Terms Flashcards
Adhesion
A take it or leave it contract.
Apparent Authority
When the third party believes implied or express authority exists, but no authority actually exists
Copayment
A loss-sharing arrangement whereby the insured pays a flat dollar amount or percentage of the loss in excess of the deductible
Coinsurance
The percentage of financial responsibility that the insured and the insurer must uphold in order to achieve equity in rating.
Definition Section
The section of an insurance policy that defines key words, phrases, or terms used throughout the insurance contract.
Description Section
The section of an insurance policy that describes exactly what is being insured.
Endorsement
A modification or change to the existing property insurance policy.
Exclusion Section
The section of an insurance policy that will exclude certain perils, losses and property.
Express Authority
Authority given to an agent through a formal written document.
Hazards
A specific condition that increases the potential or likelihood of a loss occurring.
Implied Authority
The authority that a third party relies upon when dealing with an agent based upon the position held by the agent.
Law of Large Numbers
A principle that states the more similar events or exposures, the more likely the actual results will equal the probability expected.
Moral Hazard
The potential loss occurring because of the moral character of the insured, and the filing of a false claim with their insurance company.
Morale Hazard
The indifference to a loss created because the insured has insurance
Particular Risk
A risk that can impact a particular individual, such as death or the inability to work because of a sickness or accident.
Perils
The immediate cause and reason for a loss occurring.
Physical Hazard
A physical condition that increases the likelihood of a loss occurring.
Principle of Indemnity
Asserts that an insurer will only compensate the insured to the extent the insured has suffered an actual financial loss.
Principle of Insurable Interest -
Asserts that an insured must suffer a financial loss if a covered peril occurs, otherwise no insurance can be offered.
Reinsurance
A means by which an insurance company transfers some or all of its risk to another insurance company.
Risk Reduction -
The process of reducing the likelihood of a pure risk that is high in frequency and low in severity or of reducing the severity of losses from certain perils.
Risk Retention
Accepting some or all of the potential loss exposure for risks that are low in frequency and low in severity.
Risk Transfer -
The process of transferring a low frequency and high severity risk to a third party, such as an insurance company.
Speculative Risk
The chance of loss, no loss, or a profit.
Subjective Risk
The risk an individual perceives based on their prior experiences and the severity of those experiences.
Subrogation Clause
A clause in an insurance policy that requires that the insured relinquish a claim against a negligent third party, if the insurer has already indemnified the insured.
Flexible Spending Account (FSA)
Employer-sponsored plan that permits employees to defer pre-tax income into an account to pay for health care expenses. FSAs require the employee to either use the contributed amounts for medical expenses by the end of the year, or forfeit the unused amounts to the employer
Health Maintenance Organizations (HMOs)
A form of managed care in which participants receive all of their care from participating providers. Physicians may be employed by the HMO directly, or may be physicians in private practice who have chosen to participate in the HMO network. The independent physicians contract with the HMO to serve HMO participants, receiving a flat annual fee (capitation fee) for each HMO member, whether the member receives medical services from the provider or not.
Health Savings Accounts (HSA)
A plan that permits employees or individuals to save for health care costs on a tax-advantaged basis. Contributions made to the HSA by the plan participant are tax-deductible as an adjustment to gross income (above-the-line), and distributions from the HSA to pay for qualified medical expenses are excluded from income.
Incontestability Clause
Clause in a health insurance policy that prevents the insurer from challenging the validity of the health insurance contract after it has been in force for a specified period of time unless the insured fraudulently obtained coverage in the beginning of the policy.
Indemnity Health Insurance
Traditional, fee-for-service health insurance that does not limit where a covered individual can get care.
Managed Care Insurance
Health-care delivery systems that integrate the financing and delivery of health care. Managed care plans feature a network of physicians, hospitals, and other providers who participate in the plan. Managed care includes HMOs, PPOs, EPOs, and POS plans.
Medicare Supplement Insurance (Medigap)
A health insurance policy designed to cover some of the gaps in coverage associated with traditional Medicare.
Annual Renewable Term (ART)
Type of term insurance that permits the policyholder to purchase term insurance in subsequent years without evidence of insurability, but premiums on the policy increase each year to reflect the increasing mortality risk being undertaken by the insure
Capitalized-Earnings Approach
Method to determine life insurance needs that suggests the death benefits of a client’s life insurance should equal an income stream sufficient to meet the family’s needs without depleting the capital base.
First-to-Die
Type of joint life insurance policy that covers two individuals, but the death benefit is paid upon the death of the first individual.
Grace Period
A provision in most insurance policies that allows payment to be received for a certain period of time after the actual due date without a default or cancellation of the policy
Group Term Insurance
A type of life insurance coverage offered to a group of people (often a component of an employee benefit package) that provides benefits to the beneficiaries if the covered individual dies during the defined covered period.
Human-Life Value Approach
Method to determine life insurance needs that suggests the death benefit of a client’s life insurance should be equal to the economic value of the client’s future earnings stream.
Joint and Survivor Annuity
An annuity based on the lives of two or more annuitants, usually spouses. Annuity payments are made until the last annuitant dies.
Level Premium Term Insurance
Type of term insurance that charges a fixed premium each year over a specified period of years, so the premium does not increase over that period.
Modified Endowment Contract (MEC)
A cash value life insurance policy that has been funded too quickly. Under a MEC, the death benefit payable to the beneficiary is not subject to income tax, but policy loans or cash value withdrawals are taxable.
Limited-Pay Policies
Type of whole life policy with a payment schedule (typically 10 or 20 years). At the end of the payment period, the policy is considered to be paid-up, at which time no additional premium payments are due.
Modified Whole Life Policies
Type of whole life policy with lower premiums than a regular policy for an initial policy period (often 3 to 5 years), which increase to a higher-level premium at the end of the initial period.
Mortality Cost
Equals the probability of dying within the year times the face value of the policy.
Mortality Risk
The risk that an individual will die within the year
Needs Approach
Method to determine life insurance needs that suggests the death benefits of a client’s life insurance should equal the cash needs that the family will require at death plus income replacement needs
Ordinary (or Straight) Life
Type of whole life policy that requires the owner to pay a specified level premium every year until death (or age 100).
Second-to-Die
Type of joint life insurance policy that is often used in estate planning to provide liquidity at the death of the second spouse. A second-to-die policy names two insureds and pays the death benefit only when the second insured dies.
7-Pay Test
One of two Congress-imposed tests to determine whether a life insurance contract meets the definition of a MEC. This test states that if the cumulative premium payments made on the policy are in excess of the net level premium for the policy during the first seven years (or following a material change to the policy), the life insurance contract will be deemed a MEC.
