Life and Health Insurance Exam

Dependent riders

(Other Insureds Rider): Dependents may be added to as additional (other) insureds through the use of a dependent rider. Other insured riders are typically used for spouses and children.

Joint and survivor option

A settlement option which guarantees that benefits will be payed on a life-long basis to two or more people. This option may include a period certain and the amount payable is based on the ages of the beneficiaries.

Speculative risk

A situation in which either profit or loss is possible, not insured.

Grace period

A time period during which no finance charges will be added to your account.

Consumer report

A written and/or oral statement regarding a consumer's credit, character, reputation, or habits collected by a reporting agency from employment records, credit reports, and other public sources.

Cash value

The equity amount or "savings" accumulation in a whole life policy.

Excess intrest

The excess interest provision in life insurance means that the cash value will increase faster than the guaranteed rate if the insurer earns a greater return than the guaranteed rate.

Expense Factor

The expense factor, also known as the loading charge, is a measure of what it costs an insurance company to operate.

Insuring clause

The insuring agreement is the insurer's basic promise to pay specified benefits to a designated person in the event of a covered loss. States the scope and limits of coverage, "We ensure to INSURE you for...."

Intrest factor

The interest factor is the calculation for determining the amount of interest an insurance company can expect to earn from investing insurance premiums.

Buyer's Guide

A booklet that describes insurance policies and concepts, and provides general information to help an applicant make an informed decision.

Certificate of insurance

A certificate of insurance is a document issued by an insurance company/broker that is used to verify the existence of insurance coverage under specific conditions granted to listed individuals. With group insurance, the group (typically employer) is the policy owner and maintains a master policy. The insureds (typically employees) receive a certificate of insurance instead of a policy.

Class Designation

A class designation is a beneficiary group designation (for example, all of my children), opposed to specifying one or more beneficiaries by name.

Consideration clause

A clause in a Life policy specifying the premium due for the insurance protection and the frequency of payment (also called Mode). The more frequent the Mode of Payment, the higher the cost, since most insurers charge service fees for budget payments. The cheapest Mode is annual.

Disclosure form

A comparison form required by various state regulatory agencies to be given to every policy owner when replacing an existing policy with another.

Lump sum option

A death settlement option where death benefit is paid in a single payment, minus any outstanding policy loan balances and overdue premiums. The lump sum option is considered the automatic (or "default") option for most life insurance contracts.

Credit report

A detailed report of an individual's credit history.

Fixed amount installment options

A fixed amount installment option pays a fixed death benefit in specified installment amounts until the principal and interest are exhausted.

Fixed period

A fixed period or period certain settlement option pays the death benefit proceeds in equal installments over a set period of years. The dollar amount of each installment depends upon the total number of installments.

Adverse selection

A high-risk person benefits more from insurance, so is more likely to purchase it.

Life settlement

A life settlement is an agreement in which a policyholder sells or transfers ownership in all or part of a life insurance policy to a third party for compensation that is less than the expected death benefit of the policy.

Mortality Rate

A mortality rate is the measure of the number of deaths (in general, or due to a specific cause) in some population, scaled to the size of that population, per unit time.

Cash surrender option

A nonforfeiture option that allows whole life insurance policy owners to receive a payout of their policy's cash values.

Graded premium

A premium funding option characterized by a lower premium in the early years of the contract with premiums increasing annually for an introductory period. After the introductory period, the premium jumps to an amount higher than what the initial level premium would have been, and then remains fixed or constant for the life of the policy.

Modified premium

A premium funding option characterized by an initial premium that is lower than it should be during an introductory period of time (normally the first three to five years). After this time, the premium will increase to an amount greater than what the initial level premium would have been, and then remains level or constant for the life of the policy.

Attending physician statement

A report ordered by the insurance company and completed by a physician, hospital or medical facility who has treated, or who is currently treating, a person seeking insurance.

Accumulate interest options

Allows dividends to accumulate interest. Interest is the ONLY thing you can be charged tax on.

Accelerated benefits rider

Allows the insured to receive a portion of the death benefit before death if the insured has a terminal illness and is expected to die within 1-2 years. Whatever amount is withdrawn in an accelerated death benefit will decrease the death benefit when death occurs.

Reduced paid up option

Allows the policy owner to reduce the policy's benefit amount and, in turn, cease making premium payments.

Reduced premium option

Allows the policy owner to return the dividend payment to the insurer in exchange for a reduction in the following year's premium payments.

Conversion privilege

Allows the policy owner, before an original insurance policy expires, to elect to have a new policy issued that will continue the insurance coverage. Conversion may be effected at attained age (premiums based on the age attained at time of conversion) or at original age (premiums based on age at time of original issue).

Peril

An immediate, specific event that causes a loss.

Conditional receipt

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

Automatic premium loan provision

An overdue premium is automatically borrowed from the cash value after the grace period expires.

Loss

An unintended, unforeseen reduction, or destruction of financial or economic value.

Persistancy

As it pertains to insurance, persistency is the percentage of policies an insurer has in force after a specified period of time. Persistency is negatively impacted by policies replaced by other insurers, canceled by the policy owner, or laps due to nonpayment. Companies with higher persistency are more stable and profitable than those with lower persistency. Generally speaking, companies aim for 80% persistency after three-years and 60% after five years. Meaning, 60% of the policies written five years ago should still be active.

Collateral assignment

Assignment of part of the proceeds of an insurance policy to a bank as collateral to settle the loan balance that may exist at the insured's death.

Binding recipt

Binding Receipts are also known as unconditional receipts. It is one of the types of receipts given by an insurance company upon the completion of an insurance application if the initial premium is collected with the application. Insurance becomes effective on the receipt date and continues for a specified period of time or until the insurer declines the application.

Blanket health policies

Blanket health policies are issued to cover a group who may be exposed to the same risks, but the composition of the group (the individuals within the group) are continually changing. A blanket health plan may be issued to an airline or a bus company to cover its passengers or to a school to cover its students. No certificates of coverage are issued in a blanket health plan, as compared to group insurance.

Family income policy

Combines Whole Life insurance with a Decreasing Term Rider also written on the same person.

Equity index universal life insurance

Combines most of the features, benefits, and security of traditional life insurance with the potential of earned interest based on the upward movement of an equity index.

Face amount plus cash value policy

Contract that promises to pay at the insured's death the face amount of the policy plus a sum equal to the policy's cash value.

Joint survivor or last survivor life policies

Cover the lives of two individuals and saves on premium costs by averaging the ages of the two insureds. Joint Life Survivor or Last Survivor policies only pay the death benefit upon the death of the last insured person. For example, say B and M purchase a joint life survivor policy. If B were to die first and then M died 10 years later, no benefits would be paid out from the policy until M died. A Joint Life and Survivor policy covers two lives but only pays benefits after the death of the last insured.

Hazard

Creates an increased possibility that a peril (a cause of a loss) will actually occur.

Declined risk

Describes an individual whose application for coverage was rejected by an insurance company.

Policy Loan Provision

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

Noncontributory plan

Employee benefit plan under which the employer bears the full cost of the employees' benefits; must insure 100% of eligible employees.

Evidence of insurability

Evidence of Insurability describes a statement or proof of a person's health history and current health status that qualifies that person for coverage.

Fixed/level premium

Fixed or level premium is a concept of averaging what would be the total single premium for a policy over periodic payments. More periodic payments = higher total premium.

Contributory plan

Group insurance plan under which the employees contribute to the payment of premiums.

Universal life insurance policy

Incorporates flexible premiums and an adjustable death benefit. The investment gains from a Universal Life Policy usually go toward the cash value. The policy owner can use the cash value to manipulate the flexible aspects of a universal life insurance policy. A customer who wants a policy that gives them the most options and the most control would be looking for a Universal Life Policy. Universal policies use gains to fund the cash value and give the policy owner options for flexible premiums and adjustable death benefits.

Life income option

Installment payments are paid only while the beneficiary is alive and cease on the beneficiary's death.

Group life insurance

Insurance written for members of a group, such as a place of employment, association, or a union. Coverage is provided to the members of that group under one master contract. The group is underwritten as a whole, not on each individual member. One of the benefits of group life coverage is usually there is no evidence of insurability required.

Endowment policy

Is a contract providing for payment of the face amount at the end of a fixed period, at a specified age of the insured, or at the insured's death before the end of the stated period.

Target premium

Is a suggested premium used in Universal Life policies. It does not guarantee there will be adequate funds to maintain the policy to any time, especially to life. It may give an indication of what will be needed (under conservative estimates), to maintain the policy.

Occurrence

Is any event that causes a loss.

Industrial life insurance

Issues very small face amounts, such as $1,000 or $2,000. Premiums are paid weekly and collected by debit agents. They were designed for burial coverage.

Variable Life Insurance

Life insurance in which the benefits are a function of the returns being generated on the investments selected by the policyholder.

Ordinary life insurance

Life insurance of commercial companies not issued on the weekly premium basis. It is made up of several types of individual life insurance, such as temporary (term), permanent (whole).

Term life insurance

Life insurance that pays a death benefit if the policyholder dies within a specific time period but has no remaining value at the end of this time.

Paid up additions option

The dividend is used to purchase a small amount of paid-up whole life insurance.

Franchise insurance

Life or health insurance plan for covering groups of persons with individual policies uniform in provisions, although perhaps different in benefits. Solicitation usually takes place in an employer's business with the employer's consent. Generally written for groups too small to qualify for regular group coverage. May be called wholesale insurance when the policy is life insurance.

Incontestable provision

Makes a life insurance contract incontestable after it has been in force for two years during the lifetime of the insured.

New payment cost index

Net payment cost index is a formula used to determine the actual cost of a policy for a policyowner. It helps the consumer compare costs of death protection between policies that will be held for ten or twenty years.

Nonforfeiture options

Nonforfeiture options are the options you have for your cash value if you terminate a policy that has a cash value. You are closing your account (surrendering your policy); what do you want us to do with your cash (so you don't forfeit it)? When a policy owner decides he does not want his insurance policy anymore, he has the option to surrender his policy.

Irrevocable beneficiary

One that cannot be changed without the beneficiary's consent.

Family maintenance policy

Pays a monthly income from the date of death of the insured to the end of the preselected period.

Accidental death benefit rider

Pays a multiple of the death proceeds if the cause of death is a covered accidental event.

Guaranteed insurability rider

Permits Insured to buy specific amounts of additional insurance at specified intervals (usually 3 years) without evidence of insurability.

Extended term option

Permits the policy owner to use the policy's cash value to buy level, extended term insurance for a specified period. No premium payments are made. The coverage provided with the extended term nonforfeiture option is equal to the net death benefit of the lapsed policy.

Entire contract provisions

The entire contract provisions (or clause) states the insurance policy itself, any riders and endorsements/amendments, and the application comprises the entire contract between all parties.

Reinstatement provisions

Reinstatement is putting a lapsed policy back in force by producing satisfactory evidence of insurability and paying any past-due premiums required. It Permits the policy owner to reinstate a policy that has lapsed as long as the policy owner can provide proof of insurability and pays all back premiums, outstanding loans, and interest.

Risk

Risk is defined as thepotential or uncertainty for loss.

Common Disaster Provision

Sometimes added to a policy and designed to provide an alternative beneficiary in the event that the insured as well as the original beneficiary dies as the result of a common accident.

Whole life insurance

Sometimes called straight life insurance or ordinary life insurance; can provide lifetime insurance coverage; in this case, fixed premiums are paid for life; pays interest on the cash value portion with a guaranteed minimum interest rate during life of the contract.

Free look period

States the policy owner is permitted a certain number of days once the policy is delivered to look over the policy and return it for a refund of all premiums paid.

Cash option

The "cash" dividend option allows the policy owner to cash out the dividends they receive.

Misstatement of age or sex provisions

The Misstatement of Age or Sex Provision allows the insurer to adjust the policy benefits if the insured's age or sex is misstated on the policy application. The misstatement of age provision allows the insurer to adjust the benefits payable if the age of the insured was misstated when the application for the policy was made. If the insured were older at the time of application than is shown in the policy, benefits would be reduced accordingly. The reverse would be true if the insured were younger than listed in the application.

Accelerated benefit rider

The accelerated benefit rider allows the insured to receive a portion of the death benefit prior to death if the insured has a terminal illness and is certified by a physician as expected to die within 1-2 years.

Earned Premium

The amount of the premium for which the policy protection has been given.

Applicant

The applicant is the person completing the application to the insurance company for the insurance policy. In most cases, the applicant is also the proposed insured, but this is not always the case.

Application

The application is the Statement of information given when a person applies for life, health, or disability insurance. The insurance company's underwriter uses this information as a basis in determining whether the applicant qualifies for acceptance under the company's guidelines. Applications are attached to and made a part of all individual contracts.

Contingent (Secondary) Beneficiary

The beneficiary second in line to receive death benefit proceeds if the primary beneficiary dies before the insured.

Age change

The date halfway between birthdays when the age of the applicant changes to the next higher age. With some insurers, the age is based upon the applicant's age at his nearest birthday. In others, it is based upon the age of his last birthday.

One year term options

The dividend is used to purchase a one year level term policy. the face amount of the term policy cannot exceed the cash amount (cash value) of the base policy.

Intrest only option

The interest only option as a death settlement option where the insurance company holds the death benefit for a period of time and pays only the interest earned to the named beneficiary. A minimum rate of interest is guaranteed, and the interest must be paid at least annually.

Law of Large Numbers

The larger the number of risks insured in the same risk pool; the more predictable losses become.

Morbidity rate

The morbidity rate demonstrates the incidence and extent of disability that may be expected from a given group of people.

Master policy

The policy contract issued to the employer under a Group insurance plan. Remember, the employees covered by a group plan are considered to be insureds, but they only receive certificates.

Backdating

The practice of making a policy effective at an earlier date than the present.

Return of premium rider

The return of premium rider pays the total amount of premiums paid into the policy in addition to the face value, as long as the insured dies within a specific period specified in the policy. It may also return premiums to the insured at the end of a specified period.

Suicide clause

The suicide clause states that the policy will be voided, and no benefit will be paid if the insured commits suicide within two years from policy issuance. The primary purpose of a suicide provision is to protect the insurer from applicants contemplating suicide.

Gross Premium

The total premium paid by the policyowner, it generally consists of the net premium plus the expense of operation minus interest.

Concept of insurance

The transfer of risk from one party to another through a legal contract.

Waiver of premium rider

The waiver of premium rider allows the policy owner to waive premium payments during a disability and keeps the policy in force. The waiver of premium rider is not a loan and does not provide cash payments to the policy owner. The insurance company is "waiving" the premiums." It's just as if the insured made the premiums every month.

Payor provision

Typically attached to Juvenile Insurance Policies, provides that in the event of death or disability of the adult premium-payor, the premiums will be waived until the insured child reaches a specified age or until the maturity date of the contract which ever comes first.

Non-medical life insurance

Typically does not require a medical exam and tends to be more expensive than medically underwritten policies. The insurer will average out everyone's risk and charge accordingly. Although insurers typically will not require a medical exam, they will still inquire about the applicant's medical history and lifestyle.

Adjustable life policy

Whole life insurance policy, but you can change your policy as your needs change. You can change your premium payments to increase or decrease coverage.

Juvenile Insurance

Written on the lives of children who are within specified age limits and generally under parental control.

Credit policies

typically purchased using a decreasing term life insurance policy, with the term matched to the length of the loan period and the decreasing insurance amount matched to the declining loan balance.