Life and Health Insurance Agent Exam Vocabulary

Flashcards covering essential insurance vocabulary, contract law, policy types, and regulatory terms from the Life and Health Insurance Agent Practice Exam materials.

Peril

A specific event that leads to loss and is often referred to as the cause or accident itself.

Hazard

Conditions that increase the chance of losses and/or damages, including physical attributes, moral developments, and inherited conditions.

Risk Avoidance

A risk handling method defined as removing oneself from the risk completely, such as an insurance carrier deciding not to offer coverage on skydivers.

Risk Retention

A risk handling method where an individual or company keeps all of the potential risk internally instead of sharing it with a reinsurer or transferring it.

Risk Transfer

A risk handling method where the responsibility for a potential loss is shifted to another party, typically an insurance company in exchange for premium payments.

Consideration

An element of a contract where both parties provide something of value; in insurance, the applicant pays premiums and the insurer promises to pay a death benefit.

Unilateral Contract

A contract type where only one party (the insurer) is legally bound to perform its promises as long as premiums are paid.

Contract of Adhesion

A contract authored exclusively by one party (the insurance company) which the applicant must accept as is, with ambiguous terms typically interpreted against the drafter.

Insurable Interest

A requirement for a policy to issue, which must be present at the time of application, meaning the death of the insured would cause a financial hardwood or loss to the beneficiary.

Income Replacement

The number one reason why people purchase life insurance policies.

Mortality Tables

Tools used by insurance companies to estimate how long an individual may live based on factors like age and health history.

Impaired Risk

A risk category for insurance buyers with adverse health conditions who may not live as long as healthier applicants of the same age.

Suicide Clause

A standard provision preventing death benefit payment if the insured dies by suicide within a specific period after issuance, typically $1-2$ years.

Free-Look Period

A period typically lasting $10-30$ days where a life insurance buyer can review the policy and return it for a full refund of premiums paid.

Annual Renewable Term (ART)

A type of life insurance that is renewable annually and provides a level face amount without needing proof of insurability.

Variable Whole Life Insurance

A policy featuring fixed premiums and a guaranteed minimum death benefit, but with cash values that are not guaranteed because they are linked to equity investments.

Universal Life Insurance

A flexible premium policy that allows the policy holder to move funds between the death benefit component and the savings/cash value component.

Securities License

A credential insurance agents must obtain in addition to an insurance license to offer variable life insurance or variable annuities.

Single Premium Whole Life

A whole life insurance policy that is considered paid-up after the policy holder makes one large premium payment.

HIPAA (Health Insurance Portability and Accountability Act)

A federal law providing protections for private health information and regulating how insurers handle preexisting conditions.

USA Patriot Act

Signed into law in $2001$, this act helps deter money laundering of illicit funds from terrorist organizations through financial services.

Fair Credit Reporting Act (FCRA)

An act requiring insurers to provide the client with the source of information if they take adverse action based on third-party data like credit reports.

Preferred Risk

An underwriting category for persons in excellent health who present less risk and may receive lower premium rates.

Human Life Value Approach

An insurance needs calculation method that determines the face amount by multiplying current income by the number of years that need protection.

Needs Based Approach

An insurance needs calculation method based on funding specific future obligations like mortgages, college tuition, and final expenses.

Joint Life Policy

A life insurance policy covering two people with a single premium that pays a death benefit when the first person dies.

Joint and Survivor Policy

Also known as a survivorship or last-to-die policy, it pays a death benefit only after both contracted parties have deceased.

Law of Large Numbers

A mathematical premise stating that as the number of units in a group increases, the more accurate predictions of actual loss will become.

Fiduciary

A person in a position of financial trust, such as an insurance agent, who has an obligation to be knowledgeable and act in the client's best interest.

Errors and Omissions Insurance

A type of liability coverage agents obtain to protect against personal liability for giving wrong advice or withholding information.

Qualified Retirement Plan

An IRS-approved plan where employer contributions are tax-deductible and the plan must not discriminate in favor of key employees.

Cross Purchase Agreement

A buy/sell agreement arrangement where each partner in a business purchases a life insurance policy on the other partners.

Split Dollar Plan

An arrangement where an employer and employee share the cost of life insurance premiums and the resulting death benefit proceeds.

Irrevocable Beneficiary

A beneficiary type that must be consulted and provide consent before the owner can take out policy loans or make key changes.

Common Disaster Provision

A provision stipulating that the contingent beneficiary receives the death benefit if both the insured and primary beneficiary die within a short time of each other.

Waiver of Premium Rider

A policy feature that relinquishes the insurer's right to premiums while the insured is totally disabled or seriously ill.

Non-forfeiture Options

Contractual provisions that prevent a permanent life insurance policy from lapsing by using the cash value to provide continued coverage or a payout.

Reduced Paid-up Insurance

A non-forfeiture option where the policy's cash value is used to purchase a single-premium policy of the same type with a smaller face amount.

Extended Term Option

A non-forfeiture option that converts a permanent policy into a term policy with the same face amount for as long as the cash value can pay the premiums.

Automatic Premium Loan Rider

A rider that applies funds from the policy's cash value to cover overdue premiums at the end of a grace period to prevent lapse.

Settlement Options

The technical term for the various ways life insurance claims can be paid out, such as lump sum, installments, or life income.

Modified Endowment Contract (MEC)

A life insurance policy that fails the seven-pay test, resulting in the loss of tax-advantaged status and potential penalties on distributions before age $59\frac{1}{2}$.

Viatical Settlement

The sale of a life insurance policy by a terminally ill person to an investor for a percentage of the face amount.

Single Premium Immediate Annuity (SPIA)

An annuity purchased with a lump sum that begins providing income payments within $30$ days, often used for lottery wins or insurance settlements.

Accumulation Period

The 'pay-in' phase of an annuity where the owner makes purchase payments to build up the contract's value.

Exclusion Ratio

A calculation used to determine the taxable versus non-taxable portion of each annuity payment.

Aleatory

A contract characteristic where the values exchanged are unequal and performance depends on the occurrence of an uncertain event.

Adverse Selection

The tendency of individuals with higher health risks to apply for or continue health insurance coverage more often than healthy individuals.

NAIC (National Association of Insurance Commissioners)

An agency formed to provide insurance regulation uniformity across all states.

COBRA

A federal law allowing individuals to continue group health coverage for a limited time after a qualifying event like job loss, usually requiring $20$ or more employees.

HMO (Health Maintenance Organization)

A managed care plan that provides services through a specific network and requires a Primary Care Physician (PCP) for referrals to specialists.

PPO (Preferred Provider Organization)

A health plan that allows use of out-of-network providers at a higher cost and does not require referrals to see a specialist.

Elimination Period

The waiting period in a disability or long-term care policy representing the number of days the insured must pay out-of-pocket before benefits begin.

Certificate of Authority

An official document issued by the department of insurance authorizing an insurer to transact business in a specific state.

Twisting

The prohibited practice of an agent inducing a client to lapse or surrender an existing policy to buy a new one with similar benefits.

Rebating

An unfair trade practice defined as offering an applicant an inducement, like a vacation or a portion of commission, to purchase insurance.

Defamation

An unfair marketing practice involving making false or malicious statements intended to damage the reputation of a competitor insurer.

Essential Health Benefits

A set of $10$ categories of services that all Marketplace health plans must cover under the Affordable Care Act, including emergency services and maternity care.

Premium Tax Credit

A subsidy under the ACA available to individuals with moderate incomes to help make health insurance more affordable when purchased through the Marketplace.

SHOP (Small Business Health Options Program)

A Marketplace program designed to simplify the process of buying health insurance for small businesses with $50$ or fewer full-time equivalent employees.