A flat dollar amount of covered expense the insured must pay before the plan begins paying benefits.

A permanent contract provision denying payment for a narrow list of causes of death, enforceable only if written into the policy or an attached rider.

A condition that increases the chance a peril will strike or makes a loss worse when it does. A hazard is not itself the cause of loss.

A financial or relational stake in the continued life of an insured, required at the time coverage is written, including when a rider insures a life other than the primary insured.

The person whose death triggers payment of the death benefit; the insured must consent to coverage but holds no policy rights unless also the owner.

The company that promises, in exchange for a premium, to pay specified benefits or losses when a covered event occurs.

An unintended, unexpected reduction in value, which is what a policy pays for. A direct loss is the immediate damage; an indirect or consequential loss follows from it.

The price paid to the insurer in exchange for its promise to pay specified benefits when a covered event occurs.

A risk with only two possible outcomes, loss or no loss, such as a house that may burn. Only pure risk is insurable.

A risk with three possible outcomes: loss, no loss or gain, as in gambling or buying stock. Insurance does not cover it because it is meant to restore, not to let anyone profit.

Losses that tend to occur together because one event, such as a wildfire or flood, can damage many exposures at once. Adding more of them does not create independence.

The average loss an insurer anticipates per exposure over a period, used to estimate total losses; it is not a guaranteed payout or a complete premium.

The larger the number of similar exposure units, the more closely actual losses match predicted losses. It is the foundation of premium rates.

How often losses are expected to occur.

How large a loss is expected to be when it occurs.

Dishonesty or bad character that makes a loss more likely, such as setting a fire to collect on the policy or inflating a claim.

Carelessness or indifference to loss because insurance exists, such as not locking a car because it is insured. There is no intent to defraud, only lack of care.

The cause of a loss, such as fire, windstorm, theft, collision, illness or death. A policy that lists what it covers is usually listing perils.

A tangible condition of a person or property that increases the chance or size of a loss, such as oily rags, faulty wiring, icy steps or a history of heart disease.

The arrangement in which many people each pay a relatively small, certain premium and the pool pays the few who suffer a covered loss. It works only if the risk has the characteristics of an insurable risk.

Handling risk by not doing the activity that creates it. It is the only method that removes a risk entirely, though it is often impractical.

The immediate physical damage to property, such as the burned building itself.

A loss that follows from the direct damage, such as lost rent, lost profits or extra living costs during repairs; also called consequential loss.

The possibility of financial loss from legal responsibility for injury to other people or damage to their property.

A situation presenting a possibility of financial loss; it identifies what could be lost, what could cause the loss, and who would bear it.

A risk control technique that lowers the frequency or likelihood of losses, such as safety training or safe equipment.

A risk control technique that limits the severity of a loss once it begins, such as sprinklers that limit fire damage.

Handling risk by accepting it and paying any loss yourself. It can be planned, as with a deductible or self-insurance, or unplanned; best for small, predictable losses.

Spreading loss costs among participants, such as members of a risk pool, so that no one bears the whole loss.

Shifting specified financial consequences of loss to another party, as insurance does for covered losses in exchange for a premium, or as a valid contractual indemnity can.

A deliberate program in which an organization pays retained losses from resources it sets aside, as when approved large employers pay workers' compensation claims from their own funds. Merely being uninsured is not self-insurance.

Catastrophe concentration

The danger that one event, such as a flood or wildfire, damages much of an insurer's pool at once. Geographic spread and reinsurance can help manage it.

An event that may or may not happen, or whose occurrence is unknown. California permits insurance against a contingent or unknown event, past or future, subject to the code.

A single item or person subject to a possible loss, such as one home or one insured life. An ideal risk has many similar exposure units.

A loss that is accidental and uncertain from the insured's standpoint, not deliberately caused or manufactured to collect payment.

A mere hope or expectation of future benefit, such as hoping to inherit, that is not supported by an actual right or valid contract. It is not an insurable interest.

An arrangement in which one insurer transfers part of the risk it has written to another insurer. It is a contract between insurers; the policyholder deals only with the original insurer.

An applicant's failure to disclose a material fact known to the applicant and that the applicant had a duty to reveal, which can support rescission of the policy.

The stated amount a life insurance policy pays when the insured dies, rather than reimbursing a measured financial loss.

Material fact (insurance)

A fact that, had the insurer known it, would have led it to decline the risk or charge more. Only a material misstatement justifies rescission.

An unfair trade practice under state insurance law: an untrue statement of material fact, a misleading half-truth, a misstatement of law, or a failure to disclose a legally required fact about a policy.

The applicant's written answers about age, health, occupation and habits. A true copy attached to the policy becomes part of the contract, and the answers are representations.

A hobby or leisure activity, such as scuba diving or motorcycle racing, that an underwriter may treat as a hazardous risk requiring an exclusion rider or rated premium.

The expected rate of death at each age, taken from mortality tables. It is the premium factor that raises the premium: the higher the probability of death, the higher the premium.

An underwriting decision to defer acceptance, often until missing information or a temporary uncertainty is resolved.

A risk class for applicants with lower-than-average expected risk, who may qualify for lower premiums.

The underwriting process of sorting an applicant into a mortality-based class such as preferred, standard, substandard, or declined and postponed.

The regular premium charged to applicants whose expected risk is average for the product.

A risk classification for higher-than-average expected mortality, priced with a table rating, a temporary flat extra, or an exclusion rider rather than a decline.

A contract in which the values exchanged by the parties are unequal and depend on an uncertain event such as chance.

One of the four required contract elements, meaning each party to the contract has the legal capacity to enter into it.

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California Life & Health Insurance License exam terms flashcards

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263 terms from the California exam outline, sorted by exam module. Flip a card for its definition and the lessons that teach it.

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Deductible: A flat dollar amount of covered expense the insured must pay before the plan begins paying benefits. — General insurance concepts · Taught in Insurance, risk, and peril, Insurable interest, indemnity, and utmost good faith, Common insurance terminology
Exclusion: A permanent contract provision denying payment for a narrow list of causes of death, enforceable only if written into the policy or an attached rider. — General insurance concepts · Taught in Insurance, risk, and peril, Common insurance terminology
Hazard: A condition that increases the chance a peril will strike or makes a loss worse when it does. A hazard is not itself the cause of loss. — General insurance concepts · Taught in Insurance, risk, and peril, Hazard types and the law of large numbers, Common insurance terminology
Insurable interest: A financial or relational stake in the continued life of an insured, required at the time coverage is written, including when a rider insures a life other than the primary insured. — General insurance concepts · Taught in Insurance, risk, and peril, Insurable risk requisites and insurable events, Insurable interest, indemnity, and utmost good faith, Insurable interest, mortality, and the immediate estate concept
Insured: The person whose death triggers payment of the death benefit; the insured must consent to coverage but holds no policy rights unless also the owner. — General insurance concepts · Taught in Insurance, risk, and peril, Common insurance terminology, Life insurance basics and the personal insurance planning process
Insurer: The company that promises, in exchange for a premium, to pay specified benefits or losses when a covered event occurs. — General insurance concepts · Taught in Insurance, risk, and peril
Loss: An unintended, unexpected reduction in value, which is what a policy pays for. A direct loss is the immediate damage; an indirect or consequential loss follows from it. — General insurance concepts · Taught in Insurance, risk, and peril
Premium: The price paid to the insurer in exchange for its promise to pay specified benefits when a covered event occurs. — General insurance concepts · Taught in Insurance, risk, and peril, Common insurance terminology
Pure risk: A risk with only two possible outcomes, loss or no loss, such as a house that may burn. Only pure risk is insurable. — General insurance concepts · Taught in Insurance, risk, and peril
Speculative risk: A risk with three possible outcomes: loss, no loss or gain, as in gambling or buying stock. Insurance does not cover it because it is meant to restore, not to let anyone profit. — General insurance concepts · Taught in Insurance, risk, and peril
Correlated losses: Losses that tend to occur together because one event, such as a wildfire or flood, can damage many exposures at once. Adding more of them does not create independence. — General insurance concepts · Taught in Hazard types and the law of large numbers
Expected loss: The average loss an insurer anticipates per exposure over a period, used to estimate total losses; it is not a guaranteed payout or a complete premium. — General insurance concepts · Taught in Hazard types and the law of large numbers
Law of large numbers: The larger the number of similar exposure units, the more closely actual losses match predicted losses. It is the foundation of premium rates. — General insurance concepts · Taught in Hazard types and the law of large numbers
Loss frequency: How often losses are expected to occur. — General insurance concepts · Taught in Hazard types and the law of large numbers, Loss exposure and risk management techniques
Loss severity: How large a loss is expected to be when it occurs. — General insurance concepts · Taught in Hazard types and the law of large numbers, Loss exposure and risk management techniques
Moral hazard: Dishonesty or bad character that makes a loss more likely, such as setting a fire to collect on the policy or inflating a claim. — General insurance concepts · Taught in Hazard types and the law of large numbers, Underwriting purpose and adverse selection
Morale hazard: Carelessness or indifference to loss because insurance exists, such as not locking a car because it is insured. There is no intent to defraud, only lack of care. — General insurance concepts · Taught in Hazard types and the law of large numbers
Peril: The cause of a loss, such as fire, windstorm, theft, collision, illness or death. A policy that lists what it covers is usually listing perils. — General insurance concepts · Taught in Hazard types and the law of large numbers, Common insurance terminology
Physical hazard: A tangible condition of a person or property that increases the chance or size of a loss, such as oily rags, faulty wiring, icy steps or a history of heart disease. — General insurance concepts · Taught in Hazard types and the law of large numbers
Pooling: The arrangement in which many people each pay a relatively small, certain premium and the pool pays the few who suffer a covered loss. It works only if the risk has the characteristics of an insurable risk. — General insurance concepts · Taught in Hazard types and the law of large numbers
Avoidance: Handling risk by not doing the activity that creates it. It is the only method that removes a risk entirely, though it is often impractical. — General insurance concepts · Taught in Loss exposure and risk management techniques
Direct loss: The immediate physical damage to property, such as the burned building itself. — General insurance concepts · Taught in Loss exposure and risk management techniques
Indirect loss: A loss that follows from the direct damage, such as lost rent, lost profits or extra living costs during repairs; also called consequential loss. — General insurance concepts · Taught in Loss exposure and risk management techniques
Liability exposure: The possibility of financial loss from legal responsibility for injury to other people or damage to their property. — General insurance concepts · Taught in Loss exposure and risk management techniques
Loss exposure: A situation presenting a possibility of financial loss; it identifies what could be lost, what could cause the loss, and who would bear it. — General insurance concepts · Taught in Loss exposure and risk management techniques
Loss prevention: A risk control technique that lowers the frequency or likelihood of losses, such as safety training or safe equipment. — General insurance concepts · Taught in Loss exposure and risk management techniques
Loss reduction: A risk control technique that limits the severity of a loss once it begins, such as sprinklers that limit fire damage. — General insurance concepts · Taught in Loss exposure and risk management techniques
Retention: Handling risk by accepting it and paying any loss yourself. It can be planned, as with a deductible or self-insurance, or unplanned; best for small, predictable losses. — General insurance concepts · Taught in Loss exposure and risk management techniques
Risk sharing: Spreading loss costs among participants, such as members of a risk pool, so that no one bears the whole loss. — General insurance concepts · Taught in Loss exposure and risk management techniques
Risk transfer: Shifting specified financial consequences of loss to another party, as insurance does for covered losses in exchange for a premium, or as a valid contractual indemnity can. — General insurance concepts · Taught in Loss exposure and risk management techniques
Self-insurance: A deliberate program in which an organization pays retained losses from resources it sets aside, as when approved large employers pay workers' compensation claims from their own funds. Merely being uninsured is not self-insurance. — General insurance concepts · Taught in Loss exposure and risk management techniques
Catastrophe concentration: The danger that one event, such as a flood or wildfire, damages much of an insurer's pool at once. Geographic spread and reinsurance can help manage it. — General insurance concepts · Taught in Insurable risk requisites and insurable events
Contingent event: An event that may or may not happen, or whose occurrence is unknown. California permits insurance against a contingent or unknown event, past or future, subject to the code. — General insurance concepts · Taught in Insurable risk requisites and insurable events
Exposure unit: A single item or person subject to a possible loss, such as one home or one insured life. An ideal risk has many similar exposure units. — General insurance concepts · Taught in Insurable risk requisites and insurable events
Fortuitous loss: A loss that is accidental and uncertain from the insured's standpoint, not deliberately caused or manufactured to collect payment. — General insurance concepts · Taught in Insurable risk requisites and insurable events
Mere expectancy: A mere hope or expectation of future benefit, such as hoping to inherit, that is not supported by an actual right or valid contract. It is not an insurable interest. — General insurance concepts · Taught in Insurable risk requisites and insurable events, Insurable interest, indemnity, and utmost good faith
Reinsurance: An arrangement in which one insurer transfers part of the risk it has written to another insurer. It is a contract between insurers; the policyholder deals only with the original insurer. — General insurance concepts · Taught in Insurable risk requisites and insurable events
Concealment: An applicant's failure to disclose a material fact known to the applicant and that the applicant had a duty to reveal, which can support rescission of the policy. — General insurance concepts · Taught in Insurable interest, indemnity, and utmost good faith
Death benefit: The stated amount a life insurance policy pays when the insured dies, rather than reimbursing a measured financial loss. — General insurance concepts · Taught in Insurable interest, indemnity, and utmost good faith, Life insurance basics and the personal insurance planning process, Insurable interest, mortality, and the immediate estate concept
Material fact (insurance): A fact that, had the insurer known it, would have led it to decline the risk or charge more. Only a material misstatement justifies rescission. — General insurance concepts · Taught in Insurable interest, indemnity, and utmost good faith, Concealment, warranty, and representations
Misrepresentation: An unfair trade practice under state insurance law: an untrue statement of material fact, a misleading half-truth, a misstatement of law, or a failure to disclose a legally required fact about a policy. — General insurance concepts · Taught in Insurable interest, indemnity, and utmost good faith
Application: The applicant's written answers about age, health, occupation and habits. A true copy attached to the policy becomes part of the contract, and the answers are representations. — General insurance concepts · Taught in Underwriting purpose and adverse selection
Avocation: A hobby or leisure activity, such as scuba diving or motorcycle racing, that an underwriter may treat as a hazardous risk requiring an exclusion rider or rated premium. — General insurance concepts · Taught in Underwriting purpose and adverse selection
Mortality: The expected rate of death at each age, taken from mortality tables. It is the premium factor that raises the premium: the higher the probability of death, the higher the premium. — General insurance concepts · Taught in Underwriting purpose and adverse selection
Postponement: An underwriting decision to defer acceptance, often until missing information or a temporary uncertainty is resolved. — General insurance concepts · Taught in Underwriting purpose and adverse selection
Preferred class: A risk class for applicants with lower-than-average expected risk, who may qualify for lower premiums. — General insurance concepts · Taught in Underwriting purpose and adverse selection
Risk classification: The underwriting process of sorting an applicant into a mortality-based class such as preferred, standard, substandard, or declined and postponed. — General insurance concepts · Taught in Underwriting purpose and adverse selection, Individual life underwriting, pricing, and claims
Standard rate: The regular premium charged to applicants whose expected risk is average for the product. — General insurance concepts · Taught in Underwriting purpose and adverse selection
Substandard (rated): A risk classification for higher-than-average expected mortality, priced with a table rating, a temporary flat extra, or an exclusion rider rather than a decline. — General insurance concepts · Taught in Underwriting purpose and adverse selection, Individual life underwriting, pricing, and claims
Aleatory contract: A contract in which the values exchanged by the parties are unequal and depend on an uncertain event such as chance. — Insurance contract law · Taught in Elements and special characteristics of an insurance contract
Competent parties: One of the four required contract elements, meaning each party to the contract has the legal capacity to enter into it. — Insurance contract law · Taught in Elements and special characteristics of an insurance contract
Conditional contract: A contract in which the insurer's duty to perform depends on certain conditions being met, such as premiums being current or proof of loss being furnished. — Insurance contract law · Taught in Elements and special characteristics of an insurance contract
Consideration: The thing of value each side gives up to form the contract; for the applicant it is the premium and the statements made, and for the insurer it is the promise to pay benefits. — Insurance contract law · Taught in Elements and special characteristics of an insurance contract
Contract of adhesion: A contract, like an insurance policy, whose wording is written entirely by one party (the insurer) and simply accepted or declined by the other, so genuine ambiguity is read against the insurer. — Insurance contract law · Taught in Elements and special characteristics of an insurance contract
Indemnity: Reimbursement of an actual loss, which is the basis of property and casualty insurance. Life insurance is instead a valued contract paying a stated face amount. — Insurance contract law · Taught in Elements and special characteristics of an insurance contract, Common insurance terminology
Legal purpose: One of the four required contract elements, meaning the agreement may not be used for an unlawful or wagering objective. — Insurance contract law · Taught in Elements and special characteristics of an insurance contract
Offer and acceptance: The contract element under which the applicant offers to contract by submitting a completed application with premium, and the insurer accepts by issuing the policy as applied for. — Insurance contract law · Taught in Elements and special characteristics of an insurance contract
Personal contract: A contract between the insurer and a specific person based on that person's individual risk characteristics, so ownership changes hands only by assignment rather than by handing over the document. — Insurance contract law · Taught in Elements and special characteristics of an insurance contract
Proof of loss: The substantive documentation of a claim, generally due within 90 days after the date of loss or the end of each period for periodic benefits. — Insurance contract law · Taught in Elements and special characteristics of an insurance contract
Unilateral contract: A contract in which only one party makes a legally enforceable promise; in insurance, only the insurer is bound once premium is paid. — Insurance contract law · Taught in Elements and special characteristics of an insurance contract
Utmost good faith: The principle that each party to an insurance contract may rely on the honesty of the other, requiring truthful answers from the applicant and fair dealing from the insurer. — Insurance contract law · Taught in Elements and special characteristics of an insurance contract
Warranty: A statement in an insurance application guaranteed to be true rather than merely believed true; warranties are rare in modern life and health contracts. — Insurance contract law · Taught in Elements and special characteristics of an insurance contract
Cancellation: The ending of a single enrollee's HMO coverage, while the plan and group contract stay in force, permitted only on statutory grounds such as nonpayment or fraud. — Insurance contract law · Taught in Concealment, warranty, and representations, Rescission rights and required policy specifications
Express warranty: A contractual assurance about the insured person, property, or risk that is stated in the policy or in a signed document incorporated into it. — Insurance contract law · Taught in Concealment, warranty, and representations
Implied warranty: A contractual assurance that arises from the nature of the agreement even though no special wording states it. — Insurance contract law · Taught in Concealment, warranty, and representations
Representation: A statement made by an applicant in or with an application that is believed to be true; a material misrepresentation can support rescission during the contestable period. — Insurance contract law · Taught in Concealment, warranty, and representations
Rescission: Cancelling a contract from the start so both sides are returned to their original positions, which an insurer may do for a material misrepresentation or concealment. — Insurance contract law · Taught in Concealment, warranty, and representations, Rescission rights and required policy specifications
Additional insured: A person or entity added to a policy as an insured in addition to the named insured, who is generally affected by the insurer's rescission. — Insurance contract law · Taught in Rescission rights and required policy specifications
Commissioner of Insurance: The state official who heads the insurance department (the title varies; New York's is the Superintendent of Financial Services), responsible for licensing and examining producers and insurers, investigating unfair or deceptive conduct, holding hearings, and issuing enforcement orders. — Insurance contract law · Taught in Rescission rights and required policy specifications
Policy: The written instrument that sets forth the insurance contract, including the parties, the subject insured, the risks covered, the coverage period, and the premium. — Insurance contract law · Taught in Rescission rights and required policy specifications, Common insurance terminology
Beneficiary: The person or entity named in a policy or contract to receive its death benefit or other proceeds when the insured, or the annuitant under an annuity, dies. — Insurance contract law · Taught in Common insurance terminology, Life insurance basics and the personal insurance planning process
Claim: A request for a benefit under the contract. A claim is not the benefit payment itself. — Insurance contract law · Taught in Common insurance terminology
Coinsurance: The percentage split, such as 80/20, by which the insurer and insured share covered charges above the deductible. — Insurance contract law · Taught in Common insurance terminology
Copayment: A flat dollar charge the insured pays per office visit or prescription, as distinct from a percentage-based coinsurance split. — Insurance contract law · Taught in Common insurance terminology
Disability income insurance: Coverage that replaces part of earnings when injury or sickness keeps the insured from working, paying a periodic benefit after an elimination period. — Insurance contract law · Taught in Common insurance terminology
Endorsement: A form attached to a policy, also called a rider, that changes the base contract. It becomes valid only when approved by an insurer executive officer and endorsed on or attached to the policy. — Insurance contract law · Taught in Common insurance terminology
Insuring clause: The provision naming the insured and the insurer and stating the insurer's core promise to pay the stated proceeds to the beneficiary upon due proof of the insured's death. — Insurance contract law · Taught in Common insurance terminology
Lapse: The termination of coverage that occurs when a life policy's premium remains unpaid after the grace period ends and no nonforfeiture option applies. — Insurance contract law · Taught in Common insurance terminology, Term, whole, universal, and variable life policy classes
Nonrenewal: An HMO's class-level, end-of-term decision not to continue a plan or contract, distinct from cancelling an individual enrollee. — Insurance contract law · Taught in Common insurance terminology
Policy conditions: Contract provisions stating requirements that must be met for coverage or payment, such as giving notice of a loss. — Insurance contract law · Taught in Common insurance terminology
Policyowner: The person who holds all contractual rights and duties under a life policy, including paying premiums, naming beneficiaries, and surrendering or assigning the contract. — Insurance contract law · Taught in Common insurance terminology, Life insurance basics and the personal insurance planning process
Rider: An amendment attached to a life policy that adds a benefit, usually for extra premium, and which has no existence independent of the base policy. — Insurance contract law · Taught in Common insurance terminology, Life policy riders
Binding authority: Authority granted by an insurer to put coverage in force; neither an agent title nor a broker title alone establishes it. — The California insurance marketplace and licensing · Taught in Distribution systems and producer roles: agent, broker, and solicitor
Broker-agent: A California property or casualty licensee who may act as an agent or broker. When transacting with and on behalf of its owning insurer, it acts as an agent. — The California insurance marketplace and licensing · Taught in Distribution systems and producer roles: agent, broker, and solicitor
Direct response marketing: Selling by mail, print, broadcast, telephone, or internet, often to a group or association's members, with no agent meeting the buyer face to face. — The California insurance marketplace and licensing · Taught in Distribution systems and producer roles: agent, broker, and solicitor
Distribution system: The route through which an insurer reaches customers, such as an exclusive agency, an independent agency, or direct response marketing. — The California insurance marketplace and licensing · Taught in Distribution systems and producer roles: agent, broker, and solicitor
Exclusive agency system: Agents represent one insurer or its group, and the insurer owns the expirations. It includes the career agency system common in life insurance. — The California insurance marketplace and licensing · Taught in Distribution systems and producer roles: agent, broker, and solicitor
Independent agency: A distribution arrangement in which an agency can represent several insurers. — The California insurance marketplace and licensing · Taught in Distribution systems and producer roles: agent, broker, and solicitor
License: A grant of authority from a state insurance department letting a person transact the lines of insurance business it names. — The California insurance marketplace and licensing · Taught in Distribution systems and producer roles: agent, broker, and solicitor
Licensing exemption: A statutory exception to licensing, such as for salaried clerical employees who do not solicit, negotiate, or effect insurance and receive no commission. — The California insurance marketplace and licensing · Taught in Distribution systems and producer roles: agent, broker, and solicitor
Organizational license: A license held by a business entity whose named natural persons may exercise its powers subject to law. — The California insurance marketplace and licensing · Taught in Distribution systems and producer roles: agent, broker, and solicitor
Producer: A licensed person who sells, solicits, or negotiates insurance, such as an agent or broker. — The California insurance marketplace and licensing · Taught in Distribution systems and producer roles: agent, broker, and solicitor
Annuity training: Product training required of annuity sellers: eight hours before soliciting individual consumers and four hours before each renewal. — The California insurance marketplace and licensing · Taught in Producer licensing, appointments, and continuing education
Appointment: An insurer's own authorization, filed with the state insurance department, letting a licensed producer act as its agent; it is separate from and in addition to the producer's license. — The California insurance marketplace and licensing · Taught in Producer licensing, appointments, and continuing education
Continuing education: Coursework a licensed producer must complete each renewal period, usually including an ethics component, as a condition of keeping the license in force. Each state sets the hours and topics. — The California insurance marketplace and licensing · Taught in Producer licensing, appointments, and continuing education
Inactive producer license: A permanent license that remains in existence but does not permit transactions requiring an active license, because all appointments or endorsements have ended and any required broker bond is canceled. — The California insurance marketplace and licensing · Taught in Producer licensing, appointments, and continuing education
Line of authority: A category of insurance business, such as life, accident and health, or HMO, that a producer license authorizes the holder to transact. — The California insurance marketplace and licensing · Taught in Producer licensing, appointments, and continuing education
Nonresident license: A license to transact insurance in a state where the producer does not reside, requiring good standing on the home license and limited to the classes it carries. — The California insurance marketplace and licensing · Taught in Producer licensing, appointments, and continuing education
Prelicensing education: Required coursework a new applicant must complete before being licensed. For California life and accident and health applicants it is 12 hours, including one hour on fraud. — The California insurance marketplace and licensing · Taught in Producer licensing, appointments, and continuing education
Reciprocity: An arrangement under which one state recognizes a producer's license from another state when licensing nonresidents. — The California insurance marketplace and licensing · Taught in Producer licensing, appointments, and continuing education
Annuity: A contract that protects against outliving one's money by converting premiums into a stream of income, the mirror image of life insurance. — The California insurance marketplace and licensing · Taught in Ethics and conduct with senior citizens
California Department of Insurance: The state agency, called CDI, that regulates insurers and producers under the Insurance Code and receives consumer contacts and complaints. — The California insurance marketplace and licensing · Taught in Ethics and conduct with senior citizens, Insurer types, CDI/DMHC jurisdiction, and market regulation
Community spouse resource allowance: The amount of assets a spouse living in the community may keep while the other spouse seeks Medi-Cal. California prohibits certain annuity sales meant to affect Medi-Cal eligibility. — The California insurance marketplace and licensing · Taught in Ethics and conduct with senior citizens
Free look: A provision giving the policyowner a stated number of days after policy delivery to examine the contract and return it for a full premium refund, with the clock starting at delivery. — The California insurance marketplace and licensing · Taught in Ethics and conduct with senior citizens, Free-look cancellation rights by applicant age
Home meeting notice: A stand-alone written notice, in 16-point bold type, that must reach a senior 24 hours to 14 days before an initial life insurance sales meeting at the senior's home. — The California insurance marketplace and licensing · Taught in Ethics and conduct with senior citizens
Medi-Cal: California's Medicaid program, a public program administered by the Department of Health Care Services that covers eligible low-income residents. — The California insurance marketplace and licensing · Taught in Ethics and conduct with senior citizens, Insurer types, CDI/DMHC jurisdiction, and market regulation
Senior designation: A professional title suggesting expertise in advising seniors, which requires issuer authorization, commissioner approval, and at least four years of relevant licensing, and must not mislead. — The California insurance marketplace and licensing · Taught in Ethics and conduct with senior citizens
Admitted insurer: An insurer holding a certificate of authority in the state, so it may transact the lines named on it. A domestic, foreign or alien insurer can each be admitted. Also called authorized. — The California insurance marketplace and licensing · Taught in Insurer types, CDI/DMHC jurisdiction, and market regulation
Alien insurer: An insurer organized under the laws of another country, such as a Swiss or Japanese insurer, which is alien in every state. — The California insurance marketplace and licensing · Taught in Insurer types, CDI/DMHC jurisdiction, and market regulation
Attorney-in-fact: The person or firm that manages a reciprocal insurer on behalf of its subscribers. — The California insurance marketplace and licensing · Taught in Insurer types, CDI/DMHC jurisdiction, and market regulation
Covered California: California's health coverage marketplace. It is separate from CDI and DMHC, though participating insurers and plans have their own regulators. — The California insurance marketplace and licensing · Taught in Insurer types, CDI/DMHC jurisdiction, and market regulation
Department of Managed Health Care: The California agency, called DMHC, that regulates health care service plans under the Knox-Keene Act and protects enrollees' interests. — The California insurance marketplace and licensing · Taught in Insurer types, CDI/DMHC jurisdiction, and market regulation
Domestic insurer: An insurer organized under the laws of the state in question. Domicile is judged from the viewpoint of the state you are standing in. — The California insurance marketplace and licensing · Taught in Insurer types, CDI/DMHC jurisdiction, and market regulation
Financial regulation: Oversight of an insurer's solvency and ability to meet its obligations to policyholders. — The California insurance marketplace and licensing · Taught in Insurer types, CDI/DMHC jurisdiction, and market regulation
Foreign insurer: An insurer organized under the laws of another U.S. state. An Ohio insurer is domestic in Ohio and foreign in every other state. — The California insurance marketplace and licensing · Taught in Insurer types, CDI/DMHC jurisdiction, and market regulation
Fraternal benefit society: A lodge-system membership organization that writes life and health benefits for its members. — The California insurance marketplace and licensing · Taught in Insurer types, CDI/DMHC jurisdiction, and market regulation
Health care service plan: An entity that arranges, pays for, or reimburses health care for prepaid or periodic charges. In California it is regulated by DMHC under the Knox-Keene Act, not by CDI. — The California insurance marketplace and licensing · Taught in Insurer types, CDI/DMHC jurisdiction, and market regulation
Market conduct regulation: Oversight of insurer practices such as sales and claims handling, as distinct from financial regulation of an insurer's ability to meet obligations. — The California insurance marketplace and licensing · Taught in Insurer types, CDI/DMHC jurisdiction, and market regulation
Mutual company: An insurer owned by its policyholders rather than by outside shareholders. — The California insurance marketplace and licensing · Taught in Insurer types, CDI/DMHC jurisdiction, and market regulation
Nonadmitted insurer: An insurer with no certificate of authority in a state. It generally may not solicit there, but can reach residents through surplus lines brokers for risks admitted insurers will not write, usually without guaranty fund protection. — The California insurance marketplace and licensing · Taught in Insurer types, CDI/DMHC jurisdiction, and market regulation
Reciprocal (interinsurance) exchange: An organization in which subscribers insure one another through an attorney-in-fact rather than through a traditional insurance company. — The California insurance marketplace and licensing · Taught in Insurer types, CDI/DMHC jurisdiction, and market regulation
Stock company: An insurer organized as a corporation owned by its shareholders. — The California insurance marketplace and licensing · Taught in Insurer types, CDI/DMHC jurisdiction, and market regulation
Assessment: A charge a state guaranty association levies on member insurers, usually after an insolvency, to pay covered claims. Some states let insurers recover it through policyholder surcharges. — The California insurance marketplace and licensing · Taught in Insolvency, CLHIGA, and Fair Claims Settlement Practices Regulations
Conservation order: A court order placing an insurer under the commissioner's control to protect its assets; an insurer under it that is not insolvent is an impaired insurer. — The California insurance marketplace and licensing · Taught in Insolvency, CLHIGA, and Fair Claims Settlement Practices Regulations
Extracontractual claim: A claim beyond the benefits written in the policy, such as punitive damages, which the guaranty association excludes. — The California insurance marketplace and licensing · Taught in Insolvency, CLHIGA, and Fair Claims Settlement Practices Regulations
Fair Claims Settlement Practices Regulations: California regulations setting claim-handling standards, including acknowledgment within 15 calendar days, a decision within 40 calendar days after proof of claim, and written updates every 30 calendar days. — The California insurance marketplace and licensing · Taught in Insolvency, CLHIGA, and Fair Claims Settlement Practices Regulations
Guaranty association: A state-created association that every insurer licensed for the covered lines must join, which pays certain policyholder claims of an impaired or insolvent member insurer up to limits set by law. Producers may not use its existence to induce a sale. — The California insurance marketplace and licensing · Taught in Insolvency, CLHIGA, and Fair Claims Settlement Practices Regulations
Impaired insurer: A member insurer of a state guaranty association placed under a court order such as rehabilitation or conservation, but not finally found insolvent. Each state's guaranty law defines the term. — The California insurance marketplace and licensing · Taught in Insolvency, CLHIGA, and Fair Claims Settlement Practices Regulations
Insolvent insurer: A member insurer placed under a court liquidation order with a finding of insolvency. — The California insurance marketplace and licensing · Taught in Insolvency, CLHIGA, and Fair Claims Settlement Practices Regulations
Liquidation: The last-resort proceeding that winds up an insolvent insurer, ending its business and distributing its assets to creditors and policyholders. — The California insurance marketplace and licensing · Taught in Insolvency, CLHIGA, and Fair Claims Settlement Practices Regulations
Member insurer: An insurer that, as a condition of being licensed in a state to write life, health, accident, or annuity business there, must belong to that state's guaranty association. — The California insurance marketplace and licensing · Taught in Insolvency, CLHIGA, and Fair Claims Settlement Practices Regulations
Proof of claim: The documentation of a claim that starts the insurer's time to accept or deny it under the general claims timetable. — The California insurance marketplace and licensing · Taught in Insolvency, CLHIGA, and Fair Claims Settlement Practices Regulations
Rehabilitation: A court-supervised proceeding in which the state's insurance regulator manages a troubled insurer to restore it to financial health. It fits an insurer whose condition is not yet hopeless, as distinguished from liquidation. — The California insurance marketplace and licensing · Taught in Insolvency, CLHIGA, and Fair Claims Settlement Practices Regulations
Unfair claim settlement practice: A violation of state claims-handling law, such as failing to settle a claim promptly and fairly once liability is reasonably clear, or refusing to pay without a reasonable investigation. — The California insurance marketplace and licensing · Taught in Insolvency, CLHIGA, and Fair Claims Settlement Practices Regulations
Cash value: The savings element of permanent insurance that builds over time and that the owner can borrow against or receive on surrender. — Life insurance basics · Taught in Life insurance basics and the personal insurance planning process
Coverage gap: The difference between total capital needed and existing resources, representing the amount of additional life insurance recommended. — Life insurance basics · Taught in Life insurance basics and the personal insurance planning process
Human life value approach: A needs-analysis method that estimates a client's future earnings to retirement, subtracts self-consumption and taxes, and discounts the remainder to a present value. — Life insurance basics · Taught in Life insurance basics and the personal insurance planning process
Needs approach: A needs-analysis method that totals immediate cash needs and ongoing income needs, then subtracts existing resources to find the coverage gap. — Life insurance basics · Taught in Life insurance basics and the personal insurance planning process
Permanent life insurance: Life insurance designed for lifelong protection when its funding and contract requirements are met, which may build cash value. — Life insurance basics · Taught in Life insurance basics and the personal insurance planning process
Term life insurance: Life insurance that pays a death benefit only if the insured dies within a stated period, builds no cash value, and expires if the insured outlives the term. — Life insurance basics · Taught in Life insurance basics and the personal insurance planning process
Corporate-owned life insurance: Life insurance an employer owns on employees, which California allows only with written consent and subject to special restrictions, including for nonexempt employees. — Life insurance basics · Taught in Insurable interest, mortality, and the immediate estate concept
Immediate estate: The idea that life insurance creates a contractual death benefit as soon as coverage takes effect, without waiting for savings to accumulate. It does not mean immediate cash value. — Life insurance basics · Taught in Insurable interest, mortality, and the immediate estate concept
Love and affection: A substantial interest, based on close family ties by blood or law, that California recognizes as an insurable interest in another person's life. — Life insurance basics · Taught in Insurable interest, mortality, and the immediate estate concept
Mortality table: A table showing the expected rate of death at each age, which lets a life insurer estimate how much money it will need for death claims and place a price on the risk. — Life insurance basics · Taught in Insurable interest, mortality, and the immediate estate concept
Stranger-originated life insurance: A policy bought with the primary purpose of selling it to a third-party investor who has no insurable interest in the insured. States prohibit it, and some treat it as fraud. — Life insurance basics · Taught in Insurable interest, mortality, and the immediate estate concept, Life settlement contracts
Accumulation at interest: A dividend option under which the insurer holds dividends on deposit to earn interest, rather than buying more insurance. — Types of life policies · Taught in Participating, individual, and group life policies
Attained age: The insured's current age at a given point, such as renewal, used as the basis for calculating a new premium rather than the age at original issue. — Types of life policies · Taught in Participating, individual, and group life policies, Term product types, Life policy riders
Certificate of insurance: The document each person covered under a group policy receives as evidence of coverage, because the sponsor, not the individual, holds the master policy. It applies to group life and group health plans. — Types of life policies · Taught in Participating, individual, and group life policies
Contributory plan: A group plan, life or health, in which members pay part of the premium, usually by payroll deduction. Insurers typically require a minimum participation percentage to guard against adverse selection. — Types of life policies · Taught in Participating, individual, and group life policies
Conversion privilege: The right to convert coverage to an individual permanent policy without evidence of insurability within a limited window. It is most often used when group life coverage ends, and many term policies offer it too. — Types of life policies · Taught in Participating, individual, and group life policies
Divisible surplus: The portion of a participating insurer's surplus apportioned and credited annually to policyowners as dividends, reflecting a return of an overcharge in premium. — Types of life policies · Taught in Participating, individual, and group life policies
Evidence of insurability: Proof of insurability, such as health history, a medical exam or a questionnaire, that an insurer may require from an applicant for individual coverage or from employees who enroll late in a group plan. — Types of life policies · Taught in Participating, individual, and group life policies, Term product types
Master policy: The single contract issued to a group sponsor such as an employer or association, under which each covered person receives a certificate rather than an individual policy. It is used for group life, group health and other group plans. — Types of life policies · Taught in Participating, individual, and group life policies
Noncontributory plan: A group plan paid entirely by the employer or sponsor, life or health. Because no member pays, insurers generally require 100 percent of eligible members to be covered, which removes the adverse-selection risk. — Types of life policies · Taught in Participating, individual, and group life policies
Nonparticipating policy: A whole life policy that pays no dividends and relies solely on its guaranteed values. — Types of life policies · Taught in Participating, individual, and group life policies
Paid-up additions: A dividend option that uses the dividend to buy small amounts of additional paid-up permanent insurance, with no new evidence of insurability. — Types of life policies · Taught in Participating, individual, and group life policies
Participating policy: A whole life policy that may pay non-guaranteed policy dividends to the owner. — Types of life policies · Taught in Participating, individual, and group life policies
Policy dividends: Non-guaranteed distributions a participating whole life policy may pay, which the owner can take in cash, use to reduce premiums, buy paid-up additions, or leave to accumulate. — Types of life policies · Taught in Participating, individual, and group life policies, Tax treatment of life insurance and annuities, including modified endowment contracts
Portability: A feature that lets a person continue group coverage after leaving the group when the plan offers it; it differs from conversion to an individual policy. — Types of life policies · Taught in Participating, individual, and group life policies
Account value: The accumulated fund inside a universal life or variable policy or a deferred annuity, increased by premiums and credits and reduced by charges. An annuity's can be withdrawn subject to surrender charges. — Types of life policies · Taught in Term, whole, universal, and variable life policy classes, Free-look cancellation rights by applicant age
Convertible: A term policy feature letting the owner exchange the term coverage for a permanent policy without evidence of insurability, within limits stated in the contract. — Types of life policies · Taught in Term, whole, universal, and variable life policy classes, Term product types
Decreasing term: A term life policy whose face amount declines on a set schedule while the premium usually stays level, designed to match a shrinking need like a mortgage. — Types of life policies · Taught in Term, whole, universal, and variable life policy classes, Special life coverages: mortgage redemption, family, juvenile, and survivorship, Term product types
Increasing death benefit option: A universal life death benefit choice under which the beneficiary receives the face amount plus the policy's accumulated account value, so the total payout rises as the account value grows. — Types of life policies · Taught in Term, whole, universal, and variable life policy classes
Level death benefit option: A universal life death benefit choice under which the beneficiary receives the face amount only, with the account value effectively absorbed into that fixed payout rather than added to it. — Types of life policies · Taught in Term, whole, universal, and variable life policy classes
Level term: A term life policy whose face amount and, typically, premium stay the same for the entire term. — Types of life policies · Taught in Term, whole, universal, and variable life policy classes, Term product types
Limited-pay whole life: A whole life policy with premiums compressed into a set number of years or to a stated age, after which the policy is paid up but lifetime coverage continues. — Types of life policies · Taught in Term, whole, universal, and variable life policy classes, Premium payment modes
Ordinary whole life: A whole life policy on which premiums are paid continuously until the insured's death or the policy's maturity date, producing the lowest annual premium of the whole life variations. — Types of life policies · Taught in Term, whole, universal, and variable life policy classes
Renewable: A term policy feature letting the owner continue coverage for another term without proving good health, at a premium based on the insured's attained age. — Types of life policies · Taught in Term, whole, universal, and variable life policy classes, Term product types
Separate account: An account, distinct from the insurer's general account, that holds a variable policy's cash value and is invested according to the owner's chosen subaccounts, exposing the owner to investment risk. — Types of life policies · Taught in Term, whole, universal, and variable life policy classes
Universal life: A permanent life insurance product with flexible premiums and an adjustable death benefit, where premiums fund an account value from which cost of insurance and expenses are deducted and interest is credited. — Types of life policies · Taught in Term, whole, universal, and variable life policy classes
Variable life: A life insurance product with a fixed premium and a guaranteed minimum death benefit whose cash value is held in the insurer's separate account and rises or falls with the performance of selected subaccounts. — Types of life policies · Taught in Term, whole, universal, and variable life policy classes
Variable universal life: A life insurance product combining universal life's flexible premiums with variable life's separate-account investing, generally without a guaranteed cash value tied to subaccount performance. — Types of life policies · Taught in Term, whole, universal, and variable life policy classes
Mode factor: A pricing adjustment the insurer applies to the annual premium for more frequent payment modes, making the total paid over a year higher than the single annual premium. — Types of life policies · Taught in Premium payment modes
Payment method: How premium funds are transferred, such as automatic bank withdrawal; it differs from the payment mode, which is the frequency. — Types of life policies · Taught in Premium payment modes
Payment period: The length of time over which premiums are payable, such as the twenty years of premiums under a twenty-pay whole life policy. — Types of life policies · Taught in Premium payment modes
Single premium: An annuity funding method in which one lump sum funds the contract at issue and no further payments are made. — Types of life policies · Taught in Premium payment modes
Children's term rider: A rider added to a parent's life policy that covers all eligible children for one premium at the same level term amount, with newborn or adopted children added at no extra cost. — Types of life policies · Taught in Special life coverages: mortgage redemption, family, juvenile, and survivorship
Family policy: A single contract combining permanent insurance on the primary insured with term coverage on the spouse and children. — Types of life policies · Taught in Special life coverages: mortgage redemption, family, juvenile, and survivorship
Guaranteed insurability rider: A rider letting the owner buy specified additional coverage on scheduled option dates or qualifying life events with no evidence of insurability, priced at attained age. — Types of life policies · Taught in Special life coverages: mortgage redemption, family, juvenile, and survivorship, Life policy riders
Joint life (first-to-die): A policy covering two insureds that pays the face amount when the first of them dies, after which coverage under that contract ends for the survivor unless the contract grants a purchase or conversion option. — Types of life policies · Taught in Special life coverages: mortgage redemption, family, juvenile, and survivorship
Juvenile policy: A policy on a child's life, usually owned and paid for by a parent or guardian called the payor. — Types of life policies · Taught in Special life coverages: mortgage redemption, family, juvenile, and survivorship
Mortgage redemption life: Coverage on a borrower, commonly decreasing term, that provides funds toward a declining mortgage balance if death occurs during the term. — Types of life policies · Taught in Special life coverages: mortgage redemption, family, juvenile, and survivorship
Payor benefit rider: A rider on a juvenile policy that waives premiums until the child reaches a stated age if the adult paying for the policy dies or becomes totally disabled. — Types of life policies · Taught in Special life coverages: mortgage redemption, family, juvenile, and survivorship, Life policy riders
Private mortgage insurance (PMI): Insurance that protects a lender against borrower default, not a life insurance benefit for the borrower's family. — Types of life policies · Taught in Special life coverages: mortgage redemption, family, juvenile, and survivorship
Survivorship (second-to-die): A policy covering two insureds that pays nothing at the first death and pays the death benefit only after both insureds have died, with premiums generally continuing after the first death. — Types of life policies · Taught in Special life coverages: mortgage redemption, family, juvenile, and survivorship
Annual renewable term: A term policy consisting of successive one-year terms the owner may renew each year without new evidence of insurability, at a rising premium. — Types of life policies · Taught in Term product types
Increasing term: A term life policy whose face amount rises over the term according to a schedule or index, often used as a rider to keep pace with inflation. — Types of life policies · Taught in Term product types
Return-of-premium rider: A rider, usually on term life, that refunds the premiums paid if the insured is still living when the level term period ends; lapsing or surrendering early typically forfeits some or all of the refund. — Types of life policies · Taught in Term product types, Life policy riders
Accumulation phase: The period of a deferred annuity before income begins, during which the contract's value grows as interest or earnings are credited. — Annuities · Taught in Annuity definitions, parties, and uses
Annuitant: The measuring life under an annuity contract whose age and sex determine the amount of each payment. — Annuities · Taught in Annuity definitions, parties, and uses
Annuitization: Converting an annuity's accumulated value into a stream of income payments under a chosen income option. — Annuities · Taught in Annuity definitions, parties, and uses, Tax treatment of life insurance and annuities, including modified endowment contracts
Deferred annuity: An annuity whose income payments begin on a future annuity date, with the contract growing during an accumulation phase until then. — Annuities · Taught in Annuity definitions, parties, and uses
Immediate annuity: An annuity whose income payments begin within about one payment interval after purchase. — Annuities · Taught in Annuity definitions, parties, and uses
Longevity risk: The financial risk of outliving one's money, which an annuity addresses by turning a sum into income that cannot be outlived. — Annuities · Taught in Annuity definitions, parties, and uses
Owner: The party to an annuity contract who pays premiums and controls the contract. — Annuities · Taught in Annuity definitions, parties, and uses
Period certain: An annuity payout option paying equal amounts for a set number of years regardless of whether the annuitant is still living. — Annuities · Taught in Annuity definitions, parties, and uses
Straight life (life only): An annuity settlement option paying income for the annuitant's lifetime only, with nothing paid after death, producing the largest periodic payment for a given amount of money. — Annuities · Taught in Annuity definitions, parties, and uses
Tax-deferred: Describes growth, such as cash value in a permanent life policy or earnings in a deferred annuity, that is not taxed while it stays inside the contract. — Annuities · Taught in Annuity definitions, parties, and uses, Tax treatment of life insurance and annuities, including modified endowment contracts
Modified guaranteed annuity: A nonvariable annuity with a guaranteed rate for a set period whose surrender value is adjusted for market interest changes. — Life insurance and annuity policy replacement and cancellation · Taught in Free-look cancellation rights by applicant age
Policy fee: A charge assessed by the insurer on a policy, which is refunded along with account value when a variable contract is cancelled in the free-look period. — Life insurance and annuity policy replacement and cancellation · Taught in Free-look cancellation rights by applicant age
Replacement: A sale in which new coverage is purchased and existing coverage is lapsed, surrendered, reduced, converted, or borrowed against in connection with the transaction, triggering replacement disclosure duties. — Life insurance and annuity policy replacement and cancellation · Taught in Free-look cancellation rights by applicant age, Replacement notice requirements and penalties
Senior free look: California's right for a person 60 or older to return an individual life policy or annuity within at least 30 days after receipt. — Life insurance and annuity policy replacement and cancellation · Taught in Free-look cancellation rights by applicant age
Variable annuity: An annuity that places value in separate-account subaccounts the owner selects, so values and payments rise and fall with investment results and the owner bears the investment risk. — Life insurance and annuity policy replacement and cancellation · Taught in Free-look cancellation rights by applicant age
Comparison statement: A written comparison of the old and new contracts. A materially inaccurate comparison violates California's replacement rules. — Life insurance and annuity policy replacement and cancellation · Taught in Replacement notice requirements and penalties
Conservation: The existing insurer's opportunity, triggered by the replacement paperwork, to be notified of a proposed replacement and attempt to keep the policyholder's business. — Life insurance and annuity policy replacement and cancellation · Taught in Replacement notice requirements and penalties
Existing insurer: The insurer of the coverage being replaced. It is told of the proposed replacement so it can contact the owner. — Life insurance and annuity policy replacement and cancellation · Taught in Replacement notice requirements and penalties
Nonforfeiture values: The cash surrender value or other paid-up values that state law requires a life policy to provide, figured with the mortality table and interest rate stated in the contract, so that an owner who stops paying premiums does not forfeit the value built up. — Life insurance and annuity policy replacement and cancellation · Taught in Replacement notice requirements and penalties
Policy loan: A loan an owner takes against a whole life policy's cash value; any unpaid loan and interest reduce the amount paid to the beneficiary at death. — Life insurance and annuity policy replacement and cancellation · Taught in Replacement notice requirements and penalties, Tax treatment of life insurance and annuities, including modified endowment contracts
Replacement notice: A required disclosure form comparing existing and proposed coverage on facts when a sale involves replacing in-force insurance, signed, dated, and copied to the applicant and the replacing insurer. — Life insurance and annuity policy replacement and cancellation · Taught in Replacement notice requirements and penalties
Replacing insurer: The insurer issuing the new policy in a replacement. It must notify each existing insurer within the deadline the state sets and follow that state's other replacement rules, such as any extended free look. — Life insurance and annuity policy replacement and cancellation · Taught in Replacement notice requirements and penalties
Same-insurer replacement: A replacement in which the new policy comes from the same insurer, which retains signed statements, notice, and written comparison duties. — Life insurance and annuity policy replacement and cancellation · Taught in Replacement notice requirements and penalties
Surrender charge: A declining percentage penalty, often starting near 7 percent and falling to zero, deducted when money is taken out early. It lets the insurer recover acquisition costs such as the producer's commission. — Life insurance and annuity policy replacement and cancellation · Taught in Replacement notice requirements and penalties
Buyer's Guide: A generic, insurer-neutral disclosure document explaining the basic kinds of life insurance and how to compare costs among similar policies; every applicant receives the same one. — The individual life insurance contract · Taught in California life policy disclosures: illustrations, buyer's guide, and cost indexes
Cash surrender value: The amount an owner may take in cash when surrendering a whole life policy, ending the coverage. — The individual life insurance contract · Taught in California life policy disclosures: illustrations, buyer's guide, and cost indexes, Life settlement contracts, Common policy provisions: beneficiary designations, grace period, and nonforfeiture options
Illustration: A presentation of a policy's projected values over time under stated assumptions, separating guaranteed from non-guaranteed amounts. Non-guaranteed results are not contractual promises. — The individual life insurance contract · Taught in California life policy disclosures: illustrations, buyer's guide, and cost indexes
Net payment cost index: A cost comparison measure that does not credit ending cash surrender value, showing relative cost of keeping protection without surrendering for cash. — The individual life insurance contract · Taught in California life policy disclosures: illustrations, buyer's guide, and cost indexes
Nonguaranteed elements: Projected dividends, current interest rates, and illustrated values that must not be presented as guaranteed or shown without equal prominence given to the guaranteed figures. — The individual life insurance contract · Taught in California life policy disclosures: illustrations, buyer's guide, and cost indexes
Policy Summary: A disclosure document specific to the proposed contract, naming the insurer and producer and showing the premiums, death benefits, cash values, and charges for that particular policy. — The individual life insurance contract · Taught in California life policy disclosures: illustrations, buyer's guide, and cost indexes
Surrender cost index: A cost comparison measure that credits the policy's ending cash surrender value, showing relative cost if the owner surrenders at that point. — The individual life insurance contract · Taught in California life policy disclosures: illustrations, buyer's guide, and cost indexes
Time value of money: The principle that a dollar today is worth more than a dollar later, so adding premiums across years without adjustment misstates cost. — The individual life insurance contract · Taught in California life policy disclosures: illustrations, buyer's guide, and cost indexes
Accelerated death benefit: A benefit paying part of the face amount to the owner while the insured is still living, upon a qualifying event such as terminal illness, reducing the death benefit left for the beneficiary. — The individual life insurance contract · Taught in Life settlement contracts, Life policy riders
Fiduciary duty: A legal obligation to act in another party's best interest, which a life settlement broker owes the policy owner. — The individual life insurance contract · Taught in Life settlement contracts
Gross purchase price: The total a purchaser pays for a settled policy, including commissions and fees, which the provider must disclose before the contract is executed. — The individual life insurance contract · Taught in Life settlement contracts
Life expectancy estimate: A projection of how long an insured is likely to live, used to value a settlement. It is an estimate, not a promised date of death. — The individual life insurance contract · Taught in Life settlement contracts
Life settlement: The sale of an existing life insurance policy by its owner to a third party for a cash payment greater than the cash surrender value but less than the death benefit. — The individual life insurance contract · Taught in Life settlement contracts
Life settlement broker: A licensed professional who shops a policy owner's policy to multiple buyers on the owner's behalf, owing the owner a duty to act in their interest. — The individual life insurance contract · Taught in Life settlement contracts
Life settlement provider: The licensed buyer that contracts with the policy owner, takes ownership of the policy, pays remaining premiums, and collects the death benefit. — The individual life insurance contract · Taught in Life settlement contracts
Contingent (secondary) beneficiary: A beneficiary paid only if no primary beneficiary survives the insured. — The individual life insurance contract · Taught in Common policy provisions: beneficiary designations, grace period, and nonforfeiture options
Extended term insurance: A nonforfeiture option that uses a policy's cash value to buy term insurance for the original face amount, but only for a limited period. — The individual life insurance contract · Taught in Common policy provisions: beneficiary designations, grace period, and nonforfeiture options
Grace period: The window after a missed premium or insufficient account value during which a policy stays in force, giving the owner time to pay before coverage lapses. — The individual life insurance contract · Taught in Common policy provisions: beneficiary designations, grace period, and nonforfeiture options
Irrevocable beneficiary: A beneficiary with a vested interest in the policy whom the owner generally cannot change, or take actions reducing that interest, without the beneficiary's written consent. — The individual life insurance contract · Taught in Common policy provisions: beneficiary designations, grace period, and nonforfeiture options
Nonforfeiture: The guarantee that a life policyowner keeps the value accumulated in a cash-value policy even if premium payments stop. — The individual life insurance contract · Taught in Common policy provisions: beneficiary designations, grace period, and nonforfeiture options
Paid-up nonforfeiture benefit: A benefit, such as reduced paid-up insurance or extended term insurance, that state law requires a lapsed cash-value policy to provide instead of forfeiting the owner's built-up value. — The individual life insurance contract · Taught in Common policy provisions: beneficiary designations, grace period, and nonforfeiture options
Policy debt: Outstanding policy loans and unpaid interest, which reduce the value available for nonforfeiture options and death proceeds. — The individual life insurance contract · Taught in Common policy provisions: beneficiary designations, grace period, and nonforfeiture options
Primary beneficiary: The beneficiary first in line to be paid the death benefit if living at the insured's death. — The individual life insurance contract · Taught in Common policy provisions: beneficiary designations, grace period, and nonforfeiture options
Reduced paid-up insurance: A nonforfeiture option that converts a policy's cash value into a smaller permanent face amount with no further premiums due. — The individual life insurance contract · Taught in Common policy provisions: beneficiary designations, grace period, and nonforfeiture options
Revocable beneficiary: A beneficiary the owner may change at any time without the beneficiary's permission. — The individual life insurance contract · Taught in Common policy provisions: beneficiary designations, grace period, and nonforfeiture options
Cost basis: The after-tax money paid into a policy, annuity or plan. It comes back tax-free on distribution, and only the earnings above it are taxed. — Taxation of life insurance and annuities · Taught in Tax treatment of life insurance and annuities, including modified endowment contracts
Exclusion ratio: A calculation that divides the investment in an annuity contract by the expected return to determine the tax-free portion of each annuitized payment. — Taxation of life insurance and annuities · Taught in Tax treatment of life insurance and annuities, including modified endowment contracts
Investment in the contract: The total after-tax premiums paid into a policy, which forms the basis recovered tax-free before gain is taxed on distribution. — Taxation of life insurance and annuities · Taught in Tax treatment of life insurance and annuities, including modified endowment contracts
Modified endowment contract (MEC): A life insurance contract that fails the 7-pay test by being overfunded, causing living distributions to be taxed income-first with a possible penalty. — Taxation of life insurance and annuities · Taught in Tax treatment of life insurance and annuities, including modified endowment contracts
Nonqualified plan: A retirement arrangement that does not meet Internal Revenue Code qualification requirements, allowing design freedom and discrimination in favor of selected employees but delaying the employer's tax deduction. — Taxation of life insurance and annuities · Taught in Tax treatment of life insurance and annuities, including modified endowment contracts
Premature distribution tax: A 10 percent additional federal tax on the taxable part of certain distributions made before age 59½, unless an exception such as disability applies. — Taxation of life insurance and annuities · Taught in Tax treatment of life insurance and annuities, including modified endowment contracts
Qualified plan: A retirement plan that meets Internal Revenue Code requirements for coverage, participation, vesting, and nondiscrimination, earning favorable tax treatment. — Taxation of life insurance and annuities · Taught in Tax treatment of life insurance and annuities, including modified endowment contracts
Seven-pay test: A statutory test that a life insurance contract fails if cumulative premiums paid in the first seven years exceed what a seven-year paid-up policy would require, creating MEC status. — Taxation of life insurance and annuities · Taught in Tax treatment of life insurance and annuities, including modified endowment contracts
Attending physician's statement: Medical records the insurer requests from an applicant's own physician to clarify health history, obtainable only with a valid signed authorization. — Individual underwriting, pricing, and claims · Taught in Individual life underwriting, pricing, and claims
Financial underwriting: Evaluating whether the amount of coverage requested is justified by a legitimate financial need. — Individual underwriting, pricing, and claims · Taught in Individual life underwriting, pricing, and claims
Gross premium: The net premium plus the expense loading; the amount the policyowner is actually billed. — Individual underwriting, pricing, and claims · Taught in Individual life underwriting, pricing, and claims
HIV-related test: A test an insurer may require in connection with an accident and health application, permitted only on a uniform, nondiscriminatory basis tied to the coverage applied for. — Individual underwriting, pricing, and claims · Taught in Individual life underwriting, pricing, and claims
Interest on death proceeds: Interest California requires on proceeds not paid within 30 days after death, running from the date of death. — Individual underwriting, pricing, and claims · Taught in Individual life underwriting, pricing, and claims
Investigative consumer report: A report covering a person's character, general reputation, personal characteristics and mode of living, often gathered through interviews with neighbors, friends or associates. Its disclosure rules are stricter than for an ordinary consumer report. — Individual underwriting, pricing, and claims · Taught in Individual life underwriting, pricing, and claims
Medical Information Bureau: A member-insurer exchange that files coded impairment information from prior applications and checks it on new ones as a lead for further investigation, not proof of a condition. — Individual underwriting, pricing, and claims · Taught in Individual life underwriting, pricing, and claims
Medical underwriting: Evaluating an applicant's health and other factors to judge expected mortality. — Individual underwriting, pricing, and claims · Taught in Individual life underwriting, pricing, and claims
Net premium: The pure cost of the death protection: the mortality cost minus assumed interest earnings. — Individual underwriting, pricing, and claims · Taught in Individual life underwriting, pricing, and claims
Proof of death: The documents, typically a claim form and a certified copy of the death certificate, that the insurer requires before paying a death benefit. — Individual underwriting, pricing, and claims · Taught in Individual life underwriting, pricing, and claims
Settlement option: A way for the policy owner or beneficiary to take policy proceeds other than as one lump sum, such as interest only, a fixed period, a fixed amount, or a life income. In an annuity the same idea sets how accumulated value is turned into income. — Individual underwriting, pricing, and claims · Taught in Individual life underwriting, pricing, and claims
Written informed consent: The signed disclosure, obtained before a specimen is collected, explaining that an HIV-related test will be performed, why, and who may receive the result. — Individual underwriting, pricing, and claims · Taught in Individual life underwriting, pricing, and claims
Accidental death and dismemberment (AD&D): A rider that adds a schedule of benefits for accidental death or dismemberment, paying a principal sum for death or major loss and a capital sum for lesser losses. — Life policy riders · Taught in Life policy riders
Accidental death benefit: A rider paying an additional amount on top of the face amount if death results from accidental bodily injury, independent of all other causes, within a stated time limit. — Life policy riders · Taught in Life policy riders
Disability income rider: A rider that pays the insured a monthly income, often a percentage of the face amount, as a living benefit for as long as total disability continues. — Life policy riders · Taught in Life policy riders
Long-term care insurance: Coverage for the help people need with everyday activities when they cannot care for themselves, delivered in a nursing facility, assisted living, adult day care, or the insured's home. — Life policy riders · Taught in Life policy riders
Term rider: A rider adding temporary death benefit on the same insured covered by the base permanent policy, expiring at the end of its stated period while the base policy continues. — Life policy riders · Taught in Life policy riders
Waiver of premium rider: A rider that keeps a health policy in force without premium payments while the insured remains totally disabled, after a waiting period. — Life policy riders · Taught in Life policy riders

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