MGA key terms

A financial or legal stake in a person or property such that loss or damage would cause genuine hardship. It must exist when a life policy is issued and when a property claim occurs.

The idea that insurance restores the insured to roughly the same financial position held before a loss, without allowing profit from the claim. Life insurance is generally treated as an exception.

The mutual duty of applicant and insurer to disclose all material facts relevant to underwriting. Breach by the applicant may allow the insurer to rescind the contract.

A risk involving only the chance of loss or no change, never gain. Insurers typically insure pure risks such as fire, illness, or premature death, unlike speculative risks tied to investment.

A risk that carries the possibility of either gain or loss, such as buying shares or starting a business. It is generally not insurable because the chance of profit is intentional.

The actual cause of a loss, such as fire, windstorm, collision, or illness. A policy lists covered perils and excludes others, so distinguishing peril from hazard is essential.

A condition that increases the likelihood or severity of a loss. Physical hazards include icy steps; moral hazards involve dishonesty; morale hazards reflect carelessness or indifference.

A condition arising from dishonesty or character defects in an individual that increases the chance of intentional loss, such as arson or faking a disability claim.

Carelessness or indifference toward loss because insurance exists. Leaving a car unlocked or skipping health checks are examples that raise expected claim frequency.

The statistical principle that predicted loss experience becomes more reliable as the number of similar exposure units increases. It underpins pooling, rate setting, and insurer solvency.

The tendency for people with higher-than-average risk to seek or retain insurance more eagerly than lower-risk people. Underwriting and risk classification are designed to control it.

Insurance purchased by an insurer to transfer part of its risk to another insurer. It protects solvency against catastrophic or unusually large claims and supports capacity.

Coverage for a specified period with no cash value. It pays a death benefit only if the insured dies during the term, making it the lowest-cost way to buy pure protection.

Permanent coverage with level premiums, a guaranteed death benefit, and a cash value that grows over time. It remains in force for the insured's entire life if premiums are paid.

The savings component inside permanent policies such as whole life or universal life. It may be borrowed against, withdrawn, or surrendered, and it reduces the insurer's net amount at risk.

Permanent coverage with flexible premiums and an adjustable death benefit. The policy is unbundled, so the insurer separately discloses mortality charges, expenses, and interest credited to the account.

Permanent coverage where cash value is invested in separate accounts chosen by the owner, so value fluctuates with market performance. It is a securities product requiring appropriate licensing.

A premium that stays the same for the policy period or lifetime, even though mortality risk rises with age. Early overpayments build reserves that fund later, costlier years.

The person whose life expectancy determines the payout period of an annuity. The annuitant may differ from the owner and the beneficiary in a contract.

A contract that pays a stream of income, usually at retirement, in exchange for premiums. It addresses the risk of outliving savings, the opposite concern from life insurance.

The person or entity named to receive policy proceeds. Primary beneficiaries are paid first; contingent beneficiaries receive proceeds only if the primary beneficiary predeceases the insured.

A beneficiary designation method that divides a deceased beneficiary's share among that beneficiary's descendants. It contrasts with per capita, which divides equally among surviving named persons.

Coverage that replaces a portion of earned income when the insured cannot work because of illness or injury. Benefits are usually a percentage of income and subject to an elimination period.

The waiting time between the start of a disability and the beginning of benefit payments. Longer elimination periods reduce premiums and coordinate with employer sick leave or savings.

The maximum length of time disability or long-term care benefits are paid, such as two years or to age 65. It is distinct from the elimination period, which is the waiting time.

A disability definition that pays benefits when the insured cannot perform the duties of their own specific occupation, even if able to work elsewhere. It is broader and costlier than any occupation.

A stricter disability definition requiring inability to perform the duties of any occupation for which the insured is reasonably suited by education, training, or experience.

A partial disability benefit that pays a proportionate amount when the insured returns to work at reduced income or hours. The payment reflects the percentage of income lost.

A provision that prevents duplicate payment when a person is covered by more than one health plan. One plan pays primary and the other pays the remaining allowable expenses.

A provision stating that the policy and any attached application or riders form the whole agreement. It limits what the insurer may use to contest a claim.

A provision barring the insurer from contesting the policy for misrepresentation after it has been in force for a set period, commonly two years from issue.

A right allowing the policy owner to return a newly delivered policy for a full refund within a stated number of days. It gives time to review terms without penalty.

A period after the premium due date, often 31 days, during which the policy stays in force. A claim during this window is paid, with overdue premium deducted.

Restoration of lapsed coverage after the grace period, usually requiring evidence of insurability and payment of overdue premiums with interest. New contestability periods may apply.

Choices available to a whole life owner who stops paying premiums: cash surrender, reduced paid-up insurance, or extended term insurance. They protect the accumulated cash value.

A supplementary provision added to a policy that expands, limits, or modifies coverage, such as a waiver of premium or accidental death benefit. It may add cost.

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

A rider allowing early payment of part of the death benefit when the insured is diagnosed with a terminal illness or qualifying condition. The remaining benefit is reduced.

A false statement of fact that would have influenced an insurer's decision to issue coverage or set its terms. It can void a policy if discovered within the contestable period.

A structured review of a client's financial situation, obligations, and goals to determine appropriate coverage amounts and products. It relies on facts gathered in the fact-finder interview.

A method of estimating life insurance need by calculating the present value of the insured's future earnings that dependents would lose. It focuses on economic contribution.

An approach to life insurance planning that preserves principal and uses only investment income to support survivors. It generally requires a larger death benefit than capital liquidation.

A document or interview used to collect personal, financial, and health information from a prospective client. It supports suitability analysis and accurate application completion.

The standard requiring that a recommended product fits the client's needs, objectives, time horizon, and financial circumstances. Regulators increasingly require documented suitability reviews.

A legal obligation to act in the client's best interest ahead of one's own compensation or convenience. It requires disclosure of conflicts and recommendations grounded in client needs.

Inducing a policyholder to lapse or surrender existing coverage through misleading or incomplete comparisons in order to sell a replacement policy. It is an unfair trade practice.

Using policy values, such as cash value or dividends, to fund premiums on a new or restructured policy primarily to generate commissions, often harming the client's interests.

Offering part of an agent's commission or anything of value to induce a sale, unless permitted by state law. It is an unfair trade practice in most jurisdictions.

Surrendering, lapsing, or using values from an existing policy to buy new coverage. It triggers disclosure and notification requirements because it may harm the policyholder.

The process of evaluating an applicant's risk to decide whether to issue coverage and on what terms, including rate class, exclusions, or declination. It relies on the application and reports.

A report requested from a treating doctor to clarify an applicant's medical history during underwriting. It is used when application answers or test results require medical detail.

A license issued by a state insurance department allowing an insurer to transact specified lines of business in that state. Operating without one is unauthorized insurance.

An insurer authorized by a state to do business there, subject to its solvency rules, rate review, and guaranty fund protection. Non-admitted insurers lack that authorization.

A state-established entity that pays certain claims of policyholders of insolvent admitted insurers, within statutory limits. It is not a substitute for insurer solvency.

The state-issued credential required to solicit, negotiate, or sell insurance. Maintaining it requires continuing education and compliance with appointment and renewal rules.