NC LIFE insurance state exam

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1. CREDIT LIFE: a special type of coverage written to the life of the debtor and pay off the balance of a loan in
the event of the death of the debtor.
2. BUY-SELL AGREEMENTS: a legal contract that determines what will be done with a business in the event
that an owner dies or becomes disabled. Otherwise known as a business continuation agreement
3. INSURABLE INTEREST: to purchase insurance the policy owner must face the possibility of losing money
or something of value in the event of loss, insurable interest must exist between the policy owner and the insured at
the time of application
4. CONCEALMENT: the legal term for the intentional withholding of information of a material fact that is crucial
in making a decision
5. MISREPRESENTATION: statement that if discovered would alter the underwriting decision of the insurance
company
6. IMPERSONATION: Otherwise known as false pretense, refers to the act of assuming the name and/or
identity of another person for the purpose of committing a fraud
7. UNILATERAL: only one of the parties to the contract is legally bound to do anything. The insured makes no
legally binding promises however an insurer is legally bound to pay losses covered by a policy in force
8. ADHESION: a contract of adhesion is prepared by one of the parties (insurer) and accepted or rejected by the
other party (insured). Insurance policies are not drawn up through negotiations, and an insured has little to say about
its provisions. Insurance contract are offered on a take it or leave it basis by an insurer
9. INDEMNITY: sometimes known as reimbursement, a provision in an insurance policy that states that in the
event of loss, an insured or beneficiary is permitted to collect only to the extent of the financial loss, and is not allowed
to gain financially because of the existence of an insurance contract. The purpose of an insurance contract is to restore,
but not let an insured or a beneficiary profit from the loss
10. ALEATORY: an exchange of unequal amounts or values. The premium paid by the insured is small in relation
to the amount that will be paid by the insurer in the event of a loss.
11. CONDITIONAL: requires that certain conditions must be met by the policy owner and the company in order
for the contract to be executed and before each party fulfills its obligations.
12. ELEMENTS OF A VALID CONTRACT: Agreement - Offer and Acceptance, Consideration, Competent
Parties, Legal Purpose
13. TERM LIFE INSURANCE: temporary protection because it only provides coverage for a specific period of
time; pure death protection; if the insured dies during this term, the policy pays the death benefits to the beneficiary;
if the policy is canceled or expires prior to the insured's death, nothing is payable at the end of the term; there is no
cash value or other living benefits
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14. RENEWABILITY: allows the policy owner the right to renew the coverage at the expiration date without
evidence of insurability. The premium will be based on the insured age at the time of renewing
15. CONVERTIBILITY: provision that provides the policy owner with the right to convert the policy to a perma-
nent insurance policy without the evidence of insurability. Premium will be based on the insured's attained age at the
time of conversion
16. WHOLE LIFE INSURANCE: provides lifetime protection and includes a savings element or cash value;
endow at age 100 which means the cash value created by the accumulation of premium is scheduled to equal the face
amount of the policy at age 100
17. ENDOWMENT: policies that provide a permanent, level death protection if the insured should die prema-
turely, and they accumulate cash values; matures (endows) at an earlier age and has a considerable higher premium.
The sooner the policy endows, the higher the premiums.
18. Single Premium Whole Life (SPWL): designed to provide a level death benefit to the insured's age
100 for a one-time, lump sum payment. The policy is completely paid up after one premium and generates immediate
cash.
19. LIMITED-PAY: designed so that the premiums for coverage will be completely paid-up before age 100. Some
versions include 20-pay life where coverage is completely paid for in 20 years, and life paid up at 65 (LP-65) whereby
the coverage is completely paid up for by the insured's age 65
20. LEVEL: policyowner pays the premium from the time the policy is issued until the insured's death or age 100
(whichever comes first)...lowest annual premium.
21. Adjustable life: can assume the form of either term insurance or permanent insurance; as the needs change
the policy holder can increase/decrease the premium or premium paying period; increase/decrease the face amount/
or change the period of protection. The policy holder can also convert from term to whole life. Some changes can
require proof of insurability
22. MODIFIED: Whole life policy that charges a lower premium in the first few policy years, usually 3 to 5 years,
and then a higher level premium for the remainder of the insured's life
23. GRADED: Similar to modified in that premiums start out relatively low and then level off at a point in the future.
Starts with a premium that is approximately 50% lower than the premium of a straight life policy and then it will gradually
increase each year for a period of usually 5-10 years and then remain level thereafter
24. INDETERMINATE (NONGUARANTEED):: premiums that may vary from year to year
25. DOUBLE OR TRIPLE (MULTIPLE) PROTECTION: Multiple protection policies combine perma-
nent insurance with level term insurance for the multiple protection period. These policies pay double or triple the face
amount if the insured dies during the specified period, which is usually determined as a number of years (such as 10
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or 20) or to a specified age (such as to age 65). If the insured dies after the specified period, the policy only pays the
face amount.
26. TERM RIDERS: allow for an additional amount of temporary insurance to be provided on the insured, without
the need to issue another policy. They are usually attached to whole life policy to provide greater protection at a reduced
cost.
27. FAMILY POLICY/RIDERS: combines whole life a term insurance to cover family members in a single pol-
icy, providing coverage on every member of a family. The family policy typically provides whole life on the breadwinner
of the family and convertible term insurance on the other family members
28. FAMILY INCOME: a combination of decreasing term insurance and whole life insurance on the breadwinner
of the family. The policy is designed to provide an income period which begins from the effective date of the policy and
commonly runs for twenty years
29. FAMILY MAINTENANCE: life insurance based on a family income policy which combines whole life with
level term insurance to provide a beneficiary with income over a specified period of time (15 or 20 years) if the insured
dies during that period of time. If the insured dies within that period of time, the level term insurance is sufficient to
pay the monthly income portion of the contract
30. JOINT LIFE: a single policy that is designed to insure two or more lives; policies can be in the form of term
insurance or permanent insurance. Premium would be less than for the same type and amount of coverage on the
same individuals. The premium is based on a joint average age that is between the ages of the insureds; the death
benefit is paid upon the first death only. Also used to insure the lives of business partners in the funding of a buy-sell
agreement.
31. LAST SURVIVOR/SURVIVORSHIP LIFE: (Second to Die) much the same as joint life in that it insures
two or more lives for a premium that is based on a joint age. The major difference is that survivorship life pays on the
last death rather than upon the first death
32. Juvenile: any life insurance written on the life of a minor
33. LIMITED BENEFIT: These policies cover certain expenses from specifically named illnesses, injuries, or
circumstances. Cancer policies pay benefits for the actually treatment of cancer and cover no other illness.
34. Flexible Premium Adjustable Life: The policy owner has the flexibility to increase the amount of
premium paid into the policy and to later decrease it again. The policy owner may even skip paying a premium and
the policy will not lapse as long as there is sufficient cash value at the time to cover the monthly deductions for cost of
insurance. If the cash value is too small, the policy will expire.
35. TARGET PREMIUM: a recommended amount that should be paid on a policy in order to cover the cost of
insurance protection and to keep the policy in force throughout its lifetime
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36. UNBUNDLED: all the pricing elements are disclosed separately by the insurer, unlike traditional term or whole
life insurance in which the policy owner is charged a single gross-premium amount
37. Option A Level death benefit options: the death benefits remain level while the cash value
gradually increases, thereby lowering the pure insurance with the insurer in the later years
38. Option B: Increasing death benefit option: the death benefit includes the annual increase in
cash value so that the death benefit gradually increases each year by the amount that the cash value increases. At any
point the total death benefit will always be equal to the face amount of the policy plus the current amount of cash
values.
39. INTEREST SENSITIVE WHOLE LIFE (CURRENT ASSUMPTION LIFE):: although the
insurer guarantees a contract interest rate (usually 3 to 6%), there is also a potential for the policy owner to get a
current interest rate, which is not guaranteed in the contract but may be higher because of current market conditions.
40. SINGLE PREMIUM: one time lump sum payment
41. INSTALLMENT PREMIUM: FIXED/FLEXIBLE/PERIODIC: paid in installments over a period
of time
42. FIXED: the annuitant knows the exact amount of each payment received from the annuity during the annuity
period
43. VARIED: serves as a hedge against inflation and is variable from the standpoint that the annuitant may receive
different rates of return on the funds that are paid into the annuity
44. EQUITY INDEX: fixed annuities that invest on a relatively aggressive basis to aim for higher returns.
45. ANNUITY WITH PERIOD CERTAIN: short term annuities that limit the amount paid to a certain fixed
period or until a certain fixed amount it liquidated
46. INSURING AGREEMENT/CLAUSE: sets for the basic agreement between the insurer and the in-
sured. It states that the insurer's promise to pay the death benefit upon the insured's death.
47. OWNERSHIP CLAUSE: the policy owner has the responsibility of paying the policy premiums, and is also
the person who must have an insurable interest in the insured at the time of application for the insurance
48. ENTIRE CONTRACT CLAUSE: provision that stipulates that the policy and a copy of the application
along with any riders or amendments, constitute the entire contract
49. GRACE PERIOD: the period of time after the premium due date that the policy owner has to pay the premium
before the policy lapses
50. REINSTATMENT CLAUSE: requires evidence of insurability and the policy owner is also required to pay
back premiums plus interest and any outstanding loans with interest; the policy will be restored to its original status
and retain all the values that were established at the insured's issue age
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51. MISSTATEMENT OF AGE CLAUSE: provision which allows the insurer to adjust the policy at any time
due to a misstatement of age or gender is included in the policy
52. ABSOLUTE ASSIGNMENT: involves transferring all rights of ownership to another person or entity. This
is a permanent and total transfer of all the policy rights. The new policy owner does not need to have an insurable
interest in the insured.
53. COLLATERAL ASSIGNMENT: involves transfer of partial rights to another person. It is usually done to
secure a loan or some other transaction. Partial and temporary assignment of some of the policy rights
54. CONVERSIONS PRIVILEGE: allows the policy owner to elect to have a new policy issued prior to the
expiration of an existing policy
55. CHANGE OF PLAN PROVISION: allows the policy owner to change the policy form, usually at a higher
premium rate.
56. EXCESS INTEREST PROVISION: refers to the difference between the interest rate guaranteed by the
insurance contract and the actual interest rate paid on the proceeds by the insurance company
57. FREE LOOK PROVISION: this provision allows the policy owner 10 days from receipts to look over the
policy
58. ADDITIONAL INSURED: provides coverage for one or more family members other than the insured. The
rider is usually level term insurance, attached to the base policy covering the insured
59. SUICIDE: provision that protects the insurers from individuals who purchase life insurance with the intention
of committing suicide. Death benefits will not be paid if the insured commits suicide within a certain time frame.
60. NONFORFEITURE VALUES: certain guarantees that are built into the policy that cannot be forfeited by
the policy owner. Required by state law
61. AUTOMATIC PREMIUM LOAN: Loan that prevents the unintentional lapse of a policy due to nonpay-
ment of the premium.
62. Per Capita: by the head-evenly distributes benefits among the living named beneficiaries
63. Per Stirpes: by the bloodline-distributes the benefits of a beneficiary who died before the insured to that
beneficiary's heirs
64. Primary Beneficiary: has first claim to the proceeds following the death of the insured
65. CONTINGENT Beneficiary: has second claim in the event that the primary beneficiary dies before the
insured
66. revocable designations: the policy owner without consent or knowledge of the beneficiary may change
the designation at any time

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67. irrevocable designation: may not be changed without the written consent of the beneficiary; have a
vested interest in the policy therefore the policy owner may not exercise certain rights without the consent of the
beneficiary
68. UNIFORM SIMULTANEOUS DEATH ACT: states that it will be assumed that the primary benefi-
ciary died first in a common disaster
69. GUARANTEED INSURABILITY: rider allows the insured to purchase additional coverage at specified
future dates (usually every 3 years) or events (such as marriage or birth of a child) without evidence of insurability, for
an additional premium
70. ACCIDENTAL DEATH BENEFIT AND DISMEMBERMENT BENEFIT: pays the principal
(face amount) for accidental death, and pays a percentage of that amount, or a capital sum, for accidental dismem-
berment
71. WAIVER OF PREMIUM: waives the premium for the policy if the insured becomes totally disabled.
Coverage remains in force until the insured is able to return to work. Most insurers impose a 6 month waiting period.
Rider expires when the insured reaches age 65
72. WAIVER OF MONTLY DEDUCTION (UNIVERSAL LIFE): rider pays all monthly deductions
while the insured is disabled, after a 6 month waiting period. This rider only pays the monthly deductions and not the
full premium necessary to accumulate cash value
73. COST OF LIVING RIDER: addresses the inflation factor by automatically increasing the amount of
insurance without evidence of insurability from the insured

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