IAI SP2 key terms

A statistical schedule showing, for each age, the expected number of deaths per thousand lives in a defined population. Insurers use it to estimate death claims and calculate life insurance premiums.

The portion of a life insurance premium needed to cover expected mortality claims, calculated without loading. It excludes expenses, profit, and contingency margins added by the insurer.

The total amount a policyholder pays, comprising the net premium plus loadings for expenses, commissions, taxes, profit margin, and risk contingency. It is the price actually quoted to customers.

The addition to the net premium that covers operating expenses, acquisition costs, commissions, and profit. Loadings may be expressed as a percentage of premium, a flat amount, or a per-policy charge.

A liability the insurer holds to meet future obligations on in-force policies. It equals the present value of expected future benefits minus the present value of expected future premiums.

The frequency at which illness or disability occurs in a defined population over a period. It underpins pricing of health, critical illness, and disability income products.

The number of new claims arising among insured lives during a period, usually expressed per thousand or per million of exposure. It drives pricing of riders and health benefits.

The cash amount payable to a policyholder who terminates a savings or whole-of-life policy before maturity. It is typically lower than accumulated premiums in early policy years.

The accumulated fund inside a permanent life policy that belongs to the policyholder. It grows over time and can be borrowed against or withdrawn under policy terms.

A policy provision allowing a policyholder who stops paying premiums to retain some value, for example through reduced paid-up cover, extended term cover, or automatic premium loan.

The process of assessing a proposed insured's risk profile and deciding whether to accept the application, on what terms, and at what premium. It protects the insurer and the pool of policyholders.

The risk that an insured's behavior changes after cover is issued, increasing the likelihood or severity of a claim. Underwriters consider occupation, lifestyle, and financial incentives.

The tendency of higher-risk applicants to seek or retain insurance more actively than lower-risk applicants. Insurers counter it through underwriting, exclusions, and waiting periods.

An applicant whose risk of claim is higher than average because of health, occupation, or lifestyle factors. Cover may be offered with extra premium, exclusions, or reduced benefits.

An applicant whose expected claim experience falls within the insurer's normal range, allowing cover at standard rates without extra premium or special conditions.

The process of adjusting premium or benefits to reflect an applicant's assessed risk. It may involve a percentage extra, a flat extra, a rated age, or benefit restrictions.

Assessment of whether the sum insured is justified by the applicant's income, net worth, or business exposure. It limits moral hazard and speculative insurance on another person's life.

A legal requirement that the policyholder would suffer genuine financial or emotional loss from the insured event. It must exist at inception and supports the validity of the contract.

The principle that both parties to an insurance contract must disclose all material facts honestly. Breach by the applicant can allow the insurer to avoid the policy.

Information that would influence a prudent insurer's decision to accept a risk or set its terms. Applicants must disclose such facts when applying for cover.

Failure by an applicant to reveal a material fact when applying for insurance. Consequences range from claim adjustment to policy avoidance, depending on law and the policy's terms.

A cooling-off window after policy issue during which the policyholder may cancel and receive a refund of premiums. It protects consumers from pressured or uninformed purchase decisions.

A set number of days after a premium due date during which cover continues even though payment is late. If the premium is not paid by the end, the policy may lapse.

Termination of a policy because premiums were not paid or policy conditions were not met. The policyholder may lose all or part of the accumulated value depending on the product.

Restoration of a lapsed policy, usually on payment of overdue premiums plus interest and evidence of continued insurability. It preserves the original policy's age and terms.

Incurred claims divided by earned premium over a period, often expressed as a percentage. It is a core indicator of underwriting performance and pricing adequacy.

An estimate of claims that have occurred but have not yet been reported to the insurer by the valuation date. It is a required liability in financial reporting.

The person or entity nominated to receive the death benefit under a life policy. Nomination rules and revocation rights vary by jurisdiction and product.

An intermediary who represents one insurer or a single group and sells only that provider's products. Their advice is limited to the products they are authorized to distribute.

An intermediary who acts for the client in selecting and arranging insurance, typically able to place business with multiple insurers. Duties of loyalty and disclosure apply.

The requirement to inform clients about remuneration an intermediary receives for a sale. It supports transparency and helps customers judge potential conflicts of interest.

The obligation to recommend products that match a client's needs, objectives, financial situation, and risk tolerance. It requires documented fact-finding and reasoned advice.

The process of collecting and verifying information about a client's identity, circumstances, and objectives before advising or issuing a policy. It also supports anti-money-laundering controls.

Controls that prevent insurance products from being used to disguise the proceeds of crime. They include customer due diligence, transaction monitoring, and suspicious activity reporting.

The excess of an insurer's admissible assets over its required liabilities, expressed against a regulatory minimum. It measures the buffer available to absorb adverse experience.

A regulatory framework that sets capital requirements according to the risk profile of an insurer's assets and liabilities. Riskier portfolios demand more capital.

A situation where an adviser's personal or financial interest could improperly influence advice to a client. It must be identified, disclosed, and managed or avoided.