Life Insurance
30%of exam
Annuities
10%of exam
Health + Disability
28%of exam
Medical ExpenseManaged CareDisability + LTCMedicareACA
California Code + Ethics
32%of exam
CA Free-LookCLHIGAKnox-Keene + DMHCUnfair PracticesSenior Protections
Quick Facts
- Exam
- CA Life & Health
- Questions
- 150 (75 Life + 75 Health)
- Time
- 90 min Life + 98 min Health
- Pass
- 60% each line
- Body
- California Dept of Insurance
- Vendor
- PSI Services
- Fee
- $88 + $33 per line
- Pre-license
- 12 hrs Ethics + Code
Contract Features
A-U-C-A: Aleatory, Unilateral, Conditional, Adhesion
Aleatory: unequalUnilateral: insurer promiseConditional: meet termsAdhesion: take-it
Term vs Whole Life
Term
- Temporary
- No cash value
- Lowest premium
Whole Life
- Permanent
- Guaranteed cash value
- Level premium
Temporary vs lifelong
Which Life Policy?
- Lowest cost, temp need→Term(No cash value)
- Lifelong + cash value→Whole life(Insurer risk)
- Flexible premium→Universal life(Adjustable)
- Market upside, owner risk→Variable life(Security)
- Flexible + subaccounts→VUL
- Mortgage protection→Decreasing term
- Buy more, no exam→Guaranteed insurability
Life Insurance Basics
- Insurable interest
- At issue, not claim
- Indemnity
- No profit from loss
- Valued contract
- Life pays stated amount
- Utmost good faith
- Both parties honest
- Adhesion
- Insurer drafts; ambiguity favors insured
- Aleatory
- Unequal value exchange
- Adverse selection
- High-risk seek coverage
Nonforfeiture Options
Cash, Reduced paid-up, Extended term
Cash surrenderReduced paid-upExtended term: default
Revocable vs Irrevocable
Revocable
- Change anytime
- No consent
- Owner control
Irrevocable
- Needs consent
- No surrender alone
- Vested right
Owner control vs consent
Life Policy Types
- Term
- Temporary, no cash valueLowest cost
- Whole life
- Permanent, guaranteed cash value
- Universal life
- Flexible premium + benefit
- Variable life
- Subaccounts; owner risk
- VUL
- Flexible + subaccounts
- Decreasing term
- Mortgage protection
- Endow
- Cash equals face age 100/121
MEC vs non-MEC
MEC
- Fails 7-pay
- LIFO taxed
- 10% penalty
Non-MEC
- Passes 7-pay
- FIFO basis first
- Tax-favored loans
Funded too fast
Policy Provisions
- Incontestability
- Locked after 2 years
- Grace period
- At least 31 days
- Reinstatement
- Restore within 3 years
- Free-look
- Return for refund
- Nonforfeiture
- Guaranteed lapse values
- Suicide clause
- Excluded first 2 years
- Dividends
- Par policy refund
Common Riders
- Waiver of premium
- Disability waives premium
- ADB rider
- Advance benefit; terminal illness
- Guaranteed insurability
- Buy more, no exam
- Accidental death
- Doubles benefit; accident
- Term rider
- Add temporary coverage
- Child rider
- Covers children, convertible
Beneficiaries
- Primary
- First to receive proceeds
- Contingent
- Next if primary dies
- Revocable
- Owner changes anytime
- Irrevocable
- Needs written consent
- Per stirpes
- Share to heirs
- Per capita
- Split surviving named
Taxation
- Death benefit
- Lump sum income-tax-free
- MEC
- Fails 7-pay; LIFO taxed
- Annuity gains
- LIFO, ordinary income
- Pre-59½ penalty
- 10% on early gains
- 1035 exchange
- Tax-free like-to-like swap
- Employer DI premium
- Benefits taxable to employee
Annuity Taxation
LIFO: gains out first, ordinary income
LIFO orderOrdinary income10% pre-59½
Fixed vs Variable Annuity
Fixed
- Guaranteed rate
- Insurer risk
- Not a security
Variable
- Subaccounts
- Owner risk
- Security license
Guaranteed vs market
Which Annuity?
- Guaranteed, conservative→Fixed(Insurer risk)
- Market growth, owner risk→Variable(Security)
- Upside + floor→Indexed
- Largest income→Straight life(No refund)
- Guarantee minimum years→Period certain
- Two lives→Joint-and-survivor
Annuities
- Fixed
- Guaranteed rate; insurer risk
- Variable
- Subaccounts; owner riskSecurity
- Indexed
- Index-linked; guaranteed floor
- Accumulation
- Tax-deferred growth phase
- Annuitization
- Income payout phase
- Straight life
- Largest income; no refund
- Period certain
- Minimum years guaranteed
- Joint-and-survivor
- Income to second person
HMO vs PPO
HMO
- PCP + referrals
- In-network only
- DMHC regulated
PPO
- No referral
- Out-of-network covered
- Higher cost
Gatekeeper vs flexibility
Health + Managed Care
- HMO
- PCP, referrals, in-network
- PPO
- No PCP; out-of-network covered
- POS
- HMO with out-of-network
- Deductible
- Paid first by insured
- Coinsurance
- Percentage split, 80/20
- Copay
- Flat fee per service
- OOP max
- Cap; insurer pays 100%
- Elimination period
- Disability waiting period
Medicare vs Medi-Cal
Medicare
- Age 65+
- Federal
- Parts A/B/C/D
Medi-Cal
- Needs-based
- Income/asset tested
- Low-income residents
Age vs need
Disability, LTC, Medicare
- Disability income
- Replaces lost earnings
- Own-occupation
- Strictest disability definition
- LTC
- Custodial care; ADL trigger
- Part A
- Hospital; premium-free
- Part B
- Outpatient; monthly premium
- Part C
- Medicare Advantage; private
- Part D
- Prescription drugs
- Medigap
- Fills Original Medicare gaps
CLHIGA Limits
Life 300, Annuity 250, Health 500
Life: $300KAnnuity: $250KHealth: $500KNo sales inducement
Twisting vs Churning
Twisting
- Misrepresentation
- Different insurer
- Replace policy
Churning
- Misrepresentation
- Same insurer
- Replace internally
Across vs within insurer
Which CA Rule?
- Buyer age 60+→30-day free-look(§10127.10)
- Standard life policy→10-day free-look(§10127.9)
- Medigap policy→30-day free-look
- HMO complaint→DMHC(Knox-Keene)
- PPO/indemnity issue→CDI
- Employer 2-19→Cal-COBRA
California Code Terms
- CDI
- Regulates insurers, producers
- Commissioner
- Elected since 1991
- DMHC
- Regulates HMOs, Knox-Keene
- §790.03
- Unfair practices prohibited
- CLHIGA
- Insolvency guaranty fund
- Cal-COBRA
- Groups 2-19 continuation
- Twisting
- Replace, different insurer
- Churning
- Replace, same insurer
- Rebating
- Illegal inducement to buy
CA Limits + Protections
- Life free-look
- 10 days standard
- Senior free-look
- 30 days, age 60+
- Health free-look
- 10 days
- Medigap free-look
- 30 days
- CLHIGA life
- $300,000 death benefit
- CLHIGA annuity
- $250,000 present value
- CLHIGA health
- $500,000 claims
- Senior Bill of Rights
- Age 65+ protections
Common Traps
Term vs Whole Life
Term: no cash value ≠ Whole: guaranteed cash value
10-day vs 30-day free-look
Standard life: 10 days ≠ Seniors 60+: 30 days
Twisting vs Churning
Twisting: different insurer ≠ Churning: same insurer
Medicare vs Medi-Cal
Medicare: age-based ≠ Medi-Cal: needs-based
CDI vs DMHC
CDI: insurers, PPO ≠ DMHC: HMOs, Knox-Keene
Cal-COBRA vs COBRA
Cal-COBRA: 2-19 ≠ Federal COBRA: 20+
Insurable interest timing
Life: at issue ≠ Property: at loss
Last Minute
- 1.Pass 60%; 150 Qs total
- 2.PSI vendor; $88 + $33 per line
- 3.12-hr Ethics + Code pre-license (AB 943)
- 4.Life free-look 10d; seniors 60+ 30d
- 5.Health free-look 10d; Medigap 30d
- 6.CLHIGA life 300K, health 500K
- 7.Incontestability locks after 2 years
- 8.Commissioner elected; DMHC runs HMOs
- 9.Twisting = across; churning = within
- 10.Cal-COBRA = 2-19; federal = 20+
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