Risk
Chance of loss
Pure risk
The only type of risk that is insurable, in which the loss is definable, measurable, accidental, shared, and not catastrophic.
Loss
An unplanned reduction in economic value
Peril
An event that insurance protects against
Hazard
condition that raises the chance of encountering a peril or increases the severity of a loss
Risk Transfer
The basis for most forms of insurance today
Underwriting process
The process by which an insurance company determines if the risk proposed for insurance should be accepted or rejected.
Law of Large Numbers
The mathematical principle of probability that insurance is based on.
Mortality tables
Used in determining life insurance premiums
Risk Retention Group (RRG)
An insurance company that provides self-insurance services to owner-members. These members all have a business, occupation, or professional relationship with one another.
Face amount
The amount of the death benefit stated in a life insurance policy.
Admitted insurer
A company that has received a certificate of authority from a state in which it wants to transact insurance business
Producer
Anyone who sells insurance for another and gets a policy from the insurer; also called an agent.
Fiduciary
The type of relationship that exists when one party handles money or other property on behalf of another.
Cost index
Enables cost comparison of policies through the use of factors such as premiums, cash value and policy dividends.
Surrender cost index
Compares costs at a future date when the policy might be surrendered for cash value
Net payment cost index
Compares costs at a future date if premiums are continually paid and no cash value is withdrawn
Waiver
Voluntarily relinquishing a known right
Contract of adhesion
A type of contract which is drafted by one party; it's a take-it-or-leave-it proposition
Alleatory
A characteristic of a contract in which one party may receive a benefit that is entirely out of proportion to the consideration he or she is giving
Unilateral contract
A type of contract in which only one party makes an enforceable promise, such as when only the insurer makes an enforceable promise.
Representation
A statement that is believed to be true to the best of the maker's knowledge, even though in fact it may not be true
Warranty
A statement the maker guarantees to be true in all ways
Concealment
The deliberate withholding of material facts when applying for insurance.
Fraud
Willful deception with the intent to gain something of value
Insurable interest
The financial interest someone has in property or a person's life
Level premium
A feature of permanent insurance where premiums stay the same
Cash value
the accumulation element within the policy
Whole life
A type of life insurance policy where the growth of cash values is designed to equal the policy face amount at the insured's age 120. The policyowner fully owns the cash value and is allowed access to it while the policy is in force, thus providing what i
Separate account
Used for riskier investments by an insurer, as opposed to general account
Mortality (Factor)
The risk of death posed by the applicant. It is a charge.
Interest
The amount the insurer can expect to earn on invested premiums. It is a credit.
Expenses
The insurer's costs of doing business - a charge. Sometimes called a load.
CSO
Commissioners Standard Ordinary table, used to determine mortality rates. Insurance companies use the 2001 CSO table.
Bring-back rule
When the insured dies within three years after the transfer, then the policy death benefits are included in the insured's estate for tax purposes.
Insuring clause
The basic agreement between the policyowner and the company
Entire contract provision
States that the insurance policy and the completed (signed) application make up the entire contract
Assignment
The method used to pledge or transfer ownership
Irrevocable beneficiary
A beneficiary designation in which the policy owner can't change the beneficiary without the beneficiary's permission
Absolute assignment
Occurs when the policyowner permanently transfers all rights in the policy to an assignee.
Collateral assignment
A temporary assignment that uses the policy as collateral for a loan or for some other transaction between the policyowner and the collateral assignee.
Offer
Applicant makes an _____ when signing an application
Free-look provision
Gives new policyowners a period of time (usually ten days) in which to review the policy and to decide whether to keep it
Trust
A legal entity established to own and hold property or assets for the benefit of another person or group of people
Cash dividend option
A dividend option in which the policyowner simply elects to receive the dividend in cash.
Premium reduction option
A dividend option in which the insurance company uses the dividend to reduce the next premium due.
Accumulation option
A dividend option in which the insurer holds the dividends in an interest-bearing account for the policyowner. The policyowner can withdraw the accumulated dividends and interest at any time.
Paid-up insurance option
A dividend option which lets the policyowner use the dividends to pay up the life insurance policy early.
Divisible surplus
Returned premium
Fixed period settlement option
A settlement option in which the death benefit is paid in equal installments over a period of time selected by the beneficiary or policyowner
Fixed amount settlement option
A settlement option in which the insurer distributes the death benefit through a series of payments to the beneficiary. The beneficiary decides the payment amount.
Straight life income option
A type of settlement with life contingency in which the policy's proceeds are converted into an income stream that lasts the beneficiary's entire life. Payments cease at the beneficiary's death.
Life income with period certain
A settlement option in which a payee receives income payments for life. However, payments are guaranteed for a specified term. Common term certain periods are 5, 10, and 20 years.
Life income with refund
A settlement option which provides income payments for the life of the payee. In this case, if the payee dies before receiving payments equal to the amount initially placed under this option, the remainder goes to a contingent payee in the form of a refun
Joint & survivor life income
A settlement option in which monthly payments are made until the second payee (survivor) dies.
Required minimum distributions
Distributions from a qualified employer plan that must begin no later than April 1 of the year following the year the participant turns 70� or upon retirement, whichever is later
Defined benefit plan
A qualified plan in which the employer makes contributions to provide a specified benefit at the participants' retirement; "pension
412(i) plan
A defined benefit plan that uses whole life insurance and deferred annuities in its funding. It features guaranteed interest.
Defined contribution plan
A plan in which the retirement income that a participant receives at retirement is based on whatever the accumulated contributions, plus their interest earnings, can provide.
Profit-sharing plan
A form of defined contribution plan which allows employees to share in the profits of the employer. The employer is the sole contributor to the plan.
401(k) plan
A form of defined contribution plan which allows both employer and employees to contribute to the plan.
Safe harbor 401(k) plan
A class of 401(k) plan that, if adopted, assures employers that their plan will not be later deemed top heavy, regardless of employee participation. Employer contributions are immediately vested.
Single(k) plan
A tax-advantaged retirement plan designed for the self-employed.
403(b) or TSA
Tax sheltered annuity plan. A retirement plan designed for non-profit organizations and their employees.
$17,500
As of 2014, the maximum amount an employ could contribute to a 401(k).
457 plan
A qualified retirement plan available to employees of local and state governments
Thrift saving plans
A defined contribution plan available only to federal employees and persons in military service to plan for their retirement. Features an investment and retirement account.
Simplified employee pension plan (SEP)
A form of a defined contribution plan where retirement accounts are set up for each employee who is over 21, worked in 3 of the last 5 years, and makes at least $550 yearly. Only the employer makes contributions.
Salary-Reduction Simplified Employee Pension Plan
Similar to a SEP, this type of plan is for employers who have fewer than 25 employees and allows employee contributions.
Savings Incentive Match Plan for Employees (SIMPLE)
A plan that replaced the SAR-SEP plans for small businesses (fewer than 100 employees) and allows employees to defer compensation in a 401(k) or IRA. The employer matches up to 3% of yearly salary.
Keogh plan
A qualified retirement plan designed for unincorporated businesses (sole proprietorships and partnerships). It allows the business owner or partner to participate in the plan as an employee
Employee stock ownership plan (ESOP)
A tax-qualified, defined contribution employee benefit plan through which an employer enables its employees to buy shares of ownership in the employer at reduced prices.
529 plan
A state-sponsored plan that is set up to "prepay" a child's education (prepaid tuition plan)