CA Life & Health key terms

A state-issued authorization that allows a person to solicit, negotiate, or sell insurance products in California. It requires prelicensing education, a passing exam, a background check, and renewal with continuing education.

An insurer's written authorization for a licensed producer to act on its behalf. A producer cannot submit business for a company until that company appoints them and notifies the state.

The legal obligation of a producer to act honestly when handling other people's money. Premiums collected from clients must be kept separate, accounted for, and forwarded to the insurer promptly.

Mixing client or insurer funds with a producer's personal or business money. It is prohibited because it makes premium dollars impossible to trace and invites misuse of funds.

Using misleading or incomplete statements to persuade a policyholder to drop one policy and buy another. It is an unfair trade practice and grounds for license discipline.

Offering a buyer anything of value that is not stated in the policy, such as cash, gifts, or paying part of the premium, to induce a purchase. California prohibits it as an unfair inducement.

Selling a new life policy or annuity that causes the buyer to lapse, surrender, or reduce an existing policy. California requires a signed replacement notice and comparison to protect the consumer.

A period after a policy is delivered during which the buyer may return it for a full refund of premium. California law sets the length, and it is generally longer for annuities and for policies sold to seniors.

A financial or emotional stake in the continued life of the insured, such that the buyer would suffer a loss if that person died. It must exist when the policy is purchased.

The chance of financial loss. Insurance handles pure risk, where only loss or no loss is possible, and generally does not cover speculative risk, where gain is also possible.

The actual cause of a loss, such as death, fire, or an accident. Perils are the events a policy lists as covered, while hazards are conditions that make those events more likely.

A condition that increases the likelihood or the size of a loss, such as smoking, poor health, or an icy walkway. Insurers use hazards to classify and rate applicants.

The tendency of people with the greatest chance of loss to seek out or keep insurance. Insurers control it through underwriting, exclusions, and waiting periods.

The principle that both the insurer and the applicant must deal honestly and disclose all material facts. It underlies the application, the representations made, and the insurer's duty to explain policy terms.

Waiver is voluntarily giving up a known right under the policy. Estoppel prevents the party who waived that right from later using it to the other party's disadvantage.

The death benefit shown on the policy's face page, meaning the amount paid to the beneficiary if the insured dies while coverage is in force.

The savings component inside permanent life insurance. It grows tax-deferred, belongs to the policyowner, and can be borrowed against or received when the policy is surrendered.

Coverage for a set number of years with no cash value. It pays only if the insured dies during that term, and the premium usually rises sharply at each renewal.

Permanent coverage with level premiums payable for life, guaranteed cash value, and a guaranteed death benefit. Premiums are higher than term because the coverage never expires.

Flexible permanent coverage that separates the cost of insurance from the savings account. The owner may vary premiums and the death benefit, but weak performance can require extra funding.

Money borrowed from a permanent policy's cash value, using the policy as collateral. It must be repaid with interest, and an unpaid loan reduces the death benefit and can cause the policy to lapse.

A provision stating that after the policy has been in force for a set period, typically two years, the insurer cannot deny a claim because of a misstatement on the application.

The choices given to a permanent policyowner who stops paying premiums: cash surrender, reduced paid-up coverage, or extended term coverage. These options protect the cash value already built up.

A life policy funded with more than tax law allows, usually during the early years. It loses favorable tax treatment, and loans and withdrawals are taxed like annuity distributions.

A rider that keeps a policy in force without further premium payments if the insured becomes totally disabled as the policy defines, usually after a waiting period.

The person whose life expectancy determines how long annuity payments continue. The annuitant and the annuity owner may be different people, and payments depend on the annuitant's lifespan.

Converting the accumulated value of an annuity into a stream of income payments. Once payments begin, the choice of payout option is generally irrevocable.

A contract that guarantees a stated interest rate and a fixed payment amount. The insurer bears the investment risk, and the account grows tax-deferred until payout.

An annuity whose value moves with the performance of underlying subaccounts, which resemble mutual funds. The owner carries the investment risk, so the contract must be sold with a prospectus.

A fee for cashing out or withdrawing more than the permitted free amount from a deferred annuity during its early years. It declines over time and reimburses the insurer's acquisition costs.

The fraction of each annuity payment that represents a return of the after-tax investment and is therefore not taxed. It applies to nonqualified annuities during the payout phase.

The amount a member pays out of pocket each plan year before the health plan begins paying for covered services. A higher deductible usually means a lower premium.

The share of covered costs the member pays after satisfying the deductible, such as 20 percent, while the insurer pays the rest until the out-of-pocket maximum is reached.

The most a member must pay in a plan year for covered in-network care, counting deductibles, copays, and coinsurance. Once it is reached, the plan pays 100 percent of covered benefits.

A health maintenance organization delivers care through contracted doctors and hospitals and requires a primary care physician to coordinate referrals. Non-emergency care outside the network is generally not covered.

A preferred provider organization contracts with a network of doctors and hospitals. Members pay less when they stay in-network but may use outside providers at higher cost, usually without referrals.

A private plan that delivers Medicare Part A and Part B benefits, often with drug coverage and extras such as dental or vision. It typically uses provider networks and may require referrals.

Private supplemental insurance that helps pay Medicare Part A and Part B cost-sharing, such as deductibles, coinsurance, and copays. Federal rules standardize the plans into lettered options.

Coverage for extended care such as nursing home, assisted living, or home health services when a person cannot perform activities of daily living. Benefits typically begin after an elimination period.