2.1 Maryland Life Insurance Policy Requirements

Regulatory Authority

The Maryland Insurance Administration (MIA) is the state agency that regulates every life insurance policy delivered in Maryland. It is headed by the Insurance Commissioner, an appointed official (not elected) who serves a fixed term. The MIA enforces the Insurance Article of the Annotated Code of Maryland and the Code of Maryland Regulations (COMAR) Title 31.

Core MIA functions tested on the exam:

• Licenses producers and adjusters, and administers the 24-hour biennial continuing education requirement.
• Reviews and approves policy forms and rates before they may be sold (prior-approval state for forms).
• Investigates consumer complaints and issues market-conduct exams.
• Issues cease-and-desist orders, levies fines, and suspends or revokes licenses.

Free Look Period

Maryland requires a 10-day free look on individual life policies, beginning on the date the policy is delivered to the owner — not the application date or issue date.

During the free look the owner may return the policy for a full refund with no penalty or fees. The free look is separate from, and shorter than, the longer review windows triggered by replacement transactions.

Incontestability Clause

Under Insurance Article 16-203, a life policy becomes incontestable after it has been in force for 2 years during the insured's lifetime.

• After 2 years the insurer cannot void the policy for a material misrepresentation on the application.
• Fraud, nonpayment of premium, and impersonation are never barred — these can be contested at any time.
• A lapsed-then-reinstated policy starts a new 2-year period running only from the reinstatement date.

Trap: Candidates confuse incontestability with the free look. Incontestability protects the beneficiary from claim denial after 2 years; the free look protects the buyer in the first 10 days.

Suicide Clause

Maryland limits the suicide exclusion to a maximum of 2 years from issue:

• If the insured dies by suicide within 2 years, the insurer refunds premiums paid (no death benefit).
• After 2 years, suicide is paid like any other death.
• A reinstatement may restart the 2-year suicide window. Accidental death (AD&D) riders carry their own exclusions and are not affected by the base suicide clause.

Grace Period Requirements

This is the single most-missed Maryland fact. Under Insurance Article 16-202, an individual life policy must give a 30-day grace period for premiums due after the first. The 31-day figure students memorize applies to group life insurance, a separate statute.

During grace the policy stays in force. If the insured dies during the grace period, the death benefit is paid minus the one premium that was due. The policy cannot lapse for late payment until the grace period expires.

Worked example: A $250,000 individual policy with a $200 monthly premium due June 1 lapses only after July 1 (30 days). If the insured dies June 20, the beneficiary receives $250,000 − $200 = $249,800.

Required Standard Provisions

Every Maryland individual life policy must contain these mandatory provisions:

Beneficiary and Insolvency Protections

Life insurance proceeds payable to a named beneficiary are generally exempt from the creditors of the insured under Maryland law. Insurers must use good-faith efforts to locate beneficiaries.

The Maryland Life and Health Insurance Guaranty Corporation (created 1980) protects policyholders if a member insurer becomes insolvent:

• $300,000 in life insurance death benefits per insured life
• $100,000 in cash surrender or withdrawal value for life insurance
• $250,000 present value of annuity benefits

Trap: Producers may not advertise the guaranty corporation as an inducement to buy — using it in a sales pitch is an unfair trade practice.

Policy Delivery and Settlement Options

Delivery is legally significant in Maryland because it starts the free-look clock and confirms the contract. The producer should obtain a signed delivery receipt and, on policies issued other than as applied for, secure a statement of good health if the first premium was not collected with the application.

When delivering, the producer must:

• Attach all riders, endorsements, and amendments to the contract.
• Display the free-look notice prominently on or with the policy.
• Explain the settlement (payout) options available to the beneficiary.

Maryland life policies offer standard settlement options the owner or beneficiary may elect:

Worked example: A beneficiary elects a fixed-period option of 10 years on a $300,000 benefit. The insurer pays level installments that include principal plus interest; if the beneficiary dies before 10 years, the remaining guaranteed payments go to a contingent payee, not the insurer.

Trap: Death proceeds paid as a lump sum are income-tax-free, but the interest portion of installment or interest-only options is taxable to the beneficiary.