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Life and Health

Please note that South Carolina is changing its testing provider. Effective 5/1/2023, state insurance exams will be administered by Pearson Vue. For additional information about exam requirements and complete exam content outlines, please review the Insurance Licensing Candidate Handbook at https://home.pearsonvue.com/sc/insurance.

Note that the course chapters and exam format are also changing. The new exam will consist of 2 parts: General Knowledge and State Law. However, you will receive one overall score. The new exam breakdown is as follows:

South Carolina Life Insurance Examination

85 Total Questions (75 scored; 10 pretest)

South Carolina Accident and Health Insurance Examination

85 Total Questions (75 scored; 10 pretest)

South Carolina Life and Accident and Health Insurance Examination

145 Total Questions (130 scored; 15 pretest)

The following are content additions to supplement your existing text.

LIFE & HEALTH

Insurance Regulation

A. Licensing

1. Process – addition to the existing text

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 exempt from the licensing requirements:

Before a license may be issued, an applicant must

Licensed insurance producers who wish to renew their current resident producer license are exempt from fingerprinting requirements, as long as the producer has already submitted their fingerprints during the initial licensing period and licenses issued are in good standing on the date of the license renewal.

A producer who allows their license to lapse is also exempt from fingerprint requirements as long as the producer applies for license reinstatement within 6 months of the compliance date, meets continuing education requirements, and pays a penalty to the Director.

An individual producer license must contain

The following fees are applicable to producer licenses, appointments, and agency licenses issued in this state:

If payment of a licensing fee is rejected by a bank, the producer must reattempt to pay the fee within 30 days of the rejection date. If payment is still rejected, the producer's license will be terminated. In order to reinstate the license, the Director may require the producer to pay the license fee, plus any charges resulting from rejection by the bank.

Initial appointment fees are due in advance of the appointment. Biennial appointment fees are due by September 13 of even numbered years. If a biennial appointment fee is not paid, the appointment must be cancelled. An insurer may reactive an appointment by paying a penalty fee of $250 to the Department by December 1 of the even number year.

2. Types of Licenses

Temporary

The Director may issue a temporary insurance license for a maximum period of 180 days without requiring an examination if the Director considers the temporary license necessary for the servicing of an insurance business in the following cases:

The Director may limit the authority of any temporary licensee in any way considered necessary to protect insureds and the public. The Director may revoke a temporary license if the interest of insureds or the public are endangered. A temporary license may not continue after the owner or the personal representative disposes of the business for which the temporary license was issued.

B. State Regulation

2. Company Regulation

Unfair Claims Settlement Practices – addition to the existing text

Upon receiving notification of a claim, an insurer must provide the necessary claim forms to the insured or beneficiary. If claim forms are not provided within 20 days of the receipt of the notice, the claimant is considered to have complied with proof of loss requirements under the policy.

4. Unfair and Prohibited Practices

Fraud

A licensed insurance producer may be found guilty of a felony and, upon conviction, punished by imprisonment for up to 5 years or a fine of up to $5,000 dollars, or both, if the producer, with the intent to injure, defraud, or deceive any insurance company or applicant for insurance:

LIFE:

Life Insurance Basics

A. Personal Life Insurance

Third-Party Ownership

Most insurance policies are written where the insured and owner of the policy is the same person. However, there are situations in which the contract may be owned by someone other than the insured. These types of contracts are known as third-party ownership. Third-party owner is a legal term used to identify an individual or entity that is not an insured under the contract, but that has a legally enforceable right under it. Most policies involving third-party ownership are written in business situations or for minors in which the parent owns the policy.

E. Process of Issuing a Life Insurance Policy

Consequences of Incomplete Applications

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.

Stranger-Originated Life Insurance (STOLI) and Investor-Originated Life Insurance (IOLI)

Stranger-originated life insurance (STOLI) is a life insurance arrangement in which a person with no relationship to the insured (a "stranger") purchases a life policy on the insured's life with the intent of selling the policy to an investor and profiting financially when the insured dies. In other words, STOLIs are financed and purchased solely with the intent of selling them for life settlements.

STOLIs violate the principle of insurable interest, which is in place to ensure that a person purchasing a life insurance policy is actually interested in the longevity rather than the death of the insured. Because of this, insurers take an aggressive legal stance against policies they suspect are involved in STOLI transactions.

Note that lawful life settlement contracts do not constitute STOLIs. Life settlement transactions result from existing life insurance policies; STOLIs are initiated for the purpose of obtaining a policy that would benefit a person who has no insurable interest in the life of the insured at the time of policy origination.

Investor-owned life insurance (IOLI) is another name for a STOLI, where a third-party investor who has no insurable interest in the insured initiates a transaction designed to transfer the policy ownership rights to someone with no insurable interest in the insured and who hopes to make a profit upon the death of the insured or annuitant.

Social Security Benefits

Social Security, also referred to as Old Age Survivors Disability Insurance — OASDI, is a Federal program enacted in 1935, which is designed to provide protection for eligible workers and their dependents against financial loss due to old age, disability, or death. With a few exceptions, almost all individuals are covered by Social Security. In some aspects, Social Security plays a role of federal life and health insurance, which is important to consider when determining an individual's needs for life insurance.

Social Security uses the Quarter of Coverage (QC) system to determine whether or not an individual is qualified for Social Security benefits. The type and amount of benefits are determined by the amount of credits or QCs a worker has earned. Anyone working in jobs covered by Social Security or operating his/her own business may earn up to a maximum of 4 credits for each year of work.

The term fully insured refers to someone who has earned 40 quarters of coverage (the equivalent of 10 years of work), and is therefore entitled to receive Social Security retirement, premium-free Medicare Part A, and survivor benefits. If an individual is entitled to premium-free Medicare Part A, they are automatically eligible for Medicare Part B, but must pay a monthly premium.

An individual can attain a currently insured status (or partially insured), and by that qualify for certain benefits if he or she has earned 6 credits (or quarters of coverage) during the 13-quarter period ending with the quarter in which the insured:

For younger workers, the number of quarters required to qualify for the benefits differs by age according to a table established by Social Security.

*The current full retirement age is 66, and is gradually increasing to age 67.

USA PATRIOT Act and 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:

Suspicious Activity Reports (SARs) 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:

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

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

Gramm-Leach-Bliley Act (GLBA) Privacy

The Gramm-Leach-Bliley Act stipulates that in general, an insurance company may not disclose nonpublic personal information to a nonaffiliated third party except for the following reasons:

The Gramm-Leach-Bliley Act requires 2 disclosures to a customer (a consumer who has an ongoing financial relationship with a financial institution):

The customer must also receive an annual privacy disclosure, and have the right to opt out, or choose not to have their private information shared with other parties.

Life Insurance Policies

A. Term Life Insurance

Renewable and Convertible

Most term insurance policies are renewable, convertible, or renewable and convertible (R&C).

The renewable provision allows the policyowner the right to renew the coverage at the expiration date without evidence of insurability. The premium for the new term policy will be based on the insured's current age. For example, a 10-year term policy that is renewable can be renewed at the end of the 10-year period for a subsequent 10-year period without evidence of insurability. However, the insured will have to pay the premium that is based on his or her attained age. If an individual purchases a 10-year term policy at age 35, he or she will pay a premium based on the age of 45 upon renewing the policy.

The convertible provision provides the policyowner with the right to convert the policy to a permanent insurance policy without evidence of insurability. The premium will be based on the insured's attained age at the time of conversion.

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.

B. Whole Life Insurance

Interest-Sensitive Whole Life

Interest-sensitive whole life, also referred to as current assumption life, is a whole life policy that provides a guaranteed death benefit to age 100. The insurer sets the initial premium based on current assumptions about risk, interest and expense. If the actual values change, the company will lower or raise the premium at designated intervals. In addition, interest-sensitive whole life policies credit the cash value with the current interest rate that is usually comparable to money market rates, and can be higher than the guaranteed levels. The policy also provides for a minimum guaranteed rate of interest. 

Interest-sensitive whole life provides the same benefits as other traditional whole life policies with the added benefit of current interest rates, which may allow for either greater cash value accumulation or a shorter premium-paying period.

Indexed Life

The main feature of indexed whole life (or equity index whole life) insurance is that the cash value is dependent upon the performance of the equity index, such as S&P 500 although there is a guaranteed minimum interest rate. The policy's face amount increases annually to keep pace with inflation (as the Consumer Price Index increases) without requiring evidence of insurability. Indexed whole life policies are classified depending on whether the policyowner or the insurer assumes the inflation risk. If the policyowner assumes the risk, the policy premiums increase with the increases in the face amount. If the insurer assumes the risk, the premium remains level.

Life Policy Provisions, Riders and Options

A. Standard Provisions

Insuring Clause

The insuring clause (or insuring agreement) sets forth the basic agreement between the insurer and the insured. It states the insurer’s promise to pay the death benefit upon the insured’s death. The insuring clause usually is located on the policy face page, and also defines who the parties to the contract are, how long coverage is in force, and the type of loss insured against.

D. Riders

3. Riders Affecting the Death Benefit Amount

Accidental Death and Dismemberment

The accidental death and dismemberment rider (AD&D) pays the principal (face amount) for accidental death, and pays a percentage of that amount, or a capital sum, for accidental dismemberment.

The accidental death portion is the same as that already discussed with the accidental death rider. The dismemberment portion of the rider will usually determine the amount of the benefit according to the severity of the injury. The full principal amount will usually be paid for the loss of two hands, two arms, two legs or the loss of vision in both eyes. A capital amount is usually limited to half the face value and is payable in the event of the loss of one hand, arm, leg, or eye. The dismemberment can be defined differently by insurance companies, from the actual severance of the limb to the loss of use.

Federal Tax Considerations for Life Insurance and Annuities

Taxation of Group Life and Employer-Sponsored Plans

The premiums that an employer pays for life insurance on an employee, whereby the policy is for the employee's benefit, are tax deductible to the employer as a business expense. If the group life policy coverage is $50,000 or less, the employee does not have to report the premium paid by the employer as income (not taxable to the employee).

Any time a business is the named beneficiary of a life insurance policy, or has a beneficial interest in the policy, any premiums that the business pays for such insurance are not tax deductible. Therefore, when a business pays the premiums for any of the following arrangements, the premiums are not deductible:

The cash value of a business owned life insurance policy or an employer provided policy accumulates on a tax-deferred basis and is taxed in the same manner as an individually owned policy.

Policy loans are not taxable to a business. Unlike an individual taxpayer, a corporation may deduct interest on a life insurance policy loan for loans up to $50,000.

Policy death benefits paid under a business owned or an employer provided life insurance policy are received income tax free by the beneficiary (in the same manner as in individually owned policies).

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

Modified Endowment Contracts (MECs)

Following the elimination of many traditional tax shelters by the Tax Reform Act of 1984, single premium life insurance remained as one of the few financial products offering significant tax advantages. Consequently, many of these types of policies were purchased solely for the purpose of setting aside large sums of money for the tax-deferred growth as well as tax-free cash flow available via policy loans and partial surrenders.

To curtail this activity, and to determine if an insurance policy is overfunded, the Internal Revenue Service (IRS) established what is known as the 7-pay Test. Any life insurance policy that fails a 7-pay test is classified as a Modified Endowment Contract (MEC), and loses the standard tax benefits of a life insurance contract. In a MEC, the cumulative premiums paid during the first 7 years of the policy exceed the total amount of net level premiums that would be required to pay the policy up using guaranteed mortality costs and interest.

Once a policy fails the 7-pay test and becomes a MEC, it remains a MEC.

All life insurance policies are subject to the 7-pay test, and any time there is a material change to a policy (such as an increase in the death benefit), a new 7-pay test is required. Whether from a life insurance policy or a MEC, the death benefit received by the beneficiary is tax free.

The following are taxation rules that apply to MEC's cash value:

HEALTH:

Health Insurance Basics

Modes of Premium Payment

In regard to insurance premiums, mode refers to the frequency the policyowner pays the premium. An insurance policy's rates are based on the assumption that the premium will be paid annually at the beginning of the policy year and that the company will have the premium to invest for a full year before paying any claims. If the policyowner chooses to pay the premium more frequently than annually, there will be an additional charge because the company will have additional expenses in billing the premium. However, the premium may be paid annually, semi-annually, quarterly, or monthly.

Higher Frequency = Higher Premium

Monthly > Quarterly > Semi-Annual > Annual

D. Limited Policies

2. Types of Limited Policies

Cancer Policy

Cancer policies cover only one illness: cancer, and pay a lump-sum cash benefit when the insured is first diagnosed with cancer. It is a supplemental policy intended to fill in the gap between the insured's traditional health coverage and the additional costs associated with being diagnosed with the illness. There are no restrictions on how the insured spends the funds, so the benefit can be used to pay for medical bills, experimental treatment, mortgage, personal living expenses, loss of income, etc.

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.

Individual Health and Disability Insurance Policy General Provisions

C. Other General Provisions

Probationary Period

The probationary period provision states that a period of time must lapse before coverage for specified conditions goes into effect. This provision is most commonly found in disability income policies. The probationary period also applies to new employees who must wait a certain period of time before they can enroll in the group plan. The purpose of this provision is to avoid unnecessary administrative expenses in cases of employee turnover.

Exclusions and Limitations

Exclusions specify for what the insurer will not pay. These are causes of loss that are specifically excluded from coverage. Reductions are a decrease in benefits because of certain specified conditions. The most common exclusions in health insurance policies are injury or loss that results from any of the following:

In addition, most policies will temporarily suspend coverage while an insured resides in a foreign country or while serving in the military.

Mental and Emotional Disorders — Usually the lifetime benefit for major medical coverage limits the amount payable for mental or emotional disorders. The benefit is usually expressed as a separate lifetime benefit and there is frequently a limit on the number of outpatient visits per year. The benefit may also pay a maximum limit per visit. These limitations usually do not apply to inpatient treatment.

Substance abuse — As with mental and emotional disorders, outpatient treatment of substance abuse is usually limited to a maximum limit.

Coinsurance

Most major medical policies include a coinsurance provision that provides for the sharing of expenses between the insured and the insurance company. After the insured satisfies the policy deductible, the insurance company will usually pay the majority of the expenses, typically 80%, with the insured paying the remaining 20%. Other coinsurance arrangements exist such as 90/10; 75/25; or 50/50. The larger the percentage that is paid by the insured, the lower the required premium will be. The purpose of the coinsurance provision is for the insurance company to control costs and discourage overutilization of the policy.

Copayments

A copayment provision is similar to the coinsurance feature in that the insured shares part of the cost for services with the insurer. Unlike coinsurance, a copayment has a set dollar amount that the insured will pay each time certain medical services are used.

Deductibles

A deductible is a specified dollar amount that the insured must pay first before the insurance company will pay the policy benefits. The purpose of a deductible is to have the insured absorb the smaller claims, while the coverage provided under the policy will absorb the larger claims. Consequently, the larger the deductible, the lower the premium that is required to be paid.

Most major medical policies feature an annual deductible (also called a calendar year deductible) that, as the name implies, is paid once in any year, regardless of the amount of claims in that year. The policy may contain an individual deductible, in which each insured is personally responsible for a specified deductible amount each year, or a family deductible (usually 2 to 3 times the individual deductible) whereby the annual deductible is satisfied if two or more family members pay a deductible in a given year, regardless of the amount of claims incurred by additional family members. Some policies contain what is known as a per occurrence deductible or flat deductible which the insured is required to pay for each claim, possibly resulting in more than one deductible being paid in a given year.

The policy may also contain a provision which applies when more than one family member is injured in a single accident, also called the common accident provision. In this case, only one deductible applies for all family members involved in the same accident.

Some supplemental major medical plans also include an integrated deductible in which case the amount of the deductible may be satisfied by the amount paid under basic medical expense coverage. For example, if the supplemental coverage included a $1,000 integrated deductible, and the insured incurs $1,000 in basic medical expenses, the deductible will be satisfied. If the basic policy only covered $800 of the basic expenses, the insured would have to satisfy the remaining $200 difference.

Some policies also include a carry-over provision that states that if the insured did not incur enough expenses during the year to meet the deductible, any expenses incurred during the last 3 months may be carried over to the next policy year to satisfy the new annual deductible.

Disability income and long-term care policies usually have a time deductible in the form of elimination period.

Eligible Expenses

Eligible expenses are those medical expenses covered by a health insurance plan. The eligible expenses are specified in the policy.

Pre-Authorization and Prior Approval Requirements

Some health insurance policies will require the pre-authorization or prior approval of certain medical procedures, tests, or hospital stays. The insured must obtain the insurer's approval before the procedure, test, or hospital stay to be sure the policy will cover the expenses.

Impairment Rider

The impairment (exclusion) rider may be attached to a contract for the purpose of eliminating coverage for a specifically defined pre-existing condition, such as back injuries. Impairment riders may be temporary or may become a permanent part of the policy. Attaching this rider excludes coverage for a condition that would otherwise be covered. Often a person's only means of purchasing insurance at a reasonable cost when they have an existing impairment is through a policy which excludes coverage for the specific impairment.

For example, a physician may have suffered from a back injury prior to applying for a disability policy. The company may agree to issue a disability policy, but with an exclusion rider, excluding coverage for any claim related to his back. The policy would cover any other disability he may incur in the future, as long as it is not related to his back. This may be the only way the insured is able to obtain coverage. The underwriter makes a decision when writing the contract whether to make the exclusion permanent, or, for a short time only (such as if the insured is able to go a specified period of time with no further treatment). The terms of the rider will be clearly stated in the policy.

Most riders in both life and health insurance add some form of additional coverage and often, there is extra cost added to the premium for the rider. The impairment (exclusion) rider is an exception in that it takes something away from standard coverage. There is no extra charge for this, nor is the premium reduced to reflect a reduction in coverage.

Guaranteed Insurability Rider

This policy rider is also referred to as the Future Increase Option or the Guaranteed Purchase Option. This option, which is also available on life insurance policies, will allow the insured to purchase additional amounts of disability income coverage without evidence of insurability. The insured is usually provided a number of option dates, such as every two years, on which the additional purchase option may be exercised. Most companies do not allow the insured to exercise the additional purchase option beyond a certain age, usually age 50. The premium for the additional amount of insurance will be based on the insured’s attained age at the time the option is exercised. In order to prevent over-insurance, the insured must meet an earnings test prior to each purchase. In addition, the insurer will usually limit the amount that may be purchased at each of the option dates to some specified amount, such as $500-$5,000.

Primary and Contingent Beneficiaries

Any death benefits available in a policy will be paid to a beneficiary. A primary beneficiary is the first person so designated. However, if the primary beneficiary should die before the benefits become payable, the benefits would go to a contingent or secondary beneficiary. If no beneficiary is designated, the benefits will be placed in the deceased's estate.

Multiple primary and contingent beneficiaries may be designated in a policy. If multiple primary beneficiaries are named, each individual will receive a proportionate percentage of the death benefit. If one of multiple primary beneficiaries dies, equivalent percentages are re-established.

For example, if there were two primary beneficiaries named in a policy, each would receive 50% of the death benefit. If one of the two beneficiaries died, the remaining beneficiary would receive 100%.

If an individual health insurance policy provides a death benefit, it must also include a change of beneficiary provision. This provision gives the policyholder, unless he/she has made an irrevocable designation of a beneficiary, the right to change any primary and/or contingent beneficiary or make any other change without the consent of the beneficiary or beneficiaries.

Medical Plans

B. Types of Plans

Flexible Spending Accounts (FSAs)

A Flexible Spending Account (FSA) is a form of cafeteria plan benefit funded by salary reduction and employer contributions. The employees are allowed to deposit a certain amount of their paycheck into an account before paying income taxes. Then, during the year, the employee can be directly reimbursed from this account for eligible health care and dependent care expenses. FSA benefits are subject to annual maximum and "use-or-lose" rule. This plan does not provide a cumulative benefit beyond the plan year.

There are 2 types of Flexible Spending Accounts: a Health Care Account for out-of-pocket health care expenses, and a Dependent Care Account (subject to annual contribution limits) to help pay for dependent's care expenses which makes it possible for an employee and his or her spouse to continue to work.

An FSA is exempt from federal income taxes, Social Security (FICA) taxes and, in most cases, state income taxes, saving 1/3 or more in taxes. If the plan favors highly compensated employees, the benefits for the highly compensated employees are not exempt from federal income taxes.

Child and dependent care expenses must be for the care of one or more qualifying persons:

• A dependent who was under age 13 when the care was provided and who can be claimed as an exemption on the employee's Federal Income Tax return;
• A spouse who was physically or mentally not able to care for himself or herself; or
• A dependent who was physically or mentally not able to care for himself or herself and who can be claimed as an exemption (as long as the person is earning gross income less than an IRS-specified amount).

Persons who cannot dress, clean, or feed themselves because of physical or mental problems are considered not able to care for themselves. Also, persons who must have constant attention to prevent them from injuring themselves or others are considered not able to care for themselves.

The insured may change benefits during open enrollment. After that period, generally, no other changes can be made during the plan year. However, the insured might be able to make a change under one of the following circumstances, referred to as qualified life event changes:

• Marital status;
• Number of dependents;
• One of dependents becomes eligible for or no longer satisfies the coverage requirements under the Medical Reimbursement plan for unmarried dependents due to attained age, student status, or any similar circumstances;
• The insured, the insured's spouse's or qualified dependent's employment status that affects eligibility under the plan (at least a 31-day break in employment status to qualify as a change in status);
• Change in dependent care provider; or
• Family medical leave.

The IRS limits the annual contribution for Dependent Care Accounts to a specified amount that gets adjusted annually for cost of living. This is a family limit, meaning that even if both parents have access to flexible care accounts, their combined contributions cannot exceed the amount.

• 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 their employer relative to the insurance interests of the employer or subsidiaries.

• Furnish a complete set of fingerprints to the Director; and
• Undergo a state criminal records check by the South Carolina Law Enforcement Division (SLED) and a national criminal records check by the Federal Bureau of Investigation (FBI).

• The licensee's name, address, and personal identification number;
• The date of issuance;
• The lines of authority; and
• Any other information the Director considers necessary.

• Initial producer licensing and biennial renewal fee: $25;
• General appointment and biennial fee: $100; and
• Initial agency licensing and biennial renewal fee: $40.

• To the surviving spouse or court-appointed personal representative of a licensed producer who dies or becomes mentally or physically disabled;
• To a member or employee of a business entity licensed as an insurance producer, upon the death or disability of an individual designated in the business entity application or the license;
• To the designee of a licensed insurance producer entering active service in the U.S. armed forces; or
• Except for continuing education purposes, in any other circumstance that the Director deems necessary.

1. Presents an insurance application knowing that it contains false or misleading information or omissions of material facts pertaining to the underwriting; or
2. Assists, abets, solicits, or conspires with another to prepare or make an application for insurance, knowing that the application contains any false or misleading information or omissions.

• Application form;
• Motor vehicle records;
• Interviews with neighbors, friends and employers;
• Inspection of property; and
• Inspection of insurance history.

• The insurance company clearly and conspicuously discloses to the consumer in writing that information may be disclosed to a third party;
• The consumer is given the opportunity, before the time that information is initially disclosed, to direct that information not be disclosed to the third party; or
• The consumer is given an explanation of how the consumer can exercise a nondisclosure option.

1. When the customer relationship is established (i.e., a policy is purchased); and
2. Before disclosing protected information.

• 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 U.S. Code, to a U.S. flag vessel or other vessel based principally in the U.S. and insured under U.S. regulation, or on the premises of any U.S. mission;
• The act must have been committed by someone as part of an effort to coerce the U.S. civilian population, to influence U.S. policy, or to affect the conduct of the U.S. government by coercion; or
• The act must produce property and casualty insurance losses in excess of a specified amount.

• First-party cyber insurance — Protects businesses from damages resulting from cyber losses to the business' own network or system; and
• Third-party cyber insurance — Covers legal expenses for lawsuits resulting from a business's inability to properly secure consumer data.

• Injuries that occur traveling to and from work;
• Injuries that result from intoxication of the employee;
• Injuries willfully caused by the employee;
• Injuries that result from a willful failure to follow safety precautions;
• Injuries that occur from activities not a part of the job.

1. Website publishing liability — provides coverage against Internet-related publishing perils, including libel, and copyright, trademark, or service mark infringement;
2. Network security liability — protects the policyowner against claims for failing to maintain the security of a computer system;
3. Replacement or restoration of electronic data — covers the cost of replacing or restoring data lost due to a virus, malicious instruction, or denial-of-service attack;
4. Cyber extortion — covers expenses, including ransom payments, incurred from extortion threats; and
5. Business income and extra expense — provides coverage for expenses incurred as a result of an extortion threat or e-commerce incident.

• Coverage A — States the limit of liability for damage to the mobile home;
• Coverage B — Other covered structures;
• Coverage C — Personal property of the insured*
• Coverage D — Loss of use coverage;
• Coverage E — Personal Liability;
• Coverage F — Medical Payments to Others.

• Part A – Liability Coverage;
• Part B – Medical Payments Coverage;
• Part C (not currently used);
• Part D – Coverage for Damage to Your Watercraft;
• Part E – Your Duties after Accident or Loss; and
• Part F – General Provisions.

• Up to 10% of the limit of liability for Part A;
• Up to $250 for the cost of bail bonds required because of an accident;
• Premiums on appeal bonds;
• Interest accruing after a judgment is entered in the suit;
• Up to $200 a day for loss of earnings (but not other income) because of attendance at hearings or trials at the insurer's request; and
• Other reasonable expenses.

• Intentional bodily injury or property damage;
• Property damage to property rented to, used by, or in the care of the insured;
• Bodily injury to a person who is entitled to benefits under the Jones Act, workers compensation benefits, or Federal Longshore and Harbor Workers Compensation benefits;
• Insured's liability for a watercraft while it is being rented to others, used as a public or livery conveyance, or hired for charter;
• Losses incurred while the insured is employed or engaged in the business of selling, repairing, servicing, storing, or docking watercraft;
• Using a watercraft without a reasonable belief that the insured is entitled to do so;
• Bodily injury or property damage for an insured under a nuclear energy liability policy; and
• Watercraft that is being operated in any prearranged or organized race, stunt activity, or other speed competition.

• Amount shown in the Declarations;
• Actual cash value of the stolen or damaged property; or
• Amount necessary to repair or replace the property.

• Salvage expense coverage — up to 25% of the Part D limit of liability. This coverage is additional insurance without a deductible.
• Towing and assistance expense coverage — if the watercraft becomes disabled, the insurer will pay reasonable expenses for
• Towing it to the nearest repair place;
• Delivery of gas, oil, or repair parts at the site of disablement;
• Watercraft trailer roadside repair; and
• The limit of coverage is $500 for any one disablement, subject to a maximum of $1,000 for any one policy period.
• Personal effects coverage — the insurer pays for direct and accidental loss to personal effects owned by the insured or the insured's guests (at insured's request). Personal effects include cameras, cell phones, clothing, fishing equipment, water skiing and other sporting equipment. It does not include, however, animals, jewelry, money, watches, or permanently attached equipment. This coverage is limited to $500. It is additional insurance with no deductible.

• Promptly notify the insurer of how, when, and where the accident or loss occurred;
• Cooperate with the insurer and provide any documentation as requested;
• Take reasonable steps after loss to protect the damaged property from further loss;
• Promptly notify the police, Coast Guard, or other authorities if covered property is stolen; and
• Permit the insurer to inspect and appraise the damaged property before its repair or disposal.

• Abandonment;
• Bankruptcy;
• Changes;
• Financial responsibility — when the policy is certified as future proof of financial responsibility, it must comply with the law to the extent required;
• Fraud;
• Lay-up period — insurer will not provide coverage while a watercraft is operated during the lay-up period, or not stored in the lay-up location;
• Legal action against insurer;
• Loss payable clause;
• Insurer's right to recover payment;
• Out of state coverage;
• Policy period;
• Policy territory — coverage only applies to accidents and losses that occur within the Custom Policy Territory shown in the Declarations, or if not specified, coverage applies on land, in inland waters, in coastal waters within 12 miles of the shoreline, or in the Great Lakes within U.S., its territories or possessions, Puerto Rico, or Canada;
• Termination (including cancellation, nonrenewal, automatic termination, and other termination provisions);
• Transfer of insured's interest in this policy; and
• Two or more watercraft policies.

Note that the course chapters and exam format are also changing. The new exam will consist of 2 parts: General Knowledge and State Law. However, you will receive one overall score. The new exam breakdown is as follows:

South Carolina Personal Lines Insurance Examination

105 Total Questions (95 scored; 10 pretest)

The following are content additions to supplement your existing text.

General Insurance

D. Contracts

3. Legal Interpretations Affecting Contracts

Binders

A binder is a temporary agreement issued by an agent or insurer providing temporary coverage until a policy can be issued. A binder is usually in writing, but may be verbal. Binders expire when the policy is issued. However, the policy effective date would be the same as the date when the binder was issued. If the insurer declines to issue the policy, the binder expires on the date after receipt of the notice of cancellation.

Property Insurance Basics

C. Common Policy Provisions

Obligations of the Insurance Company

An insurance company, in return for premium, must be fair in underwriting and must pay covered losses.

Proof of Loss

Proof of loss is a sworn statement that must usually be furnished by the insured to an insurer before any loss under a policy can be paid. This form is typically used in the settlement of first-party losses, and includes the date and description of the occurrence and the amount of indemnity claimed.

The initial claim report to the insurer may be oral or in writing but the proof of loss must be in writing. The proof of loss is required near the end of the claim process.

Notice of Claim

Notice of claim is a form or statement from an insured to an insurer, informing the insurer that events leading to a possible claim have occurred. The notice will include information as to how, when, and where the loss took place.

Sources of Insurability Information

A part of the underwriting process is to determine the insurability of the applicant. Insurers have several resources for gathering information, most of which must be agreed to by the insured in writing before the insurer can use them. The following are some of the sources that may be used in the underwriting process:

• Application form;
• Motor vehicle records;
• Interviews with neighbors, friends and employers;
• Inspection of property; and
• Inspection of insurance history.

Policy Application

The application is a printed form that includes questions about a prospective insured and the desired insurance coverage and limits. It provides the underwriter with information for accepting or rejecting the prospective insured and rating the desired policy. Some policies make the application part of the policy. Misrepresentations in the application can void the policy.

Privacy Protection (Gramm-Leach-Bliley)

The application is a printed The Gramm-Leach-Bliley Act stipulates that in general, an insurance company may not disclose nonpublic personal information to a nonaffiliated third party except for the following reasons:

• The insurance company clearly and conspicuously discloses to the consumer in writing that information may be disclosed to a third party;
• The consumer is given the opportunity, before the time that information is initially disclosed, to direct that information not be disclosed to the third party; or
• The consumer is given an explanation of how the consumer can exercise a nondisclosure option.

The Gramm-Leach-Bliley Act requires 2 disclosures to a customer (a consumer who has an ongoing financial relationship with a financial institution):

1. When the customer relationship is established (i.e., a policy is purchased); and
2. Before disclosing protected information.

The customer must also receive an annual privacy disclosure, and have the right to opt out, or choose not to have their private information shared with other parties.

Terrorism Risk Insurance Act (TRIA)

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 Homeland Security (as of 2015), 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 U.S. Code, to a U.S. flag vessel or other vessel based principally in the U.S. and insured under U.S. regulation, or on the premises of any U.S. mission;
• The act must have been committed by someone as part of an effort to coerce the U.S. civilian population, to influence U.S. policy, or to affect the conduct of the U.S. government by coercion; or
• The act must produce property and casualty insurance losses in excess of a specified amount.

The Terrorism Risk Insurance Act (TRIA) has been renewed and modified multiple times since 2002.

Types of Casualty Policies

A. Personal Auto Policy

Types of Auto

Owned

Owned autos are those eligible vehicles titled by the insured or acquired during the policy period.

Nonowned

Nonowned autos are any private passenger auto, pickup, van, or trailer operated by or in the custody of the named insured or a family member, but that are not titled by or furnished for the regular use of the insured.

Hired

Hired autos include those that are leased, hired, rented, or borrowed from someone other than an employee or partner.

The classes hired automobile and nonowned automobile are mutually exclusive, and the distinction between the two often is misunderstood. Hired automobiles include those that are leased, hired, rented, or borrowed, excluding autos that are owned by employees. Autos leased, hired, rented, or borrowed from employees are considered nonowned automobiles. Thus, the distinction between a hired and nonowned auto does not depend on whether payment is made for the use of the auto, but rather on whether it is owned by an employee. (This somewhat artificial distinction exists primarily for the purpose of rating and premium determination.)

Temporary Substitute

The personal auto policy provides coverage for any auto or trailer not owned by an insured while used as a temporary substitute for any other vehicle described in the policy that is out of normal use because of breakdown, repair, servicing, loss, or destruction.

Selected Endorsements

Rental Reimbursement Expense

The Rental Reimbursement endorsement is only available if the policy includes Other Than Collision coverage. This endorsement will reimburse the insured for rental charges incurred because the covered auto is out of use due to a covered loss.

Other Coverages and Options

E. Other Policies

Mobile Homes

The mobilehome endorsement alters the homeowners policy to cover a mobilehome and other structures on land owned or leased by the resident of the mobilehome. The limit of liability for Coverage B (other structures) is changed to $2,000 or 10% of the Coverage A limit, whichever is greater. This does not reduce the Coverage A limit.

The additional coverage of property removed is changed to add up to $500 for reasonable expenses incurred in the removal and return of the mobilehome when it is necessary to avoid damage or endangered by a peril insured against. The additional coverage of ordinance or law is removed.

To be eligible, the mobile home must be designed for year-round living and must meet certain size requirements.

The coverage structure of the Mobile Homeowners Policy follows the structure of the Homeowners policy:

• Coverage A — States the limit of liability for damage to the mobile home;
• Coverage B — Other covered structures;
• Coverage C — Personal property of the insured*
• Coverage D — Loss of use coverage;
• Coverage E — Personal Liability;
• Coverage F — Medical Payments to Others.

* Note: Unlike the HO forms, the Mobile Homeowners Policy provides 40% of Coverage A. Items included in the unit (at the time of sale) are classified as Coverage A property.

The mobile homeowners policy changes the language for the Additional Coverage Property Removed. The policy will pay up to $500 if the insured moves the mobile home to a safer area to protect it from loss by a covered peril. If the insured wishes to move the mobile home in a situation in which it is not threatened by an insured peril, they must contact the insurer and obtain, for additional premium, a Transportation/Permission to Move Endorsement. This endorsement adds the perils of collision, upset, and stranding and sinking to the perils insured against in the policy. Coverage under this endorsement applies for a period of 30 days anywhere in continental United States or Canada. The mobile homeowners policy endorsement deletes the additional coverage for Ordinance or Law.

Watercraft

Like many other policy forms, the Watercraft policy form starts with agreement and definitions, and is further divided into the following sections:

• Part A – Liability Coverage;
• Part B – Medical Payments Coverage;
• Part C (not currently used);
• Part D – Coverage for Damage to Your Watercraft;
• Part E – Your Duties after Accident or Loss; and
• Part F – General Provisions.

Definitions

Some of the terms and definitions unique to the watercraft policy are as follows:

Personal watercraft — a recreational watercraft powered by an inboard motor, capable of carrying one or more persons in a sitting, standing, or kneeling position.

Nonowned watercraft — any watercraft, including its motor and watercraft trailer, which is not owned or available for regular use by the insured.

Outboard motor means any motor designed to be attached to a watercraft, including fuel tanks and electric starting equipment or controls necessary for the operation of the motor.

Watercraft trailer means a vehicle that is designed to be pulled by a private passenger auto, pickup or van, and transport a watercraft on land.

Boating equipment means accessories and other equipment (other than outboard motors) that are owned by the insured, integral to the operation and maintenance of the watercraft, and are in or upon the covered watercraft.

Covered watercraft — any watercraft, outboard motor, and watercraft trailer shown in the Declarations, and newly acquired property.

A watercraft, outboard motor, or watercraft trailer will be deemed to be owned by a person if leased under a written agreement to that person, and for a continuous period of at least 6 months.

Part A - Liability Coverage

Part A – Liability Coverage will pay for damages for bodily injury or property damage for which any insured becomes legally liable because of a watercraft accident. As deemed appropriate, the insurer will settle or defend any claim or suit asking for these damages. In addition to the limit of liability shown in the Declarations, the insurer will pay all defense costs they incur.

Liability coverage supplementary payments are as follows, and will not reduce the limit of liability:

• Up to 10% of the limit of liability for Part A;
• Up to $250 for the cost of bail bonds required because of an accident;
• Premiums on appeal bonds;
• Interest accruing after a judgment is entered in the suit;
• Up to $200 a day for loss of earnings (but not other income) because of attendance at hearings or trials at the insurer's request; and
• Other reasonable expenses.

Exclusions

Some of the main exclusions to liability coverage are listed below:

• Intentional bodily injury or property damage;
• Property damage to property rented to, used by, or in the care of the insured;
• Bodily injury to a person who is entitled to benefits under the Jones Act, workers compensation benefits, or Federal Longshore and Harbor Workers Compensation benefits;
• Insured's liability for a watercraft while it is being rented to others, used as a public or livery conveyance, or hired for charter;
• Losses incurred while the insured is employed or engaged in the business of selling, repairing, servicing, storing, or docking watercraft;
• Using a watercraft without a reasonable belief that the insured is entitled to do so;
• Bodily injury or property damage for an insured under a nuclear energy liability policy; and
• Watercraft that is being operated in any prearranged or organized race, stunt activity, or other speed competition.

Part B - Medical Payments Coverage

Part B – Medical Payments Coverage covers expenses incurred for necessary medical and funeral services sustained by an insured. The policy will only pay for services rendered within 3 years from the date of the accident.

Part B exclusions are similar to those listed in Part A. The main distinction is that bodily injuries sustained while occupying a personal watercraft will not be covered.

Part D - Coverage for Damage to Your Watercraft

Part D – Coverage for Damage to Your Watercraft pays for direct and accidental loss of the covered watercraft and boating equipment minus any applicable deductible shown in the Declarations. If loss to more than one item of covered property results from the same loss, only one deductible will apply.

The limit of liability for Part D will be the lesser of

• Amount shown in the Declarations;
• Actual cash value of the stolen or damaged property; or
• Amount necessary to repair or replace the property.

The insurer will make an adjustment for depreciation and physical condition in determining actual cash value in the event of a total loss.

Additional Coverages

This policy section also provides the following additional coverages:

• Salvage expense coverage — up to 25% of the Part D limit of liability. This coverage is additional insurance without a deductible.
• Towing and assistance expense coverage — if the watercraft becomes disabled, the insurer will pay reasonable expenses for
• Towing it to the nearest repair place;
• Delivery of gas, oil, or repair parts at the site of disablement;
• Watercraft trailer roadside repair; and
• The limit of coverage is $500 for any one disablement, subject to a maximum of $1,000 for any one policy period.
• Personal effects coverage — the insurer pays for direct and accidental loss to personal effects owned by the insured or the insured's guests (at insured's request). Personal effects include cameras, cell phones, clothing, fishing equipment, water skiing and other sporting equipment. It does not include, however, animals, jewelry, money, watches, or permanently attached equipment. This coverage is limited to $500. It is additional insurance with no deductible.

Part E - Duties after an Accident or Loss

Duties of the insured after accident or loss under the watercraft policy form are similar to any other policy form, and can be summarized as follows:

• Promptly notify the insurer of how, when, and where the accident or loss occurred;
• Cooperate with the insurer and provide any documentation as requested;
• Take reasonable steps after loss to protect the damaged property from further loss;
• Promptly notify the police, Coast Guard, or other authorities if covered property is stolen; and
• Permit the insurer to inspect and appraise the damaged property before its repair or disposal.

Part F - General Provisions

The following general provisions apply to watercraft policies. Most of these provisions have already been discussed in other types of property and liability coverages:

• Abandonment;
• Bankruptcy;
• Changes;
• Financial responsibility — when the policy is certified as future proof of financial responsibility, it must comply with the law to the extent required;
• Fraud;
• Lay-up period — insurer will not provide coverage while a watercraft is operated during the lay-up period, or not stored in the lay-up location;
• Legal action against insurer;
• Loss payable clause;
• Insurer's right to recover payment;
• Out of state coverage;
• Policy period;
• Policy territory — coverage only applies to accidents and losses that occur within the Custom Policy Territory shown in the Declarations, or if not specified, coverage applies on land, in inland waters, in coastal waters within 12 miles of the shoreline, or in the Great Lakes within U.S., its territories or possessions, Puerto Rico, or Canada;
• Termination (including cancellation, nonrenewal, automatic termination, and other termination provisions);
• Transfer of insured's interest in this policy; and
• Two or more watercraft policies.

Windstorm

Most standard homeowner policies will cover wind damage from minor natural events. This does not usually apply, however, to areas that are considered high risk, such as coastal regions, which are susceptible to hurricanes, and inland areas that are at risk from tornadoes. In these high-risk areas, certain windstorm coverage is removed from the homeowner policy and homeowners are either required or encouraged to purchase a separate windstorm policy.

The terms wind and windstorm have specific definitions that will make it easier to understand the coverages provided by homeowner and windstorm policies. Wind is defined as a natural and perceptible movement of air parallel to or along the ground. A windstorm is defined as a storm with high winds or violent gusts but with little or no rain. Wind and windstorm may be different causes of loss, so even though a homeowner policy covers wind damage, it may not cover damage from a windstorm.

Private insurance companies sell specialty coverage such as "wind and hail" or "windstorm" policies, but in states where there are no offerings from private insurers, state-sponsored insurance pools provide windstorm insurance for these areas. Windstorm policies are written with different classifications that are tied to "trigger" events.

Examples of these trigger events include

• A hurricane or tornado watch issued by the National Hurricane Center or National Weather Service;
• Sustained winds of 74 or more miles per hour; and
• A specific, declared geographic location.

Earthquake

An earthquake is defined as a trembling or shaking of the earth that is volcanic or seismic in origin, often resulting in severe damage. It is a peril excluded by most standard property forms. Coverage for the peril of earthquake may be added by endorsement to most property policies, or coverage may be written in a Difference in Conditions Policy

Insurance Regulation

A. Licensing

1. Process – addition to the existing text

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 exempt from the licensing requirements:

• 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 their employer relative to the insurance interests of the employer or subsidiaries.