ASLI flashcards

33 cards. Read the term and the definition here. The deck at the top of this page is optional.

Insurable Interest

A financial stake in the subject matter such that loss or destruction causes a measurable economic detriment. Property requires it at the time of loss; life at policy inception.

Law of Large Numbers

A statistical principle holding that as the number of similar, independent exposure units increases, actual losses converge toward the expected loss. It underpins actuarial rate-making.

Adverse Selection

The tendency for applicants at higher-than-average risk to seek or retain insurance more eagerly than low-risk applicants. Insurers counter it through underwriting and risk-based pricing.

Moral Hazard

A change in behavior or increased risk-taking caused by the presence of insurance. It differs from morale hazard, which is mere carelessness or indifference.

Principle of Indemnity

The insured is restored to approximately the pre-loss financial position, no better and no worse. Actual cash value and other insurance clauses enforce this principle.

Reinsurance

Insurance purchased by an insurer to transfer part of its risk to a reinsurer. Facultative is negotiated per risk; treaty covers a defined class automatically.

Utmost Good Faith

The mutual duty of insurer and insured to deal honestly and disclose all material facts. A material fact is one that would affect the insurer's decision to accept or rate the risk.

Aleatory Contract

An insurance contract in which the dollar amounts exchanged by the parties are unequal and depend on an uncertain future event such as a loss.

Contract of Adhesion

A contract drafted by one party, the insurer, and offered on a take-it-or-leave-it basis. Ambiguities are construed against the drafter under contra proferentem.

Waiver and Estoppel

Waiver is voluntary relinquishment of a known right. Estoppel bars a party from asserting a right after another party reasonably relied on its conduct.

Warranty Versus Representation

A warranty is a statement guaranteed literally true; a representation is a belief statement that must be substantially true. Breach consequences differ accordingly.

Coordination of Benefits

Rules determining which plan pays first when a person is covered by more than one health plan. The primary plan pays; the secondary plan pays the remainder.

Entire Contract Clause

A policy provision stating that the policy plus attached endorsements, riders, and the application constitute the whole agreement. It limits outside evidence.

Deductible

The amount of a covered loss the insured must pay before the insurer's payment obligation begins. It reduces moral hazard and small-claim administrative costs.

Term Life Insurance

Coverage that pays a death benefit only if the insured dies during a specified term. It provides pure protection with no cash value buildup.

Whole Life Insurance

Permanent coverage with a guaranteed level premium, guaranteed cash value accumulation, and a death benefit payable whenever death occurs.

Universal Life Insurance

Permanent coverage that separately discloses mortality and expense charges and credits interest to the cash value, often at a declared or indexed rate.

Variable Life Insurance

Permanent coverage whose cash value is invested in separate subaccounts. The owner bears investment risk, and a securities license is required to sell it.

Contestability Period

A period, commonly two years, during which the insurer may rescind a policy or deny a claim for material misrepresentation on the application.

Medical Information Bureau

A membership organization that exchanges coded underwriting information among insurers. Applicants must be notified, and they have a right to dispute reported information.

Annuitization Phase

The payout stage of an annuity in which accumulated value is converted into periodic income payments, often for life or a fixed period.

Maximum Out-of-Pocket Limit

The cap on covered costs an insured pays in a benefit period, after which the health plan generally pays 100 percent of covered in-network expenses.

Elimination Period

The waiting period in a disability income policy that must pass after disability begins before benefits are payable. It functions like a deductible in time.

Own-Occupation Definition

A disability standard that pays benefits when the insured cannot perform the material duties of their own specific occupation. It is generally more favorable than any-occupation.

HMO Versus PPO

An HMO generally requires in-network care coordinated by a primary care physician. A PPO permits out-of-network care with a higher cost share and no referral.

Accidental Death and Dismemberment

Coverage paying a principal sum for accidental death and stated fractions of that sum for specified losses such as loss of a limb or sight.

Actual Cash Value

The cost to repair or replace damaged property minus depreciation. It reflects the property's pre-loss value rather than the cost of a new replacement.

Coinsurance Clause

A property provision requiring the insured to carry a stated percentage of property value. Claim payment equals insurance carried divided by insurance required, times the loss.

Named Peril Versus Open Peril

A named-peril policy covers only causes of loss specifically listed. An open-peril policy covers all risks except those expressly excluded.

Subrogation

The insurer's right, after paying a claim, to pursue the negligent third party responsible for the loss. It prevents the insured from recovering twice.

Business Income Coverage

Coverage that replaces lost net income and continuing normal operating expenses during the period of restoration following a covered property loss.

Twisting and Churning

Twisting induces a policyholder to lapse or replace coverage through misrepresentation. Churning is improper replacement by the same insurer or producer for gain.

State Guaranty Association

An organization, funded by assessments on insurers, that pays claims of policyholders of insolvent insurers up to statutory limits. It is not a state agency.