Insurance Exam Glossary
Master the terminology you need to pass your state insurance licensing exam. Simple definitions for complex concepts.
Accelerated Death Benefit
A policy provision that allows the insured to receive a portion of the death benefit early if diagnosed with a terminal illness.
Accidental Death and Dismemberment (AD&D)
A policy or rider that pays a benefit if the insured dies or loses a limb/eyesight due to an accident.
Actuary
A professional who analyzes statistical data to calculate insurance risks and premiums.
Adhesion Contract
A contract where one party (the insurer) sets the terms, and the other party (the insured) must take it or leave it.
Adjuster
A person who investigates insurance claims and recommends a settlement amount.
Adverse Selection
The tendency of individuals with higher risk of loss to purchase insurance more often than those with lower risk.
Agent (Producer)
A licensed representative who sells insurance policies on behalf of an insurer.
Aleatory Contract
A contract where the exchange of value is unequal and depends on an uncertain event.
Alien Insurer
An insurance company incorporated under the laws of a country other than the United States.
Annuity
A financial product designed to provide a guaranteed income stream, typically for retirees.
Assignment
The transfer of legal rights or ownership of a policy from one party to another.
Cash Value
The savings element of a permanent life insurance policy that builds up over time.
Claim
A formal request by a policyholder to an insurance company for coverage or compensation for a covered loss.
Co-insurance
A cost-sharing provision where the insured and insurer share the cost of a covered claim after the deductible has been met.
Commission
The payment an agent receives from the insurance company for selling a policy, usually a percentage of the premium.
Concealment
The intentional withholding of material facts by an applicant that could affect the validity of the policy.
Conditional Receipt
A receipt given to an applicant when they pay the initial premium with the application.
Contestable Period
A time period (usually 2 years) during which the insurer can challenge a claim due to material misrepresentations.
Copayment (Copay)
A fixed amount the insured pays for a specific service, such as a doctor's visit or prescription.
Death Benefit
The amount paid to a beneficiary upon the death of the insured.
Deductible
The amount the insured must pay out-of-pocket before the insurance company begins to pay for a covered loss.
Dividend
A return of excess premiums to policyholders of mutual insurance companies.
Domestic Insurer
An insurance company incorporated in the state where it is doing business.
Elimination Period
The waiting period in a disability income policy before benefits begin.
Endorsement
A written document attached to an insurance policy that modifies the policy's coverage.
Estoppel
A legal principle that prevents a party from denying or alleging a fact because of their previous conduct.
Exclusion
Specific conditions or circumstances for which the policy will not provide benefits.
Fiduciary
A person in a position of special trust and confidence, such as an agent handling premiums.
Foreign Insurer
An insurance company incorporated in a US state other than the one where it is doing business.
Free Look Period
A period during which a new policyowner can review the policy and return it for a full refund of the premium.
Incontestability Clause
A provision preventing an insurer from disputing a policy's validity after it has been in force for a set period (usually 2 years).
Indemnity
The principle of restoring the insured to the same financial position they were in before the loss occurred.
Insurable Interest
A financial or emotional interest in the life or property insured.
Insured
The person or entity covered by the insurance policy.
Lapse
Termination of a policy due to non-payment of premiums.
Law of Large Numbers
A statistical principle stating that as the number of exposure units increases, the actual loss experience will approach the expected loss experience.
Liability Insurance
Coverage that protects the insured against claims for bodily injury or property damage to others.
Material Misrepresentation
A false statement by an applicant that would have caused the insurer to reject the application or rate it differently.
Medicaid
A joint federal and state program helping low-income individuals pay for healthcare.
Medicare
A federal health insurance program for people 65 or older and certain younger people with disabilities.
Moral Hazard
A risk factor arising from the character or dishonesty of the insured.
Morale Hazard
Carelessness or indifference to a loss because of the existence of insurance.
Mutual Company
An insurance company owned by its policyholders.
Peril
The immediate specific event causing a loss.
Policy
The legal contract between the insurer and the insured detailing the coverage terms.
Policyowner
The person who has ownership rights in the policy.
PPO (Preferred Provider Organization)
A health plan that contracts with medical providers to create a network.
Premium
The amount of money an individual or business pays for an insurance policy.
Principal Sum
The full face amount payable for accidental death under an AD&D policy.
Reinstatement
The process of putting a lapsed policy back in force.
Reinsurance
Insurance purchased by an insurance company from another insurance company to spread risk.
Renewable Term
Term insurance that guarantees the policyowner the right to renew the coverage at the end of the term without proving insurability.
Replacement
The process of cancelling an existing policy to purchase a new one.
Rider
An add-on provision to a basic insurance policy that provides additional benefits or amends the terms of the policy.
Risk
The uncertain potential for loss.
Waiting Period
A period of time that must pass before coverage becomes effective or benefits are paid.
Waiver of Premium
A rider that waives the policy premiums if the insured becomes totally disabled.
Warranty
A statement guaranteed to be true.
Whole Life Insurance
Permanent life insurance that provides coverage for the insured's entire life.