Life & Health Insurance Manual Review

Comprehensive vocabulary flashcards covering general insurance concepts, life insurance basics, annuities, health insurance, and federal regulations based on the lecture transcript.

Risk

A condition where there is a chance, likelihood, or probability of a potential loss; specifically, it is the uncertainty concerning a loss.

Pure Risk

A category of risk that results in either a loss or no change in status, with no possibility for gain.

Speculative Risk

A category of risk that may result in a gain, a loss, or no change in status; these are considered uninsurable.

Peril

The specific cause of a loss, such as fire, lightning, wind, death, injury, or sickness.

Physical Hazard

A physical condition that increases the probability of loss, including the use, condition, or occupancy of property.

Moral Hazard

Dishonest tendencies that increase the probability of a loss, such as an insured faking an injury to collect a payout.

Morale Hazard

An attitude of indifference toward the risk of loss, such as leaving a car unlocked with the key in the ignition, increasing the probability of theft.

Law of Large Numbers

A probability theory stating that the larger the number of homogeneous units with similar exposures, the greater the accuracy in predicting expected losses.

Adverse Selection

The principle that people will seek insurance more frequently for risks that are hard to insure, creating an imbalance of high risks compared to average risks.

Reinsurance

The transfer of all, or a portion, of assumed risk from one insurance company (the ceding insurer) to another (the reinsurer).

Stock Insurance Company

An insurance company owned by stockholders or shareholders who elect a board of directors; traditionally issues nonparticipating policies.

Mutual Insurance Company

An insurance company owned by policyholders (members) who may receive non-taxable dividends as a return of premium.

Domestic Insurer

An insurer organized under the laws of the state in which it is incorporated or formed.

Foreign Insurer

An insurer not organized under the laws of the state where it is doing business, but in another state or jurisdiction within the United States.

Alien Insurer

An insurer organized under the laws of any jurisdiction outside of the United States.

Fair Credit Reporting Act (FCRA)

A federal law that protects a consumer's right to the privacy of credit and financial information, enforced by the $FTC$ and $CFPB$.

Gramm-Leach-Bliley Act (GLBA)

A federal law that established the Financial Privacy Rule and Safeguards Rule to ensure the confidentiality of consumer information.

Consideration

The exchange of value between parties to a contract; for the insured, it is the payment of premium; for the insurer, it is the promise to pay for covered losses.

Contract of Adhesion

A contract written by one party (the insurer) without input from the applicant, presented on a take-it-or-leave-it basis.

Aleatory Contract

A contract that results in an unequal exchange of consideration due to the uncertainty of an event or loss.

Insurable Interest

A requirement for every enforceable insurance contract, where the applicant must have the potential to suffer financial or economic hardship in the event of a loss.

Statement of Good Health

A signed statement required at policy delivery when the initial premium was not paid at application, verifying the insured has not suffered injury or illness since the application date.

Modified Endowment Contract (MEC)

A life insurance policy that fails the $7$-pay test by being overfunded in the first $7$ years, resulting in the loss of favorable tax treatment for distributions.

1035 Exchange

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

Annuitant

The individual whose life expectancy is used to determine distributions from an annuity when the contract is annuitized.

Single Premium Immediate Annuity (SPIA)

An annuity purchased with a lump sum where income payments begin within $1$ year from the date of purchase.

Probationary Period

A waiting period starting from the policy effective date, typically $15-30$ days, before losses due to sickness are covered.

Elimination Period

A time deductible in a disability income policy representing the duration of time after a disability starts before benefits become payable.

Own Occupation

A definition of total disability where the insured is unable to perform the main duties of their regular occupation.

Presumptive Disability

A condition defined as total and permanent disability due to the loss of $2$ limbs, sight, speech, or hearing, often paying benefits in a lump sum.

Medicare Part A

A federal program providing hospital insurance for individuals age $65$ or older, funded through $FICA$ payroll taxes.

Medicare Part B

A voluntary supplemental medical insurance that covers physician and surgeon services, diagnostic testing, and durable medical equipment.

Activities of Daily Living (ADLs)

Triggers for long-term care benefits including bathing, continence, dressing, eating, toileting, and transferring.

Medigap

Private insurance policies designed to supplement Original Medicare by covering gaps such as deductibles, copayments, and coinsurance.

Health Maintenance Organization (HMO)

A managed care system providing comprehensive healthcare services on a prepaid basis, emphasizing preventive medicine and utilizing a Gatekeeper.

Preferred Provider Organization (PPO)

A managed care plan where a network of providers offers services at a discounted fee-for-service negotiated in advance.

Coordination of Benefits (COB)

A provision in group health insurance that specifies the order of payout when an individual is covered by more than one group policy to prevent overinsurance.

COBRA

A federal law requiring employers with $20$ or more employees to offer continuation of group health insurance for qualifying beneficiaries for up to $18$, $29$, or $36$ months.

Health Savings Account (HSA)

A tax-advantaged savings account for individuals with a High Deductible Health Plan ($HDHP$) to pay for qualified medical expenses.

Fiduciary Duty

A legal or ethical relationship of trust, requiring producers to handle premiums prudently and keep them in a separate trust account without commingling.

Principle of Indemnity

The basis of insurance designed to restore the insured to the same financial or physical condition that existed prior to a loss without allowing them to profit.

Law of Agency

Defines the relationship between the insurance company (the principal) and the individual (producer) operating as its agent.

Express Authority

Authority specifically granted to an agent within their written agency contract with the principal.

Implied Authority

Authority not specifically stated in an agent's contract but which is reasonable and necessary for the agent to carry out their stated duties.

Apparent Authority

Authority created when an agent exceeds expressed or implied limits, and the public assumes the authority exists because the principal does nothing to counter the impression.

Assignment

The transfer of ownership rights in a life insurance policy, which can be absolute (permanent) or collateral (temporary).

Primary Insurance Amount (PIA)

A basic formula result determining the benefit a person would receive if they begin Social Security retirement benefits at their average retirement age.

Donut Hole

The coverage gap in Medicare Part D after the initial coverage limit is reached and before catastrophic coverage begins.

Business Overhead Expense (BOE) Insurance

Coverage for small business owners that pays actual business expenses if the owner becomes disabled; premiums are tax-deductible, but benefits are taxable.

Business Disability Buyout Policy

Specifies ownership transfer in case a partner becomes permanently disabled; premiums are not tax-deductible, but buyout proceeds are tax-free.

Hospital Indemnity Insurance

Pays a fixed dollar amount per day for hospital confinement regardless of actual medical expenses; goes directly to the insured.

Probationary Period

A waiting period (15-30 days) before losses due to sickness are covered; protects against adverse selection.

Elimination Period

Time after disability begins during which no benefits are paid; longer periods lower premiums.

Noncancelable Policy

Insurer cannot cancel, change, or increase rates as long as premiums are paid on time.

Guaranteed Renewable Policy

Insurer must renew the policy up to a specific age, but can raise premiums for entire risk classes.

Modified Endowment Contracts (MECs)

Life insurance policy that fails the '7-Pay Test' and loses tax advantages; loans/surrenders taxed on LIFO basis.

Group Disability Income Taxation

Taxability depends on who pays the premium: Noncontributory plans have fully taxable benefits; contributory plans vary.