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Life and Health Insurance > Chapter 1 > Flashcards

Chapter 1 Flashcards

1
Q

What is the transfer of Risk of loss?

A

Insurance.

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2
Q

What is the uncertainty or chance of a loss occurring called?

A

Risk

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3
Q

What is Pure Risk?

A

Situation that can only result in a loss or no change.

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4
Q

What is Speculative Risk?

A

Involves the opportunity for loss or gain.

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5
Q

What is the only Risk that is insurable?

A

Pure Risk

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6
Q

What is Loss?

A

The reduction, decrease, or dissapearance of value of the person or prosperity insured in a policy, caused by Peril

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7
Q

What are Perils?

A

Causes of losses

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8
Q

What are Hazards?

A

Conditions and actions that increase the probability of loss

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9
Q

The 5 methods of handling risk are?

A
  1. Avoidance
  2. Retention
  3. Sharing
  4. Reduction
  5. Transfer
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10
Q

What does risk avoidance mean?

A

eliminating exposure to a loss

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11
Q

What is risk retention?

A

The planned assumption of the risk of the insured through deductibles, co-payments, or self-insurance.

(known as self-insurance when the insured accepts responsibility for loss before the insurance company pays)

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12
Q

What are the 3 purposes for risk retention?

A
  1. To reduce expenses and increase cash flow
  2. To increase control of claim reserving and claims settlements
  3. To fund for loses that can not be insured
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13
Q

What is risk sharing?

A

A method of dealing with risk for a group of individual persons or businesses with the same or similar exposure to loss to share the losses that occur within that group.

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14
Q

What is risk Reduction?

A

Reducing risk through actions like installing smoke detectors in your home, having an annual physical, making lifestyle changes etc.

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15
Q

What is risk Transfer?

A

The most effective way of handling risk by transferring risk so the loss is bourne on another party. Insurance is the most method of transferring risk.

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16
Q

What are the 5 characteristics of insurable risk?

A
  1. Due to chance
  2. Definite and measurable
  3. Statistaclly predictible
  4. Not catostrophic
  5. Randomly selected and large loss exposure
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17
Q

What does insurable risk due to chance?

A

A loss that is outside the insured’s control

18
Q

What does insurable risk that is Definite and Measurable?

A

Risks in which loss can be identified and the amount of loss can be determined.

(for example, insurers are willing to insure cars, since car damage is easy to see (definite) and the amount of car damage can be calculated (measurable).)

19
Q

What does insurable risk that is Statistically predictable mean?

A

Insurance is a game of statistics, and insurance providers must be able to estimate how often a loss might occur and the severity of the loss. Life and health insurance providers, for example, rely on actuarial science and mortality and morbidity tables to project losses across populations.

20
Q

What does insurable risk that is Not Catastrophic mean?

A

Simply means that insurance does not cover events of catastrophic nature such as nuclear war, flood, tornados, hurricanes, etc. There is separate catastrophic insurance that can be purchased for specific events.

21
Q

What does insurance risk that is Randomly selected and large loss exposure mean?

A

A significant pool of the insured represents a random selection of risks in terms of age, gender, occupation, health and economic status, and geographic location.

22
Q

What does Adverse selection mean?

A

the insuring of risks that are more prone to losses than the average risk.

23
Q

What is the Law of Large Numbers?

A

The larger the number of people with similar exposure to loss, the more predictable actual losses will be.

24
Q

What are the 2 types of insurers?

A
  1. Stock companies
  2. Mutual companies
25
Q

What are Stock Companies?

A

They are owned by the stockholders who provide the capital necessary to establish and operate the insurance company and who share in any profits or losses

26
Q

What are Mutual Companies?

A

They are owned by the policyholders and issue participating policies. Participating policies are entitled to dividends which are a return of excess premiums and are nontaxable.

27
Q

Who do insurance agents represent?

A

The insurer (principal)

28
Q

What are the 4 characteristics of the Independent/American Agency System?

A
  1. One independent agent represents several companies
  2. Nonexclusive
  3. Commissions on personal sales
  4. Business renewal with any company
29
Q

What are the 4 characteristics of the Exclusive Agency System/Captive Agents?

A
  1. One agent represents one company
  2. Exclusive
  3. Commission on personal sales
  4. Renewals can only be placed with the appointing insurer.
30
Q

What are 4 characteristics of General Agency System?

A
  1. General agent-entrepreneur represents one company
  2. Exclusive
  3. Compensation and Commission
  4. Appoints subagents
31
Q

What are the 3 characteristics of the Managerial System?

A
  1. Branch Manager (supervises agents)
  2. Salaried
  3. Agents can be insurer’s employees or independent contractors
32
Q

What are the 3 characteristics of the Direct Response Marketing System?

A
  1. No agents
  2. Company advertises directly to consumers (through the mail, internet, television, other mass marketing)
  3. Consumers apply directly to the company.
33
Q

What is an agent/producer?

A

An individual is licensed to sell, solicit or negotiate insurance contracts on behalf of the principal (insurer).

34
Q

What are the 3 types of Agent Authority?

A
  1. Expressed
  2. Implied
  3. Apparent
35
Q

What is Express Authority?

A

Express authority occurs when an agent is working on behalf of his or her company to act on behalf of a principal. For example, a life insurance agent may have express authority under their company.

The authority written in the contract

36
Q

What is Implied Authority?

A

Implied authority applies to the insurance company agent that is given the authority to solicit applications for life insurance on behalf of the insurer. … Implied authority also applies in a situation where a person is wearing a uniform or nametag bearing the logo or trademark of a business or organization.

Not expressed or written in contract, but what is assumed the agent has in order to transact the business of insurance for the principal

37
Q

What is Apparent Authority?

A

Apparent authority is the power of an agent to act on behalf of a principal, even though not expressly or impliedly granted. … The idea of apparent authority protects third parties who would otherwise incur losses if the agent’s signature did not bind the principal after reasonable observers thought that it would.

38
Q

What are 3 market conduct regulations?

A
  1. Conflict of Intrust
  2. A request of gift or loan as a condition to complete business
  3. Supplying confidential information
39
Q

What are the 4 essential elements in order for a contract to be legally binding?

A
  1. Agreement - offer and acceptance
  2. Consideration
  3. Competent parties
  4. Legal Purpose
40
Q
A

Life and Health Insurance (3 decks)

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