NM Life & Health flashcards

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

Risk

Uncertainty about loss. Insurance deals with pure risk, where only loss or no loss is possible; speculative risk, which offers a chance of gain, is not insurable.

Peril

The actual cause of a loss, such as fire, windstorm, or death. Peril differs from hazard, which is a condition that increases the chance a peril will occur.

Hazard

A condition that increases the probability or severity of a loss; classified as physical, moral, or morale, and evaluated by underwriters when classifying risks.

Principle of indemnity

Restores an insured to approximately the same financial position held before a loss, no better; life insurance pays a stated face amount, making it an exception to strict indemnity.

Insurable interest

A financial or love-and-affection relationship such that a person benefits from another's continued life or suffers loss at death; for life insurance it must exist at policy inception.

Utmost good faith

A duty on both parties to disclose material facts honestly; breach by the applicant is misrepresentation or concealment, which may allow the insurer to rescind the contract.

Contract of adhesion

A contract prepared by one party, the insurer, and accepted or rejected by the other; ambiguities are construed against the drafter.

Subrogation

The insurer's right, after paying a claim, to pursue the responsible third party; it supports the indemnity principle and prevents the insured from collecting twice.

Entire contract provision

States that the policy and attached application are the whole agreement; nothing outside them binds the insurer and no one may modify the contract except a company officer.

Grace period

A period after the premium due date, typically 30 or 31 days, during which coverage stays in force; a claim during grace is paid less any overdue premium.

Incontestability clause

After the policy has been in force two years from issue, the insurer cannot void coverage for misstatements on the application, except for nonpayment of premium.

Reinstatement provision

Allows a lapsed policy to be restored within a set period, typically three to five years, on evidence of insurability and payment of overdue premiums with interest.

Nonforfeiture options

Guaranteed choices for the cash value if a permanent policy lapses: cash surrender, reduced paid-up insurance, or extended term insurance continuing the original face amount.

Modified endowment contract

A life policy that fails the seven-pay test; distributions are taxed income first with a 10 percent penalty before age 59 and a half.

Settlement options

Ways the insurer pays proceeds: lump sum, interest only, fixed period, fixed amount, or life income, chosen by the beneficiary unless the owner restricted the choice.

Per stirpes

A beneficiary distribution method paying a deceased beneficiary's share to that beneficiary's descendants rather than to the surviving co-beneficiaries named in the policy.

Deductible

The amount the insured pays out of pocket for covered services each benefit period before the insurer begins paying; preventive care is often exempt from the deductible.

Coinsurance

The percentage of covered costs the insured shares after the deductible; an 80/20 plan means the insurer pays 80 percent and the insured pays 20 percent.

Out-of-pocket maximum

A yearly cap on deductibles, coinsurance, and copays for in-network essential benefits; once reached, the plan pays 100 percent of covered care.

Coordination of benefits

Rules determining order of payment when a person is covered by two plans; the primary plan pays first and the secondary plan pays the remaining balance.

Elimination period

In disability income insurance, the waiting period after disability begins before benefits are payable; it functions much like a time deductible.

Own-occupation definition

A disability definition paying benefits when the insured cannot perform the material duties of their own specific occupation; broader and more favorable than any-occupation.

Residual disability

Pays a proportionate benefit when the insured returns to work at reduced income or duties after a disability, rather than requiring complete inability to work.

COBRA continuation

Federal law letting covered employees and dependents continue group health coverage after a qualifying event, generally for 18, 29, or 36 months.

Superintendent of Insurance

The appointed official who heads the New Mexico Office of Superintendent of Insurance and enforces the Insurance Code found at NMSA Chapter 59A.

Producer licensing requirement

A person must hold a valid New Mexico producer license and be appointed by an insurer before soliciting, negotiating, or selling insurance in the state.

Commission sharing

New Mexico permits a licensed producer to share commissions with another licensed producer but prohibits paying commissions to unlicensed persons for selling insurance.

Rebating

Offering inducements not stated in the policy, such as cash, gifts, or special favors, to persuade a buyer; prohibited as an unfair trade practice.

Appointment termination notice

When an insurer ends a producer's appointment, it must notify the Superintendent within the period set by statute, and the producer's authority to act stops.

Reportable administrative action

A producer must report to the Superintendent within about 30 days any administrative action against a license, criminal prosecution, or license denial elsewhere.

NM Guaranty Association

A statutory pool that pays covered claims of policyholders of insolvent member insurers, funded by assessments on insurers rather than by state general revenue.

Continuing education requirement

New Mexico producers must complete continuing education each license term, including an ethics component, unless exempt or a nonresident meeting home-state requirements.