Vocab. Set 2

Question 1

Incotestable Clause

Answer 1

Provides that after the policy has been in force a certain length of time, the company can no longer contest it or void it, except for nonpayment of premiums. The time period is usually two years.In other words, Life and Health policies are “contestable” for the first two years and “incontestable” thereafter. However, Health policies are always contestable for fraud!

Question 2

Indemnify

Answer 2

To restore the insured victim of a loss financially, in whole or in part, by payment, repair, or replacement.To make the insured “whole” after a loss. For example, a Basic Medical Expense policy might cover your room and board in the hospital up to $1,000 a day. If your bill for one day is $900, the company will pay it all. However, if your bill is $1,100, the company will only pay $1,000. The company will pay the policy limit or the amount of the claim, whichever is less.

Question 3

Indemnity

Answer 3

Insurance is designed to restore the policyholder to the same financial condition enjoyed prior to a loss. The intent is to cover the amount of the actual loss only and to avoid paying amounts that allow an insured to profit from a loss situation.This is known as the Principle of Indemnity. Health insurance follows this concept, but Life insurance doesn’t. All Life policies pay in addition to each other!

Question 4

Individual Contract

Answer 4

A contract of Health insurance made with an individual that covers her and, in certain instances, specified members of the household. In general,any insurance policy except Group or Blanket.

Question 5

Industrial Life

Answer 5

Life insurance generally with a face amount of less than $1,000, with premiums collected monthly or more frequently by the producer in person. The grace period for this type of insurance is 28 days.Also known as “Home Service” Life insurance. There are three types of Life insurance: Ordinary (which includes Whole Life, Term and Endowment), Group and Industrial.

Question 6

Insurable Interest

Answer 6

An interest in the life of an individual by which there will be a loss if the insured dies. The interest may be based on either a family relationship or economic factor. Must exist at the time of application, not necessarily at the time of loss.If you would benefit if a person continues to live, you have an insurable interest in that person.

Question 7

Insurance

Answer 7

A contract or device for the transfer of pure risk to an insurer, who agrees, for a consideration, to indemnify or pay a specified amount for losses suffered by the insured.Risk is defined as the chance or uncertainty of loss. Pure risk is the chance of loss, with no chance for gain. It is the only type of risk that is insurable. Speculative risk, which is the chance for loss or gain, is not insurable.

Question 8

Insurance Age

Answer 8

An age upon which current premium rates may be established. It is commonly based on age at last birthday, age next birthday, or age at nearest birthday.Also known as “original” age.

Question 9

Insurance Commissioner

Answer 9

Common title for the head of a state Department or Division of Insurance (Also known as Director in some states).Insurance is regulated by state law. The Commissioner’s job is to protect the insurance buying public by administering state insurance laws and regulations. The Commissioner does not make the laws, he/she enforces them.

Question 10

Insured

Answer 10

The party to an insurance arrangement to whom, or on behalf of whom, the insurance company agrees to indemnify for losses, provide benefits, or render service. In Prepaid Hospital Service plans, the insured is called the subscriber.

Question 11

Insuring Clause

Answer 11

The clause in a policy that specifies in brief the contract’s intent and benefits.Also known as the Insuring Agreement. It specifies the covered perils, such as accident and sickness on Health insurance. A peril is a cause of loss.

Question 12

Interest Option

Answer 12

A settlement option under which the insurer keeps the insurance proceeds and invests them on behalf of the beneficiary. The beneficiary receives the interest from the investment. The proceeds remain the property of the beneficiary. The proceeds are not taxable but the interest earned is.

Question 13

Irrevocable Beneficiary

Answer 13

Once elected, cannot be changed without named beneficiary’s consent, since they have a “vested” interest in the policy benefits. A policy loan would also require the consent of the Irrevocable Beneficiary, since if you die with a loan outstanding, they would receive less.

Question 14

Joint Life and Survivorship Annuity

Answer 14

Payments are made to two annuitants with the survivor continuing to receive payments after the first annuitant dies.

Question 15

Joint Life Annuity

Answer 15

Payments continue to two annuitants for only as long as both live.Payments stop entirely when the first annuitant dies. There is no survivorship, so monthly payments would actually be higher to the annuitants on a Joint Life Annuity than they would be on a Joint and Survivor Annuity, which pays until the last party dies

Question 16

Jumping Juvenile

Answer 16

Juvenile insurance on which the face amount increases by a multiple, usually five, of the original face amount when the insured reaches 21.Used as a marketing tool to sell Life insurance covering children, whose rates are extremely low.

Question 17

Key Person Insurance

Answer 17

Life or Health insurance on important employees whose absence would cause the employer financial loss. The insurance is usually owned by or payable to the employer.Premiums are not tax deductible, but benefits are not taxed.

Question 18

Lapse

Answer 18

Termination of a policy because of failure to pay the premium.A policy lapses at the end of its grace period. For example, if you forget to pay your Whole Life premium when due, there is usually a 30 day grace period, during which time coverage continues until the policy lapses.

Question 19

Law of Large Numbers

Answer 19

An insurance company must protect losses on a homogeneous group. Risks are not usually considered insurable, unless the insurer has a large enough base of previous loss experience to be able to accurately predict future losses. It is the Law of Large Numbers that makes accurate predictions of similar risks possible. Mortality tables are based on groups of at least 10,000,000 people.

Question 20

Legal Reserve

Answer 20

The amount required as a reserve, to pay claims and benefits, using the mortality table and a maximum assumed interest rate prescribed by state law of the Insurance Commissioner.Insurance companies must file annual financial reports with the Commissioner proving their “solvency.”

Question 21

Level Premium Insurance

Answer 21

Life insurance, the premium for which remains at the same level (amount) throughout the life of the policy.For example, on traditional Whole Life, the premium is based upon the insured’s original age and it will never change.`

Question 22

Level Term Insurance

Answer 22

he amount of insurance protection in the Term policy remains constant during the policy period, which could be 5 years, 10, 20 or even to age 65. For example, on a five year Level Term Life insurance policy the face amount and the premium would remain level for five years. At renewal at the end of the fifth year, premiums would increase based upon the next five year average age, but the face amount would remain the same. Remember, Term has no cash value and will eventually expire. To be covered, you must die in the term. The word “term” means time. Term insurance is considered to be “temporary.”

Question 23

Life Annuity

Answer 23

An Annuity that provides a periodic income to the annuitant during his lifetime.A straight Life Annuity has no beneficiary and is considered to be the most risky type of annuity. The annuitant is betting that he/she will live a long time, but the insurer is betting he/she is going to die. Remember, annuities are the opposite of life insurance! Annuities are not subject to underwriting, since there is no insurance protection.

Question 24

Life Annuity with Installments Certain Life

Answer 24

*Life Income with Period Certain
An annuitant is to receive payments for a specified number of years(such as 10)or for the rest of his/her life, whichever is longer. If the annuitant dies before all the guaranteed payments have been made, the beneficiary receives the payments for the rest of the certain period.The period certain is designed to eliminate some of the risk, but the longer the period certain is, the lower the annuitant’s monthly payments will be!

Question 25

Life Income Option

Answer 25

A settlement option that provides payments during the entire life of the payee. There are four methods:

1. Straight Life Income
2. Refund Annuity
3. Life Income Certain
4. Joint and Survivorship Life Income

Question 26

Life Insurance

Answer 26

Insurance paying a specified amount on the death of the insured, to his estate or to a beneficiary.

Question 27

Limited Pay Life

Answer 27

A PermanentWholelife insurance policy on which premiumsare paid for a specified number of years or to a specified age of the insured. Protection continues for the entire life of the insured. LP65 and 20-Pay Life are examples.A Life Paid up at age 65 is paid up at age 65, but the cash value does not equal the face amount of the policy until age 100 when the policy reaches maturity. Limited Pay Whole Life is more expensive than traditional Whole Life since the premiums must be paid within a shorter period of time

Question 28

Loading

Answer 28

The amount added to the cost of mortality (death) to cover the operating expenses of the insurer, such as commissions and the cost of underwriting.

Question 29

Loan Value

Answer 29

That amount of Cash Value in a Whole Life or Endowment policy reposing in a policy that may be borrowed by the insured. When you borrow from your policy, the insurer is loaning you their money and keeping your money as collateral. Since they usually have their funds invested, they will charge you annual interest on the loan (maximum 8% in most states). Loans don’t have to be paid back while you are alive, but will continue to accrue interest. Upon death, the amount of the unpaid loan plus accrued interest will be subtracted from proceeds.

Question 30

Long Term Disability

Answer 30

1) A disability having duration longer than a short-term disability, the exact duration being variable and a matter of reference; commonly, anything longer than 90 days.
2) A form of Disability income insurance paying benefits of two years’ duration or more. Long Term Disability policies usually have waiting or elimination periods of at least 30 days and it is usually written on an individual basis. In contrast, Short Term Disability is usually written on a group basis with shorter waiting periods (often seven days) and shorter benefit periods (often six months).

Question 31

Loss

Answer 31

An unpredictable reduction in the quality, quantity, or value of something. For example, bodily injury, disease, property damage, physical disappearance of property, incurred expenses, death, etc.

Question 32

Loss of Income Benefits

Answer 32

Benefits paid for inability to work for remuneration because of disability resulting from accidental bodily injury or sickness. The loss of income may be Real or Presumptive.

Question 33

Loss Ratio

Answer 33

The percentage of losses to premiums, usually losses incurred to premiums earned.

Question 34

Lump Sum

Answer 34

Proceeds of a policy taken all at once. A single amount

Question 35

Major Medical Insurance

Answer 35

A type of Health insurance that provides benefits for most types of medical expenses incurred up to a high limit, subject to a deductible. Such contracts may contain a Percentage Participation clause (sometimes called the Co-insurance clause). A Major Medical policy pays expenses both in and out of the hospital.

Question 36

Manual Rates

Answer 36

Insurance rates according to a company Rate Manual that varies from company to company. Also known as “Standard Rates.” Most rates must be filed with the state Insurance Commissioner, but the insurance companies actually set their own rates in the competitive marketplace.

Question 37

Master Policy

Answer 37

The policy contract issued to the employer under a Group insurance plan.
Remember, the employees covered by a group plan are considered to be insureds, but they only receive certificates.

Question 38

Material Misrepresentation

Answer 38

A misrepresentation that would have been important or essential to the underwriter’s decision to issue the policy. A misrepresentation is the applicant’s failure to tell the truth to the best of their knowledge.

Question 39

Maturity

Answer 39

A Life policy is mature when the face amount is payable. Whole Life matures at age 100.

Question 40

Medicaid

Answer 40

A medical-benefits program administered by states and subsidized by the federal government. Under this plan, various medical expenses will be paid to those who qualify, regardless of age, subject to an income/asset test.

Question 41

Medicare Benefits

Answer 41

Benefits provided by a federal program as part of the Social Security program. It applies to persons over 65 years of age and certain disabled beneficiaries regardless of age. Medicare has four parts: Part A - Hospitals is provided at no charge and Part B - Physician’s Services, which is optional and requires the Medicare “beneficiary” to pay a monthly premium, Part C - Medicare Advantage Plans which are provided by HMOs and PPOs, and Part D - Prescription Drug Insurance.

Question 42

Medical Examination

Answer 42

Examination by a physician on behalf of an applicant for insurance or in substantiation of a claim.

Question 43

Medical Expense Insurance

Answer 43

A form of Health insurance that provides benefits for medical, surgical and hospital expenses. This term is used to include coverages such as Basic Medical and Surgical insurance and Major Medical insurance, which are both “indemnity” type plans written by insurance companies.

Question 44

MIB

Answer 44

Medical Information Bureau.
- An organization serving as a clearinghouse of medical information on risks reported to it by insurance companies that are members of the service and reported to them as a source of underwriting information on applicants.

Question 45

Miscellaneous Expenses

Answer 45

Usually hospital charges other than Board and Room, such as X-rays, drugs, lab fees, etc.

Question 46

Misrepresentation

Answer 46

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

Question 47

Misstatement of Age Clause

Answer 47

Provides that if misstatement of age is discovered after policy issue, the company can, if the insured is currently alive, adjust the premium amount on future premiums and request payment of the additional premium the policy owner should have paid; or if the insured has died, adjust the face amount of the policy to fit the premium that was paid at the correct age before paying the claim.

Question 48

Mode Premium

Answer 48

Premium paid according to the Mode of Payment selected by the policy owner, that is, monthly, quarterly, semi-annually, or annually. The less frequent the Mode, the lower the annual cost.

Question 49

Moral Hazard

Answer 49

A condition of morals or habits that increases the probability of a loss from a peril. Generally, a Moral Hazard is presented by a dishonest person.

Question 50

Morbidity

Answer 50

Table showing the incidence of sickness, used by Health insurance actuaries to develop rates and policy benefits. Similar to the Mortality Table used by Life insurance actuaries for the same purpose.

Question 51

Mortality Table

Answer 51

statistical table showing the number of deaths for all ages from 1 to 100, in the case of the 1980 Mortality Table. For example, if you are age 30, you could look at the table to find how many people your age will die this year, although the table cannot tell you which ones. Since the table tracks the life expectancies of 10 million people, it is very accurate. The 1980 CSO table was used by companies historically, although companies (if large enough) are always free to develop their own tables. The NAIC approved use of the 2001 Commissioners Standard Ordinary table in 2004. The 2001 CSO table assumes a life expectancy of 120 years, in comparison with the 100-year life expectancy in the 1980 mortality table.

Question 52

Mortgage Insurance Policy

Answer 52

(Protection Policy);
In Life and Health insurance, a policy from which the benefits are intended to pay off the balance due on a mortgage or meet the payments on a mortgage as they fall due upon or after the death or disability of the insured. Although Credit Life is very similar, in most states, Credit Life is used for consumer loans rather than mortgages.

Question 53

Mutual Insurance Company

Answer 53

AKA = INSURER;
An incorporated insurance company whose governing body is elected by the policyholders. The policyholders share in the success of the company through possible receipt of dividends. Mutual companies issue “participating” policies. Dividends are not taxable and may not be guaranteed.

Question 54

Net Cost

Answer 54

Premiums paid minus cash value and any policy dividends paid as of the date the calculation is being made.

Question 55

NAIC

Answer 55

An organization made up of all the insurance commissioners of the various states designed to provide a way to exchange information and work toward uniformity of insurance regulation among the states. However, insurance laws are still far from uniform.

Question 56

Non-Admitted Company

Answer 56

In order to sell insurance in a state the insurer must be “authorized,” which means they must obtain a Certificate of Authority from the state. However, Surplus Lines companies (such as Lloyds of London) and companies who “reinsure” other companies are exempt from this requirement. These companies are “non-admitted”. Most states allow Surplus Lines companies to write the risks that authorized companies won’t take. Surplus Lines companies do not participate in the State Guaranty Fund or Association and are generally unregulated as to rates and policy forms used. It is perfectly legal to sell for a non-admitted company.

Question 57

Non-Cancelable

Answer 57

A contract of Health insurance that the insured has a right to continue in force by payment of premiums, as set forth in the contract, for a substantial period of time, and that the insurer has no right to change any provision of the contract

Question 58

Noncontributory

Answer 58

Any plan or program of insurance (usually Group) for which the employer pays the entire premium and the employee contributes no part of the premium. 100% participation is required

Question 59

Non-Forfeiture Option

Answer 59

A legal provision whereby the policy owner may take the accumulated values in a policy as one of the following:
1) Cash surrender -lump sum payment of cash value, less any unpaid premiums or outstanding loans;
2) Extended term -a term policy with the same face amount as the original policy, lasts for a period of time;
3) Reduced Paid-Up -whole life insurance for a lesser face amount.
The acronym of C-E-R helps here!

Question 60

Non-Medical

Answer 60

Insurance issued without a medical exam.For example, if the applicant is young and is buying a small amount of Life insurance, no physical exam is required, so coverage may begin immediately.

Question 61

Non-occupational

Answer 61

A Health policy that covers off-the-job accident and sickness.Most Health insurance is Non-occupational, since occupational injury or sickness is required to be covered by Worker’s Compensation insurance. However, if the insured is not required to have Worker’s Comp, his/her Health policy will cover him/her both on and off the job, which is known as “occupational” coverage.

Question 62

Non-participating

Answer 62

Insurance that does not pay policy dividends to policyholders, which are issued by stock insurance companies. Stock insurers may pay dividends, but if so, they are paid to the stockholders and they are taxable.

Question 63

Non-Profit Insurance Company

Answer 63

Companies organized under special state laws to supply medical-expense insurance, usually on a Service basis.

Question 64

Nonresident Producer

Answer 64

A producer licensed in a state in which he is not a resident.In most states, no exam is required to obtain a Nonresident license. You simply must prove that you are licensed and in good standing in your home state and pay the required fees. You can only have one resident license, but you can have as many nonresident licenses as desired.

Question 65

Occupational Accident

Answer 65

Impairment of health caused by accident related to conditions inherent in a person’s occupation or resulting from the nature of an employment

Question 66

Occupational Disease

Answer 66

Impairment of health caused by continued exposure to conditions inherent in a person’s occupation or a disease caused by or resulting from the nature of an employment.

Question 67

One-Year Term Dividend Option

Answer 67

A dividend option under which the insured has the company purchase one-year Term Insurance with the dividend.For example, your dividend is $100, which you could have taken as cash. Instead, you have the insurer use the money to buy you an additional one year term policy at your current age. If you die in the term, your beneficiary will receive the proceeds of your Life policy PLUS the face amount of the one year term policy. At the end of the year, the term policy expires.

Question 68

Optionally Renewable

Answer 68

A contract of Health insurance in which the insurer reserves the unrestricted right to terminate coverage at any anniversary or, in some cases, at any premium due date, but does not have the right to terminate coverage between such dates.Renewal is at the discretion of the insurer.

Question 69

Ordinary Life Insurance

Answer 69

Life insurance other than Industrial or Group. Ordinary life may be Whole Life, Endowment or Term. The grace period on all Ordinary Life insurance is 30 days. The Mortality Table is used to calculate the rates and benefits payable for Ordinary Life insurance.

Question 70

Original Age

Answer 70

The insured’s age when the policy was initially purchased.Often calculated based on the applicant’s closest birthday.

Question 71

Other Insurance

Answer 71

The existence of another contract covering the same interest and perils.Although Life insurance policies pay in addition to each other, most Health insurance policies follow the Principle of Indemnity, which is reinforced by the Other Insurance clause. For example, if you are covered by two Disability Income policies, they would share your claimproportionately. You cannot recover more than you actually lost. You can collect from both policies, but you may not be able to collect in full from both

Question 72

Paid-Up

Answer 72

Life insurance on which all premiums have been paid, but have not yet matured by death or endowment.

Question 73

Paid-Up Additions

Answer 73

Additional single-premium Life insurance paid for by policy dividends and added to the face amount.For example, your mutual insurer declares a $100 dividend, which you could have taken as cash. Instead, you ask them to use the money to buy you an additional Whole life policy, which is paid up to age 100. Although this additional policy is small, no physical exam is required, so this option is very popular with clients who have health problems. Over a period of time, you can obtain substantial additional coverage.

Question 74

Partial Disability

Answer 74

A condition in which, as a result of injury or sickness, the insured cannot perform one or more of the duties of his occupation but can perform some. Usually follows a period of Total Disability. Benefits are reduced to 50%.

Question 75

Participating (Par)

Answer 75

Insurance that pays policy dividends. Issued by a Mutual Company.Dividends may never be guaranteed and they are not taxable, since the IRS considers them to be a return of premium already paid.

Question 76

Partnership Insurance

Answer 76

Life insurance sold to a partnership to protect against the loss of business continuity caused by the death or disability of a partner.
For example, if your partner dies, his/her share of the business would go to his/her spouse who knows nothing about the business. To avoid this, you buy a Life insurance policy on your partner and he/she buys one on you. If he/she dies, the money goes to you tax free and you use it to buy out his/her spouse. A “buy/sell” agreement should be drafted by a lawyer and signed by all four parties: you, your spouse, your partner and his/her spouse.

Question 77

Payor Benefit

Answer 77

A rider or provision, usually found in Juvenile policies, under which premiums are waived if the Payor of the premium (usually a parent) becomes disabled or dies while the child is still a minor.

Question 78

Percentage Participation

Answer 78

A contract provision that the company will share covered losses in agreed proportions. Also called Co-insurance.Percentage participation requirement also refers to the amount of employees that must enroll in a group. In a noncontributory group, the percentage participation requirement is 100%. In a contributory group, the percentage participation requirement is 75%.

Question 79

Permanent and Total Disability

Answer 79

Total Disability from which the insured does not recover. When used as a definition of disability in a policy, “Permanent” is presumed after a stated period of time.The definition of Total Disability actually varies by company. For example, in a Disability Income policy, some insurers state that you are not totally disabled unless you are confined to the hospital, which is very restrictive. Others state that you are totally disabled if you cannot perform your own job, which is very broad. Most policies state that you are totally disabled if you cannot perform your own job for the first two years and that you are unable to perform any job that you are suited to do by virtue of education, training or experience thereafter.

Question 80

Permanent Insurance

Answer 80

Life insurance with some type of cash-value accumulation.Whole Life insurance is considered to be permanent since it covers you until you die or to age 100, whichever comes first. Term insurance is considered to be temporary.

Question 81

Policy

Answer 81

The written contract effecting insurance or the certificate thereof by whatever name called, and papers attached thereto and made a part thereof.

Question 82

Policy Dividend

Answer 82

The Policy owners’ share of a company’s divisible surplus which may be distributed to policyholders of a Mutual insurer at the discretion of their Board of Directors. Not taxable and not guaranteed.

Question 83

Policy Fee

Answer 83

A special, one-time premium charge to offset in whole or part the first-year acquisition cost rather than amortize it over several years

Question 84

Policy Loan

Answer 84

A loan taken by the policyholder from the insurer using the insurance cash value as collateral. Insurers may defer requests for loans or for cash surrender up to six months. Loans are not taxable and need not be repaid, although interest will accrue on an annual basis. Upon death, any outstanding loans plus accrued interest will be subtracted from proceeds paid.

Question 85

Pre-Existing Condition

Answer 85

A condition of health or physical condition that existed before the policy was issued.Historically, most individual Medical Expense policies contain a 12 month “probationary period” which states that any pre-existing condition that the insured was treated for in the six months prior to buying the policy will not be covered until after the policy has been in force for 12 months.
Under the Federal Health Insurance Portability and Accountability Act (HIPAA) “portability” regulations, the probationary period is waived if you have already satisfied your probationary period on your prior group policy and there is no gap in coverage longer than 63 days.
The Affordable Care Act (ACA or Obamacare) prohibits pre-existing conditions from being placed on probation. The ACA also ensures that everyone can get insurance, no matter his or her health. Premiums for medical expense insurance policies may no longer be based upon a person’s health, for policies with an effective date of 1/1/14 or later.

Question 86

Premium

Answer 86

1) Consideration for the insurance.

2) Periodic payment made to keep a policy in force

Question 87

Prepaid Service Plan

Answer 87

Provides comprehensive health care for members who pay a flat fee for services, whether outpatient or hospital treatment is needed.

Question 88

Principal Sum

Answer 88

The amount payable in one sum in event of Accidental Death and severe accidental Dismemberment, which is defined as the loss of two limbs in the same occurrence. For loss of one limb, an AD&D policy will pay the Capital Sum, which is usually 50% of the Principal Sum.

Question 89

Probationary Period

Answer 89

A period of time between the effective date of a Health policy and the date coverage begins forcertain preexisting conditions, historically limited to a maximum of 12 months on most individual policies. On Group policies, the probationary period may be shorter or may be waived altogether. Under HIPAA, pregnancy may not be considered to be a pre-existing condition.The Affordable Care Act (ACA or Obamacare) prohibits pre-existing conditions from being placed on probation. The ACA also ensures that everyone can get insurance, no matter his or her health. Premiums for medical expense insurance policies may no longer be based upon a person’s health, for policies with an effective date of 1/1/14 or later. Disability Income policies may still use probationary periods for pre-existing conditions.

Question 90

Proceeds

Answer 90

Amount payable by a policy, usually used in reference to the face amount of a Life policy payable at death of the insured.

Question 91

Proof of Loss

Answer 91

A formal statement by the insured to the insurance company regarding a loss.
The purpose is to place before the company sufficient information concerning the loss to enable it to determine its liability under the policy.
Although both are conditions in a Health insurance policy, don’t confuse Notice of Claim (which must be given within 20 days) with Proof of Loss, which must be submitted within 90 days.

Question 92

Pro Rate Cancellation

Answer 92

The termination of a contract with premium charge being adjusted in proportion to the exact time the protection has been in force.
When it is the INSURER who cancels, refunds of unearned premium are always calculated on a PRO-RATA basis.
When it is the INSURED PERSON who requests cancellation, refunds of unearned premium are calculated on a SHORT RATE basis, with a percentage penalty to the insured.

Question 93

Protection

Answer 93

Term used interchangeably with the word “coverage” to denote insurance provided under the terms of a policy.

Question 94

Rated-Up

Answer 94

A policy issued to an applicant that reflects a higher rate, due to the presence of a greater risk, in the eyes of the underwriter. Rated-up policies often result from substandard health cases revealed in a medical examination or dangerous hobbies or occupations.

Question 95

Rebating

Answer 95

Rebatingis illegal in most states. Rebating is apractice that involves thepayment of something (usually part of the commission) orcovert return of money or other valuenot stated in the policy,to an applicant in order to induce a sale. You can take your client to lunch, but you cannot say “I will pay for lunch if you buy this policy from me.” Dividends are not considered to be rebates since it is stated in the policy that a dividend might be payable

Question 96

Recurring Clause

Answer 96

A Health policy provision defining the duration of time during which the recurrence of a condition will be considered a continuation of a prior period of disability or confinement.

Question 97

Recurrent Disability

Answer 97

On a Disability Income policy, a disability that the insured has had before that now reoccurs. If it reoccurs within a certain period of time (this time period varies by state), the waiting or elimination period is waived.

Question 98

Reduced Paid-Up Insurance Option

Answer 98

A Non-forfeiture option under which the insured uses the cash value of his present policy to purchase a single-premium Whole Life policy, at his/her attained-age rates, for a reduced face amount, to age 100
No physical exam is required and the insured may select this option at any time as long as there is a cash value.

Question 99

Reduced-Premium Dividend Option

Answer 99

(Apply to Premium)
A Dividend option on a participating life policy in which the policy owner has the dividend deducted from the next premium due on the policy, thus he or she will only have to pay the difference.
For example, if the dividend is $100 and the premium normally due is $1,000, than the insured would only have to pay $900 difference.

Question 100

Refund Life Annuity

Answer 100

Provides annuity payments for the annuitant’s lifetime with the guarantee that in no event will total income be less than the purchase price of the contract.
If the annuitant dies before receiving this amount, the differenceis paid to a named beneficiary either as a cash refund or in installments

Question 101

Reimbursement

Answer 101

Payment of an amount of money related to the amount of the loss to or on behalf of the insured upon the occurrence of a defined loss.

Question 102

Reinstatement Clause

Answer 102

Provides the conditions under which a lapsed policy may be reinstated, if approved by the insurance company.

Question 103

Reinsurance

Answer 103

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

Question 104

Renewable Term

Answer 104

Term Insurance that can be renewed without proof of the insured’s insurability, up to a certain specified maximum age. Most Group life insurance is Annual Renewable Term. Individual policies are often written as 5 year, 10, 15 or 20 year renewal term. The face amount is level, but the premiums will go up at renewal, since they are based upon the average age of the insured.

Question 105

Representation

Answer 105

Facts that the applicant represents as true and accurate to the best of his knowledge and belief

Question 106

Reserve

Answer 106

The amount that, when increased by future premiums on outstanding policies and interest on those premiums, will enable the company to pay the future death claims and cash surrenders that will arise because of those contracts of insurance.

Question 107

Rider

Answer 107

A form attached to a policy that modifies the conditions of the policy by expanding or decreasing its benefits or excluding certain conditions from coverage. Most riders cost extra, but the additional premium paid does not go towards cash value accumulation. Most riders (such as double indemnity) will drop off a Life policy automatically at age 65. Most riders are added at policy issue, but they may also be added later on with the mutual consent of the parties.Also known as an endorsement.

Question 108

Risk

Answer 108

The uncertainty of loss that exists whenever more than one outcome is possible.
In the area of Life insurance, death is certain, but time of death is uncertain.
Risk is also known as the chance of loss.
Remember, only PURE RISK is insurable. PURE risk is the chance of loss without any chance for gain.

Question 109

Risk Selection

Answer 109

The process of selecting insureds with a normal lifeor claims expectancy, also known as underwriting or risk classification. Since most insurance companies are in business to make money, it is the underwriter’s job to select business that will generate an underwriting profit.

Question 110

Schedule

Answer 110

A list of specified amounts payable for, usually, surgical procedures, dismemberment treatments, ancillary expenses, or the like on Basic Medical Expense policies. Some policies utilize a Relative Value Schedule, where they only show a dollar limit for the most serious surgery covered and all other surgeries are covered “relative” (or as a %) to that amount.