BIA Diploma in Life Insurance key terms

A legal and financial stake in the life or continued health of the person insured, such that the policyholder would suffer genuine loss if that person died. It must exist when the policy is taken out.

The mutual duty on applicant and insurer to disclose all material facts honestly and completely, without being asked, so that the contract is not based on concealment or misrepresentation.

Any information that would influence a prudent insurer's decision on whether to accept a risk, what premium to charge, or what terms to impose. It must be disclosed at proposal and at renewal.

Failure by the applicant to reveal a material fact the insurer needed. Innocent non-disclosure is usually treated more leniently than deliberate or reckless withholding, which can allow the insurer to avoid the contract.

A false or misleading statement made by the applicant or insurer during negotiations. If it is material and induced the contract, the innocent party may rescind or seek other remedies.

The application document completed by a prospective policyholder. It records personal, health and financial details, forms the basis of the contract, and triggers the insurer's underwriting assessment.

The amount the policyholder pays, usually monthly or annually, in exchange for cover. It is calculated from mortality assumptions, expenses, interest, and the specific risk profile of the insured.

The basic amount of cover stated in the policy, on which benefits and premiums are calculated. Bonuses, riders or indexation may increase the amount actually payable.

The amount the insurer pays to nominated beneficiaries or the estate when the insured dies while the policy is in force. It may equal the sum assured plus bonuses, less any indebtedness.

The person or entity named in the policy to receive the death benefit. Naming a beneficiary can speed payment and may keep proceeds outside the estate, depending on the law.

The policyholder's formal instruction naming who should receive policy proceeds on death. Rules differ on whether a nomination is merely advisory or creates a binding trust.

Pure protection cover for a fixed period with no investment element. It pays only if death occurs within the term, so premiums are relatively low for a given sum assured.

Cover that lasts for the insured's entire lifetime, so a death claim is certain to arise eventually. Premiums are higher than term because payment is guaranteed.

A contract paying a stated sum if the insured dies within the term, or if they survive to the maturity date. It combines protection with a savings element.

A contract in which an insurer pays a regular income, often for life, in return for a lump sum or series of payments. It addresses the risk of outliving one's savings.

An optional supplementary benefit attached to a base policy for an extra premium, such as critical illness, waiver of premium, or accidental death cover. It cannot usually exist alone.

The savings component that builds up in certain permanent policies. It may be borrowed against, withdrawn on surrender, or used to keep cover in force.

The amount an insurer pays if the policyholder cancels a policy with a savings element before maturity or claim. It is often lower than total premiums paid in early years.

Money borrowed from the insurer using a policy's cash value as security. Interest accrues, and any unpaid balance reduces the benefit paid on death or surrender.

A short window after a policy is issued during which the policyholder may cancel for a refund of premiums. It protects consumers who bought without fully understanding the terms.

The statutory or contractual right to reconsider a purchase and withdraw within a set number of days. In life insurance it typically mirrors the free-look right on new policies.

A specific event, condition or circumstance for which the policy will not pay. Exclusions must be clearly worded and disclosed, and are often subject to strict legal interpretation.

A set time at the start of cover during which claims for certain causes are not payable. It guards against adverse selection and is common for illness or disability benefits.

A provision limiting or excluding payment if the insured takes their own life within a stated period, often one or two years from inception. After that period, full benefits usually apply.

A period, commonly two years, during which the insurer may investigate and deny a claim if the application contained material misrepresentation or non-disclosure. Afterwards claims are largely incontestable.

The insurer's process of assessing a proposed risk, deciding whether to accept it, and setting terms, exclusions or premium loadings based on health, occupation, lifestyle and financial profile.

An addition to the standard premium to reflect extra risk, such as poor health or a hazardous occupation. It may be temporary, permanent, or expressed as a percentage or flat amount.

The risk that an applicant's honesty, intentions or financial incentives make them more likely to claim or to act carelessly. It is assessed through financial underwriting and background checks.

The tendency for people at higher risk to seek or retain insurance more eagerly than low-risk people. Insurers counter it with medical questions, waiting periods and risk-based pricing.

A statistical table showing death rates at each age in a population. Actuaries use it, with margins and interest assumptions, to calculate premiums and reserves.

Money an insurer sets aside to meet future obligations to policyholders. Reserves are liabilities on the balance sheet and must be calculated on sound actuarial bases.

A premium that stays the same throughout the policy term, even though mortality risk rises with age. Early overpayments build a fund that subsidises later years.

The excess of an insurer's admissible assets over its liabilities, required by regulators as a buffer against unexpected losses. Falling below the minimum can trigger regulatory intervention.

A formal request by the policyholder or beneficiary for payment of a benefit under the policy. The insurer must assess it promptly, fairly and in line with the contract terms.

The insurer's own obligation to deal openly, explain policy terms clearly, and not exploit an applicant's ignorance. Breach can affect the insurer's ability to rely on policy terms.

A contract that is valid until one party chooses to rescind it, for example because of material misrepresentation. Until rescinded, it remains enforceable.

The requirement that an adviser recommend products appropriate to the client's needs, objectives, time horizon and financial circumstances, supported by documented reasons.

A legal arrangement in which property, including policy proceeds, is held by trustees for the benefit of named persons. It can separate proceeds from the estate and speed payment.

A policy feature allowing the insured to continue cover at the end of the term without fresh medical evidence, usually at a higher premium reflecting attained age.