IAI SA4 flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Indemnity principle

Insurance restores the insured to the pre-loss financial position without profit. Valued policies and reinstatement cover are exceptions where a fixed sum or new-for-old basis applies.

Insurable interest

A legal or financial relationship giving the insured a benefit from the subject's survival or a loss from its destruction. Required at inception for property and at loss for life.

Utmost good faith

The mutual duty of disclosure in insurance contracts. For consumers, the Consumer Insurance (Disclosure and Representations) Act 2012 replaced volunteering with a duty to take reasonable care.

Fair presentation duty

Under the Insurance Act 2015, commercial insureds must disclose every material circumstance they know or ought to know and give sufficient information to put a prudent insurer on notice.

Proportionate remedies

Insurance Act 2015 remedies for breach of fair presentation: avoid the contract, or if the breach was not deliberate or reckless, apply terms as if disclosed or reduce claims proportionately.

Average clause

Underinsurance formula: claim paid equals loss multiplied by sum insured divided by value at risk. Applies to property policies subject to average, not agreed-value covers.

Subrogation

After paying a claim, the insurer acquires the insured's rights of recovery against third parties. Recovery cannot exceed the amount paid and cannot prejudice uninsured losses.

Contribution between insurers

Where several indemnity policies cover the same loss, liability is shared rateably by independent liability or sum-insured method. Total recovery cannot exceed the loss.

Claims-made liability cover

Liability policies respond to claims first notified during the policy period. Retroactive dates and extended reporting periods define the scope of cover.

Term assurance

Pays a lump sum only if death occurs within the term, with no maturity value. Variants include level, decreasing, increasing, renewable, convertible, and family income benefit.

Whole-of-life assurance

Guaranteed to pay on death whenever it occurs. Premiums may be reviewable or guaranteed, and policies may be with-profits or unit-linked.

Endowment assurance

Pays the sum assured on death within the term or on survival to maturity. Historically used for savings and mortgage repayment.

Reversionary bonus

Annual with-profits bonus added to the sum assured. Once declared it is guaranteed, unlike discretionary terminal bonuses paid on claim or maturity.

Terminal bonus

Discretionary with-profits bonus paid on claim or maturity. It is not guaranteed and depends on the insurer's investment performance and smoothing policy.

Unit-linked policy

Premiums buy units in investment funds, so policy value fluctuates with performance. Charges include allocation, fund management, bid-offer spread, and surrender penalties.

Contestability period

Initial period (often two years) during which an insurer may avoid a life policy for material non-disclosure or misrepresentation. Reinstatement after lapse may restart it.

Chargeable event

UK tax event on non-qualifying life policies or gains above the annual exempt amount. Higher and additional rate taxpayers may face income tax on the gain.

Policy written in trust

Placing a life policy in trust removes proceeds from the estate for inheritance tax and can speed payment to beneficiaries nominated by the settlor.

Moratorium underwriting

PMI underwriting that excludes conditions in the look-back period (commonly five years) until a continuous symptom-free period (commonly two years) has elapsed.

Full medical underwriting

PMI underwriting assessing each applicant's medical history at outset. May apply permanent exclusions, premium loadings, or decline cover for declared conditions.

No-claims discount

PMI cost-control mechanism rewarding claim-free years with premium reductions. Discounts are typically reset or reduced when a claim is made.

Critical illness cover

Pays a lump sum on diagnosis of a defined condition meeting the policy definition, such as cancer, heart attack, or stroke. Survival periods of 14-30 days may apply.

Income protection

Pays replacement income, typically up to 50-70% of earnings, after a deferred period until recovery, retirement, or term end. Occupation definitions differ materially.

Own-occupation definition

Income protection basis paying out if the insured cannot perform their own occupation. Generally broader and more favourable to claimants than suited or any-occupation definitions.

Activities of daily living

Functional tests (bathing, dressing, feeding, toileting, mobility, continence) used to assess long-term care needs and trigger care insurance benefits.

Health cash plan

Reimburses fixed amounts for routine treatments such as dental, optical, and therapy. Not private medical insurance; benefits are capped per benefit and per year.

Group health scheme

Employer-funded health cover, commonly experience-rated. Individual portability on leaving the scheme is limited, so members may face underwriting on transfer.

Defined benefit scheme

Promises a pension based on salary and service, for example one-sixtieth per year. The employer bears investment and longevity risk.

Defined contribution scheme

Pays whatever the accumulated fund buys at retirement. The member bears investment and longevity risk, unlike in a defined benefit scheme.

Auto-enrolment contributions

UK minimum total contribution is 8% of qualifying earnings, of which at least 3% must come from the employer. Eligible jobholders are enrolled automatically.

Annual allowance

Standard UK limit on tax-relieved pension savings is £60,000 (2024/25). Tapering reduces it for high earners, and unused allowances can be carried forward three years.

Money purchase annual allowance

Set at £10,000. Triggered by flexibly accessing a defined contribution pension, but not by buying an annuity or taking only the tax-free lump sum.