Terms 1-10

Agent

An individual authorized to solicit, sell, and transact coverage for specific insurance providers under an agent contract.

Broker

A person who represents the insured (client) rather than the insurance company and cannot bind coverage.

Claims Department

The department responsible for processing, investigating, and paying claims.

Insurance

The transfer of risk through the pooling or accumulation of funds.

Insured

The customer who receives insurance protection under an insurance policy.

Insurer

An insurance company that provides coverage and assumes risk.

Mutual Insurance Company

An insurer owned by policyholders that typically issues participating insurance policies with potential dividends.

Nonparticipating Policy

A policy that doesn’t provide dividends or voting rights to policy owners.

Participating Policy

A policy that allows policy owners to receive dividends and elect the board of directors.

Producer

An individual licensed to sell, solicit, or transact insurance, including both agents and brokers.

Stock Insurance Company

An insurer owned by stockholders that typically issues nonparticipating policies.

Underwriting Department

The department responsible for reviewing applications, approving or declining coverage, and assigning risk classifications.

Adverse Selection

The tendency of higher-risk individuals to seek insurance coverage more frequently than lower-risk individuals.

Hazard

A condition that increases the likelihood of a loss occurring.

Law of Large Numbers

The principle that the larger the number of similar risks insured, the more accurately future losses can be predicted.

Loss

An unintentional decrease in value due to a covered peril.

Peril

The specific event or cause that results in a loss.

Pure Risk

A risk that involves only the possibility of loss, with no chance of gain; the only type of risk that is insurable.

Risk

The uncertainty regarding the possibility of loss.

Speculative Risk

A risk that involves the possibility of both loss and gain; not insurable.

Contract of Adhesion

An insurance contract prepared by the insurance company with no negotiation between the applicant and insurer.

Consideration

The items of value that each party provides in a contract.

Insurable Interest

The financial or economic interest that a person must have in the subject of insurance to purchase legally enforceable coverage.

Material Misrepresentation

A false statement made by an applicant that influences the insurer's decision.

Utmost Good Faith

The principle that both the policy owner and insurer must disclose all material facts.

Void Contract

A contract that has never been legally in force.

Voidable Contract

A contract that may be set aside by one of the parties for a reason satisfactory to the court.

Accidental Death Benefit (ADB)

A type of policy that provides benefits in the event of an accidental death.

Adjustable Life Insurance

A permanent life policy offering the policyowner flexibility in premium payment amounts and an adjustable death benefit.

Attained Age

The age that an insured has attained as of a given date.

Cash Surrender Value

The amount available in cash upon the surrender of a policy.

Convertible Term Life Insurance

Temporary life insurance allowing conversion to a permanent whole life policy without evidence of insurability.

Decreasing Term Insurance

A type of temporary protection characterized by a reducing face amount each year.

Endowment Contract

A contract that pays a face amount after a fixed period or upon the insured's death.

Extended Term Insurance

A nonforfeiture option available when a policy is surrendered.

Family Income Policy

A policy that combines a whole life policy with a decreasing term rider.

Joint Life Insurance

A policy that covers the lives of two or more persons.

Universal Life Insurance

The most flexible life insurance policy with flexible premiums and adjustable death benefits.

Absolute Assignment

A policy assignment under which the assignee receives full control over the policy.

Accidental Death Benefit Rider

This rider pays an additional sum to the beneficiary if the insured dies due to a covered accident.

Accelerated Benefits Rider

This rider allows the insured to receive a portion of the death benefit before death if terminally ill.

Automatic Premium Loan Provision

This provision allows premiums to be deducted from the cash value if not paid.

Cash Surrender Option

This non-forfeiture option allows the policy owner to receive the policy's cash value.

Collateral Assignment

An assignment of a policy to a creditor as security for a debt.

Consideration Clause

This clause describes what each party must provide in a contract.

Dependent Riders

Dependents may be added as additional insureds through a dependent rider.

Dividend Options

These are options available to policy owners when receiving dividends from an insurance policy.

Entire Contract Provision

This provision states the insurance policy and any riders comprise the entire contract.

Free-Look Period

This period allows the policy owner to examine the policy and return it for a refund.

Grace Period

The time after the premium due date during which payment can be made without penalty.

Policy Lapse

The termination of a policy due to non-payment of premiums.

Loading Charge

Another term for the expense factor in premium calculations.

Mortality Table

A table showing the probability of death at each age.

Surrender Value

The amount available in cash upon voluntary termination of a policy.

Policy Loan

A loan issued by the insurance company using the policy's cash value as collateral.

Settlement Option

The method used to distribute the policy proceeds.

Contingent Beneficiary

The person designated to receive the death benefit if the primary beneficiary predeceases the insured.

Spendthrift Clause

A provision that prevents creditors from claiming any portion of the policy proceeds.

Common Disaster Clause

A provision that specifies how proceeds are distributed if the insured and primary beneficiary die in the same accident.

Policy Reserves

Funds that an insurer sets aside to pay future claims.

Premium Mode

The frequency with which a policy owner elects to pay premiums.