IAI SP2 flashcards
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32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Net premium
- The portion of a life insurance premium required to cover expected mortality costs, calculated as present value of future benefits divided by present value of future net premiums.
- Universal life option A
- A universal life death benefit option where the death benefit remains level while the cash value grows, so the net amount at risk decreases over time.
- Nonforfeiture options
- Choices available when a whole life policy lapses with cash value: cash surrender, reduced paid-up insurance, or extended term insurance, required by state law.
- Variable life separate account
- An investment account separate from the insurer's general account where variable life cash values are invested in subaccounts, with policyholder bearing investment risk.
- Attending physician statement
- A medical report obtained from the applicant's physician during underwriting to clarify medical history or current conditions when the application indicates potential risk.
- Table rating
- A substandard underwriting classification expressed as a percentage of standard mortality, such as Table 2 meaning 200% of standard mortality, used to set higher premiums.
- MIB
- The Medical Information Bureau, a membership organization that stores coded medical and lifestyle information and alerts underwriters to potential risks, subject to FCRA disclosure rules.
- Conditional receipt
- A receipt given when the initial premium is collected with the application, providing coverage only if the proposed insured proves insurable under the insurer's standard underwriting rules.
- Contestability period
- The period, usually two years from policy issue, during which the insurer may deny a claim or rescind coverage for material misrepresentation on the application.
- Suicide clause
- A policy provision excluding payment of the death benefit if the insured dies by suicide within a specified period, typically two years from issue, after which the benefit is payable.
- Automatic premium loan
- A provision that uses available cash value to pay an overdue premium at the end of the grace period, preventing unintentional lapse of the policy.
- Per stirpes beneficiary
- A beneficiary designation distributing proceeds to the named beneficiary's descendants in equal shares if the beneficiary predeceases the insured, preserving the family line.
- Replacement notice
- A required disclosure when a new life policy replaces existing coverage, informing the applicant and existing insurer to protect against twisting and churning.
- Twisting
- An unfair trade practice involving misrepresentation or incomplete comparison to induce a policyholder to lapse or surrender existing coverage and purchase a new policy.
- Free-look period
- A state-mandated period, typically 10 to 30 days after policy delivery, during which the policyholder may return the policy for a full premium refund.
- Appointment
- The authorization by an insurer that allows a licensed producer to solicit and sell its products, which must be filed with the state insurance department.
- State guaranty association
- A state organization that protects policyholders from insurer insolvency by paying claims up to statutory limits, funded by assessments on member insurers.
- McCarran-Ferguson Act
- Federal law that delegates insurance regulation primarily to the states and exempts insurance from most federal antitrust laws to the extent state-regulated.
- Risk-based capital
- A regulatory formula that sets minimum capital requirements based on an insurer's asset risk, insurance risk, interest rate risk, and business risk, with four action levels.
- HIPAA authorization
- Written permission required before an insurer or producer may obtain or disclose an individual's protected health information for underwriting or claims purposes.
- Deferred acquisition costs
- Under GAAP, costs of acquiring new business, such as commissions, that are capitalized as an asset and amortized over the life of the policy.
- Statutory accounting principles
- Conservative accounting rules used for regulatory reporting that emphasize solvency by expensing acquisition costs immediately and limiting admitted assets.
- Deficiency reserve
- An additional statutory reserve required when the gross premium charged is less than the valuation net premium, ensuring reserves are not understated.
- Cash flow testing
- An asset-liability management exercise projecting cash flows under multiple interest rate scenarios to verify that reserves and capital remain adequate.
- Surplus
- The excess of an insurer's admitted assets over its liabilities, representing policyholders' safety margin and reported on the statutory balance sheet.
- Rebating
- Offering a client something of value not specified in the policy, such as cash or gifts, to induce a sale; illegal in most states as an unfair trade practice.
- Churning
- Replacing a client's policy solely to generate new commissions, often harmful to the client and considered an unethical and prohibited sales practice.
- Fiduciary duty
- The ethical and legal obligation of a producer to act in the client's best interest, disclose conflicts, and prioritize client needs over personal compensation.
- Suitability standard
- The requirement that a producer have reasonable grounds, based on client financial information, to recommend a product as suitable for that client's needs.
- Errors and omissions insurance
- Professional liability coverage protecting producers and agencies against claims of negligence, such as failure to place coverage or unsuitable recommendations.
- Continuing education ethics requirement
- A state-mandated portion of continuing education hours devoted to ethics, required for license renewal to reinforce professional conduct standards.
- Material misrepresentation
- A false statement on an insurance application that would have affected the insurer's decision to issue coverage or the premium charged, grounds for rescission or claim denial.