Flashcards
A provision that places a time limit – up to two years – on a life insurance company´s right to deny payment of a claim because of a material misrepresentation on your application.
Indemnity is the process by which loss responsibility is explicitly transferred within a contractual relationship. Without this, there’s no way for an insurance policy to establish that accountability – meaning there would be no way to enforce its provided protections.
A fixed annuity contract in which its values are based on a crediting index, such as the Standard & Poor’s 500 Index.
A whole life plan of insurance that provides for the face amount of the policy and, correspondingly, the premium rate, to automatically increase every year based on an increase in the Consumer Price Index (CPI) or another index as defined in the policy.
For persons related by blood, a substantial interest established through love and affection, and for all other persons, a lawful and substantial economic interest in having the life of the insured continue. An insurable interest is required when purchasing life insurance on another person.
Insurance is a legal agreement between two parties – the insurer and the insured, also known as insurance coverage or insurance policy. The insurer provides financial coverage for the losses of the insured that s/he may bear under certain circumstances.
The laws that govern the business of insurance in a state.
The person or organization covered by an insurance policy.
The insurance company.
The insuring clause is found on the first page of the policy, the face of the policy. It is the insurer’s legally enforceable promise to pay. The insuring clause includes the parties to the contract, the policy effective date, and the coverage.
A named beneficiary whose rights to life insurance policy proceeds are vested and whose rights cannot be canceled by the policy owner unless the beneficiary consents.
This payout option covers two or more lives, and pays an amount monthly until the last party dies.
A life insurance policy that covers two insureds and pays when the last party dies.
A life insurance policy that covers two insureds and pays when the first party dies.
Life insurance covering the lives of children who are within specific age limits, generally under parental control.
Qualified retirement plan for the self-employed.
Key person life insurance is purchased by the business on a company executive. The policy is owned by the business. Key person life insurance would pay the face amount to the business if the key person dies. Premiums paid for key person life insurance are not tax-deductible to the business since it is a policy that benefits the business. Life insurance proceeds are not taxable.
The rate at which life insurance policies terminate because of failure to pay the premiums. When policies lapse before enough premium payments are made to cover early policy expenses, the company must make up this loss from remaining policyholders. Therefore, the lapse rate will affect the cost of the policy.
The law of large numbers is a statistical concept that calculates the average number of events or risks in a sample or population to predict something. The larger the population is calculated, the more accurate the predictions. In the field of insurance, the Law of Large Numbers is used to predict the risk of loss or claims of some participants so that the premium can be calculated appropriately.
For an insurance policy to be a legal contract it must include four elements. C – O – A – L. L stands for legal purpose and capacity. The policy must be purchased for a legal purpose and the owner must be the age of majority in the state and of sound mind.
The amount of policy reserves (cash on hand) required under state insurance laws.
Required for an insurance producer (agent) to legally engage in the business of insurance in a state. Issued for a period of time, states will require a fee and many require continuing education to be completed to renew a license.
The probability of an individual living to a certain age according to a particular mortality table. This is the beginning point in calculating the pure cost of life insurance and annuities and is reflected in the basic premium.
Insurance against loss due to the death of the named insured. If the insured dies during the policy period, the insurer agrees to pay a stated death benefit to the policy’s beneficiary.
A limited pay whole life policy is a whole life policy that has a shortened premium pay-in period.
The amount an insurance company pays on a claim.
A significant misstatement on an application form. If a company had access to the correct information at the time of application, the company might not have agreed to accept the application.
It is this 1945 Act that exempts insurance from federal law to the extent that it is regulated by state law.
An organization that collects medical data on life and health insurance applicants for member insurance companies.
A false statement of a material fact, accidental or intentional.
The falsification of the applicant’s birth date or gender on the insurance application. When discovered, the coverage will be adjusted to reflect the correct age or gender according to the premium paid in.
The frequency of premium payment is referred to as the mode of payment. The more often the premium is paid the more expensive it will be due to service fees.
A MEC is a whole life insurance policy that fails the seven-pay test. When a life insurance policy’s cash value exceeds the premiums paid in the first seven years the policy loses its tax favorability. Any withdrawals (including loans and partial surrenders) taken from cash value accumulation are taxed LIFO (last in, first out – earnings come out first). Earnings are taxable as ordinary income. Additionally, MECs have a 10% penalty for distributions made under age 59 1/2 (premature distributions).
Hazard arising out of an insured’s character, habits, financial responsibilities, etc. A liar represents a moral hazard.
Hazard arising out of an indifference to loss because of the existence of insurance. A careless person represents a morale hazard.
The incidence of death at each attained age; frequency of death.
The cost of the insurance protection based upon actuarial tables which are based upon the incidence of death, by age, among given groups of people. This cost is based on the amount at risk under the policy, the insured´s risk classification at the time of policy purchase, and the insured´s current age.
Listing of the mortality experience of individuals by age. This table allows an actuary to calculate, on average, how long an individual will of a given age and gender may be expected to live.
A type of term life insurance that can pay off or reduce the balance owing on a real estate purchase or refinance mortgage. Death benefit amounts track with the balances due on the loans. Coverage may be available on a group basis through creditors or licensed agents (producers) on an individual basis.
An insurance company owned by its policyholders. Mutual insurance companies usually issue participating policies. The policyowners of participating policies may receive dividends.
The association of state insurance Commissioners. They work together to solve insurance regulatory issues and form and recommend model legislation and requirements.
These options apply to the cash value of a lapsed life insurance policy. Options available are to take the cash value in cash, use it to purchase extended term insurance, or reduced paid-up insurance.
An insurance company that is not licensed to operate within a state.
In a noncontributory plan, the employee does not pay any of the premium, the employer pays 100% of the premium. In a noncontributory group, the participation percentage is 100%. 100% of eligible employees must be enrolled.
A life insurance policy that does not grant the policy owner the right to policy dividends. Nonparticipating policies are issued by stock insurers.
Nonqualified plans do not follow ERISA. They are retirement plans offered to highly paid executives. Deferred compensation is a nonqualified plan.
A requirement that describes the policyowner’s obligation to provide notification of loss to the insurer within a reasonable period of time.
For an insurance policy to be a legal contract it must include four elements. C – O – A – L. O stands for offer. In general, the applicant makes the offer when they fill out the application and submit the first premium payment.
The acronym for social security, sometimes seen as OASHI.