Cheat sheet
California Life & Health Insurance Cheat Sheet
Life Insurance (49 Life Qs, incl. annuities)
- 65% of exam
- Life Basics Life Policy Types Provisions + Riders Beneficiaries Taxation
Annuities (8 of 75 Life Qs)
- 10.7% of exam
- Annuity Types Phases + Payouts Annuity Taxation Suitability
Health + Disability (A&H exam)
- 75% of exam
- Medical Expense Managed Care Disability + LTC Medicare ACA
California Code + Ethics (across sections)
- Not published of exam
- CA Free-Look CLHIGA Knox-Keene + DMHC Unfair Practices Senior Protections
Quick Facts
- Exam CA Life & Health
- Questions 75 per line; 150 combined
- Time 90 min each; combined 3 hr
- Pass 60% each line
- Body California Dept of Insurance
- Vendor PSI Services
- Fee $55 CDI + $43 PSI
- Pre-license 12 hrs Ethics + Code
Contract Features LI
- A-U-C-A: Aleatory, Unilateral, Conditional, Adhesion
- Aleatory: unequal Unilateral: insurer promise Conditional: meet terms Adhesion: take-it
Term vs Whole Life LI
Term
- Temporary
- No cash value
- Lowest premium
Whole Life
- Permanent
- Guaranteed cash value
- Level premium
- Temporary vs lifelong
Which Life Policy? LI
- 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 LI
- 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 LI
- Cash, Reduced paid-up, Extended term
- Cash surrender Reduced paid-up Extended term: default
Revocable vs Irrevocable LI
Revocable
- Change anytime
- No consent
- Owner control
Irrevocable
- Needs consent
- No surrender alone
- Vested right
- Owner control vs consent
Life Policy Types LI
- Term Temporary, no cash value Lowest 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 LI
MEC
- Fails 7-pay
- LIFO taxed
- 10% penalty
Non-MEC
- Passes 7-pay
- FIFO basis first
- Tax-favored loans
- Funded too fast
Policy Provisions LI
- Incontestability Max 2 years after issue
- Grace period At least 60 days
- Reinstatement Proof of insurability + back premiums
- Free-look Return for refund
- Nonforfeiture Guaranteed lapse values
- Suicide clause Excluded first 2 years
- Dividends Par policy refund
Common Riders LI
- 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 LI
- 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 LI
- 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 AN
- LIFO: gains out first, ordinary income
- LIFO order Ordinary income 10% pre-59½
Fixed vs Variable Annuity AN
Fixed
- Guaranteed rate
- Insurer risk
- Not a security
Variable
- Subaccounts
- Owner risk
- Security license
- Guaranteed vs market
Which Annuity? AN
- 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 AN
- Fixed Guaranteed rate; insurer risk
- Variable Subaccounts; owner risk Security
- 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 HE
HMO
- PCP + referrals
- In-network only
- DMHC regulated
PPO
- No referral
- Out-of-network covered
- Higher cost
- Gatekeeper vs flexibility
Health + Managed Care HE
- 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 HE
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 HE
- 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 CA
- Life 300, Annuity 250, Health indexed
- Life: 80% to $300K Annuity: 80% to $250K Health: $661,862 (2024) No sales inducement
Twisting vs Churning CA
Twisting
- Misrepresentation
- Different insurer
- Replace policy
Churning
- Misrepresentation
- Same insurer
- Replace internally
- Across vs within insurer
Which CA Rule? CA
- Buyer age 60+ → 30-day free-look ( §10127.10 )
- Buyer under 60 → 10-30 day free-look ( §10127.9 )
- Medigap policy → 30-day free-look
- HMO complaint → DMHC ( Knox-Keene )
- Insurer-underwritten PPO issue → CDI
- Employer 2-19 → Cal-COBRA
California Code Terms CA
- CDI Regulates insurers, producers
- Commissioner Elected; Prop 103 (1988)
- 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 CA
- Life free-look Insurer sets 10-30 days
- Senior free-look At least 30 days, 60+
- Replacement refund 30 days from delivery
- Medigap free-look 30 days
- CLHIGA life 80% up to $300,000
- CLHIGA annuity 80% up to $250,000
- CLHIGA health Indexed; $661,862 (Mar 2024)
- Senior Bill of Rights CDI consumer guide for seniors
Common Traps
Term vs Whole Life
- Term: no cash value ≠ Whole: guaranteed cash value
Under-60 vs 60+ free-look
- Under 60: 10-30 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, certain PPOs ≠ 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; $55 + $43 fee
- 3. 12-hr Ethics + Code pre-license (AB 943)
- 4. Under 60: 10-30d; 60+: 30d
- 5. Replacement 30d; Medigap 30d
- 6. CLHIGA life 300K; health indexed
- 7. Incontestable after 2 years max
- 8. Commissioner elected; DMHC runs HMOs
- 9. Twisting = across; churning = within
- 10. Cal-COBRA = 2-19; federal = 20+