LOMA 291 flashcards
LOMA 291 · Build recall with a focused review session.
32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Pure risk
- A risk where only loss or no loss is possible, with no chance of gain. It is the type of risk generally considered insurable by private insurers.
- Law of large numbers
- A statistical principle stating that as the number of similar independent exposure units increases, actual losses tend to equal expected losses, making future losses more predictable.
- Adverse selection
- The tendency of persons with higher-than-average loss potential to seek or keep insurance coverage. Insurers counter it through underwriting and appropriate pricing.
- Moral hazard
- A condition in which the presence of insurance changes behavior and increases the chance or size of a loss. Insurers address it through deductibles, exclusions, and claims review.
- Insurable interest
- A financial or legal interest in the continued life of the insured. It must exist at policy issue and supports the validity of the life insurance contract.
- Reinsurance
- A transaction in which a ceding insurer transfers part of its risk to a reinsurer. Facultative reinsurance covers a single risk; treaty reinsurance covers a class of risks.
- Indemnity principle
- The principle that insurance restores the insured to the approximate financial position held before a loss, without allowing a profit from the loss.
- Level term insurance
- Term coverage where the face amount stays constant for the policy term. It pays a death benefit only if death occurs during that term.
- Whole life insurance
- Permanent coverage with a fixed premium, a guaranteed death benefit, and guaranteed cash value. Coverage lasts for the insured's entire lifetime.
- Universal life insurance
- Permanent coverage with flexible premiums and an adjustable death benefit. Cash value earns interest subject to a guaranteed minimum, and mortality and expense charges are deducted.
- Variable life insurance
- Permanent coverage whose cash value is invested in separate accounts chosen by the owner. The owner bears investment risk and must receive a prospectus before purchase.
- Annuity
- A contract that accumulates value and then pays a stream of income. It addresses longevity risk by providing payments that may last for life.
- Nonforfeiture options
- Choices available when a permanent policy lapses with cash value: cash surrender, reduced paid-up insurance, or extended term insurance.
- Waiver of premium rider
- A rider that waives premiums while the insured is totally disabled, keeping the policy in force. Conditions and waiting periods are defined in the rider.
- Policy loan
- A loan secured by a permanent policy's cash value. Unpaid interest and principal reduce the cash value and death benefit if not repaid.
- Underwriting classes
- Risk categories assigned to applicants: preferred, standard, substandard, and declined. Substandard risks may be accepted with extra premium, exclusion, or lien.
- Conditional receipt
- A receipt given when the initial premium is paid with the application. It provides temporary coverage only if stated conditions, such as insurability, are met.
- Contestability period
- A period, typically two years from policy issue, during which the insurer may rescind coverage for material misrepresentation on the application.
- Suicide clause
- A policy provision limiting payment if the insured dies by suicide within a stated period, usually two years. The insurer typically refunds premiums instead of paying the face amount.
- Gross premium
- The total amount charged for a policy. It consists of the net premium for mortality plus expense loading and any reserve contribution.
- Policy reserves
- Liabilities recorded by an insurer for future benefit obligations. They are accounting amounts, not assets held in a separate trust account.
- Claims settlement process
- Steps taken after a death claim: notice, proof of death, beneficiary verification, review for contestability or exclusions, and payment of the benefit.
- McCarran-Ferguson Act
- Federal law that leaves regulation of the business of insurance primarily to the states, unless Congress specifically provides otherwise.
- NAIC
- The National Association of Insurance Commissioners. It drafts model laws and regulations for states to consider but does not itself enforce insurance law.
- Twisting
- Misrepresentation that induces a policyholder to lapse or surrender a policy. It is an unfair trade practice prohibited by state insurance law.
- Rebating
- Offering part of a commission or another inducement not stated in the policy to persuade a buyer. Most states prohibit it as an unfair trade practice.
- Fiduciary duty of producers
- The obligation to hold premiums and client funds in trust and to act in the client's interest. Commingling these funds with personal funds is prohibited.
- Continuing education requirement
- A condition for renewing a producer license. Producers must complete a specified number of approved credit hours, often including ethics, during each renewal period.
- Needs-based analysis
- A method of determining coverage by estimating the funds needed for income replacement, debts, education, and final expenses, then subtracting existing resources.
- Human life value
- An approach that estimates coverage as the present value of the insured's future earnings and contributions to dependents.
- Service quality dimensions
- Reliability, responsiveness, assurance, empathy, and tangibles. Reliability, meaning consistent and accurate delivery, is usually most important to clients.
- Suitability documentation
- Records of a client's goals, finances, risk tolerance, and the rationale for a recommendation. They support compliance reviews and demonstrate the recommendation was appropriate.