life

Question 1

1035 exchange

Answer 1

Named for IRC Section 1035, an exchange of permanent life insurance or deferred annuity contracts that does not incur taxation.

Question 2

401(k) plan

Answer 2

One of the most popular types of qualified employer plans. 401(k)s are a form of defined contribution plan that allows both employer and
employees to contribute to the plan. Employees can defer part of their wages into the plan. These deferrals are not included in the employee’s
gross income. As a result, they are not taxed.

Question 3

403(b) plan

Answer 3

A retirement plan reserved for non-profit organizations and their employees. Both employer and/or employee contribute funds into the plan. The
funds are directed into individual accounts set up for each participating employee. The contributions are not taxable to the employee when they
are made. Rather, they grow tax-deferred until they are distributed. Also called a tax-sheltered annuity plan (TSA).

Question 4

457 plan

Answer 4

Qualified retirement plans reserved for employees of state and local government units. Under these plans, eligible employees are allowed to make
elective salary deferrals into the plan on a pre-tax basis. Earnings accumulate tax-deferred. Neither the contributions made to the plan nor their
earnings are taxed until they are withdrawn or distributed.

Question 5

7-pay test

Answer 5

To be considered a life insurance policy, the policy must meet the terms of this test. Applies specifically to the premiums paid into a contract during

its first seven years. If this amount exceeds the net level premiums that would have been required to produce paid-up future benefits (i.e., a paid-
up policy) after seven level annual payments are made, then the policy is a MEC.

Question 6

absolute assignment

Answer 6

The complete transfer of all rights in an insurance policy to a third party; giving up the control of all rights in an insurance policy.

Question 7

accelerated benefits

Answer 7

A benefit, provided through a policy provision or rider, that pays out part of a life insurance policy’s death benefit while the insured is still living if
the insured is terminally ill or suffers a disabling injury. Typically pays up to 50 percent of the face amount.

Question 8

acceptance

Answer 8

One of the three elements of a contract. Under common law, an offeree who wants to accept an offer must abide by any stipulations in the offer
and must accept every term of the offer.

Question 9

accidental death benefit rider

Answer 9

Designed to provide an additional amount of insurance if the insured dies as a result of an accident. The additional amount is typically double or
triple the amount of the base policy’s face value.

Question 10

accidental means

Answer 10

One of the ways in which an AD&D policy pays its benefit. (The other way is the accidental results requirement.) Requires both the cause and the
result of an accident to be by chance for the policy to pay the benefit.

Question 11

accidental results

Answer 11

One of the ways in which an AD&D policy pays its benefit. (The other way is the accidental means requirement.) Requires only that the death or
injury be accidental. The cause of the accident is not a factor.

Question 12

account contract fee

Answer 12

One of the three types of charges and fees common to variable annuities (the others are fund management fee and mortality and expense cost).
This charge is assessed every year by the insurer. It covers the cost of administering and handling the contract.

Question 13

accumulation option

Answer 13

A dividend option in which the insurance company holds the dividends in an interest-bearing account for the policyowner. The policyowner can
withdraw the accumulated dividends and interest at any time.

Question 14

accumulation period

Answer 14

In an annuity, the period during which premium funds are paid into the annuity contract.

Question 15

accumulation unit

Answer 15

The growth of a variable annuity’s funds or value during its accumulation period is measured in terms of accumulation units. When the annuity
owner makes premium deposits and allocates them among the contract’s subaccounts, they are used to buy accumulation units. These purchases
are then credited to the owner’s contract.

Question 16

AD&D policy

Answer 16

Accidental death and dismemberment insurance. These policies provide financial support if the insured dies or is dismembered from an accident.
AD&D policies are a form of limited risk policy.

Question 17

ADEA

Answer 17

Age Discrimination in Employment Act (passed in 1967, amended in 1986 and 1991). This Act makes it illegal to discriminate against those age
40 or older in employment practices.

Question 18

adjustable life insurance

Answer 18

A life insurance policy that lets the policyowner change the three elements of a life insurance policy as often as he or she wants: (1) premium, (2)
cash value, and (3) death benefit. In changing these three elements, the policy can function at any one time as a term life policy, an ordinary
whole life policy, or a limited payment life policy.

Question 19

admitted insurer

Answer 19

A company that has received a certificate of authority from the state. This certificate permits the company to transact insurance within the state. It
certifies that the company has met the state’s requirements for conducting the business of insurance. Admitted insurers are also called
“authorized insurers.”

Question 20

adverse selection

Answer 20

The tendency of those who most need insurance (most at risk) to buy insurance. Those who don’t have as much of a need for a particular type of
insurance (least at risk) are less likely to buy it.

Question 21

agent’s report

Answer 21

Includes information about the client that would be useful to the underwriter; written from the agent’s perspective.

Question 22

aleatory

Answer 22

In an aleatory contract, one party may receive a benefit that is out of proportion to the consideration he or she is giving. Receiving the
disproportionately large benefit depends on whether a chance event occurs.

Question 23

alien insurance company

Answer 23

A company that is incorporated in a country outside the United States and is doing business in the United States

Question 24

annually renewable term (ART) life insurance

Answer 24

The most basic type of term life insurance, which must be renewed annually (with a corresponding increase in premium reflecting the insured’s
increased age).

Question 25

annuitant

Answer 25

The person an annuity owner chooses to receive the periodic annuity payments when the contract annuitizes.

Question 26

annuitant-driven contract

Answer 26

Annuity contracts that pay out their values when the annuitant dies.

Question 27

annuitization

Answer 27

The process in which the funds in an annuity are turned into a series of ongoing, periodic income payments.

Question 28

annuity

Answer 28

A cash contract between a person (the annuity owner) and a life insurance company (the annuity issuer). The annuity is set up to accumulate
and/or distribute a sum of money.

Question 29

annuity owner

Answer 29

The person (or entity) who buys the contract (annuity).

Question 30

annuity payout period

Answer 30

the period during which funds are paid out from the annuity in the form of periodic income payments

Question 31

annuity purchase payout

Answer 31

The amount of on-going income that $1,000 of the annuity contract value buys.

Question 32

annuity unit

Answer 32

After the first payment under a variable annuity is made, the payment is converted into annuity units. For the second and all future income
payments, the amount of each monthly payment is determined by multiplying the annuity units by the latest revalued amount of those units.

Question 33

any occupation

Answer 33

Under a health insurance policy using the any occupation definition of total disability, the policy’s benefits are payable if the insured is unable to
engage in any occupation for pay or profit.

Question 34

any occupation definition of disability

Answer 34

A definition of total disability that requires the insured be unable to engage in any occupation for which he or she is suited.

Question 35

any provider coverage

Answer 35

Medical expense insurance under which the insured can use any health care provider.

Question 36

any willing provider laws

Answer 36

Laws that require insurers to cover specific treatments or service.

Question 37

assignment

Answer 37

The transfer of some or all of the owner’s legal rights or interest in an insurance policy to a third person.; the transfer of the ownership rights in a
life insurance policy from one person to another.

Question 38

assignor

Answer 38

A person assigning rights in an insurance policy to another person. That person is the assignee.

Question 39

association group

Answer 39

In relation to group life insurance, an association group is comprised of members of associations, such as independent school districts or cities
and towns. Members can be insured under an association plan.

Question 40

assumed interest rate (AIR)

Answer 40

The rate of interest or rate of return that an annuity contract’s values are assumed to earn over the annuitization period. The AIR is usually in the
range of 3 to 5 percent.

Question 41

Attending Physician’s Statement (APS)

Answer 41

A document requested by an underwriter that includes specific details about any medical conditions found in the health section of a proposed
insured’s application for insurance. The APS is written by the proposed insured’s doctor.

Question 42

automatic premium loan

Answer 42

An optional life insurance benefit whose purpose is to prevent a policy from lapsing if the policyowner fails to pay the premium.

Question 43

automatic premium loan provision (APL)

Answer 43

An optional life insurance benefit whose purpose is to prevent a policy from lapsing if the policyowner fails to pay the premium.

Question 44

autopsy provision

Answer 44

A provision in a life insurance policy that gives the insurer the right to (1) examine a deceased insured if the insurer determines it is needed when
a claim is pending; and (2) request an autopsy upon the death of the insured where it is not prohibited by law.

Question 45

average indexed monthly earnings

Answer 45

The amount of Social Security OASDI benefits that any one covered worker is entitled to is a function of the person’s average indexed monthly
earnings. These earnings are the average of a worker’s lifetime earnings on which FICA taxes were imposed.

Question 46

back-end loaded

Answer 46

A life insurance contract that subtracts its costs and fees after premiums have been deposited and when values are withdrawn from the contract.

Question 47

basic hospital expense policy

Answer 47

A category of medical expense plan that that covers only hospital costs (daily hospital room and board and miscellaneous expenses).

Question 48

basic medical expense insurance

Answer 48

A category of medical expense insurance that provides coverage for a specific form of medical care. These “first dollar” plans pay benefits
beginning with the first dollar the insured incurs, and typically do not involve a deductible or coinsurance.

Question 49

basic physician expense policy

Answer 49

A category of medical expense plan that that covers routine doctor’s office visits, charges for diagnostic x-rays, and laboratory charges.

Question 50

beneficiary

Answer 50

The person or persons designated to receive death benefits from a life insurance policy or annuity

Question 51

benefit period

Answer 51

The maximum time for which benefits are paid for a disability under a DI policy or for long-term care under a long-term care policy

Question 52

benefit schedule

Answer 52

Medical expense insurance coverage under which the insurer assigns a “price,” or certain dollar amount or unit value, to each specific medical
cost, procedure, charge, or aspect of coverage. The amount the insurer then pays to the insured is some percentage of this assigned price (such
as 80 percent).

Question 53

biding receipt

Answer 53

Guarantees coverage from the time the applicant completes the application (or the insured completes the medical exam)

Question 54

black out period

Answer 54

The period in which there are no Social Security benefits for the surviving spouse of a deceased covered worker. It begins when the youngest
child turns 16 and continues until the spouse reaches age 60 (when spousal benefits can begin). If there are no eligible children when the covered
worker dies, the blackout period starts immediately

Question 55

blue cross / blue shield

Answer 55

The first of the pre-paid health plans that enrolled members or subscribers. Blue Cross provides coverage for hospital care; Blue Shield provides
medical and surgical care.

Question 56

bring-back rule

Answer 56

When a life insurance policy is transferred to a third party and the original owner/insured dies within three years after the transfer, the policy death
benefits are included (“brought back) in the original owner’s estate for estate tax purposes.

Question 57

business overhead expense (BOE) policy

Answer 57

Designed for the small business owner who becomes disabled, the BOE policy covers certain overhead costs, such as rent, utility bills, insurance,
taxes, etc. Such coverage allows the business to continue to run while the owner is disabled or cannot actively run the business.

Question 58

Cafeteria Plan

Answer 58

An employer-sponsored program that lets employees choose benefits from a suite of options (e.g., group medical, group life, voluntary
supplemental insurance, etc.), and pay for them using pre-tax payroll deductions

Question 59

cancellable

Answer 59

The most extreme renewability provision from the insured’s perspective. Allows the insurer to cancel or end the policy at any time simply by
providing written notification. The insurer must also refund any advance premiums paid before canceling the policy.

Question 60

cancellation provision

Answer 60

One of the 11 optional provisions in a health insurance policy. Enables an insurer to cancel the policy at any time with 45 days notice.

Question 61

capital sum

Answer 61

The amount payable under an AD&D policy for accidental dismemberment; usually some percentage of the principal sum

Question 62

capitation

Answer 62

In a managed care plan (e.g., an HMO), this is the fixed amount of money the HMO pays to contracted health care providers for each enrollee
(subscriber) assigned to that provider, whether or not that person seeks care

Question 63

career (captive) agency system

Answer 63

The agency system under which the agent is employed by one insurance company. The agent works at a branch of the company under the
supervision of a general agent. The agent receives 50 percent or more in commissions as compensation for an initial sale, and an additional
reduced commission at the time of each yearly renewal.

Question 64

cash refund option

Answer 64

A life insurance settlement option with a life contingency in which the contingent payee receives a lump sum of any unpaid amounts

Question 65

cash surrender option

Answer 65

Under this option, the policy is surrendered and the insurer simply pays the cash value to the policyowner in a lump sum. At that point, the policy
is canceled. The insurer’s responsibility under the terms of the contract end. Surrendered policies cannot be reinstated.

Question 66

catch-up contributions

Answer 66

Additional amounts that 401(k) participants age 50 and older can choose to defer into their 401(k)

Question 67

certificate of coverage

Answer 67

A statement of coverage issued to an enrollee in a group insurance plan. The certificate outlines the benefits and provisions of the master policy
issued to the employer. Sometimes called a certificate of insurance, though this term more accurately relates to property and casualty insurance,
in which a certificate of insurance is evidence that certain types of coverage have been purchased by a party required to purchase such coverage

Question 68

change of beneficiary provision

Answer 68

One of the 12 required provisions in a health insurance policy. Applies to those cases where the policy provides a death benefit and a beneficiary
has been designated. This provision states that the policyowner has the right to change beneficiaries. However, a beneficiary can be changed
only if he or she had been designated revocable.

Question 69

change of occupation provision

Answer 69

One of the 11 optional provisions in a health insurance policy. This provision allows the insurer to increase the premium if the insured changes to a
more hazardous occupation.

Question 70

changing premium whole life insurance

Answer 70

A type of whole life policy, including indeterminate premium whole life and current assumption whole life, in which the premium rates are not fixed.
They can vary with the insurer’s actual experience.

Question 71

claim forms provision

Answer 71

One of the 12 required provisions in a health insurance policy. States that the insurer must provide claim forms for the insured within 15 days of
receiving a notice of claim

Question 72

COBRA

Answer 72

The Consolidated Omnibus Budget Reconciliation Act of 1985, known simply as “COBRA.” Protects those who are no longer covered by an
employer’s health insurance plan or its benefits. Coverage lasts for up to 18 months.

Question 73

collateral assignment

Answer 73

When a policyowner pledges his or her life insurance policy to secure a loan. The policy is the collateral

Question 74

combination dividend option

Answer 74

A dividend option in which the policy dividend is used to purchase one-year term insurance. The insurance is bought in an amount equal to the
policy’s cash value. Also called fifth dividend option

Question 75

commercial insurance company

Answer 75

Typically write traditional indemnity plans that reimburse the insured for all or a portion of the cost of health care he or she receives

Question 76

common disaster provision

Answer 76

Identifies how a life policy’s proceeds will be paid if the insured and the primary beneficiary are killed or die in close time proximity. Assumes the
insured dies before the beneficiary, so that proceeds are payable to the contingent beneficiary.

Question 77

community rating

Answer 77

A way of rating group contracts that examines the community or region in which the group operates. It then bases the group’s premiums on the
overall characteristics of a much broader risk pool (that is, the community).

Question 78

community rating laws

Answer 78

Laws that require insurers to limit premium differences among individuals. Insurers must base premiums on the risk profile or risk characteristic of
a geographic region

Question 79

condition precedent

Answer 79

A premium is a condition precedent to the insurer’s obligation to pay the death claim. If a policyowner fails to pay the premium on time, then the
insurer does not have to pay the promised death benefit.

Question 80

conditional contract

Answer 80

conditional contract

Question 81

conditional receipt

Answer 81

Provides for conditional coverage. The coverage begins on the date of application or the date of a medical exam if required, whichever is later.
The receipt is made on the condition that underwriting determines the insured is insurable

Question 82

conditionally renewable

Answer 82

A renewability provision in a health insurance policy under which the insurer guarantees that the policyowner can renew the coverage. But, he or
she must first meet the conditions of the policy

Question 83

conformity with state statutes provision

Answer 83

One of the 11 optional provisions in a health insurance policy. This provision addresses any provisions that differ from state law. Such a provision
is automatically changed to meet the minimum requirements of the law.

Question 84

convertibile term life insurance

Answer 84

Term life insurance that allows the policyowner to exchange the temporary coverage provided by the term insurance policy or rider for a
permanent life insurance policy. The insured does not have to prove his or her insurability

Question 85

convertibility provision

Answer 85

Allows an insured to change to a different policy without having to prove insurability. Usually found in term insurance and group insurance

Question 86

convertible term life insurance

Answer 86

Term life insurance that allows the policyowner to exchange the temporary coverage provided by the term insurance policy or rider for a
permanent life insurance policy. The insured does not have to prove his or her insurability.

Question 87

corporate-owned life insurance (COLI) plan

Answer 87

A business life insurance plan that typically covers lower level employees who are insured for the benefit of the corporation. Such a plan is usually
reserved for very large corporate employers or organizations. Under a COLI plan, the corporation takes out and owns individual policies on
individual employees. It names itself as the beneficiary. At the death of the individual employee, the company receives the benefit.

Question 88

corridor deductible

Answer 88

Common to supplementary major medical plans that work with a basic plan. A corridor deductible is applied after the basic plan pays benefits and
before the supplementary plan pays benefits.

Question 89

corridor requirement

Answer 89

The minimum amount of pure risk that must be maintained in a life insurance policy for it to meet the statutory definition of life insurance. Meeting
this definition qualifies the policy for the favorable tax treatment given to life insurance policies

Question 90

cost of living (COL) rider

Answer 90

Gives the policyowner the option to increase the face amount on his or her policy to fight inflation. This type of rider is tied to an inflation index
such as the Consumer Price Index (CPI).

Question 91

credit disability insurance

Answer 91

A variation of a traditional DI policy (income replacement policy is the other variation) that covers the risk of becoming disabled and being unable
to pay off a large loan. The policy is written so that its benefit period is the same as the loan period. The benefits payable are matched to the
decreasing loan balance. If the insured becomes disabled during the policy’s period, then the policy pays off the balance of the loan to the creditor

Question 92

credit life insurance

Answer 92

Life insurance designed to cover the life of a borrower in the amount of his or her outstanding loan. If the borrower dies, then the policy pays the policy’s death benefit to the creditor

Question 93

cross-purchase buy-sell agreement

Answer 93

A type of buy-sell agreement that is a contract between individual partners or shareholders. In this agreement, the partners or shareholders agree
to buy the interest of the other(s) in the event the individual(s) dies or withdraws from the business.

Question 94

current declared rate

Answer 94

One of two interest rate levels for a fixed annuity. (The other is guaranteed minimum rate.) This rate is subject to change periodically and is based
on the insurer’s investment results and on the economic climate.

Question 95

death benefit Option 1

Answer 95

A universal life insurance death benefit under which the benefit payable when the insured dies stays level and equal to the initial specified
amount. Also called Option A

Question 96

death benefit Option 2

Answer 96

A universal life insurance death benefit that is a generally increasing death benefit. This benefit equals the policy’s specified amount plus its cash
value.

Question 97

death benefit Option 3

Answer 97

A variable universal life insurance death benefit under which the benefit payable at the insured’s death equals the initial specified amount plus the
net aggregate premiums credited to the policy

Question 98

decreasing term life insurance

Answer 98

Provides temporary protection for a set period. The death benefit decreases monthly over the policy term. It continues decreasing until it reaches
zero at the end of the term

Question 99

disability buy-out policy

Answer 99

When an owner or partner can no longer participate in the business because of a disability, a disability income policy pays a benefit that the
partner or shareholders then use to buy out the owner’s or partners’ interest

Question 100

disability income benefit rider

Answer 100

A life insurance policy rider that pays a monthly income if the insured becomes totally disabled. Benefit payments do not reduce the policy’s cash
value or death benefit in any way

Question 101

dread disease policy

Answer 101

Another form of medical expense indemnity plan that covers specific illnesses such as heart disease, multiple sclerosis, or cancer. These types of
policies cover all medical costs associated with these diseases and have very high maximum limits.

Question 102

education savings plan

Answer 102

A form of Section 529 plan (along with prepaid tuition plans) that builds funds for college in a tax-advantaged way. This plan takes the form of a
state-managed investment account. To this account, parents (or grandparents) can contribute funds. When the funds are withdrawn for qualified
education expenses, they are not taxable.

Question 103

endowment

Answer 103

A permanent life policy for which premiums are paid for a specified number of years. If the insured is alive at the end of the specified period, then
he/she receives the face amount of the policy. If the insured dies before the end of the period, then the beneficiary receives the proceeds of the
policy

Question 104

endowment date

Answer 104

the point at which a life insurance policy matures or endows—when its guaranteed cash value equals its face amount.

Question 105

endowment insurance

Answer 105

A type of life insurance that pays the face amount to the insured after a specified time (endowment period) or to the beneficiary if the insured dies
before the period specified has ended

Question 106

endowment policy

Answer 106

A special form of life insurance in which cash values grow rapidly. As a result, the policy endows well before age 120 (e.g., age 65 was common).

Question 107

entire contract provision

Answer 107

A life and health policy provision that states that if any guarantees, promises, exclusions, or anything else are not included in the policy (or in the
application, if made a part of the policy), then they are not part of the contract

Question 108

entity purchase buy-sell agreement

Answer 108

A type of buy-sell agreement in which the business itself is a party to the agreement. In this plan, the business buys the interest or shares of a deceased partner or shareholder. The business can be a partnership or a close corporation

Question 109

equity indexed life insurance

Answer 109

A form of permanent insurance. The interest credited to the contract’s cash value is tied to an equity index instead of to a rate declared by the
insurer

Question 110

ERISA

Answer 110

Employee Retirement Income Security Act of 1974. ERISA is a federal law that sets standards in many areas for qualified retirement plans and
group insurance plans

Question 111

estoppel

Answer 111

When a party to a contract gives up a right without intending to do so

Question 112

exclusion ratio

Answer 112

Applied to each annuity payment to determine the portion that is excluded from tax

Question 113

executive bonus plan

Answer 113

A plan under which an employer agrees to pay some or all of the premiums on a life insurance policy an executive owns. The employer can
deduct the premium payments as compensation paid to an employee.

Question 114

express authority

Answer 114

The authority given to an agent by the contract between the agent and insurer

Question 115

extended term insurance option

Answer 115

An option under which the insurer applies the cash value of a lapsed policy to buy a term insurance policy. The term insurance is bought in an
amount equal to the face amount of the lapsed policy. The term coverage lasts for whatever period the cash value buys

Question 116

face amount

Answer 116

The amount of the death benefit stated in a life insurance policy. In a universal life policy, the face amount is called the “specified amount.”

Question 117

facility of payment clause

Answer 117

Allows the insurer to pay the death benefit to someone other than the beneficiary under certain conditions. This clause generally appears in group
life or industrial policies.

Question 118

Fair Credit Reporting Act (FCRA)

Answer 118

Sets procedures that requesting agencies must follow to ensure confidentiality, accuracy of reporting, and proper use of the information

Question 119

family income policy

Answer 119

A life insurance policy that combines whole life insurance and decreasing term life insurance on a named insured. The person named is typically a
family’s main wage earner. The period for the payment of the term portion of the death benefit begins when the contract is issued

Question 120

family maintenance policy

Answer 120

Provides an income to surviving family members by combining whole life insurance with level term life insurance. The period for the payment of
the term portion of the death benefit begins when the insured dies.

Question 121

fee-for-service plan

Answer 121

A payment system plan where the insured pays the health care provider (the doctor, for instance) for each service he or she provides. Then the
insurer reimburses the insured for costs incurred.

Question 122

FICA

Answer 122

Federal Insurance Contributions Act. This Act is the enabling legislation that grants the federal government the right to collect a portion of workers’
wages (through payroll taxes) to fund Social Security benefits. FICA taxes are also termed “OASDI-HI” taxes

Question 123

fiduciary

Answer 123

A person holding funds or valuable property for the benefit of another person. A fiduciary is generally held to a higher standard of care with
respect to the held propert

Question 124

field underwriting

Answer 124

The activities that the agent or producer performs when seeking applications for insurance. This includes requesting information about prospective
insureds and helping people fill out applications for coverage.

Question 125

fifth dividend option

Answer 125

A dividend option in which the declared dividend each year buys one-year term insurance. The insurance is bought in an amount equal to the
policy’s cash value. Also called combination dividend option

Question 126

fixed amount certain payout option

Answer 126

An annuity payout option under which income payments are made for as long as it takes to entirely liquidate the annuity principal. The contract
owner chooses a monthly amount. Then the insurance company computes how long it will take to liquidate the principal at the selected amount. If
the owner dies before the principal reaches zero, then the same payments are made to a beneficiary until the principal is entirely liquidated.

Question 127

fixed amount settlement option

Answer 127

A life insurance settlement option without a life contingency in which the payee receives a fixed income for an unspecified period. The insurer holds the proceeds placed under this option. The insurer then pays out the proceeds (including interest) on a schedule until the principal is
exhausted

Question 128

fixed period settlement option

Answer 128

A life insurance settlement option without a life contingency in which either the policyowner or beneficiary selects a payment period. Then the
insurer makes payments consisting of both principal (proceeds) and interest over the term of the period.

Question 129

fixed premium deferred annuity

Answer 129

An annuity whose owner makes on-going, fixed and level premium deposits of specific amounts. The owner makes these deposits at specified
times (annually, quarterly, monthly) during the contract’s accumulation period. This annuity type provides a specific amount of future income. Also
called retirement annuity

Question 130

foreign insurance company

Answer 130

Any company that does business in a state other than the one in which it is domiciled

Question 131

franchise association

Answer 131

Groups consisting of small employers in the same business who own and operate franchises.

Question 132

fraternal benefit society

Answer 132

An organization composed of individuals who typically share a common ethnic or religious affiliation

Question 133

fraternal insurers

Answer 133

Mainly life insurance providers whose insureds are also members of lodges or fraternal organizations

Question 134

free look provision

Answer 134

The provision that gives the new policyowner a set period (usually ten days) in which to review the policy and to decide whether to keep it. The
period begins when the policy is delivered to the owner

Question 135

front-end loaded

Answer 135

A life insurance policy in which an insurer deducts costs and fees from each premium before crediting the premium to the policy’s cash value. As a
result, the amount that is actually invested in the contract is reduced

Question 136

fund management fee

Answer 136

One of the three types of charges and fees common to variable annuities (the others are fund management fee and account contract fee). These
charges cover the cost of managing and administering the separate subaccount investment portfolios.

Question 137

future increase option rider

Answer 137

An individual DI policy rider that allows the insured to buy extra coverage under the policy without proving evidence of insurability.

Question 138

gain

Answer 138

The portion of the benefit includible in the beneficiary’s income for tax purposes.

Question 139

general account

Answer 139

The basic account in which an insurance company maintains the funds that support its fixed life insurance and annuity products. The general
account’s conservative investments allow the insurer to guarantee interest returns on its fixed insurance and annuity products

Question 140

government plans

Answer 140

In relation to health insurance, government plans are a third health insurance option after commercial insurers and managed care plans.
Government plans include Medicare, Medicaid, Social Security disability, and workers’ compensation.

Question 141

graded premium whole life insurance

Answer 141

Has premiums that start very low (compared to straight whole life). They then increase annually for a long period and stay level for the rest of the
life of the policy.

Question 142

grade-in period

Answer 142

In a graded premium whole life policy, the period during which premiums increase each year. This period may be ten

Question 143

gross annual premium

Answer 143

A premium that includes the loading costs

Question 144

group annuity

Answer 144

Has the same features as an individual annuity except that it is written on a group basis.

Question 145

group health insurance

Answer 145

A plan of insurance that an eligible group sponsor, such as an employer, provides for its members. The plan sponsor owns the plan and pays its
premiums. The individual group members are the insureds.

Question 146

group insurance

Answer 146

A category of life or health insurance in which one policy covers multiple people, each of whom receives a certificate of insurance as evidence of
their coverage.

Question 147

guarantee of insurability option

Answer 147

A rider an insured can add to an LTC policy that enables him or her to buy additional benefits after policy issue, no matter what his or her health
may be.

Question 148

guaranteed insurability rider

Answer 148

Guarantees that the policyowner can buy additional permanent life insurance on the insured’s life in the future; sometimes called a purchase
option rider or an additional insurability option ride

Question 149

guaranteed issue laws

Answer 149

Laws that require insurers to sell insurance to all potential customers regardless of health or pre-existing conditions

Question 150

guaranteed minimum rate

Answer 150

One of two interest rate levels for a fixed annuity. (The other is current declared rate.) This rate is usually low and extends for the life of the
contract

Question 151

guaranteed renewable

Answer 151

A renewability provision in a health insurance policy under which the insurer guarantees that, during the guaranteed renewable period, it will not
cancel the policy, and it will increase premiums only on a class basis.

Question 152

guideline premium test

Answer 152

One of the tests a policy must meet to qualify as life insurance. A policy must meet this test to receive the favorable tax status of life insurance.

Question 153

health maintenance organization (HMO)

Answer 153

A corporation that delivers health care services. HMOs are financed by premiums. The HMO creates a network of associated doctors, medical
care staffs and participating hospitals and clinics. This network provides curative and preventive treatment to enrolled members and their families.

Question 154

health savings account (HSA)

Answer 154

A tax-exempt account into which account holders can make tax-deductible contributions to finance health care services. Funds in an HSA account
grow tax-free. If withdrawn to cover medical expenses, they are also received tax free.

Question 155

HI

Answer 155

The portion of FICA tax that goes to Medicare. HI stands for hospital insurance. So FICA taxes are also termed “OASDI-HI” taxes.

Question 156

HIPAA

Answer 156

Health Insurance Portability and Accountability Act of 1996. Privacy and security regulations that apply to entities that have access to information
about a person’s health. HIPPA is intended to affect the way individual and group health insurance plans are made available. HIPAA mainly
ensures that those who have lost their jobs or want to change their health insurance carriers can continue their health benefits or carry them over
to another job (called portability). HIPAA applies to group insurance plans that cover two or more people

Question 157

human life value approach

Answer 157

Developed by Dr. Solomon S. Huebner, this approach is one of the first systems for determining how much life insurance is appropriate for a

person. Involves estimating a person’s personal earnings each year to retirement. Then the costs of self-maintenance and income taxes are
deducted. The result is residual income that is set aside to provide for family members. The residual income stream is discounted to its present
value. The present value thus determined is the value of that human life.

Question 158

illegal occupation provision

Answer 158

One of the optional provisions in a health insurance policy. This provision protects the insurer. It allows the insurer to deny liability when the
insured’s claim arises from an illegal activity he or she participated in.

Question 159

impairment rider

Answer 159

In a health insurance contract, an insurer usually uses an impairment rider to limit or exclude coverage for a specific condition an insured may
have.

Question 160

implied authority

Answer 160

An agent’s authority is implied when it: (1) is intended to be given by the insurer; (2) usually relates to the general customs of the business; (3) is
not contractually provided or specifically explained.

Question 161

income replacement policy

Answer 161

“A variation of a traditional DI policy that provides a benefit if the insured becomes disabled and cannot perform the duties of his or her occupation
and is not engaged in any other occupation. “

Question 162

incontestability provision

Answer 162

A provision in an insurance policy that states that after a policy has been in force for a set period, the insurer cannot contest a claim for any
reason except for non-payment of premiums. Under most policies, that period is two years.

Question 163

indeterminate premium whole life insurance

Answer 163

A whole life policy issued with two premium rates: (1) a lower fixed rate and (2) a guaranteed maximum rate.

Question 164

indexed annuity

Answer 164

A type of fixed annuity contract that allows contract owners to participate in some of the growth in the stock market while avoiding possible losses
to principal. Indexed annuities are commonly linked to the S&P 500 or a Dow Jones Index.

Question 165

indexed whole life insurance

Answer 165

A type of whole life policy that ties its death benefit and its premiums to a specified index, most commonly the Consumer Price index (CPI). Over
time, the policy’s face amount increases automatically with CPI increases.

Question 166

industrial life insurance

Answer 166

A class of individual life insurance that offers individual coverage in small amounts usually around $1,000 to $2,000. Generally, an insurance
agent calls on the policyowner at home on a weekly or monthly basis to collect the premium. Also known as home service insurance.

Question 167

inflation protection option

Answer 167

A rider an insured can add to an LTC policy to account for the rising costs of long-term care.

Question 168

installment refund option

Answer 168

A life insurance settlement option with a life contingency in which income payments continue to a contingent payee in the same amount as were
paid to the primary beneficiary. They continue until the amount placed under the settlement option is fully paid out

Question 169

insurable interest

Answer 169

An insurance policyowner’s financial interest in the person or property being insured. In general, insurance policy applicants must have an
insurable interest in the person or property they are seeking to insure.

Question 170

insurable risk

Answer 170

An applicant is an insurable risk to the insurer if he or she meets certain criteria for insurability; if these criteria are met, then the applicant is
insurable.

Question 171

insured buy-sell agreement

Answer 171

When life insurance is bought to provide the funds to support a buy-sell agreement

Question 172

insuring clause

Answer 172

The basic agreement between the insured and the company. The clause states the company’s promise to pay the policy’s face amount (death
benefit) to the named beneficiary if the insured dies.

Question 173

interest-sensitive whole life insurance

Answer 173

A life insurance policy characterized by premium rates that can change over time in response to the insurer’s actual mortality, interest, and
expense experience

Question 174

intermediate care

Answer 174

On-going care necessary to address a person’s condition, but not needed 24-hours a day. Intermediate care is delivered by registered nurses,
licensed practical nurses, and nurses aides, who are being supervised by a doctor. It is usually delivered in a nursing home, but depending on the
individual case, it can also be provided at one’s home or in a community-based center.

Question 175

intoxication or the use of narcotics provision

Answer 175

One of the optional provisions in a health insurance policy. This provision excludes insurer liability if a covered loss results from intoxication or the
use of narcotics.

Question 176

investigative consumer report

Answer 176

Used in the underwriting process. Provides information on a person’s personal history and lifestyle. These reports also provide information on his
or her financial condition. They can be required in underwriting a policy for issue

Question 177

joint and last survivor life income settlement option

Answer 177

An annuity or life insurance death benefit payout option under which an income is paid until the second of the two annuitants dies. Upon the
second death, no further payments are made to anyone. Also called a joint and survivor option

Question 178

joint annuitant

Answer 178

Two or more people named as annuitants in an annuity.

Question 179

jumping juvenile life insurance

Answer 179

A form of permanent coverage, typically issued in units of $1,000 of death benefit. Because the insured is so young when the policy is issued, the
premiums are relatively small. When the insured child reaches age 21, the death benefit jumps to $5,000 per unit. However, the premium does not
change, nor is proof of insurability required

Question 180

Keogh plan

Answer 180

A qualified retirement plan designed for unincorporated businesses (sole proprietorships and partnerships) that allows the business owner or
partner to participate in the plan as an “employee.” Keogh plans can be set up as either a defined benefit plan or a defined contribution plan.
Keoghs are treated the same way as corporate plans with respect to maximum contribution and benefit limits, participation and coverage
requirements, and nondiscrimination in coverage, contributions, and benefits.

Question 181

key person insurance

Answer 181

Life insurance, owned by a business, that covers the business in the event of the key employee’s death. The business applies for, owns, and is
the beneficiary of the policy covering the life of a key employee.

Question 182

labor union group

Answer 182

In relation to group life insurance, labor unions can buy group policies to insure members of the union. The union owns the policy for the benefit of
the members.

Question 183

last in/first out (LIFO)

Answer 183

In an annuity, LIFO is how withdrawals are treated. Premium payments are made first; then interest accrues on top of that amount. So earned
interest is the “last in” part of the equation. And because the earned interest is “last in,” accruing “on top of” the principal, the interest is also the
first out when a withdrawal is made

Question 184

law of large numbers

Answer 184

A method of predicting future losses with great accuracy. It is based on the principle that the greater the number of incidents of a random process,
the more the expected number of incidents and the actual numbers of incidents tend to become the same. It is the mathematical principle of
probability on which insurance rests.

Question 185

legal actions provision

Answer 185

One of the 12 required provisions in a health insurance policy. Defines the periods during which the insured can take a legal action against the
insurer because it didn’t pay a claim

Question 186

legal delivery

Answer 186

Legal delivery of a policy requires personal delivery to the client and an explanation. For example, the agent should explain any terms of the policy
that were imposed during the underwriting process. The agent should also inform the owner of any additional premium charge that was not known
at the time of application.

Question 187

level premium

Answer 187

In life insurance policies, insureds pay the same (level) premium over the life of the policy. At any time, the insured never pays more in premium
than he or she paid in the early years of the policy, when he or she was young.

Question 188

level premium payment

Answer 188

A premium payment plan in which the premium is set and remains fixed over the policy’s term.

Question 189

level term life insurance

Answer 189

Provides a level death benefit. It also charges a level premium for a set period.

Question 190

life contingency options

Answer 190

The payout options for annuitized income based on the life of one or more annuitants. A life contingent payout guarantees that income payments
are made for as long as the annuitant lives, no matter how long that is.

Question 191

life income settlement option

Answer 191

A life insurance or annuity settlement option with a life contingency. This type of settlement option is based on the lifespan of the payee.
Settlement options with life contingencies all have a common element: they involve lifetime income payments.

Question 192

life income with period certain

Answer 192

A life insurance settlement option with a life contingency under which a payee receives income payments for life. However, he or she is
guaranteed that the payments will be made for a specified term

Question 193

life income with refund

Answer 193

A life insurance settlement option with a life contingency that provides income payments for the life of the payee. If the payee dies before
receiving payments equal to the amount placed under the settlement option, then the remainder goes to a contingent payee in the form of a
refund.

Question 194

life income with refund guarantee

Answer 194

An annuity payout option that pays the annuitant an income for life no matter how long he or she lives. If the annuitant dies before total income
payments equal the annuity’s accumulated cash value, then the refund guarantee option provides that the balance is paid to the chosen
beneficiary

Question 195

life with period certain

Answer 195

An annuity payout option that guarantees that income is paid for the length of the annuitant’s life. However, the income is paid but for no less than
a certain number of years. So if the annuitant dies before the chosen term period ends, then income payments continue to his or her beneficiary
for the balance of the period.

Question 196

limited choice plans

Answer 196

Medical expense insurance that requires insureds get medical care from certain providers if the cost of the care is to be covered.

Question 197

limited payment whole life insurance

Answer 197

A whole life insurance policy under which a policyowner pays a higher premium than for an otherwise identical ordinary whole life policy in return
for the right to pay premiums for a shorter period.

Question 198

limited risk policy

Answer 198

Pays benefits only for very specific risks.

Question 199

living benefits

Answer 199

The funds from cash values that life insurance provides; these cash values are used during the insured’s lifetime.

Question 200

living benefits rider

Answer 200

Any of several life insurance policy riders designed to provide access to the policy’s face amount while the insured is alive.

Question 201

Lloyd’s associations

Answer 201

The individual members that offer insurance services through Lloyd’s of London

Question 202

Lloyd’s of London

Answer 202

An insurance market; it provides: a meeting place for transacting insurance business; underwriting information; a forum for settling disputes and
claims, and other regulatory and administrative services.

Question 203

load factor

Answer 203

A premium factor that represents the insurer’s expenses (and the profit the company wants to derive).

Question 204

loading

Answer 204

The amount added to the net premium of a policy to cover the operations costs of the insurance company. Such costs include rent, salaries,
commissions, etc.

Question 205

long-term care

Answer 205

A broad term that includes a wide range of assistance, services, or devices provided over an extended period. Long-term care is designed to meet
medical, personal, ad social needs in a variety of settings or locations to enable a person to live as independently as possible. Such care may
involve custodial care, intermediate care, or skilled nursing care

Question 206

long-term care rider

Answer 206

An optional life insurance policy rider that provides accelerated payment of the policy’s death benefit if the insured becomes chronically ill.
Benefits can be used to help pay for medical, nursing home, and assisted living care for extended durations

Question 207

long-term disability coverage

Answer 207

Group plans with maximum benefit periods of two years or more.

Question 208

look-back period

Answer 208

The period during which the insurer “looks back” (usually no more than six months before the insured enrolled in the plan) to determine if the
insured had any pre-existing conditions that would be excluded from coverage

Question 209

loss

Answer 209

An unwelcome and unplanned reduction in economic value.

Question 210

lump sum cash payment

Answer 210

Payment of insurance policy proceeds in a single (lump) sum.

Question 211

MAGI

Answer 211

Modified adjusted gross income (MAGI) is a taxpayer’s adjusted gross income (AGI) plus certain additional items like IRA contributions, student
loan deductions and foreign income. It is used to determine whether an individual is eligible to deduct traditional IRA contributions and whether an
individual is eligible to make contributions to a Roth IRA

Question 212

maintenance fee

Answer 212

A fee charged by some variable life and health insurers that is added to the initial premium. The fee pays the costs of acquiring the new business
and offsets costs such as commissions, administration setup, and ongoing maintenance.

Question 213

managed care plan

Answer 213

Systems of healthcare delivery. They share the cost of the service and treatment with the managed care provider, such as HMOs or PPOs.

Question 214

managed care provider

Answer 214

Provide their insureds with health care directly through a network of health care providers.

Question 215

managerial system

Answer 215

One of three distribution systems to bring an insurer’s policies to market; in a managerial system, the agency head is an employee of the insurer.
The insurer is responsible for agency expenses and staffing

Question 216

market value adjusted annuity (MVA)

Answer 216

A fixed annuity that offers an interest rate adjustment feature. This feature lets the owner take advantage of interest crediting changes in response
to market conditions at the time he or she withdraws funds

Question 217

master policy

Answer 217

In a group life policy, the master policy indicates the sponsor as policy owner and premium payor.

Question 218

matching contributions

Answer 218

A provision in most 401(k) plans that allows employers to match every $1 employee contribution with a 50 cent- or more contribution.

Question 219

maximum premium

Answer 219

In a UL policy, the highest amount that can be paid for that level of death benefit and still allow the policy to meet the guideline premium test.

Question 220

Medicaid

Answer 220

A program funded by state and federal funds and administered by the states. This program pays for healthcare for the financially needy,
regardless of age.

Question 221

Medical Information Bureau (MIB)

Answer 221

A non-profit clearinghouse that holds a database of confidential medical information on applicants for life and health insurance.

Question 222

medical savings account (MSA)

Answer 222

The forerunners of HSAs. Group MSAs were created specifically for self-employed people and employees of small employers. Their purpose is to help fund qualified medical expenses on a tax-advantaged basis.

Question 223

Medicare

Answer 223

A federal health insurance program designed specifically for people age 65 and over and for certain disabled persons. Medicare is funded by
payroll taxes. It extends the Social Security program beyond retirement, disability, and survivor benefits into the field of medical expense benefits.
Coverage provided under Medicare is divided into four parts: A through D

Question 224

Medicare Advantage

Answer 224

The popular name for Medicare Part C. This part of Medicare opened the program to new health care providers and health care programs. These
new additions offer the full range of Medicare services to participants. Such services include managed care plans, preferred provider
organizations, and private fee-for-service plans.

Question 225

Medicare SELECT plan

Answer 225

Medicare supplement coverage offered by a managed care provider or by an insurance company that offers the policy’s benefits through a
network of doctors, hospitals, and health care service provider

Question 226

Medicare Supplement plans

Answer 226

Designed mainly as supplements to reimbursements under Medicare. These plans help pay for the hospital, medical, or surgical costs of persons
eligible for Medicare. They were designed to provide funds to pay the deductibles and coinsurance. Medicare supplement policies are also known
as Medigap policies. The range of available Medicare supplement policies include 12 different plans, which are Plans A through L. The provisions
of each plan are the same among insurers

Question 227

minimum premium

Answer 227

In a UL policy, the minimum amount that is estimated to cover the cost of pure UL insurance and policy expenses.

Question 228

misstatement of age of sex provision

Answer 228

A provision in life and health insurance that states the action to be taken if a proposed insured misstates his or her age or sex on an application
for coverage. Normally, policy benefits are changed to the benefits that the premium would have provided if the correct age and sex had been
stated.

Question 229

modified adjusted gross income

Answer 229

Income calculated to determine if a recipient’s Social Security benefits are subject to income tax. Modified adjusted gross income includes earnings, pension benefits, dividend taxable investment earnings, interest on tax-exempt bonds, and one-half of the Social Security benefits. Any
income over these levels may be subject to up to 85 percent of the Social Security benefits to tax.

Question 230

modified endowment contract (MEC)

Answer 230

A category of life insurance policy that fails to meet the 7-pay test imposed by the federal government. Because of that, a MEC loses some, but
not all, of the favorable tax treatment normally given to life insurance policies.

Question 231

modified premium whole life insurance

Answer 231

Policies with a lower premium in the early years of the policy, usually the first five years. At the end of the initial period, the premium is increased
and stays at that increased level for the life of the policy

Question 232

monthly income unit

Answer 232

In family income policies, monthly income as defined in terms of $10 for every $1,000 of whole life coverage.

Question 233

morbidity

Answer 233

Used by insurers in pricing health insurance policies. Morbidity rates indicate the average number of persons at various ages who can be
expected to become disabled because of sickness or accident. Morbidity rates also indicate how long a disability is expected to last.

Question 234

mortality

Answer 234

Mortality is the rate of death in the target population; it is a significant factor in calculating life insurance premiums.

Question 235

mortality and expense cost (M&E)

Answer 235

One of the two types of charges and fees common to variable annuities (the other is fund management fee). These are the insurance-related
costs for a variable annuity. They cover the cost of the contract’s death benefit.

Question 236

mortality charge

Answer 236

Reflects the cost of insurance for that point in the insured’s life. Consequently, over time, the mortality cost increases, which reflects the insured’s
age

Question 237

mortality rate

Answer 237

Used by insurers in pricing life insurance policies. Mortality rates indicate the average number of persons within a very large group who can be
expected to die in any given year.

Question 238

multiple employer trust (MET)

Answer 238

A trust of two or more employers that buy group insurance for their employees. Contributions from the employers, employees, or a combination of
both are paid into the trust. The trust buys insurance for the benefit of the employees. The trust owns the policy.

Question 239

multiple employer welfare arrangement (MEWA)

Answer 239

An association of employers formed to buy group insurance for their employees. These plans are usually established by employers that are in the
same trade or industry, as provided under ERISA

Question 240

multiple indemnity rider

Answer 240

A rider to a health insurance policy that offers benefits if the insured dies accidentally or becomes dismembered or loses a limb because of an
accident.

Question 241

mutual insurance companies

Answer 241

Owned by policyowners; mutual companies have no stockholders.

Question 242

National Association of Insurance Commissioners (NAIC)

Answer 242

An association of insurance commissioners in the various states. Actively proposes model laws that standardize policies and promote fair trade
practices in the insurance industry

Question 243

National Association of Securities Dealers (NASD)

Answer 243

An organization that regulates agents who sell variable life products.

Question 244

natural group

Answer 244

A collection of people that form a group simply because they work in the same place or happen to belong to a mutual organization. To be eligible
for group coverage, the group must be a natural group

Question 245

natural person

Answer 245

An individual—a parent, spouse, or partner in a business relationship.

Question 246

needs approach

Answer 246

An approach for determining how much life insurance is appropriate for a person. This approach determines personal life insurance needs based
on a detailed review of each person’s specific situation. It mandates that the person’s and family’s income, liabilities, and assets be examined to
calculate the right amount of life insurance.

Question 247

net amount at risk

Answer 247

The difference between a life insurance policy’s cash value and the policy’s death benefit.

Question 248

net single premium

Answer 248

The theoretical single premium amount, minus (“net of”) the expense charge, required to fund a fixed life insurance policy’s face amount.
Calculating the net single premium is the first step in calculating the premium actually paid by the policy owner. (When an expense charge is
added, the result is the gross single premium.)

Question 249

noncancellable

Answer 249

A renewability provision in a health insurance policy under which the insurer guarantees that during the noncancellable period, it will not end the
policy, nor will it increase the premium.

Question 250

non-contributory

Answer 250

A group plan in which the employer pays the entire premium amount for group term life insurance.

Question 251

non-contributory plan

Answer 251

A category of group health insurance plan that does not require participants to make contributions to the premium for coverage.

Question 252

nondisabling injury provision

Answer 252

Included in many disability income policies, this provision pays for medical expenses or medical treatment that the insured incurs because of
accidental injuries. The policy pays the benefit even if the injury does not produce a sustained disability or a loss of income.

Question 253

nonforfeiture option

Answer 253

A guarantee given to the policyowner that prevents the loss of the cash value. This option applies when the policy is surrendered or lapses. The
purpose of the option is to identify how the cash value will be used

Question 254

non-natural person

Answer 254

A corporation or trust.

Question 255

non-participating policy

Answer 255

A class of life (or health) insurance policy in which the owner is not entitled to be paid a dividend. Generally, individual health insurance is nonparticipating.

Question 256

nonqualified annuity

Answer 256

Annuities that are not used to fund a qualified plan, such as an IRA or 403(b) plan.

Question 257

nonqualified plan

Answer 257

A retirement plan that does not meet IRS qualification requirements and does not qualify for favorable tax treatment. A deferred compensation
agreement is an example of a nonqualified plan

Question 258

notice of claim provision

Answer 258

One of the 12 required provisions in a health insurance policy. Requires that the insured notify the insurer within 20 days after he or she has a
covered loss.

Question 259

Notice of Information Practices Statement

Answer 259

A type of disclosure to an insurance applicant that informs the applicant that, in the course of underwriting the policy, the insurer may collect
information from sources other than the application. In addition, it states how the insurer can share that information with third parties.

Question 260

OASDI

Answer 260

Old Age, Survivors, and Disability Insurance program. Provides monthly benefits to qualified retired and disabled workers and their dependents,
and to survivors of insured workers. Eligibility and benefit amounts are determined by the worker’s contributions to Social Security

Question 261

occupation classification table

Answer 261

Used by DI insurers to determine adequate disability insurance protection for an insured based on his or her occupation.

Question 262

offer

Answer 262

One of the three elements of a contract. To be considered a valid offer, the offeror must express a willingness to enter into an agreement in a way
that the offeree understands that saying yes to the offer will result in an agreement. Can be either written or verbal.

Question 263

offeree

Answer 263

In a contract, the party to whom an offer is made.

Question 264

offeror

Answer 264

in a contract, the party making the offer

Question 265

optionally renewable provision

Answer 265

A renewability provision in a health insurance policy under which the insurer holds the right to cancel the policy on a date sp

Question 266

ordinary life insurance

Answer 266

A class of individual life insurance that offers individual coverage in a variety of term (temporary) or permanent plans, in any face amount.

Question 267

other insurance in this insurer provision

Answer 267

One of the 11 optional provisions in a health insurance policy. This provision limits the total coverage that the company assumes with one insured.

Question 268

other insurance with other insurer provision

Answer 268

One of the 11 optional provisions in a health insurance policy. This provision allows an insurer to prorate the amount of benefit it will pay for an
expense-covered loss if another insurer is covering losses from the same event. It keeps the insured from receiving a benefit larger than the loss

Question 269

other insurance with other insurers provision

Answer 269

One of the 11 optional provisions in a health insurance policy. Similar to the other insurance with other insurer provision. But this provision extends
to coverage with multiple insurers of which the primary insurer had prior knowledge.

Question 270

other insured rider

Answer 270

Covers someone other than the base policy insured. These riders typically take the form of term insurance. Many people buy such riders rather
than buying permanent policies on each person. Common other insured term riders are children’s term rider and family term rider.

Question 271

overinsurance

Answer 271

A duplication of benefits when a single group participant is covered by more than one plan.

Question 272

own occupation

Answer 272

Under a health insurance policy using the own occupation definition of total disability, the policy’s benefits are payable if the insured cannot
perform the duties of his or her own regular occupation.

Question 273

own occupation definition of disability

Answer 273

A definition of total disability that requires the insured be unable to perform the duties of his or her own occupation.

Question 274

owner-driven contract

Answer 274

Annuity contracts that pay out their values when the owner dies.

Question 275

paid-up additions option

Answer 275

A dividend option in which the dividend buys additional paid-up insurance of the same type as the base policy.

Question 276

paid-up insurance option

Answer 276

A dividend option that lets the policyowner use the dividends to pay up a life insurance policy early.

Question 277

paid-up policy

Answer 277

A life insurance policy for which all required premiums have been paid, but the policy has not matured. No more premiums are necessary or
possible

Question 278

partial disability

Answer 278

The partial disability benefit continues benefit payments (on a reduced basis) to an insured who is recovering from a total disability and is able to
work on a partial basis. It is sometimes called a “recovery benefit.”

Question 279

partial surrender

Answer 279

In a universal life or adjustable life insurance policy, a partial surrender involves the actual surrendering of a portion of the policy as a way to
withdraw some of its cash value. The death benefit under a partial surrender is reduced proportionately by the amount of the surrender.

Question 280

participating policy

Answer 280

A class of life (or health) insurance policy in which the owner is paid a dividend out of the insurance company’s earnings that are available for
distribution (the divisible surplus)

Question 281

participation rate

Answer 281

The percentage of the index change that is actually credited to an indexed annuity. These rates typically range from 60 to 90 percent.

Question 282

payment of claims provision

Answer 282

Defines how and when insurance proceeds are to be paid out. This provision also defines the requirements to initiate a death benefit claim.

Question 283

payor benefit

Answer 283

Commonly associated with juvenile insurance, this benefit pays the policy premium when the policy owner becomes disabled or dies.

Question 284

PDP

Answer 284

Private prescription drug plan.

Question 285

per capita

Answer 285

A beneficiary designation where proceeds of the policy are paid only to the beneficiaries who are alive and have been named in the policy. The
share of a per capita beneficiary is not passed down to his or her children. Instead, the share is paid to the policy’s other named beneficiaries

Question 286

per stirpes

Answer 286

A beneficiary designation where proceeds of a life insurance policy pass down to the beneficiary’s children if the named beneficiary dies before
the insured

Question 287

period certain-only option

Answer 287

An annuity payout option without a life contingency. Payments are made over a set number of years or in specified amounts and then end. Also
called a term certain option.

Question 288

permanent life insurance

Answer 288

A class of life insurance, permanent insurance lasts for the insured’s entire lifetime or until age 120. As long as premiums are paid, the insurance
stays in force and is guaranteed to pay its death benefit.

Question 289

permanently insured

Answer 289

Regarding Social Security benefit eligibility, a fully insured worker is considered permanently insured once he or she has earned 40 quarters of
coverage. At that point, it is no longer necessary to continue earning at least one QC per calendar year to remain fully insured

Question 290

physical examination and autopsy provision

Answer 290

One of the 12 required provisions in a health insurance policy. Allows the insurer to require the insured to take a physical exam during the claims
investigation process. (The insurer must pay for the exam.) If the claim is because of the death of the insured, this provision also allows the
insurer to order an autopsy to determine the cause of death. Again, the insurer must pay for the autopsy

Question 291

point-of-service option (POS)

Answer 291

Allows an HMO member to get treatment from a provider outside the HMO network. In a PPO, the POS option covers out-of-network services at a
lower rate or lower percentage; members must pay larger out-of-pocket cost on deductibles and co-payments.

Question 292

policy dividend

Answer 292

An amount returned to the owner of a participating insurance policy out of an insurance company’s surplus funds.

Question 293

policy loan

Answer 293

A loan granted by an insurance company to a permanent life insurance policyowner, using the policy’s cash value as collateral.

Question 294

portability

Answer 294

When insureds can take their health benefits with them from job to job.

Question 295

preferred risk

Answer 295

One of the three risk classifications; any risk that is considered to be better than standard.

Question 296

Pregnancy Discrimination Act

Answer 296

This act makes discrimination on the basis pregnancy, childbirth, or related medical conditions unlawful sexual discrimination.

Question 297

premium

Answer 297

The charge to the policyowner for the risk the insurance contract covers. The greater the risk, the higher the premium.

Question 298

premium receipt

Answer 298

The receipt an agent normally gives an applicant when the applicant submits an application for life insurance with the first premium payment. The
receipt is designed to offer interim coverage while the application is being approved and the policy is being formally issued.

Question 299

premium reduction option

Answer 299

A dividend option in which the insurance company keeps the dividend and uses it to reduce the next premium due.

Question 300

premium tax

Answer 300

A tax levied on insurance companies on the receipt of premiums.

Question 301

pre-paid plan

Answer 301

A plan under which the health care provider pre-negotiates with the insurer the fees for a given service. The health care provider bills the insurer
directly rather than billing the insured. HMOs and PPOs typically use the pre-paid option.

Question 302

prepaid tuition plan

Answer 302

A form of Section 529 plan (along with education savings plans) set up to “pre-pay” a child’s education. These plans guarantee a regular plan of
savings will mature to guaranteed paid semesters of college. Future college tuition can be “locked in” at today’s prices.

Question 303

present value

Answer 303

The value today that a given sum of money will grow to in the future, with interest earnings added.

Question 304

presumption of disability provision

Answer 304

A provision in a health insurance policy under which the insured can automatically qualify for the policy’s full benefit if he or she were to suffer
from certain specified conditions. These conditions are severe enough that total disability is presumed.

Question 305

pre-tax dollars

Answer 305

Employee contributions made directly into a qualified retirement plan before income taxes are assessed.

Question 306

preventive care

Answer 306

A strategy used by HMOs to detect diseases in members early and to promote healthy member lifestyles. By so doing, HMOs help members
avoid preventable illnesses.

Question 307

primary beneficiary

Answer 307

The first person (or class of persons) in line to receive the death benefits.

Question 308

primary care physician (PCP)

Answer 308

Controls access to the HMO network. The PCP’s role is to coordinate and direct members’ health care treatment. Based on this role, the PCP is
sometimes known as a “gatekeeper.”

Question 309

primary insurance amount (PIA)

Answer 309

The amount of the retirement benefit the worker will receive when he or she reaches full retirement age. It is the basis for benefits payable to the
worker’s family and dependents

Question 310

principal

Answer 310

The party on whose behalf the agent acts.

Question 311

principal sum

Answer 311

The benefit payable for accidental death. This sum is the amount of insurance the insured bought.

Question 312

probationary period

Answer 312

When used with an individual health insurance policy, a probationary period is the period that must pass between the policy’s effective date and
the time benefits are payable. Its purpose is to help the insurer avoid adverse selection. When used with group insurance, the probationary period
is the time the employee must be employed before being eligible for the company’s employee benefits. The employer identifies this period.

Question 313

producer

Answer 313

Anyone who sells insurance for another and gets a policy from the insurer; also called an agent.

Question 314

profit-sharing plan

Answer 314

A form of defined contribution plan that allows employees to share in the profits of the employer. The employer is the sole contributor to the plan.
The contributions are calculated using a pre-determined formula

Question 315

promisee

Answer 315

In a contract, the party to whom the promisor makes a promise.

Question 316

promisor

Answer 316

In a contract, the party who has the “duty to perform.” The promisor is the party who makes the promise.

Question 317

proof of loss provision

Answer 317

One of the 12 required provisions in a health insurance policy. The insurer must receive written proof of loss within 90 days of the loss. This period
can be extended for extenuating circumstances

Question 318

purchasing group

Answer 318

A group of persons or entities with similar risks who form an organization for the purpose of buying insurance on a group basis.

Question 319

pure joint option

Answer 319

A variation of the joint and last survivor life income option (an annuity payout option). Under this payout option, income is paid to two or more
annuitants until the first one dies.

Question 320

pure risk

Answer 320

That which can result only in a loss to the person at risk.

Question 321

qualified annuity

Answer 321

Annuities used to fund a qualified plan; qualified annuities are taxed according to the rules that govern the plan.

Question 322

qualified retirement plan

Answer 322

A formal retirement plan set up by an employer to provide its employees with future benefits. It does so in a way that meets certain IRS-imposed
requirements. By meeting these qualifying standards, the plan is granted advantageous tax treatment. Such tax treatment favors both the
employer and the employees.

Question 323

quarters of coverage

Answer 323

The basic units for determining whether a worker is covered under Social Security. A worker receives one quarter of coverage for a certain dollar
amount of wages earned.

Question 324

rate cap

Answer 324

In relation to an EIA, a rate cap is the maximum interest rate that is applied to the funds in the EIA if the percent of change in the index is greater
than the cap

Question 325

rebate

Answer 325

The giving of anything of significant value to induce someone to buy insurance. Includes payment for referrals to non-licensed people.

Question 326

reciprocal insurer

Answer 326

An unincorporated group of subscribers working individually and together through an attorney-in-fact to provide reciprocal insurance among
themselves.

Question 327

recurrent disability

Answer 327

A disability that occurs within a specified (limited) time after a period of disability from the same or related cause.

Question 328

redetermination

Answer 328

The process insurers use to evaluate their actual experience and to apply the changes to their premium rates

Question 329

reduced paid-up insurance option (RPU)

Answer 329

Under this option, the lapsed policy’s cash value is applied as a net single premium to buy a paid-up policy of the same type as the lapsed policy.
The paid-up death benefit is the amount that the cash value buys as a single premium at the insured’s age

Question 330

re-entry term life insurance

Answer 330

Term life insurance under which the insured can renew his or her coverage at the end of the specified term at a lower rate than the guaranteed
rate by proving insurability.

Question 331

rehabilitation provision

Answer 331

A provision in some DI policies under which the insurer pays for occupational therapy, training, or modifications to the insured’s work place to help
the insured to return to work.

Question 332

reimbursement contract

Answer 332

A health insurance policy that bases the amount of benefit on the loss that is actually suffered.

Question 333

reinstatement provision

Answer 333

A provision that lets the policyowner place a lapsed policy back in force within a certain period. This period is typically three years.

Question 334

reinsurance

Answer 334

An insurer that sells insurance to the public enters into an agreement with another insurance company to accept some of its risk. The insurer
accepting some of the risk being transferred is known as the reinsurance company

Question 335

relation of earnings provision

Answer 335

One of the 11 optional provisions in a health insurance policy. This provision applies to policies that provide income payments if the insured
becomes disabled. If many insurers are insuring for the same risk, then it limits the liability of any one insurer’s policy to the proportion of the total
benefits it assumes.

Question 336

relation-to-earnings provision

Answer 336

Included in many disability income policies, this provision limits the amount of benefits the insurer will pay. The total amount of disability benefits
from all insurers and from all policies the insured owns cannot be more than an insured’s usual earnings.

Question 337

renewability provision

Answer 337

In health insurance, this provision defines the terms under which the policy may be cancelled or renewed. Common terms include cancelable,
conditionally renewable, guaranteed renewable, and noncancelable

Question 338

renewable term life insurance

Answer 338

A type of level term insurance contract that allows the coverage to be renewed for another period or another term without proof of insurability.

Question 339

representation

Answer 339

A statement made at the time a contract is formed. This statement persuades a party to enter into the contract.

Question 340

reserve

Answer 340

For a younger person, the premium he or she pays in the earlier years of a life insurance policy is higher than what it actually costs the insurer
annually to insure the person. The money “left over” between the premium and the actual cost of insurance in the early years is the reserve

Question 341

residual benefit payment

Answer 341

A method of benefit payment for a partial disability that is based on the proportion (percentage) of income that is actually lost because of the
partial disability.

Question 342

retirement earnings test exempt amount

Answer 342

An earnings test that is imposed if a worker elects to receive Social Security benefits before he or she reaches FRA and, at the same time,
continues to work and earn money. Social Security benefits are reduced for amounts earned over this limit, but return to their full amount at the
worker’s FRA.

Question 343

return of premium option

Answer 343

A rider an insured can add to an LTC policy that returns a part of the premium paid for the LTC coverage to the insured’s estate. Or, it returns a
part of the premium to a named beneficiary when the insured dies.

Question 344

return of premium rider

Answer 344

Pays to the owner of a term policy all or a portion of premiums paid if the insured is alive at the end of the policy term. The returned premiums do
not include interest

Question 345

revocable beneficiary

Answer 345

A beneficiary in a life insurance policy that has no rights in or to the policy during the insured’s lifetime. The revocable beneficiary has only an
expectancy that he or she may receive the death benefit without the beneficiary’s permission.

Question 346

revocable of beneficiary

Answer 346

A beneficiary in a life insurance policy that has no rights in or to the policy during the insured’s lifetime. The revocable beneficiary has only an
expectancy that he or she may receive the death benefit without the beneficiary’s permission.

Question 347

rider

Answer 347

An attachment to an insurance policy that changes the benefits either by adding new benefits or by excluding certain benefits from coverage.

Question 348

risk classification

Answer 348

The risk-selection process that insurance underwriters follow. As a result of this process, the proposed insured is (1) accepted at standard
premium rates; (2) assigned to one of the various substandard rating classifications; or (3) reject.

Question 349

risk reduction

Answer 349

Taking measures to reduce a certain risk; reducing a risk does not remove the possibility of suffering a financial loss.

Question 350

risk retention

Answer 350

Choosing to use existing assets to pay for any losses if the risk becomes a reality; also known as the “do nothing” option.

Question 351

risk retention group (RRG)

Answer 351

An insurance company that provides self-insurance services to owner-members. These members all have a business, occupation, or professional
relationship with one another

Question 352

risk sharing

Answer 352

One of the oldest ways to manage risks; similar to buying insurance in that a part of the risk is transferred to others

Question 353

risk transfer

Answer 353

An individual or business transfers the risk of loss to an insurance company in return for a premium.

Question 354

rollover IRA

Answer 354

Transferring funds from one qualified account or traditional IRA to another qualified account or IRA. Received funds must be rolled over within 60
days to avoid current income taxation

Question 355

Roth conversion

Answer 355

The result of converting a traditional IRA into a Roth IRA. Current income taxes are payable on the full value of the traditional IRA at the time of
the conversion, but after that, all distributions are tax-free

Question 356

Roth IRA

Answer 356

An alternative to a traditional IRA, Roth IRAs provide for “back-end” benefits. This means that contributions to a Roth account cannot be deducted
and are taxed. But the earnings on those contributions, when withdrawn, are entirely tax-free.

Question 357

rules of agency

Answer 357

The “common law” rule that states that an agency relationship must involve two parties: (1) a principal, and (2) an agent.

Question 358

S Corporation

Answer 358

A form of corporation, allowed by the IRS for most companies with 75 or fewer shareholders, which enables the company to enjoy the benefits of
incorporation but be taxed as if it were a partnership. Also called Subchapter S Corporation.

Question 359

salary continuation plan

Answer 359

A common form of deferred compensation arrangement under which the executive does not actually defer any compensation. Instead, the
employer agrees to continue paying a portion of the employee’s salary after he or she retires.

Question 360

sales load

Answer 360

An additional charge imposed by the insurer to allow the company to recover its new business acquisition costs.

Question 361

SAR-SEP

Answer 361

A salary-reduction SEP; no longer allowed to be set up as of 1997. However, those already in place can continue to operate. Employee
contributions are deferred into the plan instead of being paid out as current (taxable) compensation. This feature is like that of a 401(k). The limit
on employee contributions to a SAR-SEP is the same as those for a 401(k) and other elective deferral plans.

Question 362

save age

Answer 362

Backdating a policy by up to six months, which qualifies an applicant to have the policy issued at a younger age. Because the policy is issued at a
younger age, the policyowner pays a lower premium.

Question 363

secondary plan

Answer 363

Coverage provided by any plan or provider that is not the primary plan or provider. It pays benefits only to the extent the primary plan does not
cover the loss.

Question 364

Section 125 cafeteria plan

Answer 364

A group health plan that enables employees to select among various employee benefits. Section 125 plans also allow employees to have a
portion of their wages withheld, on a pre-tax basis, to fund these benefits. Section 125 plans provide a way for employees to pay for their share of
a group health plan on a before-tax basis.

Question 365

Section 529 plan

Answer 365

A qualified retirement plan whose goal is to provide a way to save and invest in a tax-favored way for a child’s college education.

Question 366

self-funded plan

Answer 366

A group health insurance plan under which the employer funds and pays for member claims and benefits. The employer’s premium payments are
directed into a trust from which the plan’s benefits and claims are paid

Question 367

self-insurers

Answer 367

Refers to a large company that is willing and financially able to retain certain risks and to self-fund for that purpose.

Question 368

settlement option

Answer 368

Provisions in a life insurance policy or annuity that provide the payee with various ways to receive periodic payments of benefits.

Question 369

short-term disability insurance

Answer 369

Group plans with maximum benefit periods of less than two years.

Question 370

SIMPLE plan

Answer 370

Designed solely for small businesses and are known formally as “Savings Incentive Match Plan for Employees.” Employees who choose to
participate can defer up to a specified amount of their compensation each year. These amounts are not subject to tax. The employer then makes
a matching dollar-for-dollar contribution, up to 3 percent of the employee’s annual compensation.

Question 371

Simplified Employee Pension (SEP) Plan

Answer 371

A form of defined contribution plan under which an employer sets up individual retirement accounts (IRAs) for each participating employee. The
employer makes contributions to these accounts on behalf of the employee. These contributions into an employee’s SEP are not included in the
employee’s gross income

Question 372

single premium deferred annuity (SPDA)

Answer 372

An annuity whose money grows within the contract until the owner accesses the funds or the contract annuitizes. Once a person buys the SPDA,
no additional premium payments are accepted.

Question 373

single premium immediate annuity (SPIA)

Answer 373

Bought to regularly distribute income. A person who buys an immediate annuity exchanges a lump-sum amount of money for a series of monthly
income payments.

Question 374

single premium life insurance

Answer 374

The most extreme form of limited pay life. The policy is paid with one premium at the time the policy is bought.

Question 375

skilled nursing care

Answer 375

Nursing care normally in a facility that is provided under the supervision of skilled professionals and under a doctor’s orders.

Question 376

social insurance supplement (SIS) rider

Answer 376

An individual DI policy rider that provides extra monthly income, helping the person who is eligible for a social insurance program but whose
benefits have not yet begun

Question 377

special risk policy

Answer 377

Applies to unique hazards or risks. An example is a boxer who insures himself for a boxing match.

Question 378

specialized life insurance policy

Answer 378

A category of life insurance policy characterized not by the policies’ design or features but by the purpose for which these policies are written. This
category of life insurance policy includes joint life insurance, survivorship policies, juvenile life insurance, and life insurance for family uses and
needs.

Question 379

specified amount

Answer 379

The amount of death benefit a policyowner initially buys in a universal life policy.

Question 380

specified coverage

Answer 380

Coverage under medical expense insurance that is limited to one specific form of care, such as vision-only, dental-only, etc.

Question 381

speculative risk

Answer 381

Risk that can result in loss or gain.

Question 382

spend down

Answer 382

The process by which applicants exhaust their assets to qualify for Medicaid, if these assets are above the allowable limits.

Question 383

spendthrift clause

Answer 383

A common clause in life insurance policies that states that creditors cannot claim any death proceeds from the policy before the proceeds are paid
out to the beneficiary

Question 384

split-dollar plan

Answer 384

An arrangement under which a permanent life insurance policy is bought on the life of a key executive. Either the executive or the employer owns
the policy. The premiums for the policy and the death benefits provided under it are split between the employer and the key executive (or other
third party)

Question 385

sponsor

Answer 385

In group life insurance, the sponsor is the policyowner and premium payor

Question 386

standard policy exclusion

Answer 386

In life insurance, such exclusions include war, aviation, hazardous occupations and hobbies, and commission of a felony.

Question 387

standard risk

Answer 387

One of the three risk classifications. The applicant receives this rating when he or she meets the insurer’s guidelines as an acceptable risk.

Question 388

statement of continued good heath

Answer 388

If the initial premium is not paid with a life insurance application, then the applicant is required to sign a statement of continued good health when
the policy is delivered. This assures the insurer that nothing has changed with the applicant’s health that would alter the insurer’s underwriting
decision.

Question 389

stock insurance companies

Answer 389

Owned by stockholders, these companies pay dividends, when declared, to their stockholders

Question 390

stock redemption agreement

Answer 390

The name of the agreement when a close corporation buys the interest or shares of a deceased partner or shareholder.

Question 391

stop-loss

Answer 391

A feature common to major medical policies that protects the insured by limiting the out-of-pocket dollar amount he or she must pay.

Question 392

straight life income option

Answer 392

A life insurance settlement option with a life contingency under which the policy’s proceeds are converted into payments that are made for the life
of the payee. The payments stop upon his or her death.

Question 393

straight whole life policy

Answer 393

A whole life policy in which death benefits are level. Level premiums are paid until the insured dies or until he or she reaches age 120, whichever
comes first.

Question 394

straight-life income option

Answer 394

In an annuity, a life contingency payout option in which the annuitant is paid an income for his or her lifetime, regardless of how long the owner
lives. At the owner’s death, no further payments are made to anyone—the contract ends.

Question 395

structured settlement annuity

Answer 395

An annuity used to distribute funds from the settlement of lawsuits or from the winnings of state lotteries.

Question 396

sub-account

Answer 396

Investment accounts into which VLI policy values are invested. Sub-accounts are unsecured and nonguaranteed.

Question 397

sub-capitation

Answer 397

An arrangement whereby a medical care provider being paid under an HMO capitation system sub-contracts with other providers, sharing a
portion of the original capitated premium

Question 398

substandard risk

Answer 398

One of the three risk classifications. An applicant can receive this rating for a number of reasons, including poor health, bad habits, dangerous job,
or high number of early major illnesses in the famil

Question 399

suicide provision

Answer 399

A provision in nearly all life insurance policies that denies paying the death benefit if, during the first two years following policy issue, the insured
commits suicide.

Question 400

summary plan description

Answer 400

Describes what the employer-sponsored plan covers and what rules must be followed to obtain the benefits the plan offers.

Question 401

supplemental major medical policy

Answer 401

Covers costs beyond what a basic medical expense plan pays for.

Question 402

surplus lines insurance

Answer 402

A specialized insurance coverage that is offered when either of these conditions arises: (1) a risk or a part of a risk is identified for which there is
no market available through the original or producing agent; or (2) a state bars the sale of a specific type of coverage or otherwise prevents
insurance companies from providing coverage for a particular risk or restricts them from charging adequate rates.

Question 403

surrender

Answer 403

When a policyowner actively cancels an annuity or life insurance policy, in full or in part, and withdraws the cash value.

Question 404

surrender charge

Answer 404

A charge imposed on the early surrender of or withdrawal of funds from a universal life insurance policy. The purpose of the surrender charge is to
enable the insurer to recover the costs it incurs in selling and underwriting the policy. A surrender charge is sometimes referred to as a contingent
deferred sales charge

Question 405

survivorship life insurance

Answer 405

Commonly known as second-to-die policies. These policies are so called because they insure more than one person but pay the death benefit
only when the second insured dies.

Question 406

target premium

Answer 406

In a UL policy, the premium level at which insurers typically pay full first-year commissions to their agents.

Question 407

taxable wage base

Answer 407

The amount of one’s wages that is subject to OASDI tax.

Question 408

tax-qualified LTC policy

Answer 408

Enables policyowners to deduct premiums as a medical expense deduction. It also enables policyowners to receive limited benefits tax-free.

Question 409

temporary settlement options

Answer 409

A life insurance settlement option without a life contingency in which the payments do not continue until the payee’s death. Fixed amount and
fixed periods are types of temporary settlement options.

Question 410

term insurance

Answer 410

A class of life insurance, term coverage is temporary, applying only for a limited period. At the end of that period, the policy expires. The policy
pays a death benefit only if the insured dies during the term. The term can be defined in years or by the age of the insured.

Question 411

term life insurance

Answer 411

Provides protection for a specified, limited period. The term can be defined in years or by the age of the insured.

Question 412

term rider

Answer 412

Can be added to any policy to increase the death benefit payable if the insured dies during the specified term. Term riders are pure death benefit–
they have no cash value or other living benefits associated with them.

Question 413

third-party ownership

Answer 413

In a life insurance policy, when the insured and policyowner are not the same person.

Question 414

time limit on certain defenses provision

Answer 414

One of the 12 required provisions in a health insurance policy. Largely the same as the incontestable clause in life insurance. It limits the time an
insurer can void a contract or deny a claim for material misrepresentations on the application

Question 415

time payment of claim provision

Answer 415

One of the 12 required provisions in a health insurance policy. States that the insurance company pays claims immediately after receiving proper
proof of loss. Ongoing income payments for disability claims must be paid at least monthly

Question 416

top-heavy plan

Answer 416

A top heavy plan is a qualified employer-sponsored plan that results in highly compensated employees receiving more from the plan, as a
percentage of pay, than rank-and-file employees. If a plan is found to be “top heavy,” the IRS could move to disqualify it.

Question 417

total disability

Answer 417

The condition for which total disability benefits are payable as defined in a disability policy. Disability policies define total disability in different
ways. A total disability provision can be an “own occupation” definition, an “any occupation” definition, or a hybrid definition.

Question 418

transfer-for-value rule

Answer 418

Applies when life insurance policies are sold or transferred to another party for valuable consideration. In such cases, the beneficiary may be
subject to income tax when the death benefits are paid.

Question 419

trust

Answer 419

A legal entity established to own and hold property or assets for the benefit of another person or people.

Question 420

twisting

Answer 420

Illegally inducing a policyowner to lapse or to cancel existing insurance for the purpose of replacement.

Question 421

two-tiered fixed annuity

Answer 421

A variation on the standard fixed annuity. This annuity has a higher level of interest crediting than most traditional fixed annuities, provided the
contract owner keeps the product and chooses to annuitize it. However, a lower rate is applied if the contract owner surrenders the annuity and
takes its values in a lump sum instead of annuitizing. If he or she does that, then this lower rate of interest is retroactively applied back to the date
the contract was bought.

Question 422

UCR

Answer 422

Usual, customary, and reasonable. Under this type of medical expense coverage, the amount payable for the covered service is based on the
amount that is usual or common for the area in which the service is performed. Or it is based on the usual charge that most other health providers
of similar training or experience charge

Question 423

underwriting

Answer 423

The process that determines if the risk proposed for insurance should be accepted or rejected. See also field underwriting.

Question 424

unilateral contract

Answer 424

A contract in which only the insurer makes a promise that can be enforced.

Question 425

universal life insurance

Answer 425

An extremely flexible life insurance policy in which the policyowner can, within certain limits, increase premiums, reduce premiums, or pay no
premiums. Similarly, the policyowner can increase the benefit paid at death (subject to evidence of insurability) or can decrease it. The three
factors central to the policy (mortality, expenses, and interest) are separate elements.

Question 426

unpaid premium provision

Answer 426

One of the 11 optional provisions in a health insurance policy. This provision addresses any premiums the insured may not have paid at the time
of a claim. In such a case, the insurer can deduct this amount from the total benefit it owes the insured.

Question 427

utilization review

Answer 427

Used by managed care plans to assess the need for and appropriateness of given health care services for members or subscribers. It is a primary
tool to control over-utilization, to reduce costs, and to manage health care services.

Question 428

valuable consideration

Answer 428

Something given as part of an agreement between two parties that has some objective value and so makes the agreement a valid contract. For
example, in the sale of a car, valuable consideration is the money paid to the person selling the car.

Question 429

valued contract

Answer 429

A life or health insurance policy that pays a stipulated sum as set in the contract. All life insurance policies are valued contracts, as are accidental
death & dismemberment health policies. A valued contract is the opposite of an indemnity (reimbursement) contract

Question 430

variable annuity

Answer 430

A form of annuity for which the insurer makes no guarantee as to the annuity principal or the credited interest rate. Variable annuity premiums and contract values are invested in the insurer’s separate accounts instead of its general account. The contract’s values move up and down in
response to the investment performance of the separate accounts and their associated stock, bond, and money-market portfolio subaccounts

Question 431

variable life insurance

Answer 431

A form of permanent whole life insurance in which premiums are placed in investment sub-accounts that the policyowner owns. The insurer
guarantees a minimum death benefit, usually the face amount of the policy at issue. However, the cash values and the death benefit rise and fall
on the basis of the sub-account’s investment performance.

Question 432

variable life insurance policy

Answer 432

A form of permanent life insurance in which premiums are placed in investment sub-accounts that the policyowner owns. The insurer guarantees
a minimum death benefit, usually the face amount of the policy at issue. However, the cash values and the death benefit rise and fall on the basis
of the sub-account’s investment performance

Question 433

variable sub-account

Answer 433

An investment portfolio included in the separate account. Variable product owners can allocate premiums and cash value into the separate
account.

Question 434

variable universal life insurance

Answer 434

Combines the features of universal life insurance with the ability to allocate premiums to a separate account.

Question 435

viatical settlement

Answer 435

The sale of the rights and benefits in an existing life insurance policy to an investor; when a terminally ill person transfers ownership of a life
insurance policy to another in return for payment of some amount less than the policy’s death benefit

Question 436

viatical settlement agreement

Answer 436

Arranges the agreement between the viatical settlement purchaser, provider, and viator. The broker works on behalf of the viator in this
agreement.

Question 437

viatical settlement broker

Answer 437

Arranges the agreement between the viatical settlement purchaser, provider, and viator. The broker works on behalf of the viator in this agreement

Question 438

viatical settlement provider

Answer 438

In a viatical settlement, the third-party to whom the chronically or terminally ill policyowner sells his or her life insurance policy.

Question 439

viatical settlement purchaser

Answer 439

An investor who funds a viatical settlement on behalf of the viatical settlement provider.

Question 440

viator

Answer 440

The insured in a viatical settlement.

Question 441

waiver

Answer 441

When a party to a contract gives up a right that this party knows he or she holds.

Question 442

waiver of cost of insurance

Answer 442

In UL policies, waives only the cost of insurance that is deducted monthly from the policy’s cash value.

Question 443

waiver of premium

Answer 443

A provision in an insurance policy, sometimes provided by rider, under which the policy’s premiums are waived if the insured becomes totally
disabled for a stated period.

Question 444

waiver of stipulated premium

Answer 444

In UL policies, waives a preset premium payment amount if the insured becomes disabled for at least six months.

Question 445

warranty

Answer 445

A statement guaranteed by the maker to be true in all ways.

Question 446

whole life insurance

Answer 446

Provides permanent insurance coverage for a person’s lifetime. Provides guarantees for premiums, cash value, and death benefits.

Question 447

Workers’ Compensation

Answer 447

State administered program that protects people who are injured or become sick on the job.