General Life and Annuities Insurance Vocabulary

Vocabulary flashcards covering core insurance terms, policy types, contract concepts, and riders from the Life Insurance study notes.

Indemnity

The main principle of insurance stating that an insured cannot recover more than their actual financial loss, restoring them to the same financial position as before the loss.

Pure risk

A situation that can only result in a loss or no change with no opportunity for financial gain, which is the only type of risk insurable by insurance companies.

Speculative risk

A situation that involves the opportunity for either loss or financial gain, such as gambling, which is not insurable.

Physical hazard

An individual physical characteristic or condition, past medical history, or condition at birth that increases the probability of an insured loss occurring.

Moral hazard

A tendency toward increased risk evaluated through character and reputation, such as filing fraudulent claims or lying on an application.

Morale hazard

A state of mind or attitude that causes indifference to loss, such as carelessness or actions taken without forethought.

Peril

The specific cause of loss insured against in an insurance policy.

Adverse selection

The insuring of risks that are more prone to losses than the average risk.

Law of large numbers

A principle stating that as the number of people in a risk pool increases, future losses become more statistically predictable.

Reinsurance

A contract under which one insurance company indemnifies another insurance company for part or all of its liabilities to protect against catastrophic losses.

Stock company

An insurance company owned by stockholders who share in profits or losses, traditionally issuing nonparticipating policies.

Mutual company

An insurance company owned by policyowners that issues participating policies, distributing surplus as nontaxable dividends.

Domestic insurer

An insurance company chartered and incorporated in the state where it transacts business.

Foreign insurer

An insurance company incorporated in another state, the District of Columbia, or a U.S. territorial possession.

Alien insurer

An insurance company incorporated outside the United States.

Express authority

The explicit authority granted to an agent by a principal that is written into the agency contract.

Implied authority

Authority that is not written in the contract but which an agent is assumed to have in order to transact normal business incidental to express authority.

Apparent authority

The appearance or assumption of authority based on the actions, words, or deeds of the principal or circumstances created by the principal.

Contract of adhesion

A contract prepared by one party (insurer) and accepted or rejected as-is by the other party (insured) without negotiation.

Aleatory contract

A contract involving an exchange of unequal amounts or values between the participating parties.

Unilateral contract

A contract in which only one of the parties (the insurer) is legally bound to perform obligations.

Conditional contract

A contract requiring certain conditions to be met by both the policyowner and the insurer before obligations are executed.

Warranty

An absolutely true statement upon which the validity of an insurance policy depends.

Concealment

The intentional withholding of information regarding a material fact in an insurance application.

Waiver

The voluntary act of relinquishing a known legal right, claim, or privilege.

Estoppel

A legal process preventing a party from re-asserting a right or privilege after that right or privilege has been voluntarily waived.

Human life value approach

A method of calculating a family's financial loss upon the premature death of the insured based on wages, inflation, years to retirement, and the time value of money.

Needs approach

A method of establishing life insurance coverage amounts based on the predicted financial needs and expenses of a surviving family.

Key person insurance

Coverage purchased by a business on a valuable employee to lessen financial loss caused by the employee's premature death or disability.

Executive bonus

An arrangement where an employer grants an employee a wage increase to pay the premium on an employee-owned life insurance policy.

Buyer's guide

A generic document providing basic information about life insurance policy types and cost comparisons.

Policy summary

A written statement describing the specific features, premium amounts, cash values, and benefits of the policy being issued.

Level term insurance

A life insurance policy where the face amount (death benefit) and premium remain constant throughout the policy term.

Annually renewable term

A term policy offering a level death benefit that is guaranteed renewable each year without proof of insurability, with premiums increasing annually based on attained age.

Decreasing term

A term insurance policy featuring a level premium and a face amount that decreases over the duration of the policy term.

Increasing term

A term policy featuring level premiums and a face amount that increases each year over the policy term.

Whole life insurance

Permanent protection providing level premiums, guaranteed death benefits, and cash value accumulation to age 100.

Universal life

A flexible premium adjustable life policy combining annually renewable term insurance with an interest-sensitive cash value account.

Joint life

A single contract insuring two or more lives where the death benefit is paid upon the first death only.

Survivorship life

A policy insuring two or more lives where the death benefit is paid upon the last death (second-to-die).

Absolute assignment

The complete and permanent transfer of all policy ownership rights to another individual or entity.

Collateral assignment

A temporary and partial transfer of policy ownership rights to secure a loan or debt.

Spendthrift clause

A policy provision protecting death benefit proceeds from claims of the beneficiary's creditors and preventing reckless spending.

Waiver of premium rider

A rider that waives policy premiums if the insured becomes totally disabled after a specified waiting period.

Extended term option

The automatic nonforfeiture option that uses policy cash value as a single premium to purchase term insurance with the same face amount as the original policy.

Modified Endowment Contract (MEC)

An overfunded life insurance policy that fails the 7-pay test, resulting in the loss of standard tax-free distribution benefits.

Section 1035 exchange

A tax-free transfer of cash values between qualifying life insurance or annuity contracts on the same life.