Comprehensive Life and Health Insurance Vocabulary

Vocabulary flashcards covering core insurance principles, legal concepts, policy types, underwriting, annuities, retirement plans, and state regulations based on the lecture notes.

Insurance

A legal contract that transfers risk from the policyholder to the insurer.

Premium Pooling

The practice of spreading risk across many policyholders.

Indemnification

Restoring an insured to their pre-loss financial position.

Insured

The person receiving insurance protection.

Insurer

The company providing coverage and assuming risk.

Premium

Payment made for insurance coverage.

Policy Owner

The person who transfers risk to the insurer.

Stock Insurance Companies

Insurers owned by shareholders that issue nonparticipating policies and distribute profits to stockholders.

Mutual Insurance Companies

Insurers owned by policyholders that issue participating policies and distribute dividends to policyholders.

Fraternal Benefit Societies

Non-profit organizations with a lodge system and ritualistic work that exist for reasons beyond insurance.

Reciprocal Insurers

Unincorporated groups of members who mutually insure each other.

Risk Retention Groups (RRGs)

Entities created under federal law to write liability insurance for their members.

Captive Insurers

Insurers owned by a parent company to insure the parent company's risks.

Career Agency System

A distribution system where agents work exclusively for one insurance company.

Independent Agency System

A distribution system where independent agents represent multiple insurance companies.

Personal Producing General Agency (PPGA)

A distribution system focused primarily on individual sales production.

Direct Selling

A distribution system where the insurance company deals directly with consumers.

Captive Agents

Agents who work exclusively for one insurance company.

Independent Agents

Agents who represent multiple insurance companies.

Brokers

Licensed producers who represent the insured client during an insurance transaction and cannot bind coverage.

Solicitors

Individuals not licensed to sell insurance who can only refer prospective applicants.

Paul v. Virginia (1868)

Key legal ruling that established state regulation of the insurance industry.

McCarran-Ferguson Act (1945)

Federal legislation that returned insurance regulation powers to the states.

Gramm-Leach-Bliley Act (1999)

Federal legislation establishing financial and insurance privacy requirements.

Fair Credit Reporting Act (1970)

Federal law establishing consumer protection and disclosure requirements regarding consumer credit reports.

NAIC

National Association of Insurance Commissioners; an organization that creates model laws and regulations to protect consumer interests and preserve state regulation.

Adverse Selection

The tendency of higher-risk individuals to seek insurance coverage more frequently than lower-risk individuals.

Hazard

A condition that increases the likelihood of a loss occurring.

Law of Large Numbers

The principle that the larger the number of similar risks insured, the more accurately future losses can be predicted.

Loss

An unintentional decrease in value due to a covered peril.

Peril

The specific event or cause that results in a loss.

Pure Risk

A risk that involves only the possibility of loss, with no chance of gain; the only type of risk that is insurable.

Speculative Risk

A risk that involves the possibility of both loss and gain; not insurable.

Physical Hazard

A tangible or observable condition that increases the likelihood of a loss.

Moral Hazard

A hazard involving dishonesty or intentional acts that increase the likelihood of a loss.

Morale Hazard

A hazard stemming from a careless attitude or indifference due to having insurance coverage.

Direct Loss

Immediate physical damage resulting directly from a peril.

Indirect Loss

Consequential loss resulting secondary to a direct peril damage.

Risk Transfer

Moving financial risk from one party to another, such as purchasing insurance.

Agent

A person authorized to represent the insurer during an insurance transaction who holds fiduciary responsibilities.

Contract of Adhesion

An insurance contract prepared solely by the insurer with no negotiation; accepted by the applicant on a 'take it or leave it' basis.

Consideration

The binding items of value provided by each party in a contract (applicant provides premium and material information; insurer promises to pay covered claims).

Insurable Interest

The financial or economic interest required in the subject of insurance to purchase legally enforceable coverage.

Material Misrepresentation

A false statement made by an applicant that influences the insurer's decision to accept, classify, or price a risk.

Utmost Good Faith

The legal principle requiring policy owners and insurers to disclose all material facts with no attempt to conceal or deceive.

Void Contract

A contract that has never been legally in force because it lacks an essential contract element.

Voidable Contract

A contract that may be set aside or terminated by one of the parties for a legally satisfactory reason.

Waiver

The voluntary giving up of a known legal right.

Estoppel

A legal principle that prevents a party from asserting a right due to reliance on their previous statements or actions.

Express Authority

Authority specifically written and defined in the agent's contract.

Implied Authority

Authority not explicitly stated in writing but necessary to perform regular job duties.

Apparent Authority

Authority created by the insurer's actions that leads the public to reasonably believe the agent possesses that authority.

Subrogation

The insurer's right to recover claim payments from the third party responsible for the loss.

Accidental Death Benefit (ADB)

A policy rider that provides an additional benefit payment if death occurs as a result of a covered accident.

Adjustable Life Insurance

A permanent life policy offering flexible premium payment amounts and an adjustable death benefit with guaranteed cash value growth.

Attained Age

The current age that an insured has reached as of a given date.

Cash Surrender Value

The cash amount available upon voluntary surrender of a policy prior to maturity.

Convertible Term Life Insurance

Temporary life insurance that allows conversion to a permanent policy without proof of insurability.

Decreasing Term Insurance

Temporary protection characterized by a face amount that reduces steadily each year.

Endowment Contract

A contract that pays a face amount after a fixed period or upon the insured's premature death.

Extended Term Insurance

The default nonforfeiture option that uses accumulated cash value to purchase term insurance equal to the original face amount for a specified duration.

Family Income Policy

A policy combining whole life insurance with a decreasing term rider to provide a death benefit and monthly income.

Joint Life Insurance

A policy covering two or more individuals that pays a death benefit and terminates upon the first death.

Universal Life Insurance

A flexible permanent policy featuring adjustable premiums, adjustable death benefits, and tax-deferred cash value growth.

Variable Life Insurance

An SEC-regulated policy featuring guaranteed minimum death benefits with variable investment performance in separate accounts.

Second-to-Die (Survivor) Policy

A policy covering two or more people that pays a benefit only upon the death of the last covered person.

Modified Endowment Contract (MEC)

An overfunded life insurance policy failing the seven-pay test, resulting in altered tax treatment for distributions.

Incontestable Clause

A provision stating that after two years, the insurer cannot contest policy validity except for specific exceptions.

Spendthrift Clause

A provision that prevents creditors from claiming policy proceeds held by the insurer for a beneficiary.

Mortality Table

A statistical table showing the probability of death at each age.

Viatical Settlement

The sale of an existing life policy by a terminally or chronically ill individual (viator) to a third party.

Life Settlement

The sale of an existing life policy to a third party for more than the surrender value but less than the death benefit without requiring terminal illness.

Field Underwriter

An agent or producer who initiates the underwriting process by completing applications and collecting preliminary information.

Attending Physician Statement (APS)

A detailed medical report requested by underwriters from an applicant's doctor.

Conditional Receipt

A receipt providing coverage effective as of the application or medical exam date, subject to proving insurability.

Medical Information Bureau (MIB)

A central database sharing medical information among member companies to detect undisclosed health conditions.

Master Policy

The primary contract issued to an employer under a group insurance plan.

Certificate of Insurance

A document issued to employees outlining their coverage under a master group policy.

Contributory Plan

A group plan where employees contribute to premium costs, requiring at least 75% participation.

Noncontributory Plan

A group plan fully paid by the employer, requiring 100% employee participation.

Conversion Privilege

The right to convert group term coverage to an individual permanent policy within 31 days without evidence of insurability.

Accumulation Period

The pay-in phase of an annuity during which premiums accumulate interest tax-deferred.

Deferred Annuity

An annuity that postpones benefit payout for more than 12 months after purchase.

Immediate Annuity

A single-premium annuity that begins paying income within 30 days to 12 months.

Fixed Annuity

An annuity providing a guaranteed rate of return with investment risk assumed by the insurer.

Variable Annuity

An annuity where investment risk is shifted to the contract owner, with values fluctuating based on underlying securities.

Equity-Indexed Annuity (EIA)

A fixed deferred annuity offering minimum guaranteed returns plus potential gains linked to an equity index.

Human Life Value Approach

A method calculating insurance needs based on the capitalized present value of an individual's future net earnings.

Needs Approach

A method determining insurance needs by analyzing specific family or business financial objectives.

Cross-Purchase Plan

A buy-sell agreement where surviving owners individually purchase policies on each other.

Entity Plan

A buy-sell agreement where the business entity purchases policies on each owner to buy out a deceased owner's interest.

Key Person Insurance

Coverage protecting a business against financial loss caused by the death or disability of a critical employee.

Defined Benefit Plan

A qualified pension plan determining a specific future benefit based on salary history and service years.

Defined Contribution Plan

A retirement plan where annual contributions are fixed by formula, with final benefits depending on investment performance.

ERISA

Employee Retirement Income Security Act of 1974; federal law setting minimum standards for private industry pension and health plans.

Traditional IRA

A qualified individual account offering tax-deferred growth with potentially tax-deductible contributions.

Roth IRA

An individual account funded with after-tax contributions offering tax-free qualified withdrawals.

Average Indexed Monthly Earnings (AIME)

A calculation of a worker's highest indexed 35 years of earnings used to establish Social Security benefits.

Primary Insurance Amount (PIA)

The full Social Security monthly benefit amount a person receives at Full Retirement Age.

Social Security Blackout Period

The period between when the youngest child turns 16 and the surviving spouse reaches age 60, during which no survivor benefits are paid.