Insurance Commission Exam Reviewer - Philippines: Life Insurance

High-yield vocabulary flashcards covering life insurance fundamentals, underwriting, contract types, policy provisions, non-forfeiture options, annuities, variable life, and industry ethics based on the Philippine Insurance Commission reviewer.

Insurance

A contract in which an insurer agrees to provide financial protection or compensation against specified losses in exchange for a premium.

Insurance Commission (IC)

The Philippine government agency responsible for regulating and supervising the insurance industry, including issuing licenses, examining financial conditions, and monitoring compliance.

Presidential Decree No. 612

The Insurance Code of 1978 governing insurance in the Philippines.

Republic Act No. 10607

The law that amended the Philippine Insurance Code in 2013.

Stock Company

An insurance company owned by stockholders whose capital is raised through shares of stock.

Mutual Company

An insurance company owned by its members or policyholders, who possess membership rights in the company.

Human Economic Value (HEV)

The economic value of a person's future earning capacity and expected financial contributions, used to estimate required life insurance protection.

Pure Risk

A risk situation involving only the possibility of loss or no loss, with no opportunity for financial gain (e.g., death, fire, accident); generally insurable.

Speculative Risk

A risk situation involving the possibility of loss, gain, or no change (e.g., business investment, gambling); generally not insurable.

Law of Large Numbers

A statistical principle stating that as the number of similar exposures increases, actual loss experience tends to approach expected loss experience, making predictions more reliable.

Underwriting

The process of evaluating an applicant's risk to determine insurability, appropriate risk classification, and the premium or conditions that should apply.

Anti-selection (Adverse Selection)

The tendency of individuals with higher-than-average risks to be more likely to seek or maintain insurance coverage, potentially producing greater claims for the insurer.

POFMAR

The risk selection factors evaluated in underwriting: Physical (P), Occupation (O), Financial (F), Moral (M), Avocation (A), and Residency/Travel (R).

Standard Risk

A risk classification representing an applicant with average expected mortality risk, qualifying for standard premium rates.

Substandard Risk

A risk classification representing an applicant with a higher-than-average mortality risk, usually charged a higher premium rate.

Declined Risk

A risk classification where the proposed risk is unacceptable to the insurer, resulting in no coverage being offered.

Face Amount

The amount of insurance protection stated in the policy contract.

Dividend (Policy Dividend)

A non-guaranteed share of divisible surplus distributed to eligible participating policyholders.

Clean-Up Fund

A life insurance fund designed to cover immediate expenses after the breadwinner's death, such as funeral expenses and outstanding obligations.

Actuary

A professional who applies mathematics, statistics, and financial principles to calculate insurance risks and premium rates.

Gross Premium

The total premium charged to the policyowner, calculated using the formula: $\text{Gross Premium} = \text{Net Premium} + \text{Loading}$.

Natural Premium

A premium structure that increases as the insured ages, initially starting lower to reflect increasing mortality costs over time.

Level Premium

A premium structure that generally remains constant throughout the premium-paying period, initially higher than the natural premium.

Term Insurance

Life insurance providing temporary protection for a specified period, typically having no cash value and paying no maturity benefit if the insured survives the term.

Limited Pay Life

A whole life insurance plan where premiums are payable only for a limited specified period, while lifetime protection continues.

Pure Endowment

An endowment plan that pays the benefit only if the insured survives to the end of the specified coverage period.

Anticipated Endowment

An endowment contract that pays portions of the face amount before maturity and the remaining balance upon maturity.

Joint Life (First-to-Die)

A policy covering two or more people where the death benefit is payable upon the death of the first insured, after which coverage generally ends.

Joint and Last Survivor (Second-to-Die)

A policy covering two or more individuals where the death benefit is payable only upon the death of the last surviving insured.

Rider

An additional provision attached to a basic policy to provide supplementary protection or benefits, usually requiring an additional premium.

Waiver of Premium Due to Disability

A rider that waives future premium payments if the insured meets the qualifying disability conditions defined in the policy.

Payor's Benefit

A rider attached to a juvenile policy that waives premiums if the designated adult payor dies or becomes disabled.

Guaranteed Insurability Option

A rider that permits the policyowner to purchase additional coverage at specified dates or ages without providing new evidence of insurability.

Aleatory Contract

A contract characteristic where the values exchanged between the parties may be unequal because performance depends on an uncertain event.

Contract of Adhesion

A contract drafted by one party (the insurer) which the other party (the applicant) must accept or reject in its entirety without negotiation.

Insurable Interest (Life Insurance)

A legally recognized interest in the continuing life or health of a person; in life insurance, it must exist when the policy takes effect, but need not exist at the time of death.

Grace Period (Individual Life)

A statutory provision under Section 233 of the Insurance Code giving a policyowner 30 days or one month to pay an overdue premium before the policy lapses.

Absolute Assignment

A complete and irrevocable transfer of all policy ownership rights and interests to another party.

Collateral Assignment

A conditional transfer of policy rights to a creditor as security for a debt, which terminates once the underlying obligation is satisfied.

Cash Surrender Value

A non-forfeiture option where the policyowner surrenders the policy, terminates coverage, and receives the accumulated cash balance.

Reduced Paid-Up Insurance

A non-forfeiture option that uses accumulated cash value to purchase a reduced face amount of permanent, fully paid-up insurance requiring no further premiums.

Extended Term Insurance

A non-forfeiture option that uses the cash value to purchase term insurance for generally the original face amount for a limited duration.

Automatic Premium Loan (APL)

A policy loan provision that automatically deducts overdue premiums from the available cash value to prevent the policy from lapsing.

Incontestability Clause

A provision under Section 48 establishing that a life insurance policy in force for two years during the insured's lifetime cannot be contested by the insurer, subject to statutory exceptions.

Suicide Clause

A provision under Section 183 stating the insurer is generally not liable for suicide unless it occurs after the policy has been in force for two years, or if committed while the insured is in a state of insanity.

Irrevocable Beneficiary

A beneficiary designation that cannot be changed without the beneficiary's written consent, giving them vested rights in the policy.

Annuity

A financial contract designed to convert accumulated capital into a series of periodic payments, protecting against the risk of outliving one's financial resources.

Variable Life Insurance

A life insurance policy combining death protection with an investment component where cash values fluctuate based on market fund performance and the policyowner bears investment risk.

Bid-Offer Spread

The difference between the purchase price (offer price) and the redemption price (bid price) of units in variable life insurance, calculated as: $\text{Spread} = \text{Offer Price} - \text{Bid Price}$.

Net Amount at Risk (NAAR)

The net death benefit exposure borne by the insurer beyond the accumulated account value, represented simply as: $\text{Simplified NAAR} = \text{Death Benefit} - \text{Fund Value}$.

Twisting

An unethical practice of inducing a policyowner to surrender, lapse, or replace an existing policy through misrepresentation or misleading comparisons.

Knocking

An unethical practice involving making derogatory, false, or misleading remarks about competing insurers or their agents.

Overloading

An unethical sales practice of selling a client more insurance coverage than they reasonably need or can afford.

Rebating

An unethical practice of returning or offering an unauthorized portion of the agent's commission or premium discount as an inducement to purchase insurance.