Chapter 8 Vocab

Question 1

risk avoidance

Answer 1

avoiding an act that would create a risk

Question 2

loss prevention

Answer 2

any activity that reduces the probability that a loss will occur

Question 3

loss control

Answer 3

any activity that lessens the severity of loss once it occurs

Question 4

risk assumption

Answer 4

the choice to accept and bear the risk of loss

Question 5

insurance policy

Answer 5

a contract between the insured and the insurer under which the insurer agrees to reimburse the insured for losses suffered according to specified terms

Question 6

underwriting

Answer 6

the process used by insurers to decide who can be insured and to determine applicable rates that will be charged for premiums

Question 7

multiple-of-earnings method

Answer 7

a method of determining the amount of life insurance coverage needed by multiplying gross annual earnings by some selected number

Question 8

needs analysis method

Answer 8

a method of determining the amount of life insurance coverage needed by considering a person’s financial obligations and available financial resources in addition to life insurance

Question 9

Social Security survivor’s benefits

Answer 9

benefits under Social Security intended to provide basic, minimum support to families faced with the loss of a principal wage earner

Question 10

term (level) life insurance

Answer 10

insurance that provides only death benefits, for a specified period, and does not provide for the accumulation of cash value

Question 11

straight term policy

Answer 11

a term insurance policy written for a given number of years, with coverage remaining unchanged throughout the effective period

Question 12

decreasing term policy

Answer 12

a term insurance policy that maintains a level premium throughout all periods of coverage while the amount of protection decreases

Question 13

renewability

Answer 13

a term life policy provision allowing the insured to renew the policy at the end of its term without having to show evidence of insurability

Question 14

convertibility

Answer 14

a term life policy provision allowing the insured to convert the policy to a comparable whole life policy

Question 15

whole life insurance

Answer 15

life insurance designed to offer ongoing insurance coverage over the course of an insured’s entire life

Question 16

cash value

Answer 16

the accumulated refundable value of an insurance policy; results from the investment earnings on paid-in insurance premiums

Question 17

nonforfeiture right

Answer 17

a life insurance feature giving the whole life policyholder, upon policy cancellation, the portion of those assets that were set aside to provide payment for the future death claim

Question 18

universal life insurance

Answer 18

permanent cash-value insurance that combines term insurance (death benefits) with a tax-sheltered savings/investment account that pays interest, usually at competitive money market rates

Question 19

variable life insurance

Answer 19

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

Question 20

group life insurance

Answer 20

life insurance that provides a master policy for a group; each eligible group member receives a certificate of insurance

Question 21

portability

Answer 21

option to convert a group life insurance policy to an individually issued life policy

Question 22

credit life insurance

Answer 22

life insurance sold in conjunction with installment loans

Question 23

mortgage life insurance

Answer 23

a term policy designed to pay off the mortgage balance in the event of the borrower’s death

Question 24

industrial life insurance (home service life insurance)

Answer 24

whole life insurance issued in policies with relatively small face amounts, often $1,000 or less

Question 25

beneficiary

Answer 25

a person who receives the death benefits of a life insurance policy after the insured’s death

Question 26

policy loan

Answer 26

an advance, secured by the cash value of a whole life insurance policy, made by an insurer to the policyholder

Question 27

multiple indemnity clause

Answer 27

a clause in a life insurance policy that typically doubles or triples the policy’s face amount if the insured dies in an accident

Question 28

disability clause

Answer 28

a clause in a life insurance contract containing a waiver-of-premium benefit alone or coupled with disability income

Question 29

guaranteed purchase option

Answer 29

an option in a life insurance contract giving the policyholder the right to purchase additional coverage at stipulated intervals without providing evidence of insurability

Question 30

participating policy

Answer 30

a life insurance policy that pays policy dividends reflecting the difference between the premiums that are charged and the amount of premium necessary to fund the actual mortality experience of the company

Question 31

life insurance policy illustration

Answer 31

a hypothetical representation of a life insurance policy’s performance that reflects the most important assumptions that the insurance company relies on when presenting the policy to a prospective client