Insurance Terms and Concepts: A Comprehensive Glossary, Exams of Insurance law

Download Insurance Terms and Concepts: A Comprehensive Glossary and more Exams Insurance law in PDF only on Docsity! Missouri Life Insurance Exam Questions & Answers 100% Correct! 401(k) Plan -ANSWER A qualified retirement plan in which the employee can set aside a portion of their income with pre-tax dollars. Absolute Assignment v. Collateral Assignment -ANSWER Absolute: A permanent and irrevocable transfer of rights and/or benefits by the policyowner. Collateral: A temporary and/or revocable transfer of benefits by the policyowner Accelerated Death Benefit -ANSWER 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. Accidental Death Benefit -ANSWER 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. Accumulate at Interest -ANSWER The Dividend Option where the policyowner leaves the dividends with the insurer to invest and earn interest. Adhesion -ANSWER Since the insurer created all the documents of the contract, any ambiguities in the contract will be settled in favor of the insured. Since the insurer wrote the contract they are stuck with it. Adverse Selection -ANSWER The tendency for less favorable risks to seek or continue insurance to a greater extent than more favorable risks. Agency Agreement or Agency Contract -ANSWER 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. Agent Authorities -ANSWER 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. Agent/Producer -ANSWER Anyone who sells or aids in the selling of insurance. Legally represents the company. Agent's Report -ANSWER 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. Aleatory -ANSWER Unequal exchange of value. One party may obtain a far greater value than the other under the contract. Annual Renewable Term -ANSWER A Term Life Insurance contract which gives the policyowner the option to renew the policy each year without showing proof of insurability. Premiums increase at each renewal. Annuitant -ANSWER The person that buys an annuity; may or may not be an annuity's policyowner. Annuity -ANSWER A contract/policy that guarantees to pay income for a specified period of time or for the life of the annuitant. Designed to prevent people from outliving their savings. Appointment -ANSWER Authorization of an agent/producer by an insurer to represent the company. Blackout Period -ANSWER The period of time between the youngest child turning 16 and the widow(er) reaching retirement age during which no Social Security Survivor Benefits are paid to the surviving spouse. Buy-Sell Agreement -ANSWER Business use of Life Insurance where partners in a business buy life insurance on each other. They agree that when one of them dies the survivors have the right to purchase the deceased partner's share of the business. The death benefit from the insurance is used to finance the purchase. Cash Nonforfeiture Option -ANSWER Policyowner receives a lump-sum payment of the current cash value of the policy upon surrender of the policy. The policy cannot be reinstated. Cash Settlement Option -ANSWER Upon maturity of an insurance policy the beneficiary receives a lump-sum payment of the entire policy proceeds due. Cash Value -ANSWER That part of an insurance policy that is the equity amount legally available to the policyowner. The cash value accumulates throughout the duration of the policy. Also known as living benefit or policy savings. Grace Period -ANSWER A prescribed period of time during which the policy stays in force without the payment of premiums. Mandated by state law and is usually 30 or 31 days. Graded Premium Policy -ANSWER Premiums for the policy increase regularly for 5 to 20 years and then level off. Death benefit remains level. Group Insurance -ANSWER An insurance policy that covers multiple people (who have a common interest). A Master Policy is issued to the policyowner and individual insureds receive Certificates of Insurance. Guaranteed Insurability Rider -ANSWER Optional rider that enables the policyowner to purchase additional amounts of coverage at pre- determined times without proof of insurability. Guaranty Association -ANSWER A state mandated association of all insurance companies designed to protect consumers from impaired or insolvent companies. Hazard -ANSWER Anything that increases the likelihood that a loss will occur (Faulty wiring). Human Life Value Approach -ANSWER In determining how much life insurance is needed the worker's annual earnings are multiplied by the number of years remaining until he/she retires. From the resulting figure taxes and expenses are subtracted. Immediate Annuity v. Deferred Annuity -ANSWER 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. Incontestable Clause -ANSWER A state mandated provision that limits the amount of time that an insurer can rescind a policy or contest a claim due to misrepresentation or concealment. Indemnify -ANSWER To make financially whole again; restore to the condition enjoyed before a loss was suffered; to replace what was lost. Insurance is not designed for parties to profit from a loss. Individual Retirement Account (IRA) -ANSWER A qualified retirement plan that provides most individuals with a deferred federal income tax benefit. Insurable Interest -ANSWER A financial interest in the life of another person. In a position to loose something of value if the insured should die. Insurer/Principal -ANSWER The insurance company; underwrites the policy and assumes the risk. Insuring Clause -ANSWER The heart of an insurance policy. It contains the company's promise to the policyowner and describes the coverage provided and the policy limits. Interest Settlement Option -ANSWER Upon maturity of an insurance policy the beneficiary receives periodic payments of the interest earned from the company's investment of the policy proceed. Joint and Survivor Annuity -ANSWER 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. Keogh Plan (HR10) -ANSWER A qualified retirement plan for self-employed people and their eligible employees. Contributions are tax deductible and interest earned is deferred until withdrawn. Lapsed Policy -ANSWER A policy that is no longer in force due to unpaid premiums. Also known as forfeit, surrender, cancel or terminate. Law of Agency -ANSWER The actions of an agent/producer within the scope of the authority granted to him/her by the insurer become the actions of the company. Law of Large Numbers -ANSWER States that larger numbers of similar risks grouped together become more accurately predictable. Level Term Insurance -ANSWER Term insurance where the face value of policy remains the same from the date the policy is issued until the date the policy expires. License -ANSWER Documentation issued by a state's department of insurance to an individual verifying that he/she is qualified to engage in the insurance business. Life Annuity With Period Certain -ANSWER A Life Annuity that guarantees to provide income payments for a minimum period of time or life. Payments will continue to a beneficiary should the annuitant die during the specified period. Life Annuity/Straight Life Annuity -ANSWER Upon maturity of an Annuity Contract the annuitant elects to receive fixed periodic payments for the rest of his/her life. Life Income Settlement Option -ANSWER Upon maturity of an insurance policy, the policy proceeds are used to purchase an immediate Life Annuity payable in periodic payments to the beneficiary for the rest of his/her life. Medical Information Bureau -ANSWER An organization that stores information from 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) -ANSWER Any cash value policy that builds cash value faster than a Seven-Pay Whole Life Contract and therefore loses the tax advantages of life insurance. Modified Life Policy -ANSWER Whole Life Insurance with reduced premiums during the initial years and higher premiums during later years. Can be structured as Term insurance during the initial years and changing to Whole Life in the later years. Nonforfeiture Options -ANSWER Three options available by law to policyowners that enable them to recover a policy's cash-value upon surrender of that policy. Which are: 1. Cash 2. Reduced Paid-Up Insurance 3. Extended Term Insurance Non-qualified Retirement Plan -ANSWER A retirement plan that does not qualify for special tax treatment by the IRS. Participating Company -ANSWER Also known as a Mutual Company. Returns unused premium in the form of a policy dividend to the policy owners. Payor Rider -ANSWER Optional rider that costs extra and will pay the premiums of a Juvenile Policy if the owner dies or becomes disabled. Peril -ANSWER The cause of loss. Policy Loan Provision -ANSWER Describes the conditions by which a policyowner can borrow from the policy's cash value. Policy Owner -ANSWER 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. Policy Payment Methods -ANSWER Continuous Premium: Insurance or an annuity that is paid for continuously throughout the duration of the policy. Requires the smallest payments amounts and grows cash value the slowest. Tax Sheltered Annuity (403B) -ANSWER A qualified retirement program for employees of non-profit organizations. Contributions are made through a salary reduction program. Third Party Ownership -ANSWER When a person(s) other than the insured purchases the insurance policy. Twisting -ANSWER Knowingly making 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. Underwriting -ANSWER The process by which an insurer evaluates, classifies and ultimately either accepts or rejects risks. Uniform Simultaneous Death Act -ANSWER 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. Unilateral -ANSWER One-sided promise. Only one party makes a legally enforceable promise. The insurance company promises to pay the policy proceeds at some future date or event. Universal Life Insurance (UL) -ANSWER An "interest sensitive" flexible premium life insurance policy. A combination of ART and cash value. Has two death benefit options (A & B) and develops cash value. Variable Annuity -ANSWER 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. Variable Life Insurance (VL) -ANSWER Whole Life Insurance with fixed premiums. Cash value is invested in "separate accounts". A minimum death benefit is guaranteed but could increase if the investments do well. Variable Universal Life Insurance (VUL) -ANSWER A Life Insurance policy that combines the flexibility of Universal Life with the investment of the cash values in separate accounts from Variable Life. Waiver of Premium Rider -ANSWER Optional rider that requires an insurer to assume payment of premiums should the insured become totally disabled for six months for the duration of the disability. Warranty -ANSWER Statements made that are guaranteed to be absolutely true. Statements made by the insurer must be warranties Whole Life Insurance -ANSWER Type of insurance where level coverage lasts until death or age 100 and then the policy matures and pays out either the face amount or the cash value. Also known as straight life, ordinary life, fixed, rigid or permanent.