30 Life Insurance Exam Terms You NEED to Know (in UNDER 30 Minutes)

can't define these 30 words without hesitating, you are not ready to take your pre-licens exam. So, let's fix that right now. First word we're going to go over here is insurable interest. We're going to cover some core concepts and then some other more specific terms. Insurable interest is a legal and financial interest in the person or in the continued life of the insured person. So basically insurance insured insurable interest means that there's a reason like a legit reason for someone to get life insurance and to be the beneficiary of a life insurance policy. Like I can't go get a life insurance policy on Jeff Bezos because there's no reason him dying does not impact me financially at all. So it means there has to be some sort of legal and financial interest there. Like if a spouse dies the other spouse needs money. If someone dies, there if a parent dies, their children would need money, things like that. So the the beneficiary actually needs to experience some sort of loss if the insured passes. And insurable interest only needs to exist at the time of application. So indemnity, the principle of indemnity, excuse me, is restoring the insured to the original financial position they were in before the loss was sustained. So no more or no less. This basically means that people are they don't want people to profit off of a an insurance policy. Indeinity does not really apply to life insurance. It's because life insurance is a valued contract, not an indemnity contract. There are a lot of health insurance policies or like car insurance is a indemnity contract where if you total your vehicle, they give you the value of the car but nothing more. life insurance. When someone dies, the benefit's always the same regardless of the circumstances of death, unless they have a rider. That'll increase the death benefit and death of an accident. Next concept number three is adhesion. So, this means the insured must accept or reject the insurance contract as written. It's take it or leave it deal. So, there's no negotiation. So, a contract of adhesion is like final offer. That's it. There's no negotiating like, oh, can you do a little better? Can you do a little cheaper? Whereas if you go to buy a car a lot of times people are used to negotiating that price. So there is no contract uh no negotiating in a contract of adhesion. Okay. Aliatory contract. This is an unequal exchange of value between the insurer and the insured. So aliatory means that they're um what someone is getting is bigger than what they're giving in some situation. So, the insured is paying their monthly premium, which is a very small amount compared to the potential benefit that the insured could pay out, right? Someone might pay a hundred bucks a month, but when they pass, their family might get a million dollars. Utmost good faith. Both parties must deal honestly and disclose all material facts. So it just mean the principle of utmost good faith is that hey we are all being honest in this scenario and doing our best to look out for each other's best interest in the deal. So they expect that the insured is going to be honest and and everything about their health conditions or any questions on the application. And it's expected that the insurance agent or the broker or the the insurer is going to disclose everything they need to about that sale and that no one's going to be dishonest. Term life insurance. This is pure death protection for a specified period. No cash value. So term life insurance is the most pure form of life insurance. Actually that's annual renewable term is the most pure form of life insurance. And term life think of term terminates. Term terminates. So whole life is permanent. Term terminates. Term means it's for a specific term of time. There's no cash value. The premiums are typically level and it's pure death protection for a certain amount of time. The insured pays a premium after the duration of the term the policy expires unless there are renewability or conversion options. Whole life insurance permanent coverage with guaranteed cash value component that grows over time. There are a lot of different aspects of term life in whole life that we could get into, but for the purpose of this video and in number seven, I guess right here for whole life insurance, you want to understand that whole life is permanent insurance with guaranteed cash value that grows over time. Um, the permanence comes from they they either get the money when they pass or when they reach age 100, the benefit pays out because the policy endows at age 100. Universal life insurance. It's a flexible premium permanent life insurance policy with an adjustable death benefit. So basically in a universal life there's a maximum and a minimum and you can uh for premiums and you if you want to overfund it or pay the minimum and then you can adjust the death benefit up and down. In certain situations, they may have to the insured may have to prove insurable uh insurability uh evidence provide evidence of insurability. For instance, if they want to lower the premium for the same death benefit um under the same circumstance or raise the premium I mean sorry raise the death benefit for the same premium. So I don't want to confuse anybody cuz universal life you can lower the premium under while keeping the death benefit the same. But as long as it's within that that that window of minimum payment due and maximum payment that you can pay. If you want to lower that window, you may have to go through insure u underwriting again. Variable life insurance cash value is invested in separate accounts like securities. So these are investments in the stock market. Higher risk, higher potential reward. So when you see variable on your pre-licens exam, whether it's variable life or variable annuities, you want to immediately think investments, stocks, equities, mutual funds. Endowment policy. An endowment policy pays the face amount at death or at policy maturity, whichever comes first. So on an endowment policy, people typically pick the day that they want the the age that they want the policy to mature at. Whereas light whole life, it's like age 100. On an endowment policy, they can pick, hey, I want this to endow or mature at age 80, let's say. So in that case, they would if they reach age 80, the death benefit pays out automatically to them. um or if they die before that then the death benefit pays out. And the reason why in these policies the death benefit pays out when a certain age is achieved is because the cash value reaches the death benefit at that time. Okay. And here we have grace period. So the grace period is typically 31 days to for an overdue premium to be paid without losing coverage. It gives grace exactly what it sounds. So, if the insured misses a payment, they have 31 days to pay it back before their policy lapses. If they have an automatic premium loan on a whole life policy, it'll usually kick in after the grace period and cover that premium. So, sometimes the grace period is a little different depending on your state. This will be in the state law section of your pre-licicensed course. If you're struggling with whatever course you're using right now and you just feel like it's hard for you to grasp the concepts and if you feel like I'm helping you right now, I want to help you more. I want to help you as much as I can and get you passing this exam. The best way for me to do that is for you to take action and get instant access to our courses. So, check out the pinned comment or the description of the video to get access to our courses. Our study packages or our practice exams. Our pass rates are through the roof. And if I'm helping you now, this is just a taste of what's in our courses and it's really going to help you get over that finish line. And they're customd designed for your specific state. Next, incontestability clause. This is where the insurance company cannot contest the policy after 2 years even for misrepresentation unless fraud can be proven. So in the first two years, the insurance company can challenge the claim. They mean contest the claim. If someone gets approved for a life insurance policy and they die within the first 24 months, the insurance company views that as suspicious because there's no way they would have given them a policy if they knew they were going to die or had any thinking or in inclination that they were going to die in the first two years. So the they typically contest the claim and they ask for more detailed records and circumstances surrounding the death. They may dig a little deeper with their doctors and stuff like that, but after two years, they can't deny a claim at all, no matter what happens for death of any reason. Um, and unless they can prove that there there was fraud involved in the in the application or the the death. Okay. Misrepresentation, a false statement on an application that could void the policy. So, misrepresentation. Um, age and gender are two answers on applications that do not result in a void policy. The premiums and death benefits are adjusted for those. What it's saying here is like say someone says um, to the best of your knowledge and belief, do you have cancer? And they say no, but they just got diagnosed with cancer and they get approved for a policy. Then that could be something that would void the policy if they die in the first two years of that condition. Okay, free look period. This is usually a 10 to 30 day period to renew uh return a new policy for a full premium refund. So, it's like a um free look period, I guess. T, hey, it's time for you. It's the time for the insured to review their policy, make sure they want to keep it, and if they elect to, they can get all their money back in return on the policy. Basically, it gives people a chance to make sure that they they get what they think they're getting and that they want what they actually purchased. It helps eliminate insurance from being stuck with life insurance policies if they are in a high pressure sales environment or maybe get approved at a rating other than what they applied for, something like that. Just do best buy your clients because they can always cancel in the free look. So, and they can cancel anytime, but the free look gives them a refund. reinstatement. Restoring a lapsed policy to active status usually requires back premiums and proof of insurability. So, remember how we talked about the grace period. Now, if someone has a policy and it goes past the grace period and they don't make the payment and there's no automatic premium loan and the policy lapses, reinstatement can kick in where the insured can reinstate their policy. However, they typically have to pay any premiums that were due, any interest owed on the premiums that were not paid because the insurance company would have made money on those premiums, and proof of insurability showing that they're still insurable and still healthy and they're not trying to get it because they're sick all of a sudden. Okay, revocable versus irrevocable beneficiary. Hope this is going well for you. Just want to check in here, see where you're at. If you have any questions, post the comment in the description of the video. Share this video with anyone you know who's studying for their pre-licens exam. So the revocable versus irrevocable whether the policyholder can change the beneficiary uh without the beneficiary's consent. So in a revocable one second here in a revocable beneficiary the insured can or the policy owner can change the beneficiary for any re at any time for any reason. irrevocable, the policy owner needs the permission of the ins of the beneficiary to change it. Primary versus contingent. So the primary is the first person to receive a death benefit if the insured passes. The contingent is the backup if the primary is dead or can't collect. And then there's a tertiary who's third in line. So it goes primary and then if they can't get it, the contingent. If they can't get it, the tertiary. Purpes or sturpps, I don't know how to pronounce it. Um, let me look this up real quick. St I r e s. It is per sturpps. I don't even know. It's not saying it on here. So maybe sturpace. So perturbs is benefits passed to descendants per capita split equally among surviving beneficiaries. So it's two ways to pay a death benefit. Um, what it means is that money will stay in a in in a in a specific family. um trying to Oh yeah. So basically what it means is that if a beneficiary dies that and it's like a family member then then the uh money state goes to that ch those children right. Um so like if say say a parent leaves child one and child two as the beneficiaries and child one dies then child one's children would receive the money split in a per sturppies per sturpps and per capita just child uh child two would be the only one receiving it if child one dies. So yeah rewind that if you need to watch it again. Settlement options ways to receive death benefit proceeds. So you can get a death benefit in one lump sum. You can get it in interest only. You can get it in a fixed period fixed amount or life income. So so when someone if when there's a life insurance death benefit I'll go over these a little more detail. Lump sum the most common. Here's a big chunk of cash interest only. The insurance company holds the principal. So they hold the death benefit and they pay the beneficiary interest on the death benefit as it earns interest and the beneficiary can access that money at any time that's being held. Fixed period means we are going to distribute this death benefit in installment. So payments either monthly or annually or whatever however they elect for a certain period of time. So say there's a million dollars we're going to distribute this a million dollars over 20 years. fixed amount is instead of saying we're going to distribute this over a certain amount of time, we're going to give you a certain amount every month. So, say instead of a million dollars over 20 years, they say we're going to give you $20,000 a month or something like that, which would take much less than 20 years, but yeah. And then life income is another one where they say, "Okay, well, we aren't we aren't going to pay we're going to make sure that we pay you for the rest of your life, no matter how long or little that you live." Okay. accelerated death benefit. Um, oh, real quick here on the per on fixed period. Well, yeah, no, never mind. I was going to make a conclusion, but it's too variable that if you have trouble with that, check out some of my other videos on those topics. Um, also take a look at our courses. I mean, it's going to really explain that and put some we have really good questions, too, that match your state exam. Like, we used AI to mimic state exams. They're as close as you can possibly get to the state exam. So, accelerated death benefit is early access to the death benefit upon diagnosis of a terminal illness. Waiver of premium rider waves premium payments if the insured becomes totally disabled. So, this one real quick, if someone's terminally ill, meaning they have less than a year to live, then the insured will um they they they'll advance the the the death benefit. Waiver of premium waves the monthly premium payment or or annual whatever if the insured becomes totally disabled based on the definition of disability in that insurance policy. It helps policy stay in force if the insured is disabled in money's money's type. Guaranteed insurability rider. So the guaranteed insurability rider allows purchase of additional insurance coverage at specific dates without evidence of insurability. So an example if someone buys the guaranteed insured ability insurability rider with their policy could be that um they can add coverage when they have a child maybe they get married get a new job something like that like certain time point certain events or maybe every 5 years or something like that. This is where they can add more insurance increase their death benefit without having to prove insurability. So regardless of how healthy they are, accidental death benefit, also called double indemnity, pays an additional death benefit if death is from an accident, the result of an accident. So it's either usually they die right when that accident happens or within a certain time after that accident, right? So there's plenty of times, say someone gets in a bad car crash and they're in the hospital for a few days before they pass. So um as long as they die in a certain time period and that's defined in the policy payor benefit writer this waves premiums on a juvenile policy if the payor who's usually the parent dies or becomes disabled. So say parent has a policy on child and is paying for the child's premiums and parent dies or becomes disabled and can't work. The pay or benefit writer allows the policy to stay in force and waves the premiums and it usually will last until the insured reaches a certain age or permanently. There's two options. Adverse selection is also called anti- selection. This is where higher higher risk individuals are more likely to seek insurance. Obviously, insurance premiums are based on the chances of someone using it. So typically, who would want life insurance? Well, old people and sick people, right? They Well, maybe not only want it, but they're more likely to get it. Who wants health insurance? Well, sick people. Who wants car insurance? Well, everybody. Well, nobody, but everybody, right? But you get the idea. Representations versus warranties. So, representations are statements believed to be true. Warranties are guaranteed to be true. Okay. representation is like to the best of my knowledge and belief I don't have cancer right now Lord please help me make sure I do not have cancer and bless me actually I learned something yesterday we are constantly getting cancer we just our our body kills it before it becomes uh you know malignant like really spreads it's like they said a sunburn feeling of a sunburn is your cells killing themselves before they mutate I don't know how true that is but warranties are guaranteed to be true when I heard that I thought of all my cells like like having like a I don't know it's gruesome scene played out in my head. Warranties are guaranteed to be true though. Warranties are like um hey I am Justin Figen like that's that's a warrantee for me to the best it's not to the best of my knowledge and belief like that's me risk classification. So typically insurance companies classify applicants based on preferred which is above average um health standard is like average health or mortality and substandard is lower than average. So preferred people say say they expect everybody to live to 82 years old. Preferred might be expected to live to 86 or higher. Substandard might be expected to live lower than a certain age. Non-forfeite options. Just made a video on this a little bit ago. What happens? This these are what happens if you stop paying and you have a whole life policy that has cash value. Non-forfeite options only pertain to cash value policies. So either there's cash surrender, reduced paid up insurance, or extended term. Cash surrender is when you get the whole amount of whole big cash lump sum. Reduced paid up is when you get a reduced face amount whole life policy that you never have to pay on again. It's paid up. An extended term is when you get a term policy for the face amount of the original whole life. And that term policy the duration of the term depends on how much how long a c the how much insurance that cash value will purchase like how much time that cash value will purchase a term for. Policy alone borrowing against the cash value of a permanent life insurance policy. So if you have a whole life policy, you can take a loan against the cash value. The cash value is collateral for the loan essentially. So it's a way to use your life insurance policy as a banking system. Last term here, dividend options. So we look at PCO. So cash, reduced premiums, paid up additions, accumulated interest, or one-year term. So um looks like P R A C O. I don't know why I didn't do it in the right order, but paid up additions where your dividends are used to buy smaller insurance uh you know individual smaller whole life policies that add to the total death benefit of your original policy and increase cash value over time. Those have cash value too. R is reduced premium. So the dividend goes to lower the premiums. Dividends are paid out as a return of premium on a return of unused premium on participating whole life insurance policies. So it's like the company makes extra money in a year and they give some of it back to their policy holders. So reduced premiums is when that money given back just goes to lower the insurance premium. Accumulated interest is when the insurance company holds that dividend and lets it accumulate interest. Cash is when they just get a straight cash payment for the dividend. And one-year term is when that dividend is used to buy a one-year term policy. Um, and it'll just however much money it pays for of term, that's what it'll that's the amount of insurance it'll buy. The most common one is paid up additions. That's the most common dividend option. All right. So, now go pass that exam. Uh, like like the video, subscribe for more exam tips. You're going to want to watch the next video coming up. 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