6 Confusing Insurance License Exam Terms

insurance license exam terms

Ready to take your insurance license exam? Once you’ve completed your pre-licensing coursework, the final step in earning your insurance license is to sit for your state-administered exam. You may encounter several terms that are difficult and confusing to define. To help you conquer those tough terms, here is a list of six confusing insurance license exam terms and their definitions.

1. Coinsurance

Property insurance requires the policyholder to carry insurance that is equal to a specified percentage of the value of property to receive the full payment in the result of a loss. For health insurance, it is the percentage of every claim above the deductible paid for by the policyholder.

2. Liquidity

Liquidity is the ability of a person or a business to quickly convert assets into cash without considerable loss. There are two types of liquidity: quick and current. Current liquidity includes possessions such as real estate, which can’t be immediately liquidated but can eventually be sold and turned into cash. Quick liquidity is cash, short-term investments, and government bonds, which can be immediately converted into cash in case of emergency. Quick liquidity is the subset of current liquidity which reflects the financial stability of a business and their rating.

3. Net liabilities to policyholder surplus

Net liabilities are expressed as a ratio to policyholder surplus. The net liabilities equal the total liabilities minus conditional reserves, plus encumbrances on real estate, minus the smaller of receivables from or payable to affiliates.

The ratio measures a company’s exposure to errors in estimation in its loss reserves and other liabilities. Loss-reserve leverage is the key component of net liability leverage. The higher the loss-reserve leverage, the more critical the company’s solvency depends on maintaining reserve adequacy.

4. Surrender period

The surrender period is the amount of time you have to keep the majority of your money in an annuity contract. The majority of the surrender period lasts between 5 and 10 years.

Most contracts will allow you to take at least 10% of the accumulated value of the account per year, even during the surrender period. If you take out more than 10%, you have to pay a surrender charge on the amount you’ve withdrawn about the 10%.

5. Yield on invested assets

This is the annual net investment income after expenses, divided by the mean of the cash and net invested assets. The yield on invested assets ratio measures the average return on a business’s invested assets. This ratio is before capital gains and losses and income taxes.

6. Tort

A tort is a private, wrong independent of a contract and is committed against an individual, which gives rise to a legal liability and is adjudicated in civil court. Torts can either be intentional or unintentional. Liability insurance is mainly purchased to cover unintentional torts.

The best way to learn difficult insurance license exam terms is to take note of the insurance definitions you have trouble with. Then write down the term and definition multiple times until you know them by heart. Pay close attention to particular insurance license exam terms that come up multiple times, because these are more likely to be on the exam.

Considering a career in insurance? Need help preparing for your insurance exam? Learn about the online insurance license courses and training packages offered by Insurance License Express.

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