IL Life & Health key terms

A financial stake in the continued life or health of the insured, such that the policyholder would suffer a real economic loss if the insured died or became disabled. It must exist when the policy is applied for.

The principle that both parties to an insurance contract must deal honestly and disclose all material facts. Insurers rely on the applicant's candor, and misrepresentation can allow the insurer to rescind the policy.

A contract drafted by one party (the insurer) and offered to the other on a take-it-or-leave-it basis. Ambiguities are generally interpreted in favor of the policyholder.

Authority a producer appears to have because of the insurer's words or actions, even if the insurer never actually granted it. The insurer can be bound by acts within that appearance.

The duty of a producer to act in the client's best interest when handling money or applications, including prompt remittance of premiums to the insurer and accurate recordkeeping.

An unfair trade practice in which a producer misrepresents an existing policy to persuade a client to surrender or replace it, usually to earn a new commission.

Giving any part of a commission or other inducement not stated in the policy to a buyer as an incentive to purchase insurance. It is illegal in most states.

A receipt given when a premium is paid with the application; coverage begins on the date of the receipt (or medical exam) only if the applicant meets the insurer's underwriting requirements.

The producer's role in gathering accurate information about the applicant and reporting it to the insurer, which is the first step in the underwriting process.

A beneficiary designation meaning the share of a deceased beneficiary passes to that beneficiary's descendants in equal parts, rather than to the surviving primary beneficiaries.

A membership organization that collects coded medical and lifestyle information from member insurers and shares it with them during underwriting; it does not make underwriting decisions.

Coverage for a set number of years with no cash value; it pays a death benefit only if the insured dies during the term and is the least expensive form of pure protection.

Permanent coverage with level premiums, a guaranteed death benefit, and guaranteed cash value that grows tax deferred. It stays in force as long as premiums are paid.

Permanent coverage with flexible premiums and an adjustable death benefit. The policy's cash value earns interest, and the cost of insurance is deducted monthly from that value.

Permanent coverage whose cash value is invested in separate account subaccounts chosen by the owner. The death benefit and cash value fluctuate with investment performance, and the owner bears the risk.

A single master policy covering a group of people, usually employees, typically with a small amount of term coverage and no individual underwriting; the employer often pays the premium.

Choices available when a permanent policy with cash value is surrendered or lapses: cash surrender value, reduced paid-up insurance, or extended term insurance.

Ways a participating policyholder can use policy dividends: take cash, reduce premium, accumulate at interest, buy paid-up additions, or buy one-year term.

Methods the beneficiary may use to receive the death benefit, such as lump sum, interest only, fixed period, fixed amount, or life income.

A rider that keeps a policy in force without further premium payments if the insured becomes totally disabled for a specified period, usually six months.

A provision allowing the insured to receive part of the death benefit early when diagnosed with a terminal illness or qualifying condition; the remaining benefit is reduced.

A provision stating that after the policy has been in force for a set period, usually two years, the insurer cannot contest the policy for misrepresentation on the application.

The time after a premium due date, typically 30 or 31 days, during which the policy stays in force; if the insured dies, any unpaid premium is deducted from the benefit.

A contract purchased with a single premium where payouts begin within one payment period, usually a month or a year; there is little or no accumulation phase.

An annuity with an accumulation phase during which interest or investment earnings build up before income payments begin, often at retirement.

The process of converting an annuity's accumulated value into a stream of regular income payments, using a payout option chosen by the annuitant.

A fee charged by an insurer when a cash value policy or annuity is surrendered during early policy years, designed to recover sales expenses; it usually declines over time.

The fraction of each annuity payment that is a tax-free return of the owner's after-tax investment; the rest is taxable interest and is reported as ordinary income.

A tax-free transfer of cash value from a life insurance policy or annuity to another life policy or annuity, as permitted by Section 1035 of the Internal Revenue Code.

A life policy that fails the seven-pay test because too much premium was paid too soon; withdrawals and loans are taxed first-in-first-out and may incur a 10% penalty before age 59½.

A business arrangement funded by life insurance in which a deceased owner's interest is purchased from the heirs at a prearranged price, keeping ownership within the business or among survivors.

The amount the insured must pay out of pocket for covered services each year before the insurer begins to pay benefits; higher deductibles usually mean lower premiums.

The percentage of covered expenses the insured shares after the deductible is met, for example 20% of the bill while the insurer pays 80%.

A provision in group health plans that determines which insurer pays first when a person is covered by more than one plan, preventing duplicate payment for the same expense.

A managed care plan that provides care through a network of contracted providers for a fixed prepaid fee; members generally must use network providers and a primary care physician.

A disability income benefit that pays a portion of the monthly benefit when the insured can work but earns less income because of illness or injury, rather than being totally disabled.

Basic self-care tasks such as bathing, dressing, eating, toileting, transferring, and continence; the inability to perform a set number triggers long-term care benefits.

Coverage that pays for custodial care in a nursing home, assisted living facility, or at home when the insured needs help with daily living activities or has cognitive impairment.