Life & Health Insurance Key Terms

Equity-Indexed Annuities

(EIAs) have little purchasing power (or inflation) risk since their rate of return is based in part on an equity (stock) index, such as the S&P 500. An annuity which has a rate of return that is based on an index of equity products is an equity-indexed annuity.

Noncontributory Group Life Plan

(Employer pays total premium), 100% of all eligible employees must participate. Individual policies are usually more expensive than group.

FINRA

(Financial Industry Regulatory Authority) is an association that regulates its own members.

Health Care Service Organization

(HCSO) may be used in place of the term health maintenance organization (HMO). An HMO primary care physician makes referrals, authorizes treatment, provides general care and acts as the gatekeeper between HMO members and their health care providers. HCSOs stress preventative care. HCSOs pay reimbursements to their providers directly, not to their insureds. When a doctor works in an independent group clinic on behalf of an HCSO, it is know as a group practice model. HMO primary care physicians may include those in family practice, pediatrics, obstetrics and gynecology, but not internists. HMOs usually don't cover adult hearing exams as a preventative care service. Except for emergencies, HMO services must be provided in-network. HMOs cover out-of-network emergency treatment without pre-authorization, although providers must notify the HMO after treatment has been rendered.

Long-Term Care Insurance

(LTC) Needed when an insured needs care, but not 24-hour care supervised by a doctor. Have a 30-day free-look period. Underwritten based upon the applicant's ability to perform the activities of daily living (ADLs). ADLs include mobility, dressing oneself, bathing, toileting, and eating. LTC must cover Alzheimer's disease. LTC insurance does not cover acute care. Policies may not condition benefits on a prior hospital stay. LTC home health care services include coverage for physical therapy, nursing care, home health aides and homemaker services. LTC policies usually pay a fixed amount per day while an insured is confined to a custodial nursing home. Insurers who write LTC insurance are usually required by state law to allow the insured to name a third party who the insurance company would contact if the insured forgets to pay the premium. Insurers must include coverage for inflation protection unless the applicant rejects it in writing. LTC policies may exclude pre-existing illness, acute care, mental disorders, alcoholism, drug addiction, war related illness and self-inflicted injuries, but may not exclude Alzheimer's. On qualified LTC policies, insureds may add a nonforfeiture benefit.

Modified Endowment Contracts

(MECs) lose their favored tax treatment as life insurance since the IRS considers them to be investments. MECs are classified that way for the life of the contract. A modified endowment contract that is classified as life insurance but fails the 7-pay test would have taxable loans and withdrawals. Making material change to a cash value life insurance policy may cause the 7-pay test to be applied again and could cause the policy to be classified as a modified endowment contract. Modified endowment contracts have a 10% IRS penalty for premature distributions.

Multiple Employer Trusts

(METs) offer group coverage for employers in the same industry.

The SEC

(Securities and Exchange Commission) is a federal agency that regulates securities.

Consumer Driven Plans HRA

(health reimbursement account), participants have high deductible group medical expense insurance coverage, the the HRA is partially funded by their employer.

Consumer Driven Plans HSAs

(health savings accounts) are available to any employer or individual who has high deductible health plan (HDHP). HSA contributions are made with before-tax dollars, account earnings grow on a tax deferred basis, and distributions used to pay qualified medical expenses are tax free. Employer contributions to an employee's HSA are excludable from the employee's federal gross income, up to the maximum contribution limit for that employee. Although the employee cannot deduct the employer's HSA contributions, the contributions are not federally taxable to the employee nor are they subject to withholding from wages for federal income tax or other employment taxes. HAS contributions by employers are considered a type of benefit, and are therefore, tax deductible for the employer. HSAa are not subject to year end tax penalties. Contributions to an HSA cannot exceed the participant's deductible, and are subject to maximum limits.

Contributory Group Life Insurance

75% eligible employees must enroll.

Peril

A cause of loss. Ex: A fire.

Peril

A cause of loss. Health insurance covers two perils: accidents and sickness.

Types of Licenses

A clerical person who occasionally writes up a new application, but does not receive any commission, does not need a license. Unlicensed clerical employees cannot make coverage change recommendations. Title insurance agents must be licensed by the Director upon filing an application and paying proper fees. No exam is required. Producers represent the insurer. Agents are also referred to as producers on the state exam. Even after the exam is passed, an agent cannot sell insurance until his or her license is actually issued. Based upon reciprocal agreements between states, applicants for an Arizona nonresident producer license need not take the Arizona exam if they are properly licensed in the home state. It is not unlawful to sell insurance out of state with a nonresident license. A person may go to jail for filing false financial statements with regulators, the embezzlement of insurer funds or writing threatening letters to regulators, but not for selling insurance out of state with a nonresident license.

Family Policy

A combination policy that automatically covers all family members, including newborn children (after a short waiting period) at no extra premium charge.

Exposure

A condition that could result in a loss.

Contingent Beneficiary

A contingent beneficiary will receive the policy proceeds if the primary beneficiary dies before the insured.

Life Settlement Contract

A contract between the life insurance policyowner and a third party.

Annuity

A contract that will pay a specified indemnity to its owner over a period of time. Annuities are the opposite of life insurance. Life insurance creates an estate. Annuities systematically liquidate an estate over a period of time. All annuities are insurance products, although often sold by bankers with Life insurance licenses. Annuities are often used as life insurance settlement options. If an insured dies during the accumulation period of annuity, the account value will be paid to the insured's beneficiary, who is responsible for taxes on interest earned. The rights of ownership on an annuity become effective as of the contract date.

Stock Redemption

A corporation may buy a policy on a shareholder to provide for stock redemption in the event of the shareholders death.

Disciplinary Action

A license cannot be suspended or revoked without the opportunity for a hearing. Hearings are held at the Insurance Department, not in a court of law. A producer must wait at least one year before applying to reinstate a revoked license. A license cannot be suspended or revoked for declaring bankruptcy. The maximum license suspension is 12 months.

Juvenile Life Insurance Policy

A life insurance policy written on the life of a minor.

Variable Universal Life

A life policy that has an investment component.

Viator

A person who seeks to sell his or her life insurance policy in a viatical settlement.

Variable Life

A policy that invests its cash values in equities.

Business Continuation

A policy that provides for business continuation in the event that a business partner dies is based upon a cross-purchase buy/sell agreement.

Life Insurance Free Look

A policyowner who returns their policy 5 days after delivery will receive a full refund since the free look is commonly 10 days. A polocyowner may exercise the free look provision without giving any reason. The free look period (usually 10 days) starts upon policy delivery. If the policy is mailed to the applicant by the company, the free looks starts on the date of mailing. This is called constructive delivery.

Recurrent Disability

A prior injury that reoccurs again, The elimination (waiting) period is waived.

Binding Authority

A producer's binding authority (if any) is expressed (written down) in the producer's contract with the insurer the producer represents.

Rated Policy

A rated policy is one issued to a substandard risk with dangerous hobbies or health problems.

Valid Contract

A requirement for a valid contract is offer and acceptance, or mutual agreement.

Offer

A specific and definite proposal to enter into a contract. Advertising the availability of insurance is not considered to be an offer.

Standard Risk

A standard risk is one with an average life span. Most applicants are a standard risk.

Adult Daycare

Adult daycare is an LTC coverage which covers meals, meaningful activities, and general supervision of adults in a professionally staffed non-residential facility.

Illegal Occupations Provision

Allows an insurer to deny coverage if the insured became injured or died while committing a felony.

The law of large numbers

Allows insurers to predict claims more accurately. Applies to groups of people, not individuals. The more people in the group, the more accurate the predictions are.

Time Payment of Claims Provision

Allows the claims department time to investigate (maximum of 60 days). Health insurers should pay individual claims as soon as possible, as specified in a provision known as timely payment of claims. Claims may be denied if they occur after policy expiration. Insurers do not have to pay unsubstantiated claims. After receipt of notice claim, the insurer must send out claim forms. If claims forms are not provided by the insurer within the time frame required, the insured can submit proof of loss in writing.

Variable Whole Life

Allows the insured to self-direct the cash value investment. Variable products have no guarantees and are not backed by the guaranty fund. Investing in variable products is considered a hedge against inflation. An agent must be registered with FINRA in order to sell a variable product.

Change of Occupation Provision

Allows the insurer to change the benefit amount or premium should the insured change occupations during the coverage period.

Single Premium Immediate Annuities

Also known as (SPIAs) are often purchases with a lump sum upon retirement.

Agents (Producers)

Also known as field underwriters.

Guaranteed Insurability Rider

Also known as the guaranteed purchase benefit. Allows the insured to increase coverage periodically without a physical examination.

Life Insurance Policy Provisions

Although producers must sign the application, they are not a party to the contract. It is the responsibility of the producer to explain the policy provisions, riders, and exclusions to the applicant. Producers may not make changes to a policy. Policy modifications must be in writing and signed by a company officer.

Respite Care

An LTC coverage that allows family members a reprieve or break from their caregiving responsibilities.

Unfair Practices and Fraud

An agent showing competitor information to a client is not a violation of the unfair trade practices regulation. Misrepresenting facts or policy provisions is an example of an unfair trade practice. It is not misrepresentation to point out that a competitor's policy is different than the one an agent is selling. Any person who knowingly makes an misrepresentation in the sale of insurance is guilty of a class 5 felony. Life insurance may not be referred to as an investment or as a security. It is legal to advertise honest differences in insurance contracts. False advertising is a form of misleading advertising. The availability or amount of coverage may not be denied or reduced based upon marital status. Producers may give gifts to clients of value up to $25. A producer or insurer may charge a fee for services not customarily provided in the transaction of insurance if the fee is filed with the Director and the specific services for which the charge is made are disclosed and agreed to in writing by the insured.

Stock Redemption Plan

An agreement whereby a corporation agrees to buy back the stock of a deceased shareholder.

Increasing Term Policy

An increasing term policy's limits increase each year. An increasing term policy is sometimes called a return-of-premium policy.

Alien Company

An insurer incorporated outside of the U.S. who sells in the U.S..

Reciprocal Insurer

An unincorporated association of individuals who insure each other.

Life Insurance Application

Applicants may backdate a life insurance application for up to a specified number of months (Usually 6 months) in order to obtain a lower premium. An incomplete application is usually returned. However, should the underwriter approve it, coverage begins and the company has waived its ability to contest a claim. May discriminate based upon physical hazards (age and health) of the applicant.

Industrial Life Insurance Policies

Are written with low policy limits or face amounts.

Medicaid Eligibility

Based upon financial need. There is no age limit. Funded by state, local, and federal monies. It is medical welfare, available to low-income individuals and families.

Insurance Contracts

Because insurance contracts are contracts of adhesion, policy ambiguities always favor the insured.

Immediate Annuity

Begins paying out immediately after the initial premium is paid. The premium for a $100,000 immediate annuity is $100,000, regardless of the annuitant's age, health or gender. It is the payout that depends on these factors.

Reinsurance

Bought by the insurers to protect themselves in the event of a catastrophic loss.

Insurers

Cannot enforce a contract that they enter into with a minor, but the minor can enforce the contract against the insurer.

Medicare

Certain persons under the age 65, who are disable or who have suffered kidney failure are also eligible for Medicare. On Medicare, the difference between what the doctor bills and what Medicare pays is called the excess charge. Part A of Medicare covers hospitals and Part B covers doctors.

Survivorship Life Insurance

Commonly used in estate planning so the death benefit of the policy can be used to pay estate taxes when due. Pays when the surviving insured dies.

Unfair Practices and Fraud Coercion

Considered to be a restraint of trade and is illegal.

Insurance Policies

Considered to be unilateral contracts, in that only one party makes an enforceable promise the insurer.

Convertible Term

Convertible term is convertible based on current or attained age of the insured.

Disability Buy/Sell Policy

Could be structured to pay a monthly benefit to a corporation for up to 1 year while waiting to see if a disabled partner recovers. If not, then a lump sim is paid as a partnership buyout.

Occupational Coverage

Covers both on-and-off-the-job injuries only (for those covered by workers compensation).

Immediate Estate

Created by buying a life insurance policy.

The Human Life Value Approach

Created to establish what a family would lose in income upon the death of the sole or chief income provider.

Taxation of Personal Life insurance

Death benefits paid to beneficiaries are tax free on all life insurance. Dividends which are paid out by mutual insurers are not taxable to the policyowner because they are considered to be a return of the premium paid by the policyowner. Dividends received by the owner of stock in a stock company are taxable as ordinary income. Dividends are NEVER taxed as capital gains. A cash surrender where the amount received is more than amount paid in in premiums would cause a taxable event. Surrendering a life insurance policy for cash and using the proceeds to buy a new life insurance policy from a different insurer is a tax-deferred 1035 exchange. On cash surrender of a life insurance policy, amounts received in excess of premiums paid in are taxable. In group life insurance, benefits are NOT taxable to the beneficiary should the employee die. Premiums paid for individual life insurance are NOT tax deductible, nor are the benefits taxed. This is true of key person life insurance as well. Life insurance policyowners who gift their policies to charity are entitled to a tax deduction in the year of the gift.

Mortgage Redemption Insurance

Decreasing Term is the type of life insurance provided in mortgage redemption insurance.

Warranty

Defined as a sworn statement of truth, guaranteed ti be true. A breach of warranty may void a contract.

Concealment

Defined as failure to disclose a material fact.

Unfair Practices and Fraud Defamation

Defined as making oral or written statements that are false maliciously critical of the financial condition of an insurer or agent.

Representation

Defined as the truth to the best of one's knowledge.

Eligibility for Coverage

Dependents are eligible to enroll in a group plan when an employee becomes eligible to enroll. Employees remain eligible for group coverage even after attaining age 65. Employers who have 20 or more employees are required to offer the same health benefits to employees and their spouses who are age 65 or older that they offer to younger employees.

Company Underwriter

Determines the final rating classification, not the producer. A preferred risk is likely to receive a premium discount.

Probationary Period

Different from the time limit on certain defenses provision (incontestability); the maximum probationary period is usually 12 months and the incontestability provision is usually 2 years.

Universal Life Insurance Policy

Different from whole life because it has a premium that is flexible. Permit their owners to take partial surrenders. Also known as interest sensitive whole life. Universal life is a combination 1-year renewable term and a cash value account. Offers flexible premiums and a minimum guaranteed rate of return. Loans are allowed on this type of policy.

Annuity Table

Different than mortality tables since there is no insurance protection.

The Needs Approach

Does not consider future earnings.

Uses of Annuities

Employers may use annuities to fund deferred compensation plans, but not corporate pension plans. Lottery payouts and structured settlements are often funded by annuities. A self-employed person cannot use an annuity to fund a 403(b) tax-sheltered annuity (TSA). A 403(b) tax-sheltered annuity (TSA) is funded by making voluntary before-tax contributions. 403(b) TSAs are owned by the employee, not the employer. A corporation cannot use an annuity to build tax-deferred growth on corporate assets. Only individuals are entitled to tax deferred annuity earnings. Most immediate annuities are purchased by those who wish to supplement their retirement income. Most annuities are used for retirement purposes and are considered to be long-term investments. One purpose of an annuity is to keep customers from outliving their savings. When recommending a variable annuity, the agent should inquire about the applicant's tax status. Producers selling annuities must have reasonable grounds for believing that the transaction is suitable based upon a customer's financial status, tax status, and investment objectives.

Endowments

Endowments provide life insurance protection. Annuities do not.

Third-Party Policyownership

Examples include key person and partnership insurance, as well as a policy written on the life of a spouse or minor child.

Uniform Required Provisions

Except for fraud, health insurance policies are incontestable after they have been in force for 2 years. If a reinstatement application is required, an insured is reinstated when the company says or after 45 days, whichever comes first. When an insured is reinstated, a 10-day probationary period starts for sickness only. If no reinstatement application is required, an insured is reinstated effective upon payment of the late premium to either the company or the producer.

Insurable Interest

Exists if someone would benefit if another person continues to live. Must exist at the time of application, but not necessarily at the time of a claim. May be based on economics or family relationships.

Policy Loan and Withdrawal Options

Failure to repay a loan will have a permanent effect on cash value accumulation. The annual interest on a life insurance loan is added to the amount of the loan as it accrues. If an outstanding policy loan, plus interest, exceeds the cash value of the policy, the policy will lapse. A loan may be taken from a whole life policy as soon as it develops a cash value. The automatic premium loan rider can be added to a whole life policy, but not to a term or credit life policy. Partial surrenders are usually allowed in annuities, universal life, and variable life policies.

Experience Rating

For large groups only. Rates are based on claims experience of the group.

Unfair Practices and Fraud Rebating

Giving part of your commission to a client as an inducement to a sale.

Characteristics of Group Insurance

Groups may not be formed just to buy insurance, they must exist for another reason. On noncontributory group plans, 100% of the eligible employees must enroll. On contributory group plans, 75% of the eligible employees must enroll. Group participation requirements are designed to help prevent adverse selection. A group insurance contract is between the employer and the insurance company. In group insurance, the employer is issued a master policy and employees are issued individual certificates of insurance. The state in which a group contract is delivered to the policyholder is generally held to have jurisdiction over all certificates of insurance issued un the contract. Group underwriting takes into consideration the average age of the group, the health of the group and persistency factors. Group coverage must be written for the benefit of employees and cannot discriminate in favor of highly paid workers. Although there are strict regulatory requirements related to what an insurer can and can't do in regard to small group insurance, an insurer CAN legally nonrenew or cancel a small group plan if the employer stops paying the premium.

Flexible Premium Fixed Deferred Annuity

Has a flexible premium, minimum guaranteed rate of return and a death benefit equal to its cash value.

Association Group Insurance

Has higher administrative costs than other types of group health insurance and is more subject to adverse selection.

Refund Annuity

Has the least amount of risk.

Speculative Risk

Has the possibility for gain or loss. (Not Insurable)

Foreign Company

Has their home office in another state.

Short-Term Disability Policies

Have a shorter elimination and benefit periods than long-term disability. If a disability income policy has a 7-day elimination period and the insured is sick for 15 days, the insured would receive benefits for 8 days. The probationary period starts when the policy is first issued.

Underwriters

Health insurance underwriters may discriminate based on an applicant's health history. An application must be in writing and will become part of the policy, when issued. If an application is approved and a policy is issued, the producer must collect the premium along with a statement of continued good health. Health insurance underwriters often order an attending physician's report in order to determine an applicant's current medical condition. Issuing a conditional receipt starts coverage right away if all conditions have been satisfied.

Disability Income Policy

If a disability policy contains an accidental means clause, there is no coverage if an insured is injured doing something he or she meant to do. If the policy contains an accidental bodily injury clause, coverage applies as long as the injury was unintentional and unforeseen.

Optionally Renewable Policy

If a health insurance policy can be nonrenewed by the insurer at the end of any policy period, the policy is considered to be optionally renewable.

Return of Premium Rider

If a person purchases a whole life policy and adds a return of premium rider, they will have level coverage from the whole life policy, and increasing coverage from the rider. The return of premium rider and the return of cash value rider are both types of increasing term coverage.

Guaranteed Renewable Policy

If a policy is noncancellable and guaranteed renewable, the company cannot change anything and it must offer renewal. The insurance company cannot change the coverage, but it can change the rates by class (not individually). A guaranteed renewable policy is renewable at the option of the insured (by paying the premium) up to a certain specified age (usually 65), but the insurer may change rates by class.

Conditional Receipts

If a producer gives an applicant a conditional receipt and an underwriter rejects the application, there is no coverage. Conditional or binding receipts are used in life and health insurance. Binders are used in property and casualty insurance. A conditional receipt is not given to an applicant unless the initial premium has been paid.

Unpaid Premium Provision

If an insured has a claim in the grace period, the insurer may subtract the overdue premium from the amount of the claim paid.

Lapsed Health Insurance Policy

If an insured pays the overdue premium on a lapsed health insurance policy and does not hear from the insurer, the insured is automatically reinstated in 45 days.

Policy Reinstatement

If an insured whose policy has lapsed wants it back, the insured can apply for reinstatement. Upon policy reinstatement, the incontestability and suicide clauses start over. A life insurance policy that has been surrendered for cash may not be reinstated. Life insurance policies are incontestable after they have been in force for 2 years. New life insurance policies are contestable for material misrepresentation for the first 2 years.

Dividend Options (Interest Option)

If an insured with a life insurance policy issued by a mutual insurer allows the insurer to keep the dividends but mail the insured a monthly check.

Irrevocable Beneficiary

If the insured names an individual as their irrevocable beneficiary, the insured cannot change this designation without the beneficiary's consent. An irrevocable beneficiary has a vested interest in the policy.

Settlement Options

If the insured/owner of a life policy does not designate a settlement option prior to death, the beneficiary may choose whichever option he or she wants. Most choose cash, which is not taxable. If the interest settlement option is selected, the interest paid is subject to taxes. When a beneficiary selects the interest only settlement option, interest payments (which are taxable) will vary, but the beneficiary may withdraw the principal at any time. For estate conservation purposes, a beneficiary should select the interest only settlement option. A life insurance beneficiary who elects to take the proceeds payable upon the death of the insured over a period of time has selected the fixed period settlement option.

Annuity (Benefit) Payment

If the owner of a life income annuity with a 10-year period certain dies 13 years after he or she annuitized the contract, the beneficiary will receive nothing. An annuitant would select the period certain annuity pay-out option if the annuitant wanted payments to continue to a beneficiary after the annuitant's death. If an annuitant selects a pay-out option that will pay for a specified period of time, the annuitant has selected the fixed-period option.

Payor Benefit

If the parent paying the premium on a child's life insurance policy dies, the provision that allows the premium to be waived is known as payor or benefit, not waiver of premium. If the payor benefit rider is attached to the policy, an insured will not have to worry about premiums being paid if the policy owner dies or becomes disabled.

Spendthrift Clause

If the policy proceeds are paid out in a lump sum, the spendthrift clause will not apple.

Level Term Policy

In a level term policy, the premium and the amount of coverage are level throughout the term.

Dental Insurance

In dental insurance, it would create an adverse selection situation for an insurer to offer more than one person enrollment period during the year. To prevent adverse selection, most dental insurance is written on a group basis. Dental insurance has no deductible on diagnostic or preventative care. Dental insurance covers restorative care, such as fillings, inlays and crowns. Dental insurance endodontics services, such as root canals. Also covers the treatment of gum problems, which is known as periodontics. Under dental insurance, prosthodontics includes bridgework. Basic dental insurance plans have first-dollar coverage, without a deductible or coinsurance. May also be written as a prepaid service plan in the same manner as an HMO. Most dental insurance plans do not cover cosmetic dentistry.

Single Premium Deferred Annuity

In order to be considered for a single-premium deferred annuity, there must be a period longer than one benefit payment interval before payments begin.

Medicare Part D Prescription Drug Insurance

In order to be eligible for Part D, one must be enrolled in Medicare Part A or in Parts A and B.

Traditional Whole Life

In traditional whole life policy premiums are due until the insured dies or reaches age 100. Will pay the face amount upon death or age 100.

Utilization Management

In utilization management, pre-certification is different than a concurrent review because pre-certification is done prior to treatment.

Optional LTC Coverage

Includes home health care, adult day care and hospice care.

Key Person Disability Insurance

Indemnifies the business for the loss of services of a key employee due to disability.

Insured's Funds

Insureds' funds invested in a variable life contract or variable annuity must be kept in the insurance company's separate account, which is similar to a mutual fund.

Guaranteed Purchase Option

Is a rider that allows the insured to purchase additional coverage at certain intervals, regardless of health. The cost of living rider on a disability income policy is designed to keep the policy limit up with the rate of inflation.

Residual Disability

Is one that never goes away. Residual coverage pays the difference between what you used to make before your disability and what you can make now.

Unfair Claims Settlement Practices

It is not unfair to deny a claim that occurred after coverage terminated. Refusing to pay claims without conducting a reasonable investigation is an example of an unfair claim practice. The insurance company attempting to use arbitration to settle the claim is not an example of an unfair claim practice. Settling claims on the basis on an altered application is an unfair claims practice.

Decreasing Term Policy

It is the face amount that decreases, not the premium.

Business Disability Insurance

Key person disability insurance indemnifies the business for the loss of services of a key employee due to disability. Premiums are not tax deductible, but benefits are not taxed.

Mortality Tables

Life insurance mortality tables are based upon people and time. A 60 year old male has a higher mortality rate than a 60 year old female.

Life Insurance Premiums

Life insurance premiums are based upon mortality plus company expenses minus interest earned on company investments.

Beneficiaries

Life insurance proceeds create an immediate estate for the beneficiary. The beneficiary does not have to be of the age of majority (18 or 21, depending upon the state) in order to receive policy proceeds; however, proceeds cannot be directly paid to a minor chuld since they cannot sign the release.

Family Deductible

Limits the total amount the family must pay during the year no matter how many family members become sick or injured.

To be insurable

Losses must be calculable.

Medical Plan Concepts

Major medical insurance is considered to be a comprehensive insurance plan. The purpose of pre admission certification is to eliminate unnecessary treatment, thereby lowering premiums (cost saving). Medical expense policies are required to cover the insured's newborn child from the moment of birth. On medical expense insurance, the scheduled benefit limit shown is the most that the insurer will pay.

Unfair Practices and Fraud Twisting

Making incomplete or misleading policy comparisons in order to induce the replacement of life insurance is an unfair trade practice.

Reciprocal Insurance Company

Managed by an attorney-in-fact.

Revocable Beneficiary

May be changed at any time by the policyowner. A revocable beneficiary has no vested rights under a life policy.

Producer

May be personally liable when violating the producer's contract. Producers represent the insurance company not the insured. Have express, implied, and apparent authority.

Adjustable Whole Life Policy

May be suitable for someone with fluctuating income. Adjusting the premium will affect the face amount, and vice versa.

Changing of an Insured Rider

May be utilized by an employer who wants to transfer a key person life insurance policy from one key person to another.

Dental Indemnity Plan

May be written as either scheduled (basic) or non-scheduled (comprehensive).

Blanket Disability Policy

May be written to cover passengers on a common carrier, an employee group, a student group, a debtor group, or a sports team. Blanket policies do not require individual applications, nor are certificates of insurance issued to those covered.

Single Premium Policy

May buy a policy that is paid up for life. Has an immediate cash value.

Stock Insurer

May pay dividends to its shareholders, but they may not be guaranteed.

Medical Expense Policies

Medical expense claims are often paid on a fee-for-service basis. Major medical expense policies often have a comprehensive calendar year deductible. Basic medical expense plans cover in-hospital only, with first dollar coverage. There is no deductible or coinsurance, but coverage is subject to inside (maximum) limits. Major medical and comprehensive major medical plans have deductibles and coinsurance requirements. The stop loss feature on a major medical policy applies after the insured first pays the deductible. It limits that amount of coinsurance the insured has to pay on a large claim. Medical expense policies are usually written as cancellable, which means the company can cancel at any time as long as it gives advance notice. Medical expense policies usually contain a probationary period that applies to pre-existing conditions, meaning they won't be covered if they occur during this period.

Consumer Drive Plans MSAs

Medical savings accounts (MSAs) may be set up only by small employers or individuals. Contributions to an MSA made by an eligible individual are limited to a percentage of the annual deductible.

Unearned Premiums

Must be refunded to an insured who was canceled midterm. A pro rata refund is sent when the company cancels. A short-rate refund is sent when the insured cancels.

Conditionally Renewable Policy

Must be renewed if the insured meets the specified conditions.

Whole Life Policies

Must contain a table showing their guaranteed cash value at the end of each year (anniversary date) for the first 20 years. It is shown per unit (per thousand). Benefits are bundled (packaged). Universal life benefits are transparent (stand-alone). Whole life and limited pay life both reach maturity at the same time (age 100).

License Maintenance and Duration

New insurance licenses are issued for a period of 4 years. The Director must be notified promptly (within 30 days) upon change of address. A producer must give up his or her Arizona resident license if the agent moves out of state. The licensee is responsible for keeping his or her address up to date with the director. A producer must file a report of action with the director within 30 days of the final disposition of any administrative action taken against him or her in this or any other jurisdiction. Arizona resident producers must complete 48 hours of continuing education to renew their Arizona license, 6 of which must be related to ethics.

Insurance Laws

Not required to be uniform from one state to another.

Social Security

OASDHI (Old Age, Survivors, Disability, and Health Insurance) is an acronym for Social Security.

Government Insurance

Offers insurance primarily based upon socials needs, such as flood insurance and workers compensation, but does not offer insurance for the purpose of preventing fraud.

Market Value Adjusted Annuity

On a market value adjusted, the contract will pay the specified interest rate if it is held for a specific period of time. Adjustments are only made if the contract is surrendered early.

Dividend Options (1-year Term Dividend)

On a participating life insurance policy, if the policyowner selects the 1-year term dividend option, the dividend may be used to buy term insurance.

Term Life Rider

On a term life rider added to a parent's policy to cover the life of a child, the child's coverage terminates when the child reaches 18, unless the child converts the rider to permanent coverage. When adding a children's term rider to a life insurance policy, all of the insured's children are covered for a single, flat premium charge, no matter how many. A level term rider may be added to a parent's life policy in order to insure a child.

Employer Group Health Insurance

On group disability income insurance, if the employer pays 60% of the premiums, 60% of the benefits payable would be taxable to employees. If and employees pays 100% of the premium for group disability income insurance, none of the benefits paid are taxable. Premiums paid by an employer for a group health policy (such as medical expense or disability income) are tax deductible, since these are fringe benefits for employees. On group accidental death and dismemberment (AD&D) insurance, benefits are not taxable, regardless of who paid the premiums.

Cost Containment in Health Care Delivery

On medical expense plans, a mandatory second option requirement will result in fewer claims. A carry-over deductible applies to claims that occur during the last 3 months of the calendar year. They carry over and apply to next year's deductible. If an insurer wants to stress preventative care, they should waive the deductible for office visits.

Term Life Insurance

On term life insurance, the re-entry option is contingent on the insured passing a physical examination.

Life Income Annuity

One cannot outlive the income from a life annuity. A life income annuity (straight or pure life annuity) has no beneficiary, and is the riskiest choice. Does not start making payments at death. Payments stop at death.

Life Insurance Grace Period

Ordinary life insurance has a grace period of 30 days. A life insurance policy provision that allows coverage to continue even if the premium is not paid on time is known as the grace period. If a terminated employee dies within the grace period of his or her employer provided group life without converting, the full death benefit will be pad to the beneficiary. When an insured dies in the grace period without paying the premium due, the face amount will be paid to the beneficiary, less the overdue premium.

Independent Producers

Own their own accounts and are not insurance company employees.

Medicare Part B Medical Insurance

Part B (medical insurance) Partially funded by user premiums. Part B (physician's services) has coinsurance (80/20) and a deductible. The coinsurance is calculated as a percentage of Medicare's approved amount, not the amount the doctor charges. Has a premium, coinsurance, and a deductible which have amounts that are set annually. The amount paid by Social Security is dependent upon the primary insurance amount (PIA) of the insured.

Joint Life Annuity

Payments stop when the first annuitant dies.

Joint Life Policy

Pays only when the first insured dies. A joint and survivor life policy pays only when the second insured dies.

Personally Owned Health Insurance

Premiums for individual disability or AD&D policies are not tax deductible. Premiums paid on an individual disability income policy are not tax deductible, but benefits paid are not taxable. A self employed sole proprietor may tax deduct 100% of the premiums paid for medical expense insurance. Individual health insurance benefits are not taxable. Premiums paid for individual medical expense and qualified LTC insurance are tax deductible to the extent that they exceed 10% of an individual's adjusted gross income.

Whole Life Policies

Premiums used to purchase whole life policies and fixed annuities are kept in the insurance company's general account, which is invested more conservatively.

Proceeds of a Life Insurance Policy

Proceeds of a life insurance policy, left with an insurer, for the benefit of a beneficiary, may NOT be attached by creditors. Proceeds cannot be directly paid to a minor child since a minor can't sign a release. If the insured dies in an accident, the insurer may order an autopsy to determine that death was not the result of a suicide. In most states, suicide is covered after 2 years. If an insured commits suicide within a specified period of time after policy issue (usually the first 2 years), no benefit is payable, but all premiums are refunded to the beneficiary. If an insured buys a life insurance policy and dies one month later, the insurer must pay the claim.

Fair Credit Reporting Act

Protects consumer privacy. The FCRA is a federal law that regulates investigative consumer reports. Under this act a lawsuit is not required to be filed to get incorrect data corrected. Reporting agencies mist make a report available to anyone whose insurance was denied as a result of information contained in the report. Reporting agencies are not required to send a credit report to anyone requests it, but may furnish reports to persons entitled to receive them in connection with banking, insurance underwriting or employment. Applicants must be given prior notice at the time of application if the insurer is going to gather information about them from other than public records.

Incontestability Clause

Protects the insurance company. Under this clause, the company may contest a claim for the first 2 years, but not thereafter unless it can prove fraud. Companies are reluctant to charge fraud, however, since it requires proof of intent to deceive and is difficult to prove. The time limit on certain defenses clause is another name for the incontestability clause (generally up to 2 years, except for fraud).

Medicare Part A Hospital Insurance

Provides hospital insurance. Only pays for up to 190 days of inpatient psychiatric hospital services during the beneficiary's lifetime. Also covers a skilled nursing facility for up to 100 days in each benefit period. Covers skilled nursing facility care after a 3-day minimum hospital stay, but not custodial care in a nursing home.

Deferred Annuity

Purchased by making periodic payments over a period of time. Can only be surrendered for cash during its accumulation (pay-in) period.

Comprehensive Dental Plan

Similar to major medical expense plans, with a deductible and coinsurance.

Social Security Disability

Social Security disability income benefits are harder to obtain than benefits provided by private disability income insurers. To have fully insured status under Social Security for disability benefits, a worker must have contributed to Social Security for at least 40 quarters (10 years). A disable person must have fully-insured status in order to be eligible for Social Security disability benefits. The waiting period for Social Security disability benefits is 5 months. Social Security disability benefits require that a disabled person cannot work ANY job, and that the disability is expected to last at least 1 year or result in death.

Medicare Supplements

Sold by private insurance companies and their agents. There is a 6 month open enrollment period for buying Medigap policy. Persons age 65 or older cannot be denied Medigap coverage for health problems during open enrollment. Medicare supplement plans are not required to be approved by Medicare. Only standardized Medigap plans may be offered. Medicare supplements are required to cover Medicare's Part A and Part B coinsurance and the first 3 pints of a blood transfusion as basic or core benefits. It is unlawful to sell someone more than one Medigap policy. The maximum probationary period on Medicare supplements policies is 6 months. When selling agents must give out an Outline of Coverage no later than the time of application and must obtain a signed receipt from the applicant. Have a 30-day free-look period. Although selling someone more than one Medicare supplement is prohibited, replacing one Medicare supplement policy with another is permitted as long as it is not detrimental to the insured. These policies do not have to contain guidelines for Medicare eligibility.

Consideration Clause

Something of value must be exchanged.

Hazard

Something that increases the chance of loss. The presence of a physical hazard increases the chance of loss occurring.

Principle of Utmost Good Faith

States that all parties to an insurance transaction are honest.

The Misstatement of Age Provision

States that if an insurer discovers that an insured has misstated his or her age on the policy application, the insurer will adjust the premiums and benefits according to the correct age of the insured. The misstatement of age provision runs for the duration of the policy. If the insured understates his or her age, it is the face amount that is reduced.

Principle of Indemnity

States the purpose of insurance is to restore the insured to the same position as before the loss occurred. To reinforce the principle of indemnity by preventing an insured from collecting more than they actually lost, most disability income policies contain an insurance with other insurers clause, which requires insurers to share a claim proportionately.

Business Uses of Life Insurance

Stockholders in small, privately held closed corporations often enter into buy/sell agreements with the corporations that are funded by life policies.

Mandatory Provisions

Such as the grace period, protect the insured. Optional provisions, such as probationary periods, protect the insurance company.

Nonforfeiture Options

Surrender charges levied by some insurers on annuities and universal life will reduce the amount a policyowner will receive upon cash surrender. The extended term option is a nonforfeiture option. If a policy with a cash value lapses for nonpayment, the insured has 60 days form the premium due date to select a nonforfeiture option. Extended term is the automatic nonforfeiture option.

Partial Surrender

Taking a partial surrender on a universal life policy allows the policyowner to withdraw some of the cash value without paying tax on the interest.

Term Insurance

Term insurance is renewable without a physical examination, up to a certain age. May be converted to whole life, but not the reverse. Conversion is based on insureds' current age.

Department of Insurance

The Director may audit (examine) a company's books as often as necessary. The Director must audit domestic companies at least once every 5 years. The Director is responsible for determining if an insurance company is insolvent.

HIV Consent Form

The HIV consent form states that the results of an HIV test will only be shared with certain individuals, such as the underwriter.

Assignment of Benefits Provision

The assignment of benefits provision on medical expense insurance facilitates claims handling by allowing the insurer to pay benefits directly to the provider. When calculating how much the company will pay on a claim, always subtract the deductible, first then apply the coinsurance percentage. PPO subscribers who go out of network for services will receive reduced benefits. To encourage an insured who is covered by a point-of-service (POS) plan to seek coverage in network, out-of-network coverage is often subject to higher deductibles.

Express Authority

The authority a producer has that is written in his or her contract.

Implied Authority

The authority not expressly (written) granted, but is actual authority the producer has to transact normal business activities.

20-Pay Life

The cash value will equal the face amount at maturity.

Pure Risk

The chance of loss without any chance of gain. (Insurable)

Risk

The chance of loss. (Speculative or Pure Risk)

Consideration

The consideration on a policy need not be equal. A policy may not be voided due to unequal consideration.

Group Credit Life Insurance

The creditor is both the policyholder and the beneficiary. The policy limits on credit life cannot exceed the amount of the loan. Although it is a type of decreasing term, credit life is usually not used for mortgage protection.

Integrated Medical/Dental Plan

The deductible may be satisfied by either medical or dental expenses.

Coverage

The earliest that coverage can start would be the day of the application, assuming the applicant paid the first premium, had no conditions to fulfill, and had not lied on the application. Coverage can NEVER begin unless the premium has been paid.

C-O-A-L

The elements of a legal contract can be remembered by this acronym. (Consideration, Offer, Acceptance, Legal purpose & Legal capacity)

Group Life Insurance

The employees receive a certificate of insurance that summarizes coverage and lists the employee's beneficiary. The policyowner, usually an employer, is issued the master policy. The employer may require an employee to pay the premium for dependent's coverage. A group cannot be formed just to buy insurance. Participation requirements help to avoid adverse selection. Conversion from a group life policy to an individual policy when employment is terminated is permitted for 31 days, regardless of health.

Mortgage Protection Life Insurance Policy

The face amount will decrease at the same rate the mortgage balance declines.

Noncancellable Policy

The insurance company cannot change the coverage or the rates, but it does not have to offer renewal.

Owner of an Annuity

The owner of annuity is responsible for paying the premium. When a policyowner surrenders an annuity for cash, they have exercised a nonforfeiture option. During the surrender period of an annuity, the surrender value is lass than the contract's cash value. The surrender charge on an annuity is sometimes referred to as a back-end load. Annuities waive surrender charges for death or disability. The death benefit on an annuity during the accumulation period is equal to its cash value.

Owner's Rights

The owner's rights section of a life policy states who has the right to change the beneficiary, who can take a loan, and who can take cash surrender.

Annuitant

The party whose life the benefits are based upon. Insurers take the money from annuitants who die to soon and pay it to those who live too long. Although annuity benefits paid to a beneficiary are usually taxable upon the death of the owner/annuitant, beneficiaries who are spouses may continue the contract on a tax deferred basis as the contingent owner.

Benefit Period

The period of time that a long-term care policy will provide custodial care in a nursing home.

Policy Loan

The policy is the sole collateral for a policy loan. Policy loans are not taxable.

Annual Renewable Level Term Policy

The premium will increase every year, although the face amount will remain the same.

Business Disability Insurance Buy-Out Policy

The premiums are not tax deductible, but the benefits are not taxed.

Limited Pay Whole Life Insurance

The premiums are payed for a shorter amount of time. Has limits that pertain either to the number of years payments must be paid, such as 20 pay-life, or the age by which all premiums must be paid, such as life paid-up at 65. Though paid-up earlier, does not reach maturity until the insured reaches 100.

Fixed Annuities

The primary challenge faced by those who purchase fixed annuities is purchasing power risk, since the rate of return is fixed. The rate of return that an insurer pays on a fixed annuity might not keep up with inflation. Fixed annuities guarantee a fixed rate of return and are backed by the state guaranty fund. Also backed by the insurer's general account. Fixed annuities usually pay an interest rate that is similar to other types of conservative investments.

Telemarketing Sales Rule

The purpose of adding one's name to the DNC registry is to prevent telemarketing. To add someone to the DNC registry, his or her phone number is required, but not the social security number. The DNC registry includes the telephone number of individuals. Telephone solicitations may only occur between the hours of 8 am and 9 pm of the time zone where the customer is located.

InsuranceInsurance is defined as the transfer of PURE risk to the insurance company in consideration for a premium. The chance of loss without any chance of gain is called pure risk. Speculative risk has the possibility for gain or loss and is not insurable. Risk is defined as the chance of loss. A condition that could result in a loss is known as an exposure. A hazard is something that increases the chance of loss. The presence of a physical hazard increases the chance of a loss occurring. A peril is defined as a cause of loss, such as fire. To be insurable, losses must be calculable. The law of large numbers allows insurers to predict claims more accurately. The law of large numbers applies to groups of people, not to individuals. The more people in the group, the more accurate the predictions are. Most insurers buy reinsurance to protect themselves in the event of a catastrophic loss. Insurance laws are not required to be uniform from one state to another. Insurers: A stock insurer may pay dividends to its shareholders (stockholders), but they may not be guaranteed. A reciprocal insurance company is managed by an attorney-in-fact. An unincorporated association of individuals who insure each other is known as a reciprocal insurer. The government offers insurance primarily based upon social needs, such as flood insurance and workers compensation, but does not offer insurance for the purpose of preventing fraud. A foreign company has their home office in another state. An insurer incorporated outside of the U.S. who sells in the U.S. is an alien company. Producers and General Rules of Agency: A producer may be personally liable when violating the producer's contract. Producers represent the insurance company, not the insured. Independent producers own their own accounts and are not insurance company employees. Producers have express, implied and apparent authority. The authority a producer has that is written in his or her contract is known as express authority. A producer's binding authority (if any) is expressed (written down) in the producer's contract with the insurer the producer represents. The authority not expressly (written) granted, but is actual authority the producer has to transact normal business activities, is known as implied authority. Contracts: The elements of a legal contract may be remembered by the acronym C-O-A-L (consideration, offer, acceptance, legal purpose and legal capacity). A requirement for a valid contract is offer and acceptance, or mutual agreement. Advertising the availability of insurance is not considered to be an offer. A specific and definite proposal to enter into a contract is known as an offer. The consideration on a policy need not be equal. A policy may not be voided due to unequal consideration. Under the consideration clause, something of value must be exchanged. Because insurance contracts are contracts of adhesion, policy ambiguities always favor the insured. Insurance policies are considered to be unilateral contracts, in that only one party makes an enforceable promise the insurer. The principle of indemnity states the purpose of insurance is to restore the insured to the same position as before the loss occurred. The principle of utmost good faith states that all parties to an insurance transaction are honest. A representation is defined as the truth to the best of one's knowledge. A warranty is defined as a sworn statement of truth, guaranteed to be true. A breach of warranty may void a contract. Concealment is defined as the failure to disclose a material fact. When an insurer voluntarily gives up the right to obtain information that they are entitled to, they have made a waiver. B. Life Insurance Basics Insurable interest must exist at the time of application, but not necessarily at the time of a claim. Insurable interest may be based on economics or family relationships. An insurable interest exists if someone would benefit if another person continues to live. Personal Uses of Life Insurance: Buying a life insurance policy creates an immediate estate. When life insurance is used to pay estate taxes it is known as estate conservation. A life settlement contract is between the life insurance policyowner and a third party. The human life value approach was created to establish what a family would lose in income upon the death of the sole or chief income provider. The needs approach to life insurance does not consider future earnings. Business Uses of Life Insurance: Stockholders in small, privately held closed corporations often enter into buy/sell agreements with the corporation that are funded by life policies. A policy that provides for business continuation in the event that a business partner dies is based upon a cross-purchase buy/sell agreement. A corporation may buy a policy on a shareholder to provide for stock redemption in the event of the shareholder's death. A stock redemption plan is an agreement whereby a corporation agrees to buy back the stock of a deceased shareholder. Examples of third-party policyownership include key person and partnership insurance, as well as a policy written on the life of a spouse or minor child. Under an executive bonus, the premium paid to the employee as a bonus is deductible by the business and the amount paid to or for the employee is reportable as taxable income to the employee. When life insurance is purchased as an executive bonus for a corporate employee, the policy belongs to the employee. Underwriting: Life insurance mortality tables are based upon people and time. A 60-year-old male has a higher mortality rate than a 60-year-old female. Life insurance premiums are based on mortality (death) plus company expenses minus interest earned on company investments. Agents (producers) are also known as field underwriters. If a producer gives an applicant a conditional receipt and the underwriter rejects the application, there is no coverage. Conditional or binding receipts are used in life and health insurance. Binders are used in property and casualty insurance. A conditional receipt is not given to an applicant unless the initial premium has been paid. Applicants may backdate a life insurance application for up to a specified number of months (usually 6 months) in order to obtain a lower premium. An incomplete application is usually returned. However, should the underwriter approve it, coverage begins and the company has waived its ability to contest a claim. The earliest that coverage could start would be the day of application, assuming the applicant paid the first premium, had no conditions to fulfill, and had not lied on the application. Coverage can NEVER begin unless the premium has been paid. The HIV consent form states that the results of an HIV test will only be shared with certain individuals, such as the underwriter. Life insurers may discriminate based upon physical hazards (age and health) of the applicant. The company underwriter determines the final rating classification, not the producer. A preferred risk is likely to receive a premium discount. A standard risk is one with an average life span. Most applicants are standard risks. A rated policy is one issued to a substandard risk with dangerous hobbies or health problems. C. Life Insurance Policies Term Life Insurance: Term insurance is renewable without a physical examination, up to a certain age. Term insurance may be converted to whole life, but not the reverse. Conversion is based on the insured's current age. Convertible term is convertible based upon the current or attained age of the insured. In a level term policy, the premium and the amount of coverage are level throughout the term. On an annual renewable level term policy, the premium will increase every year, although the face amount will remain the same. The face amount of a mortgage protection life insurance policy will decrease at the same rate as the mortgage balance declines. It is the face amount that decreases on a decreasing term policy, not the premium. Decreasing term is the type of life insurance provided in mortgage redemption insurance. Whole Life Insurance: Whole life policies must contain a table showing their guaranteed cash value at the end of each year (anniversary date) for the first 20 years. It is shown per unit (per thousand). Whole life benefits are bundled (packaged). Universal life benefits are transparent (stand-alone). Whole life and limited pay life both reach maturity at the same time (age 100). In a traditional whole life policy premiums are due until the insured dies or reaches age 100. Conversely, in a limited pay policy, the premiums are paid for a shorter period of time. Straight or traditional whole life has a level premium and will provide coverage until the insured dies or reaches age 100. Whole life insurance will pay the face amount upon death or age 100, whichever comes first. Limited pay whole life insurance has limits that pertain either to the number of years payments must be made, such as 20 pay-life, or the age by which all premiums must be paid, such as life paid-up at 65. Limited pay whole life policies, though paid up earlier, do not mature until the insured reaches age 100. On a 20-pay life, the cash value will equal the face amount at maturity. A single premium may buy a policy that is paid up for life. A single premium policy has an immediate cash value. Flexible Premium Policies: An adjustable whole life policy may be suitable for someone with fluctuating income. Adjusting the premium paid on an adjustable whole life policy will affect the face amount, and vice versa. Universal life insurance is different from whole life because it has a premium that is flexible. Universal life insurance policies permit their owners to take partial surrenders. Taking a partial surrender on a universal life policy allows the policyowner to withdraw some of the cash value without paying tax on the interest. Universal life insurance is also known as interest sensitive whole life. Universal life is a combination of 1-year renewable term and a cash value account. Universal life offers flexible premiums and a minimum guaranteed rate of return. Loans are allowed on universal life policies. Variable Life: Variable whole life allows the insured to self-direct the cash value investment. Variable products have no guarantees and are not backed by the guaranty fund. Investing in variable products is considered a hedge against inflation. A universal life policy that has an investment component is called variable universal life. A life insurance policy that invests its cash values in equities is known as variable life. A life insurance policy that has a flexible premium and allows the policyowner to self-direct their cash values into equities is known as variable/universal life. An agent must be registered with FINRA in order to sell a variable product. Specialized Policies: A joint life policy pays only when the first insured dies. A joint and survivor life policy pays only when the second insured dies. Survivorship life insurance is commonly used in estate planning so the death benefit of the policy can be used to pay estate taxes when due. Survivorship life pays when the surviving insured dies. A juvenile life insurance policy is a life insurance policy written on the life of a minor. Group Life Insurance: On group life insurance, the employees receive a certificate of insurance that summarizes coverage and lists the employee's beneficiary. In group insurance the policyowner, who is usually an employer, is issued the master policy. In a contributory group life insurance policy, 75% eligible employees must enroll. In a noncontributory group life plan (employer pays total premium), 100% of all eligible employees must participate. Individual policies are usually more expensive than group. On group life, the employer may require an employee to pay the premium for dependent's coverage. Group insurance participation requirements help to avoid adverse selection. A group cannot be formed just to buy insurance. Experience rating is for large groups only. Rates are based on claims experience of the group. Conversion from a group life policy to an individual policy when employment is terminated is permitted for 31 days, regardless of health. Credit Life Insurance: On group credit life, the creditor is both the policyholder and the beneficiary. The type of policy used to provide credit life insurance is decreasing term. Although it is a type of decreasing term, credit life is usually NOT used for mortgage protection. The policy limits on credit life cannot exceed the amount of the loan. D. Life Insurance Policy Provisions, Options and Riders Standard Provisions: Although producers must sign the application, they are not a party to the contract. It is the responsibility of the producer to explain the policy provisions, riders, and exclusions to the applicant. The owner's rights section of a life policy states who has the right to change the beneficiary, who can take a loan, and who can take cash surrender. Owners of life insurance policies may temporarily assign their life insurance policy to a bank as collateral for a loan, which is known as a collateral assignment. The policy is the sole collateral for a policy loan. Policy loans are not taxable. The owner of a life insurance policy may transfer his or her ownership to another person by making an absolute assignment. The entire contract includes the policy and anything else attached at issue, such as the application. Producers may not make changes to a policy. Policy modifications must be in writing and signed by a company officer. Under the life insurance free look, a policyowner who returns their policy 5 days after delivery will receive a full refund since the free look is commonly 10 days. A policyowner may exercise the free look provision without giving any reason. The free-look period (usually 10 days) starts upon policy delivery. If the policy is mailed to the applicant by the company, the free look starts on the date of mailing. This is called constructive delivery. Ordinary life insurance has a grace period of 30 days. A life insurance policy provision that allows coverage to continue even if the premium is not paid on time is known as the grace period. If a terminated employee dies within the grace period of his or her employer provided group life policy without converting, the full death benefit will be paid to the beneficiary. When an insured dies during the grace period without paying the premium due, the face amount will be paid to the beneficiary, less the overdue premium. If an insured whose policy has lapsed wants it back, the insured can apply for reinstatement. Upon policy reinstatement, the incontestability and suicide clauses start over. A life insurance policy that has been surrendered for cash may not be reinstated. Life insurance policies are incontestable after they have been in force for 2 years. New life insurance policies are contestable for material misrepresentation for the first 2 years. Under the misstatement of age provision, if an insurer discovers that an insured has misstated his or her age on the policy application, the insurer will adjust the premiums and benefits according to the correct age of the insured. The misstatement of age provision runs for the duration of the policy. Under the misstatement of age clause, if the insured understates his or her age, it is the face amount that is reduced. Proceeds of a life insurance policy, left with an insurer, for the benefit of a beneficiary, may NOT be attached by creditors. Proceeds cannot be directly paid to a minor child since a minor can't sign a release. If the insured dies in an accident, the insurer may order an autopsy to determine that death was not the result of a suicide. In most states, suicide is covered after 2 years. If an insured commits suicide within a specified period of time after policy issue (usually the first 2 years), no benefit is payable, but all premiums are refunded to the beneficiary. Check your state regulations section for the time limit in your state. If an insured buys a life insurance policy and dies one month later, the insurer must pay the claim. Beneficiaries: When a policyowner lists a group of people as beneficiaries, it is known as a class designation. Life insurance proceeds create an immediate estate for the beneficiary. The beneficiary does not have to be of the age of majority (18 or 21, depending upon the state) in order to receive policy proceeds; however, proceeds cannot be directly paid to a minor child since they cannot sign the release. If the insured names an individual as their irrevocable beneficiary, the insured cannot change this designation without the beneficiary's consent. A revocable beneficiary may be changed at any time by the policyowner. A revocable beneficiary has no vested rights under a life policy. An irrevocable beneficiary has a vested interest in the policy. A contingent beneficiary will receive the policy proceeds if the primary beneficiary dies before the insured. Under the common disaster provision, it is assumed that the insured died last. If the policy proceeds are paid out in a lump sum, the spendthrift clause will not apply. Policy Loan and Withdrawal Options: Failure to repay a loan will have a permanent effect on cash value accumulation. The annual interest on a life insurance loan is added to the amount of the loan as it accrues. If an outstanding policy loan, plus interest, exceeds the cash value of the policy, the policy will lapse. A loan may be taken from a whole life policy as soon as it develops a cash value. The automatic premium loan rider can be added to a whole life policy, but not to a term or credit life policy. Partial surrenders are usually allowed in annuities, universal life and variable life policies. Riders: Waiver of premium is a rider that will pay the premium on behalf of a disabled insured, after a short waiting period, until the insured either recovers or dies. The waiver of premium rider does not pay a cash benefit to the insured. If a parent paying the premium on a child's life insurance policy dies, the provision that allows the premium to be waived is known as payor benefit, NOT waiver of premium. If the payor benefit rider is attached to the policy, an insured will not have to worry about premiums being paid if the policyowner dies or becomes disabled. The accelerated benefits rider will pay proceeds prior to death for those with a terminal illness. The change of insured rider may be utilized by an employer who wants to transfer a key person life insurance policy from one key person to another. On a term life rider added to a parent's policy to cover the life of a child, the child's coverage terminates when the child reaches age 18, unless the child converts the rider to permanent coverage. When adding a children's term rider to a life insurance policy, all of the insured's children are covered for a single, flat premium charge, no matter how many. A level term rider may be added to a parent's life policy in order to insure a child. A combination policy that automatically covers all family members, including newborn children (after a short waiting period) at no extra premium charge is called a family policy. The guaranteed insurability rider is also known as the guaranteed purchase benefit. The guaranteed insurability rider allows the insured to increase coverage periodically without a physical exam. If a person purchases a whole life policy and adds a return of premium rider, they will have level coverage from the whole life policy, and increasing coverage from the rider. The return of premium rider and the return of cash value rider are both types of increasing term coverage. Nonforfeiture Options: Surrender charges levied by some insurers on annuities and universal life will reduce the amount a policyowner will receive upon cash surrender. The extended term option is a nonforfeiture option. If a policy with a cash value lapses for nonpayment, the insured has 60 days from the premium due date to select a nonforfeiture option. Extended term is the automatic nonforfeiture option. When the reduced paid-up nonforfeiture option is selected, the amount of coverage in the new policy is reduced from that of the original policy. The reduced paid-up nonforfeiture option may be taken any time there is a cash value. The reduced paid-up nonforfeiture option will provide coverage for life. Dividend Options: If an insured with a life insurance policy issued by a mutual insurer allows the insurer to keep the dividends but mail the insured a monthly check, the insured has chosen the interest option. On a participating life insurance policy, if the policyowner selects the 1-year term dividend option, the dividend may be used to buy term insurance. Settlement Options: If the insured/owner of a life policy does not designate a settlement option prior to death, the beneficiary may choose whichever option he or she wants. Most choose cash, which is not taxable. If the interest settlement option is selected, the interest paid is subject to taxes. When a beneficiary selects the interest only settlement option, interest payments (which are taxable) will vary, but the beneficiary may withdraw the principal at any time. For estate conservation purposes, a beneficiary should select the interest only settlement option. A life insurance beneficiary who elects to take the proceeds payable upon the death of the insured over a period of time has selected the fixed period settlement option. E. Annuities Annuity Principles and Concepts: A contract that will pay a specified indemnity to its owner over a period of time is an annuity. Annuity tables are different than mortality tables since there is no insurance protection. Insurers take the money from annuitants who die too soon and pay it to those who live too long. If an insured dies during the accumulation period of an annuity, the account value will be paid to the insured's beneficiary, who is responsible for taxes on interest earned. The rights of ownership on an annuity become effective as of the contract date. The annuitant is the party whose life the benefits are based upon. Although annuity benefits paid to a beneficiary are usually taxable upon the death of the owner/annuitant, beneficiaries who are spouses may continue the contract on a tax deferred basis as the contingent owner. Endowments provide life insurance protection. Annuities do not. Annuities are the opposite of life insurance. Life insurance creates an estate. Annuities systematically liquidate an estate over a period of time. All annuities are insurance products, although often sold by bankers with Life insurance licenses. Annuities are often used as life insurance settlement options. Immediate vs. Deferred: An immediate annuity begins paying out immediately after the initial premium is paid. The premium for a $100,000 immediate annuity is $100,000, regardless of the annuitant's age, health or gender. It is the payout that depends on these factors. Single premium immediate annuities (SPIAs) are often purchased with a lump sum upon retirement. In order to be considered a single-premium deferred annuity, there must be a period longer than one benefit payment interval before payments begin. A flexible-premium fixed deferred annuity has a flexible premium, minimum guaranteed rate of return and a death benefit equal to its cash value. Deferred annuities are purchased by making periodic payments over a period of time. A deferred annuity can only be surrendered for cash during its accumulation (pay-in) period. The owner of an annuity is responsible for paying the premium. When a policyowner surrenders an annuity for cash, they have exercised a nonforfeiture option. During the surrender period of an annuity, the surrender value is less than the contract's cash value. The surrender charge on an annuity is sometimes referred to as a back-end load. Annuities waive surrender charges for death or disability. The death benefit on an annuity during the accumulation period is equal to its cash value. Annuity (Benefit) Payment: If the owner of a life income annuity with a 10-year period certain dies 13 years after he or she annuitized the contract, the beneficiary will receive nothing. One cannot outlive the income from a life annuity. A life income annuity (straight or pure life annuity) has no beneficiary, and is the riskiest choice. A life annuity does not start making payments at death. Payments stop at death. On a joint life annuity, payments stop when the first annuitant dies. A refund annuity has the least amount of risk. An annuitant would select the period certain annuity pay-out option if the annuitant wanted payments to continue to a beneficiary after the annuitant's death. If an annuitant selects a pay-out option that will pay for a specified period of time, the annuitant has selected the fixed-period option. Fixed vs. Variable Annuities: The primary challenge faced by those that purchase fixed annuities is purchasing power risk, since the rate of return is fixed. The rate of return that an insurer pays on a fixed annuity might not keep up with inflation. Fixed annuities guarantee a fixed rate of return and are backed by the state guaranty fund. Fixed annuities are backed by the insurer's general account. Fixed annuities usually pay an interest rate that is similar to other types of conservative investments. An annuity which has a rate of return that is based on an index of equity products is an equity-indexed annuity. Equity-indexed annuities (EIAs) have little purchasing power (or inflation) risk since their rate of return is based in part on an equity (stock) index, such as the S&P 500. On a market value adjusted annuity, the contract will pay the specified interest rate if it is held for a specific period of time. Adjustments are only made if the contract is surrendered early. Uses of Annuities: Employers may use annuities to fund deferred compensation plans, but not corporate pension plans. Lottery payouts and structured settlements are often funded by annuities. A self-employed person cannot use an annuity to fund a 403(b) tax-sheltered annuity (TSA). A 403(b) tax-sheltered annuity (TSA) is funded by making voluntary before-tax contributions. 403(b) TSAs are owned by the employee, not the employer. A corporation cannot use an annuity to build tax-deferred growth on corporate assets. Only individuals are entitled to tax deferred annuity earnings. Most immediate annuities are purchased by those who wish to supplement their retirement income. Most annuities are used for retirement purposes and are considered to be long-term investments. One purpose of an annuity is to keep customers from outliving their savings. When recommending a variable annuity, the agent should inquire about the applicant's tax status. Producers selling annuities must have reasonable grounds for believing that the transaction is suitable based upon a customer's financial status, tax status and investment objectives. F. Qualified Plans General Requirements: A defined benefit qualified plan is structured based on a pre-determined benefit amount. A defined contribution plan is a qualified plan. Most qualified retirement plans require participants to begin taking required minimum distributions no later than April 1st of the year after they reach age 72. The coverage requirement in a qualified plan is that a broad range of employees is covered by the plan. Trustees must manage qualified plan assets exclusively for the benefit of the participants. Plan Types, Characteristics and Purchasers: A plan where an employee forgoes current pay in exchange for future benefits is known as a deferred compensation plan. Amounts contributed to qualified plans are limited by the IRS. There is no maximum dollar limit that applies to rollovers from one qualified plan to another. All or part of a distribution from a qualified plan may be rolled over into an IRA without tax. A trustee-to-trustee rollover eliminates the withholding tax requirement. Although Keogh plans are available to self-employed sole proprietors, partners, and their employees, they are NOT available to corporate officers. When a corporation sets up a qualified retirement plan to contribute a portion of their net income for the benefits of employees, it is known as a profit-sharing plan. Contributions made by participants to a SIMPLE plan must be vested immediately. When surrendering a 403(b) TSA for cash under age 59 ½, all the proceeds are taxable as ordinary income plus the proceeds are subject to an IRS 10% premature distribution penalty. G. Federal Tax Considerations for Life Insurance and Annuities Taxation of Personal Life Insurance: Death benefits paid to beneficiaries are tax free on all life insurance. Dividends which are paid out by mutual insurers are not taxable to the policyowner because they are considered to be a return of the premium paid by the policyowner. Dividends received by the owner of stock in a stock company are taxable as ordinary income. Dividends are NEVER taxed as capital gains. A cash surrender where the amount received is more than amount paid in in premiums would cause a taxable event. Surrendering a life insurance policy for cash and using the proceeds to buy a new life insurance policy from a different insurer is a tax-deferred 1035 exchange. On cash surrender of a life insurance policy, amounts received in excess of premiums paid in are taxable. In group life insurance, benefits are NOT taxable to the beneficiary should the employee die. Premiums paid for individual life insurance are NOT tax deductible, nor are benefits taxed. This is true of key person life insurance as well. Life insurance policyowners who gift their policies to a charity are entitled to a tax deduction in the year of the gift. Modified Endowment Contracts (MECs): Modified endowment contracts (MECs) lose their favored tax treatment as life insurance since the IRS considers them to be investments. MECs are classified that way for the life of the contract. A modified endowment contract that is classified as life insurance but fails the 7-pay test would have taxable loans and withdrawals. Making a material change to a cash value life insurance policy may cause the 7-pay test to be applied again and could cause the policy to be classified as a modified endowment contract. Modified endowment contracts have a 10% IRS penalty for premature distributions. Taxation of Individual Retirement Plans: If a surviving spouse is the beneficiary of an IRA owner who died before distributions begin, the spouse may elect to treat the IRA as his or her own, by continuing it or rolling it over to a new one. IRAs may be funded with annuities, but NOT with whole life policies. Children cannot buy an IRA unless they have earned income. Deferred annuities may be used to fund an IRA. If income is below a certain level, traditional IRA contributions may be tax deductible even though the employee is an active participant in another qualified plan. The direct transfer of IRA funds from one trustee to another is not taxable. Contributions made to qualified plans are generally made before taxes, which benefits employees. Qualified retirement plans offer special tax advantages to both employers and employees, in that employers can tax deduct contributions (although they are not taxable to employees until distributed). Qualified plans have early withdrawal penalties. The IRS levies a 10% penalty for cash surrenders on annuities, IRAs, TSAs, and Keogh plans prior to age 59 ½ unless the individual has died or become disabled. This penalty is in addition to income taxes due. Premature distributions may be made to a first-time homebuyer from an IRA without incurring a 10% penalty, subject to a lifetime dollar limit. Premature distributions made from a deductible IRA for qualified educational expenses are exempt from the 10% penalty, but they are not exempt from income tax. Premature distribution penalties are not waived due to bankruptcy. A Roth IRA is different from a traditional IRA because contributions are not tax deductible, but distributions are tax free. A Roth IRA is different from a traditional IRA in that a Roth IRA does not have any required distribution date. Distributions from a Roth IRA are not taxable if the participant held the contract for at least 5 years and is at least age 59 ½. Contributions to a traditional IRA will always be tax deductible if an individual and spouse (if married) aren't covered by a retirement plan at work. If a surviving spouse inherits an IRA, the spouse must start withdrawals no later than April 1st of the year after they reach age 72. Section 1035 Exchanges: Under Section 1035 of the Internal Revenue Code, an annuity may be exchanged for another annuity, but not for life insurance. Taxes may be deferred when exchanging one life insurance contract for another under Section 1035 of the Internal Revenue Code. Although IRC Section 1035 exchanges defer taxes, they do not avoid them. H. Health Insurance Basics A peril is a cause of loss. Health insurance covers two perils: accident and sickness. Occupational coverage covers both on-and off-the-job injuries (for those not covered by workers compensation). Nonoccupational coverage covers off-the-job injuries only (for those covered by workers compensation). An AD&D policy will pay the capital sum for loss of a limb, in addition to any medical expense insurance coverage that may apply. Limited health insurance policies (like AD&D) only cover limited perils and amounts. A hospital indemnity policy would pay a stated amount (in addition to any other insurance the insured may have) when the insured is confined in the hospital. AD&D and hospital indemnity policies do not follow the principle of indemnity. They pay in addition to other policies the insured may have. Credit disability insurance will pay an insured's car payments if the insured is sick or injured and cannot work. A blanket disability policy may be written to cover passengers on a common carrier, an employee group, a student group, a debtor group, or a sports team. Blanket policies do not require individual applications, nor are certificates of insurance issued to those covered. Underwriting: An application must be in writing and will become part of the policy, when issued. If an application is approved and a policy is issued, the producer must collect the premium along with a statement of continued good health. Health insurance underwriters often order an attending physician's report in order to determine an applicant's current medical condition. Issuing a conditional receipt starts coverage right away if all conditions have been satisfied. I. Individual Health Insurance Policy General Provisions Uniform Required Provisions: Mandatory provisions, such as the grace period, protect the insured. Optional provisions, such as probationary periods, protect the insurance company. Except for fraud, health insurance policies are incontestable after they have been in force for 2 years. The probationary period is different from the time limit on certain defenses provision (incontestability); the maximum probationary period is usually 12 months and the incontestability provision is usually 2 years. The incontestability clause protects the insurance company. Under this clause, the company may contest a claim for the first 2 years, but not thereafter unless it can prove fraud. Companies are reluctant to charge fraud, however, since it requires proof of intent to deceive and is difficult to prove. The time limit on certain defenses clause is another name for the incontestability clause (generally up to 2 years, except for fraud). If a reinstatement application is required, an insured is reinstated when the company says or after 45 days, whichever comes first. When an insured is reinstated, a 10-day probationary period starts for sickness only. If no reinstatement application is required, an insured is reinstated effective upon payment of the late premium to either the company or the producer. Under the legal actions provision, if a claim is not paid immediately, the claimant must wait at least 60 days before filing a lawsuit for failure to pay. Such suits must be filed within 3 years of the original loss. Check your state regulations for the time limit in your state. Health insurers should pay individual claims as soon as possible, as specified in a provision known as timely payment of claims. The time payment of claims provision allows the claims department time to investigate (maximum of 60 days). Claims may be denied if they occur after policy expiration. Insurers do not have to pay unsubstantiated claims. After receipt of notice of claim, the insurer must send out claim forms. If claims forms are not provided by the insurer within the time frame required, the insured can submit proof of loss in writing. Uniform Optional Provisions: The change of occupation provision allows the insurer to change the benefit amount or premium should the insured change occupations during the coverage period. Under the misstatement of age clause, it is the benefits that are adjusted, not the premiums. To reinforce the principle of indemnity by preventing an insured from collecting more than they actually lost, most disability income policies contain an insurance with other insurers clause, which requires insurers to share a claim proportionately. If an insured pays the overdue premium on a lapsed health insurance policy and does not hear from the insurer, the insured is automatically reinstated in 45 days. Under the unpaid premium provision, if an insured has a claim in the grace period, the insurer may subtract the overdue premium from the amount of the claim paid. A cancellable health insurance policy may be canceled by either the insurer or the insured. Unearned premiums must be refunded to an insured who was canceled midterm. A pro rata refund is sent when the company cancels. A short-rate refund is sent when the insured cancels. Cancellation will have no effect on a pending claim. The illegal occupations provision would allow an insurer to deny coverage if the insured became injured or died while committing a felony. Other General Provisions: If a health insurance policy can be nonrenewed by the insurer at the end of any policy period, the policy is considered to be optionally renewable. On a noncancellable policy, the insurance company cannot change the coverage or the rates, but it does not have to offer renewal. If a policy is noncancellable and guaranteed renewable, the company cannot change anything and it must offer renewal. On a guaranteed renewable policy, the insurance company cannot change the coverage, but it can change the rates by class (not individually). A guaranteed renewable policy is renewable at the option of the insured (by paying the premium) up to a certain specified age (usually age 65), but the insurer may change rates by class. A conditionally renewable policy must be renewed if the insured meets the specified conditions. J. Disability Income and Related Insurance The typical definition of total disability on a disability income policy states that the insured is considered to be totally disabled if the insured cannot perform their own job for the first 2 years, and any job that the insured is suited to do thereafter. Those collecting disability income insurance benefits may be required to take a physical exam every 6 months at the insurer's expense in order to prove that they are still disabled. Those who suffer from presumptive disabilities, such as loss of eyesight, are not required to take a physical exam in order to prove that they are still disabled. The primary purpose of disability income insurance is the replacement of lost wages, should the insured become disabled. The most important factor to consider when writing disability income insurance is the amount of wages that could be lost. On a disability income policy, a longer elimination (waiting) period will reduce the premium. The waiting period is like a deductible, except it is stated in terms of time rather than in dollars. The waiting period starts at the onset of an insured's disability. Short-term disability policies have shorter elimination and benefit periods than long-term disability. If a disability income policy has a 7-day elimination period and the insured is sick for 15 days, the insured would receive benefits for 8 days. The probationary period starts when the policy is first issued. A recurrent disability is a prior injury that reoccurs again. The elimination (waiting) period is waived. A residual disability is one that never goes away. Residual coverage pays the difference between what an insured used to make before their disability and what they can make now. If a disability income policy contains an accidental means clause, there is no coverage if an insured is injured doing something they meant to do. If a disability income policy contains an accidental bodily injury clause, coverage applies as long as the injury was unintentional and unforeseen. The guaranteed purchase option is a rider that allows the insured to purchase additional coverage at certain intervals, regardless of health. The cost of living rider on a disability income policy is designed to keep the policy limit up with the rate of inflation. Group and Business Disability: Group disability income is written to cover only a percentage of an employee's gross earned income. Individual disability income is written to cover only a percentage of an insured's net (after-tax) earned income. Key person disability insurance indemnifies the business for the loss of services of a key employee due to disability. Business overhead insurance will cover the ongoing business expenses of a self-employed person, such as rent or salaries, while the sole proprietor is disabled. Premiums are tax deductible, but benefits are taxable. A disability buy/sell policy could be structured to pay a monthly benefit to a corporation for up to 1 year while waiting to see if a disabled partner recovers. If not, then a lump sum is paid as a partnership buyout. Social Security Disability: OASDHI (Old Age, Survivors, Disability and Health Insurance) is an acronym for Social Security. Social Security disability income benefits are harder to obtain than benefits provided by private disability income insurers. To have fully insured status under Social Security for disability benefits, a worker must have contributed to Social Security for at least 40 quarters (10 years). A disabled person must have fully insured status in order to be eligible for Social Security disability benefits. The waiting period for Social Security disability benefits is 5 months. Social security disability benefits require that a disabled person cannot work ANY job, and that the disability is expected to last at least 1 year or result in death. K. Medical Plans Medical Plan Concepts: Major medical insurance is considered to be a comprehensive insurance plan. The purpose of preadmission certification is to eliminate unnecessary treatment, thereby lowering premiums (cost saving). Medical expense policies are required to cover the insured's newborn child from the moment of birth. On medical expense insurance, the scheduled benefit limit shown is the most that the insurer will pay. Types of Providers and Plans: The term health care service organization (HCSO) may be used in place of the term health maintenance organization (HMO). An HMO primary care physician makes referrals, authorizes treatment, provides general care and acts as the gatekeeper between HMO members and their health care providers. Health care service organizations (HCSOs) stress preventive care. HCSOs pay reimbursements to their providers directly, not to their insureds. When a doctor works in an independent group clinic on behalf of an HCSO, it is known as a group practice model. HMO primary care physicians may include those in family practice, pediatrics, obstetrics and gynecology, but not internists. HMOs usually don't cover adult hearing exams as a preventive care service. Except for emergencies, HMO services must be provided in-network. HMOs cover out-of-network emergency treatment without pre-authorization, although providers must notify the HMO after treatment has been rendered. The term managed care includes medical services provided by HMOs, PPOs and POS (point-of-service) plans, but does not include indemnity plans. Medical expense claims are often paid on a fee-for-service basis. Major medical expense policies often have a comprehensive calendar year deductible. In utilization management, pre-certification is different than a concurrent review because pre-certification is done prior to treatment. Basic medical expense plans cover in-hospital only, with first dollar coverage. There is no deductible or coinsurance, but coverage is subject to inside (maximum) limits. Major medical and comprehensive major medical plans have deductibles and coinsurance requirements. The stop loss feature on a major medical policy applies after the insured first pays the deductible. It limits that amount of coinsurance the insured has to pay on a large claim. Medical expense policies are usually written as cancellable, which means the company can cancel at any time as long as it gives advance notice. Medical expense policies usually contain a probationary period that applies to pre-existing conditions, meaning they won't be covered if they occur during this period. A family deductible limits the total amount the family must pay during the year no matter how many family members become sick or injured. The assignment of benefits provision on medical expense insurance facilitates claims handling by allowing the insurer to pay benefits directly to the provider. When calculating how much the company will pay on a claim, always subtract the deductible, first then apply the coinsurance percentage. PPO subscribers who go out of network for services will receive reduced benefits. To encourage an insured who is covered by a point-of-service (POS) plan to seek coverage in network, out-of-network coverage is often subject to higher deductibles. Cost Containment in Health Care Delivery: On medical expense plans, a mandatory second opinion requirement will result in fewer claims. A carry-over deductible applies to claims that occur during the last 3 months of the calendar year. They carry over and apply to next year's deductible. If an insurer wants to stress preventative care, they should waive the deductible for office visits. L. Group Health Insurance Characteristics of Group Insurance: Groups may not be formed just to buy insurance. They must exist for another reason. On noncontributory group plans, 100% of the eligible employees must enroll. On contributory group plans, usually 75% of the eligible employees must enroll. Group participation requirements are designed to help prevent adverse selection. A group insurance contract is between the employer and the insurance company. In group insurance, the employer is issued a master policy and employees are issued individual certificates of insurance. The state in which a group contract is delivered to the policyholder is generally held to have jurisdiction over all certificates of insurance issued under the contract. Group underwriting takes into consideration the average age of the group, the health of the group and persistency factors. Group coverage must be written for the benefit of employees and cannot discriminate in favor of highly paid workers. Although there are strict regulatory requirements related to what an insurer can and can't do in regard to small group insurance, an insurer CAN legally nonrenew or cancel a small group plan if the employer stops paying the premium. Multiple employer trusts (METs) offer group coverage for employers in the same industry. Association group insurance has higher administrative costs than other types of group health insurance and is more subject to adverse selection. Eligibility for Coverage: Dependents are eligible to enroll in a group plan when an employee becomes eligible to enroll. Employees remain eligible for group coverage even after attaining age 65. Employers who have 20 or more employees are required to offer the same health benefits to employees and their spouses who are age 65 or older that they offer to younger employees. Continuation of Coverage under COBRA: Under COBRA, employers with 20 or more employees must allow terminated employees and their dependents to continue their group coverage by paying 102% of the group rate. When an employee elects COBRA, the coverage is exactly the same as it was in the group. It is not reduced in any way. The maximum period of coverage continuation for termination of employment or a reduction in hours of employment is 18 months. The dependents of a deceased or disabled employee may continue group coverage for another 36 months. The phrase qualifying events includes death, disability or termination of employment. If an employee elects to continue group coverage under COBRA, the employee may still convert to an individual policy without a physical exam when COBRA coverage ends. M. Dental Insurance In dental insurance, it would create an adverse selection situation for an insurer to offer more than one open enrollment period during the year. To prevent adverse selection, most dental insurance is written on a group basis. Dental insurance has no deductible on diagnostic or preventive care. Dental insurance covers restorative care, such as fillings, inlays and crowns. Dental insurance endodontics services, such as root canals. Dental insurance covers the treatment of gum problems, which is known as periodontics. Under dental insurance, prosthodontics includes bridgework. Orthodontics is the treatment of problems related to the growth and development of the jaw using fabricated appliances, most often braces. On an integrated medical/dental plan, the deductible may be satisfied by either medical or dental expenses. Dental indemnity plans may be written as either scheduled (basic) or non-scheduled (comprehensive). Basic dental insurance plans have first-dollar coverage, without a deductible or coinsurance. Comprehensive dental plans are similar to major medical expense plans, with a deductible and coinsurance. Dental insurance may also be written as a prepaid service plan in the same manner as an HMO. Most dental insurance plans do not cover cosmetic dentistry. N. Insurance for Senior Citizens and Special Needs Individuals Medicare: Certain persons under age 65, who are disabled or who have suffered kidney failure are also eligible for Medicare. On Medicare, the difference between what the doctor bills and what Medicare pays is called the excess charge. Part A of Medicare covers hospitals and Part B covers doctors. Part A - Hospital Insurance Part A of Medicare provides hospital insurance. Medicare Part A only pays for up to 190 days of inpatient psychiatric hospital services during the beneficiary's lifetime. Medicare Part A also covers a skilled nursing facility stay for up to 100 days in each benefit period. Medicare Part A covers skilled nursing facility care after a 3-day minimum hospital stay, but not custodial care in a nursing home. Part B - Medical Insurance Part B of Medicare (medical insurance) is partially funded by user premiums. Medicare Part B (physician's services) has coinsurance (80/20) and a deductible. The Medicare Part B coinsurance is calculated as a percentage of Medicare's approved amount, not the amount the doctor charges. Medicare Part B has a premium, coinsurance, and a deductible which have amounts that are set annually. The amount paid by Social Security is dependent upon the primary insurance amount (PIA) of the insured. Part C - Medicare Advantage Those who enroll in Part C of Medicare (Medicare Advantage) do not need to purchase a Medicare supplement. Part C is the part of Medicare that provides managed care. Part D - Prescription Drug Insurance In order to be eligible for Part D of Medicare (prescription drug insurance), a person must be enrolled in Medicare Part A or in Parts A and B. Medicare Supplements: Medicare supplements are sold by private insurance companies and their agents. There is a 6-month open enrollment period for buying a Medigap policy. Persons age 65 or older cannot be denied Medigap coverage for health problems during open enrollment. Medicare supplement plans are not required to be approved by Medicare. Only standardized Medigap plans may be offered. Medicare supplements are required to cover Medicare's Part A and Part B coinsurance and the first 3 pints of a blood transfusion as basic or core benefits. It is unlawful to sell someone more than one Medigap policy. The maximum probationary period on Medicare supplements policies is 6 months. When selling a Medicare supplement, agents must give out an Outline of Coverage no later than the time of application and must obtain a signed receipt from the applicant. Medicare supplements have a 30-day free-look period. Although selling someone more than one Medicare supplement is prohibited, replacing one Medicare supplement policy with another is permitted as long as it is not detrimental to the insured. Medicare supplement policies do not have to contain guidelines for Medicare eligibility. Medicaid: Medicaid eligibility is based upon financial need. There is no age limit. Medicaid is funded by state, local, and federal monies. It is medical welfare, available to low-income individuals and families. Long-Term Care (LTC) Insurance: When an insured needs care, but not 24-hour care supervised by a doctor, the insured needs long-term care. Long-term care policies have a 30-day free-look period. Long-term care insurance is underwritten based upon the applicant's ability to perform the activities of daily living (ADLs). ADLs include mobility, dressing oneself, bathing, toileting and eating. LTC policies must cover Alzheimer's disease. LTC insurance does not cover acute care. LTC policies may not condition benefits on a prior hospital stay. LTC home health care services include coverage for physical therapy, nursing care, home health aides and homemaker services. Adult daycare is an LTC coverage which covers meals, meaningful activities, and general supervision of adults in a professionally staffed non-residential facility. Respite care is an LTC coverage that allows family members a reprieve or break from their caregiving responsibilities. The period of time that a long-term care policy will provide custodial care in a nursing home is known as the benefit period. LTC policies usually pay a fixed amount per day while an insured is confined to a custodial nursing home. Optional LTC coverage includes home health care, adult day care and hospice care. The LTC return of premium rider will refund some or all of the insured's premiums to the insured's estate or beneficiary if the insured dies prior to age 65. Insurers who write LTC insurance are usually required by state law to allow the insured to name a third party who the insurance company would contact if the insured forgets to pay the premium. LTC insurers must include coverage for inflation protection unless the applicant rejects it in writing. LTC policies may exclude pre-existing illness, acute care, mental disorders, alcoholism, drug addiction, war related illness and self-inflicted injuries, but may not exclude Alzheimer's disease. On qualified LTC policies, insureds may add a nonforfeiture benefit. O. Federal Tax Considerations for Health Insurance Personally Owned Health Insurance: Premiums for individual disability income or AD&D policies are not tax-deductible. Premiums paid on an individual disability income policy are not tax-deductible, but benefits paid are not taxable. A self-employed sole proprietor may tax deduct 100% of the premiums paid for medical expense insurance. Individual health insurance benefits are not taxable. Premiums paid for individual medical expense and qualified LTC insurance are tax-deductible to the extent that they exceed 10% of an individual's adjusted gross income. Employer Group Health Insurance: On group disability income insurance, if the employer pays 60% of the premiums, 60% of the benefits payable would be taxable to employees. If an employee pays 100% of the premium for group disability income insurance, none of the benefits paid are taxable. Premiums paid by an employer for a group health policy (such as medical expense or disability income) are tax-deductible, since these are fringe benefits for employees. On group accidental death and dismemberment (AD&D) insurance, benefits are not taxable, regardless of who paid the premiums. Business Disability Insurance: Key person disability insurance indemnifies the business for the loss of services of a key employee due to disability. Premiums are not tax deductible, but benefits are not taxed. Under the terms of a partnership disability buy/sell agreement, the proceeds of the policy are paid to the owner of the policy, who uses the money to buy out the disabled business partner. On a partnership disability buy-out policy, the premiums are not tax deductible, but the benefits are not taxed. Consumer-Driven Plans: On an HRA (health reimbursement account), participants have high deductible group medical expense insurance coverage, but the HRA is partially funded by their employer. HSAs (health savings accounts) are available to any employer or individual who has a high-deductible health plan (HDHP). HSA contributions are made with before-tax dollars, account earnings grow on a tax-deferred basis, and distributions used to pay qualified medical expenses are tax free. Employer contributions to an employee's HSA are excludable from the employee's federal gross income, up to the maximum contribution limit for that employee. Although the employee cannot deduct the employer's HSA contributions, the contributions are not federally taxable to the employee nor are they subject to withholding from wages for federal income tax or other employment taxes. HSA contributions by employers are considered a type of benefit, and are therefore, tax-deductible for the employer. Health savings accounts are not subject to year-end tax penalties. Contributions to an HSA cannot exceed the participant's deductible, and are subject to maximum limits. Medical savings accounts (MSAs) may be set up only by small employers or individuals. Contributions to an MSA made by an eligible individual are limited to a percentage of the annual deductible. P. Insurance Regulation 1. Licensing The purpose of insurance licensing is to make sure that applicants possess at least the minimum degree of knowledge necessary to protect the insurance-buying public. To qualify for a license as an insurance producer, the applicant must be of good character and trustworthy; be at least age 18, complete prelicensing training, pay an application fee and pass the required examination. As a condition to initial licensure and to be eligible to take the required examination, candidates must satisfy prelicensing education requirements. Candidates for a Life and Health insurance producer's license must complete a 40-hour prelicensing study course. Candidates for a Life only insurance producer's license must complete a 20-hour prelicensing study course. Candidates for a Property and Casualty insurance producer's license must complete a 40-hour prelicensing study course. Candidates who hold a professional designation, such as CLU or CPCU, are exempt from the prelicensing education requirements. Types of Licensees: An insurance producer is defined as a person who solicits, procures or negotiates insurance contracts. Producers are also known as agents. An insurance adviser is a person who, for compensation, gives advice or makes recommendations with respect to coverage provided by insurance contracts. A business entity includes an insurance agency doing business as a corporation, partnership or limited liability company. Business entities must obtain a producer's license in the name of the business entity and all persons who solicit, procure or negotiate insurance on behalf of the entity must obtain an individual producer license. To qualify for a business entity producer's license, the entity must designate a licensed individual producer to act as the business entity's principal contact with the Commissioner. Without regard to education, experience, or examination, the Commissioner may issue a temporary license to act as an insurance producer to an individual for up to 15 months. Temporary licenses may be issued to the surviving spouse or next of kin of a producer who died or became disabled, or to an employee of a business entity owned by a deceased or disabled producer. Based upon reciprocal agreements between states, persons who are properly licensed in their home state may obtain a Maryland nonresident producer's license to solicit, procure or negotiate insurance contracts in this state, without examination. Renewal and Maintenance: Producer licenses expire every other year on the last day of the month in which the licensee was born. A licensee must file with the Commissioner a change in legal name, trade name, or address within 30 days of the change. Producers are required to file any assumed business name or trade name to be used with the Commissioner. The Commissioner may suspend, revoke, or refuse to renew a license, after notice and the opportunity for a hearing, if the holder of the license has been convicted in any state or federal court of a felony or a crime involving moral turpitude. Resident licensees must complete 24 hours of continuing education every 2 years. Of the required hours, 3 hours must be reserved for ethics. Nonresident licensees are exempt from the CE requirements of this state if they satisfy the CE requirements of their home state. Producers who hold only a limited lines license, such as a credit insurance producer, are exempt from the continuing education requirements. The Commissioner may not require an individual who holds a license to receive more than 24 hours of continuing education per renewal period. For a producer to reinstate a license that has been expired for no more than 1 year, they must file a reinstatement application, pay a reinstatement fee of $100, pay the license renewal fee and submit proof of completion. Appointment Procedures: An appointment is defined as an agreement between a producer and an insurer under which the producer, for compensation, may sell, solicit, or negotiate policies issued by the insurer. Insurers may appoint either individual or business entity producers. A producer may not act on behalf of an insurer without an appointment EXCEPT an insurer may initially accept an application for life or health insurance, or an annuity, from a producer who has not been appointed if, within 30 days of accepting the application, the insurer appoints the producer. An insurer must notify the Commissioner when they terminate a producer's appointment because they believe that the producer has engaged in activities that may be grounds for license suspension or revocation. Within 15 days of providing such notice to the Commissioner, the insurer must mail a copy of the notice to the producer. Insurers may accept applications from non-appointed producers, as long as the insurer accepts or rejects the application, or appoints the producer within 30 days. Fraud: It is considered to be insurance fraud for a producer to willfully collect a premium for insurance that is not provided or to collect a premium that exceeds or is less than the premium and rates that have been filed and approved by the Commissioner. The Insurance Fraud Division of the Maryland Insurance Administration has the authority to investigate each person suspected of engaging in insurance fraud, and refer suspected cases of fraud to the Attorney General to prosecute the person criminally. Insurance fraud that is valued at $300 or more is guilty of a felony. The perpetrator may be subject to a fine and/or imprisonments of up to 15 years. Insurance fraud that is valued under $300 is guilty of a misdemeanor. The perpetrator may be subject to a fine and/or imprisonment of up to 18 months. It is a fraudulent insurance act for an insurer to knowingly write or place a policy through, or pay a commission to a person that is required to be licensed, but isn't. It is a fraudulent insurance act for a producer to intentionally fail to report to an insurer the exact amount charged for a premium for an insurance contract. 2. State Regulation Maryland Insurance Commissioner's General Duties and Powers: The Insurance Commissioner is appointed by the Governor, with consent from the Senate. Once appointed, the Commissioner holds a 4-year term. The Commissioner counsels and advises the Governor on all matters assigned to the Insurance Administration. The Commissioner may deny a license to an applicant or suspend, revoke, or refuse to renew or reinstate a license, after a notice and opportunity for a hearing, if the applicant or holder of the license has engaged in a prohibited act or practice. Instead of or in addition to license suspension or revocation, the Commissioner may require that restitution be made to any citizen who has suffered financial injury due to the prohibited acts or practices of a producer. Orders of the Commissioner are known as insurance rules or regulations, and have the validity of law. If, after holding a hearing, the Commissioner finds that a person has engaged in a prohibited act or practice, he may issue a cease and desist order. The Commissioner must examine each insurer's records, accounts, assets, transactions and affairs at least every 5 years. Within 30 days of the final report, the Commissioner must provide the examined party a copy of the report findings. Insurer Regulation: Insurers must file their policy forms with the Commissioner at least 60 days prior to use. The form is considered to be approved unless the Commissioner disapproves it before the end of the initial filing period. Although insurers have to file their rates and policy forms with the Commissioner, the Commissioner does not set rates. Each insurer must file all rates that they propose to use with the Commissioner. Rate filings and any supporting information must be open to public inspection. A rate filing may not take effect until 30 working days after it has been filed with the Commissioner. A rate filing is deemed approved unless disapproved by the Commissioner during the waiting period. Rate uniformity among insurers is neither required nor prohibited. Rate filings should take into consideration past and prospective loss and expense experience within and outside the State, underwriting profits, and investment income that is generated by unearned premium reserves. Rates may not be excessive, inadequate or unfairly discriminatory. It is prohibited for an insurer to engage in unfair claims settlement practices with such frequency as to indicate a general business practice. Examples of Unfair Claims Settlement Practices include, but are not limited to misrepresenting facts or policy provisions that relate to coverage, refusing to pay a claim without conducting a reasonable investigation and attempting to settle a claim based upon an application that has been altered without the knowledge or consent of the insured. A penalty of up to $2,500 can be imposed by the Commissioner as a result of an Unfair Claims Settlement Practices violation. Producer Regulation: Producers must maintain records of continuing educations for at least 4 years. Licensed producers may share commissions with other producers who have like licenses. Commissions on renewal premiums on existing policies may be paid to a person who formerly held a license, but who no longer does. Producers may withdraw monies from a premium trust account to pay premiums to insurers; transfer account interest to their operating account; transfer commissions to their operating account; or to pay return premiums to insureds. Producers may not commingle premium monies with their own personal funds without the express written consent of the insurer. Producers who do not make prompt remittance to insurers and insureds of the funds received must deposit them in a premium trust account in a bank authorized to do business in this state. Prompt remittance is defined as no later than the close of the 5th business day following receipt of the funds. Advertisements must be truthful and not misleading and may not use words the meaning of which is clear only by familiarity with insurance terminology. The identity of the insurer must be made clear in all of its advertisements. Each insurer must maintain, at its home or principal office, a complete file containing every advertisement. Such file is subject to the inspection of the Commissioner and must be maintained for not less than 3 years. Unfair Trade Practices: Unfair Trade Practices include, but are not limited to misrepresentation, false advertising, defamation, boycott, coercion and intimidation, false financial statements, prohibited inducements, unfair discrimination, rebating, and twisting. Misstating dividends to be paid in the future or dividends that were paid in the past is considered to be misrepresentation. Deliberately withholding information related to an insurer's financial condition, in an attempt to deceive the public, would constitute false financial statements. Readjusting the premiums for a group policy based upon the loss or expense experience under the policy is not considered rebating. Twisting occurs when a person makes an oral or written statement that misrepresents or makes incomplete comparisons about the terms or benefits contained in a policy for the purpose of inducing the policyholder to forfeit, surrender, retain, exchange, or convert a policy or to allow a policy to lapse. Producers may not pay as an inducement to the purchase of insurance a rebate of premiums paid; special favors or advantages in dividends; employment or a contract for services of any kind; stocks, bonds or securities of an insurer; or any other valuable consideration or inducement not specified in the contract. Giving educational materials, promotional materials, or articles of merchandise that cost no more than $50 is not considered to be rebating. Making an oral statement or publishing a written statement that is false or maliciously critical of or derogatory to the financial condition of an insurer that is calculated to injure any person engaged in the business of insurance is considered to be defamation. Requiring an applicant for a loan to buy insurance from a specific insurer as a condition of credit approval is considered coercion. Joining in concert with other producers to agree not to submit insurance applications to a particular insurer is considered boycott. A person may not make any unfair discrimination between individuals of the same class and equal expectation of life in the rates, the dividends or other benefits payable or any of the other terms of a contract for life insurance. An insurer may not cancel or refuse to underwrite or renew a particular insurance risk for reasons based on race, color, creed, or gender of an applicant or policyholder or for any arbitrary, capricious, or unfairly discriminatory reason. An insurer may not allow a differential in rates, premiums or dividends based upon the blindness or other physical handicap or disability of an applicant for life insurance. Allowing a prospective insured to sign a blank application is illegal. Insurance Information and Privacy Protection: When new insurance is being sought, a Privacy Protection Notice must be provided no later than at the time of policy delivery. In the case of a policy renewal, the Notice must be provided at least annually. The Privacy Protection Notice must state that a person may opt-out of sharing their personal information at their written request. Q. Insurance Requirements for Life Policies Policy Replacement: The replacement of life insurance is not unlawful as long as the rules regarding replacement are followed. The replacement of life insurance requires following strict rules to make sure this transaction is not detrimental to the policyholder. If replacement is involved, the producer must deliver a Notice Regarding Replacement to the applicant at the time of application. A financed purchase is considered to be a replacement transaction. The rules regarding replacement do not apply when replacing group life or credit life insurance. The rules regarding replacement do not apply when replacing nonconvertible term life insurance that expires in 5 years or less. When an existing life insurer attempts to keep their policy from being replaced, it is known as conservation. Types of Groups: Group life insurance may be sold to cover several different types of groups, including employer groups, labor union groups, employer or labor union trustee groups, creditor groups and credit union groups. A policy is not considered a group policy if it is solely comprised of blood relatives, spouses, or of individuals related by legal adoption. A policy is not considered a group policy if the given individuals have insurable interest in each other or a common interest through ownership of a business. A group may not be formed just to buy insurance. Group Policy Provisions: On group life, the employer is the master policyholder and the employees receive Certificates of Insurance summarizing their coverage. Each insured covered by a group life policy will receive an individual Certificate of Insurance stating the amount of insurance protection to which the insured is entitled and each person to whom benefits are payable. Only one certificate need be issued for each family unit covered by a group life policy as long as a statement about dependent's coverage is included in the certificate. Most group life insurance is written without any physical examination or evidence of insurability. The grace period on group life is 31 days. If an employee's employment is terminated, they may apply for conversion to an individual policy written by the same insurer, without evidence of insurability, for 31 days. When an employer group life policy is terminated by the employer, only those insureds who have been insured for at least 5 years are entitled to convert. When an employer group policy is terminated by the employer, an insured who has been insured for at least 5 years may convert, but the face amount of his converted policy may not exceed the lesser of the amount of the insured's terminated coverage, or $10,000. If an insured covered by a group life policy dies while entitled to an individual policy, but before the individual policy becomes effective, the amount of insurance to which the insured would have been entitled are payable as a claim under the group policy. When an insured covered by a group life policy dies, the proceeds are payable to the beneficiary designated by the insured. If there is no beneficiary on a group life policy, the insurer may pay, at its option, a part of the proceeds, not exceeding $2,500, to a person that incurred funeral or other expenses incident to the insured's death or last illness. A nonforfeiture provision must be included in a group life policy if the policy is not considered term plan. Life and Health Insurance Guaranty Corporation: The Maryland Life and Health Insurance Guaranty Corporation was created to protect resident life, health and annuity contract holders and their beneficiaries against the insolvency of member insurers. All authorized L&H insurers must become members of the Guaranty Corporation. Member insurers are subject to proportionate assessments to pay the claims and expenses of insolvent member insurers. The Guaranty Corporation will pay the contractual obligations of a financially impaired insurer, but not more than the insurer would have been liable for in the absence of an impairment. R. Insurance Regulations for Accident and Health Policies Types of Providers: The title of insurer includes any person engaged in the business of entering into insurance contracts. Health insurance provides coverage for bodily injury, disability, death by accident, preventive expenses, dental care, and disablement or expenses resulting from sickness or childbirth. Health care providers include chiropractors, dentists, hospitals, optometrists, pharmacists, physicians, podiatrists, and psychologists. Nonprofit health plans are designed to provide affordable and accessible health insurance to individuals, businesses, and other groups. The nonprofit health service plan meets the health care needs of all the residents of the jurisdictions in which the nonprofit health service plan operates. HMOs limit an insured's coverage to only in-network physicians. In-network physicians must either be employed by an HMO or organized on a practice basis in an arrangement with an HMO. Medical Plan Eligibility for Dependents: A newborn child or dependent grandchild is covered from the moment of birth. An adopted child is eligible for benefits from the moment of birth or date of adoption or appointment. An unmarried dependent incapacitated child is covered under the policy as a dependent of an employee, member, or other covered person while remaining unmarried, chiefly dependent for support on a covered individual, and incapable of self-support. After a medical support notice is issued to an insured parent, the parent's health policy must extend coverage to their child. Mandated or Required Offers and Benefits: Entire contract refers to the policy and its inclusion of any endorsements and attached papers. A grace period of 7 days for weekly premium policies, 10 days for monthly premium policies and 31 days for all other policies will be granted for the payment of each premium falling due after the first premium, during which grace period the policy continues in force. Proof of loss means the submission to an insurer of all factual information necessary for an insurer to determine the nature of the loss, the applicable coverage, and the amount due under that applicable coverage. Once an insurer receives notice of a claim, they must furnish the claimant with the necessary forms required when filing a proof of loss. Free look means that a policy must include a notice explaining that the insured may surrender the policy and receive a pro rata premium within 10 days of the policy delivery. The benefit payable limit is $1,400 per hearing aid for each hearing-impaired ear every 36 months and an insured may choose a hearing aid that is priced higher and pay the difference. Insurers must provide coverage for the diagnosis and treatment of mental illness, emotional disorder, and drug or alcohol abuse disorder. An eligible provider that provides pregnancy-related benefits may not exclude benefits for all outpatient expenses arising from in vitro fertilization procedures. An eligible provider may limit coverage of the required benefits to 3 in vitro fertilization attempts per live birth, not to exceed a maximum lifetime benefit of $100,000. Small Employer Health Insurance: Small employer means an employer that, during the preceding calendar year, employed an average of not more than 50 employees. An insurer may deny coverage if fewer than 75% of eligible employees elect to be covered under a small employer plan. Small employer health benefits plans are renewable at the option of the employer. An insurer must provide covered employees with a notice of its decision to not renew a policy at least 90 days before the policy expiration. An insurer cannot charge a higher premium due to an employee or dependent's health status. Small employer must have an annual open enrollment period of 30 days and provide a special enrollment period for employees who experience a qualifying life event. Medicare Supplement Insurance: A Medicare supplement policy is defined as a group or individual health insurance policy which is designed as a supplement to existing Original Medicare coverage. A Medicare supplement policy covers Medicare Part A eligible expenses for hospitalization from day 61 through day 90 of a Medicare benefit period. After Medicare hospital inpatient coverage ends, the Medicare supplement policy provides the lifetime maximum benefit of an additional 365 days. Medicare supplement policy covers the coinsurance amount of Medicare eligible expenses under Medicare Part B, regardless of hospital confinement. Automatic changes in Medicare supplement policies for deductibles and coinsurance amounts mirror the changes in the applicable Medicare deductibles and coinsurance. If coverage is available to the insured under Medicare, a Medicare supplement policy will provide that the same coverage is not duplicated. If an insured is receiving medical assistance under Medicaid, a Medicare supplement policy will provide for the suspension of policy benefits and premiums for a maximum of 24 months. If the group policyholder terminates a group Medicare supplement policy without replacing it, the carrier will offer an individual Medicare supplement policy. An application for a Medicare supplement policy in the 6-month period immediately following the individual's 65th birthday must be approved. A Medicare supplement policy may not exclude or limit benefits for losses incurred more than 6 months after the effective date of coverage because the losses involved a pre-existing condition. Maryland Health Benefit Exchange: The state of Maryland operates a state-based exchange known as the Maryland Health Connection. Qualifiers for the Maryland Health Connection include, but are not limited to, not having health coverage, being self-employed, or working for an employer who does not offer coverage. Persons may enroll in policies offered by Maryland Health Connection directly online, or through navigators. Maryland has connector entities that are designed to spread the word about the coverages available to persons, as well as employ navigators. Navigators are trained and certified through the state and employed by connector entities. The open enrollment period for health plans through the Maryland Health Connection runs from November 1 to January 31. SHOP includes medical expense coverages that are available to small businesses with up to 50 employees. Long-Term Care (LTC): LTC policies a designed to provide coverage for at least 24 consecutive months. An individual may claim a tax credit against the State income tax for 100% of the eligible LTC paid premiums up to $500. The total amount of the LTC tax credit allowed for any taxable year may not exceed the State income tax for that taxable year and may not be carried over to any other taxable year. A LTC policy carrier must obtain a report of a physical examination, an assessment of functional capacity, or copies of medical records for an applicant who is age 80 or older. Insurers and producers are required to assess and determine the suitability of a LTC product with an applicant. An applicant must be provided with a Long-Term Care Insurance Personal Worksheet at the time of application. After a LTC policy has been in place for 2 years, it cannot be contestable for misrepresentation on an application, except for instances of fraud or intentional misrepresentation. To avoid an unintentional lapse of a policy due to nonpayment of premium, an insured may appoint a designee to receive notice of nonpayment. In order for benefits to be triggered under a LTC policy, an insured must be unable to perform 3 ADLs or suffer a cognitive impairment.

The transferre of pure risk to the insurance company in consideration for a premium.

Orthodontics

The treatment of problems related to the growth and development of the jaw using fabricated appliances, most often braces.

Total Disability

The typical definition of total disability on a disability income policy states that the injured is considered to be totally disable if the insured cannot perform his or her own job for the first 2 years, and any job that the insured is suited to do thereafter.

Cancellable Health Insurance Policy

This policy may be canceled by either the insurer or the insured. Cancellation will have no effect on a pending claim.

Managed Care

This term includes medical services provided by HMOs, PPOs and POS (point-of-service) plans, but does not include indemnity plans.

Disability Income Insurance

Those collecting disability income insurance benefits may be required to take a physical exam every 6 months at the insurer's expense in order to prove that they are still disabled. Those who suffer from presumptive disabilities, such as loss of eyesight, are not required to take a physical exam in order to prove that they are still disabled. The primary purpose of disability income insurance is the replacement of lost wages, should the insured become disable. The most important factor to consider when writing disability income insurance is the amount of wages that could be lost. On a disability income policy, a longer examination (waiting) period will reduce the premium. The waiting period is like a deductible, except it is stated in terms of time rather than in dollars. The waiting period starts at the onset of an insured's disability.

Medicare Part C Medicare Advantage

Those who enroll in Part C do not need to purchase a Medicare supplement. Part C is the part of Medicare that provides managed care.

Continuation of Coverage under COBRA

Under COBRA, employers with 20 or more employees must allow terminated employees and their dependents to continue their group coverage by paying 102% of the group rate. When an employee elects COBRA, the coverage is exactly the same as it was in the group, it is not reduced in any way. The maximum period of coverage continuation for termination of employment or a reduction in hours of employment is 18 months. The dependent of a deceased or disabled employee may continue group coverage for another 36 months. The phrase qualifying events includes death, disability or termination of employment. If an employee elects to continue group coverage under COBRA, the employee may still convert to an individual policy without a physical exam when COBRA coverage ends.

Section 1035 Exchanges

Under Section 1035 of the Internal Revenue Code, an annuity may be exchanged for another annuity, but not for life insurance. Taxes may be deferred when exchanging one life insurance contract for another under Section 1035 of the Internal Revenue Code. Although IRC Section 1035 exchanges defer taxes, they do not avoid them.

Executive Bonus

Under an executive bonus, the premium paid to the employee as a bonus is deductible by the business and the amount paid to or for the employee is reportable as taxable income to the employee. When life insurance is purchased as an executive bonus for a corporate employee, the policy belongs to the employee.

Common Disaster Provision

Under the common disaster provision, it is assumed that the insured died last.

Legal Actions Provision

Under the legal actions provision, if a claim is not paid immediately, the claimant must wait at least 60 days before filing a lawsuit for failure to pay. Such suits must be filed within 3 years of the original loss.

Misstatement of Age Clause

Under the misstatement of age clause, it is the benefits that are adjusted, not the premiums.

Business Disability Insurance Partnership Disability Buy/Sell

Under the terms of a partnership disability buy/sell agreement, the proceeds of the policy are paid to the owner of the policy, who uses the money to buy out the disable business partner.

Decreasing Term

Used to provide credit life insurance.

Waiver of Premium

Waiver of premium is a rider that will pay the premium on behalf of a disable insured, after a short waiting period, until the insured either recovers or dies. The waiver of premium rider does not pay a cash benefit to the insured.

Class Designation

When a policyowner lists a group of people as beneficiaries.

Waiver

When an insurer voluntarily gives up the right to obtain information that they were entitled to, they have made a waiver.

Estate Conservation

When life insurance is used to pay estate taxes.

Collateral Assignment

When the owner of a life insurance policy temporarily assign their life insurance policy to a bank as collateral for a loan.

Absolute Assignment

When the owner of a life insurance policy transfers his or her ownership to another person.

Reduced Paid-Up Nonforfeiture Option

When the reduced paid-up nonforfeiture option is selected, the amount of coverage in the new policy is reduced from that of the original policy. The reduced paid-up nonforfeiture option may be taken any time there is a cash value. The reduced paid-up nonforfeiture option will provide coverage for life.

Business Overhead Insurance

Will cover the ongoing business expenses of a self-employed person, such as rent or salaries, while the sole proprietor is disabled. Premiums are tax deductible, but benefits are taxable.

Credit Disability Insurance

Will pay an insured's car payments if the insured is sick or injured and cannot work.

Accelerated Benefits Rider

Will pay proceeds prior to death for those with a terminal illness.

AD&D Policy

Will pay the capital sum for loss of a limb, in addition to any medical expense insurance coverage that may apply. Limited health insurance policies (like AD&D) only cover limited perils and amounts.

LTC Return of Premium Rider

Will refund some or all of the insured's premiums to the insured's estate or beneficiary if the insured dies prior to age 65.

Hospital Indemnity Policy

Would pay a stated amount (in addition to any other insurance the insured may have) when the insured is confined in the hospital. AD&D and hospital indemnity policies do not follow the principle of indemnity. They pay in addition to other policies the insured may have.

Group Disability Income

Written to cover only a percentage of an employee's gross earned income.

Individual Disability Income

Written to only cover a percentage of an insured's net (after-tax) earned income.

State Regulations

insurance laws are not required to be uniform from one state to another. Everyone transacting insurance comes under the jurisdiction of the Insurance Code. Transacting insurance includes collecting premiums and handling claims. Transacting insurance includes both buying and selling insurance. Any premium paid that is properly addressed and mailed on or before the date the premium is due is considered to be a timely payment as of the date shown on the postmark. An insurance company with a certificate of authority in this state is know as an authorized (or admitted) insurer. Commissions may be shared with producers who have like licenses. Records must be shown to the director upon request. A producer's place of business must display his or her license and all records must be kept there. A producer's place of business could also be his or her residence. Producers must keep records for at least 3 years.