L&H Vocab

Question 1

Policy Provision

Answer 1

A clause that stipulates the rights and obligations under an insurance contract

Question 2

Peril

Answer 2

Cause of loss

Question 3

Field Underwriter

Answer 3

An insurance agent who conducts initial policy solicitation and application (the company’s front line of underwriting)

Question 4

Reinsurance

Answer 4

Agreement between insurance companies under which one accepts all or part of the risk of loss of the other

Question 5

Renewal

Answer 5

The continuation in full force and effect of a policy that is about to expire

Question 6

Fiduciary

Answer 6

A producer who handles insurer’s funds in a trust capacity

Question 7

Exclusions

Answer 7

Certain risks or perils that are not covered by the policy and for which no benefits are payable, including war or military service, aviation, hazardous hobbies, or self-inflicted injuries

Question 8

Domestic Insurer

Answer 8

An insurance company formed under the laws of the state in which it transacts insurance

Question 9

Adverse Selection

Answer 9

A tendency risks with higher probability of loss to purchase and maintain insurance more often than the risks who present lower probability of loss

Question 10

Disclosure

Answer 10

Revealed information to help someone make an informed decision

Question 11

Credit Insurance

Answer 11

Insurance on a debtor in favor of a lender, intended to pay off a loan or the balance due thereon if the insured dies or is disabled.

Question 12

Agent/Producer

Answer 12

A legal representative of an insurance company who is licensed to sell, negotiate, or effect insurance contracts on behalf of the insurer

Question 13

Absolute Assignment

Answer 13

A permanent and irrevocable transfer of all policy rights of ownership by the policy owner to a third party

Question 14

Contract of Adhesion

Answer 14

A contract prepared by one party that must be accepted as written or rejected by the other party

Question 15

Contingent Beneficiary

Answer 15

person or persons named to receive benefits if the primary beneficiary is not alive when the insured dies (has second claim to the policy proceeds)

Question 16

Representation

Answer 16

A statement made by the application on the insurance application that is believed to be true

Question 17

Consideration

Answer 17

The binding force in a contract that requires something of value to be exchanged for the transfer of risk. The consideration on the part of the insured is the representations made in the application and the payment of premium; the consideration on the part of the insurer is the promise to pay in the event of loss

Question 18

Conditions

Answer 18

the part of an insurance contract setting out the responsibilities of both the insured and the insurer, such as the requirements regarding notice of claim and proof of loss

Question 19

Concealment

Answer 19

The withholding of known facts, if material, can void a contract

Question 20

Suitability

Answer 20

Facts that determine if an insurance product is appropriate for a particular customer

Question 21

Foreign Insurer

Answer 21

An insurer organized under laws of a state other than the one in which the insurance is written

Question 22

Solvency

Answer 22

An insurer’s ability to meet its financial obligations to policy owners, insureds and beneficiaries

Question 23

Premium

Answer 23

A payment by the policy owner to the insurance company to keep a policy in force

Question 24

Applicant

Answer 24

The party making the application to the insurance company for the policy of insurance who must provide the insurer with representations, or truthful statements to the best of the applicant’s knowledge

Question 25

Third-Party Ownership

Answer 25

An insurance arrangement in which the policy owner and the insured are not the same person

Question 26

Alien Insurer

Answer 26

An insurer organized and domiciled outside of the United States

Question 27

Certificate of insurance

Answer 27

A document issued to insureds under a group that states that coverage has been issued and indicates coverage type and amounts

Question 28

Cancellation

Answer 28

Termination of a contract of insurance mid-term (rather than at the renewal date) by voluntary act of the insurance company or insured, effected in accordance with provisions in the contract or by mutual agreement

Question 29

Twisting

Answer 29

Misrepresentation or incomplete of fraudulent comparison of insurance policies that persuades an insured or the policy owner, to his or her detriment, to cancel, lapse, switch policies, or take out a policy with another insurer

Question 30

Business Insurance

Answer 30

Life or health insurance written to cover business situations, such as key person, sole proprietor, partnership, or corporations

Question 31

Authorized/Admitted Insurer

Answer 31

An insurer permitted to transact insurance within a state; must obtain a Certificate of Authority from the Insurance Commissioner, Director, or Superintendent from every state the insurer does business

Question 32

Application

Answer 32

A form on which the prospective insured states facts requested by the insurer and on the basis of which (together with any information from medical examiners, attending physicians, investigators and the producer) the insurer decides whether to accept the risk or modify coverage

Question 33

Insurer (Principal)

Answer 33

The company that issues an insurance policy

Question 34

Insured

Answer 34

The person covered by the insurance policy

Question 35

Underwriting

Answer 35

The risk selection and classification process

Question 36

Unfair Trade Practice

Answer 36

Any fraudulent, deceptive, or dishonest business practice that is prohibited by statutes and regulations

Question 37

Indemnity

Answer 37

Making financially whole again; insurance is designed to restore the policyholder to the same financial condition as prior to a loss

Question 38

Hazard

Answer 38

Any factor that increases the likelihood of a loss; may be physical, moral or morale

Question 39

Guaranty Association

Answer 39

A state mandated nonprofit legal entity comprised of all authorized insurance companies, designed to protect consumers from impaired or insolvent insurers

Question 40

Unilateral Contract

Answer 40

A contract in which only one of the parties bound to fulfill its obligations

Question 41

Group Contract

Answer 41

A contract of insurance between the insurer and an employer or other entity that covers a group of people identified as individuals by reference to their relationship to the group sponsor

Question 42

Fraud

Answer 42

An intentional misrepresentation made by a person with intent to gain advantage and relied upon by a second party the suffers a loss

Question 43

Waiting Period

Answer 43

A period of time that must pass after a loss occurs before the insurer starts paying policy benefits (also known as the elimination period, or a time deductible)

Question 44

Waiver

Answer 44

Relinquishment of a legal right or interest, such as a rider waiving liability for a stated cause of accident, or provision allowing the insured to waive premium payment during a period of disability

Question 45

Claim

Answer 45

A request for payment of the benefit under the insurance policy

Question 46

Insuring Clause

Answer 46

The clause in a policy that specifies in brief the contract’s intent and benefits, also known as the Insuring Agreement

Question 47

Material Misrepresentation

Answer 47

A misrepresentation that would have been important or essential to the underwriter’s decision to issue the policy; if it is intentional it is considered fraud

Question 48

Master Policy

Answer 48

The contract issued to the sponsor of a group insurance plan (usually the employer). The employees covered by a group plan are considered to be insureds, but they only receive certificates of insurance

Question 49

Loss

Answer 49

An unpredictable reduction in the quality, quantity, or value of something by a peril insured against, such as bodily injury, disease, property damage, or death

Question 50

Warranty

Answer 50

An absolutely true statement that, if breached, may void an insurance contract

Question 51

Surrender

Answer 51

Early termination of policy by the policy owner

Question 52

Policyowner

Answer 52

The person entitled to exercise the rights and privileges in the policy

Question 53

Rebating

Answer 53

Any inducement offered in the sale of an insurance product that is not specified in the policy. Rebating is illegal in most states

Question 54

Rider

Answer 54

A written modification attached to a policy that increases or decreases coverage and premiums

Question 55

Mode of Premium Payment

Answer 55

Frequency with which the policy owner pays the policy premium, such as monthly, quarterly, semi-annually, or annually. the less frequent the payment, the lower the annual cost

Question 56

Nonrenewal

Answer 56

Termination of an insurance policy by an insurer on its expiration or renewal date by not offering a continuation of the existing policy or a replacement policy

Question 57

Lapse

Answer 57

Termination of a policy of failure to pay the premium; a policy lapses at the end of its grace period

Question 58

Risk

Answer 58

The uncertainty of loss that exists whenever more than one outcome is possible, the chance of loss. Only pure risks are insurable (those that offer a chance of loss without any chance for gain)

Question 59

Nonresident Producer

Answer 59

A producer licensed in a state in which he or she is not a resident. In most states, no exam is required to obtain a nonresident license as long as the producer is licensed for the same line of authority and in good standing in his or her home state

Question 60

Misrepresentation

Answer 60

The use of written or oral statements of the insured or insurance company misrepresenting the risk, terms, coverage, benefits, privileges or estimated future dividends of any policy

Question 61

Law of Large Numbers

Answer 61

A principle stating the the larger the number of similar exposures considered, the more closely the losses reported will equal the underlying probability of loss. The law of large numbers allows insurers to make accurate predictions regarding insured risks

Question 62

NAIC (National Association of Insurance Commissioners)

Answer 62

An organization made up of the Insurance Commissioners from all 50 states, the District of Columbia and the U.S territories, formed to resolve insurance regulatory