Dictionary

Showing 40 of 40 terms

• 1035 exchange

  An IRC provision that can allow tax-free exchange of certain life and annuity contracts for other eligible contracts when rules are met.

  Exam tip: Owner identity and direct insurer-to-insurer mechanics matter.

• Accidental death benefit (ADB)

  A rider that may pay an extra benefit if death results from a covered accident as defined in the rider.

  Exam tip: Definitions and time limits after injury matter.

• Annuity

  A contract designed primarily to liquidate a sum into income payments, though accumulation phases and death benefits also appear on exams.

  Distinction: Life insurance primarily protects against premature death; annuities often address longevity/income.

  Exam tip: Separate life vs annuity purposes when a question mixes products.

• Applicant

  The person who completes the application for coverage, often also the proposed owner.

  Exam tip: Statements on the application matter for contestability and underwriting.

• Assignment

  A transfer of some or all ownership rights in a policy. Absolute assignment transfers ownership; collateral assignment pledges rights for a loan.

  Exam tip: Know absolute vs collateral assignment roles.

• Beneficiary

  The person or entity named to receive the policy's death benefit when the insured dies.

  Distinction: Different from the owner, who controls the contract while living.

  Exam tip: Know primary vs contingent and how a change of beneficiary works.

• Buyer's Guide / Policy Summary

  Disclosure documents often required at or before delivery so the buyer can understand costs and features of the life purchase.

  Exam tip: Delivery and disclosure timing show up on Texas law items.

• Cash value

  The savings-like accumulation inside many permanent policies that the owner may borrow against or surrender, subject to rules.

  Distinction: Term life usually has little or none.

  Exam tip: Cash value is not the same thing as the death benefit.

• Churning

  Replacing policies repeatedly (often within the same company) primarily to generate new commissions rather than serve the client's needs.

  Distinction: Twisting focuses on misrepresentation to replace; churning focuses on serial replacement for commissions.

• Conditional receipt

  A receipt that may provide limited interim coverage if conditions (like insurability as of a stated date and premium payment) are met.

  Distinction: Not the same as a fully issued, delivered policy.

  Exam tip: Coverage under a conditional receipt is conditional, not automatic forever.

• Contingent beneficiary

  The backup beneficiary who receives the death benefit if the primary beneficiary dies before the insured (or otherwise cannot take).

  Exam tip: If both primary and contingent are named, order of payment matters.

• Extended term insurance

  A nonforfeiture option that uses cash value to keep the same face amount as term coverage for a limited period.

• Face amount

  The stated death benefit amount of the life policy (subject to riders, loans, and policy terms).

  Exam tip: Do not assume face amount always equals the exact check cut at death if loans or riders apply.

• Fiduciary duty (producer context)

  A duty to handle premiums and client funds honestly and carefully; producers often hold money in a fiduciary capacity for insurer or client.

  Exam tip: Commingling client premiums with personal funds is a classic violation theme.

• Free look (right to examine)

  A short period after delivery when the new owner can return the policy for a premium refund.

  Exam tip: Tied to delivery/receipt timing, not just the application date.

• Grace period

  A limited time after a missed premium due date when coverage usually stays in force so the policy does not lapse immediately.

  Exam tip: Grace period protects against unintentional lapse; it is not free forever coverage.

• Guaranteed insurability

  A rider that lets the insured buy more coverage at set option dates without proving insurability again.

• Incontestable clause

  After a stated period (often 2 years), the insurer generally cannot void the policy for material misstatements in the application, subject to limited exceptions.

  Exam tip: Contestability is time-limited; fraud/exception rules can still appear on exams.

• Insurable interest

  A lawful interest in the continued life of the insured so that the applicant is not gambling on a stranger's death.

  Exam tip: Must generally exist at application for life insurance; beneficiary rules can differ by fact pattern.

• Insured

  The person whose life (or health, for A&H) is covered by the policy.

  Distinction: The insured is not always the owner or the beneficiary.

  Exam tip: Questions often mix owner, insured, and beneficiary on purpose.

• Irrevocable beneficiary

  A beneficiary whose designation generally cannot be changed without that beneficiary's consent.

  Distinction: Revocable beneficiaries can usually be changed by the owner alone.

  Exam tip: Irrevocable status often limits owner rights that affect the beneficiary's interest.

• Misrepresentation

  False or misleading statements about a policy's terms, benefits, or an insurer's financial condition.

  Exam tip: Appears in both underwriting (application) and producer conduct contexts.

• Misstatement of age or sex

  If age or sex was stated incorrectly, benefits or premiums are usually adjusted to what the premium would have bought at the correct age/sex.

  Exam tip: Often an adjustment remedy, not automatic void after incontestability.

• Modified endowment contract (MEC)

  A life policy that fails the seven-pay test and faces less favorable tax rules on lifetime distributions (gains first; possible penalty before 59½).

  Distinction: Death benefits can still generally keep favorable income-tax treatment.

  Exam tip: MEC status mainly hurts living distributions, not the basic death-benefit idea.

• Nonforfeiture options

  Options that protect permanent-policy cash value if premiums stop: typically cash surrender, reduced paid-up, or extended term (wording varies).

  Exam tip: Memorize the three classic options and what each preserves.

• Owner (policyowner)

  The person or entity who owns the contract: pays premiums, can change beneficiaries (if allowed), borrow, assign, or surrender within policy rules.

  Distinction: Owner may be someone other than the insured.

  Exam tip: Track who has control rights vs who is the life being insured.

• Rebating

  Giving a prospect an improper share of commission or other inducement not in the contract to buy insurance, when prohibited by law.

  Exam tip: Texas treats certain inducements as unfair trade practices; confirm current TDI rules on official sites.

• Reduced paid-up insurance

  A nonforfeiture option that uses cash value to buy a smaller paid-up permanent policy with no more premiums due.

• Reinstatement

  A contractual path to put a lapsed policy back in force, often with evidence of insurability, back premiums, and interest as required.

  Distinction: Different from buying a brand-new policy.

  Exam tip: Expect conditions: proof of insurability and catching up money owed.

• Replacement

  Replacing existing life insurance or annuity coverage with a new contract. Heavily regulated because consumers can lose benefits or face new contestability.

  Exam tip: Texas and NAIC-style rules emphasize disclosure and comparison.

• Rider

  An attachment that adds, modifies, or limits benefits on a base policy, usually for an extra premium.

  Exam tip: Name the rider by what it does: waiver, ADB, guaranteed insurability, etc.

• Seven-pay test

  The federal premium-limit test used to decide whether a life contract is a MEC.

  Exam tip: Heavy early premiums can push a contract into MEC territory.

• Suicide clause

  A provision that typically limits the insurer's liability if the insured dies by suicide within a stated early period (often 2 years), usually to a return of premiums.

  Exam tip: After the period, suicide generally does not cut off the death benefit under typical wording.

• Term life

  Life insurance that covers a set period and usually builds little or no cash value.

  Distinction: Contrast with permanent designs that build cash value.

  Exam tip: Pure protection for a limited time is the classic term story.

• Twisting

  Misrepresenting a policy to induce a client to drop existing coverage and buy a replacement, often to the client's detriment.

  Distinction: Related to, but not identical to, churning.

  Exam tip: Twisting is an unfair practice / ethics trap on licensing exams.

• Underwriting

  The insurer's process of evaluating risk (application, exams, MIB/APS as allowed) and deciding whether to issue, rate, or decline.

• Universal life (UL)

  Flexible-premium permanent life insurance that typically lets the owner adjust premiums and often the death benefit within policy rules.

  Distinction: Unlike traditional whole life, premiums are not locked the same way.

  Exam tip: Flexible premium + adjustable death benefit points to UL.

• Variable universal life (VUL)

  A UL-style product where cash value is invested in separate accounts; investment risk sits largely with the owner.

  Exam tip: Separate accounts and owner investment risk are the VUL fingerprints.

• Waiver of premium

  A rider that waives premiums if the insured becomes totally disabled under the rider's definition.

• Whole life

  Permanent life insurance with level premiums and guaranteed cash value growth on a fixed schedule (in traditional designs).

  Distinction: Less flexible on premiums than universal life.

  Exam tip: Level premium + guaranteed cash value is a frequent whole-life cue.