Life Insurance Master Terminology & Cram Guide

A comprehensive flashcard set covering life insurance terminology, laws, policy types, and exam concepts for exam preparation.

Insurance

Transfer of risk where insurer pays benefits in exchange for premiums.

Principle of Indemnity

The concept to restore the insured to their financial position before a loss without allowing for profit.

Reserves

Money that an insurer keeps specifically to pay for future claims.

Liquidity

The ability of an insurer to quickly pay claims.

Human Life Value

The value of future earnings used to estimate the amount of coverage needed.

Loss Exposure

Anything that has the potential to cause financial loss.

Homogeneous Exposure Units

Large groups of similar units that make losses predictable.

Offer and Acceptance

The mutual agreement between parties in a contract.

Consideration

The premium plus a truthful application given in exchange for the promise to insure.

Legal Purpose

The requirement that an insurance contract must be for a legal reason.

Competent Parties

Participants who are mentally capable and of legal age to enter a contract.

Aleatory

A contract characteristic where there is an unequal exchange of value, such as a small premium for a big payout.

Adhesion

A take-it-or-leave-it contract where one party prepares it and the other must accept it as is.

Unilateral

A contract where only the insurer is legally obligated to pay.

Conditional

A characteristic where benefits are only paid if specific conditions are met.

Valued Contract

A contract, like life insurance, that pays a stated amount.

Warranty

A statement that is guaranteed to be true.

Representation

A statement that is believed to be true.

Parol Evidence Rule

A rule stating that oral statements cannot change a written contract.

Utmost Good Faith

A requirement that both parties act honestly.

Waiver

The act of giving up a legal right.

Estoppel

A principle that prevents a party from reclaiming a right once it has been waived.

Void

A contract that has no legal effect.

Voidable

A contract that has the potential to be cancelled.

Paul v. Virginia (1868)

Historical ruling that insurance is NOT interstate commerce and states regulate it.

Glass-Steagall Act (1933)

Legislation that separated banking, insurance, and securities.

SEUA (1944)

Historical ruling that insurance IS interstate commerce.

McCarran-Ferguson Act (1945)

Federal law that explicitly affirmed state regulation of the insurance industry.

SEC Intervention (1959)

When variable annuities and variable life began to be regulated as securities.

Fair Credit Reporting Act (1970)

A law that protects consumer report privacy.

Financial Services Modernization Act (1999)

Legislation that repealed the Glass-Steagall Act.

Do Not Call Registry (2003)

A registry where insurance is not exempt from solicitation rules.

Contestability Period

A period of ${2\,years}$ where the insurer can challenge the validity of a policy.

Suicide Clause

A clause that usually lasts for ${2\,years}$ after policy issuance.

Grace Period

A period of ${30/31\,days}$ to pay a late premium before the policy lapses.

Reinstatement

The process of restoring a lapsed policy, typically within ${3-7\,years}$.

Free Look

A period of ${10-20\,days}$, or ${30\,days}$ for mail order, to review a policy and return it for a refund.

Backdating

The practice of dating a policy earlier than the application date, with a maximum of ${6\,months}$.

Long-Term Care Trigger

The requirement of needing help with ${2}$ of ${7}$ Activities of Daily Living (ADLs).

ADB Benefit Window

A requirement that death must occur within ${90\,days}$ to receive the Accidental Death Benefit.

Insurable Interest

A requirement that must exist at the time of application, but not at the time of claim.

Producer/Agent

The individual who represents the insurer.

Broker

The individual who represents the client.

Field Underwriter

The producer who gathers information for the application but cannot issue the policy.

Fiduciary

A person in a position of trust who must protect client money.

Solicitation

The process of finding and selling insurance to potential clients.

Buyer’s Guide

A document that must be provided to the applicant during solicitation.

Policy Summary

A document that explains premiums, dividends, and benefits.

Commingling

The illegal practice of mixing personal funds with premium money.

Twisting

The act of replacing a policy using misleading information.

Rebating

An illegal incentive offered to a person to buy insurance.

Applicant

The person who requests the insurance.

Proposed Insured

The person being covered by the insurance policy.

Policyowner

The person or entity that owns the rights to the policy.

Payor

The person who pays the premium.

Conditional Receipt

A receipt providing coverage if the applicant is found to be insurable.

Binding Receipt

A receipt that provides immediate temporary coverage.

Preferred Risk

A classification for individuals with the lowest risk and lower premiums.

Standard Risk

A classification for individuals with average risk.

Substandard Risk

A classification for individuals with higher risk and higher premiums.

APS (Attending Physician Statement)

A statement from the applicant's physician regarding their medical history.

MIB (Medical Information Bureau)

An organization that shares medical information among insurers.

Adverse Selection

The tendency of higher-risk people to seek insurance more than average-risk people.

Primary Beneficiary

The first person in line to receive the death benefit.

Contingent Beneficiary

The secondary person who receives the benefit if the primary beneficiary is deceased.

Revocable Beneficiary

A beneficiary that can be changed by the owner at any time.

Irrevocable Beneficiary

A beneficiary that must approve any changes to the policy.

Per Stirpes

A method of distribution where the family bloodline inherits the benefit.

Per Capita

A method of distribution where the benefit is split equally among surviving individuals.

Absolute Assignment

The full transfer of all policy rights to a new owner.

Collateral Assignment

A temporary transfer of some policy rights, used as security for loans.

Term Life

Temporary insurance coverage.

Whole Life

Permanent insurance coverage that includes a cash value component.

Universal Life

A flexible permanent insurance coverage.

Variable Life

An investment-based insurance policy.

Modified Life

A policy with lower premiums in the early years.

Decreasing Term

A term policy where the face amount decreases over time.

Accelerated Benefit Rider

A rider that allows an insured to access the death benefit early if terminally ill.

Waiver of Premium

A rider that waives the premium if the insured becomes disabled.

Guaranteed Insurability Rider

A rider allowing the purchase of additional coverage later without a medical exam.

Child Rider

A rider that provides coverage for children.

Payor Rider

A rider that waives the premium if the payor dies or becomes disabled.

1035 Exchange

A tax-free exchange of one insurance policy for another.

MEC (Modified Endowment Contract)

A life insurance policy that loses its tax advantages due to overfunding.

Accumulation Period

The saving and growth phase of an annuity.

Annuitant

The person whose life determines the payouts from an annuity.

Fixed Annuity

An annuity that provides a guaranteed return.

Variable Annuity

An annuity where the value is based on investment performance.

Straight Life

An annuity payout option that provides lifetime payments only.

Mortality

The frequency of death within a given population.

Morbidity

The frequency of sickness or disability within a given population.

CSO (Commissioners Standard Ordinary)

The mortality table used by the insurance industry.

Viator

The seller of a life insurance policy in a viatical settlement.

Death Benefit Lump Sum

Payment made to beneficiaries upon the insured's death, usually tax-free.

Interest on Proceeds

Earnings from death benefits that are taxable.

Cash Value Growth

The increase in cash value within a policy that is tax-deferred.

1035 Exchange

A tax-free exchange of one insurance policy for another.

Policy Loans

Loans taken against the cash value of a policy, usually not taxable.

Traditional IRA

An individual retirement account that is tax-deferred.

Roth IRA

An account allowing after-tax contributions with qualified withdrawals being tax-free.