FLMI flashcards
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32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Law of large numbers
- As the number of independent, homogeneous exposure units increases, actual loss experience converges toward expected loss, making premiums more predictable.
- Insurable interest
- A financial or relationship-based interest in the continued life or property of the insured; for life insurance it must exist at policy issue.
- Adverse selection
- Tendency of higher-than-average risks to seek insurance; controlled through underwriting, waiting periods, exclusions, and experience rating.
- Moral hazard
- Increased likelihood of loss or claiming because insurance reduces the financial consequence of loss; managed with deductibles, coinsurance, and exclusions.
- Reinsurance
- Transfer of part of an insurer's risk to another insurer; the ceding company pays premium and retains a stated retention amount.
- Facultative reinsurance
- Reinsurance arranged case by case, with the reinsurer free to accept or decline each individual risk offered by the ceding company.
- Stock insurer
- Insurer owned by shareholders; profits are distributed as shareholder dividends, and policyholders are not owners of the company.
- Mutual insurer
- Insurer owned by policyholders; eligible policyholders may receive dividends, which are generally treated as a return of premium.
- Term life insurance
- Pure death protection for a specified period with no cash value; commonly renewable and convertible to permanent coverage.
- Whole life insurance
- Permanent coverage with level premiums, a guaranteed death benefit, and guaranteed cash value that grows tax-deferred over time.
- Universal life insurance
- Flexible-premium permanent policy whose cash value earns credited interest while monthly cost-of-insurance and expense charges are deducted.
- Variable life insurance
- Permanent policy whose cash value is invested in separate-account subaccounts; the owner bears investment risk and must receive a prospectus.
- Exclusion ratio
- Portion of each annuity payment that represents return of the owner's after-tax investment; that portion is excluded from taxable income.
- Modified endowment contract
- A life policy that fails the 7-pay test; withdrawals and loans are taxed income first, with a 10% penalty before age 59½.
- Waiver of premium rider
- Rider that waives premiums after the insured is totally disabled for a stated period, keeping the policy in force without payment.
- Coordination of benefits
- Order-of-payment rules that prevent duplicate payment when one person is covered by more than one group health plan.
- Contestable period
- Typically two years from issue during which the insurer may rescind a policy for material misrepresentation on the application.
- Free-look period
- Period after policy delivery, often 10 to 30 days, during which the owner may return the policy for a full premium refund.
- Conditional receipt
- Provides coverage from the date of application or medical examination if the proposed insured proves insurable under the insurer's rules.
- Medical Information Bureau
- Organization of insurers that shares coded medical information to help members detect adverse selection; it is a consumer reporting agency under federal law.
- Reinstatement
- Restoration of a lapsed policy after evidence of insurability and payment of overdue premiums with interest, usually within a stated period.
- Automatic premium loan
- Provision that uses available cash value to pay an overdue premium, preventing lapse as long as cash value is sufficient.
- Net premium reserve
- Actuarial liability for future policy obligations, equal to the present value of future benefits minus the present value of future net premiums.
- Separate account
- Investment account holding variable product assets, kept apart from the insurer's general account and not used to pay general obligations.
- McCarran-Ferguson Act
- 1945 federal law confirming state regulation of insurance and granting a limited antitrust exemption for activities the states regulate.
- NAIC
- Association of state insurance regulators that drafts model laws and regulations; it has no direct enforcement authority over insurers.
- Risk-based capital ratio
- Solvency measure comparing an insurer's adjusted capital with the capital required for its risk profile; lower ratios trigger increasing regulatory action.
- Guaranty association
- State-established entity that pays covered claims of policyholders of insolvent insurers, up to statutory limits.
- Twisting
- Misrepresentation that induces a policyholder to lapse or surrender existing coverage in order to buy another policy.
- Rebating
- Offering part of a producer's commission or another inducement not stated in the policy to make a sale; prohibited in most states.
- Inside buildup
- Tax-deferred growth of a life insurance policy's cash value; tax applies only on withdrawal, surrender, or payment of the death benefit.
- Fiduciary duty
- Obligation of a producer who handles premiums or client funds to act in the client's interest and account for those funds.