California Life and Health Insurance Exam Vocabulary

Vocabulary terms and definitions related to the California Insurance Code, life insurance policies, and general insurance principles based on practice exam questions.

Insurance Records Availability

Insurance agents and brokers must make records available to the Insurance Commissioner within 30 days of a written request.

Employer-Provided Group Term Life Tax Exemption

Up to $50,000$ of employer-provided group term life insurance is exempt from income taxation.

Deferred Annuity

A savings instrument designed to first accumulate funds and then systematically liquidate those funds.

Consumer Report

A report of an insurance applicant's creditworthiness and personal characteristics used to influence eligibility for life and health insurance.

Mortality Table

A table showing the yearly probability of dying, age at the beginning of the year, and numbers of persons living or dying at designated intervals.

Mortality

The component of a life insurance premium based specifically on the insured's age and gender.

Life Annuity with Ten Years Certain

A payment option that makes payments for a minimum of 120 months and a maximum of the remainder of the annuitant's life.

Decreasing Term Policy

A policy designed to cover the unpaid balance of a mortgage, where the death benefit reduces over the life of the loan.

Illustration

A presentation of policy features that includes non-guaranteed elements, as defined by the California Insurance Code.

Seizure Order Refusal

A person who refuses to deliver books, records, or assets to the commissioner after a seizure order is executed is guilty of a misdemeanor.

Annuity Risk Protection

People commonly purchase an annuity to protect against the risk of outliving their financial resources.

Variable Life Insurance

A contract providing benefits that fluctuate automatically based on investment results.

Participating Policy

A type of life insurance policy that gives the owner the right to share in the insurer's surplus through dividends.

Joint Life Policy

A policy covering two or more individuals that pays the face amount only when the first person dies.

Variable Annuity Value

Determined by multiplying the number of accumulation units owned by the value of the separate account.

Reinstatement Provision

A policy provision allowing an insured to continue coverage under a previously lapsed policy.

Payor Rider

A provision in juvenile life insurance that waives premiums if the payor dies or becomes disabled until the child reaches a specified age, usually 21 or 25.

Buy-sell Agreement

An agreement used by partners to guarantee a market for their share of the business in the event of death.

Certificate of Insurance

A document issued to the participant in a group life insurance plan.

Suicide Clause

A policy provision that protects the insurer against possible adverse selection.

Mortality Rate

The number of deaths during a year compared with the total number of persons exposed in that class.

Free-look Period

The period during which a policy can be returned for a full refund; it begins on the policy delivery date.

Death Benefit Taxation

Death benefits received by a beneficiary are generally exempt from federal income tax.

Immediate Estate

A characteristic of life insurance where the total death benefit is available and paid whenever the insured dies.

Medical Information Bureau (MIB)

An organization whose members consist of life and health insurers.

Senior Free Cancellation Period

Individuals age 60 or older have a 30-day period for free cancellation of life insurance policies.

Non-medical Policy

Life insurance policies written without the requirement of a physical examination.

Exclusion Ratio

The formula used to determine the amount of an annuity distribution that is exempt from taxation.

Conservation

An attempt by an agent to deter an insured from replacing an existing life insurance policy.

Modified Endowment Contract (MEC)

A life insurance policy written after 1988 that fails to meet the seven-pay test.

Renewable Term Insurance

Insurance that guarantees the right to renew the policy each year regardless of health, though at an increased premium.

Indemnity

The principle of making an insured whole by restoring them to the same condition as before a loss.

Conversion Privilege

Allows a terminating employee to convert group term insurance into individual permanent insurance.

Settlement Interest Option

A settlement choice where the beneficiary lets the death benefit accumulate and receives only the monthly investment proceeds.

Premium Payment Mode

The frequency of payments; the total annual cost is greater if paid semiannually rather than annually.

Human Life Value Concept

A financial planning method based on an individual's income.

Waiver of Premium

A policy provision that takes effect if an insured becomes totally disabled.

ESOP

Employee Stock Ownership Plan.

Insurable Interest

Exists when an individual depends on another person for financial support.

Aleatory Contract

An agreement where the values exchanged are not equal; for example, the premium is small compared to the potential payout.

Contributory Plan

A group life policy where the insured employees pay part of the premium.

Second-to-die Policy

Also known as Survivorship life; it pays the benefit only after both covered parents have died.

Implied Authority

Authority an agent has to perform acts reasonably necessary to fulfill duties expressly authorized.

Fiduciary

The capacity in which an agent acts when handling premiums or return premiums for an insured.

Loss Exposure

Any situation that presents the possibility of a loss.

Mutual Insurer

An insurance company owned by its policyholders.

Law of Large Numbers

The principle that the more times an event is repeated, the more predictable the outcome becomes.

Life Agent

A person authorized by and on behalf of an insurer to transact life, disability, or life and accident and health insurance.

Prior Approval

A jurisdiction where an insurer must have its rates accepted by the Insurance Department before using them.

Word 'May' in CA Insurance Code

Indicates that an action is permissive/optional.

Unilateral Contract

A contract where only one party (the insurer) makes a legally enforceable promise.

MEC Penalty Tax

A $10\%$ penalty tax is imposed on amounts received from a modified endowment contract.

Materiality of Concealment

The rule used to determine the importance of a representation in an insurance contract.

Grace Period

A provision that protects the policyowner from unintentional lapse by allowing payment after the due date.

Moral Hazard

The increase in the chance of a loss occurring due to an insured's dishonest tendencies.

Premium

The money an insured pays an insurer to obtain the benefits provided in a policy.

Reinsurance

An agreement in which an insurer contracts with a third party to insure itself against losses from policies it issues.

Admitted Carrier

An insurer entitled to transact business by complying with the California Insurance Code.

Standard Risk

A classification of insurance risk that is considered average; not preferred or substandard.

Insurance Broker

A person compensated for transacting insurance on behalf of another person with an insurer.