Virginia Life and Annuities Insurance Review - Vocabulary

Vocabulary flashcards generated from the Virginia Life and Annuities Insurance study materials, covering general insurance concepts, policy types, provisions, annuities, qualified plans, taxation, and state regulations.

Pure Risk

A situation that can only result in a loss or no change, with no opportunity for financial gain. It is the only type of risk that insurance companies are willing to accept.

Speculative Risk

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

Physical Hazard

An individual characteristic arising from a physical condition, past medical history, or condition at birth that increases the chance of a cause of loss.

Moral Hazard

A tendency toward increased risk evaluated by inspecting the applicant's character and reputation, such as applicants who lie on an application or submit fraudulent claims.

Morale Hazard

A hazard arising from a state of mind that causes indifference to loss, such as carelessness.

Peril

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

Hazard

Conditions or situations that increase the probability of an insured loss occurring.

Loss

The reduction, decrease, or disappearance of value of the person or property insured in a policy, caused by a named peril.

Adverse Selection

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

Law of Large Numbers

A principle stating that the larger the number of people in a risk pool with a similar exposure to loss, the more predictable future losses will be.

Reinsurance

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

Ceding Insurer

The originating insurance company that procures insurance on itself from another insurer in a reinsurance agreement.

Assuming Insurer

The insurance company that accepts risk from a ceding insurer in a reinsurance contract, also referred to as the reinsurer.

Stock Company

An insurance company owned by stockholders who provide capital, elect officers, and share in profits or losses through taxable dividends.

Mutual Company

An insurance company owned by policyowners that issues participating policies where policyowners may receive nontaxable dividends from surplus premiums.

Fraternal Benefit Society

An organization formed to provide insurance benefits for members of an affiliated lodge, religious organization, or fraternal organization with a representative form of government.

Certificate of Authority

A license granted by the state department of insurance authorizing an insurer to transact insurance business in that state.

Domestic Insurer

An insurance company that is incorporated in the state where it conducts 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 authority a principal specifically grants to an agent in a written agency contract.

Implied Authority

Authority that is not expressed or written in the contract but which the agent is assumed to have to transact insurance business.

Apparent Authority

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

Contract of Adhesion

A contract prepared by one party (the insurer) and accepted or rejected by the other party (the insured) on a take-it-or-leave-it basis without negotiation.

Aleatory Contract

A contract in which there is an exchange of unequal amounts or values.

Unilateral Contract

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

Conditional Contract

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

Indemnity

A principle of insurance stating that an insured or beneficiary cannot recover more than the financial loss incurred and is not permitted to profit from a loss.

Utmost Good Faith

A principle implying that both the insurer and the insured rely on each other for relevant information without fraud, misrepresentation, or concealment.

Representations

Statements believed to be true to the best of one's knowledge, but not guaranteed to be true.

Warranty

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

Concealment

The legal term for the intentional withholding of material information crucial in making an underwriting decision.

Fraud

The intentional misrepresentation or intentional concealment of a material fact used to induce another party to enter into a contract or deceive a party.

Waiver

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

Estoppel

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

Insurable Interest

A financial interest or possibility of losing money or value required to exist between the policyowner and the insured at the time of application for life insurance.

Human Life Value Approach

A method to calculate life insurance needs by estimating the financial loss to the family based on the insured's wages, inflation, years to retirement, and time value of money.

Needs Approach

A method to determine life insurance coverage based on the predicted future financial needs of a family following the premature death of the insured.

Buy-Sell Agreement

A legal contract that determines what will be done with a business in the event that an owner dies or becomes disabled.

Key Person Insurance

Life insurance purchased by a business on a valuable employee to lessen the risk of financial loss resulting from the key employee's premature death.

Executive Bonus

An arrangement where the employer offers an employee a wage increase equal to the premium on a new life insurance policy owned by the employee.

Buyer's Guide

A generic document explaining basic life insurance concepts to help consumers choose the amount and type of insurance to buy.

Policy Summary

A written statement describing the specific features, elements, premiums, cash values, and benefit figures of a policy being issued.

Attending Physician Statement (APS)

A medical report ordered by a life insurance underwriter from the applicant's physician when specific medical details are required.

Medical Information Bureau (MIB)

A nonprofit trade organization that collects and maintains medical history information shared among member insurance companies.

Annually Renewable Term (ART)

A level term policy where the death benefit remains level and the policy is guaranteed renewable each year without proof of insurability, but the premium increases annually based on age.

Decreasing Term

Term life insurance featuring a level premium and a death benefit that decreases over the duration of the policy term.

Increasing Term

Term life insurance featuring level premiums and a death benefit that increases over the policy term.

Return of Premium (ROP)

An increasing term life policy that pays an additional death benefit equal to all premiums paid if death occurs, or returns all premiums if the insured outlives the policy term.

Straight Life

A continuous premium whole life policy where the owner pays premiums until age $100$ or the insured's death, offering the lowest annual premium among whole life plans.

Limited-Pay Whole Life

Whole life insurance designed so that policy premiums are paid up well before age $100$ while coverage continues for life.

Single Premium Whole Life (SPWL)

Whole life insurance designed to provide a level death benefit to age $100$ for a single, lump-sum premium payment, generating immediate cash value.

Adjustable Life

A flexible life insurance policy that allows the policyowner to adjust the face amount, premium amount, or period of protection as coverage needs change.

Universal Life

A flexible premium adjustable life policy with an annually renewable term component and a cash value account accumulating at interest.

Variable Life Insurance

A level, fixed premium, investment-based life insurance policy where cash values accumulate in a separate account composed of stock and bond portfolios.

Joint Life

A single policy designed to insure two or more lives with the premium based on a joint average age and the death benefit paying upon the first death only.

Survivorship Life

A single policy insuring two or more lives that pays the death benefit upon the last death (second-to-die).

Absolute Assignment

The total and permanent transfer of all ownership rights of an insurance policy to another person or entity.

Collateral Assignment

A partial and temporary transfer of policy ownership rights to another party, typically to secure a loan.

Free-Look Provision

A provision allowing the policyowner a specified number of days (typically $10$ days) from policy receipt to inspect the contract and return it for a full premium refund.

Grace Period

The period of time after the premium due date (usually $30$ or $31$ days) during which the premium may be paid before the policy lapses.

Incontestability Clause

A policy provision preventing an insurer from denying a claim due to statements in the application after the policy has been in force for $2$ years.

Spendthrift Clause

A clause protecting policy proceeds from the claims of the beneficiary's creditors and preventing reckless spending by requiring benefit payments in installments.

Waiver of Premium Rider

A rider that waives life insurance premiums if the insured becomes totally disabled, usually following a $6$-month waiting period.

Payor Benefit Rider

A rider on juvenile policies that waives policy premiums if the adult payor dies or becomes disabled until the child reaches a specified age.

Accidental Death Rider

A rider paying a multiple of the face amount (double or triple indemnity) if the insured's death is caused by an accident within $90$ days of the incident.

Guaranteed Insurability Rider

A rider allowing the insured to purchase additional life insurance coverage at specified future dates or events without providing evidence of insurability.

Accelerated Death Benefit Rider

A rider allowing the early payout of a portion of the life insurance death benefit if the insured is diagnosed with a qualifying terminal or critical illness.

Extended Term Option

The automatic nonforfeiture option using policy cash value as a single premium to purchase term insurance for the full original face amount for as long a duration as possible.

Reduced Paid-Up Insurance Option

A nonforfeiture option using policy cash value to purchase a single-premium paid-up permanent policy with a reduced face amount.

Annuitant

The natural person who receives payments from an annuity and whose life expectancy determines the payout amount.

Accumulation Period

The pay-in phase of an annuity during which the owner makes premium contributions that earn interest on a tax-deferred basis.

Annuitization Period

The pay-out or liquidation phase of an annuity during which accumulated funds are converted into a stream of income payments to the annuitant.

Immediate Annuity

An annuity purchased with a single lump-sum payment that begins income payments within $1$ year from purchase.

Deferred Annuity

An annuity in which income payments begin more than $1$ year after the purchase date.

Straight Life Annuity

An annuity payout option providing guaranteed income payments for the annuitant's entire lifetime, stopping upon the annuitant's death with no remaining principal returned.

Traditional IRA

A qualified individual retirement account allowing pretax deductible contributions with tax-deferred earnings and taxable withdrawals starting required minimum distributions at age $73$.

Roth IRA

An individual retirement account funded with after-tax non-deductible contributions where earnings grow tax-free and qualified withdrawals are tax-free.

Simplified Employee Pension (SEP)

A qualified plan suited for small employers or self-employed individuals where the employer makes contributions directly to an individual retirement account for each employee.

401(k) Plan

A qualified retirement plan allowing employees to reduce current salary through pretax deferrals into a retirement fund, often with employer matching.

403(b) Plan

A tax-sheltered annuity qualified retirement plan available to employees of public school systems and nonprofit 501(c)(3) organizations.

Modified Endowment Contract (MEC)

A life insurance policy that fails the 7-pay test by being overfunded, causing distributions like loans and withdrawals to be taxed on a LIFO (interest-first) basis.

Section 1035 Exchange

A provision in the Internal Revenue Code allowing the tax-free exchange of an existing life insurance policy or annuity for another policy on the same life.

Twisting

An illegal trade practice involving a misrepresentation or fraudulent comparison that induces an insured to lapse or surrender an existing policy to buy a new one to their detriment.

Rebating

An illegal trade practice offering an inducement, discount of premium, or special favor not specified in the insurance policy to persuade a client to purchase insurance.

Defamation

An illegal trade practice involving making false, maliciously critical, or derogatory oral or written statements designed to injure an individual or entity in the insurance business.