Life Class Review Study Guide: Chapters 1-5

Comprehensive vocabulary flashcards covering life insurance applications, policy types, provisions, riders, retirement concepts, and Mississippi state laws.

Insurable Interest

The condition where a policy owner faces the possibility of losing money or something of value in the event of a loss; it must exist at the time of application for a life insurance policy.

Rejection of Policy

An action an insurance company may take against a prospective insured’s life application on the basis of medical history.

Contract of Adhesion

A contract offered on a "take-it-or leave-it" basis by an insurer where the insured's only option is to accept or reject it; ambiguities are settled in favor of the insured.

Policy Summary

A document highlighting the coverages, riders, and exclusions of the issued policy, except for amounts of coverage selected by individual insureds.

Risk Classification

The underwriting process of evaluating past medical history, physical condition, habits, and morals; a higher risk results in a higher premium amount.

Premium Receipt

A receipt given by a producer when collecting a premium, showing that coverage is in force immediately or based on certain conditions.

Conditional Receipt

A receipt used for prepaid applications where coverage is contingent upon the insurer finding the applicant insurable as a standard risk; coverage begins on the date of application or medical exam, whichever is last.

Delivery Receipt

A document signed by the policyholder acknowledging understanding of policy terms and acting as evidence of delivery; it starts the "Free Look" period.

Conditional Contract

A contract requiring certain conditions to be met by the policyowner and the company before obligations are fulfilled, such as paying premiums and providing proof of loss.

Aleatory Contract

A contract involving an exchange of unequal values (e.g., paying $1,200$ in premiums for a $250,000$ policy) where performance is contingent upon a specific event.

Misstatement of Age

If discovered during a claim, the company may adjust the death benefit to what it would have been for the insured’s true age.

USA PATRIOT Act

A federal regulation requiring insurance companies offering permanent life insurance to maintain anti-money laundering programs to detect criminal and terrorist activities.

Fair Credit Reporting Act (FCRA)

Requires companies to advise applicants they intend to secure a report on income and reputation and protects consumer confidentiality.

Representations

Statements believed to be true, specifically referring to the statements made by the insured on an application.

Suspicious Activity Report

Both the producer and the firm are required to report suspicious activity to FINRA.

Premium Payment Mode

A feature defining the frequency of payments; the lowest premium outlay is annually, and the mode can be changed without the irrevocable beneficiary's consent.

Adjustable-Life Insurance

A flexible, permanent policy allowing policyholders to customize premiums, death benefits, and coverage periods.

Whole Life Insurance

A policy that accumulates the greatest amount of cash value per $1,000$ of face amount and provides permanent protection at the lowest annual premium.

Convertible Term Policy

A term policy that offers the advantage of changing to a whole life policy without providing evidence of insurability.

Limited-Pay Life Policy

A policy where premiums are paid for a predetermined shorter period (e.g., $20$-Pay Life or Life Paid-Up at Age $65$), after which no further premiums are due.

Universal Life

A policy with flexible premium payments and schedules different from other whole life products, suitable for those wanting to keep up with interest rate changes.

Variable Life Policy

A policy that allows the policyowner to select where cash values are invested.

Joint and Survivor Life Policy

A single policy covering two people that pays a death benefit upon either the first or second death; often used by spouses or business owners.

Renewability Feature

Guarantees the policyholder can continue coverage at the end of a term without evidence of insurability, though the new premium will increase based on attained age.

Entire Contract Provision

States that the policy, a copy of the application, and any riders or amendments constitute the entire agreement.

Level Premium Term

A type of term insurance where the "level" refers to the death benefit, which does not change.

Buy and Sell Agreement

A legal contract (business continuation agreement) determining business handling if an owner dies or is disabled; often funded by partners purchasing policies on each other.

Single Premium Immediate Annuity (SPIA)

An annuity purchased with a lump sum that provides a stream of guaranteed income typically beginning within one year of purchase.

Straight Life Annuities

A type of annuity that generally provide the highest monthly payout for retirement income.

Reinstatement

A provision allowing a policy that lapsed (e.g., one year ago) to be placed back in force.

Automatic Premium Loan Provision

A provision that can be incorporated into all policies except for Term insurance.

Guaranteed Insurability Rider

Allows an insured to increase coverage at specific times (like the birth of a child) without proof of insurability.

Insuring Clause

The portion of the life insurance policy where the insurer promises to pay certain benefits.

Consideration Clause

The binding force consisting of the insurer’s promise to pay and the insured’s payment of premium and statements on the application.

Contestability Period

A $2$-year period after which the insurer must pay the face amount even if the insured failed to disclose a condition that resulted in death.

Free Look Provision

Allows a policyowner to return a newly issued policy within a specified period for a full refund.

Aviation Exclusion

A clause denying death benefits if the policyholder dies operating or riding in a non-commercial aircraft like a private plane or helicopter.

Suicide Clause

A provision designed to protect against adverse selection; if the insured commits suicide during the first policy year, the insurer only returns premiums.

Irrevocable Beneficiary

A beneficiary designation that limits the policyowner's right to change the beneficiary without that person's consent.

Common Disaster

A situation where both the insured and beneficiary die (e.g., $10$ days apart following an accident); proceeds are paid to the insured's estate.

Waiver of Premium Provision

Guarantees the insurance company will pay premiums during a period of disability following a waiting period.

Accelerated Death Benefit Provision

Provides for advanced payment of life insurance benefits if the insured is diagnosed with a terminal illness.

Long Term Care Rider

A rider triggered by the inability to perform activities of daily living; it costs less than stand-alone policies but excludes injuries from armed forces service.

Modified Endowment Contract (MEC)

An overfunded policy according to IRS tables where too much premium is paid in the initial year, resulting in specific tax implications.

Contributory Plans

A group life insurance plan where employees share the cost; typically at least $75\%$ of eligible employees must contribute.

Group Term Conversion Period

A period following departure from a group where an individual can continue insurance as a whole life policy without evidence of insurability.

Primary Insurance Amount (PIA)

The value that determines the amount of a worker's disability income under Social Security.

Domestic Company

An insurance company incorporated and organized under the laws of the state in which it is operating.

Foreign Insurance Company

A company formed under the laws of a state other than the one in which it operates.

Commissioner of Insurance

The official responsible for administering insurance laws, approving producer licenses, and issuing cease and desist orders.

Life and Health Insurance Guaranty Association

An organization established to protect the public and reduce financial losses resulting from insurance company insolvency.

Certificate of Authority

An authorization issued by the state that is required for an insurer to transact business in Mississippi.

Controlled Business

When a producer earns more than $35\%$ of their commissions from selling insurance to family members.

Ethics Requirement

The mandatory requirement for a producer to complete $3$ hours of ethics training.