Texas Life Insurance Practice Flashcards

Vocabulary flashcards covering Texas Life Insurance concepts, policy types, annuities, provisions, and state regulations.

Insurance concept

Primarily a transfer of risk of financial loss from an individual/business to an insurer.

Adverse selection

Refers to risks more prone to loss than the average risk.

Policyowner

The person who exercises the rights and privileges in the insurance policy.

Insured

The person whose life is covered and may or may not be the policyowner.

Beneficiary

The person who receives the policy proceeds/death benefit when the insured dies.

Insurable interest timing

For life insurance, this must exist at the time of application.

Insurable interest holder

The policyowner must have insurable interest in the insured; the beneficiary does not have to prove it.

Legal contract elements

A binding insurance contract requires agreement, consideration, competent parties, and legal purpose.

Offer and acceptance

The applicant usually makes the offer via the application; acceptance occurs when the insurer approves and issues the policy.

Consideration - insured

The premium plus representations in the application provided by the insured/applicant.

Consideration - insurer

The insurer's promise to pay covered losses/benefits.

Adhesion

A contract drafted by the insurer and accepted or rejected as written; ambiguities are construed in favor of the insured.

Aleatory

A contract involving the exchange of unequal values; a small premium can result in a large benefit.

Unilateral

A contract where only the insurer is legally bound to perform if policy conditions are met.

Conditional

A contract requiring stated conditions to be met before obligations are performed.

Representation

Application answers believed true to the best of the applicant's knowledge.

Material misrepresentation

One that would affect the insurer's underwriting decision; intentional material misrepresentation may constitute fraud.

Term insurance

Provides temporary pure death protection and normally has no cash value.

Annually renewable term

ART has a level death benefit, is renewable without proof of insurability, and premiums rise with attained age.

Decreasing term

Generally has a decreasing death benefit and is commonly associated with declining obligations such as debt.

Whole life

Provides permanent protection with cash value, policy loans, and nonforfeiture options.

Ordinary whole life

Generally has level death benefit and premiums paid for life or to age 100; also called straight whole life.

Limited-pay whole life

Compresses premium payments into a shorter period while coverage continues to age 100; annual premiums are higher than straight life.

Single-premium whole life

Funded by one lump-sum premium and coverage continues to age 100.

Universal life

Flexible-premium life insurance with an annually renewable term insurance component and cash value.

Universal Life Option A

A universal life option with a level death benefit.

Universal Life Option B

A universal life option with an increasing death benefit.

Variable life

Features fixed premiums, separate-account assets, and cash value/death benefit that may vary.

Variable universal life

Combines flexible-premium universal life features with variable separate-account investment features.

Variable product regulation

Regulated by state insurance authorities and federal securities regulators; requires life insurance authority plus securities registration.

Joint life

First-to-die coverage; death benefit is paid at the first insured's death.

Survivorship life

Second-to-die coverage; death benefit is paid after the last insured dies.

Annuity purpose

Provides retirement income and liquidates an estate; contrasts with life insurance which creates an estate.

Annuity accumulation period

The pay-in phase where money is paid into the annuity.

Annuity annuitization period

The pay-out phase where money is distributed to the annuitant.

Annuity owner

The person with contractual rights, such as naming the beneficiary and surrendering the annuity.

Annuity annuitant

The natural person whose life expectancy is used for annuity benefits.

Fixed annuity

Premiums are in the general account and payment/interest guarantees are provided by the contract.

Variable annuity

Premiums are placed in a separate account; values and payments are not guaranteed and may fluctuate.

Indexed annuity

Interest is linked to an external index; it is not the same as directly owning the index.

Immediate annuity

Purchased with a single premium and income begins within 12 months.

Deferred annuity

Begins benefits more than one year after purchase and may use single or periodic premiums.

Fixed period settlement

Annuitant chooses the time period; insurer determines payment amount; payments continue whether or not the annuitant is alive.

Fixed amount settlement

Annuitant chooses the payment amount; insurer determines how long payments last until funds are exhausted.

Entire contract

Provision identifying the policy and attached application as the complete contract.

Grace period

Additional time after a premium due date to pay while coverage remains in force subject to policy terms.

Incontestability

After the stated period, the insurer generally cannot void the policy based on application misstatements except as permitted by law.

Misstatement of age - individual

Results in adjustment of the benefit to what the premium would have purchased at the correct age.

Misstatement of age - group

May result in adjustment of the premium and/or benefit to the correct age.

Automatic premium loan

Uses available cash value to pay an overdue premium and keep the policy in force.

Policy loan at death

An unpaid policy loan plus interest reduces the death benefit/proceeds.

Guaranteed insurability rider

Allows purchase of additional insurance at specified dates/events without evidence of insurability.

Accelerated death benefit rider

Allows early payment of part of the death benefit when qualifying conditions are met.

Nonforfeiture options

Included options are cash surrender, reduced paid-up insurance, and extended term insurance.

Reduced paid-up

Uses cash value to buy a smaller amount of fully paid permanent insurance.

Extended term

Uses cash value to buy term insurance, generally for the original face amount, for as long as the value permits.

Cash surrender

Terminates the policy and pays the available cash value to the policyowner.

Group conversion

Allows an employee to convert to an individual policy without evidence of insurability; premium is based on attained age.

Group conversion period

Employee usually has 31 days after termination to exercise conversion, with coverage continuing during that period.

Noncontributory group plan

Employer pays all premiums; 100% of eligible employees must participate.

Contributory group plan

Employer and employees share premiums; 75% of eligible employees must participate.

Qualified retirement plan

IRS-approved plans with tax advantages, vesting requirements, and nondiscrimination rules.

Nonqualified retirement plan

Plans using after-tax contributions that do not require IRS approval and may discriminate in favor of selected employees.

Traditional IRA eligibility

The requirement for establishing a traditional IRA is earned income.

Social Security fully insured

Requires 40 credits for fully insured status.

Life death benefit taxation

Lump-sum life insurance death benefits are generally received by the beneficiary income-tax free.

Key-person insurance

Business-owned insurance on a key employee to offset economic loss such as replacement or training costs.

Texas Commissioner

Appointed by the Governor for a 2-year term; administers/regulates the Department but does not write laws.

Insurer examinations

The insurer being examined pays the costs of the examination conducted by the Commissioner.

Texas licensing age

The minimum age for licensing is 18.

Texas exam validity

Licensing examination results are valid for 12 months.

Texas temporary license

Maximum duration of 90 days; no more than one issued per person in a 6-month period.

Texas license renewal

A life agent license is renewed every 2 years.

Texas continuing education

Requires 24 CE hours per 2-year reporting period, including at least 3 hours of ethics.

Texas license reinstatement

Maximum period of 1 year for reinstatement after lapse without retaking the exam.

Texas revoked license

After revocation, a person may not apply for another Texas license for 5 years.

Controlled business

At least 25% of annual premium volume must come from business other than controlled business.

Misrepresentation

False or misleading statements about policy terms or benefits.

Rebating

Offering money, favors, or inducements not specified in the policy to persuade a purchase.

Defamation

False or maliciously critical statements intended to injure an insurer or person in the insurance business.

Unfair discrimination

Treating individuals of the same class/risk differently without a lawful actuarial basis.

Replacement

Occurs when a new policy purchase causes an existing policy to lapse, terminate, or be surrendered/converted.

Replacing insurer

The insurer that issues the new policy in a replacement transaction.

Existing insurer

The insurer that issued the policy being replaced.

Replacement producer duty

Must provide replacement notice, identify existing policies, and leave required materials with the applicant.

Texas lawsuit limitation

A life policy may not limit the time to bring a lawsuit to less than 2 years after the cause of action.

Texas backdating

A life policy may not be backdated more than 6 months before application to obtain a younger insurance age.

Texas nonforfeiture

State-required protections preserving specified value when cash-value life insurance is surrendered or premiums default.

Texas group life minimum

Must cover at least 2 employees or labor-union members on the issue date.

Texas group dependent coverage

May extend to a spouse and children under 25 or qualifying disabled dependent children.

Texas credit life

Insures the debtor and pays loan balance at death; usually decreasing term and cannot exceed the debt.

Credit life parties

In group credit life, the creditor owns the master policy; the debtor is the insured.