Chapter 1-4 terms

Agent

An agent works for the insurance company, helps sell insurance, and can usually start (bind) coverage.

Broker

A broker works for you, not the insurance company, and shops around to find you the best insurance.

Claims Department

The department that handles accidents and decides how much money gets paid.

Insurance

A system where many people pay small amounts so there is enough money to help when someone experiences a big loss.

Insured

The person being protected by an insurance policy.

Insurer

The insurance company that provides coverage.

Mutual Insurance Company

An insurance company owned by its policyholders.

Nonparticipating Policy

A policy that does not pay dividends and does not provide voting rights.

Participating Policy

A policy that may pay dividends and allows policyholders to vote for the board of directors.

Producer

A general term for someone licensed to sell insurance, which can be an agent or broker.

Stock Insurance Company

An insurance company owned by stockholders.

Underwriting Department

The department that decides whether to insure applicants and determines their risk classification.

Adverse Selection

The tendency of people who know they are more likely to have a claim to buy insurance.

Hazard

A condition that makes a loss more likely.

Law of Large Numbers

The principle that the more people an insurance company covers, the easier it is to predict future losses.

Loss

The damage or financial harm that occurs after something bad happens.

Peril

The actual event that causes a loss.

Pure Risk

A situation where you can either lose money or nothing happens, with no chance of making money.

Risk

The uncertainty that something bad might happen.

Speculative Risk

A risk where there is a chance to either lose money or make money.

Contract of Adhesion

An insurance contract that is take it or leave it, with no negotiation on wording.

Consideration

What each side gives in the contract.

Insurable Interest

You must have a financial reason for buying insurance on someone or something.

Material Misrepresentation

A lie that affects the insurance company's decision to insure or determine premium.

Utmost Good Faith

Both the insurance company and the customer must be completely honest.

Void Contract

A contract that was never legally valid.

Voidable Contract

A contract that is valid now but can be canceled by one party.

Waiver

The voluntary giving up of a legal right.

Accidental Death Benefit (ADB)

Pays additional money if the insured dies due to an accident.

Adjustable Life Insurance

A permanent life insurance policy allowing changes to premium and death benefit.

Attained Age

Your current age used by insurance companies to calculate premiums.

Cash Surrender Value

The money you receive if you cancel a permanent life insurance policy early.

Convertible Term Life Insurance

A term policy that allows conversion to permanent insurance later without another medical exam.

Decreasing Term Insurance

A term policy where the death benefit decreases every year.

Endowment Contract

Pays the face amount at a certain date or earlier if the insured dies.

Extended Term Insurance

Keeps the same death benefit for a limited time if you stop a permanent policy.

Family Income Policy

Provides a lump-sum death benefit plus monthly income to your family.

Joint Life Insurance

One policy covering two or more people, paying upon the first insured's death.

Universal Life Insurance

A permanent life insurance policy with the most flexibility in adjusting premium and death benefit.