Life Insurance Vocabulary

Life Insurance Exam Study Guide Flashcards

Key Employee Policy

A policy taken out by a company on its director of operations, where the company receives the proceeds if the employee dies.

Accidental Death and Dismemberment (AD&D) Benefit

A provision that pays a benefit only if death results from an accident.

Joint and Survivor Life Annuity

An annuity that ensures level income for the lifetime of two annuitants.

Renewal Term Policy

A policy where the renewal premium is calculated based on the insured's attained age.

Buy and Sell Agreement

An agreement between partners to assure continuation of the business in the event of the death of a partner.

Individual Retirement Account (IRA)

A retirement plan that may be established by an employee, regardless of any other retirement plan.

Modified Endowment Contract (MEC)

A policy that becomes an MEC when too much premium is paid in the initial policy's years.

Assigning a policy to the bank

When a life policyowner wants to take out a bank loan and the bank wants collateral, the insured should assign the policy to the bank.

Exclusion

A limitation in a life policy that may limit the insurance company's liability if death occurs as a result of specific events like civil disobedience.

Aleatory Contract

A contract in which the performance of one or both parties is contingent upon the occurrence of a particular event.

USA PATRIOT Act

An act with the purpose to detect criminal activity.

Limited Pay Whole Life Policy

A policy where the premium payment period is shorter than for a straight life policy, and more of each premium payment is credited to the policy's cash value.

Variable Annuity

An annuity that pays based on units rather than specific dollar amounts.

Variable Universal Life

A policy that allows the policyholder to increase or decrease the premium payment, the premium payment period, and the death benefit of the policy.

Renewable Term Policy

A term policy that guarantees the insured the right to continue term coverage after completion of the initial policy period.

Irrevocable Beneficiary Designation

A beneficiary designation that may limit a policyowner's rights.

Delivery receipt

The signed document that starts the period.

Life Settlements

Any insured is eligible to enter into a life settlement

Insuring Clause

In a life insurance policy, the promise by the insurer to pay certain benefits.

Aviation Exclusion

A clause that allows a student airplane pilot to buy life insurance at a regular price.

Whole Life

A permanent policy that provides protection at the lowest annual premium.

Group Term Life Insurance

Death benefits are income tax free to named beneficiaries.

Immediate Annuity

Payout begins one payment period after purchase.

Limited-Pay Life Policy

Allows an insured to pay premiums for a predetermined period of time.

Contracts of Adhesion

Life insurance policies are offered on a 'take it or leave it' basis.

Consideration

An underwriter's evaluation of information on a life insurance application.

Insurable interest

In a life policy, insurable interest MUST exist at the time the application is signed.

Anti Money Laundering

A customer surrenders a recently issued whole life policy and requests that proceeds be made payable to an unrelated third party is potential violation.

Universal Life

Life insurance policies provide for flexible premium payment.

Contributory Group Life Insurance Plan

What minimum percentage of eligible employees must participate for a company to offer contributory group life insurance plan - 50%.

Convertible Term Policy

The insured does not have to provide evidence of insurability when requesting a conversion

Underwriting

The process by which an insurer determines whether to accept or reject an application based on the applicant's risk profile.

Insurance Policy

A contract in which one party (the insurer) promises to pay another party (the insured or beneficiary) upon the occurrence of a specified event (e.g., death, disability).

Premium

The amount paid by the policyholder to the insurer in exchange for coverage.

Term Life Insurance

A type of life insurance that provides coverage for a specified term, after which the policy expires.

Whole Life Insurance

Life insurance that provides coverage for the entire life of the insured and includes a cash value component.

Adjustable Life Insurance

A type of permanent life insurance that allows the policyholder to adjust the premium payments and death benefit.

Annuity Contract

A contract between an individual and an insurance company in which the company guarantees to provide a fixed or variable income stream for the rest of the individual's life.

Insurance Exclusion

A special provision in an insurance policy that eliminates coverage for certain acts, properties, types of damage or locations.

Insurance Application

A form filled out that provides the insurance company with the information needed to decide whether to insure the applicant.

Free Look Period

A period of time, usually 10 to 30 days, during which a new life insurance policyholder can cancel the policy and receive a full refund of premiums.

Beneficiary

The individual or entity designated to receive the policy benefits upon the death of the insured.

Concealment

The intentional failure to disclose material facts that would affect policy coverage or premium rates.

Incontestable Clause

A policy provision that prevents the insurer from denying a claim due to misstatements on the application after the policy has been in force for a specified period (usually two years).

Group Life Insurance

A policy that is offered to employers or large groups

Time of Payment of Claims Provision

The time period the insured has to provide claim form to the insurer

Extended Term

Nonforfeiture option where the policy's cash value is used to purchase a term insurance policy for the full face amount of the original policy

Facility of Payment Clause

A clause in a life insurance policy that allows the insurer to pay the policy proceeds to someone other than the named beneficiary in certain situations

Beneficiary Provisions

Life insurance provisions dictates how the policyowner can change the beneficiary designation

Agency Agreement

An agreement where the individual is licensed to sell, solicit or negotiate insurance products on behalf of the company.

Risk Management

A strategy used to minimize the risk of loss.

Concealment

Is when an applicant does not reveal known facts when applying for insurance.

Key Person Insurance

This insurance protects businesses from losses due to the death or disability of a key employee

Buy-Sell Insurance

Life insurance written to fund a buy-sell agreement. It provides the funds necessary for surviving business partners to buy the deceased partner's share of the business.

What are the three types of term insurance based on how the death benefit changes

Level, Increasing, Decreasing.

Level Term Insurance

Provides a level amount of protection for a specified period, after which the policy expires.

Increasing Term Insurance

Increasing death benefit that is usually equal to the total premiums paid.

Decreasing Term Insurance

Has a death benefit that declines over the coverage period and is commonly used to cover debt that decreases over time, such as a mortgage.

Whole Life Insurance

A policy that combines insurance protection with a cash value accumulation.

What are three key characteristics of Whole Life Insurance policies

Level premium, fixed death benefit, and guaranteed cash value.

Term Life Insurance

Pays a death benefit only if the insured dies during the policy's term. There is no cash value buildup.

Universal Life Insurance

A policy that allows for flexible premiums and adjustable death benefits.

What are key features of Universal Life Insurance

Interest-sensitive cash value growth; flexible premium payments

Variable Life Insurance

A policy which offers a range of investment options for the cash value component.

What are the key characteristics of Variable Life Insurance

Policyowner directed investment options and potential for higher returns as well as risk.

Variable Universal Life Insurance

Combines the premium flexibility of a universal life policy with the investment choices of a variable life policy.

What are the key attributes of Variable Universal Life Insurance

Tax-deferred growth, policyowner directed investment options, flexible premiums and adjustable death benefit.

Annuity

A contract with an insurance company that provides income for a specified period of time, or for life.

What are the two phases of an Annuity

Accumulation phase and Payout phase.

Immediate Annuity

Provides current income starting immediately . It is purchased with a single premium.

Deferred Annuity

Allows for the accumulation of funds on a tax-deferred basis. The payouts typically begin at a later date.

Fixed Annuity

The insurer bears the investment risk, guaranteeing a fixed rate of return

Variable Annuity

The annuitant bears the investment risk, and the rate of return is not guaranteed. It can vary based on the performance of the investment options selected.

What are three standard life insurance policy provisions

Nonforfeiture options, policy loans, automatic premium loans.

What are the three nonforfeiture options in a life insurance policy

Cash surrender, extended term, reduced paid-up insurance.

Cash Surrender (Nonforfeiture Option)

The policyowner receives the policy's cash value, and the insurance coverage terminates.

Extended Term (Nonforfeiture Option)

The cash value is used to buy a term insurance policy with a death benefit equal to the original policy's face amount.

Reduced Paid-Up Insurance (Nonforfeiture Option)

The cash value is used to purchase a paid-up policy with a reduced death benefit.

Policy Loans

Policyowner can borrow money from the policy's cash value.

Automatic Premium Loan (APL)

A rider that prevents a policy from lapsing due to nonpayment of premium.

Beneficiary Designation

A clause in a life insurance policy that specifies how and to whom the policy's death benefit will be paid.

Revocable Beneficiary

The policyowner can change the beneficiary at any time.

Irrevocable Beneficiary

The beneficiary cannot be changed without their consent.

Assignment

The transfer of some or all of the policyowner's rights to another party.

Collateral Assignment

Temporary assignment of the policy as collateral for a loan.

Absolute Assignment

Permanent transfer of all rights in the policy.

Incontestability Clause

A provision that restricts the insurer's ability to deny a claim after the policy has been in force for a certain period (usually two years).

Statute of Limitations

A legal challenge to the validity of a contract can only be made during a specified period of time.

What protections does statute of limitations offer to the insured

Once that period of time expires insurers can't challenge policy or coverage.

Misstatement of Age or Gender Clause

If the insured's age or gender was misstated on the application, the insurer can adjust the death benefit to reflect the correct information.

Spendthrift Clause

A clause that prevents creditors from seizing the policy's cash value or death benefit to satisfy the policyowner's debts.

Guaranteed Renewable

A guarantee by the insurance company that the policy will not be canceled as long as premiums are paid.

Free Look Period

A period of time during which the new owner can return the policy for a full premium refund.

Rider

A supplementary agreement attached to a life insurance policy that modifies the policy's terms and conditions.

What are common life insurance riders

Waiver of premium rider, accidental death benefit rider, guaranteed insurability rider.

Waiver of Premium Rider

If the insured becomes totally disabled, the insurer will waive the premiums due during the disability period.

Accidental Death Benefit Rider

Provides an additional death benefit if the insured dies as a result of an accident.

Guaranteed Insurability Rider

Allows the policyowner to purchase additional insurance at specified future dates without providing evidence of insurability.

Risk Tolerance

Amount of risk increase the insurance company is willing to accept

Risk Management

The process of analyzing exposures that create risk and designing programs to handle them