Kaplan Life and Health Definitions (Flashcards Deck)
This is the deck of flashcards that comes with the Kaplan study guide for Life and Health insurance.
Discrimination
In insurance, the act of treating certain groups of people unfairly in the sale and pricing of policies. This does not apply to age, sex, occupation, and medical history.
Modified Endowment Contract (MEC)
A permanent or cash value life insurance policy which violates the 7-pay test when premiums exceed the amount allowed by the IRS in the first seven years of the policy.
Elimination Period
The period of time an insured must wait before receiving benefits from a disability income policy or a long-term care policy. This is a deductible of time as opposed to an amount of money.
Automatic Premium Loan Provision
Authorizes the insurer to automatically pay any premium in default at the end of the grace period. The premium owed plus interest charged is deducted from the policy’s cash value.
Reduced Paid-Up Insurance
A nonforfeiture option allowing the policyowner to exchange the policy’s cash surrender value for a paid-up permanent policy with a reduced death benefit.
Paid-Up Additions
Additional life insurance purchased by the policy dividends on a net single premium basis at the insured’s attained insurance age at the time additions are purchased.
Mortality Table
A table used by an actuary to calculate how long a male or female of a given age group may be expected to live (insured’s statistical likelihood of death).
Multiple Employer Trust (MET)
Several small groups of individuals that need life and health insurance but do not qualify for the group insurance band together under state trust laws to purchase insurance at a more favorable rate.
National Association of Insurance Commissioners (NAIC)
Association of state insurance commissioners active in insurance regulatory problems and in forming and recommending model legislation and requirements.
Morbidity
The relative incidence of disability due to sickness or accident within a given group.
Medicare Supplement Policy
Health insurance that provides coverage to fill the gaps in Medicare coverage.
Nonforfeiture Options
In life insurance, this protects the owner’s right to the cash value of a permanent policy in the event he surrenders or there is a lapse in coverage. There are three options:
- Cash surrender
- Extended term policy
- Reduced paid-up policy
Health Insurance
A broad description of insurance to offset the cost of accident or illness. May be in the form of reimbursement or indemnity (cash) policies.
Agent’s (Producer’s) Report
The section of an insurance application where the agent (producer) details personal observations about the applicant.
Adhesion
The contract must be accepted by the insured exactly as it is written by the insurer. The terms of the contract cannot be negotiated. The contract is offered on a take-it-or-leave-it basis.
Apparent Authority
The insured believes the agent has the authority to act based on actions, words or deeds of the agent. Even though the agent may not have been granted such authority by the insurer, they will be held liable for the actions of the agent.
Free Look
Provision required in most states whereby policyholders have either 10 or 30 days to examine their new policies at no obligation.
Waiver of Premium
Provided the owner is also insured, this rider exempts the owner/insured from paying premiums after she has been disabled for a specific period of time, usually 90 days in life policies.
Payor Rider
This rider waives future premiums if the owner dies or becomes disabled. Considered desirable for juvenile policies.
Absolute Assignment
Policy assignment under which the assignee (person to whom the policy is assigned) receives full control over the policy and also full rights to its benefits.
Moral Hazard
Conditions resulting from a weakness of human character (when someone should know the difference between right and wrong), such as embezzlement and arson.
Morale Hazard
Hazard arising from indifference to loss because of the existence of insurance (e.g., individual leaving a car unlocked).
Pure Risk
The only insurable risk - it involves the chance of loss only, with no possibility of gain.
Sole Proprietorship
The simplest form of business organization owned and controlled by one individual.
Suicide Provision
Most life insurance policies provide that if the insured commits suicide within a specified period, usually two years after the issue date, the company’s liability will be limited to a return of premiums paid.
Dividend Options
The different ways in which the insured under a participating life insurance policy may elect to receive surplus earnings: in cash, as a reduction of premium, as additional paid-up insurance, left on deposit at interest, or as additional term insurance.
Revocable Beneficiary
Beneficiary whose interest can be revoked by the policyowner without notice to the beneficiary or obtaining the beneficiary’s written consent.
Contingent Beneficiary
Person(s) named to receive proceeds in case the original beneficiary is not alive.
Cost-Of-Living (COL) Rider
A rider available with some policies that provides for an automatic increase in benefits (typically tied to the Consumer Price Index), offsetting the effects of inflation. This will result in an automatic increase in premium.
Accidental Death and Dismemberment (AD&D)
Insurance providing payment if the insured’s death results form an accident or if the insured accidentally severs a limb above the wrist or ankle joints or permanent blindness.
Settlement Options
On the death of the insured, the beneficiary may elect to receive payment in a number of ways. Usual options are lump-sum cash, interest-only, installment agreement, and life income.
Grace Period
Period of time after the due date of a premium during which the policy remains in force. If a claim occurs within this timeframe, the death benefit is paid less premium owed.
Reentry Option
An option in a renewable term life policy under which policyowners can receive a lower renewal premium if they prove insurability. The insurer may be able to decline coverage under this option.
Change of Occupation Provision
This provision is found in health insurance stating if the insured changes to a more hazardous occupation, benefits are reduced; if changing to a less hazardous occupation, premiums are reduced.
Spousal IRA
An individual retirement account set up on behalf of a non-working or low-earning spouse.
Profit-Sharing Plan
Any plan whereby a portion of a company’s profits are set aside for distribution to employees who qualify under the plan.
Rollover IRA
The owner of a retirement plan or IRA liquidates his account, receives the funds and reinvests all of the funds into another plan within 60 days.
Lapse
Termination of a policy upon the policyowner’s failure to pay the premium by the end of the grace period.
Life Insurance Buyer’s Guide
A generic publication that explains life insurance in a way that an average consumer can understand. It does not contain specific product or policy information.
Common Disaster Provision
This policy provision provides an alternative beneficiary in the event that the insured and the original beneficiary dies as the result of a common accident.
Primary Insurance Amount (PIA)
Amount equal to a covered worker’s full Social Security retirement benefit or disability benefit.
Presumptive Disability Benefit
Regardless if the insured is able to work, he is eligible for full disability benefits if he has complete loss of speech, hearing, vision or the loss of use of two or more limbs.
Major Medical Expense Policy
Health insurance policy that provides broad coverage for reasonable and necessary medical expenses. Characterized by deductibles and coinsurance cost sharing.
Medicare Part B
Covers physicians and outpatient treatment, subject to a monthly premium, annual deductible and coinsurance.
Master Contract
An insurance policy issued to the group sponsor of a group plan. Individuals participating in the group plan receive individual certificates of coverage.
Peril
The reason for the loss (fire, wind, hail, and so forth).
Collateral Assignment
Assignment of a policy to a creditor as security for a debt. At the insured’s death, the creditor is entitled to be reimbursed our of policy proceeds for the amount owed and any excess will go to the beneficiary.
Health Insurance Buyer’s Guides
Informational consumer guide books that explain insurance policies and insurance concepts; in many states, they are required to be given to applicants when certain types of coverage are being considered.
Basic Medical Expense Policy
Health Insurance policy that provides FIRST DOLLAR coverage for specified (and limited) health care, such as hospitalization, surgery, or physician services. Characterized by limited benefit periods and relatively low coverage limits.
Capital Sum
Maximum benefit payable for the accidental loss of vision in one or both eyes, or the loss of a limb at or above the wrist or the ankle.
Business Overhead Expense Insurance
If a business owner becomes disabled, this policy will not replace the owner’s income, but will instead help pay the expenses of operating the business such as rent, utilities and wages.
Own Occupation
A definition of total disability. The insured must be unable to work at her own occupation. It is easier for the insured to receive benefits under policies using this definition.
Offer
This element of a contract is either made by the applicant (when an application is completed and premium is submitted) or is made by the insurance company (when no premium is submitted with the application).
Nonscheduled Plan
Pays on the basis of what is considered usual, customary, and reasonable (URC) in a certain geographic area and based on amount physicians in area usually charge for same or similar producers.
Noncancelable Renewal Provision
This renewal provision is most favorable to the insured as the insurer cannot cancel coverage (except for nonpayment of premium) nor increase the premium.
Irrevocable Beneficiary
Beneficiary whose interest cannot be revoked by the policyowner without the beneficiary’s written consent.
Assignment of Benefits
The policyowner allows a health care provider to bill the insurer and receive benefits on the policyowner’s behalf.
Annual Renewable Term (ART)
A form of renewable term insurance that provides coverage for one year and allows the policyowner to renew coverage each year, without evidence of insurability.
Sharing, Transfer, Avoidance, Reduction, and Retention (S.T.A.R.R.)
The five methods of handling risk.
Participating (PAR) Policies
In mutual and fraternal insurance companies, the policyowners participate in the ownership of the company. If there is a surplus of premium over the company expenses, the owners will receive a dividend.
Fraternal Insurance
- A not-for-profit insurance company
- Owned by policy owners
- Issues participating (PAR) policies
- Run by the lodge system
- May assess policy owners
- No legal reserve requirement
Beneficiary
Person to whom the proceeds of a life or accident policy are payable when the insured dies.
Law of Large Numbers
Basic principle of statistics, used by insurance actuaries, where the larger the number of exposures to study, the more accurate the prediction.
Dividend
Policyowner’s share in the divisible surplus of a company issuing participating policies; paid as a return of premium.
Producer
A general term applied to an agent, broker, intermediary, personal producing general agent, solicitor, or other person who sells insurance.
Consideration
Element of a legal contract consisting of premium payment and statements made by the prospective insured in the application.
Conditional Receipt
Given to the policyowners when they pay a premium at time of application. In this case, the applicant is covered the later of the date of the application or proof of insurability, even though the policy may not have been issued.
Warranties
Statements made on an application for insurance that must be true if the insurer is to pay a claim. For example, if an applicant for life insurance signs the application knowing he is terminally ill, the policy may be voided by the insurer.
Rebating
Giving anything of value to the applicant as an inducement to buy the policy.
Simplified Employee Pension Plan (SEP)
A type of qualified retirement plan under which an employer or self-employed individual may contribute to the plan. Employees may not contribute.
Savings Incentive Math Plan for Employees (SIMPLE)
A qualified employer retirement plan for companies with 100 or fewer employees and which have no other retirement plan in place.
Transacting Insurance
Conducting insurance business, such as soliciting or negotiating to buy or sell an insurance policy.
Viatical Settlement
An agreement under which the owner of a life insurance policy assigns the policy to a viatical company in exchange for a payment, which is generally less than the expected death benefit under the policy.
Fiduciary
Person in a position of special trust and confidence (e.g., in handling or supervising affairs or funds of another).
Enrollment Period
Period during which new employees can sign up for coverage under a group insurance plan without proof of insurability.
Accidental Death Benefit Rider
A life insurance policy rider providing for payment of an additional benefit when the death occurs by accidental means.
Accelerated Benefits Rider
A life insurance rider that allows for the early payment of some portion of the policy’s face amount should the insured suffer from a terminal illness or injury.
Uniform Simultaneous Death Act
Model law that states when an insured and beneficiary die at the same time, it is presumed that the insured survived the beneficiary.
Incontestable Clause
Provides that, for certain reasons such as material misstatements or concealments on the application, the insurer may avoid a life insurance policy, usually limited to two years after issue.
Limited Pay Life Insurance
A form of permanent life insurance characterized by premium payments only being made for a specified or limited number of years.
Whole Life Insurance
A life insurance policy providing guaranteed level premiums, guaranteed increasing cash value, and a guaranteed level death benefit that endows at maturity (usually at age 100).
