Life & Health Insurance – Vocabulary Flashcards (Chapter 1-13)

Vocabulary flashcards covering key terms from general insurance, life and health topics, including contracts, under-handling, policy provisions, riders, products, and Medicare/Group concepts.

Insurable Interest

A financial or economic stake in the insured; must exist between owner/applicant and insured, typically at time of application.

Stock Insurance Company

A carrier owned by stockholders; profits go to stockholders; traditionally issues nonparticipating policies.

Mutual Insurance Company

A carrier owned by policyholders; may issue participating policies and pay non‑taxable dividends to policyowners.

Reciprocal

A type of insurer where policyholders insure each other through a reciprocal exchange structure.

Fraternal Benefit Society

A nonprofit, usually religious or fraternal organization that primarily sells life insurance to members.

Domestic Insurer

An insurer organized under the laws of the state in which it conducts business.

Foreign Insurer

An insurer organized under laws of another state, writing business in a different state.

Alien Insurer

An insurer organized under laws of a country outside the U.S.; considered alien in the U.S. jurisdiction.

Certificate of Authority

State-issued authorization that allows an insurer to transact; not related to domicile.

NAIC

National Association of Insurance Commissioners; regulatory support body for state regulators; promotes uniformity but has no legal authority.

Fair Credit Reporting Act (FCRA)

Federal regulation protecting consumer privacy; requires notice and consent to obtain third‑party reports for underwriting; adverse action rights.

MIB (Medical Information Bureau)

Not‑for‑profit information exchange used by insurers to detect fraud, misrepresentation, or insurability issues; not a sole basis to deny coverage.

APS (Attending Physician Statement)

Physician-provided medical information used to determine insurability; requires applicant consent.

Underwriting

Process of selecting, classifying, and rating risk to determine insurability and appropriate premium.

Mortality Table

Tables used to estimate death rates by age and gender for premium/rate setting.

Interest Loading

The investment return assumed on premiums to fund future liabilities; affects premium levels.

Face Amount/Policy Proceeds

The death benefit promised by the policy; the amount payable on death.

Cash Value

Living benefit in permanent policies; accumulates over time and can be borrowed against or withdrawn.

Endowment (Maturity)

When cash value equals face amount; policy endows and pays the face amount if the insured is still alive.

Policyowner

The person who owns the policy and has rights to the policy’s ownership provisions and benefits.

Insured

The person whose life (or health) is covered by the policy; death or illness triggers benefits.

Beneficiary

Person(s) designated to receive death proceeds or benefits; can be revocable or irrevocable; primary/contingent/tertiary designations.

Revocable Beneficiary

Beneficiary whose rights can be changed by the policyowner without their consent.

Irrevocable Beneficiary

Beneficiary whose rights cannot be changed without their consent; often gives the beneficiary a vested interest.

Contingent Beneficiary

Backup beneficiary who receives proceeds if the primary beneficiary does not survive the insured.

Common Disaster Clause

Ensures the beneficiary survives the insured by a set period if both die in the same event.

Assignment (Absolute)

Permanent transfer of policy ownership from the owner to a new owner.

Assignment (Collateral)

Temporary transfer of rights (e.g., as loan collateral); does not permanently change ownership.

Insuring Clause

Policy clause that states the insurer’s promise to pay the death benefit under the terms of the contract.

Consideration

The value exchanged in a contract; in insurance, the premium paid by the owner and the insurer’s promise to pay.

Suicide Clause

Excludes or limits liability if the insured dies by suicide within a defined period (usually 1-2 years).

Incontestability Clause

Policy becomes incontestable after a stated period (commonly 2 years) for misstatements except for fraud.

Entire Contract Clause

The contract consists of the policy, riders, amendments, and the application; no changes by the producer.

Warranties

Statements guaranteed true in all respects; breaches can void coverage if material.

Representations vs. Warranties

Representations are truthful statements to the best knowledge; warranties are guaranteed true statements.

Contract of Adhesion

Insurance contract drafted by the insurer with little or no negotiation by the insured; a take‑it‑or‑leave‑it contract.

Aleatory Contract

Contract based on an uncertain event with potentially unequal exchange of value.

Unilateral Contract

Only one party (the insurer) is legally bound to perform; the insured may cancel anytime.

Conditional Contract

Both parties must perform certain duties for the contract to be enforceable.

Standard vs. Substandard Risk

Standard risk fits ordinary mortality; substandard risk is higher risk and may be rated or declined.

7-Pay Test

A test to determine if a policy funds too rapidly; crossing it may classify the policy as a MEC.

Modified Endowment Contract (MEC)

Overfunded cash value policy that loses favorable tax treatment; distributions are taxed on a LIFO basis.

MEC Tax Treatment (LIFO)

Distributions from MECs are taxed as earnings first (LIFO); penalties may apply for early withdrawals.

HIPAA

Privacy rules protecting health information; require consent to share medical data; HIV testing requires consent.

HIV Consent Form

Document describing purpose, confidentiality, and disclosure of HIV test results.

MIB Report

Medical Information Bureau report; used to detect adverse health information during underwriting.

APS (Attending Physician Statement)

Physician-provided medical history used to assess insurability; insurer covers costs.

Policy Provisions vs. Riders

Provisions are standard clauses; riders are added benefits that amend coverage (typically for extra premium).

Insuring Clause (Life)

Found on the face page; identifies the insured and insurer and the conditions to pay.

Suicide Clause

Limit on the insurer’s liability for suicide within the initial policy period.

Grace Period

Period after premium due date during which coverage remains in force; typically 30-31 days.

Reinstatement

Process to put a lapsed policy back in force by paying past premiums and providing evidence of insurability.

Free Look (Right to Examine)

Period after policy delivery during which the policyowner may return the policy for a full refund.

Conditional Receipt

Receipt given when initial premium is paid; coverage becomes effective on application date or completion of medical exam, whichever is later.

Face Amount

The stated death benefit of a life insurance policy; often referred to as the policy's face value.

Policyowner vs. Insured vs. Beneficiary

Policyowner controls the policy; insured is the person covered; beneficiary receives death benefits.

Level Term

Term life where death benefit remains level for the specified term.

Decreasing Term

Term policy where death benefit decreases over the term; premiums may stay level.

Renewable Term

Term policy that can renew at higher premiums without evidence of insurability.

Convertible Term

Right to convert term policy to permanent insurance without new underwriting.

Whole Life (Ordinary Straight Life)

Permanent policy with fixed premium, fixed death benefit, and cash value growth to age 100.

Cash Value Loan

Policy loan using cash value as collateral; interest accrues and reduces death benefit if unpaid.

Nonforfeiture Options

Options (Reduced Paid-Up, Extended Term, Cash Surrender Value) that protect policy values if premiums stop.

Dividend

Policy dividends are a return of premium from participating policies; not guaranteed.

Universal Life (UL)

Unbundled policy with flexible premiums and adjustable death benefits; cash value earns interest.

Option A vs. Option B (UL)

UL death benefit options: A = level death benefit; B = level death benefit plus cash value.

Variable Life (VL)

Whole life with cash value invested in separate accounts; investment risk borne by the owner.

VUL (Variable Universal Life)

Combination of UL structure with investment accounts; flexible premium and adjustable death benefits; SEC regulated.

Settlement Options

Ways to receive death benefit: life income, period certain, installment refund, lump-sum, etc.

Annuities vs. Life Insurance

Annuities provide living benefits (income); life insurance pays a death benefit.

SPIA (Single Premium Immediate Annuity)

Annuity purchased with a lump sum that starts paying immediately within a year.

SPDA (Single Premium Deferred Annuity)

Lump sum paid; income starts later; tax-deferred growth.

FPDA (Flexible Premium Deferred Annuity)

Deferred annuity with flexible contributions within policy guidelines.

HSA (Health Savings Account)

Tax-advantaged account paired with a High Deductible Health Plan (HDHP) for qualified medical expenses.

HDHP (High Deductible Health Plan)

Plan with high deductible and lower premiums; can be paired with HSA.

Medicare Part A

Hospital insurance; inpatient care; deductible per benefit period; 90 days inpatient coverage per period.

Medicare Part B

Medical insurance; outpatient services; 80% coverage after deductible; monthly premium.

Medicare Part C (Medicare Advantage)

Private plans that substitute Part A/B with managed care; may include drug coverage.

Medicare Part D

Prescription drug coverage; managed by private plans; involves deductibles and copays/coinsurance.

Medigap (Medicare Supplement)

Private plans that fill gaps in Part A/B coverage; standardized plans A-N with set core benefits.

COBRA

Employer-sponsored continuation of coverage after termination or reduction in hours; up to 18–36 months.

Group Insurance Master Policy

The master contract issued to the sponsor; certificates of insurance are issued to participants.

Open Enrollment (Group)</definition:

Period during which eligible employees may enroll without evidence of insurability; changes may be made.

Conversion Privilege (Group)</definition

Right to convert group coverage to an individual policy without evidence of insurability.

Probationary Period (Group)</definition

Waiting period before new group members are eligible to enroll, to protect against adverse selection.

Insurers (Insurance Companies or Carriers)

provide insurance coverage by issuing particular insurance policies or contracts

Insurance Agencies also called carriers

are independent sales organizations that provide service and distribute insurance policies to consumers

Insurance Agents or Producers

are licensed individuals representing an insurance company

when transacting insurance business on behalf of clients, helping them find suitable policies.

mutual insurer is owned by policyholders

Stock Insurance CompanyA stock insurer

is owned by its stockholders, or shareholders. The stockholders elect a Board of Directors to manage the company, but the Board then elects officers to handle the day-to-day activities