General Lines

Question 1

insuring clause

Answer 1

in an insurance policy, the insurance company’s basic promise to the consumer

Question 2

free-look period

Answer 2

a limited time for a buyer to review an insurance policy and return it for a full refund

Question 3

rider

Answer 3

an amendment to an insurance company’s standard policy. It can either add benefits (often in exchange for a higher premium) or subtract benefits (to make the insurance more affordable).

Question 4

Impairment riders

Answer 4

(also known as exclusion riders) are sometimes used when an applicant can’t get affordable insurance due to a health condition or dangerous hobby.

Ex) Maria regularly climbs mountains, but finds that life insurance is unaffordable due to engaging in that hobby, so an exclusion rider might be added just for her. The insurance company essentially says, “We’ll cover everything else, but not accidents related to Maria’s mountain climbing. And we won’t exclude mountain climbing for anyone else unless they ask for it.”

Question 5

representations

Answer 5

statements on the application are representations (which must be accurate to the best of the person’s knowledge)

Question 5

entire contract clause

Answer 5

This important clause clearly states that the full agreement between the insurer and policyholder consists only of:

-The policy

-Any riders attached to the policy

-Statements made on the insurance application

Question 6

warranties

Answer 6

which must be 100% true for the duration of the policy

Question 7

incontestable clause

Answer 7

a portion of a life and health insurance policy that puts a time limit (usually two years) on detecting misstatements on an application

Important Exception:
if a policyholder lies about the details of a loss when filing a claim, the insurance company can still deny coverage or cancel the policy, regardless of how much time has passed. The insurance contract’s foundation rests on honesty throughout the entire relationship, not just at application time.

Question 8

misstatement of age or gender clauses

Answer 8

If someone’s age or gender turns out to be incorrect, the insurance company can’t void the policy, even if the error is caught within the first two years.

Instead, regardless of when the incorrect age or gender is noticed, benefits will be adjusted to reflect the person’s correct age or gender.

Question 9

lapse

Answer 9

cancellation of an insurance policy due to nonpayment of premiums

Question 10

grace period

Answer 10

a period of time during which insurance will remain in force despite nonpayment of premium; in general, losses during the grace period must be covered

Question 11

Pro-rata Cancellations

Answer 11

When the insurer initiates the cancellation, it keeps an amount of money based on how long coverage has been in force since the previous premium payment. For example, if a policyholder paid for a year of coverage and the insurer cancels halfway through, the company keeps half the premium and returns the rest

Question 12

short-rate cancellation

Answer 12

cancellation of insurance whereby the insurer will generally be allowed to keep an extra amount of the paid premium in order to compensate for administrative expenses caused by the unexpected cancellation - this is typically when the policy holder is the one who cancels it!

Question 13

Unearned premium

Answer 13

Money collected that might still need to be refunded if policies are canceled

Question 14

Earned premium

Answer 14

Funds that won’t be refundable even if cancellation occurs

Since premiums are typically paid in advance, the amount of earned premium grows as the policy period progresses.

Question 15

renewable at the insurer’s option

Answer 15

offer minimal security in the renewal landscape.

While these policies can’t be canceled mid-term due to health issues, the insurer has no obligation to renew when the policy period ends if the person becomes ill or is deemed too old.

This type of insurance is uncommon in today’s market but occasionally appears in short-term medical coverage lasting less than a year.

Question 16

conditionally renewable

Answer 16

the insurer may decline renewal, but only under specific circumstances unrelated to health status.

For example, some disability policies might allow the insurer to non-renew coverage if the policyholder changes professions or retires early.

*major medical insurance in today’s market cannot be conditionally renewable — it must provide stronger consumer protections.

Question 17

A guaranteed renewable policy

Answer 17

A guaranteed renewable policy ensures coverage renewal as long as premiums are paid on time.
Policyholders cannot be denied renewal due to changes in health status.
Premium increases apply uniformly to entire policyholder classes, not individuals.
Guaranteed renewal policies often extend until a specified age.
Coverage benefits remain consistent unless altered by state laws.

Question 18

A non-cancellable policy

Answer 18

Not only can it be renewed regardless of health changes, but it also can’t increase in price at renewal, even if the increase would apply to all similar policyholders.

Price increases for non-cancellable policies are only possible in two scenarios: if the policyholder purchases additional coverage or if the increase was pre-planned and disclosed when the policy was originally purchased.

Non-cancellable policies rarely appear in medical insurance but might be found in disability insurance or specialized products that pay fixed amounts rather than covering actual medical bills (like policies that pay a predetermined lump sum after a cancer diagnosis).

Similar to guaranteed-renewable insurance, non-cancellable protections might only last until the policyholder reaches a certain age, typically 65 or beyond.

Question 19

Assignment

Answer 19

some or all of the rights contained in a contract are given by the policyholder to a third party who isn’t already part of the contract.

ex) Sarah has a life insurance policy and decides to use it as collateral for a loan by transferring some rights to her lender.

Question 20

subrogation

Answer 20

the transfer of rights between parties who are already part of the contract (such as rights transferred from the policyholder to the insurer)

If your own insurance covers your medical expenses, it’ll pay for your treatment, but then try to get reimbursed by either:

The driver who hit you or That driver’s insurance company

In accordance with the principle of indemnity, you cannot sue the at-fault driver for amounts that your insurer already paid to you. Instead, subrogation gives your right to sue to your insurance company. This prevents double-dipping — the financial equivalent of trying to eat your cake and have it too.

Subrogation also comes into play when a policyholder has coverage from multiple insurers and the wrong carrier pays for the loss. Through subrogation, the insured person transfers their right to benefits to the appropriate insurer so that the company can get reimbursed.

Question 21

How Multiple Policies Share Losses

Answer 21

When a loss might be covered under multiple policies, insurers typically handle it in one of these ways:

Equal shares: Each policy splits the loss equally.

Pro rata liability: Each policy pays an amount proportional to its portion of the combined coverage limit.

Primary and excess insurance designation: Primary insurance is insurance that will be first to pay for a loss, even if other insurance could also cover it. When the primary insurance’s dollar limits are exhausted, excess insurance covers the remainder.

Question 22

probationary period

Answer 22

in individual insurance, a limited time during which a person will be covered for accidents but not illnesses in group insurance, a limited time during which a new employee won’t be eligible to join a group plan