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Maryland Changes Testing Provider to Prometric

The Maryland Insurance Administration has selected a new testing provider for their state insurance exams. Beginning October 1, 2020, Prometric will be the testing provider for Maryland insurance exams. Continue reading to view Life & Health and Property & Casualty course addendums.

> Maryland Life & Health Addendum
Maryland Property & Casualty Addendum


Addendum: for use with Maryland Life & Health online ExamFX courses and study guide version 20891en/20895en, per exam content outline updates effective 1/1/2020.

Please note that Maryland is changing testing providers. Effective 10/1/2020, state insurance exams will be administered by Prometric. For additional information about exam requirements and complete exam content outlines, please review the Licensing Information Bulletin at

The following are additions to supplement your existing text:


General Insurance

A. Concepts

2. Risk Management Key Terms


Exposure is a unit of measure used to determine rates charged for insurance coverage. In life insurance, all of the following factors are considered in determining rates:

  • The age of the insured;
  • Medical history;
  • Occupation; and
  • Sex.

A large number of units having the same or similar exposure to loss is known as homogeneous. The basis of insurance is sharing risk among the members of a large homogeneous group with similar exposure to loss.

B. Insurers

Mutual Assessment Insurers

A mutual assessment insurer is a mutual insurance company with the right to assess policyholders' additional amounts of premium to meet operational needs. Like a regular Mutual Insurer, profits are distributed to the policyholders. Unlike Stock or regular Mutual Insurers, if an Assessment Insurer loses money in a given year, all policyholders can be assessed their fair share of the losses.

C. Producers and General Rules of Agency

Captive vs. Independent Producers

Exclusive or captive agents represent only one company and are compensated by commissions.
Independent agents sell the insurance products of several companies and work for themselves or other agents. The independent agent owns the expirations of the policies he/she sells, meaning they may place that business with another insurer upon renewal if in the best interest of the client.

D. Contracts

2. Distinct Characteristics of an Insurance Contract

Personal Contract

In general, an insurance contract is a personal contract because it is between the insurance company and an individual. Because the company has a right to decide with whom it will and will not do business, the insured cannot be changed to someone else without the written consent of the insurer, nor can the owner transfer the contract to another person without the insurer's approval. Life insurance is an exception to this rule: A policyowner can transfer (or assign) ownership to another person. However, the insurer must still be notified in writing.

Insurance Regulation

A. Licensing

3. Types of Licensees


Insurance consultants offer advice to the public about the benefits, advantages and disadvantages of insurance policies for a fee.


An insurance producer license is not required of any officer, director or employee of an insurer or organizations employed by insurers, provided they are not directly or indirectly involved with the actual sale of an insurance contract and do not receive any commission.

Furthermore, the following individuals are NOT required to hold an insurance producer license:

  • A director or employee of an insurer whose activities are limited to executive, administrative, managerial, or clerical;
  • The director or employee of a special agent assisting insurance producers by providing technical advice and assistance to licensed insurance producers;
  • A person who secures and furnishes information for group insurance or performs administrative services related to mass-marketed property and casualty insurance;
  • An employer or association engaged in the administration or operation of a program of employee benefits for the employer's or association's own employees;
  • Employees of insurers or organizations engaging in the inspection, rating or classification of risks, or in the supervision of the training of insurance producers and who are not individually engaged in the sale of insurance;
  • A person whose activities are limited to advertising without the intent to solicit insurance;
  • A nonresident who sells, solicits or negotiates a contract of insurance for commercial property and casualty risks to an insured with risks located in more than one state insured under that contract; or
  • A salaried full-time employee who counsels or advises his or her employer relative to the insurance interests of the employer or subsidiaries.

4. Renewal and Maintenance

Requirement to Report Other States Actions

An insurance producer must report to the Commissioner any administrative action taken against him/her in another jurisdiction or by another governmental agency in Louisiana within 30 days of the final disposition of the matter.

5. Appointment Procedures

Producer’s Contract with Insurer vs. Producer’s Appointment with Insurer – new section on the outline

A producer's contract with the insurer is a signed agreement between the insurer and the producer that outlines what each party is expected to do. Producer's express authority will be spelled out in the contract. Contractually, only those actions that the agent is authorized to perform will be binding to the principal (insurer). The contract will usually also specify the percent of commission the insurer will pay and the amount of insurance the licensee is expected to sell.

As defined by the Insurance Code, a producer appointment means an agreement between an insurance producer and insurer under which the insurance producer, for compensation, may sell, solicit, or negotiate policies issued by the insurer.

Appointment and Notice of Appointment – addition to the existing text

An appointment is not required for an insurance producer to perform the following duties:

  1. Submit to an insurer an informal inquiry for any kind of life insurance, health insurance, or annuity for which the insurance producer has a license if the insurer has a certificate of authority for that kind of insurance; and
  2. Solicit an application for any kind of life insurance, health insurance, or annuity for which the insurance producer has a license if the insurer has a certificate of authority for that kind of insurance.

Termination of Appointment/Notice to Agent – section has been modified as follows:

Typically, an appointment is valid until terminated. There are several reasons an insurer's appointment of a producer may be terminated. If the agent's license is terminated, all appointments are terminated. When an appointment is terminated, a producer must cease all solicitations on behalf of the insurer.

The insurer is required to update its producer register within 30 days of the termination of a producer appointment. If the insurer is terminating an appointment because of a belief that the producer has engaged in misconduct, the insurer must send written notification of the termination to the Commissioner and notify the producer within 15 days of the date that a notice of termination is sent to the Commissioner. The insurer must also update the insurer's producer register by entering the effective date of the termination.

The insurer must provide any additional documents or information concerning the termination when requested by the Commissioner of Insurance.

If the appointment of an insurance producer is terminated because the producer failed to renew his or her license, once the license is reinstated, the insurer may reappoint the insurance producer retroactively, with the appointment effective on the date that the license expired.

Within 15 days after providing the required notice of producer termination to the Commissioner, an insurer must mail a copy of the notice to the insurance producer at the last known address and by certified mail (return receipt requested, postage prepaid) or by overnight delivery using a nationally recognized carrier. Within 30 days after an insurance producer receives original or additional notice, the insurance producer may file with the Commissioner written comments concerning the substance of the notice. The producer must also simultaneously send a copy of the comments to the insurer. Producer's comments will be made part of the Commissioner's file on the producer.

B. State Regulation

3. Producer Regulation

Acting for an Unauthorized Insurer

A producer cannot transact insurance (except with regard to his own property or person) with or by any insurance company that does not hold a valid certificate of authority. If a producer makes any contract of insurance on behalf of an insurance company that is not licensed to do business in this state, the producer will be personally liable to the insured for the benefits and other aspects of the contract, including the payment of claims.

4. Unfair Trade Practices

Rebating – the dollar amount has been updated

Promotional or educational materials, as well as articles of merchandise with a value that does not exceed $50 are allowed as long as they are not an inducement for purchasing a policy.


Life Insurance Basics

G. Producer Responsibilities

2. Field Underwriting


Consequences of Incomplete Application

Before a policy is issued, all of the questions on the application must be answered. If the insurer receives an incomplete application, the insurer must return it to the applicant for completion. If a policy is issued with questions left unanswered, the contract will be interpreted as if the insurer waived its right to have an answer to the question. The insurer will not have the right to deny coverage based on any information that the unanswered question might have contained.

Disclosures at the Point of Sale – HIPAA

The Health Insurance Portability and Accountability Act (HIPAA) is a federal law that protects health information. HIPAA regulations provide protection for the privacy of certain individually identifiable health information (such as demographic data that relates to physical or mental health condition, or payment information that can identify the individual), referred to as protected health information. Under the Privacy Rule, patients have the right to view their own medical records, as well as the right to know who has accessed those records over the previous 6 years. The Privacy Rule, however, allows disclosures without individual authorization to public health authorities authorized by law to collect or receive the information for the purpose of preventing or controlling disease, injury, or disability.

USA PATRIOT Act/Anti-Money Laundering

The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act, also known as the USA PATRIOT Act was enacted on October 26, 2001. The purpose of the Act is to address social, economic, and global initiatives to fight and prevent terrorist activities. The Act enabled the Financial Crime Enforcement Network (FinCEN) to require banks, broker-dealers, and other financial institutions to establish new anti-money laundering (AML) standards. With new rules in place, FinCEN incorporated the insurance industry into this group.

To secure the goals of the Act, FinCEN has implemented an AML Program that requires the monitoring of all financial transactions and reporting of any suspicious activity to the government, along with prohibiting correspondent accounts with foreign shell banks. A comprehensive customer identification and verification procedure is also to be set in place. The AML program consists of the following minimum requirements:

  • Assimilate policies, procedures and internal controls based on an in-house risk assessment, including:
    • Instituting AML programs similar to banks and securities lenders; and
    • File suspicious activity reports (SAR) with Federal authorities;
  • Appointing a qualified compliance officer responsible for administering the AML program;
  • Continual training for applicable employees, producers and other; and
  • Allow for independent testing of the program on a regular basis.

Suspicious Activity Report (SAR) Rules

Any company that is subject to the AML Program is also subject to SAR rules. SAR rules state that procedures and plans must be in place and designed to identify activity that one would deem suspicious of money laundering, terrorist financing and/or other illegal activities. Deposits, withdrawals, transfers or any other business deals involving $5,000 or more are required to be reported if the financial company or insurer “knows, suspects or has reason to suspect” that the transaction:

  • Has no business or lawful purpose;
  • Is designed to deliberately misstate other reporting constraints;
  • Uses the financial institution or insurer to assist in criminal activity;
  • Is obtained using fraudulent funds from illegal activities; or
  • Is intended to mask funds from other illegal activities.

Some "red flags" to look for in suspicious activity:

  • Customer uses fake ID or changes a transaction after learning that he or she must show ID;
  • Two or more customers use similar IDs;
  • Customer conducts transactions so that they fall just below amounts that require reporting or recordkeeping;
  • Two or more customers seem to be working together to break one transaction into two or more (trying to evade the Bank Secrecy Act (BSA) requirements); or
  • Customer uses two or more money service business (MSB) locations or cashiers on the same day to break one transaction into smaller transactions (trying to evade BSA requirements).

Relevant SAR reports must be filed with FinCEN within 30 days of initial discovery. Reporting takes place on FinCEN Form 108.

Life Insurance Policies

A. Term Insurance

Return of Premium

Return of premium (ROP) life insurance is an increasing term insurance policy that pays an additional death benefit to the beneficiary equal to the amount of the premiums paid. The return of premium is paid if the death occurs within a specified period of time or if the insured outlives the policy term.

ROP policies are structured to consider the low risk factor of a term policy but at a significant increase in premium cost, sometimes as much as 25% to 50% more. Traditional term policies offer a low-cost, simple-death benefit for a specified term but have no investment component or cash value. When the term is over, the policy expires and the insured is without coverage. An ROP policy offers the pure protection of a term policy, but if the insured remains healthy and is still alive once the term limit expires, the insurance company guarantees a return of premium. However, since the amount returned equals the amount paid in, the returned premiums are not taxable.

F. Group Life Insurance


A Multiple-Employer Trust (MET) is made up of two or more employers in similar or related businesses who do not qualify for group insurance on their own because they have a small number of employees. Several small companies band together to create a large pool of people so that the insurance company will provide coverage. This group of employers jointly purchase a single benefits plan to cover employees of each separate employer. METs may be sponsored by life insurance companies, independent administrators, or the employers that form a MET.

A noninsured plan may operate without the services and funds of an insurance company. Once the trust fund is established, it can pay for employees' health care expenses directly (self-funding). The trustee has charge of the funds and all financial activities occur through it. As with any self-funded program, the employer assumes legal responsibility for providing coverage, and the employee has no conversion right upon leaving the group coverage.

Covered Dependents

Participants of group insurance are usually allowed to cover dependents on their policies. Dependent coverage usually applies to the insured's spouse and children, but may also include dependent parents or anyone else on which dependency can be proven.

Benefit Payments

This provision is simply the payment of benefits to the beneficiary designated by the insured person. In the event there is no beneficiary living at the time of death of insured person, the maximum of $2,000 may be paid to any person showing evidence of incurred funeral or other expenses incident to the last illness or death of the insured person.

Contributory vs. Noncontributory

The employer or other group sponsor may pay all of the premiums or share premiums with the employees. When an employer pays all of the premiums, the plan is referred to as a noncontributory plan. Under a noncontributory plan, an insurer will require that 100% of the eligible employees be included in the plan. When the premiums for group insurance are shared between the employer and employees, the plan is referred to as a contributory plan. Under a contributory plan, an insurer will require that 75% of eligible employees be included in the plan.

Credit Life Insurancenew topic on the outline

Credit insurance is a special type of coverage written to insure the life of the debtor and pay off the balance of a loan in the event of the death of the debtor. Credit life is usually written as decreasing term insurance, and it may be written as an individual policy or as a group plan. When written as a group policy, the creditor is the owner of the master policy, and each debtor receives a certificate of insurance.

The creditor is the owner and the beneficiary of the policy although the premiums are generally paid by the borrower (or the debtor). Credit life insurance cannot pay out more than the balance of the debt, so that there is no financial incentive for the death of the insured. The creditors may require the debtor to have life insurance; they cannot, however, require that the debtor buys insurance from a specific insurer.

Life Insurance Policy Provisions, Options, and Riders

C. Policy Loans and Withdrawals

Education Loans

Educational loan provisions may be included as additional benefits, as part of the policy, or as a rider or as a separate agreement, subject to the following requirements:

  • The loan applicant is a covered individual under the life policy.
  • The purpose of the loan is to provide funds for a covered individual to attend an institution of higher learning, a trade school, or technical school.
  • Age eligibility of the individual for whom the educational loan will be used may be limited to an age range no less restrictive than age 15 to age 25, subject to continued life insurance coverage of the covered individual during this duration.
  • The individual for whose education the loan will be used must attend a qualifying institution at least half-time and must maintain an academic record sufficient to demonstrate reasonable progression or advancement.

The amount of funds available for an educational loan shall be specified in the policy, and shall be further limited to an amount not to exceed the actual cost of the school or institution during any given year of attendance.


E. Uses of Annuities

Charitable Gift Annuities

A charitable gift annuity is a type of planned giving, where a donor (individual annuitant or couple) makes an arrangement with a nonprofit organization (charity) that upon the donor’s death, the balance of the assets in the annuity account will be retained by the organization as a gift. Charitable gift annuities provide a charitable donation, a partial income tax deduction for the donation, and a guaranteed lifetime income for the annuitant and sometimes a spouse or other beneficiaries.

Suitability in Annuity Transactions

It is a producer's responsibility to make sure that annuity transactions address consumers' needs and financial objectives. To ensure suitability, producers must make a reasonable effort to obtain relevant information from the consumer and evaluate the following factors:

  • Age;
  • Annual income;
  • Tax status;
  • Financial needs and timeline;
  • Investment objectives;
  • Liquidity needs and liquid net worth;
  • Existing assets;
  • Intended use of annuity;
  • Financial experience; and
  • Risk tolerance.

Qualified Plans – new chapter on the outline

A. General Requirements

An employer-sponsored qualified retirement plan is approved by the IRS, which then gives both the employer and employee benefits such as deductible contributions and tax-deferred growth.

Qualified plans have the following characteristics:

  • Designed for the exclusive benefit of the employees and their beneficiaries;
  • Are formally written and communicated to the employees;
  • Use a benefit or contribution formula that does not discriminate in favor of the prohibited group — officers, stockholders, or highly paid employees;
  • Are not geared exclusively to the prohibited group;
  • Are permanent;
  • Are approved by the IRS; and
  • Have a vesting requirement.

B. Plan Types, Characteristics, and Purchasers

1. Self-Employed Plans (HR-10 or Keogh Plans) 

HR-10 or Keogh plans make it possible for self-employed persons to be covered under an IRS qualified retirement plan. These plans allow the self-employed individuals to fund their retirement programs with pre-tax dollars as if under a corporate retirement or pension plan. To be covered under a Keogh retirement plan, the person must be self-employed or a partner working part time or full time who owns at least 10% of the business.

Contribution limits are the lesser of an established dollar limit or 100% of their total earned income. The contribution is tax deductible, and it accumulates tax deferred until withdrawal.

Upon a participant's death, payouts can be available immediately. If a participant becomes disabled, he or she may collect benefits immediately or the funds can be left to accumulate. When a participant enters retirement, distribution of funds must occur no earlier than 59½ and no later than 70½. If withdrawn before 59½, there is a 10% penalty. At any time payments may be discontinued with no penalty, and funds can be left to accumulate.

Under eligibility requirements, any individual who is at least 21 years of age, has worked for a self-employed person for one year or more, and worked at least 1,000 hours per year (full time) must be included in the Keogh Plan. The employer must contribute the same percentage of funds into the employee’s retirement account as he/she contributes into his/her own account.

2. Simplified Employee Pensions (SEPs)     

A Simplified Employee Pension (SEP) is a type of qualified plan suited for the small employer or for the self-employed. In a SEP, an employee establishes and maintains an individual retirement account to which the employer contributes. Employer contributions are not included in the employee’s gross income. The primary difference between a SEP and an IRA is the much larger amount that can be contributed each year to a SEP (an IRS established annual dollar limit or 25% of the employee’s compensation, whichever is less).

3. SIMPLE Plans

A SIMPLE (Savings Incentive Match Plan for Employees) plan is available to small businesses that employ no more than 100 employees who receive at least $5,000 in compensation from the employer during the previous year. To establish a SIMPLE plan, the employer must not have a qualified plan already in place. Employees who elect to participate may defer up to a specified amount each year, and the employer then makes a matching contribution, dollar for dollar, up to an amount equal to 3% of the employee's annual compensation. Taxation is deferred on both contributions and earnings until funds are withdrawn.

C. Taxation

1. Tax Advantages for Employers and Employees

If the general requirements for qualified plans are met, the following tax advantages apply:

  • Employer contributions are tax deductible to the employer, and are not taxed as income to the employee;
  • The earnings in the plan accumulate tax deferred; and
  • Lump-sum distributions to employees are eligible for favorable tax treatment.

2. Taxation of Distributions (Age Related)

Benefits in qualified plans are taxable to the plan participant when they are received during retirement, at a time when the retired person is likely to be in a much lower tax bracket. Distributions prior to age 59½ impose a 10% penalty, unless they fall under an exception to the 10% penalty.

The following types of distributions are considered exceptions to the early distribution rule and, therefore, are not subject to the 10% early withdrawal penalty:

  • Death of the participant;
  • The participant's disability;
  • A divorce decree requiring a distribution to a spouse as part of the settlement;
  • As a series of equal payments (at least annually) over the participant's life expectancy;
  • A loan from the plan; or
  • As part of a qualified rollover.


Health Insurance Basics

D. Limited Policies

3. Types of Limited Policies

Critical Illness

A critical illness policy covers multiple illnesses, such as heart attack, stroke, renal failure, and pays a lump-sum benefit to the insured upon the diagnosis (and survival) of any of the illnesses covered by the policy. The policy usually specified a minimum number of days the insured must survive after the illness was first diagnosed.

Short-Term Medical

Short-term medical insurance plans are designed to provide temporary coverage for people in transition (those between jobs or early retirees), and are available for terms from one month up to 11 months, depending on the state. Unlike regular individual major medical plans, short-term health insurance policies are not regulated by the Affordable Care Act and their enrollment is not limited to the open enrollment period; they also do not meet the requirements of the federally mandated health insurance coverage.

Like traditional health plans, short-term plans may have medical provider networks, and impose premiums, deductibles, coinsurance and benefit maximums. They also cover physician services, surgery, outpatient and inpatient care.

F. Producer Responsibilities in Individual Health Insurance

Notification of Medicare Eligibility

When a health insurance is terminated because the insured attains the maximum age stated in the policy, the insured must be notified of eligibility to apply for coverage under Medicare.

Disability Income and Related Insurance

A. Individual Disability Income Insurance

Annual Renewable Term Rider

This rider incorporates annual renewable term life insurance into the Disability Income policy. The policy now will provide a death benefit in addition to the disability benefits.

C. Individual Disability Underwriting

Policy Issuance Alternatives

If the underwriter feels that applicant is too great of a risk, the applicant could be declined. However, if the risk is more than standard but less than a decline, the underwriter could offer the policy on a rated-up basis or issue the contract with an exclusion rider. If the policy is rated up, the premium will be increased. If a policy contains an exclusion rider, then the loss related to that exclusion would not be covered.

Workers Compensation – new section on the outline

Workers Compensation is a benefit offered and regulated by the states, and will vary to some degree from state to state.

Eligibility: To be eligible for Workers Compensation benefits, the worker must work in an occupation covered by Workers Compensation and have had an accident or sickness that is work related. Workers Compensation benefits are payable when a worker is injured by a work-related injury, regardless of fault or negligence.

Benefits: Workers Compensation laws provide four types of benefits:

  1. Medical benefits;
  2. Income benefits;
  3. Death benefits; and
  4. Rehabilitation benefits.

Medical Plans

B. Types of Providers and Plans

3. Health Service Plans

Plans Offered

Health service providers may be formed to operate as:

  • Fraternals;
  • Health maintenance organizations;
  • Preferred provider organizations;
  • Medical service corporations; or
  • Nonprofit medical service corporations.

Other Services

Health care service providers may provide other services such as dental care, vision care, hearing care, etc.

Qualified Providers

A medical service corporation cannot condition its willingness to allow any physician or other provider of health services to participate in a preferred provider arrangement on such physician's or provider's agreeing to enter into other contracts or arrangements with the medical service corporation or any other person that are not part of or related to the preferred provider arrangement.

Choice of Provider

Nothing in the regulations can prevent a health service plan from reimbursing a subscriber for services received in a non-participating hospital within or outside the Commonwealth in the event of accident, illness or maternity or, upon the written direction of the subscriber, from making payment to said hospital for such services, provided, however, that the amount of such reimbursement and payment to any such hospital can be based upon the charges of the hospital in effect on the date of services.

Disclosure of Benefits

No accident and health insurance policy or contract can be issued in this state unless the appropriate disclosure form is delivered to the policyholder. The specific form that must be used depends on the coverage provided in the policy. Generally, the disclosure form lists the major benefits and exclusions of the policy.

Should an insurer issue an insurance policy providing coverage different than that applied for, the outline of coverage describing the policy must advise the recipient to read the outline carefully, pointing out that the policy is not identical to the coverage requested.

5. Preferred Provider Organizations (PPOs)

Open Panel or Closed Panel

When a medical caregiver contracts with a health organization to provide services to its members or subscribers, but retains the right to treat patients who are not members or subscribers, it is referred to as open panel. In an open panel arrangement, the doctors are not considered to be employees of the health organization.

When the medical caregiver provides services to only members or subscribers of a health organization, and contractually is not allowed to treat other patients, it is referred to as closed panel. In a closed panel arrangement, the doctors are considered employees of the health organization.


TRICARE is a regionally managed health care program for active duty and retired members of the uniformed services, their families, and survivors. TRICARE utilizes the resources of the Army, Navy and Air Force and supplements them with networks of civilian health care professionals to provide better access and high quality service while maintaining the capability to support uniformed services operation. TRICARE has been implemented to:

  • Improve overall access to health care for members;
  • Provide faster, more convenient access to civilian health care;
  • Create a more efficient way to receive health care;
  • Offer enhanced services, including preventive care;
  • Provide choices for health care; and
  • Control escalating costs.

TRICARE offers eligible members 3 choices for their health care:

  1. TRICARE Prime
  2. TRICARE Extra
  3. TRICARE Standard

Under TRICARE Prime, the principal source of health care will be provided from a Military Treatment Facility (MTF). The TRICARE contractor’s Preferred Provider Network (PPN) can then supplement the healthcare. The second choice, TRICARE Extra, is a preferred provider option where the member chooses a doctor, hospital or other medical provider listed in the TRICARE Provider Directory. TRICARE Standard is the new name for the traditional CHAMPUS. Under this plan, the members can see the authorized provider of their choice. However, this type of flexibility means that care generally cost more.

Health Savings Accounts (HSAs) and Health Reimbursement Accounts (HRAs)

Health Savings Account (HSA)

Health savings accounts (HSAs) are designed to help individuals save for qualified health expenses that they, their spouse, or their dependents incur. An individual who is covered by a high deductible health plan can make a tax-deductible contribution to an HSA, and use it to pay for out-of-pocket medical expenses. Contributions by an employer are not included in the individual's taxable income.


To be eligible for a Health Savings Account, an individual must be covered by a high deductible health plan (HDHP), must not be covered by other health insurance (does not apply to specific injury insurance and accident, disability, dental care, vision care, long-term care), must not be eligible for Medicare, and can't be claimed as a dependent on someone else's tax return.

Contribution Limits

HSAs are linked to high deductible insurance. A person may obtain coverage under a qualified health insurance plan with established minimum deductibles ($1,400 for singles and $2,800 for families in 2020).

Each year eligible individuals (or their employers) are allowed to save up to certain limits, regardless of their plan's deductible (current contribution limits are $3,550 for singles and $7,100 for families). When opening an account, an individual must be under the age of Medicare eligibility. For taxpayers aged 55 and older, an additional contribution amount is allowed (up to $1,000).

An HSA holder who uses the money for a nonhealth expenditure pays tax on it, plus a 20% penalty. After age 65, a withdrawal used for a nonhealth purpose will be taxed, but not penalized.

Health Reimbursement Account (HRA)

Health Reimbursement Accounts (HRAs) consist of funds set aside by employers to reimburse employees for qualified medical expenses, such as deductibles or coinsurance amounts. Employers qualify for preferential tax treatment of funds placed in an HRA in the same way that they qualify for tax advantages by funding an insurance plan. Employers can deduct the cost of a health reimbursement account as a business expense.

The following are key characteristics of HRAs:

  • They are contribution healthcare plans, not defined benefit plans;
  • Not a taxable employee benefit;
  • Employers' contributions are tax deductible;
  • Employees can roll over unused balances at the end of the year;
  • Employers do not need to advance claims payments to employees or healthcare providers during the early months of the plan year;
  • Provided with employer dollars, not employee salary reductions;
  • Permit the employer to reduce health plan costs by coupling the HRA with a high-deductible (and usually lower-cost) health plan; and
  • Balance the group purchasing power of larger employers and smaller employers.


HRAs are open to employees of companies of all sizes; however, the employer determines eligibility and contribution limits.

Contribution Limits

An HRA has no statutory limit. Limits may be set by employer, and rollover at the end of the year based on employer discretion. Former employees, including retirees, can have continued access to unused HRAs, but this is done at the employer's discretion. HRAs remain with the originating employer and do not follow an employee to new employment.

Group Health Insurance

B. Defined Groups

Creditor Groups

Creditor group, also called credit life and credit disability income insurance, is a specialized use of group life and group health insurance that covers debtors (borrowers). It protects the lending institution from losing money as the result of a borrower’s death or disability. The contract owner is the creditor, such as a bank, a small-loan company, or a credit union. Generally, the debtor is the premium payor, but the lending institution is the beneficiary of the policy. If the debtor dies or becomes disabled, the insurance proceeds are paid to the creditor to liquidate the indebtedness. The amount of insurance cannot exceed the amount of indebtedness.

Small Employer Medical Plans

As a condition of transacting business in this state with small employers, every small employer carrier is required to actively offer to small employers at least 2 health benefit plans:

  1. Basic health benefit plan; and
  2. Standard health benefit plan.

Basic Care is a managed plan developed in conjunction with the Health Benefit plan committee. The Basic Care is lower in cost than the Standard Benefit Plan. A Standard Benefit Plan is a managed care plan developed in conjunction with the Health Benefit plan committee that provides better benefits at a higher cost than the Basic Care Plan.

Small employer means any person, firm, corporation, partnership or association that is actively engaged in business that, on at least 50% of its working days during the preceding calendar year, employed no more than 50 eligible employees, the majority of whom were employed within the state.

Availability of Coverage

As a condition of transacting business in this state with small employers, every small employer carrier is required to actively offer to small employers at least 2 health benefit plans. One plan offered by each small employer carrier must be a basic health benefit plan and one plan must be a standard health benefit plan.

Disclosure of Coverage Provisions

When offering health insurance to small employer, insurance issuers must make a reasonable disclosure in their solicitation and sales material about:

  • How premium rates are adjustable due to the claim experience and health status of the employees and their dependents;
  • The provisions concerning the insurer's right to change premium rates;
  • The provisions relating to pre-existing conditions; and
  • The provisions relating to renewability of coverage.


A small employer medical plan must be renewable with respect to all eligible employees and dependents, at the option of the small employer, except in any of the following cases:

  • Nonpayment of required premiums;
  • Fraud or misrepresentation;
  • Noncompliance with the carrier’s minimum participation or employer contribution requirements;
  • Repeated misuse of a provider network provision;
  • The small employer carrier elects to nonrenew all of its health benefit plans delivered or issued for delivery to small employers; or if
  • The Department of Insurance finds that the continuation of the coverage would not be in the best interests of the policyholders, or may impair the carrier’s ability to meet its contractual obligations.

Dental Insurance

Employer Group Dental Expense

Integrated Deductible vs. Stand-Alone Plans

Dental plans attempt to minimize adverse selection by utilizing probationary periods, where insureds that had no prior dental coverage are likely to have a large number of untreated dental problems. There can also be a limitation on benefits for late enrollees where benefits may be reduced for the first year. Even though dental coverage is regulated by COBRA continuation rules, it is seldom convertible like individual health insurance.

Minimizing Adverse Selection

Adverse selection occurs when an unusually high percentage of people with high health care costs select a plan that is priced based upon the normal health cost of population average. When this occurs, it seems that the solution would be simply to increase the premium rate. However, this usually causes those in the plan with normal or lower than normal health care costs to leave the plan, leaving insured those with the high health care costs.

Some of the most effective ways of minimizing adverse selection in group insurance is

  • Reducing or restricting the subscriber’s choices of coverage;
  • Providing benefits that all subscribers must accept, whether they will use the benefit or not; or
  • Have waiting periods before coverage becomes effective.

Insurance for Senior Citizens and Special Needs Individuals


Medicaid is a federal and state funded program for those whose income and resources are insufficient to meet the cost of necessary medical care. Individual states design and administer the Medicaid programs (typically through the state's Department of Public Welfare) under broad guidelines established by the federal government.


To qualify for Medicaid, individuals must meet income and other eligibility requirements. Once a person is determined to qualify with low income and low assets, the person must meet other qualifiers, some of which are blindness, disability, pregnancy, age (over 65), or caring for children receiving welfare benefits. For many eligibility groups, income is calculated in relation to a percentage of the Federal Poverty Level (FPL).

After the implementation of the Affordable Care Act, new, modernized rules regarding verification of Medicaid eligibility will mean that state Medicaid agencies will rely primarily on information available through data sources (such as the Social Security Administration, the Departments of Homeland Security and Labor) rather than paper documentation from families. Each state has prepared a verification plan for Medicaid in order to comply with the new rules.

In addition to certain levels of income and assets, there are other nonfinancial eligibility criteria that are used in determining Medicaid eligibility. In order to be eligible for Medicaid, individuals need to satisfy federal and state requirements regarding residency, immigration status, and documentation of U.S. citizenship.


Medicaid mandates that the states provide at least the following services:

  • Physician’s services;
  • Inpatient hospital care;
  • Outpatient hospital care;
  • Skilled nursing home services;
  • Laboratory and x-ray services;
  • Home health care services;
  • Rural health clinic services;
  • Periodic screening, diagnosis, and treatment;
  • Family planning services; and
  • Medicaid also pays for prescription drugs, dental services, private duty nursing services, eyeglasses, check-ups, and medical supplies and equipment.

    Federal Tax Considerations for Health Insurance

    Medical Expense Coverage for Sole Proprietors and Partners

    Sole proprietors and partners may deduct 100% of the cost of a medical expense plan provided to them and their families because they are considered self-employed individuals, not employees. The deduction may not exceed the taxpayer’s earned income for the year.

    D. HSAs, HRAs, and FSAs

    Flexible Spending Accounts

    Flexible Spending Accounts (FSAs) allow consumers to take pre-tax dollars from their paycheck and deposit them in an FSA with their employer. Consumers then submit receipts for healthcare-related expenses for reimbursement, up to a specific amount set by the employer under IRS regulations. FSAs are financially advantageous for consumers because pre-tax dollars are used to pay for healthcare-related expenses.

    Insurance Regulations for Accident and Health Policies

    B. Medical Plans: State Requirements

    4. Medicare Supplement Insurance

    The Commissioner may order insurers violating any Medicare Supplement Insurance policy provision to cease marketing any Medicare supplement policy or take the necessary steps to comply with the provisions. The Commissioner may choose to apply both penalties to provision violations.

    In order to provide for full and fair disclosure in the sale of Medicare supplement policies, no individual Medicare supplement policy or certificate will be delivered or issued for delivery in this state unless the outline of coverage is delivered to the applicant at the time of application. The outline of coverage must follow the format and content prescribed by the Commissioner. The outline of coverage must include the following:

  • A description of the principal benefits and coverage provided in the policy;
  • A statement of the exceptions, reductions, and limitations contained in the policy;
  • A statement of the renewal provisions, including any reservation by the insurer of a right to change premiums;
  • A disclosure of the existence of automatic renewal premium increases based on the insured's age; and
  • A statement that the outline of coverage is a summary of the policy issued or applied for and that the policy should be consulted to determine governing contractual provisions.

    Medicare supplement policies will have a notice prominently printed on the first page of the policy stating in substance that the policyholder will have the right to return the policy within 30 days after delivery and to have any premium refunded if, after examination the policyholder is not satisfied for any reason. The insurer must pay any refund made directly to the policyholder in a timely manner.

    In addition to the outline of coverage, producers must also deliver a buyer's guide, prior to the application process. The guide covers differences between policies, coverage provided under policies, and steps taken to purchase coverage.

    When soliciting Medicare supplement insurance in Maryland, producers must verify that an applicant is not currently enrolled in an existing Medicare supplement policy and is not currently receiving Medicaid benefits. The producer must obtain a written statement verifying the information provided by the applicant. Insurers and producers cannot solicit Medicare supplement policies to any individual who is not eligible for Medicare or are eligible for Medicaid benefits.

    During the advertisement or solicitation of health insurance to an individual eligible for Medicare, insurers and producers are prohibited from:

  • Stating or implying the insurer or producer represents a federal, state, or local government agency;
  • Stating offered Medicare supplement coverage is approved or recommended by a federal, state, or location government agency;
  • Using the terms "Medicare consultant," "Medicare adviser," "Medicare bureau," "disability insurance consultant," or similar wording;
  • Making a misrepresentation or fraudulent comparison of a policy intended to induce the sale or replacement of a policy or take out a policy with another insurer; and
  • Knowingly or negligently selling a Medicare supplement policy that duplicates existing coverage.

    The purpose of the state policy and procedure regarding advertisements of Medicare Supplement insurance is to:

  • Provide prospective purchasers with clear and unambiguous statements in the advertisement; and
  • Ensure the clear and truthful disclosure of the benefits, limitations and exclusions of policies sold as Medicare supplement insurance.

    To this end, the Administration has established guidelines and standards of conduct in the advertising of Medicare supplement insurance to prevent unfair, deceptive and misleading advertising. Every insurer is required to establish and at all times maintain a system of control over the content, form and method of dissemination of all of its Medicare supplement insurance advertisements. All such advertisements, regardless of by whom written, created, designed or presented, are the responsibility of the insurers benefiting directly or indirectly from their dissemination. Insurers must provide the Commissioner with copies of intended advertisements no sooner than 5 days before use.

    The following minimum coverages must be provided by Medicare supplement policies:

  • Coverage for Medicare Part A eligible expenses for the initial Medicare deductible for hospitalization in any Medicare benefit period;
  • Coverage of Medicare Part A eligible expenses for hospitalization to the extent that they are not covered by Medicare for the 61st day through the 90th day in any Medicare benefit period;
  • Coverage for Medicare Part A eligible expenses incurred as daily hospital charges to the extent that they are not covered by Medicare during the use of Medicare's lifetime hospital inpatient reserve days;
  • Upon exhaustion of all Medicare inpatient hospital coverage, including the lifetime reserve days, coverage of 90% of all Medicare Part A eligible expenses for hospitalization not covered by Medicare, subject to a lifetime maximum benefit of an additional 365 days;
  • Coverage for the coinsurance amount of Medicare eligible expenses under Medicare Part B, regardless of hospital confinement;
  • Coverage under Medicare Part A for the reasonable cost of the first 3 pints of blood, or an equivalent, in any calendar year unless replaced in accordance with federal regulations or already paid for under Medicare Part B;
  • Coverage under Medicare Part B for the reasonable cost of the first 3 pints of blood, or an equivalent, in any calendar year unless replaced by or already paid for under Part A; and
  • An annual low-dose mammography screening.

    Insurers are also required to offer Medicare supplement policy plan A to an individual younger than age 65 who is eligible for Medicare due to a disability during the 6-month period following notification of Medicare enrollment.

    The following provisions apply to Medicare supplement policies sold in this state:

  • Must provide minimum benefits required by federal law;
  • Benefits regarding deductibles and coinsurance must coincide with changes applicable to Medicare provisions;
  • Cannot exclude or limit benefits for losses involving pre-existing conditions incurred more than 6 months after the effective date of coverage;
  • Cannot define a pre-existing condition more restrictively than a condition for which an insured sought medical advice or treatment within 6 months before the effective date of coverage;
  • Payment of benefits by insurers for Medicare eligible expenses may be conditioned upon the same or less restrictive payment conditions, including determinations of medical necessity, as are applicable to medical claims.
  • Cannot contain any exclusion, limitation, or reduction that is inconsistent with those under Medicare;
  • Must provide for suspension of policy benefits and premium for up to 24 months if the covered person is receiving benefits under Medicaid;
  • Waivers may not be included in or attached to a Medicare supplement policy if they exclude, limit, or reduce coverage or benefits for specifically-described diseases or physical conditions.

    Medicare supplement policies may only be cancelled in response to nonpayment of premium or material misrepresentation.

    During the replacement of an existing Medicare supplement policy, the replacing insurer must waive all waiting, elimination, and probationary periods associated with pre-existing conditions. In the event a group policyholder cancels a group Medicare supplement policy, the issuing insurer must offer each insured an individual Medicare supplement policy.

    If an insured's membership in a group is terminated, the insurer must offer a conversion option. At the option of the policyholder, the insurer may instead offer the insured continuation of coverage under the group policy.

    If a group Medicare supplement policy is replaced, the replacing insurer must offer coverage to each individual covered under the replaced policy. Coverage may not be excluded for pre-existing conditions that would have been covered under the original policy.

    Insurers may provide commission or other compensation to an insurance producer for the sale of Medicare supplement policies, only if the first-year commission is no more than 200% of the commissions paid in the second year. Insurers must maintain the same commission amount for at least 5 renewal years. During the replacement of a Medicare supplement policy, an insurer cannot pay a producer a commission in excess of that payable by the replacing insurer.

    Medicare SELECT

    A Medicare SELECT policy is a Medicare supplement policy that contains restricted network provisions — provisions that condition the payment of benefits, in whole or in part, on the use of network providers. SELECT plans negotiate with a provider network of doctors, hospitals and specialist to charge lower rates for medical services. It essentially operates like an HMO. These lower rates keep costs down for the SELECT plan provider, and plan members pay lower premiums.

    Each Medicare SELECT policy must be approved by the head of a state's department of insurance. Currently, issuers are not allowed to sell new Medicare SELECT policies to individuals whose primary residence is located outside of the issuer’s service area.

    Every Medicare SELECT policy must do the following:

  • Provide payment for full coverage under the policy for covered services not available through network providers;
  • Not restrict payment for covered services provided by non-network providers if the services are for symptoms requiring emergency care and it is not reasonable to obtain such services through a network provider;
  • Make full and fair disclosure in writing of the provisions, restrictions, and limitations of the Medicare SELECT policy to each applicant;
  • Make available upon request the opportunity to purchase a Medicare supplement policy offered by the issuer which has comparable benefits and does not contain a restricted network provision. These policies must be available without requiring evidence of insurability if the Medicare SELECT policy has been in force for 6 months; and
  • Provide for continuation of coverage in the event that Medicare SELECT policies are discontinued due to the failure of the Medicare SELECT program.

    C. Long-Term Care

    In Maryland, Long-Term Care insurance is any individual or group insurance policy or rider that is designed to provide coverage for at least 24 consecutive months for each covered person on an expense-incurred, indemnity, prepaid or other basis for necessary diagnostic, therapeutic, rehabilitative, maintenance, or personal care. This care is provided in a setting other than the acute care unit of a hospital. Long-Term Care does not include policies offered primarily to provide basic Medicare supplement, hospital confinement indemnity, basic hospital expense, income protection, accident-only, or skilled nursing coverage.

    Individual long-term care insurance policies must contain a renewability provision, which appears on the first page of the policy. An individual policy may not be issued on any basis other than on a noncancelable or guaranteed renewable basis.

    The premiums for a noncancelable policy must be level for the duration of the policy and may not vary by policy duration or by the attained age of the insured.

    On guaranteed renewable policies, the insurer must establish initial and renewal premiums on the basis that the premium will be level for the remaining duration of the policies.

    Long-term care policies cannot:

  • Be cancelled, nonrenewed, or otherwise terminated on the grounds of the age or the deterioration of the mental or physical health of the insured;
  • Contain a provision establishing a new waiting period if existing coverage is converted to or replaced by another form of Long-Term Care coverage (except for an increase in benefits that the insured voluntarily selected); or
  • Limit coverage to skilled nursing care only or provide a higher level of coverage in a facility for skilled care than coverage for lower levels of care.

    A long-term care policy may not limit or exclude coverage by type of illness, treatment, medical condition, or accident, except under the following circumstances:

  • Mental and nervous disorders; however, coverage for Alzheimer's Disease and senile dementia cannot be limited;
  • Illness, treatment, or medical conditions arising out of war, participation in a felony, service in the armed forces, attempted suicide, or non-fare-paying aviation;
  • Services provided by a member of the covered person's immediate family;
  • Services provided or available under workers compensation, employer's liability, or occupational disease law; or
  • Pre-existing conditions.

A long-term care policy may not exclude coverage for a loss or confinement that results from a pre-existing condition and begins more than 6 months following the effective date of the insured's coverage. A pre-existing condition may not be excluded beyond the 6-month waiting period or the period provided in the policy, if shorter.

The following are provisions that are included in Long Term Care contracts:

  • Prior confinement — A long-term care policy cannot condition eligibility for benefits on a requirement for earlier hospitalization or on the earlier receipt of a higher level of institutional care.
  • Free Look — Except for an employer-employee group policy, a long-term care policy must allow the policyholder to return the policy within 30 days after receiving it for a full refund of premium paid.
  • Inflation protection — An insurer issuing a long-term care policy must offer the option to purchase a policy that provides for benefit levels to increase by at least 5% compounded annually or include another inflation protection option approved by the Commissioner.
  • Producer training — An insurer may not authorize a producer to act as its agent to sell long-term care insurance unless the producer has initially received training in the needs for and purposes of the policies the producer is authorized to sell. After initial training, an insurer may not authorize the producer to sell long-term care insurance unless the producer receives at least 2 hours of continuing education devoted exclusively to long-term care during the preceding 24 months.

    Health insurers offering LTC products in Maryland must adhere to the following advertising and marketing standards:

  • Advertisements for LTC insurance must be submitted to the Commissioner for review, prior to dissemination;
  • Insurer must maintain a record of advertisements for at least 3 years;
  • Insurers marketing LTC insurance must:
    • Create marketing procedures to ensure fair and accurate policy comparisons, prevention of excessive insurance, and adherence to regulatory compliance;
    • Provide senior citizen counseling program information;
    • Identify if applicants are or have been covered under a LTC policy in the past 12 months, are covered under a medical assistance program, or intend to replace existing health coverage with a LTC policy;
    • Disclose information and qualifications for the Qualified State Long-Term Care Insurance Partnership; and
    • Display the following statement on the first page of the outline of coverage:
      • "Notice to Buyer: This policy may not cover all of the costs associated with long-term care incurred by the buyer during the period of coverage. The buyer is advised to review carefully all policy limitations."

The Commissioner may refuse an insurer's marketing materials or advertisements if they do not comply with state requirements.

Insurers must provide LTC applicants with an outline of coverage and buyer's guide, prior to the presentation of an application or enrollment form.

An outline of coverage must include the following:

  • A description of benefits and coverage provided;
  • Exclusions, reductions, and limitations;
  • Renewal provisions, including the right to change the schedule of premiums;
  • Expected premium increases in relation to benefit increases, especially for applicants over the age of 75; and
  • A statement that the outline is a summary and the policy should be consulted to determine contractual provisions.

The buyer's guide must include information on the purchase of LTC insurance, along with a reference to the applicant's ability to return the policy within 30 days of delivery.

In addition to the outline of coverage and buyer's guide, an insurer must provide applicants with a graphic comparison of benefit levels over the course of 20 years.

In the event a group LTC policy is replaced, the replacing insurer must provide coverage to those previously covered under the replaced policy. Replacing insurers may not exclude coverage due to pre-existing conditions. If a group LTC policy is terminated, the insurer must provide covered individuals with the ability to continue coverage or covert coverage to an individual LTC policy. Evidence of insurability is not required if the insured has been covered under the group policy for at least 6 months prior to the date of termination.

An insurer may cancel or refuse to renew a LTC policy only for the nonpayment of premiums or material misrepresentation. An insurer must provide written notice to the insured and/or a designated individual. An extension of benefits may be limited to the duration of the benefit period or to the payment of maximum benefits and may be subject to a waiting period.

Questions in Applications

All long-term care insurance applications, except for the guaranteed issue LTC insurance, must contain clear and unambiguous questions to help determine an applicant's health condition.

If an application asks whether the applicant has had medication prescribed by a physician, the application also must ask the applicant to list the medication that has been prescribed.

A policy may not be rescinded if the insurer knew or should have known that a medication listed in an application was directly related to a medical condition which would normally result in the denial of coverage


Addendum: for use with Maryland Property and Casualty online ExamFX courses and study guide version 24730en/24732en, per exam content outline updates effective 10/1/2020.

Please note that Maryland is changing testing providers. Effective 10/1/2020, state insurance exams will be administered by Prometric. For additional information about exam requirements and complete exam content outlines, please review the Licensing Information Bulletin at

The following are additions to supplement your existing text:


General Insurance

B. Insurers

1. Types of Insurers

Fraternal Benefit Societies

A fraternal benefit society is an incorporated society formed solely for the benefit of its members and their beneficiaries. It is not for profit, and operates on a lodge system, having a representative form of government. Since fraternals sell only to their members and are considered charitable institutions, they are not subject to all of the regulations that apply to insurers that offer coverage to the public at large.

Property Insurance Basics

A. Principles and Concepts

2. Underwriting

Expense Ratio, Combined Ratio

An expense ratio is the percentage of the premium dollar that is devoted to paying the insurer's expenses (other than losses).

A combined ratio is the sum of an expense ratio and a loss ratio. If the combined ratio is under 100%, an underwriting profit occurs. An underwriting loss occurs if the combined ratio is over 100%.

12. Loss Valuation

Stated Amount

A stated amount is an amount of insurance scheduled in a property policy that is not subject to any coinsurance requirements in the event of a covered loss. This scheduled amount is the maximum amount the insurer will pay in the event of a loss.

Valued Policy

Valued policies are used when it is difficult to establish the value of insured property after a loss occurs, or when it is desirable to agree on a specific value in advance. A valued policy provides for payment of the full policy amount in the event of a total loss without regard to actual value or depreciation.

Valued policies often are used in marine coverages because it is very difficult to establish value of the cargo loss after a ship sinks.

C. Policy Provisions

Vacancy or Unoccupancy

Vacancy refers to an insured structure in which no people have been living or working, and no property has been stored for the period of time required as stated in the policy (usually 60 days).

Unoccupancy (nonoccupancy) refers to an insured structure in which no people have been living or working within the required period of time, but some property is stored.

Duties After Loss

In the event of a loss covered by the policy, the named insured is required to

  • Protect the damaged property from further damage;
  • Prepare an inventory of damaged property;
  • Cooperate with the insurer in settling the loss;
  • Notify the police in the case of a theft loss; and
  • Submit to the insurer a signed sworn proof of loss within an allotted amount of time after being requested to do so.


Assignment is the transfer of a legal right or interest in an insurance policy. In property and casualty insurance, assignments of policies are valid only with the prior written consent of the insurer.


Abandonment is the relinquishing of insured property into the hands of another, or into the possession of no one in particular. Most property insurance policies prohibit an insured from abandoning insured property following a loss, and require that the insured protect the property from further loss.


Liberalization is a property insurance clause that extends broader legislated or regulated coverage to current policies, as long as it does not result in a higher premium. For example, if the insurer introduces a new coverage that is free and improves coverage, the insured gets the benefit of the new coverage immediately (liberalization clause), and won't have to wait for their policy renewal.


Salvage is the amount of money realized from the sale of damaged merchandise. An insurer may have a right to salvage the damaged property in an insured loss to recover part of the paid loss.

Claim Settlement Options

At the time of loss, the insurer's loss payment options, or claim settlement options, include paying the least of the following:

  • The value of the lost or damaged property;
  • The cost of repairing or replacing the lost or damaged property;
  • The cost of taking all or part of the property at an agreed or appraised value; or
  • The cost of repairing, rebuilding or replacing the property with other property of like kind and quality.

Third-Party Provisions

Third-party provisions address the rights of a third party that may have a secured financial interest in the insured property.

Standard Mortgage Clause

The standard mortgage clause, also known as loss payable clause, is a basis provision of all property policies for real property. Nonmovable property such as houses and other structures is classified as real property, while movable property such as autos, mobile homes, furniture, and equipment is classified as personal property for insurance purposes. In the event of a loss to real property, payment will be made to the insured and the mortgagee as their insurable interest appears. In other words, the mortgagee's right to recover is limited to the amount of the remaining debt, and at no time will the mortgagee receive more than the insurable interest in the property. If an insurance policy is to be cancelled, a mortgagee must receive prior written notice of such cancellation.

When a mortgagee is named in a mortgagee clause attached to a fire or other direct damage policy, the loss reimbursement will be paid to the mortgagee as their interest may appear. The mortgagee's rights of recovery will not be defeated by any act or neglect of the insured. The mortgagee is also given other rights, such as bringing a suit in their own name to recover damages, paying policy premiums, and submitting a proof of loss. There is nothing that either the insurer or the insured can do to defeat the position of the mortgagee.

Loss Payable Clause

The loss payable clause is the clause used to cover the interest of a secured lender in personal property. If the insurer decides to cancel or not renew a policy, the loss payee must be notified in writing.

No Benefit to the Bailee

The no benefit to the bailee provision excludes any assignment or granting of any policy provision to any person or organization holding, storing, repairing, or moving insured property for a fee. A business that has temporary possession of property of another and will do something with that property for the mutual benefit of both parties is a bailee.

Dwelling Policy

Personal Liability Supplement

Unlike the homeowners policy, the dwelling policy does not include any coverage for personal liability. The personal liability supplement can be added to the dwelling policy or written as a separate policy. Endorsements can be added for comprehensive personal liability (on- or off-premises liability), or premises-only liability if the dwelling is rented to others. The coverage form includes 3 coverages: personal liability (Coverage L), medical payments to others (Coverage M), and additional coverages.

The additional coverages include

  • Claims expenses;
  • First aid to others; and
  • Damage to property of others.

Liability insurance does not include a list of perils for Coverage L or Coverage M. Instead, coverage is subject to the definitions, exclusions and conditions present in the policy.

A basic limit of $100,000 per occurrence is applicable to the personal liability coverage, and $1,000 per person limit for medical payments to others. These limits may be increased for an additional premium.

Personal liability provides coverage for bodily injury or property damage to third parties that is caused by the insured's negligence or a condition of the insured's premises. Medical payments coverage pays for necessary medical expenses incurred by persons other than an insured, who are injured on the insured's premise or due to an insured's activities off premise.

Homeowners Policy

I. Selected Endorsements

Limited Fungi, Wet or Dry Rot, or Bacteria Coverage

Limited fungi, wet or dry rot, or bacteria coverage is an endorsement that may be used to add special limits for losses caused by fungi, dry and wet rot, and bacteria. This endorsement applies to both property and liability losses.

Identity Fraud Expense

The identity theft/fraud expense coverage endorsement provides up to $15,000 in coverage for expenses incurred by an insured as a direct result of identity fraud, if first discovered during the policy period. Any series of acts committed by one or more persons against an insured is considered one identity fraud occurrence. This coverage excludes loss arising out of or in connection with a business, expenses due to a fraudulent, dishonest, or criminal act by an insured, or loss that does not meet the endorsement's definition of expenses. The insured will be responsible for a $500 deductible.

Auto Insurance

Please note that this is a new chapter on the Property outline. Please refer to the online course to study the information you’ll need for your exam. All of the same information is also available in the Auto Insurance chapter of the Casualty course. You may review this information in the Auto Insurance chapter of your Casualty Study Guide. 

Commercial Policies

A. Commercial Package Policy (CPP)

2. Commercial Property

Selected Endorsements

Value Reporting Form

The value reporting form is the usual method of determining premiums and amount of coverage on those properties insured for fluctuating values. At the reporting period (either daily, weekly, monthly, quarterly, or policy period, whichever is specified in the contract), the insured reports the values at risk and pays premiums for that period based upon the report.

The value reporting form allows the amount of coverage to float with the changing values. Premiums are adjusted at the end of the policy period based on the average values reported.

The policy limit must be the maximum value expected during the policy period. In the beginning of the policy period, a provisional (or advance premium) is paid, typically based on 75% of the policy limit. During the policy period, the insured is required to file reports as to actual values for specified periods of time. At the end of the policy period, the premium is adjusted as if the average value was held every day of the policy period.

It is important the reports be kept current as required. Should a loss occur on a day when the reports are not current as required, the maximum payable will be whatever the last report said. If the reports are current, the policy will pay what the insured can prove was lost, up to the policy limit. Should a loss occur before the first report is due, up to the full amount of insurance applies. If the first report has not been submitted as required when a loss occurs, the insurer will pay no more than 75% of the amount it would otherwise pay.

If values have been underreported, the insurer will not pay a greater portion of a loss than the amount reported divided by the actual value on the report due date. For example, if the insured reports $50,000 and the actual value is $75,000, only about 67% of the loss value has been reported, so only two-thirds (approximately 67%) of the loss will be covered.

3. Commercial Inland Marine

Inland Marine Coverage Forms

Jewelers Block

The jewelers block coverage form is another filed dealer's form that covers the insured's merchandise held for sale, and similar property of others in the insured's care, custody, or control.

Typically, once the property leaves the premises, there is no further coverage. Specific types of property not covered include the following:

  • Property sold under a deferred sales arrangement after it leaves the insured's premises;
  • Property while it is at public or trade exhibitions;
  • Property exhibited in showcases away from the insured's premises;
  • Property while being worn by any insured, employee, representative, or member of their family, relatives, or friends (an exception is made for watches being worn for the sole purpose of adjustments);
  • Property in transit by:
  • Mail (except registered mail);
  • Express carriers;
  • Railroad, waterborne or air carriers; or
  • Motor carrier;
  • Contraband, or other property in illegal trade or transportation.

This coverage form offers several optional types of transit coverage, which will cover property in transit if one of the following is shown on the declarations page:

  • Carriers operating exclusively as a merchant's parcel delivery;
  • Armored car services;
  • The passenger parcel or baggage service of railroads, passenger bus lines, waterborne or airborne carriers; or
  • Registered mail.

One other condition not found in the other coverage forms is titled changes in premises. It states that the policy does not cover property if the risk has been materially increased by changes in the premises unless agreed to in writing by the insurer.

5. Farm Coverage

Mobile Agricultural Machinery and Equipment Coverage Form

Mobile Agriculture Machinery and Equipment Coverage form insures eligible equipment for open perils subject to policy limitations and exclusions. This coverage may also be written on a separate stand-alone policy.

Causes of Loss (Basic, Broad, and Special)


The conditions under the farm coverage part are the standard commercial conditions, with the following exception: if a building or structure is vacant or unoccupied for more than 120 consecutive days, the limits of insurance applicable to the building and its contents are reduced by 50%.


Regarding property coverage the following exclusions apply in farm insurance:

  • Ordinance or law;
  • Earth movement;
  • Governmental action;
  • Intentional loss;
  • Nuclear hazard;
  • Utility services
  • Neglect;
  • War and military action; and
  • Water (meaning flood and surface water).

    These exclusions have already been discussed under previous forms.


    In the event of a loss, the most the insurer will pay is the amount of the loss or the limits as stated in the policy, whichever is less.

    Additional Coverages

    The farm coverage policy provides the following as additional coverages:

  • Debris removal;
  • Reasonable repairs;
  • Grave markers;
  • Water damage;
  • Fire department service charges;
  • Removal of trees;
  • Credit card and transfer funds coverage up to $500;
  • Cost of restoring farm records up to $2,000; and
  • Extra expense and collapse.

6. Commercial Crime

Funds Transfer Fraud

The funds transfer fraud insuring agreement provides coverage for loss of funds resulting from fraudulent instructions received by a financial institution to pay money from an insured's transfer account to someone else. Computer fraud is excluded from this coverage.

C. Other Coverages and Options

Aviation Insurance

Aircraft Hull

In aviation, hull refers to the fuselage, wings, tail, rudders, and other major structural features of an aircraft. The insurance policy that indemnifies the insured for damage to or loss of the hull is called aviation hull insurance.

An aviation hull insurance policy provides physical damage coverage on the aircraft itself, and is the equivalent of the comprehensive and collision coverage of an automobile insurance policy.

There are 2 basic forms of hull coverage:

  1. All-risk on ground and in flight — This is the broadest form of hull coverage and provides all-risk coverage on the aircraft both while it is on the ground and while it is in flight. Deductibles may be purchased applying either the same or different amounts while on the ground or while in flight or taxiing.
  2. All-risk on the ground and limited in flight — This form provides all-risk coverage on the aircraft while on the ground, but coverage while the aircraft is in flight is limited to the perils of fire, lightning, and explosion, but not fire or explosion following a crash or collision.

The major perils not covered in flight are crash or collision. The coverage is usually written with a deductible that applies to all losses except fire, lightning, explosion, vandalism and malicious mischief, transportation, or theft. The deductible applies while the aircraft is not in motion, or when the aircraft is taxiing.

Ocean Marine Insurance

Major Coverages

Ocean marine is the oldest type of insurance in the world. Edward Lloyd opened a coffeehouse in London in 1689, and it became a meeting place for people buying and selling insurance. Today's Lloyd's of London grew from these beginnings. Lloyd's list provides the name, position, destination, and other important data of every merchant ship in the free world.

Most ocean marine policy forms were adopted by Lloyd's around 1780 with little change since. The forms are full of archaic terms but have proved reliable in courts, and Lloyd's is reluctant to make changes. The forms are brought up to date by adding printed institute clauses to it.


  • Adventure means a trip or voyage.
  • Assured is the insured.
  • Average means loss.
  • Constructive total loss means expense to repair or recover exceeding the value or policy limit.
  • Demurrage is delay of vessel beyond the normal time to on-load or off-load or a charge for the delay.
  • Laid up means in port or at anchor.
  • Loss of specie means the subject matter ceases to be a thing of the kind insured.
  • Misfortune is an accident or occurrence.
  • Particular means partial.
  • Touching means applying to.

Hull Insurance

A hull policy is type of ocean marine insurance that provides physical damage coverage for the ship while it is in transit.

If the ownership of an insured vessel changes, the hull policy terminates

  • At the time of ownership change;
  • If at sea, upon arrival at the final port; or
  • If the termination is involuntary, 15 days after the ownership transfer.

General average is defined as an ocean marine loss that occurs through the voluntary sacrifice of any part of the vessel or cargo to safeguard the vessel or cargo from a common peril, and all interests at risk contributing to it based on their respective saved values. Simply put, general average is a clause found in ocean marine policies requiring that when there is a sacrifice of property to save the ship, crew, and other cargo, everyone who benefited from this sacrifice must share in the payment for the sacrificed property.

According to the conditions of a hull policy after a loss, wages and maintenance will be paid for the master, officers, and crew when removing the vessel from one port to another for repairs, or on a trial trip to test repairs.

The insurer will not pay maintenance and wages for the master and crew while the ship is laid up for repairs. The insurer can pick the port of repair and can veto any proposed repair facility.

The hull policy pays for sighting the bottom after stranding whether or not damage is found. The hull policy never pays for scraping and painting the bottom of the ship.

Cargo Insurance

Cargo policies are written to cover loss or damage to the cargo. The owner of the cargo certifies that the cargo is suitable for shipment. The amount of premium will be partly determined by the packing method used and partly by the type of ship providing the transportation.

Methods of Packing Cargo

Bulk Commodities

Bulk carriers are used to carry coal, grain, phosphates, and other loose cargo. The ship itself is the container for the cargo. Tankers are used to carry liquid cargo such as oil.

Break-Bulk Cargo

General cargo ships carry break-bulk cargo. Things such as steel, rolls of wire, and boxed goods are hauled in general cargo ships. Loading and offloading is slow because each piece of cargo must be individually handled. The cargo is not as well protected using this method, resulting in higher premiums.


Container ships carry cargo packed in 20- and 40-foot containers that also can be moved by trucks or railcars. This method is the more efficient in cargo handling than break-bulk, resulting in shorter port times. Containers provide better protection for the cargo, resulting in lower premiums than break-bulk.

Roll on and Roll off

Roll on/roll off ships (ro/ro ships) are used to carry motor vehicles, which roll on and roll off the ship via a stern ramp.

Types of Cargo Losses

Total Loss - Actual Total Loss versus Constructive Total Loss

An ocean marine total loss may occur by actual total loss or constructive total loss. Actual total loss is damage to the entire property. Constructive total loss is when the cost to repair or recover exceeds the policy limit and the insurer pays the policy's agreed value. An actual loss may occur when all property has been destroyed, when there is a loss of specie, or if an insured is irretrievably deprived of all property, even if it is not totally destroyed. A loss of specie is when all property is damaged as to cease to be a thing of the kind insured. A loss of specie is payable as a total loss.

Sue and Labor Expenses

In the event of a loss, the master and crew are required to sue and labor to protect the insured property from further loss. The policy will pay the cost of doing so. If the crew does not sue and labor to keep losses as small as possible, the insurer could refuse to pay for the loss.

Partial Loss - Particular versus General Average

Partial loss could be either a particular average, in which only those involved in the loss are affected, or general average, in which all those involved in the voyage share in the loss.

Salvage Charges and Awards

If the cargo is damaged short of the destination port, an agent of the insurer at an intermediate port may agree to sell it at the best price. Settlement will be based on the difference between insured value and the net proceeds of the sale. This is called a salvage loss.

Open Cargo Policy

Designed for Frequent Shipper

Cargo policies may be written on a trip or voyage basis, or for a frequent shipper, such as an importer or exporter, on an open cargo basis. The open cargo policy would cover all the insured cargo for a specified amount of time or for a specified number of shipments.

Cargo Clauses of American Institute of Marine Underwriters

There is no standardized open cargo policy form. The cargo clauses of the American Institute of Marine Insurers attach to cargo policies for cargo moved on U.S. ships.

Cargo policies are usually written on a warehouse-to-warehouse basis, covering the cargo from origin to destination even though parts of the trip may be over land. The coverage is in effect until the cargo reaches its destination, or 60 days after discharge at the destination port. The American Institute warehouse-to-warehouse clause states the coverage expires 15 days after discharge at the destination port (30 days if the cargo's destination is outside the limits of the port).

Freight Insurance

Freight and cargo, although seemingly synonymous, are 2 separate things. The term cargo is used to describe the physical goods that are being shipped from one place to another. The term freight is used to describe the charges made to ship cargo from place to place.

The term freight insurance is used to describe the indirect loss that an insured would suffer if insured cargo is lost or damaged. Such losses include the income that would be generated, or the charges paid to transport such cargo. Freight charges can be prepaid, in which case coverage would be attached to the cargo policy purchased by the cargo owner. Freight charges also can be paid on delivery, in which case the ship owner could purchase coverage to be attached to the hull policy.


Hull policies cover losses caused by the perils of fire, lighting, earthquake, assailing thieves, jettison, barratry of the master and mariners. They also cover all other like perils that may come to hurt, detriment, or damage the vessel.

Additional perils are also covered, provided such loss or damage has not resulted from want of due diligence by the assured, the owners, or managers of the vessel. This is commonly called the Inchmaree Clause and covers the following perils:

  • Accidents in loading, discharging or handling cargo, or in bunkering;
  • Accidents in going on or off, while on dry docks, graving docks, ways, gridirons or pontoons;
  • Explosions on shipboard or elsewhere;
  • Breakdown of motor generators or other electrical machinery, bursting of boilers, breaking of shafts, or any latent defect in the machinery or hull;
  • Breakdown of or accidents to nuclear installations or reactors not on board the vessel insured;
  • Contact with aircraft, rockets or similar missiles, or with any land conveyance;
  • Negligence of charterers and/or repairers; or
  • Negligence of masters, officers, crew, or pilots.

Covered under the hull policy is deliberate damage to property caused by government authorities who are acting on behalf of the public to mitigate or prevent a pollution hazard. The occurrence that created the situation causing the governmental interaction must have resulted in a recoverable claim if the deliberate damage had not occurred.

Residual Markets

Residual markets are insurance markets or facilities designed to assume risks that are generally unacceptable to the normal insurance market. Assigned risk plans would be considered a part of the residual market facilities.

Most states have residual markets and require all admitted insurers to participate in the state’s assigned risk plan for auto liability policies, workers compensation, or FAIR plans.

Joint Underwriting and Reinsurers Association

All insurers writing basic property insurance or any component thereof in multi-peril policies on a direct basis, must cooperate in organizing a joint underwriting association (FAIR plan) to provide basic property insurance to eligible applicants who are otherwise unable to obtain such coverage in the voluntary market. Every such insurer must be a member of the association and remain a member as a condition of its certificate of authority.

The association is authorized to inspect properties, issue policies, collect premiums under plans approved by the Commissioner and take all other actions necessary to carry out its functions.

All members of the association must participate in the association’s writing, expenses, profits and losses proportionally. Each member’s portion is determined by the total premiums on policies written in the previous year for basic property insurance. This does not include premiums for insurance on automobile and manufacturing risks excluded from plans, as well as the premiums attributable to the operation of the association during the preceding calendar year. 

Other Policies


Homeowners policies limit the amount of property and liability coverage available for watercraft. Only $1,500 of coverage is provided in the homeowners policy for damage to watercraft, accessories, equipment, and trailers. Liability coverage is afforded to the insured arising out of owning or using inboard powered boats up to 50 horsepower, outboard powered boats up to 25 horsepower, or sailing vessels up to 26 feet in length.

Additional protection is available either by endorsement or through the purchase of a boatowners policy. The coverage provides that the watercraft must be used solely for private, pleasure use and that coverage is excluded if the boat is hired out, chartered, used in an official speed or race contest, or used to transport people or property for a fee.

The policy consists of 2 sections:

  • Section I contains the physical damage coverages, which includes the perils insured against, exclusions, and conditions applicable to Section I only; and
  • Section II contains the insuring agreements for watercraft liability, medical payments, and uninsured boaters. Also included are Section II conditions, as well as general conditions applicable to both Section I and Section II.

Section I — Physical damage coverage on the boat is designated Coverage A in the boatowners policy. It includes coverage for the actual cash value (ACV) of

  • The motor(s) described in the declarations, including remote controls and batteries;
  • The boat described in the declarations, including its permanently attached equipment;
  • The trailer described in the declarations if specifically designed for the transportation of the boat; and
  • Equipment and accessories manufactured for marine use.

As indicated by the last item, the physical damage coverage usually extends to cover equipment pertaining to the use of the vessel, subject to a dollar limit.

Perils insured against — The boatowners policy insuring agreement is usually of the open peril type, providing that the insurer will pay for direct and accidental loss to the property insured.

In addition to the exclusion for loss by war and nuclear hazard, policies usually exclude coverage for the following types of damages:

  • Due and confined to wear and tear, gradual deterioration, inherent vice, latent defect, mechanical breakdown, faulty manufacture, damage caused by any repairing or restoration process, and service or maintenance operation, unless fire results and then for loss caused by the resulting fire;
  • While carrying persons or property for a fee, or while the covered property is rented to others; and
  • While the covered property, except sailboats, is being operated in any official race or speed test.

Additional coverages for physical damage are the following:

  • Reasonable repairs — Coverage applies for the expenses necessary to repair or to protect the covered property from further damage from an insured peril. Payment for loss under the reasonable repairs provision does not increase the policy limit.
  • Recovery — Coverage applies for the reasonable cost incurred by the insured to recover the insured property in the event of stranding or sinking. This coverage is derived from an ocean marine provision entitled salvage. However, unlike the ocean marine salvage charges, which are payable in addition to the limits of coverage on the hull, the recovery coverage of the boatowners policy does not increase the limits of liability under the policy.
  • Automatic coverage — Automatic coverage is provided on replacements for the boat, motor, or trailer listed in the declarations, provided the insured notifies the insurer within 45 days of acquisition and pays any additional premium required.

Section II — The liability coverages of the boatowners policy parallel the coverages of the personal auto policy. They include the following:

  • Watercraft liability;
  • Medical payments; and
  • Uninsured boaters.

Watercraft liability coverage provides protection up to the specified limits for claims or suits against a covered person for damages because of bodily injury or property damage caused by a watercraft occurrence. In addition to the promise to pay judgments arising out of such suits, the insurer also agrees to defend the insured, but reserves to the insurer the right to make settlement if it deems it expedient. As in the case of other liability policies, coverage for the cost of defense is payable in addition to the policy's limits.

Exclusions under the boatowners policy include bodily injury or property damage that is expected or intended by the insured, and the liability of any person using a watercraft without permission. Other exclusions are bodily injury to persons eligible for workers compensation, damage to owned or rented property in the care, custody, or control of the insured, and liability of a person engaged in the business of selling, repairing, storing, or moving watercraft. The policy also excludes liability arising out of racing, speed tests, war and nuclear hazards.

Claim-related expenses are paid as additional coverage, similar to the personal auto policy.

Medical payments coverage pays for accidents occurring while the injured party is in, upon, getting into or out of the insured boat. Some policies include medical payments coverage for persons who are injured while water-skiing.

Uninsured boaters coverage usually provides a stipulated amount of coverage (e.g. $10,000) that can apply for accidents with uninsured watercraft. Increased limits are available for additional premium.

Navigation and territorial definitions — This is an important part of the contract that an insured should be made aware of. The broadest policies cover the watercraft while being operated on any inland body of water within continental United States, Canada, and coastal waters in the same area up to a limit of 10 to 25 miles (depending on the insurer). The most restrictive policies provide coverage only on a specific body of water and within a narrow parameter around that particular area. Many policies provide no coverage for offshore waters, such as the Gulf of Mexico.

Recreational Vehicles

The definition of a personal recreational vehicle includes all-terrain vehicles (ATVs), mopeds, go-carts, motorized scooters, snowmobiles and golf carts.

While some people assume their Homeowners policy will cover a personal recreational vehicle, in most cases, it will not. The coverage is similar to an auto policy, and requires both on and off premises coverage. There is also coverage for damage or theft of the vehicle and coverage for liability for a lawsuit arising out of it use.

Difference in Condition

Difference in conditions (DIC) is a property insurance policy written to supplement a named perils property policy. There is no standard DIC policy, and the policies are usually manuscripted and tailored to the specific needs of the insured. Not only do DIC policies differ from company to company, but the policies offered by individual insurers often differ from one insured to another.

Some common characteristics of a DIC policy are the following:

  • Provides all-risk coverage;
  • Excludes the named perils provided by the policy it supplements;
  • Contains no coinsurance clause or pro rata sharing provision; and
  • Is written with a high deductible ($10,000 or more).

These policies are often written to provide flood and earthquake coverage.


Casualty Insurance Basics

A. Principles and Concepts

Attractive Nuisance

Attractive nuisance is an exception to the rule that an individual owes no duty of care to someone trespassing on his/her property. Attractive nuisance states that a special duty of care is required with respect to an individual's property that may be a dangerous object, place, or condition and that is particularly attractive to young children (for example, a swimming pool without a fence around it).

Homeowners Policy

Please note that this is a new chapter on the Casualty outline. Please refer to the online course to study the information you’ll need for your exam. All of the same information is also available in the Homeowners Policy chapter of the Property course. You may review this information in the Homeowners Policy chapter of your Property Study Guide. 

Commercial Package Policy (CPP)

4. Commercial General Liability

Selected Endorsement

Limited Fungi or Bacteria Coverage

This endorsement excludes coverage for expenses from testing, abating, monitoring, removing, or in any way responding to fungi or bacteria. Any personal and advertising injury from a "fungi or bacteria incident" is also excluded. This endorsement does provide an aggregate limit for Bodily Injury and Property Damage and Medical Payments.

This endorsement also adds the following definitions to the policy:

  • Fungi means any type or form of fungus, including mold or mildew, spores, mycotoxins, and any scents or byproducts of fungi.
  • Fungi or bacteria incident means an incident which would not have occurred without the exposure to, existence of, or presence of any fungi or bacteria on or within a building, whether actual, alleged or threatened, regardless of any other cause that may have contributed to such injury or damage.

    Commercial Crime – this section is in addition to the Commercial Crime section in the Property online course and Study Guide (in the Commercial Policies chapter)

    Crime insurance can be added to a commercial package policy or written on a monoline basis. The crime program fills some of the deficiencies in the building and business personal property form as they pertain to crime losses. Crime insurance is usually written on an all risk, or open peril basis. The peril of theft is not included in the basic and broad cause of loss forms. The special cause of loss form has exclusions for dishonest acts of employees and sublimits for theft of jewelry, furs, patents, dies, molds and stamps.

    The crime program offers policies in two major sections: commercial entities and government entities. For each section the insured can select a form that has different coverage triggers, discovery form or a loss sustained form. These trigger differences have some similarities to the general liability form – occurrence and claims-made.

    Regardless of the form chosen, the crime policy consists of separate coverages that can be selected by the insured. Each of these coverages has its own insuring agreement, conditions and exclusions. The declarations page of a crime policy will activate the appropriate coverages within the policy.


    Common policy provisions applicable to crime coverage forms (both discovery and loss sustained) specify the following general exclusions:

  • Acts committed by the insured, insured's partners or members — Loss resulting from acts committed by the insured or the insured's partners or members, as well as acts of managers, directors, employees or representatives learned of by the insured before the policy period;
  • Acts of employees, managers, trustees or representatives;
  • Acts of employees learned of by the insured prior to the policy period;
  • Confidential information — Loss resulting from unauthorized disclosure of the insured's or other person's confidential information (e.g. patents, trade secrets, or customer lists);
  • Government action — Loss due to governmental authority's seizure or destruction of property;
  • Indirect losses — e.g. expenses incurred while establishing the amount of loss;
  • Legal fees, costs and expenses — Legal expenses related to legal action;
  • Nuclear hazards;
  • Pollution — Loss or damage caused by or resulting from pollution, including discharge, dispersal, seepage, release or escape of any solid, liquid, gaseous or thermal contaminant (such as smoke, vapor, fumes, acids, chemicals, or waste); and
  • War and military action — Losses or damage resulting from war, warlike action by a military force, rebellion, revolution, and similar actions

Additional Crime Coverages

Kidnap and Ransom and Extortion

Kidnap/Ransom and Extortion insurance combines coverage for loss resulting from a kidnapping or extortion and crisis management. This insurance covers named employees for individual aggregate amounts, with deductibles.

The policy covers various perils through the following insuring agreements:

  • Kidnap/Ransom and Extortion - Direct Loss provides coverage for losses resulting from payment of a ransom demand from a kidnapping or extortion threat;
  • Kidnap/Ransom and Extortion - Expenses Incurred provides coverage for expenses incurred in obtaining the release of a kidnapped victim or resolution of an extortion threat;
  • Detention or Hijack provides coverage for the various costs and fees from securing the release of a detained or hijacked person; and
  • In-Transit Delivery of Property provides coverage for the loss of money while being delivered by a messenger for the purpose of ransom.

    Extortion – Commercial Entities

    Extortion - Commercial Entities provides payment, up to the limits of coverage, made in response to threats of bodily harm directed against the insured, its employees, directors or those persons' relatives who are captured or allegedly captured.

    The limits of insurance may be written with a loss participation percentage. If a percentage is shown in the policy declarations, the insurer will pay the lesser of the limit of insurance or the percentage of loss specified.

    The form also includes the following additional exclusions:

  • Dishonest acts of employees and representatives; and
  • Property surrendered before a reasonable attempt has been made to report the crime to an associate, the FBI and the police (referred to as non-notification of authorities).

    Lessees of Safe Deposit Boxes

    Property, excluding money and securities, is covered for loss resulting from actual or attempted burglary, robbery or vandalism under the Lessees of Safe Deposit Boxes form (Coverage I). The property must be in a vault or the loss must occur during the deposit or removal of property from a safe deposit box located in a bank or other depository. Securities are only covered for theft, disappearance or destruction, and money is not covered.

    The following exclusions apply to this coverage form in addition to those in the general provisions:

  • Dishonest acts of employees and representatives.
  • Giving or surrendering property in an exchange or purchase.
  • Loss of property, except securities, caused by fire.
  • Loss of property owned by the depository or held by it as collateral or in trust for more than 30 days.
  • Property transferred outside the premises because of unauthorized instructions or threat to do injury or damage.
  • Voluntarily parting with property or title.

    Securities Deposited with Others

    The Securities Deposited with Others (Coverage J) form is used to cover securities held in trust by another party as collateral for some obligation. Coverage includes loss from theft, disappearance or destruction, including while in the possession of the other party outside the premises. The same exclusions found in the Lessees of Safe Deposit Boxes form also apply to this coverage, in addition to an exclusion for property at any location the insured occupies.

    Guests’ Property

    Guests' Property covers the insured's legal liability for loss or damage to guest's property while on the insured's premises or in their control. Property not covered includes items held for sale and vehicles. The Crime General Provisions Form does not apply to this coverage.

    The exclusions found in this coverage form are

  • War;
  • Governmental action;
  • Nuclear hazard;
  • Fire;
  • Dishonest acts of the insured or the insured's partners. There is no exclusion for dishonest acts of employees;
  • Liability assumed under a written agreement;
  • Loss resulting from the insured's release of any other negligent party from their legal liability;
  • Damage caused by inherent vice, insects, animals, wear and tear, and gradual deterioration; and
  • Damage of property while in the insured's care for laundering or dry cleaning.

    The following conditions are contained within the coverage form; many are the same as the ones found in the general provisions.

  • Joint Insured;
  • Legal Action Against the Insurer;
  • Non-cumulation of Limits;
  • Other Insurance;
  • Policy Period;
  • Territory;
  • Transfer of Rights of Recovery;
  • Bankruptcy;
  • Defense, Investigation and Settlement - The insurer will not defend a suit after having paid a claim to the policy limit; and
  • Duties in the Event of a Loss.

    Safe Depository

    The Safe Depository Liability (Coverage M) form provides protection for the insured's legal liability for damage to customer's property while in a safe deposit box, vault, or while being deposited or removed. This form is used for firms, other than a financial institution, who rent safe deposit boxes. When this coverage is written, the Safe Depository General Provisions must be attached to the policy instead of the general provisions.

    The conditions include

  • Joint Insureds;
  • Other Insurance;
  • Non-cumulation of Limits; and
  • Customer's Property - Includes both owned and nonowned property which the customer has an interest in.

    The exclusions found in the Safe Depository General Provisions are

  • Acts committed by the insured or the insured's partners;
  • Governmental actions;
  • Nuclear hazards; and
  • War.

    The Safe Depository Direct Loss (Coverage N) form is similar to the Safe Depository Liability form, except that is applies to direct damage to customer's property without regard to legal liability. The safe depository general provision is used instead of the general provisions and contains the same conditions and exclusions already discussed.

    Farm Coverage

    Farm coverage is unique because it not only insures the property and liability exposures of the business of a farm operation, but also may include the personal residential exposures of property and liability of a family living on the farm premises. As in any commercial package policy, farm coverage may be written together in a single coverage (package), or separately as a single coverage (monoline).

    In addition to the common policy declarations and common policy conditions, the farm coverage part must include a Farm Declarations and a Farm Conditions form and one or more farm coverage forms. There are 4 farm coverage forms:

  1. Farm property;
  2. Farm liability;
  3. Mobile agricultural machinery and equipment; and
  4. Livestock.

    Farm Liability Coverage Form

    The farm liability form is similar to the commercial general liability coverage form. It provides protection for bodily injury and property damage, personal and advertising injury, and medical payments in the form of coverages H, I and J.

    Coverage H – Bodily Injury and Property Damage Liability

    Coverage H - Bodily Injury and Property Damage Liability provides protection for bodily injury and property damage claims from liability arising out of the business of farming and the personal acts of the insured. While it covers the business of farming, it specifically excludes coverage for businesses other than farming and also contains the business pursuits and professional services exclusions similar to Personal Liability coverage.

    Coverage I – Personal and Advertising Injury Liability

    Coverage I - Personal and Advertising Injury Liability is similar to the coverage as provided in the general liability coverage form. However, advertising injury is covered only if the offense is committed in the course of advertising the insured’s farm-related goods, products, or services.

    Exclusions under this coverage include intentional acts, contractual liability, breach of contract, failure of goods to perform and any offense committed by an insured who is in the broadcasting business.

    The personal injury coverage follows the coverage provided in the general liability coverage form.

    Coverage I – Personal and Advertising Injury Liability

    Coverage J - Medical Payments agrees to pay reasonable medical expenses caused by an accident, regardless of fault, if the expenses are incurred and reported to the insurer within 3 years of the accident date (same as Homeowners). Coverage applies only to a person who is not an insured. This means that farm employees are excluded from this coverage. Resident employees, however, are included (same as Homeowners).


    The terms found in the Definitions section for Farm Liability Coverage are the same as those found in the Farm Property Coverage Form and Commercial General Liability Coverage Form.


    In addition to the Common Policy Conditions, the Farm Liability coverage form includes a number of conditions:

  • Bankruptcy of the insured will not relieve the insurer of its obligations;
  • Duties in the event of an occurrence, claim or suit;
  • Insurance under 2 or more coverages;
  • Legal action against the insurer;
  • No admission of liability with medical payments (medical payments do not constitute an admission of liability);
  • Other insurance;
  • Transfer of rights of recovery (subrogation);
  • Liberalization;
  • Representations; and
  • Separation of insureds.

These conditions have already been discussed under previous forms.


Exclusions for Farm Liability coverage forms are the same as the exclusions found in the General Liability coverage form and Homeowners form, with a few additions specific to the nature of farm operations. These additional exclusions include the following:

  • Use of any animal, with or without accessory vehicle, to provide rides for a fee or in connection with a fair, charitable event or a similar function;
  • Use of any animal in a racing, speed or strength contest or a prearranged stunting activity at the site designated for the contest or activity;
  • Rental or holding for rental of an insured location;
  • Losses out of any premises where a building or structure is being constructed, other than a dwelling to be occupied by the insured or a farm structure for the insured’s use; and
  • Bodily injury to any insured.


    Liability limits state that the most the insurer will pay in the result of a judgment against an insured is the limit stated in the policy. Any cost incurred by the insurer for the investigation or defense of a claim or suit will be paid by the insurer, over and above the limits shown in the policy. The limits apply separately to each consecutive annual period and to any remaining period of less than 12 months (starting with the beginning of the policy period shown in the Declarations).

    Additional Coverages

    The farm liability ('06) coverage form policy provides the following additional coverages:

  • Supplementary payments for Coverages H and I, including up to $250 a day for loss of earnings; and
  • Damage to property of others, which is the same as is found in Personal Liability, with an exception that it will not apply to borrowed farm equipment.

Workers Compensation Insurance

A. Workers Compensation Laws

Types of Laws

Compulsory vs. Elective

The workers compensation laws vary from state to state. Most states have compulsory laws, which require all employers, except those specifically excluded due to staff size or employment type, to provide workers compensation coverage for those meeting the definition of employee.

The remaining few states have elective laws, which means the employer does not have to be subject to the state's workers compensation laws, but if an employer chooses not to be subject to the state's laws, it loses its common law defenses against liability suits.

Monopolistic vs. Competitive

In some states, employers are required to purchase workers compensation insurance from a state-operated entity. These are called monopolistic state funds. Private insurance companies cannot write workers compensation insurance in competition with these state funds.

In other states, workers compensation is purchased by employers from those insurers authorized to write casualty insurance. The coverage and benefits are mandated by state regulations. This is known as a competitive market.

Exclusive Remedy

Under a compulsory Workers Compensation law, injured employees are barred from seeking damages outside the Workers Compensation law, called the exclusive remedy doctrine. However, there are situations in which employers need insurance for claims that are not covered under Workers Compensation laws. Employers Liability coverage is designed for these situations. The most common types of situations that would be covered under an Employers Liability policy include the following:

  • Exempt or illegal employment;
  • Third-party over claims in which an employee successfully sues a third party, and then the third party brings suit against the employer;
  • Situations which involve another relationship between the employee and employer, referred to as dual capacity (For example, if an employee is instructed to make repairs using tools the employer manufactures, and the employee is subsequently injured because of the tools, the employee can collect both Workers Compensation benefits and additional compensation for being injured by a tool the employer manufactured);
  • Family loss of consortium or the loss of companionship which results from the disability or death of an employee;
  • Consequential bodily injury to family members of an employee which result from the employee's injury; and
  • Employees who attempt to seek benefits from parent-subsidiary relationships of the employer (for example, if an employee is injured by a company (subsidiary) which is actually owned by another company (parent), the employee may be able to collect Workers Compensation from the subsidiary company and seek additional compensations from the parent company).

D. Other Sources of Coverage

Assigned Risk Plan

Compensation assigned risk plans have been established to make coverage available for difficult to place risks. Basically, the assigned risk plan is an insurance pool where the risks are shared by the insurers who are participating in the plan. The following are most common requirements for obtaining coverage through an assigned risk plan:

  • Before becoming eligible for insurance through the risk plan, the applicant must provide evidence of rejection from other carriers;
  • Risk submitted to the plan may be assigned to a single insurer or may be shared proportionally by all participating insurers;
  • Other requirements may be imposed by the Department of Insurance

Other Coverages and Options

B. Specialty Liability Insurance

Directors and Officers Liability

Directors and officers liability coverage provides protection to directors and officers of an organization (past and present) for any claims for losses arising from a wrongful act made while acting in an official capacity.

Coverage is triggered by wrongful acts rather than on an accident or occurrence basis. (Wrongful acts include misstatements made by the directors and officers, as well as neglect and breach of duty.)

Directors and officers liability policies will pay only damages that the corporation would, under the law, be required to reimburse the individual director or officer. The policy generally will not pay for fines, penalties, or punitive damages.

Fiduciary Liability

Fiduciary liability covers individuals who administer pension or employee benefit plans and have a fiduciary responsibility to manage the funds in the best interests of the plan participants. Losses associated with errors or omissions, negligence, or poor management of these plans can be covered with professional liability coverage.

If the premiums for fiduciary liability insurance are paid by the fund, by law, the policy must allow for subrogation against the individual trustees involved in the loss.

Liquor Liability

Liquor liability (also known as dram shop liability) refers to the exposure that bars, restaurants and other similar establishments face due to the selling, distributing, manufacturing, or serving of alcoholic beverages. Liquor liability provides protection in the event of action brought against the insured for selling liquor to a customer who is later involved in an accident and suffers bodily injury or property damage.

Businesses of manufacturing, distributing, selling, serving, or furnishing alcoholic beverages all may have liability exposure to actions under state or local statutes that establish responsibilities for those injuries arising from the distribution or use of alcoholic beverages and causing injuries to the user or caused to others by the user

Employee Benefits Liability

Employee Benefits Liability Coverage is a Commercial Liability Umbrella policy which pays for the liability expenses caused by the mistakes or errors of an insured under the policy. The policy applies to damages only if there is an act, error or omission and it was negligently committed in the administration of the employee benefits program.

Therefore, negligence must be proven for the policy to pay. The act must have occurred during the policy period, after the retroactive date or during the Extended Reported Period.

The coverage does not apply to the following:

  • Dishonest, fraudulent, criminal or malicious acts by the insured;
  • Bodily injury, property damage, or personal and advertising injury;
  • Failure to perform a contract by an insurer;
  • Insufficiency of funds;
  • Inadequacy of performance of investment;
  • Workers' compensation, unemployment compensation, social security and similar laws;
  • Damages covered by the Employee Retirement Income Security Act of 1974 (ERISA);
  • Claims for available benefits;
  • Taxes, fines or penalties; and
  • Employment-related practices.

The limit of insurance for the Commercial Liability Umbrella Policy is paid on an aggregate basis with a sublimit for each employee. Each employee limit is the most it will pay for any one employee, including damages sustained by the employee's dependents and beneficiaries.

The policy may also be written as an endorsement to a Businessowners Coverage Form and the limits and deductible will be stated differently in this policy.


Insurance Regulation

A. State Regulation

3. Producer Regulation

Acting for an Unauthorized Insurer

A producer cannot transact insurance (except with regard to his own property or person) with or by any insurance company that does not hold a valid certificate of authority. If a producer makes any contract of insurance on behalf of an insurance company that is not licensed to do business in this state, the producer will be personally liable to the insured for the benefits and other aspects of the contract, including the payment of claims.

4. Unfair Trade Practices


Impersonation (also known as false pretense) refers to the act of assuming the name and/or identity of another person for the purpose of committing a fraud. In Life insurance, impersonation may occur when an uninsurable individual applying for coverage is asking another person to take the physical examination in his or her place.

In regards to agent/producer regulations, impersonation may refer to the act of impersonating a candidate during the prelicensing examination.

Any form or impersonation in insurance is illegal.


An insurance producer or broker who receives any money or substitute for money as a premium for a policy or contract from the insured is deemed to hold those premiums in trust for the company. If the producer fails to pay the premiums collected to the company after written demand is made, the failure is evidence that the producer has used or applied the premium for a purpose other than paying the premiums to the company. The producer, upon conviction, would be guilty of larceny.

B. Licensing

3. Types of Licensees

Portable Electronics Insurance Limited Lines

Maryland issues limited lines licenses to vendors to sell coverage under a policy of portable electronics insurance.

A vendor is any person engaged in the business of leasing, selling, or providing portable electronics, or selling or providing services related to the use of portable electronics.

4. Renewal and Maintenance

Requirement to Report Other States Actions

An insurance producer must report to the Commissioner any administrative action taken against him/her in another jurisdiction or by another governmental agency in Louisiana within 30 days of the final disposition of the matter.

5. Appointment Procedures

Producer’s Contract with Insurer vs. Producer’s Appointment with Insurer – new section on the outline

A producer's contract with the insurer is a signed agreement between the insurer and the producer that outlines what each party is expected to do. Producer's express authority will be spelled out in the contract. Contractually, only those actions that the agent is authorized to perform will be binding to the principal (insurer). The contract will usually also specify the percent of commission the insurer will pay and the amount of insurance the licensee is expected to sell.

As defined by the Insurance Code, a producer appointment means an agreement between an insurance producer and insurer under which the insurance producer, for compensation, may sell, solicit, or negotiate policies issued by the insurer.

Appointment and Notice of Appointment – addition to the existing text

An appointment is not required for an insurance producer to perform the following duties:

  1. Submit to an insurer an informal inquiry for any kind of life insurance, health insurance, or annuity for which the insurance producer has a license if the insurer has a certificate of authority for that kind of insurance; and
  2. Solicit an application for any kind of life insurance, health insurance, or annuity for which the insurance producer has a license if the insurer has a certificate of authority for that kind of insurance.

Termination of Appointment/Notice to Agent – section has been modified as follows:

Typically, an appointment is valid until terminated. There are several reasons an insurer's appointment of a producer may be terminated. If the agent's license is terminated, all appointments are terminated. When an appointment is terminated, a producer must cease all solicitations on behalf of the insurer.

The insurer is required to update its producer register within 30 days of the termination of a producer appointment. If the insurer is terminating an appointment because of a belief that the producer has engaged in misconduct, the insurer must send written notification of the termination to the Commissioner and notify the producer within 15 days of the date that a notice of termination is sent to the Commissioner. The insurer must also update the insurer's producer register by entering the effective date of the termination.

The insurer must provide any additional documents or information concerning the termination when requested by the Commissioner of Insurance.

If the appointment of an insurance producer is terminated because the producer failed to renew his or her license, once the license is reinstated, the insurer may reappoint the insurance producer retroactively, with the appointment effective on the date that the license expired.

Within 15 days after providing the required notice of producer termination to the Commissioner, an insurer must mail a copy of the notice to the insurance producer at the last known address and by certified mail (return receipt requested, postage prepaid) or by overnight delivery using a nationally recognized carrier. Within 30 days after an insurance producer receives original or additional notice, the insurance producer may file with the Commissioner written comments concerning the substance of the notice. The producer must also simultaneously send a copy of the comments to the insurer. Producer's comments will be made part of the Commissioner's file on the producer.

Terrorism Risk Insurance Program

The purpose of the Terrorism Risk Insurance Act (TRIA) was to create a temporary federal program that would share the risk of loss from future terrorist attacks with the insurance industry. The act requires that all commercial insurers offer insurance coverage for acts of terrorism. The federal government will then reimburse the insurers for a portion of paid losses for terrorism.

TRIA defines an act of terrorism as an act certified by the Secretary of the Treasury, in concurrence with the Secretary of State, and the Attorney General of the United States with the following characteristics:

  • The act must be violent or dangerous to human life, property, or infrastructure;
  • The act must have resulted in damage within the United States, to an air carrier as defined in the US Code, to a US flag vessel or other vessel based principally in the US and insured under US regulation, or on the premises of any US mission;
  • The act must have been committed by someone as part of an effort to coerce the US civilian population, to influence US policy, or to affect the conduct of the US government by coercion; or
  • The act must produce property and casualty insurance losses in excess of a specified amount.

    Terrorism Risk Insurance Program Reauthorization Acts

    The TRIA of 2002 has been amended several times, and the final amendment is the Terrorism Risk Insurance Program Reauthorization Act of 2015, which has further amended and extended the Terrorism Insurance Program through Dec. 31, 2020, and revised several provisions as follows:

  • The insurer deductible was set at 20% of an insurer's direct earned premium of the preceding calendar year and the federal share of compensation was set at 85% of insured losses that exceed insurer deductibles until Jan. 1, 2016. After that, the federal share will be decreased by 1 percentage point per calendar year until it reaches 80%;
  • The certification process was changed to requiring the Secretary of the Treasury to certify acts of terrorism in consultation with the Secretary of Homeland Security instead of the Secretary of State;
  • The aggregate industry insured losses resulting from certified acts of terror which will trigger the federal share of compensation under the Program are now specified as $200 million for 2020 and thereafter;
  • The mandatory recoupment of the federal share through policyholder surcharges increased to 140% (from 133%);
  • Revised requirements for mandatory repayment form insurers of federal financial assistance provided in connection with all acts of terrorism.

National Association of Registered Agents and Brokers (NARAB) Reform — this title of the Program amends the Gramm-Leach-Bliley Act to repeal the contingent conditions under which the NARAB may not be established. NARAB is also prohibited from merging with or into any other private or public entity.

In addition, without affecting state regulatory authority, the NARAB is required to provide a mechanism for the adoption and multi-state application of requirements and conditions pertaining to

  • Licensing, continuing education, and other qualifications of non-NARAB insurance producers;
  • Resident or nonresident insurance producer appointments;
  • Supervision and disciplining of such producers; and
  • Setting of licensing fees for insurance producers.

In addition to that, the NAIC Property and Casualty Insurance Committee and its Terrorism Insurance Implementation Working Group (TIIWG) recently adopted a Model Bulletin, including an expedited filing form intended to help state insurance regulators advise insurers about regulatory requirements related to providing terrorism insurance under the revised program.