Study Guide for life insurance exam

Flashcards based on lecture notes covering life insurance terms, annuities, legal clauses, risk management, and regulatory compliance.

Single Premium Deferred Annuity

An annuity purchased with a lump sum payment where income begins at a later date.

Human Life Value

Projected future earnings used to estimate insurance needs.

Consideration Clause

Must be presented at the time of application and includes premium payment and statements made by the applicant.

Risk

The chance of financial loss.

MIB (Medical Information Bureau)

Provides medical information used during underwriting.

Perjury

Fraudulent statements on an insurance application or claim form.

Universal Life Insurance

Combines annual renewable term insurance with an interest-sensitive savings feature; permanent insurance with level or increasing death benefit options; a flexible premium life insurance policy.

Free Look Period (Age $60+$)

Applicants age $60$ or older have $30$ days to cancel for a refund.

Modes

Frequency of premium payments.

Concealment

Intentionally omitting material information.

Tax Deferred

Growth of cash value accumulates without immediate taxation.

Internal Replacement

A replacement policy issued by the same insurance company.

Misdemeanor

Acting as an insurance producer without a license.

Rated Policy

Policy issued to someone with above-average risk exposure.

Annuity Certain

An annuity designed for short-term income needs.

Implied Warranties

Statements interpreted as representations rather than guarantees.

Modified Whole Life

Whole life insurance with lower premiums in the early years.

Entire Contract

The policy and copy of the application together form the entire contract.

Life Settlement Broker

Negotiates life settlement contracts.

Accelerated Death Benefit Rider

Allows terminally ill insureds to receive benefits prior to death.

Increasing Term Insurance

Return of Premium term insurance is a form of increasing term insurance.

Aleatory Contract

A contract involving unequal exchange of value.

Mortality Tables

Used to predict future losses based on death rates.

Term Life Insurance

Pure death protection with no cash value.

Perils

Causes of a loss.

Inactive Appointment

Any insurance appointment that is no longer active.

Spendthrift Clause

Protects policy proceeds from a beneficiary's creditors.

Long-Term Care Rider

Can reduce the death benefit if benefits are used for long-term care; covers nursing or convalescent care.

Graded Premium Policy

Policy with premiums that gradually increase over time.

Group Life Insurance

Insurance that does NOT include an elimination period.

Conversion Privilege

Upon termination from a group plan, coverage may be converted within $31$ days.

Legal Purpose

A contract must be enforceable in court to be valid.

Transfer

The most common and effective method of handling risk.

Variable Deferred Annuity

Deferred annuity that invests in separate accounts and does not guarantee returns.

Right of Rescission

Allows a policy to be canceled within $30$ days; given to policyowner via Policy Delivery.

Express Authority

Authority specifically stated in the insurance contract.

Homogeneous Exposure Units

Similar risks grouped together; does NOT prevent loss.

Fixed Amount Settlement Option

Payments continue until all proceeds are paid out.

No-Lapse Guarantee

Keeps coverage active even with insufficient cash value.

Life Income Settlement Option

Payments may exceed the total proceeds if the beneficiary lives long enough.

Materiality

Insurers are entitled to all information that affects underwriting decisions.

Reciprocal Insurance

Formal risk-sharing arrangement among members.

Free Look Period (Age $65+$)

Applicants age $65$ or older have $30$ days to review/cancel a policy.

Counteroffer

NOT an element required for a legal insurance contract.

Variable Life Insurance

Insurance where cash value is NOT guaranteed and products invest in separate accounts.

Hazard

Something that increases the chance of loss.

Principal

The insurer; the producer acts on behalf of the principal.

Policy Changes

Have the applicant initial and approve all application changes.

Taxation of Annuity Payments

Interest is taxable; principal is not taxable.

Employer

The entity that is the beneficiary of a key person insurance policy and receives the master contract in group insurance.

Straight Life Income Option

Produces the highest monthly income.

Survivorship Life Insurance

Pays a death benefit when the second insured dies.

Law of Large Numbers

The larger the number of similar risks, the more accurately losses can be predicted; requires similar risks.

Grace Period

Allows coverage to continue when a premium is less than $6$ months overdue.

Adverse Selection

Underwriting protects insurers against higher-risk individuals seeking coverage.

Separate Account

Variable insurance products invest in separate accounts.

Primary Beneficiary

First in line to receive policy proceeds.

1035 Exchange

Allows transfer between like insurance products without immediate taxation.

Speculative Risk

Risk involving the possibility of gain or loss.

Tax-Sheltered Annuity (TSA)

Retirement annuity designed for nonprofit employees.

Policyowner

The individual the policy is designed to protect.

Reinstatement

Putting a lapsed policy back into force.

Alien Insurer

An insurer formed in another country (example: Oslo, Norway).

Mortality

Refers to the death rate used in premium calculations.

Initial Premium

Payment that may allow temporary coverage to begin.

Insolvent Insurer

An insurer with assets less than the required minimum.

Decreasing Term Insurance

Commonly used to cover a mortgage.

Insurable Interest

Requirement that must exist at the time of application.

Refund Life Annuity

Guarantees return of all principal.

Participating Policy

A policy where dividends do NOT go to stockholders.

Utmost Good Faith

Requires honesty between the insurer and insured.

Record Retention

Insurance records must be kept for $5$ years.

Unilateral Contract

NOT considered an element of a legal contract.

Fixed Annuity

An annuity where payments do NOT vary.

Exposure

The possibility of risk of loss; NOT considered a risk management technique.

Misstatement of Age Clause

Benefits are adjusted if the insured’s age was misstated.

Accumulation Period

The period during which annuity payments are made into the contract.

Representations

Statements made by the applicant believed to be true.

Fiduciary

A person responsible for handling premiums in a position of trust.

Substandard Risk

Applicant considered to be higher risk.

Life Only Settlement Option

Leaves no remaining value after death.

Policy Loans

Money borrowed from a life insurance policy is not taxable.

Moral Hazard

Increased risk caused by dishonest or fraudulent behavior.

FINRA

Required license for selling variable products.

Assignment

Transfer of rights in an insurance policy.

Ordinary Straight Life

Whole life insurance with cash values and maturity at age $100$.

Workers Compensation

Considered NOT catastrophic coverage.

Lump Sum Settlement

Death proceeds are generally not subject to taxes.

Buy-Sell Agreement

Commonly used by business partners; often uses joint life insurance.

Convertible Term Insurance

Allows conversion from a policy without cash value to one that does.

Policy Summary

Document outlining specific policy features.

Conservation

An attempt by an insurer to keep an existing policy in force.

Tort

A civil wrong.

24-Hour Coverage

Pays whichever benefit is greater for occupational or nonoccupational injuries.

Taxation of Life Insurance Proceeds

Any amount exceeding premiums paid may be taxable.

Adhesion Contract

The insurer accepts or rejects the contract; ambiguities favor the insured.

Straight Life Insurance

Offers the lowest premium among permanent policies.

Cost of Living Rider

Uses the Consumer Price Index (CPI) to adjust benefits.

Witness Signature Requirement

The producer should witness the applicant’s signature.

Consideration

The premium paid and the insurer’s promise.