Insurance License Glossary

STOLI/IOLI: a life policy originated for the benefit of an investor lacking insurable interest — void and unenforceable in Florida.

Subrogation: the insurer steps into the insured's shoes to recover what it paid from a liable third party — no more.

Underwriting: the risk-selection and pricing process — individual on individual policies, whole-group on group plans.

Indemnity principle restores the insured to pre-loss condition without profit.

Reverse selection: insurer-side mispricing that lures better risks elsewhere — the flip side of adverse selection.

A MEC is a life policy that failed the 7-pay test and is taxed like an annuity (LIFO, plus 10% penalty before age 59½).

Insurable interest in life insurance must exist at inception only, not at the time of loss.

Adverse selection: above-average risks pursue insurance more aggressively than average risks.

Adhesion contract: one party drafts, the other accepts as-is; ambiguity is construed against the drafter (the insurer).

Aleatory contract: the dollar values exchanged may be vastly unequal depending on whether a chance event occurs.

Presumptive disability: catastrophic losses (bilateral sight, hearing, speech, or any two limbs) automatically pay full DI benefits without ongoing proof or elimination period.

Capitation: the HMO payment model where the plan pays each PCP a fixed per-member-per-month fee regardless of services rendered.

Usual, Reasonable, and Customary (URC) — the ceiling an insurer reimburses based on the prevailing fee for the same service in the same geographic area; anything above is balance-billed.

Time Limit on Certain Defenses: the health-policy analog to life insurance's incontestable clause — after 2 years, the insurer cannot void coverage for non-fraudulent misstatements, though fraud remains contestable.

Cash value is the savings/loan account inside a permanent life policy — built by overcharged early premiums, available to the owner via loans, surrender, or nonforfeiture options.

Face amount is the headline death-benefit dollar value stated in the policy at issue — adjusted at claim time by outstanding loans, dividends, and rider proceeds.

The annuitant is the natural person whose life expectancy determines the payout schedule and on whose death (in life-contingent payouts) payments may stop.

PPO blends managed-care discounts with fee-for-service flexibility — members pay less in-network but can still see out-of-network providers at higher cost.

HMO is a prepaid managed-care plan that requires PCP referrals and reimburses only in-network care except for emergencies.

A Roth IRA is funded with after-tax dollars — contributions never deduct, but qualified withdrawals (including all earnings) are completely tax-free at retirement.

Full Retirement Age is the age at which a worker can claim 100% of their Social Security benefit. For those born 1960 or later, FRA is 67; earlier birth years had lower FRAs ranging from 65 to 66 years + 10 months.

A Certificate of Authority is the TDI-issued license that authorizes an insurer to write specific lines of insurance business in Texas. No insurer can transact insurance in TX without one.

TX HMOs must operate a Quality Assurance Program under TIC §843.404 — a structured, documented program for assessing provider quality, monitoring outcomes, and acting on quality issues identified through ongoing review.

The Texas Commissioner of Insurance is a Governor-appointed, Senate-confirmed officer who heads TDI and has rule-making, enforcement, and adjudication authority over the insurance industry in Texas.

Term insurance provides pure death-benefit protection for a stated period with no cash value; if the insured survives the term the policy expires worthless.

Universal life is permanent insurance with flexible premium, adjustable death benefit, and credited-interest cash value — the dashboard product of the life family.

Option B (Increasing) death benefit pays the face amount PLUS accumulated cash value, keeping net amount at risk level.

Indexed Universal Life credits interest tied to an equity index subject to a cap, floor, and participation rate — never directly invested in the market.

Annually Renewable Term (ART) provides one-year level death benefit with a guaranteed right to renew each year at an attained-age premium without new evidence of insurability.

Extended Term Insurance is the non-forfeiture option that buys the same face amount as paid-up term coverage for as long as the cash value will support.

Life Income with Period Certain is the settlement option that pays the beneficiary for life with a minimum guaranteed number of years.

An Irrevocable Beneficiary cannot be changed without the beneficiary's written consent and holds a vested interest in the policy.

A Conditional Receipt creates coverage effective on application date IF the applicant proves to have been insurable at that date, even before policy issue.

An insurance policy is an Adhesion contract — drafted entirely by the insurer, take-it-or-leave-it for the applicant — so ambiguities are construed against the drafter.

Waiver of Premium is a rider that waives the obligation to pay policy premium while the insured is totally disabled, after a defined waiting period — coverage continues as if premium were being paid.

Accelerated Benefit Rider pays a portion of the death benefit to the insured during qualifying terminal illness, chronic illness, or critical illness — reducing the death benefit by the accelerated amount.

The Uniform Policy Provisions Law sets the floor of 12 mandatory and 11 optional provisions every individual accident & health policy must include — claim notices, proof of loss, renewability, time of payment, etc.

Coordination of Benefits is the framework that prevents over-insurance when a person is covered by two or more health plans, by designating one plan as primary and others as secondary.

A Modified Endowment Contract (MEC) is any cash-value life policy that fails the IRC §7702A 7-pay test, losing favorable living-distribution tax treatment.

A Health Maintenance Organization (HMO) is a managed-care plan with a Primary Care Physician gatekeeper, in-network-only coverage, and capitated provider payments.

A High-Deductible Health Plan paired with a Health Savings Account lets the enrollee fund a triple-tax-advantaged medical account under IRC §223.

Capitation is the managed-care payment method that pays a provider a fixed per-member-per-month fee regardless of services actually rendered.

The Elimination Period is the time between the start of a covered disability and the day benefit payments actually begin — a deductible measured in days.

Coinsurance is the percentage share of covered expenses an insured pays after the deductible is met, splitting cost with the insurer up to the out-of-pocket maximum.

Medicare Supplement (Medigap) is the federally standardized private policy that fills gaps in Original Medicare Parts A and B.

Presumptive Disability is a disability-income provision that pays the full benefit immediately upon loss of sight, speech, hearing, or use of two limbs — no elimination period required.

Texas is a community property state — life insurance bought during marriage with community funds becomes community property, giving the non-owner spouse a vested interest in the cash value and (in some cases) the death benefit.

An irrevocable beneficiary has a vested right in the death benefit — the policyowner cannot change the beneficiary, take a policy loan, surrender, or assign the policy without the irrevocable beneficiary's written consent.

A conditional receipt binds coverage from the date of application or medical exam — but only if the applicant is found insurable at the rate class applied for during the underwriting review.

A Statement of Good Health is a signed certification at policy delivery that the insured's health has not materially changed since the application — required when premium wasn't paid at application or when there's a gap between underwriting and delivery.

Field underwriting is the producer's role at point of sale — gathering accurate applicant information, observing physical impressions, and acting as the insurer's first-line risk-assessment agent.

The Notice Regarding Replacement is the TDI-prescribed disclosure document the producer must give an applicant whose new TX life or annuity policy will replace existing coverage — signed at application, before issuance.

Long-Term Care insurance pays for non-acute custodial care (nursing home, assisted living, home health) when the insured can no longer perform activities of daily living (ADLs) due to chronic illness or cognitive impairment.

The TX Prompt Payment Statute requires insurers to pay, deny, or audit clean claims within statutory deadlines or pay penalties — protecting providers from cash-flow strangulation by insurer claim-delay tactics.

TX HMOs must obtain a Certificate of Authority from TDI under TX Insurance Code Ch. 843 before issuing any HMO contract — the HMO Act requires a separate license from a standard insurer Certificate of Authority.

The hybrid Homeowners form that writes the dwelling open-perils and personal property on a named-perils list — the workhorse residential policy.

The Homeowners Section I coverage that pays additional living expenses and fair rental value while the residence is uninhabitable from a covered loss.

The statistical principle that lets insurers price coverage: as exposure units grow, actual losses converge to expected.

The hazard category describing dishonest or fraudulent intent by an insured to profit from insurance — arson-for-profit is the textbook example.

The contract character that triggers contra proferentem: insurer drafts a non-negotiated take-it-or-leave-it instrument, ambiguity construed against drafter.

The insurance contract feature: an unequal exchange of dollars contingent on a fortuitous event — the structural reason small premiums can buy large indemnity.

The PAP Part that pays for direct physical damage to the covered auto — collision and other-than-collision.

The Business Auto endorsement that fills the personal-use gap for executives furnished a company car as their only vehicle.

The unintentional-tort cause of action: conduct falling below the reasonable-person standard, proved by duty / breach / causation / damages.

The class of premises entrant owed the HIGHEST duty: reasonable care to inspect, warn, and remedy hidden dangers.

The CGL Coverage A obligation that endures until limits are exhausted by payment of judgments or settlements — broader than the duty to indemnify.

The defined CGL term that carves back the Contractual Liability exclusion for six enumerated agreement categories.

The 1945 federal statute that preserves state-based insurance regulation by reverse-preempting non-insurance-specific federal law.

The Hull-policy collision-liability clause that pays only three-fourths of damage to the other vessel — leaving 25% plus excess for P&I.

The broadest of the three London-market ocean cargo forms — all-risks coverage subject only to standard exclusions.

The Builders Risk rating method that sets the limit at full anticipated completed value at inception and auto-satisfies coinsurance.

Uninsured/Underinsured Motorist (UM/UIM) coverage pays the insured's bodily injury damages when the at-fault driver has no insurance (UM) or insufficient insurance (UIM) — protects the insured against drivers who cannot pay.

Personal Injury Protection (PIP) is Florida's no-fault auto insurance coverage — pays medical, lost wages, and other expenses regardless of who caused the accident. Required for FL vehicle owners under FL §627.736.

HO-3 is the most common homeowners policy in the US — open-peril coverage on the dwelling and other structures, named-peril coverage on personal property. The hybrid form that anchors the residential market.

Coverage A (Dwelling) is the structural building coverage on a homeowners policy — the main residence, attached structures, and built-in equipment. Sets the anchor for all other coverage limits.

Average Weekly Wage (AWW) is the calculated weekly earnings of an injured employee — used as the basis for all FL Workers Comp benefit calculations (TTD, TPD, PPD, PTD, death benefits). Computed from the 13 weeks of earnings preceding the injury.

Florida Insurance Guaranty Association (FIGA) is the state-mandated nonprofit that pays covered claims when an admitted FL P&C insurer becomes insolvent — protects policyholders from insurer financial failure.

Commercial General Liability is the foundational business liability policy — covers bodily injury, property damage, personal & advertising injury, and medical payments arising from the insured's premises and operations.

Umbrella Liability sits ABOVE underlying primary policies (CGL, Auto, Homeowners) — provides excess limits AND broader coverage for some claims excluded under the primary policies.

A Florida General Lines Agent (2-20 license) is authorized to transact property, casualty, surety, marine, and miscellaneous lines insurance — the broadest P&C producer license in Florida.

An appointment is the formal authorization an insurer files with the FL Department of Financial Services granting a licensed producer the authority to transact business on the insurer's behalf — separate from the underlying license itself.

In P&C insurance, insurable interest must exist at BOTH the time of issuance AND at the time of loss — different from life insurance, which only requires it at issuance.

The Principle of Indemnity restores the insured to their pre-loss financial position — no better, no worse. P&C insurance pays actual loss; insurance is not a profit center.

A Valued Policy pays a stated face amount on a total loss regardless of actual property value — bypassing the indemnity principle for total losses. Florida law requires this treatment for fire policies on real property.

Replacement Cost is the dollar amount needed to repair or replace damaged property with new like-kind materials, WITHOUT deducting for depreciation — the broader settlement basis above ACV.

Vicarious Liability holds one party (typically an employer) legally responsible for the negligent acts of another (typically an employee) — even when the employer wasn't directly at fault.

An Aggregate Limit is the maximum amount the insurer will pay for all covered losses combined during the policy period — a 'ceiling' that caps cumulative claim payments regardless of how many individual occurrences happen.

Citizens Property Insurance Corporation is Florida's state-run insurer of last resort — created to provide property coverage to FL homeowners and commercial property owners who cannot obtain coverage in the private market.

Sinkhole Loss is structural damage to a building (including foundation) caused by sinkhole activity. FL property insurance has narrowly defined sinkhole coverage — the broader peril includes both clear and subtle ground subsidence.

Specified Disease (or Limited Benefit) Insurance pays a stated benefit on diagnosis of specific diseases (cancer, heart attack, stroke) — a supplemental P&C-line product that complements major medical coverage, NOT a replacement for it.

Workers Compensation is state-mandated insurance providing medical care, disability benefits, and death benefits to employees injured on the job — regardless of fault. In exchange, employees give up the right to sue employers for negligence (exclusive remedy).