Life Insurance Exam Study Guide

A collection of vocabulary flashcards covering essential insurance concepts and terms for exam preparation.

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.

Physical Hazard

A physical condition that increases the chance of a loss, such as medical history or disabilities.

Moral Hazard

A lie that increases the chance of a loss.

Morale Hazard

Engaging in unsafe activities that increase the chance of a loss.

Peril

The cause of a loss, such as fire, accident, or flood.

Law of Large Numbers

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

Captive/Career Agent

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

Independent Agent

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

Domestic Agent

An agent incorporated in the state where they are doing business.

Foreign Agent

An agent incorporated in another state but conducting business in a different state.

Alien Agent

An agent incorporated in a country outside of the United States but conducting business in the U.S.

Fiduciary

A person in a position of financial trust, such as an agent collecting premiums.

Appointment

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

Authorized/Admitted Company

A company that has a license to conduct business in a state and has a Certificate of Authority.

Certificate of Authority

A license granted by the state's insurance authority allowing an insurer to conduct business in that state.

Expressed Powers

Powers specifically stated and written in the contracts.

Implied Powers

Not specifically stated in the contract but assumed authority necessary to conduct insurance business.

Commissioner

Public official responsible for regulating the insurance industry and enforcing insurance laws.

Conditional Receipt

A type of premium receipt that states coverage is effective either on the date of application or the date of medical exam, if conditions are met.

Consideration

Value given in exchange for the promise to pay the benefit.

Insurable Interest

A financial interest in another person's life, which must exist at the time of application.

Adhesion Contract

A contract offered on a 'take it or leave it' basis by an insurer.

Aleatory Contract

A contract in which parties exchange unequal amounts.

Conditional Contract

An agreement where both parties must perform certain duties to make the contract enforceable.

Unilateral Contract

A legally binding contract that binds only one party to contractual obligations after premium payment.

Buy Sell Agreement

A contract that determines what will be done with a business if an owner or partner dies.

Indemnify

To restore the insured to the same condition as prior to a loss without intent of loss or gain.

Utmost Good Faith

The principle that both parties must intend for the contract to work.

Representations

Statements believed to be true to the applicant's best knowledge on the application.

Misrepresentations

False statements made by an applicant.

Concealment

The act of hiding the truth or failing to disclose material facts.

Warranties

Statements guaranteed to be true.

Fraud

A lie for financial gain.

Underwriting

The process of evaluating risk and determining the appropriate premium.

Proof of Insurability

Evidence of a person's physical and mental health used to assess risk.