5-7 twems review
Underwriting & Risk Terms
Underwriting
The process of evaluating an applicant’s risk to determine whether coverage should be issued and at what premium.
Field Underwriting
Risk information gathered by the agent during the application process.
Inspection Report
A report evaluating an applicant’s character, lifestyle, and financial condition.
Medical Information Bureau (MIB)
An organization that provides insurers with information about applicants’ medical histories.
Risk Classification
The process of placing applicants into risk categories.
Preferred Risk
An applicant with lower-than-average risk who receives lower premiums.
Standard Risk
An applicant with average risk who pays standard premiums.
Substandard Risk
An applicant with higher-than-average risk who pays higher premiums.
Declined Risk
An applicant considered too risky to insure.
Agent Responsibilities
Fiduciary Responsibility
The duty to act in the best interests of the client.
Material Misrepresentation
A false statement that would affect an insurer’s decision to issue coverage.
Constructive Delivery
Legal delivery of a policy when it is given to the agent for delivery to the insured.
Agent’s Report
Information provided by the agent regarding the applicant and observations made during the application process.
Application & Policy Terms
Application
The primary source of underwriting information completed by the applicant and agent.
Proposed Insured
The person whose life or health is being insured.
Statement of Continued Good Health
A statement signed by the applicant confirming no significant health changes occurred after application and before policy delivery.
Backdating
Assigning an earlier effective date to a policy, usually to obtain a lower age classification.
Receipts
Conditional Receipt
Coverage becomes effective only if underwriting requirements are satisfied.
Binding Receipt
Provides temporary insurance coverage immediately while underwriting is completed. Most common in Property & Casualty insurance.
Beneficiary & Death Benefit Terms
Beneficiary
The person designated to receive policy proceeds upon the insured’s death.
Primary Beneficiary
The first person entitled to receive policy proceeds.
Contingent Beneficiary
Receives policy proceeds if the primary beneficiary dies before the insured.
Uniform Simultaneous Death Act
Assumes the beneficiary died first when it cannot be determined who died first.
Facility of Payment Clause
Allows the insurer to pay benefits to a person who incurred the insured’s final expenses.
Settlement Options
Fixed Amount Option
The beneficiary chooses the amount of each payment.
Fixed Period Option
The beneficiary chooses how long payments will be made.
Life Income Option
Provides payments for the beneficiary’s lifetime.
Straight Life Income
Provides income for life and stops at the beneficiary’s death.
Period Certain
Guarantees payments for a specified period even if the beneficiary dies.
Joint and Survivor
Provides income until both beneficiaries have died.
Refund Life
Returns any remaining principal if the beneficiary dies before receiving the full value.
Taxation Terms
Tax-Deferred Growth
Earnings grow without current taxation until withdrawn.
Cash Value
The savings component of permanent life insurance.
1035 Exchange
Allows replacement of one life insurance policy with another without immediate tax consequences.
Net Premium
Mortality cost minus anticipated interest earnings.
Gross Premium
Net premium plus expenses and insurer profit.
Consumer Protection Laws
HIPAA
Health Insurance Portability and Accountability Act; protects medical privacy.
Free-Look Period
A period allowing the policyowner to review and return a policy for a full refund.
Mail-Order Free-Look
Usually 30 days.
Tax Questions That Show Up Constantly
Are life insurance premiums tax-deductible?
❌ No
Is cash value growth tax-deferred?
✅ Yes
Is the death benefit generally income tax-free?
✅ Yes
Can a 1035 exchange avoid immediate taxation?
✅ Yes
Exam Speed Sheet
Client First = Fiduciary Responsibility
Character + Lifestyle + Finances = Inspection Report
Too Risky = Declined Risk
Higher Risk + Higher Premium = Substandard Risk
Medical Privacy = HIPAA
Delivered to Agent = Constructive Delivery
Move Policy Date Back = Backdating
Swap Policies Tax-Free = 1035 Exchange
Beneficiary Dies First = Uniform Simultaneous Death Act
Pays Funeral Expenses = Facility of Payment Clause
Choose Payment Amount = Fixed Amount
Choose Payment Length = Fixed Period
Coverage Starts Immediately = Binding Receipt
These are exactly the kinds of definitions I would turn into