TX Life & Health flashcards

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

Certificate of authority

A license issued by a state insurance department that authorizes an insurer to transact insurance business in that state; an insurer without one is operating illegally.

Law of large numbers

An actuarial principle stating that as the number of similar exposure units increases, actual loss experience tends to approach the expected or predicted loss experience.

Twisting

An unfair trade practice in which a producer uses misrepresentation or incomplete comparisons to induce a policyholder to lapse, surrender, or replace existing insurance coverage.

Insurable interest

A financial or emotional relationship that would cause a person to suffer loss from another's death; it must exist at policy issue, not at the time of death.

Human life value

A method of estimating needed life insurance by calculating the present value of the insured's future earnings that dependents would lose at the insured's death.

Conditional receipt

A receipt given at application that provides coverage from the date of application or medical exam, whichever is later, if the proposed insured meets the insurer's underwriting requirements.

Decreasing term

Term life insurance in which the face amount declines over the policy period while the premium stays level; it is often matched to a declining mortgage balance.

Universal life Option A

A universal life death benefit option that pays a level, constant face amount; as cash value grows, the pure insurance amount at risk decreases.

Variable life insurance

Permanent life insurance whose cash value is invested in separate-account subaccounts chosen by the owner; the owner bears investment risk and the producer needs a securities registration.

Survivorship life

A policy insuring two people that pays the death benefit at the second death; it is frequently used to fund estate taxes for a married couple.

Incontestability clause

A provision stating that after the policy has been in force two years during the insured's lifetime, the insurer cannot contest it for misrepresentation, except for nonpayment of premium.

Reduced paid-up option

A nonforfeiture option that uses the cash value of a lapsed whole life policy to buy a smaller face amount of permanent coverage with no further premiums due.

Extended term option

A nonforfeiture option that uses cash value to purchase term insurance equal to the original face amount for a limited period, with no further premiums required.

Waiver of premium rider

A rider that waives premiums after the insured has been totally disabled for a stated period, usually six months, while keeping the policy and its values in force.

Immediate annuity

An annuity purchased with a single lump sum that begins making income payments within one payment period, often used to convert savings into lifetime retirement income.

Assumed interest rate

The interest assumption used to calculate variable annuity payments; a higher assumed rate produces a lower initial payment that rises only when performance exceeds it.

Fixed annuity

An annuity that guarantees a minimum declared interest rate during accumulation and a fixed guaranteed payment during annuitization, with the insurer bearing the investment risk.

Modified endowment contract

A life policy that fails the seven-pay test because it is funded too rapidly; loans and withdrawals are taxed earnings first with a 10% penalty before age 59 1/2.

Death benefit taxation

Life insurance proceeds paid to a beneficiary as a lump sum at the insured's death are generally excluded from the beneficiary's gross income for federal income tax purposes.

Exclusion ratio

The fraction applied to each nonqualified annuity payment that represents the return of the owner's investment in the contract and is excluded from taxable income.

Deductible

The amount the insured must pay out of pocket for covered medical expenses each year before the insurer begins paying benefits under a major medical or health plan.

Health maintenance organization

A managed care plan providing comprehensive care through a provider network, requiring a primary care physician gatekeeper, and often paying providers through capitation.

Coinsurance

The percentage of covered medical expenses the insured pays after the deductible is satisfied, for example 20% of a bill when the plan pays 80%.

Health grace period

A required individual health provision that keeps the policy in force for 7 days when premiums are paid weekly, 10 days when monthly, and 31 days otherwise.

Time limit on certain defenses

An individual health provision under which the insurer cannot contest the policy for misrepresentation after it has been in force for two years.

Proof of loss

A written statement, generally due within 90 days after a covered loss, that documents the claim and starts the insurer's time limit for paying benefits.

Elimination period

The waiting period between the onset of a disability and the date benefit payments begin; a longer elimination period reduces the cost of the policy.

Own occupation disability

A disability definition that pays benefits when the insured cannot perform the substantial duties of their own regular occupation, even if able to work elsewhere.

Residual disability

A provision that pays a reduced benefit proportional to lost income when a disabled insured returns to work at less than full earnings.

COBRA

A federal law requiring employers with 20 or more employees to offer continued group health coverage, generally up to 18 months after termination or reduced hours.

Group term $50,000 rule

Employer-paid group term life coverage up to $50,000 is not taxable to the employee; coverage above that amount creates imputed income based on IRS Table I rates.

Coordination of benefits

A provision that determines which of two health plans pays first and which pays second, typically making the plan covering the person as an employee primary.