Life Insurance Applications (LIA) flashcards

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

Term life insurance

Coverage for a specified period that pays a death benefit only if the insured dies during that period. It builds no cash value and expires at the end of the term.

Whole life insurance

Permanent coverage with level premiums for life, guaranteed cash value, and a guaranteed death benefit. It matures or endows at a stated age, typically 100 or 121.

Universal life insurance

Flexible-premium permanent coverage with a cash-value account credited interest and charged cost of insurance. The owner may adjust premium and death benefit within policy limits.

Variable life insurance

Permanent coverage whose cash value is invested in separate accounts chosen by the owner. The owner bears investment risk, and the producer needs a securities license.

Indexed universal life

Universal life whose interest credit follows a formula linked to an external index, subject to a floor and a cap or participation rate. It does not invest directly in the market.

Survivorship life insurance

Second-to-die coverage insuring two people that pays the death benefit at the second death. It is commonly used for estate liquidity and estate-tax funding.

Modified whole life

Permanent coverage with lower premiums in the early policy years that step up to a higher level later. The lower initial outlay is offset by higher total cost.

Incontestability clause

After the policy has been in force for the stated period, usually two years, the insurer generally cannot contest the contract for misrepresentation, except for nonpayment of premium.

Suicide clause

If the insured dies by suicide within the stated period, commonly two years from issue, the insurer refunds premiums paid instead of paying the full death benefit.

Grace period

A set time, commonly 30 or 31 days, after a premium due date during which coverage remains in force. Any overdue premium is deducted from the death benefit.

Reinstatement provision

Allows a lapsed policy to be restored, typically within three to five years, upon evidence of insurability and payment of overdue premiums with interest. New contestable periods usually apply.

Automatic premium loan

An election that borrows unpaid premium from cash value at the end of the grace period, preventing lapse as long as sufficient cash value remains to cover the loan.

Extended term option

A nonforfeiture option that converts the net cash value into term coverage for the full face amount for whatever period that value will purchase. It is often the default.

Reduced paid-up option

A nonforfeiture option that applies net cash value as a single premium for a smaller face amount of permanent coverage with no further premiums due. Coverage continues for life.

Waiver of premium rider

Waives premiums while the insured is totally disabled beyond an elimination period, keeping the policy and its values intact. Conditions and definitions vary by contract.

Guaranteed insurability rider

Lets the owner buy additional coverage at stated option dates or events without proving insurability, at rates for the attained age at the time of purchase.

Medical Information Bureau

A membership database of coded medical and lifestyle information used by insurers in underwriting. It is not a credit bureau, and applicants may request disclosure of their file.

Field underwriting

The agent's role in risk selection: gathering complete and accurate application information, observing the applicant, and submitting a truthful agent's report to the home office.

Conditional receipt

Provides interim coverage effective the date of application only if the proposed insured proves insurable under the insurer's standard rules. Otherwise no coverage exists.

Binding receipt

Provides immediate coverage from the date of application regardless of whether the proposed insured ultimately qualifies as a standard risk, subject to policy terms.

Table rating

A substandard classification expressing extra mortality as a percentage of standard. Each table typically adds 25%, so Table 4 equals 150% of standard mortality.

Flat extra premium

A dollar charge per $1,000 of face amount added for a temporary or permanent impairment. It is not a percentage of the base premium.

Insurable interest

A financial or emotional stake in the continued life of the insured that must exist at policy issue. It is presumed for self, spouse, and dependents.

Attending physician statement

A detailed medical report requested from the applicant's doctor during underwriting, used to clarify diagnoses, treatment, and prognosis when application answers require verification.

Gross premium

The premium the policyowner pays, consisting of the net premium for mortality and interest plus expense loading for commissions, administration, taxes, and reserves.

Net premium

The portion of premium based only on assumed mortality and assumed interest, excluding expense loading. It funds the pure cost of protection and reserves.

Mode loading

The extra charge for paying premiums more often than annually. Annual is cheapest; semiannual, quarterly, and monthly modes cost progressively more.

Policy reserve

An insurer liability representing funds needed to meet future guaranteed policy obligations. It is not a per-policy savings fund and is not the same as cash value.

Policy dividend

A return of divisible surplus paid to participating policyowners. It is not guaranteed and is generally not taxable until cumulative dividends exceed cumulative premiums paid.

Modified endowment contract

A policy that fails the seven-pay test. Loans and withdrawals are taxed income first, with a 10% penalty before age 59½, and are treated as distributions.

Entire contract provision

States that the policy and the attached application constitute the whole agreement. No one can change the contract except an officer of the insurer in writing.

Free-look period

A state-specified period, commonly 10 to 30 days after delivery, during which the owner may return the policy for a full premium refund.