Life & Health Insurance Comprehensive Practice

Flashcards covering general insurance concepts, life insurance, annuities, health insurance, and regulatory requirements based on the provided lecture notes.

Risk

A condition where there is a chance, likelihood, or probability of a potential loss; specifically, the uncertainty concerning a loss.

Pure Risk

A situation that will result in either a loss or no change in status with no possibility for gain; this is the only type of risk that is insurable.

Speculative Risk

A situation that may result in a gain, a loss, or no change in status; examples include gambling or investing in the stock market and are not insurable.

Peril

The specific cause of a loss, such as fire, lightning, wind, death, injury, or sickness.

Hazard

A specific condition that increases the probability or likelihood that a loss will occur from a peril.

Physical Hazard

A physical condition that increases the probability of loss, such as flammable material stored near a furnace or an icy sidewalk.

Moral Hazard

Dishonest tendencies, such as lying, cheating, or stealing, that increase the probability of an intentional loss.

Morale Hazard

An attitude of indifference toward the risk of loss that increases the probability of a loss occurring, such as leaving a car unlocked with the key in the ignition.

STARR

The five common methods of risk management: Sharing, Transfer, Avoidance, Reduction, and Retention.

Law of Large Numbers

A probability theory stating that the larger the number of units with the same or similar exposures, the greater the accuracy in predicting losses.

Adverse Selection

The principle that people with a higher probability of loss will seek insurance more frequently than average risks.

Reinsurance

The transfer of all or a portion of assumed risk from one insurance company to another; often called insurance for insurers.

Stock Insurance Company

A company owned by stockholders or shareholders who share in the company’s profits and may receive taxable corporate dividends.

Mutual Insurance Company

A company owned by policyholders (members) who may receive non-taxable dividends as a return of any divisible surplus.

Domestic Insurer

An insurer organized or incorporated under the laws of the state in which it is doing business.

Foreign Insurer

An insurer organized under the laws of another state within the United States or its jurisdictions.

Alien Insurer

An insurer organized under the laws of any jurisdiction outside of the United States.

Admitted (Authorized) Insurer

An insurer authorized to transact insurance in a given state that has been granted a certificate of authority from that state’s department of insurance.

Express Authority

Authority specifically granted in the agent’s contract, such as the power to solicit, negotiate, and sell insurance contracts.

Implied Authority

Authority not specifically stated in the contract but reasonable and necessary for the agent to carry out their specifically stated duties, such as using the company logo.

Apparent Authority

Authority created when the agent exceeds the authority expressed in the contract and the principal does nothing to counter the public impression that such authority exists.

Principle of Indemnity

A principle designed to restore the insured to the same financial or physical condition that existed prior to the loss without allowing the insured to profit.

Insurable Interest

The potential for an insured to suffer financial or economic hardship in the event of a loss; it must exist at the time of application for Life and Health insurance.

Contract of Adhesion

A contract written by one party (the insurer) and presented on a take-it-or-leave-it basis; ambiguity is typically ruled in favor of the insured.

Aleatory Contract

A contract that results in an unequal exchange of consideration due to the uncertainty of an event or loss.

Unilateral Contract

A contract in which only one party (the insurer) is legally bound to fulfill its contractual obligations.

Representations

Statements made in an insurance application that are believed to be true to the applicant’s best knowledge.

Warranties

Statements of fact that are guaranteed to be true in all respects and become part of the contract.

Estoppel

The judicial denial of a contractual right based on prior actions, even if those actions were contrary to the contract requirements.

Human Life Value Approach

A method of determining the amount of life insurance needed by measuring the insured's projected future earnings to replace lost income.

Needs Analysis Approach

A method of determining coverage by estimating the financial needs of survivors, such as final expenses, debt protection, and education funding.

Blackout Period

The period when a surviving spouse is not eligible for Social Security survivor or retirement benefits, occurring between the youngest child turning age $16$ and the spouse reaching age $60$.

Buy-Sell Agreement

A business continuation plan that contractually establishes the intent to purchase a business at a predetermined value if an owner predeceases the others.

Key Person Life Insurance

Insurance purchased by a company on an employee whose contributions significantly impact revenue, where the company is the owner and beneficiary.

Mortality

The 'cost of death' calculated using statistics to estimate the average life expectancy for a group; a primary factor in premium determination.

Annual Renewable Term

A level term policy for a period of $1$ year that automatically renews with increasing premiums based on attained age.

Whole Life Insurance

Permanent insurance providing coverage until age $100$ with guaranteed level premiums, a level death benefit, and guaranteed cash value.

Universal Life Insurance

An 'unbundled' policy combining annual renewable term insurance with a cash value account, offering flexible premiums and adjustable death benefits.

Absolute Assignment

A total and permanent transfer of all rights in an insurance policy to a new owner.

Collateral Assignment

A partial and temporary transfer of policy rights, typically used to secure a loan.

Free Look Period

A provision allowing the policyowner a specified number of days (usually $10$) to review the policy and return it for a full refund.

Dividend Options

Mutually-owned insurer choices for distributing surplus, including Cash, Reduction of Premium, Accumulate at Interest, Paid-up Additions, Paid-up Insurance, and $1$-Year Term.

Settlement Options

Methods for paying out death benefits, such as Lump Sum, Interest Only, Fixed Amount, Fixed Period, and Life Income.

Nonforfeiture Options

Guaranteed values available if a policyowner cancels or lapses a cash value policy, including Cash Surrender, Reduced Paid-Up, and Extended Term.

Accumulation Period

The 'pay-in' phase of an annuity during which money is deposited and the account grows on a tax-deferred basis.

Annuitization

The process of converting an annuity's accumulated value into a stream of income payments.

Pure Life (Straight Life)

An annuity payout option providing income for the annuitant's lifetime; payments cease upon death and any remaining balance is forfeited.

7-Pay Test

A test that limits the total amount paid into a life insurance policy during its first $7$ years to prevent it from becoming a Modified Endowment Contract (MEC).

1035 Exchange

A section of the Internal Revenue Code allowing for the tax-free exchange of an existing life insurance or annuity contract for a new one.

HMO (Health Maintenance Organization)

A managed care system providing comprehensive healthcare services on a prepaid basis within a specific service area, stressing preventive medicine.

PPO (Preferred Provider Organization)

A managed care plan where a network of providers offers services at a discounted fee-for-service; subscribers may use out-of-network providers at a higher cost.

Primary Care Physician (Gatekeeper)

The physician in an HMO responsible for initial treatment and for coordinating referrals to specialists.

Own Occupation Disability

A definition of total disability requiring that the insured cannot perform the main duties of their regular occupation; it is the least restrictive definition.

Elimination Period

The waiting period after a disability occurs before benefits become payable; often referred to as a 'time deductible.'

Activities of Daily Living (ADLs)

Triggers for long-term care insurance benefits, including bathing, continence, dressing, eating, toileting, and transferring.

Medicare Part A

Federal hospital insurance covering inpatient hospitalization, skilled nursing facility care, home health services, and hospice care.

Medicare Part B

Federal medical insurance covering physician services, outpatient medical costs, and durable medical equipment through monthly premiums.

Medigap

Private Medicare Supplement insurance designed to cover gaps in Original Medicare, such as deductibles and coinsurance.

COBRA

A federal law requiring employers with $20$ or more employees to offer continuation of group health insurance for qualifying events like termination.