermont Statutes Annotated and administered by the Department of Financial Regulation (DFR), whose Commissioner is appointed by the Governor.

A producer must hold a Vermont license issued by DFR and be appointed by the insurer before soliciting; licenses renew on a fixed term with continuing education required.

Vermont Health Connect is the state-based marketplace where individuals and small employers compare qualified health plans and apply for subsidies.

Vermont uses a merged market: individual and small-group health plans are combined into one community-rated risk pool.

Vermont mandates specified benefits, including coverage for autism spectrum disorder treatment, and applies mental health parity rules.

Unfair trade practices such as rebating, twisting, misrepresentation, and unfair claim settlement are prohibited and may result in fines, suspension, or license revocation.

The Vermont Life and Health Insurance Guaranty Association pays covered claims of insolvent licensed insurers, subject to statutory limits.

Insurers must be admitted (hold a certificate of authority) to write Vermont business; surplus lines placement is permitted only after admitted insurers decline the risk.

Policy forms and rates are filed with DFR, and rates must be adequate, not excessive, and not unfairly discriminatory.