MGA flashcards
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32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Pure risk
- A situation with only two outcomes, loss or no loss, and no chance of gain. It is the type of risk insurance is designed to transfer.
- Law of large numbers
- Statistical principle that as the number of independent similar exposure units grows, actual losses converge toward expected losses, making future costs more predictable for insurers.
- Insurable interest
- A financial stake in the person or property insured such that a loss causes genuine economic harm. It must exist at policy issue for property and at loss for life.
- Subrogation
- The insurer's right, after paying a claim, to pursue the negligent third party in the insured's name. It prevents the insured from collecting twice for one loss.
- Moral hazard
- A hazard arising from dishonesty or intent to collect, such as arson or faked disability. It raises expected claim frequency and is addressed by underwriting and investigation.
- Level premium concept
- Charging a constant premium over many years even though mortality cost rises with age. Early overpayment builds reserves that fund the higher cost of later years.
- Term life insurance
- Coverage that pays a death benefit only if death occurs within the stated term. It builds no cash value and is the cheapest way to buy large temporary protection.
- Nonforfeiture options
- Guaranteed choices on a lapsed cash-value policy: cash surrender, reduced paid-up insurance for a smaller face amount, or extended term coverage for a limited period.
- Universal life insurance
- Flexible-premium permanent coverage with a separately tracked account value. Monthly cost-of-insurance and expense charges are deducted, and credited interest varies with the insurer's declared rate.
- Variable life insurance
- Permanent coverage whose cash value is invested in separate-account subaccounts chosen by the owner. Investment risk and value fluctuation belong to the owner, and the product is a security.
- Policy dividend
- A return of divisible surplus paid on participating policies. It is not guaranteed, is generally not taxable until cumulative dividends exceed total premiums paid.
- Morbidity rate
- The measure of accident and sickness claim frequency and duration by age and occupation. It replaces mortality as the primary pricing basis for health insurance.
- Own-occupation disability
- A total disability definition that pays when the insured cannot perform the material duties of their own occupation. It is the most liberal definition and usually time-limited.
- Elimination period
- The waiting period, stated in days, between the onset of disability and the start of benefits. It acts as a time deductible and lowers premium when lengthened.
- Residual disability benefit
- A partial benefit paid when the insured returns to work at reduced income. It typically pays a percentage of the full benefit proportional to lost earnings.
- Nonoccupational coverage
- Accident and sickness coverage that excludes work-related injury and illness because those are covered by workers compensation. It usually costs less than occupational coverage.
- Contract of adhesion
- A contract drafted by one party, the insurer, and accepted or rejected by the other. Ambiguities are construed against the drafter under contra proferentem.
- Incontestability clause
- A provision barring the insurer from denying a life claim for material misrepresentation after the policy has been in force for two years, except for nonpayment of premium.
- Grace period
- A stated number of days, commonly 31 for life and 7 to 10 for health, after a due date during which coverage continues while the premium is paid.
- Reinstatement provision
- The right to restore a lapsed policy by paying overdue premiums with interest and providing evidence of insurability. A new contestability period may apply.
- Waiver of premium rider
- A rider that waives premiums while the insured is totally disabled beyond the elimination period, keeping the policy and its cash value in force.
- Free-look period
- A required period, typically 10 to 30 days after delivery, during which the owner may return the policy for a full premium refund.
- Human life value method
- A needs-analysis approach that capitalizes the insured's expected future earnings net of self-maintenance to estimate the economic value of the life to dependents.
- Needs approach
- A method that totals final expenses, debts, income replacement, and education costs, then subtracts existing assets and coverage to find the coverage gap.
- Suitability determination
- Matching a recommended product to the client's time horizon, risk tolerance, liquidity needs, tax status, and affordability, with the rationale documented in the file.
- Twisting
- Misrepresenting an existing policy to induce the owner to lapse or surrender it. It is an unfair trade practice and grounds for license discipline.
- Rebating
- Offering part of the commission or anything of value not stated in the policy as an inducement to buy. It is illegal in most states and can cost the license.
- Fiduciary duty
- The obligation to act in the client's best interest ahead of personal compensation. It requires disclosing commissions, conflicts of interest, and any ownership in the recommendation.
- Churning
- Replacing or repeatedly restructuring policies mainly to generate new commissions rather than to benefit the client. It is a market-conduct violation.
- McCarran-Ferguson Act
- Federal law confirming that states primarily regulate insurance and exempting insurance from most federal antitrust law to the extent states regulate it.
- Certificate of authority
- The license an insurer must hold in a state to transact insurance there. Agents separately hold a producer license and an appointment with the insurer.
- Market conduct examination
- A regulatory review of an insurer's or producer's sales, underwriting, claims, and recordkeeping practices to test compliance with unfair trade practice laws.