Your FREE Life Insurance Flashcards 2026 – 150+ Cards

Uncertainty regarding a financial loss. Insurance is a mechanism for transferring the risk of loss from an individual to an insurer.

A risk that involves only the chance of loss or no loss, with no opportunity for gain. Only pure risk is insurable.

A risk that involves the chance of either loss or gain, such as gambling or investing. It is not insurable.

The immediate, specific cause of a loss, such as death, illness, fire, or accident.

A condition that increases the likelihood or severity of a loss. Types include physical, moral, and morale hazards.

A hazard arising from a person's character or tendency toward dishonesty, such as faking a loss to collect on insurance.

A hazard arising from indifference or carelessness toward a loss because insurance exists, such as careless behavior.

The principle that the larger the number of similar exposure units, the more accurately an insurer can predict future losses.

The tendency of higher-risk individuals to seek or continue insurance more than lower-risk individuals. Insurers control it through underwriting.

A financial interest in the continued life or health of the insured. In life insurance it must exist only at the time of application, not at the time of claim.

The principle of restoring an insured to the same financial position held before a loss, without profit. Life insurance is valued, not strictly indemnity.

Insurance purchased by an insurer (the ceding company) from another insurer (the reinsurer) to transfer part of its risk.

An insurer organized under the laws of the state in which it transacts business (its home state).

An insurer organized under the laws of another U.S. state, but doing business in this state.

An insurer organized under the laws of a country other than the United States.

The license issued by a state insurance department that allows an admitted insurer to legally transact business in that state.

An insurance company owned by stockholders, who receive taxable dividends. It typically issues nonparticipating policies.

An insurance company owned by its policyowners, who may receive nontaxable policy dividends. It issues participating policies.

The state-licensed individual who solicits, negotiates, or sells insurance on behalf of an insurer; commonly called an agent.

The body of law governing the relationship in which an agent represents the insurer (the principal) and binds it within authority granted.

The authority specifically granted to an agent in writing within the agency contract.

Authority not expressly granted but that the public reasonably believes the agent has, based on the agent's position.

Authority an agent appears to have based on the insurer's actions, leading a third party to reasonably believe it exists.

An agent's legal duty to act in a position of trust when handling premiums and funds belonging to the insurer or applicant.

An illegal arrangement in which a third party with no insurable interest initiates a policy on another's life to later acquire the death benefit. Also called STOLI.

The principle that both the insurer and the insured must deal honestly and disclose all material facts when forming the contract.

A statement guaranteed to be true in all respects. In modern insurance, applicant statements are treated as representations, not warranties.

A statement believed to be true to the best of the applicant's knowledge. A false one is a misrepresentation.

A false statement that, if known, would have altered the insurer's underwriting decision. It can void the contract.

The intentional failure to disclose a known material fact, which can void the insurance contract.

An intentional deception or misrepresentation made to gain an unfair or unlawful advantage, such as collecting on a false claim.

The illegal practice of inducing a policyowner to replace a policy through misrepresentation or incomplete comparisons.

The illegal practice of replacing a policy using values from an existing policy with the same insurer, to the client's detriment.

Offering anything of value not stated in the policy to induce a purchase. It is illegal in most states.

Making a false statement, oral or written, intended to injure the reputation of another insurer or producer.

A method of determining life insurance need based on the insured's future earnings lost to the family due to premature death.

A method of determining life insurance need by analyzing the family's specific cash needs and obligations at the insured's death.

Death occurring before a person has met financial obligations such as raising children or paying off a mortgage. It is the primary risk life insurance addresses.

The funds needed at death for funeral costs, medical bills, and estate settlement, often funded by life insurance.

A statistical chart showing the death rate per 1,000 people at each age, used to predict claims and set premiums.

The incidence of sickness in a group. Contrast with mortality (the incidence of death): life insurance premiums are based on mortality, not morbidity.

The difference between a policy's death benefit (face amount) and its accumulated cash value at a given point in time.

The portion of a premium based on the probability of death; the actual cost of insurance protection.

The rate of return the insurer expects to earn on invested reserves, used to reduce the premium charged.

The portion of the premium added to cover the insurer's operating expenses, commissions, and contingencies.

The premium calculated from mortality and interest only, before expenses (loading) are added.

The total premium charged to the policyowner: the net premium plus loading for expenses.

The person whose life is covered by the life insurance policy; the death of this person triggers the death benefit.

The person who owns the policy, pays premiums, and holds all contractual rights such as naming the beneficiary.

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

The person first in line to receive the death proceeds upon the insured's death.

The party who receives the death benefit if the primary beneficiary dies before the insured. Also called secondary.

A beneficiary the policyowner may change at any time without the beneficiary's consent.

A beneficiary who cannot be changed without their written consent, having a vested interest in the policy.

A death-benefit distribution method that divides proceeds equally among the living named beneficiaries.

A death-benefit distribution method in which a deceased beneficiary's share passes to that beneficiary's descendants (by bloodline).

Naming the policyowner's estate as beneficiary, which subjects the proceeds to probate and possible estate taxes.

A provision presuming the insured survived the beneficiary when both die in the same event, protecting the contingent beneficiary.

A provision protecting policy proceeds left with the insurer from the claims of the beneficiary's creditors.

The savings element that builds inside a permanent life policy, available through loans, withdrawals, or surrender.

The values a permanent policy provides while the insured is alive, such as cash value, policy loans, and dividends.

Temporary coverage that pays a death benefit only if the insured dies within a specified period and builds no cash value.

Term insurance in which the death benefit and premium remain constant throughout the policy period.

Term insurance with a death benefit that declines over time while the premium stays level; often used for mortgage protection.

Term insurance with a death benefit that increases over time, often used as a rider or to keep pace with inflation.

Term insurance that may be renewed each year without evidence of insurability, with a premium that rises with age.

A term-policy feature allowing the policyowner to renew coverage without proving insurability, at a higher age-based premium.

A term-policy feature allowing conversion to permanent insurance without evidence of insurability.

Permanent insurance providing lifetime coverage with a level premium, guaranteed cash value, and a fixed face amount.

Standard whole life (straight life) in which level premiums are paid until the insured's death or age 100/121.

Whole life in which premiums are paid over a set, shorter period (such as 20 years), with coverage continuing for life.

Whole life purchased with one large lump-sum premium that immediately creates substantial cash value.

A policy that pays the face amount if the insured dies or, if the insured survives, when the policy matures (endows).

Whole life with lower premiums in the early years that increase to a higher level after a set period.

Whole life with premiums that start low and increase annually for a period before leveling off.

A single policy covering two or more lives that pays the death benefit on the first insured to die.

A policy covering two lives that pays the death benefit only when the second (last) insured dies; common in estate planning.

Flexible permanent insurance allowing adjustable premiums and death benefits, with cash value earning a current interest rate.

A universal life death benefit equal to the level face amount (level death benefit).

A universal life death benefit equal to the face amount plus the accumulated cash value (increasing death benefit).

The required gap between cash value and death benefit in universal life that keeps the contract qualifying as life insurance for tax purposes.

Permanent insurance with cash value invested in separate-account subaccounts, where the owner bears the investment risk.

A policy combining the premium and death-benefit flexibility of universal life with the investment subaccounts of variable life.

The investment account holding variable life and variable annuity funds, regulated as a security and not guaranteed by the insurer.

Universal life whose cash value growth is linked to a market index such as the S&P 500, subject to caps and floors.

Small face-amount whole life sold door-to-door with premiums collected weekly or monthly; also called home service or debit insurance.

A policy covering the life of a minor, typically owned and paid for by a parent or guardian.

A provision stating the policy and attached application constitute the whole agreement; nothing can be incorporated later by reference.

The provision stating the insurer's basic promise to pay the death benefit upon the insured's death.

The provision identifying the policyowner's consideration (the application plus the initial premium) given in exchange for coverage.

A provision giving the policyowner a set period (commonly 10 days) to return a new policy for a full premium refund.

The provision giving the policyowner all contractual rights, such as naming the beneficiary, taking loans, and assigning the policy.

A provision barring the insurer from contesting the policy for misstatements after it has been in force two years during the insured's lifetime.

The period after a premium due date during which coverage continues; commonly 30 or 31 days for life insurance.

A provision allowing a lapsed policy to be restored, typically within three years, upon proof of insurability and payment of back premiums with interest.

A provision adjusting the death benefit to what the premium paid would have purchased at the correct age or sex, rather than voiding the policy.

A provision limiting payment to a return of premiums if the insured dies by suicide within a stated period, usually two years.

A provision allowing the policyowner to borrow against a permanent policy's cash value; unpaid loans reduce the death benefit.

A provision that automatically borrows from the cash value to pay an overdue premium and prevent the policy from lapsing.

A provision allowing the policyowner to transfer ownership rights, either absolutely (collateral) or in full, to another party.

A complete and permanent transfer of all policy ownership rights to another person or entity.

A partial, temporary transfer of policy rights, commonly to a lender as security for a loan.

Guaranteed options for using a lapsing permanent policy's cash value: cash surrender, reduced paid-up, or extended term.

A nonforfeiture option using the cash value as a single premium to buy a smaller, fully paid-up whole life policy.

A nonforfeiture option using the cash value to buy term insurance for the full face amount for as long as it will last. It is the default option.

A nonforfeiture option that pays the policy's net cash value to the owner in cash, terminating the coverage.

Choices for using policy dividends from a participating policy, including cash, premium reduction, accumulation at interest, paid-up additions, and one-year term.

A dividend option that buys small amounts of additional fully paid-up whole life insurance, increasing both death benefit and cash value.

A dividend option in which the insurer holds dividends and pays interest on them; the interest is taxable.

The methods by which death proceeds may be paid: lump sum, interest only, fixed period, fixed amount, or life income.

A settlement option in which the insurer holds the proceeds and pays only the interest to the beneficiary periodically.

A settlement option that pays equal installments of principal and interest over a chosen number of years.

A settlement option that pays a set dollar amount periodically until the proceeds and interest are exhausted.

A settlement option that guarantees payments for the beneficiary's lifetime, with the amount based on life expectancy.

A rider that pays the policy premiums for the policyowner if the insured becomes totally disabled, after a waiting period.

A rider allowing the purchase of additional coverage at specified dates without evidence of insurability.

A rider that pays an additional benefit, often double the face amount, if death results from an accident. Also called double indemnity.

A rider allowing an insured with a terminal or chronic illness to receive part of the death benefit while still living.

A rider providing term coverage on the insured's spouse and children under one base policy.

A rider that pays an increasing benefit equal to the premiums paid if the insured dies during the term.

A rider that periodically increases the death benefit in line with inflation, usually without proof of insurability.

A juvenile-policy rider that waives premiums if the adult premium payer dies or becomes disabled before the child reaches a set age.

The form completed by the applicant that provides the insurer with the information used to underwrite and issue the policy.

The producer's initial screening of an applicant by completing the application accurately and gathering risk information.

The insurer's process of evaluating, classifying, and selecting risks to decide whether to issue coverage and at what rate.

An applicant whose expected mortality is average, qualifying for normal premium rates.

An applicant whose health and lifestyle are better than average, qualifying for lower-than-standard premiums.

An applicant with greater-than-average risk who is offered coverage at a higher premium or with restrictions; also called rated.

A receipt given when the initial premium is paid with the application, providing coverage as of the application or exam date if the applicant proves insurable.

A receipt that provides immediate temporary coverage from the date of issue, regardless of insurability, for a limited time.

A nonprofit member organization that maintains coded medical and risk information to help insurers detect fraud and omissions.

A report from the applicant's doctor requested by an insurer to clarify the applicant's medical history.

The federal law regulating consumer reports and requiring insurers to notify applicants when information from such reports affects underwriting.

An investigative consumer report on an applicant's lifestyle, finances, and reputation gathered from outside sources.

Federal anti-money-laundering law requiring insurers to verify customer identity and report suspicious activity on cash-value products.

The act of providing the issued policy to the owner; constructive delivery occurs when the insurer mails or relinquishes control of it.

A statement the insured signs at delivery confirming no change in health since the application, required when no premium was paid at application.

Dating a policy earlier than the application date (within limits, usually six months) to secure a lower age-based premium.

A form an applicant must sign before HIV testing, confirming informed consent and confidentiality of the results.

Acting to terminate or alter an existing policy in connection with the sale of a new one; subject to disclosure rules to protect the consumer.

A consumer publication explaining life insurance basics, often required to be delivered with or before the policy.

A document delivered with the policy stating its specific premiums, benefits, values, and surrender charges.

A contract that systematically liquidates a sum of money into a stream of income, protecting against outliving one's assets.

The person whose life expectancy determines the annuity's payout and on whose life payments are based.

The pay-in phase of an annuity, during which premiums are deposited and the value grows tax-deferred. Also called the pay-in phase.

The pay-out phase, during which the accumulated value is converted into a stream of income payments. Also called annuitization.

An annuity funded with a single premium that begins income payments within one payment period, usually one year.

An annuity in which income payments begin more than one year after purchase, allowing tax-deferred accumulation.

An annuity that guarantees a minimum interest rate and a fixed, level income payment, with funds held in the insurer's general account.

An annuity whose value and payments fluctuate with separate-account investments; the owner bears the investment risk and it is a security.

A fixed annuity whose interest is tied to a market index, offering a guaranteed minimum plus index-linked gains subject to caps.

An annuity funded with one lump-sum payment rather than periodic contributions.

A deferred annuity that allows the owner to vary the amount and timing of contributions.

An annuitization option paying income for the annuitant's life with no refund or guarantee to beneficiaries; it provides the highest payment. Also called straight life.

An annuity option paying for life but guaranteeing payments to a beneficiary for at least a stated number of years.

An annuity option paying for life and, if the annuitant dies early, refunding any unpaid principal to a beneficiary. Also called refund annuity.

An annuity covering two lives that continues payments, sometimes reduced, until the second annuitant dies.

A declining penalty an insurer deducts when an annuity or cash-value policy is surrendered early during the surrender period.

The guarantee that an annuity owner who surrenders the contract will receive the value of payments made, less a surrender charge.

Life insurance death proceeds paid in a lump sum are generally received income-tax-free by the beneficiary.

The feature by which cash value and annuity earnings accumulate without current income tax until withdrawn.

The total of premiums paid into a policy or annuity; amounts withdrawn up to basis are generally received tax-free.

A life policy funded too quickly that fails the 7-pay test; its living distributions are taxed LIFO and may incur a 10% penalty before age 59 1/2.

An IRS test comparing cumulative premiums in the first seven years to the limit for a paid-up policy; failing it creates a MEC.

A tax-free exchange allowing a policyowner to transfer the value of one life or annuity contract into another qualifying contract without recognizing gain.

Last-in, first-out tax treatment applied to nonqualified annuity and MEC distributions, taxing earnings before the return of basis.

The formula that determines the tax-free portion of each annuity income payment by dividing the cost basis by the expected return.

A rule causing death proceeds to become partly taxable when a policy is transferred for valuable consideration, with stated exceptions.

Death proceeds are included in the insured's taxable estate if the insured held incidents of ownership at death.

The general rule that personal life insurance premiums are not income-tax deductible.

Coverage issued under one master contract to a group, usually an employer, with members receiving certificates of coverage.

Employer-provided term coverage in which the first $50,000 of benefit is income-tax-free to the employee under IRS rules.

A group-life feature allowing a departing employee to convert coverage to an individual permanent policy without proof of insurability.

A group plan fully paid by the employer, generally requiring 100% eligible-employee participation.

A group plan in which employees pay part of the premium, generally requiring at least 75% participation.

Life insurance a business buys on an essential employee, with the business as owner, payer, and beneficiary, to offset loss from that person's death.

A funded agreement obligating surviving owners or the business to buy a deceased owner's share, ensuring business continuation.

A buy-sell arrangement in which each owner buys a policy on every other owner to fund the purchase of a deceased owner's interest.

A buy-sell arrangement in which the business itself owns policies on the owners and buys back a deceased owner's interest.

A retirement plan meeting IRS requirements for favorable tax treatment, such as pre-tax contributions and tax-deferred growth.

A plan that does not meet IRS qualification rules, funded with after-tax dollars and offering more flexibility but fewer tax breaks.

An individual retirement account allowing tax-deductible contributions and tax-deferred growth, with distributions taxed as ordinary income.

An individual retirement account funded with after-tax dollars, offering tax-free qualified distributions in retirement.

An employer-sponsored qualified plan letting employees defer pre-tax salary into investments, often with an employer match.