IL Life & Health flashcards

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

McCarran-Ferguson Act

The 1945 federal law that reserves regulation of the business of insurance to the states, allowing federal antitrust statutes to apply only where states do not regulate.

Twisting

An unfair trade practice in which a producer misrepresents or unfairly compares an existing policy to persuade the policyholder to lapse it and buy another.

Producer fiduciary duty

Premiums and funds a producer collects for an insurer must be held in trust, accounted for, and never commingled with the producer's personal or business money.

Insurable interest

A relationship in which one person benefits financially or through close ties from another's continued life; in life insurance it must exist when the policy is issued.

Aleatory contract

An agreement in which the values exchanged are unequal and depend on chance, because the insurer may pay far more or far less than the premium collected.

Apparent authority

Authority a reasonable third party believes a producer holds because of the insurer's words or conduct, which can bind the insurer even without express authorization.

Conditional receipt

A receipt making coverage effective from the application or medical exam date only if the applicant proves insurable under the insurer's ordinary underwriting rules; otherwise coverage begins at delivery.

Free-look period

A review right, commonly 10 to 30 days after delivery depending on state and replacement status, during which the owner may return the policy for a refund of premium.

Human life value approach

A needs calculation that sets coverage at the present value of the insured's future earnings and personal services that dependents would lose at death.

Yearly renewable term

One-year term coverage that may be renewed without new evidence of insurability, with premiums rising each year as the insured's age increases.

Universal life option B

A universal life death benefit equal to the face amount plus accumulated cash value, so the net amount at risk and cost of insurance change as values grow.

Variable life insurance

Permanent coverage whose cash value is invested in a separate account; the producer needs a securities license and must deliver a prospectus with the policy.

Group life conversion privilege

An employee leaving group coverage may convert it to an individual policy without proving insurability, usually within 31 days of termination of group coverage.

Incontestability clause

After the policy has been in force for two years from issue, the insurer generally cannot rescind coverage for a misstatement on the application.

Extended term option

A nonforfeiture option that applies the net cash value to buy term coverage equal to the full face amount for whatever period that value will purchase.

Automatic premium loan

A provision authorizing the insurer to borrow from cash value to pay an overdue premium, keeping the policy in force when the owner does not pay.

Waiver of premium rider

Waives premiums while the insured is totally disabled beyond an elimination period, typically six months, and refunds premiums paid during the disability.

Exclusion ratio

The tax-free share of each annuity payment, found by dividing investment in the contract by expected return; it applies until the basis is fully recovered.

Annuity units

After a variable annuity is annuitized, each payment is stated in annuity units whose value rises and falls with the separate account's investments.

Fixed annuity guarantee

A fixed deferred annuity must credit at least the minimum interest rate stated in the contract, so the insurer, not the owner, bears investment risk.

Transfer-for-value rule

When a life policy is sold or exchanged for value, the death benefit becomes taxable income to the buyer, with narrow exceptions such as transfers to the insured.

Modified endowment contract

A life policy that fails the seven-pay test; loans and distributions are taxed as income first and a 10 percent penalty applies before age 59 and a half.

Incidents of ownership

Rights such as changing the beneficiary, borrowing cash value, or surrendering the policy; holding them at death pulls the proceeds into the insured's gross estate.

Guaranteed renewable policy

The insurer must keep the policy in force while premiums are paid but may raise premiums for an entire class of policyholders, not for one individual.

Noncancellable health policy

The insurer may not cancel the policy or increase its premium up to a stated age, making it the strongest of the individual health renewability clauses.

Coordination of benefits

Rules that decide which of two health plans pays first to prevent duplicate payment; for dependent children the birthday rule usually favors the parent with the earlier birthday.

Own occupation disability

A disability income definition that pays when the insured cannot perform the duties of the specific occupation, a broader and more expensive benefit than any occupation coverage.

Medicare Part A

Hospital insurance covering inpatient stays, skilled nursing facility care after a hospital stay, hospice, and home health; most people pay no monthly premium.

Capitation

An HMO payment method in which a provider receives a fixed amount per member per month, regardless of how many services that member actually uses.

Long-term care benefit trigger

Benefits begin when the insured cannot perform at least two of six activities of daily living for a set period, or has a severe cognitive impairment.

Dental predetermination

A process in which the dentist submits a treatment plan before care is provided, and the insurer returns an estimate of covered benefits.

Unfair claim settlement practices

Prohibited insurer acts such as failing to acknowledge a claim promptly, denying a claim without reasonable investigation, or not paying undisputed amounts by required deadlines.