PSI Life Insurance Cheat Sheet Vocabulary

A comprehensive set of vocabulary flashcards covering life insurance terminology, policy types, riders, and legal concepts based on the PSI cheat sheet.

Insurable Interest

A legal purpose required to exist at the time of policy issue for life insurance.

Insured's Consideration

The sum of $Premiums + Truthful Application$.

Insurer's Consideration

The insurer's Promise to Pay the Death Benefit.

Contract of Adhesion

A legal principle stating that if policy wording is unclear, the interpretation favors the insured.

Express Authority

Written authority explicitly given to an agent by the insurer.

Implied Authority

Authority that is not written but is necessary for an agent to perform assigned duties.

Apparent Authority

Authority that the public believes an agent possesses based on the actions or signals of the insurer.

Term Life

Temporary coverage with no cash value and the lowest initial premium.

Whole Life

Permanent coverage with level premiums that builds cash value and matures at age $100$.

Universal Life

A type of insurance characterized by flexible premiums, a flexible death benefit, and cash value.

Universal Life Option A

A universal life policy configuration featuring a Level Death Benefit.

Universal Life Option B

A universal life policy configuration featuring an Increasing Death Benefit ($Face Amount + Cash Value$).

Variable Life

Insurance involving Separate Account investments where the policyowner assumes the investment risk.

Variable Universal Life

A policy that combines flexible premiums with Separate Account investments.

Indexed Life

A policy where interest is based on a stock index without the funds being directly invested in stocks.

MEC (Modified Endowment Contract)

A policy that fails the $7$-Pay Test, is subject to $LIFO$ taxation, and may incur a $10\%$ penalty for distributions before age $59\frac{1}{2}$.

Participating Policy

A policy issued by a Mutual Company that may pay dividends, though dividends are NOT guaranteed.

Nonparticipating Policy

A policy issued by a Stock Company that does not pay policy dividends.

Child Term Rider

A rider providing temporary coverage specifically for children.

Payor Benefit Rider

A rider that waives premiums if the payor dies or becomes disabled.

Waiver of Premium Rider

A rider that waives premiums if the insured becomes totally disabled.

Guaranteed Insurability Rider

An option to purchase more insurance at specified times without providing evidence of insurability.

Cost of Living Rider

A rider that increases the death benefit to keep pace with inflation.

Accidental Death Rider

A rider providing an extra benefit if the insured dies due to an accident.

Accelerated Death Benefit

A provision that pays a portion of the death benefit early if the insured is diagnosed with a terminal illness.

Collateral Assignment

A temporary transfer of policy rights used as collateral for a loan.

Absolute Assignment

A permanent transfer of all policy ownership rights.

Death Benefit Paid (Calculation)

The resulting amount calculated as $Face Amount - Outstanding Loan Balance$.

Dividend Options

Choices for policy dividends: Cash, Premium Reduction, Paid-Up Additions, Accumulation at Interest, and One-Year Term.

Nonforfeiture Options

Options available when a policy is surrendered or premiums stop: Cash Surrender, Reduced Paid-Up, and Extended Term.

Extended Term

The automatic nonforfeiture option that uses cash value to purchase term insurance with the same face amount.

Reinstatement

The process of restoring a lapsed policy within $3$ years by paying back premiums plus interest and providing evidence of insurability.

Settlement Options

Methods for paying out death proceeds: Lump Sum, Interest Only, Fixed Amount, Fixed Period, and Life Income.

Stock Company

A company owned by stockholders that issues nonparticipating policies and pays taxable dividends to stockholders.

Mutual Company

A company owned by policyowners that issues participating policies and pays non-guaranteed policy dividends that are generally not taxable.

Law of Large Numbers

A principle stating that predictions become more accurate as the number of exposure units increases.

STARR

The acronym for risk management methods: Sharing, Transfer, Avoidance, Reduction, and Retention.

CLOC

The acronym for the four essential elements of a legal contract: Competent Parties, Legal Purpose, Offer & Acceptance, and Consideration.

Insuring Clause

The section of the policy containing the insurer's formal Promise to Pay.

Entire Contract Clause

The clause stating the policy and the application (Representations) make up the total agreement.