FLMI key terms

The chance that a loss or other unwanted event will occur. In insurance, risk usually refers to uncertainty about financial loss that can be measured and managed.

A situation that offers only the chance of loss or no loss, with no possibility of gain. Insurance is designed mainly to handle pure risks such as fire or premature death.

The specific cause of a loss, such as fire, accident, illness, or death. A peril is what actually produces the harm, while a hazard increases the chance it will happen.

A condition that increases the likelihood or severity of a loss. Examples include icy roads, poor health habits, or unsafe storage of flammable materials.

The tendency of people to take greater risks or be less careful because they are insured. Insurers manage it through underwriting, deductibles, policy limits, and claims investigation.

The tendency of people with higher-than-average risk to seek insurance more eagerly than lower-risk people. Insurers counter it with underwriting, waiting periods, and appropriate pricing.

A financial stake in a person or property such that loss or damage would cause a measurable economic loss. It must exist at policy issue for life insurance.

A statistical principle stating that as the number of similar independent exposures increases, actual results tend to come closer to expected results. Insurers rely on it for stable pricing.

The idea that insurance should restore an insured to approximately the same financial position as before a loss, not create a profit. It supports limits and actual-loss payments.

Insurance bought by an insurance company to transfer part of its risk to another insurer. It protects the company from large claims and helps it accept more business.

Life insurance that provides protection for a stated period, such as 10 or 20 years, and pays a benefit only if death occurs during that period. It usually has no cash value.

Permanent life insurance that stays in force for the insured's entire life, pays a death benefit, and builds cash value. Premiums are usually level and payable for life or a set period.

Permanent life insurance with flexible premiums and an adjustable death benefit. It separates the cost of insurance from savings and credits interest to the cash value.

Permanent life insurance whose cash value is invested in separate accounts chosen by the policyowner. The death benefit and cash value can rise or fall with investment performance.

The savings component inside a permanent life insurance policy. It can grow over time and may be borrowed against, withdrawn, or paid out if the policy is surrendered.

A contract that pays a stream of income, usually for retirement. It can accumulate funds and then convert them into regular payments for a set period or a lifetime.

The amount an insured person must pay out of pocket before an insurer begins paying covered claims. Higher deductibles usually lower the premium.

A cost-sharing arrangement in which the insured pays a set percentage of covered costs and the insurer pays the rest. It is common in health and property insurance.

Coverage that replaces part of a worker's income when illness or injury prevents them from working. Benefits are usually a percentage of prior earnings and may have waiting periods.

Coverage that helps pay for services such as nursing home care, assisted living, or home health care when a person cannot perform daily activities without help.

An optional provision added to an insurance policy that changes or expands coverage, often for an extra premium. Examples include waiver of premium and accelerated death benefits.

The process of evaluating an insurance application to decide whether to accept the risk, how much coverage to offer, and what premium to charge.

The process of receiving, investigating, evaluating, and paying or denying insurance claims. It aims to settle valid claims fairly and promptly.

The ongoing handling of an insurance policy after issue, including billing, record changes, beneficiary updates, premium collection, and customer service.

The amount a policyowner pays an insurer for coverage. It reflects expected claims, operating expenses, and a margin for profit or contingencies.

Money an insurer sets aside to meet future obligations to policyholders, such as expected death claims or annuity payments. Reserves are liabilities on the insurer's financial statements.

A statistical table showing death rates for people at each age, often separated by sex or other factors. Insurers use it to estimate expected claims and price life insurance.

A period, usually the first two years of a life insurance policy, during which the insurer can investigate and may deny a claim for material misrepresentation on the application.

A set time after a premium due date during which the policy remains in force even though payment is late. If the insured dies in this period, the unpaid premium may be deducted.

The person or entity named to receive insurance proceeds when the insured dies. A primary beneficiary is first in line; a contingent beneficiary receives the benefit if the primary is unavailable.

An insurer's ability to meet its financial obligations as they come due. Regulators monitor solvency to protect policyholders from the risk of company failure.

A regulatory standard that sets minimum capital requirements according to the amount and types of risk an insurer takes. Riskier operations require more capital.

The way an insurer and its producers behave in selling, servicing, and paying claims. Regulators examine market conduct to protect consumers from unfair or deceptive practices.

A legal obligation to act in the best interests of another person, often involving handling money or property honestly and prudently. Insurance producers and officers may owe this duty.

The requirement that an insurance or financial product recommendation fit the customer's needs, goals, financial situation, and risk tolerance. It helps prevent inappropriate sales.