Insurance exams are vocabulary tests wearing a scenario costume. Almost every question either asks for a definition outright or hides one inside a client story - and the distractors are built from the terms candidates confuse with each other. This glossary covers the terms that actually carry exam weight, in the groups the exams use, each with how it gets tested. It is drawn from the same content outlines our 1335-question bank is written against.
Contract-law terms (every line tests these)
Aleatory contract - the exchange of values is unequal and depends on an uncertain event: a small premium may buy a large claim payment, or buy nothing. Tested against unilateral and adhesion as distractors - learn all three as a set.
Contract of adhesion - one party (the insurer) writes the contract; the other takes it or leaves it. The exam consequence: ambiguities are construed against the writer. Tested via "who do ambiguities favor?" scenarios.
Unilateral contract - only one party makes an enforceable promise: the insurer promises to pay; the insured is not obligated to keep paying premiums. A favorite "which characteristic describes..." item.
Consideration - what each party gives: the insured's premium and application statements, the insurer's promise to pay. Tested by asking what constitutes the applicant's consideration (answer: not just money - the representations too).
Insurable interest - you may only insure a life or property whose loss would genuinely harm you, and in life insurance it must exist AT APPLICATION, not at death. That timing detail is a classic exam trap.
Utmost good faith - both parties rely on each other's honesty; the doctrinal umbrella over the next three terms.
Representation vs. warranty vs. concealment - a representation is a statement believed true (grounds for rescission only if material); a warranty is guaranteed true; concealment is withholding a known material fact. Exams test the materiality distinction relentlessly.
Waiver and estoppel - waiver is voluntarily giving up a known right; estoppel prevents reasserting it after someone relied on the waiver. Usually one question, almost always definitional.
Indemnity - restore the insured to their pre-loss financial position, no better. The principle behind actual-cash-value settlements and against over-insurance.
Life insurance terms
Cash value / nonforfeiture options - permanent policies build value the owner cannot lose even on lapse: taken as cash surrender, reduced paid-up insurance, or extended term insurance. "Which nonforfeiture option..." scenarios are near-guaranteed.
Settlement options - how proceeds are paid: lump sum, interest only, fixed period, fixed amount, life income. Exams describe a beneficiary's need and ask which option fits.
Universal life's flexible premium - the feature pair (flexible premiums, adjustable death benefit) that distinguishes universal life from straight whole life - the exact distinction our dissected sample question tests.
Modified endowment contract (MEC) - a policy funded faster than the seven-pay test allows; loses life insurance's favorable loan/withdrawal tax treatment permanently. Tested on the permanence (once a MEC, always a MEC) and the tax consequence.
Accelerated death benefit / viatical settlement - the insured accesses value while living (terminal illness) versus selling the policy to a third party. Tested as a compare/contrast pair.
Health insurance terms
Deductible → coinsurance → out-of-pocket maximum - the payment waterfall, in that order. Calculation questions (like the $6,000-bill example in our question-anatomy guide) test whether you apply them in sequence.
Elimination period - the waiting period in disability income insurance before benefits begin - functionally a time deductible. Distractor pair: probationary period (applies once, at policy start).
Guaranteed renewable vs. noncancellable - both guarantee renewal; only noncancellable also freezes the premium. The exam tests exactly that one-word difference.
Pre-existing condition - a condition treated or diagnosed before coverage; tested through effective-date scenarios.
COBRA - continuation of employer group coverage after qualifying events, at the employee's cost. Tested on who qualifies and for how long.
Property & casualty terms
Named-peril vs. open-peril coverage - a policy that lists what it covers versus one covering everything except exclusions. The exam phrases this as "burden of proof" scenarios.
Actual cash value vs. replacement cost - depreciated value versus today's cost to replace; the indemnity principle in action. Calculation questions live here.
Subrogation - after paying your claim, the insurer takes over your right to recover from the at-fault party. Tested definitionally and via "may the insured waive recovery rights?" scenarios.
Occurrence vs. claims-made - liability forms triggered by when the injury happened versus when the claim is filed. One reliable commercial-lines question.
Split limits (e.g. 25/50/25) - bodily injury per person / per accident / property damage, in thousands. Exams give an accident and ask what the policy pays - practice the arithmetic.
FAIR plan / residual market - state-organized coverage of last resort for risks the voluntary market declines. Definitional, and part of our state-law modules where limits differ by state.
Surplus lines - coverage placed with non-admitted insurers through specially licensed brokers when the admitted market will not write the risk. Tested on the when is it allowed condition.
Every term above appears in our practice bank with at least one question and a full explanation, so the fastest way to make this glossary stick is to meet the terms in action: drill a topic in the custom test builder, read every explanation, and let your mistakes deck resurface the terms that have not landed yet. For how these terms get woven into question traps, read the companion guide on how exam questions are constructed.