MS Life & Health flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Law of large numbers

The principle that the larger the number of similar exposure units, the more closely actual loss experience matches expected loss experience, allowing insurers to predict losses and set accurate rates.

McCarran-Ferguson Act

A 1945 federal law confirming that the states regulate the business of insurance and granting insurers limited antitrust immunity for activities that are regulated by state law.

Adverse selection

The tendency of applicants with higher-than-average risk to seek or keep insurance. Insurers control it through underwriting, exclusions, waiting periods, and appropriate rate classification.

Insurable interest

A financial or relationship-based interest in the continued life of the insured. It must exist when the policy is applied for but need not exist when the insured dies.

Modified endowment contract

A life policy that fails the 7-pay test. Withdrawals and loans are taxed last-in, first-out, and taxable gains withdrawn before age 59½ may incur a 10% penalty.

Premium payment mode

The frequency of premium payment. Annual mode is least expensive overall, while monthly mode is most expensive because of lost interest and added administrative expense.

Return of premium term

A level term policy that refunds all premiums paid if the insured survives the term. It costs more than standard term because of the refund feature.

Universal life Option B

An increasing death benefit equal to the specified amount plus accumulated cash value. The amount at risk grows over time, so cost-of-insurance deductions increase accordingly.

Variable life insurance

A permanent policy whose cash value and death benefit fluctuate with investments held in a separate account. It is a security and requires a prospectus and registered representative.

Incontestability clause

A provision stating that after the policy has been in force for two years during the insured's lifetime, the insurer can no longer contest the contract based on misrepresentation in the application.

Extended term option

A nonforfeiture option that applies the policy's cash value to purchase term coverage for the full face amount for whatever period that value will buy.

Waiver of premium rider

A rider that waives premiums after the insured has been totally disabled for a stated period, commonly six months, keeping the policy in force without further payment.

Exclusion ratio

The percentage of each annuity payment that is a tax-free return of principal. It equals investment in the contract divided by the expected return over the payout period.

Joint and survivor annuity

A payout option that continues income as long as either of two named annuitants is alive, typically continuing a reduced percentage to the surviving annuitant.

Surrender charge

A fee imposed during the early years of a deferred annuity if the contract is surrendered or withdrawn beyond the free withdrawal amount. It typically decreases over time.

Conditional receipt

A receipt giving coverage from the application date only if the proposed insured proves insurable under the insurer's underwriting rules; otherwise no coverage takes effect.

Per stirpes

A beneficiary distribution method in which a deceased beneficiary's share passes to that beneficiary's descendants, rather than being divided equally among surviving named beneficiaries.

Attending physician statement

A detailed medical report ordered from the applicant's treating physician during underwriting when application answers or exam findings require clarification of a health history.

Coordination of benefits

Rules determining which of two or more health plans pays first and how the secondary plan pays, preventing combined benefits from exceeding 100% of allowable expenses.

Out-of-pocket maximum

The annual limit on covered cost sharing such as deductibles, coinsurance, and copayments. Once reached, the plan generally pays 100% of covered in-network benefits for the year.

Grace period

Required time after the premium due date during which coverage continues: 7 days for weekly premiums, 10 days for monthly, and 31 days for other payment modes.

Reinstatement provision

Allows an insured to restore a lapsed policy within a stated period, usually three years, by providing evidence of insurability and paying overdue premiums with interest.

Misstatement of age provision

A provision stating that if the insured's age was misstated on the application, benefits are adjusted to the amount the premium paid would have purchased at the correct age.

Elimination period

The waiting period counted from the onset of disability that must be satisfied before disability income benefits begin. A longer elimination period lowers the premium.

Residual disability benefit

A benefit that pays a reduced, proportional amount when the insured returns to work at lower earnings, based on the percentage of pre-disability income lost.

Coinsurance

The percentage of covered expenses the insured pays after satisfying the deductible, commonly 20%, while the insurer pays the remainder until the out-of-pocket maximum is reached.

Health maintenance organization

A prepaid managed care plan that provides services through its own network and a primary care gatekeeper, usually with no coverage outside the network except emergencies.

COBRA

A federal law requiring employers with 20 or more employees to offer continued group health coverage for 18, 29, or 36 months at up to 102% of the premium.

Noncontributory group plan

A group health plan in which the employer pays the entire premium. Because coverage is free to employees, typically 100% of eligible employees must participate.

Conversion privilege

The right of a person losing group eligibility to convert to an individual policy without evidence of insurability within a stated period, at a higher individual premium.

Activities of daily living

Basic self-care tasks: bathing, dressing, eating, toileting, transferring, and continence. Long-term care benefits typically begin when two of these cannot be performed.

Medigap open enrollment

A one-time six-month period starting when a person age 65 or older first enrolls in Medicare Part B, during which insurers must sell any Medigap policy regardless of health.