State Licnese Test Flash Cards (Life insurance)

Reinstatement Clause

Contained in the policy this clause described how a policy can be restored to its original condition. It states the conditions period of time and necessaire steps to reinstate a policy.

Adhesion

Since the insurer created all the documents of the contract any ambiguities in the contract will be stetted in favor of the insured. since the insurer wrote the contract they are stuck with it.

Risk Classifications

Standard Risk: A normal or average risk; no special conditions are required in the policy. Substandard Risk: a high risk requires special conditions to be included in the policy or issued a rated policy. Preferred Risk: less risky than the normal or average risk. usably issued policies on a discounted basis.

Spendthrift Clause

State Legislation that protects the rights of policy owners and beneficiaries from creditors death benefits cannot be attached by creditors of the policy owner

Representations

Statement's made by an applicant or an insured that are true to the best of his or her knowledge and belie

Representations

Statements made by an applicant or an insured that are true to the best of his or her knowledge and belief.

Warranty

Statements made that are granted to be obsoletely true. Statements made by the insurer must be warranties

Law Of Large Numbers

States that larger numbers of similar risks grouped together become more accurately predictable

Convertible Term

Term insurance that specifically permits conversion of the policy into permanent protection without proof of insurability.

Renewable Term

Term insurance where at the end of the specified term the policy owner has the right to continue the policy for another term without proof of insurability. Premiums will be determined by the new attained age

Level Term Insurance

Term insurance where the face value of policy remains the same from the date the policy is issued until the date the policy expires

Decreasing Term

Term life insurance in which the face amount of the policy decreases over time in scheduled steps. Most often used to cover a debt obligation (mortgage).

Cash Value

That part of an insurance policy that is the equity amount legally avalible to the policy owner the cash value accumulates throughout the duration of the policy also known as living benefit or policy savings.

Conditional

Certain Conditions must be met in order for policy to pay-out

Fixed Amount Settlement Option

Upon Maturity of an insurance policy the beneficiary receives periodic payments of a set dollar amount from the policy proceeds

Fixed Period Settlement Option

Upon Maturity of an insurance policy, the beneficiary receives income from the policy proceeds for a stated period of time.

Life Annuity/ Straight Life Annuity

Upon maturity of an annuity contract the annuitant elects to receive fixed periodic payments for the rest of his/her life

Interest Settlement Option

Upon maturity of an insurance policy the beneficiary receives periodic payments of the interest earned from the company's investment of the policy proceed.

Life Income Settlement Optionq

Upon maturity of an insurance policy, the policy proceeds are used to purchaser an immediate life annuity payable in periodic payments to the beneficiary for the rest of his/her life

Third Party Ownership

When a person(S) other than the insured purchases the insurances policy.

Fair Credit Reporting Act

A federal law that protects consumers in regard to their credit history. Establishes guidelines for how companies can access consumers credit reports and what types of disclosures and notifications are required.

Insurable Interest

A financial interest in the life of another person in a position to loose something of value if the insured should die.

Agency Agreement or Agency Contract

A legal document containing the terms of the agreement between the agent and the insurance company. it clearly defines what an agent can and cannot do and how he/she will be compensated

Fixed Amount Annuity

A life annuity that guarantees a fixed dollar payment at regular intervals during the lifetime of the annuitant

Life Annuity With Period Certain

A life annuity that guarantees to provide income payments for a minimum period of time or life payments for will contained to a beneficiary should the annuitant die during the specified period.

Variable Universal Life Insurance (VUL)

A life insurance policy that combines the flexibility of universal life with the investment of the cash values in separate accounts from variable life.

Consideration

A necessary element of a contract; something of value exchange for the transfer of risk insured's consideration is payment of premiums and truthful statements on the application insurer's consideration is promise constrained in the contract

Roth IRA

A non-tax deductible individual retirement account which grows tax free after 5 years.

Free Look Provision

A policy provision required by state law that establishes a set number of days (usably 10) for the policy owner to review a newly issued policy. The policy owner may return the policy to the insurer during this time for any reason and receive a 100% refund. Also known as refund provision unconditional refund provision or right to examine

Lapsed Policy

A policy that is no longer in force due to unpaid premiums. Also known as forfeit, surrender, cancel or terminate.

Individual Retirement Account (IRA)

A qualified retirement plan for any individual with earned Income

Keogh Plan (HR10)

A qualified retirement plan for self-employed people and their eligible employees. Contributions are tax deductible and interest earned is deferred until withdrawn.

401K Plan

A qualified retirement plan in which the employee can set aside a portion of their income with pre-tax dollars

Tax Sheltered Annuity (403B)

A qualified retirement program for employees of non-profit organizations. Contributions are made through a salary reduction program.

Non-qualified Retirement Plan

A retirement plan that does not qualify for special tax treatment by the IRS

Qualified Retirement Plan

A retirement plan that meets certain federal requirements and therefore qualifies for special tax treatment plans must be 1: For the exclusive benefit or employees 2: In writing 3: Nondiscriminatory 4: Either defined benefits or defined contributions 5: Permanent

Guaranty Association

A state mandated association of all insurance companies designed to protect consumers from impaired or insolvent companies.

Incontestable Clause

A state mandated provision that limits the amount of time that an insurer can rescinds a policy or contest a claim due to misrepresentation or concealment.

Proof Of Insurability

A statement about or evidence of a person's physical and/or mental health. personal character, occupation, living habits. etc. used by the insurance company in assessing whether to accept the person's risk.

Agent's Report

A written report from the agent submitted to the insurer along with the application disclosing what the agent knows, observed, or learned about the proposed insured's risks.

Absolute Assignment Vs. Collateral Assignment

Absolute: A permanent and irrevocable transfer of rights and/or benefits by the policy owner Collateral: A temporary and/or revocable transfer of befits by the policy owner.

Participating Company

Also known as a mutual company. returns unused premiums in the form of a policy dividend to a policy owner

Face Amount

Amount payable in the event of death of the insured. Also called face value, death benefit policy proceeds coverage stated amount indemnity amount or proceeds to the beneficiary

Universal Life Insurance (UL)

An "interest sensitive" flexible premium life insurances policy a combination of ART and cash value has two death benefit options (A &B) develops cash value

Contingent Beneficiary

An alternate beneficiary designated to receive the policy proceeds in the event that the primary beneficiary dies before the insured

Joint & Survivor Annuity

An annuity that makes payments to two or more annuitants throughout their lifetimes. Payments normally reduce at the death of each annuitant and stop altogether upon the death of the last annuitant.

Accidental Death Benefit

An extra cost rider that requires the insurance company to pay an additional benefit in the event that the insured dies within 90 days of an accident as a direct result of the accident

Stock Insurer

An insurance company publicly owned and controlled by its stockholders who elect a board of directors to manage it.

Group Insurance

An insurance policy that covers multiple people (who have a common interest) a master policy is issued to the policy owner and individual insureds receive certificates of insurance.

Conditional Receipt

An interim insuring agreement under which the insurance company agrees to start coverage on the later or rother the date of application or the date of the medical exam IF the proposed insured is found to be insurable on that date.

Medical Information Bureau

An organization that stores information from the insurance companies and makes it available to other companies during the underwriting process. Its purpose is to help prevent fraud and concealment by insurance applicants.

Modified Endowment Contract (MEC)

Any cash value policy that builds cash value faster than a seven-pay whole life contract and therefore losses the tax advantages of life insurance

Agent/Producer

Anyone who sells or aids in the selling of insurance. Legally represents the company.

Rebating

Anything of value given by an agent to a client as an inducement to buy insurance

Hazard

Anything that increases the likelihood that a loss will occur (Faulty wiring)

Policy Payment Methods

Continuous premium insurance or an annuity that is paid for continuously throughout the duration of the policy requires the smallest payment amount and grows cash value the slowest Limited Pay: Insurance or an annuity that is paid for over a specified period of time after which no further premium payments are required during the duration of the policy known as life paid up or x-pay life policies. Single Premium: Insurances or an annuity that is paid for with a single lump-sum payment. No further premium payments are required during the duration of the policy. Requires the largest payment amount of any type of policy. grows cash value the fastest.

Contributory Plan V. Noncontributory Plan

Contributory: Group insurances plan under which the employees contribute to the payments of premiums. Noncontributory. A group insurances plan in which the employer pays all the premiums for the policy.

Policy Loan Provision

Describes the conditions by which a policy owner can borrow from the policy's cash value

License

Documentation issued by a state's departmentsInt of insurance to an individual verifying that he/she is qualified to engage in the insurance buisness.

Agent authorities

Expressed: Power or authority specifically granted in writing to an agent by the insurance company in their Agency Agreement. Apparent: Power or authority that the public reasonably assumes an agent has based upon his/her actions. Implied: Power or authority that is not expressly granted by the company but that an agent can assume or that are implied he/she has in order to transact insurance business.

Facultative Reinsurance Vs. Treaty Reinsurance

Facultative: Transferring risk from one insurance company to another on a policy-by-policy basis. Treaty: Transferring risk from one insurance company to another under a blanket agreement.

General Account Vs. Separate Account

General Account: Contains the regulated or Guranteed funds of an insurance company Separate account: contains the investment's of an insurance company. These investments have no Guranteed rate of return and are regulated by the SEC and NASD

Immediate Annity Vs. Deferred Annuity

Immediate: A life annuity contract where the first pay-out is made within 12 months after it is purchased. Can only be purchased with a single premium/lump sum-payment Deferred: A life annuity contract where the first pay out is made 12 months after it is purchased. can be purchased with either a single premium or with continuous premium payments.

Financial Needs Approach

In determine how much life insurance is needed the needs of the surviving family are the focus. Using needs analysis worksheets an amount is determined to meet the needs of the serving family regardless of the earnings of the insured.

Human Life value Approach

In determining how much life insurance is needed the worker's annual earnings are multiplied by the numbers of years remaining until he/she retires. From the resulting figure taxes and expenses and subtracted.

Uniform Simultaneous Death Act

It directs that in life insurance if the insured and the primary beneficiary die at the same time the policy benefits are payable as if the insured outlived the beneficiary.

Twisting

Knowingly misleading statements or making fraudulent comparisons in order to induce a client to drop a policy with an existing insurer and start a new one with a different company.

Estoppel

Legally preventing someone from asserting or reasserting a known right that they have previously waived.

Extended Term Insurance

Nonforfeiture option where cash value is used to make a single premium payment on a term insurance policy of the same face amount as the originals policy. Original policy can be reinstated not alible on rated policies.

Reduced Paid-up insurance

Nonforfeiture option where cash value is used to make a single premium payment to purchase as much of the same type of insurances as passible. face amount of the new policy would be less than the originals policy but no further premium payments would be necessary. Policy can be reinstated.

Unilateral

One-sided promise only one party makes a legally enforceable promise the insurance company's promises the insurances company promises to pay the policy proceeds at some future date or event.

Payor Rider

Optional Rider that costs extra and will pay the premiums of a juveniles policy. If the owner dies or becomes disabled.

Riders

Optional coverages that can be aided to policies that provide additonal benefits or protections vary from policy to policy and company to companies. Also known as addendums, additions, amendments, or additional policy benefits

Guranteed Insurability Rider

Optional rider that enables the policy owner to purchase additional amounts of coverage at pre determined times without proof of insurability.

Waiver Of Premium Rider

Optional rider that requires insurer to assume payment of premiums should the insured become totally disabled for six months for the duration of the disability

Accelerated Death Benefit

Policy provision that allows full or partial payment of the policy's death benefit before the insured's death if he/she is terminally ill

Graded Premium Policy

Premiums for the policy increase regularly for 5 to 20 years and then level off. Death benefit remains level.

Commissioner

Public Officials in charge of the states deportment of insurance. charge with regulating the insurance industry's in his/her state by enforcing the insurance laws.

Revocable beneficiary Vs. Irrevocalbe beneficiary

Revocable: A beneficiary named by the policy owner that can be changed by the policy owner at his/her discretion irrevocable: A beneficiary named by the policy owner that can not be changed by the policy owner at his/her discretion changing this beneficiary requires the permission of the beneficiary.

Law Of Agency

The actions if an agent/producer within the scope of the authority granted to him/her by the insurer become the actions of the company

Equity Indexed Annuity

The annuity that has a Guranteed minimum interest rate and allows the annuitant to invest money in an index (I.e. S&P 500) the investments grow as the index grows

Peril

The cause of a loss (fire)

Accumulated at interest

The dividend option where the policy owner leaves the dividends with the insurer to invest and earn interest.

Replacment

The exchange of one policy for another. Replacement regulations must be followed

Replacment

The exchange of one policy for another. Replacement regulations must be followed.

Settlement Options

The five ways that proceeds of a policy can be paid upon maturity 1: Cash 2: interest only 3: Fixed Period 4: Fixed Amount 5: Life income

Insuring Clause

The heart of an insurance policy. It contains the company's promises to the policy owner and descries the coverage provided and the policy limits.

Insurer/Principal

The insurance company; Underwrites the policy and assumes the risk.

Policy Owner

The person in an insurance contract that has all the rights contained in the policy designated on the application and may or may not be the insured.

Speculative Risk

The possibility of experiencing either a loss or a gain. Gambling is an example of speculative risk.

Underwriting

The process by which an insurer evaluates classifies and ultimately either accepts or rejects risks.

Variable Annuity

The product is invested in a separate account and has no guaranteed rate of growth. The annuity promises to pay a fixed number of annuity units to the annuitant for the rest of his/her life. The value of the annuity units varies depending on the performance of the investments of the separate account.

Reinsurance

The sharing of risk between insurance companies. One insurance company sells part of its risk to another insurance company.

Adverse Selection

The tendency for less favorable risks to seek or contained insurance to a greater extent than more favorable risks.

Nonforfeiture Options

Three options Avalible by law to policy owners that enable them to recover a policy's cash value upon surrender of that policy 1: Cash 2: Reduced paid-up 3: Extended term insurance

Indemnify

To make financially whole again; restore top the condition enjoyed before a loss was suffered to replace what was lost. Insurance is not designed for parties to profit from a loss.

Whole Life Insurance

Type of insurance where level coverage lasts until death or age 100 and then the policy matures and pays out wuther the face amount or the cash value (aka: straight life, ordinary life, fixed, rigid or permanent)

Aleatory

Unequal exchange of value. One party may obtain a far greater value than the other under the contract.

Variable Life Insurance (VL)

Whole life insurances with fixed premiums. Cash value is invested in "separate accounts" A minimum death benefit is guarantee but could increase if the investments do well.

Dividends

distributions of money, stock, or other property that a corporation pays to stockholders