IIQE Paper 3 key terms

The legal requirement that a person buying life cover must benefit financially from the continued life of the insured, or suffer loss at their death. It must exist at the time the policy is taken out.

The mutual duty on applicant and insurer to disclose all material facts honestly and completely during the insurance application, without being asked specific questions about each one.

Any information that would influence a prudent insurer's decision to accept a risk, set the premium, or impose special terms. Examples include medical history, occupation, smoking and hazardous hobbies.

Failure by the applicant to reveal a material fact the insurer needed. Depending on whether it was innocent, negligent or fraudulent, the insurer may adjust the claim or avoid the contract.

A statement made during the application that is untrue or misleading, whether deliberately, carelessly or innocently. It differs from non-disclosure, which is silence about a material fact.

A provision stating that after the policy has been in force for a stated period, usually two years, the insurer cannot void the contract for misrepresentation or non-disclosure except in cases of fraud.

A cooling-off window, commonly 21 days after delivery of the policy, during which the policyholder may cancel a life policy and receive a refund of premiums paid, less any market value adjustment.

A period, typically 30 or 31 days after a premium due date, during which the policy remains in force even though payment is late. A claim during this window may have the overdue premium deducted.

Termination of cover because premiums were not paid within the grace period and the policy had no cash value or automatic loan provision to keep it alive.

Restoring a lapsed policy to full force, usually within a set number of years, on payment of overdue premiums with interest and satisfactory evidence of continued insurability.

A provision allowing the insurer to borrow from the policy's cash value to pay an overdue premium, preventing lapse without the policyholder taking any action.

The cash amount a policyholder receives on voluntarily terminating a policy that has accumulated value. It is usually lower than total premiums paid in the early years because of acquisition costs.

The savings element built up inside a traditional whole life or endowment policy. It underpins surrender values, policy loans and non-forfeiture options.

A loan made by the insurer to the policyholder, secured by the policy's cash value. Interest accrues, and any unpaid balance plus interest is deducted from a death benefit.

An alternative offered when a policyholder stops paying premiums on a policy with cash value, such as reduced paid-up cover, extended term insurance, or taking the surrender value in cash.

Pure protection cover that pays a death benefit only if the insured dies within the policy term. It builds no cash value and is the cheapest form of life cover.

Cover that lasts for the insured's entire lifetime and pays a death benefit whenever death occurs, subject to premium payment. It normally accumulates cash value and may be participating.

A policy that pays a stated sum on death or on survival to the end of a fixed term, whichever happens first. It combines protection with a savings or investment objective.

A life policy that shares in the insurer's distributable surplus through dividends or bonuses, so benefits can grow above the guaranteed level. Bonus rates are not guaranteed.

A bonus added to the sum assured of a participating policy, usually annually, which becomes payable on death or maturity. Once declared it is normally guaranteed.

A one-off additional bonus paid on top of accumulated reversionary bonuses when a participating policy matures, is surrendered, or a claim arises. Its size is not guaranteed.

A rider allowing part of the death benefit to be paid early when the insured is diagnosed with a specified terminal or critical illness, reducing the sum paid at death.

A supplementary benefit attached to a basic life policy, often for an extra premium, such as waiver of premium, accidental death, or critical illness cover. It cannot normally stand alone.

A rider under which the insurer pays future premiums if the policyholder becomes totally disabled and unable to work, keeping the policy in force without further payment.

The risk that a person's behaviour becomes less careful, or a claim is manufactured, because insurance exists. Insurers assess lifestyle, occupation and character to control it.

The tendency of higher-risk individuals to seek or retain insurance more actively than lower-risk people, which can distort a pooled risk if underwriting is weak.

The insurer's process of assessing a proposed life, its medical and financial risk, and deciding whether to accept it, at what premium, and with what exclusions or loadings.

An additional amount added to the standard premium to reflect above-average risk, such as a health condition, dangerous occupation or hazardous pastime.

A policy term stating that specified events, conditions or circumstances are not covered. To be effective it must be clearly drafted and drawn to the policyholder's attention.

A life policy where premiums buy units in underlying funds chosen by the policyholder. The investment risk sits with the policyholder, and the benefit value rises or falls with unit prices.

The value of one unit in an investment-linked fund, calculated by dividing the fund's net asset value by the number of units in issue, usually on a forward-pricing basis.

The gap between the price at which units are bought (offer) and sold (bid). It covers dealing and administrative costs and reduces the amount invested when units are purchased.

An assumed rate of return used to project future benefits in a benefit illustration. It is not a promise or forecast, and actual returns may be higher or lower.

A document showing projected policy values at assumed rates, including premiums, charges, surrender values and death benefits, so a customer can compare products before deciding.

Hong Kong's compulsory retirement savings scheme under which employers and employees make regular contributions to a registered scheme, with accrued benefits normally preserved until retirement.

Accrued retirement scheme benefits that must be kept in the scheme or transferred to another approved scheme until a permitted withdrawal event, such as retirement, occurs.

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

A person or company licensed under the Insurance Ordinance to carry on regulated activities in insurance, either as an insurance broker or an insurance agent.

An intermediary who acts on behalf of the policyholder, not the insurer, in arranging insurance. Brokers must be independent of insurers and hold a broker licence.

An intermediary appointed by an insurer to market and arrange its insurance products. The agent represents the insurer in the transaction and must be properly appointed and licensed.

The standard a licence applicant must meet: sound financial standing, relevant qualifications, integrity and no disqualifying convictions. It is assessed at licensing and on renewal.

Ongoing training that licensed intermediaries must complete each year to keep their knowledge current, covering technical, regulatory and ethical topics as required by the regulator.

The process of gathering enough information about a client's circumstances, needs, objectives and risk tolerance to recommend suitable products and to meet anti-money-laundering obligations.

The obligation to recommend only products appropriate to the customer's disclosed needs, financial situation and risk appetite, and to explain why the recommendation fits.

A structured review of a client's income, liabilities, dependants, existing cover and goals, used to identify protection gaps and justify the recommended amount and type of insurance.

A situation where an intermediary's personal or financial interest, such as commission or a sales target, could improperly influence advice given to a customer. It must be disclosed and managed.

Telling the customer the amount or basis of remuneration the intermediary receives from the insurer for arranging the policy, so the customer can judge the advice objectively.

Surrendering or cancelling an existing policy to take out a new one. Intermediaries must complete a replacement comparison and warn the customer of lost benefits and new costs.

Controls requiring intermediaries to verify customer identity, monitor transactions and report suspicious activity, helping prevent insurance being used to launder criminal proceeds.