Insurance Agent Pre-Contract Examination (PCEIA) Vocabulary Flashcards

Vocabulary flashcards covering key insurance concepts, principles, legal frameworks, and product definitions from the PCEIA examination sample questions.

Pure Risk

A category of risk where there are only two possible outcomes: a loss or no loss, with no possibility of earning a profit.

Speculative Risk

A category of risk that involves the possibility of profit, loss, or no loss (such as stock market investments or commercial ventures), which is generally uninsurable.

Insurable Risk

A risk possessing specific characteristics suitable for insurance coverage, including being fortuitous/accidental, a pure risk, non-violative of public policy, and part of a homogeneous group of risks.

Peril

The primary or direct cause of a loss, such as a fire, collision, or flood.

Hazard

A condition or factor that creates or increases the probability or severity of a loss resulting from a peril.

Physical Hazard

A hazard stemming from the physical or tangible characteristics of a risk, such as defective electrical wiring, open burning, smoking, or obesity.

Moral Hazard

A hazard arising from dishonesty, personal character defects, or lack of integrity in an individual that increases the likelihood or severity of a loss.

Proximate Cause

The direct, primary, or dominant cause that initiates an unbroken chain of events leading directly to an insured loss.

Principle of Indemnity

An insurance principle establishing that the compensation provided following a loss restores the insured to the financial position enjoyed immediately before the loss, limited strictly to the actual loss amount.

Subrogation

An insurer's legal right, after paying a claim, to step into the shoes of the insured and pursue legal remedies or recovery against a negligent third party responsible for the loss.

Contribution

An insurance principle granting an insurer who has paid a loss the right to demand that other co-insurers covering the same risk, subject matter, and interest pay their proportionate share.

Insurable Interest

A legal relationship where a policyholder benefits financially from the safety or preservation of the life or property insured, and suffers a financial loss upon its damage, destruction, or death.

Utmost Good Faith

A fundamental legal doctrine (uberrimae fidei) in insurance requiring both the proposer and the insurer to act with total honesty and fully disclose all material facts during contract negotiation.

Material Fact

Any fact or information that would influence a prudent underwriter's decision to accept or reject an insurance risk, or to determine premium rates and contract terms.

Void Contract

An agreement that lacks legal binding force from its inception (ab initio) and creates no legal rights or obligations for either party.

Voidable Contract

A contract that is legally valid and binding unless and until an aggrieved party exercises their legal right to set it aside (e.g., due to misrepresentation or non-disclosure).

Unenforceable Contract

A contract that is valid in law but cannot be enforced in a court of law due to a technical defect or legal bar.

Consideration

The price or value exchanged between contracting parties, consisting of the policyholder's premium payment or promise to pay in exchange for the insurer's promise to indemnify or pay benefits.

Free Look Period

A statutory 15-day period from the date of policy delivery allowing the policyholder to review policy terms and return it for a full refund minus medical examination expenses if dissatisfied.

Financial Services Act 2013

The Malaysian statutory act that replaced the Insurance Act 1996 to regulate insurance businesses, financial advisers, brokers, and licensing requirements.

Personal Data Protection Act 2010

Malaysian legislation regulating the processing, collection, and storage of personal data and sensitive personal data in commercial transactions.

Risk-Based Capital Framework (RBC)

A regulatory capital framework designed to assess and determine an insurance company's capital adequacy ratio to protect policyholders against insurer insolvency.

Financial Ombudsman Scheme (FMB)

An independent dispute resolution organization formed to mediate and resolve complaints and disputes between individual consumers and financial service providers.

Perbadanan Insurans Deposit Malaysia (PIDM)

The statutory authority that manages and administers the Takaful and Insurance Benefits Protection System (TIPS) to protect policyholders in the event of insurer failure.

Takaful and Insurance Benefits Protection System (TIPS)

A financial protection scheme administered by PIDM that safeguards policyholders and takaful participants if an insurer or takaful operator becomes insolvent.

Customer Due Diligence (CDD)

Verification procedures required under Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) guidelines to identify clients and beneficial owners.

Term Life Insurance

A life insurance policy providing death benefit coverage for a specified temporary term only, featuring lower premiums and no cash or surrender value at maturity.

Whole Life Insurance

A permanent life insurance contract providing lifetime coverage up to age 85 or death, featuring level premium payments and accumulated cash surrender values.

Endowment Insurance

A life insurance policy that pays the sum assured either upon the death of the life insured during the term or upon the life insured surviving to the end of the maturity period.

Decreasing Term Insurance

A term insurance policy where the sum assured gradually decreases over time until reaching zero at policy expiration, commonly used for mortgage protection.

Annuity

A financial contract in which an insurer makes regular periodic benefit payouts to an annuitant over a specified timeframe or for life in return for a purchase price.

Immediate Annuity

An annuity purchased with a single lump-sum premium where income payouts begin immediately or within one payment interval after purchase.

Deferred Annuity

An annuity policy where benefit payments begin at a specified future date or age chosen by the annuitant.

Level Premium System

A pricing system where a constant, uniform premium is charged throughout the life policy duration despite the annual increase in mortality risk with age.

Mortality Rate

The statistical frequency or probability of death occurring at a given age within a specified population, used by actuaries to calculate life premiums.

Morbidity Rate

The statistical incidence or frequency of disease, illness, or sickness occurring within a population, used to calculate health insurance rates.

Net Premium

The pure insurance premium calculated strictly from mortality risk and interest rate factors, excluding any loadings for management or operational expenses.

Gross Premium

The total premium charged to the policyholder, consisting of the net premium plus loadings for administration costs, contingency buffers, and profit.

Initial Expenses

Expenses incurred at policy inception, including first-year agent commissions, medical examination fees, advertising costs, and policy issuance expenses.

Termination Expenses

Costs incurred when a policy ends, such as cooling-off refunds, cash surrender value disbursements, and claim settlement administration costs.

Adverse Selection

The tendency of individuals who face higher risks of loss or illness to seek or maintain insurance coverage at standard rates, leading to poorer underwriting results.

Substandard Risk

An applicant or risk that carries higher-than-average physical, health, or occupational hazards, accepted by underwriters only with extra premium loadings, reduced benefits, or special exclusions.

Reversionary Bonus

A bonus declared as a percentage of the sum assured that is added annually to a participating policy and paid out at policy maturity or death.

Terminal Bonus

An additional single bonus payout awarded only upon the full maturity of a participating life policy or upon death.

Interim Bonus

A bonus paid when a claim occurs during the period between two official valuation dates before the next formal bonus distribution.

Policy Assignment

The legal mechanism of transferring ownership rights, title, and benefits of a life insurance policy from the policyholder to another party.

Surrender Value

The cash amount accumulated in a permanent life policy (typically after 3 consecutive years of premium payments) payable to the policyholder upon voluntary early termination.

Paid-Up Policy

A non-forfeiture option allowing a policyholder to discontinue future premiums and use the accrued surrender value as a single premium to obtain a reduced sum assured of the same insurance type.

Automatic Premium Loan

A policy provision where overdue premiums are automatically paid by drawing a loan against the policy's accumulated cash value to prevent contract lapse.

Grace Period

A specified period following the premium due date during which the policyholder can pay overdue premiums without penalty or loss of coverage.

Statutory Presumption of Death

A legal finding issued by a court confirming the death of a missing person after an uncontacted absence of 7 continuous years.

Hospital Income Insurance

A health insurance policy that pays a pre-agreed fixed daily cash benefit for each day the insured is hospitalized due to illness or injury.

Disability Income Insurance

An insurance contract providing periodic payouts to replace a portion of pre-disability income when an insured is disabled from working due to illness or injury.

Critical Illness Insurance

A policy providing a lump-sum monetary payout upon the confirmed medical diagnosis of any specified critical illness condition (e.g., 36 recognized dread diseases).

Deductible

A specified fixed out-of-pocket sum that the insured must pay towards medical charges before insurance benefit reimbursements begin.

Co-insurance

A cost-sharing provision in health insurance policies where the insured pays a specified percentage (e.g., 20%) of eligible medical bills and the insurer pays the remaining percentage (e.g., 80%).

Managed Care Organization (MCO)

An organization that manages hospital admissions and discharges, claim processing, and healthcare delivery adherence to clinical standards.

Tabarru'

The Takaful donation concept where participants relinquish a portion of their contributions to a fund to fulfill mutual assistance and compensate fellow members in need.

Mudharabah

A commercial profit-sharing agreement in Takaful governing the distribution of commercial/investment profits between participants and the Takaful operator.

Actual Authority

The legal power explicitly (expressly) or implicitly granted by a principal to an agent to act on the principal's behalf.

Apparent Authority

Authority that a third party reasonably assumes an agent possesses based on the principal's conduct, representation, or past actions, even if not explicitly granted.

Caveat Emptor

A common law rule in general commercial contracts meaning 'let the buyer beware', which contrasts with the utmost good faith doctrine applied in insurance.