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A take it or leave it contract.


Apparent Authority

When the third party believes implied or express authority exists, but no authority actually exists



A loss-sharing arrangement whereby the insured pays a flat dollar amount or percentage of the loss in excess of the deductible



The percentage of financial responsibility that the insured and the insurer must uphold in order to achieve equity in rating.


Definition Section

The section of an insurance policy that defines key words, phrases, or terms used throughout the insurance contract.


Description Section

The section of an insurance policy that describes exactly what is being insured.



A modification or change to the existing property insurance policy.


Exclusion Section

The section of an insurance policy that will exclude certain perils, losses and property.


Express Authority

Authority given to an agent through a formal written document.



A specific condition that increases the potential or likelihood of a loss occurring.


Implied Authority

The authority that a third party relies upon when dealing with an agent based upon the position held by the agent.


Law of Large Numbers

A principle that states the more similar events or exposures, the more likely the actual results will equal the probability expected.


Moral Hazard

The potential loss occurring because of the moral character of the insured, and the filing of a false claim with their insurance company.


Morale Hazard

The indifference to a loss created because the insured has insurance


Particular Risk

A risk that can impact a particular individual, such as death or the inability to work because of a sickness or accident.



The immediate cause and reason for a loss occurring.


Physical Hazard

A physical condition that increases the likelihood of a loss occurring.


Principle of Indemnity

Asserts that an insurer will only compensate the insured to the extent the insured has suffered an actual financial loss.


Principle of Insurable Interest -

Asserts that an insured must suffer a financial loss if a covered peril occurs, otherwise no insurance can be offered.



A means by which an insurance company transfers some or all of its risk to another insurance company.


Risk Reduction -

The process of reducing the likelihood of a pure risk that is high in frequency and low in severity or of reducing the severity of losses from certain perils.


Risk Retention

Accepting some or all of the potential loss exposure for risks that are low in frequency and low in severity.


Risk Transfer -

The process of transferring a low frequency and high severity risk to a third party, such as an insurance company.


Speculative Risk

The chance of loss, no loss, or a profit.


Subjective Risk

The risk an individual perceives based on their prior experiences and the severity of those experiences.


Subrogation Clause

A clause in an insurance policy that requires that the insured relinquish a claim against a negligent third party, if the insurer has already indemnified the insured.


Flexible Spending Account (FSA)

Employer-sponsored plan that permits employees to defer pre-tax income into an account to pay for health care expenses. FSAs require the employee to either use the contributed amounts for medical expenses by the end of the year, or forfeit the unused amounts to the employer


Health Maintenance Organizations (HMOs)

A form of managed care in which participants receive all of their care from participating providers. Physicians may be employed by the HMO directly, or may be physicians in private practice who have chosen to participate in the HMO network. The independent physicians contract with the HMO to serve HMO participants, receiving a flat annual fee (capitation fee) for each HMO member, whether the member receives medical services from the provider or not.


Health Savings Accounts (HSA)

A plan that permits employees or individuals to save for health care costs on a tax-advantaged basis. Contributions made to the HSA by the plan participant are tax-deductible as an adjustment to gross income (above-the-line), and distributions from the HSA to pay for qualified medical expenses are excluded from income.


Incontestability Clause

Clause in a health insurance policy that prevents the insurer from challenging the validity of the health insurance contract after it has been in force for a specified period of time unless the insured fraudulently obtained coverage in the beginning of the policy.


Indemnity Health Insurance

Traditional, fee-for-service health insurance that does not limit where a covered individual can get care.


Managed Care Insurance

Health-care delivery systems that integrate the financing and delivery of health care. Managed care plans feature a network of physicians, hospitals, and other providers who participate in the plan. Managed care includes HMOs, PPOs, EPOs, and POS plans.


Medicare Supplement Insurance (Medigap)

A health insurance policy designed to cover some of the gaps in coverage associated with traditional Medicare.


Annual Renewable Term (ART)

Type of term insurance that permits the policyholder to purchase term insurance in subsequent years without evidence of insurability, but premiums on the policy increase each year to reflect the increasing mortality risk being undertaken by the insure


Capitalized-Earnings Approach

Method to determine life insurance needs that suggests the death benefits of a client’s life insurance should equal an income stream sufficient to meet the family’s needs without depleting the capital base.



Type of joint life insurance policy that covers two individuals, but the death benefit is paid upon the death of the first individual.


Grace Period

A provision in most insurance policies that allows payment to be received for a certain period of time after the actual due date without a default or cancellation of the policy


Group Term Insurance

A type of life insurance coverage offered to a group of people (often a component of an employee benefit package) that provides benefits to the beneficiaries if the covered individual dies during the defined covered period.


Human-Life Value Approach

Method to determine life insurance needs that suggests the death benefit of a client’s life insurance should be equal to the economic value of the client’s future earnings stream.


Joint and Survivor Annuity

An annuity based on the lives of two or more annuitants, usually spouses. Annuity payments are made until the last annuitant dies.


Level Premium Term Insurance

Type of term insurance that charges a fixed premium each year over a specified period of years, so the premium does not increase over that period.


Modified Endowment Contract (MEC)

A cash value life insurance policy that has been funded too quickly. Under a MEC, the death benefit payable to the beneficiary is not subject to income tax, but policy loans or cash value withdrawals are taxable.


Limited-Pay Policies

Type of whole life policy with a payment schedule (typically 10 or 20 years). At the end of the payment period, the policy is considered to be paid-up, at which time no additional premium payments are due.


Modified Whole Life Policies

Type of whole life policy with lower premiums than a regular policy for an initial policy period (often 3 to 5 years), which increase to a higher-level premium at the end of the initial period.


Mortality Cost

Equals the probability of dying within the year times the face value of the policy.


Mortality Risk

The risk that an individual will die within the year


Needs Approach

Method to determine life insurance needs that suggests the death benefits of a client’s life insurance should equal the cash needs that the family will require at death plus income replacement needs


Ordinary (or Straight) Life

Type of whole life policy that requires the owner to pay a specified level premium every year until death (or age 100).



Type of joint life insurance policy that is often used in estate planning to provide liquidity at the death of the second spouse. A second-to-die policy names two insureds and pays the death benefit only when the second insured dies.


7-Pay Test

One of two Congress-imposed tests to determine whether a life insurance contract meets the definition of a MEC. This test states that if the cumulative premium payments made on the policy are in excess of the net level premium for the policy during the first seven years (or following a material change to the policy), the life insurance contract will be deemed a MEC.


Single-Premium Policy

Type of whole or universal life policy that requires the owner to pay a lump sum in return for insurance protection that will extend throughout the insured’s lifetime. These policies will always be MECs.


Term Insurance

A life insurance policy that states that if the premium has been paid and the insured dies during the term of the policy, the insurance company will pay the specified death benefit.


Universal Life Insurance

Type of term insurance with a cash-value accumulation feature allowing individuals to make premium contributions in excess of the term-insurance premium. The excess premiums are deposited into an account with various investment options.


Variable Life Insurance

Type of life insurance policy that permits the owner of the life insurance policy to direct the investment of the policy’s cash value. Variable policies typically offer a series of investment options that often include investment funds managed by the insurer and outside investment managers.


Variable Universal Life Insurance Policies (VULs)

Type of life insurance policy that combines variable and universal life insurance and gives the policyholders the option to invest as well as alter insurance coverage.


Cross-Purchase Buy-Sell Agreement

An arrangement between individuals who agree to purchase the business interest of a deceased owner.


Deferred Compensation Arrangements

An arrangement to pay an executive compensation in a future year.


Life Settlement

A policy owner sells a life insurance policy to a third party for more than the cash surrender value, but less than the death benefit value. In most cases, the insured is neither terminally nor chronically ill (in which case accelerated benefits or a sale to a qualified viatical settlement provider would be more advantageous). The owner simply does not want the policy any longer and determines that he or she may be able to sell it for a larger amount than could be obtained through surrendering the policy.


Rabbi Trust

A revocable or irrevocable trust that is designed to hold funds and assets for the purpose of paying benefits under a nonqualified deferred compensation arrangement. The assets in a rabbi trust are for the sole purpose of providing benefits to employees and may not be accessed by the employer, but they may be seized and used for the purpose of paying general creditors in the event of a liquidation of the company. Assets within a rabbi trust are not currently taxable to the employee.


Terminally Ill

Under tax law, a person is terminally ill if a physician has certified that death expected within 24 months.


Viatical Settlement

The sale of a life insurance policy to a third party viatical settlement provider when the insured is terminally or chronically ill.


Any Occupation

Type of disability insurance policy that provides benefits to a policyowner if he or she is unable to perform the duties of any occupation for which he or she is suited by education, training, or experience.


COLA Rider

Provides a cost of living adjustment to benefit payments based on increases in inflation.


Disability Insurance

A type of insurance that provides supplementary income in the event of an illness or accident resulting in a disability that prevents the insured from working at his or her regular employment.


Elimination Period

The period of time, beginning upon injury or sickness, that an insured is disabled but is not collecting benefits from the insurer.


Guaranteed Renewable

A provision that requires the insurance company to renew the policy for a specified period of time or until the insured attains a certain age


Long-Term Disability

Provides coverage for specified term, until specified age, or until death.



A provision that prevents the insurance company from canceling the policy for any reason provided the policy premium is paid.


Own Occupation

Type of disability insurance policy that provides benefits to a policyholder if he is unable to perform the duties of their occupation. This type of policy is more expensive than an any occupation policy.


Presumptive Total Disability Coverage

A provision that automatically considers certain conditions to be totally disabling, such as loss of sight in both eyes, hearing in both ears, the use of both hands, the use of both feet, or the use of one foot and one hand.


Residual Benefits Provision

A provision that will provide continuing benefits for an insured who returns to work but suffers a reduction of income due to a disability.


Short-Term Disability

Provides coverage for up to two years, and typically has a five to 30 day elimination period (the period an insured must wait before receiving benefits).


Social Security Disability Benefits -

Available to anyone insured under the system who meets the strict definition of disability.


Split Definition

Type of disability policy where an insured is covered against the risk of not performing his or her own occupation for a period of time, and after that period expires, an any-occupation definition of disability is used.


Worker’s Compensation

Designed to provide benefits to workers who are injured while working.


Activities of Daily Living (ADL)

Physical functions that an independent person performs each day, including bathing, dressing, eating, transferring, toileting, and maintaining continence.


Assisted Living

Senior housing that provides individual apartments, which may or may not have a kitchenette. Facilities offer 24-hour on site staff, congregate dining, and activity programs. Limited nursing services may be provided for an additional fee.


Chronic Illness

Having a physical or cognitive impairment that prevents the insured individual from performing at least two of the six activities of daily living for at least a 90-day period, or requiring substantial supervision to prevent the insured from posing a danger to himself, herself, or others.


Custodial Care

Board, room and other personal assistance services (including assistance with activities of daily living, taking medicine and similar personal needs) that may not include a skilled nursing care component.


Guaranteed Renewable

The company must renew the policy each year as long as premiums are paid.


Long-Term Care Insurance

Coverage that pays for all or part of the cost of home health care services or care in a nursing home or assisted living facility.


Long-Term Care Services

Medical and non-medical care for people with chronic illnesses or disabilities that assists people with Activities of Daily Living, such as dressing, bathing, and using the bathroom. Long-term care can be provided at home, in the community, or in a facility.


Maximum Lifetime Benefit

The total amount of money that could be paid under the LTC policy for charges incurred for covered services.



A state and federal assistance program that pays for medical care and most long-term care expenses for eligible persons with low incomes and limited assets.


Medicare -

A federal program that pays for healthcare for persons age 65 and over and for people under age 65 with disabilities.


Pre-Existing Conditions

A pre-existing condition is an illness or disability for which an insured has received previous medical advice or treatment usually within six months prior to the application for long-term care coverage.


Skilled Care Facility

24-hour nursing care for chronically-ill or short-term rehabilitative residents of all ages. It provides the highest level of service, and combines daily medical and custodial care.


Special Needs Trust

A specific type of trust that is used to provide benefits to persons or beneficiaries with special needs. They are designed to protect eligibility for government assistance programs while improving the life of the beneficiary.


Equity-Indexed Annuities

Have characteristics of both fixed and variable annuities, either immediate or deferred, that earn interest or provide benefits that are linked to an external equity reference or an equity index.


50% Joint and Survivor Annuity

Pays the survivor 50% of the annuity payment after the death of the first annuitant. The initial annuity payment will be larger than with a 100% or 75% joint and survivor annuity.


Fixed Annuity

The most conservative type of annuity that earns a minimum guaranteed rate of return


Flexible Premium Annuity -

Allows the insured the option to vary premium deposits.


Free Withdrawal Provision

Allows the contract holder the right to withdraw up to a stated percentage (usually 10 percent) of the contract value annually without incurring a surrender charge.


High Watermark Approach

Determining index-linked interest is accomplished by comparing the value of the index at various points during the term (usually on anniversary dates).


Immediate Annuity

An instrument created when the contract owner trades a sum of money in return for a stream of income that begins immediately


Index Term

The period over which index-linked interest is calculated for equity-indexed annuities.


Indexing Method

The approach used to measure the amount of change, if any, in the index. Some common indexing methods include: (1) the annual reset (ratcheting) approach, (2) the high watermark approach, and (3) the point-to-point approach


IRD Assets

Assets that have a deferred income tax liability that was not paid prior to the date of the owner’s death.


Joint and Survivor Annuity

Promises to make payments over the lives of two or more annuitants. Annuity payments are made until the last annuitant dies. This is commonly used to fund the retirement cash-flow needs of married couples. A 100 percent joint and survivor annuity pays the specified monthly payment to the annuitants while both are alive and continues to make the same payment to the survivor after the first annuitant’s death. A 75 percent joint and survivor annuity pays the specified monthly payment to the annuitants while both are alive and continues to make a payment equal to 75 percent of the original payment to the survivor after the first annuitant’s death. A 50 percent joint and survivor annuity pays the specified monthly payment to the annuitants while both are alive and continues to make a payment equal to 50 percent of the original payment to the survivor after the first annuitant’s death.


Life Annuity Contracts

Protect clients from outliving their assets by providing a series of periodic payments to the annuitant, typically for as long as the annuitant lives.


Longevity Insurance

A sophisticated name for a deferred annuity purchased by an individual at or before retirement that will not begin to make payments until that person reaches an advanced age.


Non-Qualified Annuities

Annuity contracts purchased with funds outside of qualified retirement plans or IRAs (for example, from investment accounts or private savings).


100% Joint and Survivor Annuity

Pays the survivor 100% of the annuity payment after the death of the first annuitant.


Qualified Annuities

Annuity contracts purchased with funds in a qualified retirement plan or IRA.


Secondary Market Annuities

Called pre-owned annuities or in-force annuities. These annuities can be purchased from the original owner at a discount or from a third party, in which the stream of income is assigned to the purchaser. These typically offer a rate of return or yield that is well above the yield available on standard fixed annuities, immediate annuities, or even bonds of a similar credit quality.


75% Joint and Survivor Annuity -

Pays the survivor 75% of the annuity payment after the death of the first annuitant. The initial annuity payment will be larger than with a 100% joint and survivor annuity.


Single Life Annuity -

Also known as a straight life annuity, provides a stream of income to the annuitant for life.


Single Premium Annuity

An annuity purchased with a single lump sum


Straight or Pure Life Annuity

An annuity that provides a stream of income to the annuitant for life.



The risk of running out of money before death due to long life and can be mitigated by using annuities.


Term Certain Annuity

Acts as a hedge against the mortality risk retained when an individual purchases a single life annuity by preserving some or all of the capital for distribution to the annuitant’s heirs, but this hedge comes at a cost.


Variable Annuities

Provide consumers with an opportunity to individually tailor the types of investments backing up the annuity contract to their unique needs.



Attachment or addition to an existing insurance policy that changes the original terms.


Liability Coverage

Covers bodily injury or property damage to others for which the insured driver is deemed to be responsible.


Loss of Use

Under homeowners insurance coverage, loss of use is a combination of additional living expenses and loss of rental income.


Other Structures

Small detached structures on the insured’s property not attached to the main house, such as detached garages, greenhouses, or storage buildings.


Personal Automobile Policy

Insurance policy that covers liability for injuries and damages to persons inside and outside the vehicle and covers the cost to repair/replace a damaged or stolen vehicle.


Personal Liability Umbrella Policy (PLUP)

Coverage designed to provide a catastrophic layer of liability coverage on top of the individual’s homeowners and automobile insurance policies.


Uninsured / Underinsured Motorist

A motorist without liability coverage or whose insurer can/will not pay claim, such as a hit-and-run driver, or motorist with insufficient liability coverage according to state law.


Vicarious Liability

One person may become legally liable for the torts of another (e.g., parent/child, employer whose employee is acting in the scope of employment).


Credit Agencies

Companies that compile and maintain credit information from credit card companies, banks, mortgage companies, and other creditors for the purpose of creating personal in-depth credit reports on individuals. The major credit reporting agencies are Experian, Equifax, and TransUnion.


FICO Score

A credit score developed by FICO (formerly know as Fair Isaac Corporation) that estimates the level of future credit risk for an individual. It is calculated using a formula that evaluates many types of information in the credit report at that credit reporting agency and ranges from 300 to 850.


Hard Inquiries

Inquiries made by creditors or potential creditors.


Soft Inquiries

Inquiries made by the consumer or by a prospective or current employer.


The Fair Credit Reporting Act of 1971

Provides that U.S. citizens have free access to their credit reports and credit scores from each of the three national credit reporting agencies.