Life Insurance and Annuities Practice Review

Comprehensive vocabulary flashcards covering life insurance contract parts, risk classification, policy types, riders, annuities, and insurance regulations based on the lecture transcript.

Aleatory

An uneven exchange of value where a client might pay $100$ a month, but the insurance company pays $1$ million if they die.

Insurance

Defined as the TRANSFER of risk loss from an individual to a group.

Agreement

One of the four parts of an insurance contract where the insurance company offers the policy and the client accepts it.

Consideration

The exchange of things of value: the client gives monthly premium and health statements, while the insurance company gives a promise to pay.

Adhesion

A contract characteristic where one side makes the contract with no negotiation; the other side must take it or leave it.

Unilateral

A characteristic where only one side is forced to stick to the contract; the client can cancel whenever, but the company cannot.

Warranty

A statement made on an application that must be true for the contract to be valid.

Representation

Statements on an application that are true to the best of the applicant's knowledge.

Material Misrepresentation

A statement that is both wrong and important to the underwriting process.

Insurable Interest

A requirement that the policyowner must care if the insured is alive; it must exist at the TIME OF THE APPLICATION.

Medical Information Bureau (MIB)

A nonprofit trade organization that stores information on potential insureds from previous applications to protect companies from bad risks.

Substandard Risk

A risk classification for individuals more risky than normal (poor health), resulting in a higher premium than standard.

STOLI Policies

Stranger-originated life insurance where the person being insured is a stranger with no insurability interest; these are illegal.

Free Look Period

A period of $14$ days from the date of DELIVERY during which the owner can return the policy for a full refund.

Buyer's Guide

A brochure provided at policy delivery that explains basic insurance concepts.

Policy Summary

A one-page document describing the features and elements of the specific policy being issued.

Conditional Coverage

Coverage that begins if the premium is paid with the application and the company's underwriting finds no medical conditions.

Term Insurance

Often called PURE DEATH PROTECTION, it is TEMPORARY coverage that pays out only if the insured dies during the specified duration.

Annual Renewable Term

A policy with a level death benefit where the premium starts low and increases every year; it does NOT require proof of insurability at renewal.

Whole Life Insurance

Permanent insurance with LEVEL premiums, LEVEL death benefits, and CASH VALUE that the owner has the right to borrow.

Single Premium Whole Life

A policy where the client pays one large premium at the beginning and cash value starts IMMEDIATELY.

Universal Life

Also known as FLEXIBLE PREMIUM insurance, it is a combination of annual renewable term and a cash account.

Variable Whole Life

A policy where cash value is invested in the stock market; agents must have both INSURANCE and SECURITIES licenses to sell it.

Indexed Whole Life

A policy where money mimics the interest of the stock market (specifically the S&P $500$) with a FLOOR and CEILING for growth and losses.

Joint Life

A policy covering two people that pays out when the FIRST of the two people dies.

Survivorship Life

A policy covering two people that pays out when the SECOND of the two people dies; it usually has lower premiums than Joint Life.

Annuity

A product that provides money for the owner later in life to ensure they do not outlive their income.

Pure Life

A life contingent payout option that pays the HIGHEST monthly amount to the annuitant until they die, with no payout to beneficiaries.

Nonforfeiture Options

Portions of the cash value the insurer cannot take when a policy is surrendered, such as Cash, Extended Term, or Reduced Paid-Up.

Dividends

A TAX FREE return of premiums the insurer did not need that year; options include Cash, Reduction of Premium, and Paid-up Additions.

Waiver of Premium

A rider where premiums are waived if the insured is disabled; premiums paid during the first $6$ months of disability are REFUNDED.

Common Disaster Clause

Provision stating that if the primary beneficiary dies within $31$ days of the insured in the same accident, the money goes to the contingent beneficiary.

Incontestability

A provision stating that after $2$ years, the insurance company MUST pay a claim regardless of application errors.

Modified Endowment Contract (MEC)

A policy that fails the $7$-Pay test by being overfunded; its cash value becomes taxable and subject to a $10\%$ penalty before age $59.5$.

Domestic Insurer

An insurance company whose home office is in the same state where it is doing business.

Rebating

An unfair trade practice where an agent gives the client something of value to induce them to buy a policy.

Churning

Replacing a policy with another from the SAME company just to generate more commission.

Twisting

Replacing a policy with another from a DIFFERENT company through misrepresentation for commission.

Blackout Period

A period in Social Security benefits where a surviving spouse receives no money after children reach age $18$ and before the spouse turns $60$.

Fiduciary Responsibility

The legal obligation of agents to never mix client premiums with their own money and to remit them to the company ASAP.