Insurance Commission Insurance Broker Licensure Exam (Philippines) key terms

A principle requiring both insurer and insured to disclose all material facts honestly. Unlike ordinary contracts, silence about a fact that would change the other party's decision can justify rescission of the insurance contract.

A financial or legal relationship to the subject of insurance such that the person benefits from its preservation and suffers loss from its damage. Required at inception for life insurance and generally at loss time for property insurance.

The rule that a property or liability claim payment should restore the insured to roughly the same financial position as before the loss, no better and no worse. Life insurance is treated as an exception because a human life cannot be valued in money.

Information that would influence a prudent insurer's decision to accept a risk, set the premium, or impose conditions. Nondisclosure or misstatement of material facts may allow the insurer to rescind the policy.

Intentional or negligent failure by the applicant to communicate a material fact known to them. It differs from an untrue statement because nothing false is said; the omission itself misleads the insurer.

A statement made by the applicant during negotiations about a fact relevant to the risk. If untrue in a material respect, it may give the insurer grounds to avoid the contract, depending on whether it was fraudulent, negligent, or innocent.

A promise or condition in the policy that the insured must comply with exactly, such as maintaining a sprinkler system. Breach generally entitles the insurer to deny a claim related to that breach, subject to statutory relief provisions.

A life insurance provision barring the insurer from contesting the policy for misrepresentation after it has been in force for a stated period, commonly two years. Fraud and nonpayment of premium usually remain outside its protection.

A period after a premium due date, typically 30 or 31 days, during which the policy remains in force even if the premium is unpaid. A loss during this window is covered, with the unpaid premium deducted from the benefit.

The cash value or paid-up coverage a policyholder keeps after a cash-value life policy lapses, so premiums already paid are not entirely lost. Options commonly include cash surrender, reduced paid-up insurance, and extended term insurance.

The amount a policyholder receives on voluntarily terminating a cash-value life policy. It equals the accumulated reserve or account value minus any surrender charge and outstanding policy loans.

Termination of coverage because required premiums were not paid within the grace period and no nonforfeiture option was elected. A lapsed policy may sometimes be reinstated with evidence of insurability and payment of overdue amounts.

Restoration of a lapsed policy to full force, usually requiring payment of overdue premiums with interest and satisfactory evidence of insurability. New contestability and suicide periods often restart from the reinstatement date.

A life policy provision limiting the death benefit to a refund of premiums if the insured dies by suicide within a stated period, commonly one or two years from issue or reinstatement. It protects insurers from adverse selection.

A loan from the insurer secured by the cash value of a life policy. Unpaid interest is added to the loan balance, and any outstanding amount reduces the death benefit or surrender value.

The value of damaged property measured as replacement cost minus depreciation for age and wear. It is the default settlement basis in many property policies unless replacement cost coverage is endorsed.

The amount needed to repair or rebuild damaged property with new materials of like kind and quality, without deducting depreciation. It may be limited to a stated percentage of the policy limit.

A property insurance requirement that the insured carry coverage equal to a stated percentage of the property's value. If the limit falls short, the claim is reduced in proportion to the shortfall.

The amount of each loss the insured must bear before the insurer pays. A higher deductible lowers the premium because it removes small claims from the insurer and reduces moral hazard.

The maximum amount the insurer will pay under a policy for a covered loss, also called the policy limit. It may apply per occurrence, per item, or in the aggregate over the policy period.

The insurer's right, after paying a claim, to step into the insured's shoes and recover the amount paid from the party legally responsible for the loss. It supports the indemnity principle and prevents double recovery.

The principle that when two or more policies cover the same loss, each insurer pays its share so the insured does not recover more than the actual loss. It applies to indemnity policies, not to most life insurance.

Damaged property or its remains that the insurer may take over after paying a total loss. Its value is credited against the claim, and the insurer may sell it to recover part of the payout.

The increased likelihood of loss arising from a person's dishonest or careless behavior because insurance removes the financial consequence. Underwriters respond with deductibles, exclusions, and claims investigation.

The tendency of higher-risk individuals to seek or retain insurance more eagerly than lower-risk ones. Insurers counter it through medical and financial underwriting, exclusions, and risk-based pricing.

The process of evaluating an applicant's risk, deciding whether to accept it, and setting the terms and premium. It relies on questionnaires, medical exams, financial data, and inspection reports.

The portion of a risk an insurer keeps for its own account rather than transferring to reinsurers. It is set with reference to available capital and the company's risk appetite.

Insurance bought by an insurer to transfer part of its assumed risks to another insurer, called the reinsurer. It protects solvency, stabilizes results, and increases capacity to write larger or new risks.

Reinsurance arranged risk by risk, with the reinsurer free to accept or decline each submission. It suits unusual or large risks that fall outside a standing treaty arrangement.

A standing agreement under which the reinsurer automatically accepts all risks that meet the treaty's defined criteria. It gives the ceding insurer automatic capacity without individual negotiation for each risk.

The excess of an insurer's admitted assets over its liabilities, required by regulation to remain above a minimum level. It measures the cushion available to absorb unexpected losses and protect policyholders.

A liability recorded for obligations the insurer expects to pay in the future, such as unpaid claims and unearned premiums. Adequate reserving is central to solvency and to fair reporting of financial results.

The portion of premium already collected that covers the unexpired part of the policy period. It is treated as a liability because the insurer has not yet earned that coverage.

An estimate for claims that have occurred but have not yet been reported to the insurer by the valuation date. It is a key part of claims reserves, especially for liability lines with long reporting delays.

Incurred losses divided by earned premium over a period, expressed as a percentage. It shows how much of premium income is consumed by claims and is a core measure of underwriting performance.

The sum of the loss ratio and expense ratio. A result below 100 percent indicates an underwriting profit before investment income; above 100 percent indicates an underwriting loss.

A licensed intermediary who, for compensation, solicits or negotiates insurance on behalf of the insured rather than the insurer. The broker owes the client loyalty and disclosure duties and must be licensed by the Insurance Commission.

A licensed person appointed by an insurer to solicit and transact insurance on that insurer's behalf. An agent's acts within authority generally bind the insurer, unlike those of a broker acting for the insured.

The legal obligation of a broker or agent to act in the client's best interest, avoid undisclosed conflicts, and handle premiums and client funds honestly. Breach can lead to license suspension and civil liability.

Compensation paid by an insurer to a broker or agent, usually a percentage of the premium on business placed. It must be disclosed where conflicts of interest could affect the advice given to the client.