BIA Diploma in Life Insurance flashcards

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

Insurable Interest

A legally recognised relationship between the policyholder and the life assured such that the policyholder benefits from the life continuing or suffers loss on death; it must exist when the contract is formed.

Utmost Good Faith

The mutual duty on proposer and insurer to disclose all material facts before the contract is formed, where material means facts a prudent insurer would consider relevant to accepting or rating the risk.

Adverse Selection

The tendency for higher-risk individuals to seek insurance more readily than lower-risk individuals, creating information asymmetry that can raise pooled costs unless underwriting and pricing controls are applied.

Moral Hazard

The increased likelihood of a claim arising from the insured's own behaviour or attitude after cover is in place, for example through over-insurance or indifference to loss prevention.

Risk Pooling

The aggregation of many independent individual risks so that the total cost of claims becomes statistically predictable, allowing the insurer to set premiums reflecting average expected loss.

Gross Premium Formula

The total premium charged, equal to the risk premium for expected mortality plus expense loading for acquisition, maintenance and collection, plus a contingency or profit margin.

Term Assurance

A policy paying the sum assured only if death occurs within a specified term. It has no maturity value, so it provides the lowest premium per unit of cover for a given age.

Whole Life Assurance

Permanent cover with a guaranteed death benefit payable whenever death occurs. Premiums may be level to a stated age or payable for life, and cash value accrues over time.

Endowment Assurance

A policy paying the sum assured on death within the term or on survival to maturity. Because payout is certain, the premium exceeds term assurance for an equal sum assured.

Unit-Linked Policy

A policy where premiums purchase units in investment funds whose value fluctuates. The policyholder bears investment risk while the insurer retains mortality risk under the contract.

Reversionary Bonus

A bonus declared periodically on with-profits policies that, once declared, becomes vested and guaranteed and is added to the sum assured payable on death or maturity.

Universal Life Policy

A flexible policy separating an account value from the death benefit, where cost of insurance is deducted monthly based on attained age and the net amount at risk.

Incontestability Clause

A policy provision barring the insurer from contesting the contract after a stated period, commonly two years, for misrepresentation, except in cases of fraud or non-payment.

Non-Forfeiture Option

A provision allowing a policyholder who stops paying premiums to retain value, typically through reduced paid-up cover, extended term assurance, or a cash surrender value.

Financial Underwriting

Assessment of whether the proposed sum assured is proportionate to the applicant's income, liabilities and genuine need, guarding against over-insurance and moral hazard.

Numerical Rating Method

Underwriting technique assigning debit points for adverse factors and credit points for favourable ones, summing them against a base of 100 to derive a mortality percentage.

Flat Extra Premium

An additional premium charged per thousand of sum assured. It is temporary where the risk diminishes over time and permanent where the impairment is not expected to improve.

Attending Physician Statement

A medical report completed by the applicant's treating doctor, detailing diagnosis, treatment, prognosis and current status, used to assess risks that the proposal form reveals.

Automatic Binding Limit

The maximum sum assured an insurer may accept on its own authority under a reinsurance treaty before it must refer the case facultatively to the reinsurer for individual approval.

Facultative Reinsurance

Case-by-case reinsurance where the reinsurer separately assesses and may decline each individual risk, used for sums or impairments outside the automatic treaty limits.

Rate of Mortality

The probability that a life aged x dies before reaching age x+1, calculated from a mortality table as qx = dx divided by lx.

Net Single Premium

The present value of expected future death benefits for a whole life policy, calculated by discounting each year's probability of death by the appropriate interest factor.

Net Level Annual Premium

The constant annual amount whose present value equals the net single premium, obtained by dividing the net single premium by the annuity due factor for the premium-paying period.

Policy Reserve

The liability held for in-force policies, equal to the present value of future benefits minus the present value of future net premiums, funding surrender values and non-forfeiture options.

Select Mortality

Mortality experience in the early years of a policy that is lower than the ultimate rate, because lives accepted at underwriting are healthier than the general population of the same age.

Presumption of Death

A court declaration allowing a claim where a person is missing and presumed dead after a defined period, since no death certificate can be produced for verification.

Offer and Acceptance

The proposal form constitutes the offer to contract, and the insurer's acceptance, usually evidenced by policy issue or a formal acceptance notice, completes the agreement.

Contract Avoidance

The remedy allowing the insurer to treat the policy as never having existed, typically for material non-disclosure or misrepresentation, returning premiums paid to the policyholder.

Insurer Solvency Margin

The excess of an insurer's admissible assets over its liabilities, required by regulation to absorb adverse experience and protect policyholders against insolvency.

Churning

The unethical replacement of an existing policy with a new one mainly to generate fresh commission for the intermediary, often disadvantaging the client through new exclusions and costs.

Customer Due Diligence

Anti-money-laundering procedures requiring identification and verification of the customer, understanding of the source of funds, and ongoing monitoring of the business relationship.

Insurance Ombudsman

An independent dispute resolution body that adjudicates complaints from policyholders against insurers, typically after the insurer's internal complaints process has been exhausted.