Life Insurance M5 Flashcards

What is the principle of utmost good faith in insurance?

Answer: Both parties must disclose all material facts honestly

Utmost good faith (uberrima fides) requires both the insurer and the insured to deal honestly and disclose all material information that could affect the policy.

What is the concept of insurable interest?

Answer: The policyholder must stand to suffer a financial loss from the insured event

Insurable interest means the policyholder must have a financial stake in the continued existence of the insured — they would suffer financially from the loss.

What is a lapsed policy?

Answer: A policy that has expired due to non-payment of premiums

A lapsed policy is one where the policyholder has stopped paying premiums and the grace period has expired, causing the coverage to terminate.

What is reinstatement of a life insurance policy?

Answer: Restoring a lapsed policy to active status

Reinstatement is the process of restoring a lapsed policy to active status, usually requiring payment of overdue premiums and evidence of insurability.

What is a participating policy?

Answer: A policy that participates in the insurer's profits through bonuses/dividends

A participating (par) policy entitles the policyholder to share in the insurance company's profits through annual bonuses or dividends.

What is an investment-linked policy (ILP)?

Answer: A policy where premiums are invested in sub-funds, and benefits are linked to fund performance

An ILP combines insurance coverage with investment. Premiums are used partly for insurance and partly invested in sub-funds, with returns linked to fund performance.