General Insurance Terms and Concepts

This flashcard set covers key vocabulary related to general insurance terms, including definitions and explanations of essential concepts within the field.

Insurance

A contract whereby one party (insurer/agent) agrees to indemnify another party (insured/client) against a loss by a specified future contingency or peril in return for payment of a premium.

Risk

Uncertainty of a loss.

Pure risk

Insurable because it involves a chance of loss only.

Speculative risk

Not insurable because it involves a chance of loss or gain, such as gambling.

Hazards

Events or conditions that increase the chance of a loss.

Peril

The cause of a loss, examples include fire, accident, flood.

Law of Large Numbers

Predicts the number of deaths that should occur within a similar group of people; the larger the number, the more accurate the prediction.

Captive agent

An agent who works for one company and sells only their products.

Independent agent

An agent who works for themselves and sells products for many companies.

Fiduciary

A person in a position of financial trust; for example, an agent that collects premiums must remit them promptly to the insurance company.

Appointment

Authorization of an agent/producer by an insurer to represent the company.

Insurable interest

A financial interest in the life of another person; the ability to lose something of value if the insured should die, must exist at the time of application.

Adhesion contract

A contract offered on a 'take it or leave it' basis by an insurer, where the insured must either accept or reject the contract.

Unilateral contract

A contract that legally binds only one party to contractual obligations after the premium is paid.

Indemnify

To restore the insured to the same condition as prior to loss with no intention of loss or gain.

Fraud

A lie for financial gain.

Proof of Insurability

A statement about or evidence of a person's physical and/or mental health and personal habits, used by the insurance company to assess risk.

Preferred risk

Healthier than the standard risk; usually issued policies on a discounted premium basis.

Substandard risk

A higher risk category that requires special conditions included in the policy or policy issued with higher/rated premiums.

Beneficiary

The person who receives the proceeds from the policy when the insured dies.

Contingent beneficiary

An alternate beneficiary designated to receive the policy proceeds in the event that the primary beneficiary dies before the insured.

Common disaster provision

If the insured and sole beneficiary die in a common disaster, the death benefit is paid to the estate of the insured if the beneficiary outlives the insured by a specified number of days.

Waiver of premium rider

Waives premium if the insured becomes totally disabled; typically has a 6-month waiting period.

Guaranteed insurability rider

Allows purchase of additional insurance at specified times without evidence of insurability.

Accumulation period

The pay-in period of an annuity where money grows tax-deferred.

Annuity payment options

Different methods of disbursing funds to the annuitant, including cash, annuity certain, and life options.