SLII Agent Exam key terms

A legal requirement that the person buying a policy must suffer genuine financial or emotional loss if the insured event occurs. It must exist when the policy starts and, for life cover, usually at claim time too.

The rule that a general insurance payout should restore the policyholder to roughly the same financial position as before the loss, no better and no worse. It prevents profit from misfortune and underpins sums insured and depreciation.

The mutual duty on insurer and applicant to deal honestly and disclose all material facts. Breach by the customer can let the insurer avoid the contract or reduce a claim, depending on the law and the nature of the misrepresentation.

Any information that would influence a prudent insurer's decision to accept a risk, set its terms, or calculate the premium. Applicants must reveal such facts even if no question directly asks for them.

Failure by an applicant to reveal a material fact the insurer needed. It may be innocent, negligent, or deliberate, and the remedy ranges from premium adjustment to claim reduction or contract avoidance.

A false or misleading statement made by an applicant or insurer during negotiations or at claim. If it is material and induced the contract, the affected party may cancel the policy or reduce the claim.

The dominant, effective, and uninterrupted cause of a loss, determined by looking at the chain of events. Insurers use it to decide whether a loss falls within the perils covered by the policy.

The specific event or hazard that causes loss, such as fire, theft, flood, or accidental death. Policies list covered perils, and a claim must usually be traced to one of them.

A condition that increases the chance or severity of a loss from a peril. Physical hazards include poor wiring; moral hazards include dishonesty; morale hazards include carelessness that follows from having cover.

The tendency of an insured to take fewer precautions or act dishonestly because insurance will cover the consequences. Insurers manage it through excesses, exclusions, claims investigation, and underwriting questions.

The tendency for people with higher-than-average risk to seek insurance more eagerly than low-risk people. Underwriters counter it with medical evidence, risk classification, waiting periods, and experience-rated premiums.

Combining many similar, independent exposures so that the premiums of the many fund the losses of the few. It makes affordable cover possible by spreading unpredictable individual losses across a large group.

The statistical principle that as the number of similar independent exposures grows, actual loss experience converges on expected values. It supports stable pricing and reliable reserves for insurers.

The maximum amount an insurer will pay under a policy, or the value placed on the insured property or life. For general insurance it should reflect replacement or market value to avoid averaging penalties.

A general insurance condition that reduces a claim when the sum insured is less than the actual value of the property. The payout is scaled in proportion to the underinsurance.

The amount of each loss the policyholder must absorb before the insurer pays. It lowers premiums, discourages small claims, and reduces moral hazard; an excess is the same idea in many markets.

An arrangement where two or more insurers share a single risk under one policy, each liable for an agreed proportion of every loss. It differs from reinsurance, which is a contract between insurers.

Insurance bought by an insurer to transfer part of its risk to another company. It protects solvency, frees capacity for large or unusual risks, and does not alter the original policyholder's rights.

The portion of risk an insurer or policyholder keeps rather than transfers. For an insurer it is the amount above which reinsurance responds; for a customer it is the deductible or self-insured amount.

A conscious or unconscious decision to bear a loss exposure yourself instead of insuring it. It suits small, frequent, or predictable losses, or risks that are uninsurable or too costly to transfer.

Moving the financial consequences of a loss exposure to another party, usually an insurer, in exchange for a premium. It is one of the core risk management responses alongside avoidance and reduction.

The insurer's process of assessing an application, classifying the risk, and deciding whether to accept it and on what terms. It sets premium, exclusions, and conditions, and protects the pool from adverse selection.

Grouping applicants with similar expected loss characteristics so each group pays a premium reflecting its own risk. Age, health, occupation, and claims history are typical rating factors in life and health cover.

The money a policyholder pays for insurance cover. It reflects expected claims, expenses, profit margin, and risk factors, and non-payment usually allows the insurer to lapse or cancel the policy.

A short period after a premium due date during which life cover continues even though payment is late. If the insured dies within it, the claim is usually paid less any outstanding premium.

Termination of a policy because premiums were not paid or conditions were not met. In life insurance, lapse may trigger non-forfeiture values or paid-up cover instead of total loss of benefits.

The amount a policyholder receives if a whole life or endowment policy is cancelled before maturity or death. It reflects accumulated savings less surrender charges and any outstanding policy loans.

A right that preserves some value when a cash-value life policy lapses or is surrendered. Common options are reduced paid-up insurance, extended term insurance, and cash surrender.

A loan from an insurer secured by the cash value of a life policy. It carries interest, reduces the death benefit and surrender value if unpaid, and generally need not be repaid on a schedule.

The person or entity named to receive life insurance proceeds when the insured dies. A primary beneficiary is first in line; a contingent beneficiary receives the money if the primary cannot.

The sum paid to beneficiaries when the insured under a life policy dies. It may be level, increasing, or linked to an investment account, and is reduced by outstanding loans or unpaid premiums.

A contract that pays a stream of income, usually for life or a fixed term, in exchange for a lump sum or periodic premiums. It addresses longevity risk, the danger of outliving your savings.

A statistical table showing expected death rates at each age for a defined population. Actuaries use it to price life insurance and annuities and to set reserves for future claims.

An estimate of future experience, such as mortality, morbidity, interest rates, expenses, or lapse rates, used to price products and hold reserves. Assumptions are reviewed as experience emerges.

A statement or condition in a policy that the insured promises is true and will remain true. Breach can allow the insurer to deny a claim or end the contract, depending on the jurisdiction.

A clause that removes specified perils, property, persons, or circumstances from cover. Exclusions define the boundary of the policy and are usually read narrowly against the insurer that drafted them.

The insurer's right, after paying a claim, to pursue the party responsible for the loss in the policyholder's name. It supports indemnity by preventing the insured from recovering twice.

The principle that where several policies cover the same loss, each insurer pays its share and no insurer pays more than its rateable proportion. It prevents over-insurance from producing a profit.

The residual value of damaged property that an insurer takes over after paying a total loss. Insurers may sell it to reduce claim costs, and policies often require the insured to preserve it.

The improvement in an insured's position when a claim payment provides new property in place of old. Insurers may deduct for depreciation so the payout reflects indemnity rather than upgrading the asset.

Holding a sum insured below the true value of the insured property. It can trigger the average clause, so the policyholder bears part of every loss as well as paying a lower premium.