Chapter 1

Question 1

Who are the “insured”?

Answer 1

The person or group that buys insurance to protect against uncertain risks.

Question 2

Who are the “Insurers”?

Answer 2

The businesses that sell insurance policies and pay for losses.

Question 3

Who are the insurance agencies?

Answer 3

These are the businesses that provide services and distribute insurance policies to consumers. they often work with multiple insurance companies to offer different choices.

Question 4

Who are the Producers/ Agents?

Answer 4

Licensed individuals representing an insurance company when transacting insurance business.

Question 5

How is the insurance industry regualed

Answer 5

they are managed by the state government, and three main branches.

Question 6

The Legislative branch

Answer 6

(writes the rules)
This branch creates the laws (statutes) about how insurance works in the state, which are designed to protect the people who buy insurance.
(Coach)

Question 7

The Judicial Branch

Answer 7

(interprets the rules)
this branch helps interpret the laws and makes sure they follow the states constitution.
(Referee)

Question 8

The Executive Branch

Answer 8

(enforces the rules)
this branch enforces the law. they make sure insurance companies follow the rules.
(Captain)

Question 9

Elements of a legal contract: How many elements are there?

Answer 9

For a contract to be vailed, there must be four elements present.

Question 10

Element 1) Compentent

Answer 10

To form a contract, both parties must legally be able to agree.

Who is NOT competent?
Minors: Generally, people under 16 for insurance purposes.
Mentally incompetent: Someone who cannot understand the contract.
Under the influence: Drugs or alcohol impair judgment.

Question 11

Element 2) Legal Purpose

Answer 11

The contract must be for a lawful reason and not for something illegal or unethical.
There must be an insurable interest (a financial or personal connection between the policyholder and the insured).
You cannot take out life insurance off from a stranger just to benefit from their death.

Question 11

Element 3) Agreement

Answer 11

Both parties must agree on terms. This includes:
- Offer: Usually made when the applicant submits an application and pays the premium.
- Acceptance: Happens when the insurance company approves the application and issues a policy.

Question 11

Element 4) Consideration

Answer 11

The value exchanged by both parties:

Insured’s consideration:
Paying the premium and agreeing to the terms of the contract.

Insurer’s consideration:
Promising to cover losses as outlined in the policy.

Question 12

Contact of Adhesion

Answer 12

The insurance company writes the contract, and the insured either accepts or rejects it. There is no negotiation.

Question 13

Aleatory Contract

Answer 13

The contract is based on an event that might or might not happen.

If the event doesn’t happen (e.g., no car accident), the insurer keeps the premiums, and you don’t get a payout.

If the event does happen, the insurer pays more than the premiums you’ve paid.

Question 14

Unilateral Contract

Answer 14

Only the insurer is bound to the contract.
- the insured can stop paying for premiums or cancel the policy at any time, but the insurer cannot; they must honor their promises as long as the insured pays their premiums.

Question 15

Conditional Contract

Answer 15

What it means: Certain conditions must be met for the contract to work.
The insured must pay premiums and follow the terms of the policy.
The insurer must pay claims if a covered loss happens and all conditions are met.
Why it matters: No conditions met = no payout.

Question 16

What is the National Association of Insurance Commissioners (NAIC)?

Answer 16

A group of advisors made up of insurance leaders from all 50 states where all the leaders share ideas and work together to improve insurance regulations.

Question 17

What does NAIC do?

Answer 17

They provide helpful tools, research, and suggestions to state insurance regulators. *They only create recommendations, not rules.

Question 18

What is a Stock Insurer?

Answer 18

A type of insurance company owned by stockholders.

Question 19

What do Stockholders get?

Answer 19

Stockholders can share in the company’s profits if the company does well and might get dividends. The dividends are taxable.

Question 20

What is a Policyholder?

Answer 20

People who buy insurance from a Stock Insurer. They do not get dividends because they are not an owner.
Also known as non-participating policies.

Question 21

What is a mutual Insurer?

Answer 21

A type of insurance owned by the policyholder

Question 22

What do policyholders get?

Answer 22

They might receive dividends (taxable), but not guaranteed.

Question 23

What is a Fraternal Insurer?

Answer 23

is a social or community organization that offers life insurance to its members.

Question 24

Who can join a Fraternal Insurer?

Answer 24

Membership is usually limited to people who belong to a particular religion, society, or order.

Question 25

What is an Admitted (Authorized) Insurer?

Answer 25

Approved by the state's Department of Insurance to sell policies in that state. They must meet state requirements and receive a Certificate of Authority.

Question 26

What is a Non-Admitted (Unauthorized) Insurer?

Answer 26

Not approved to sell policies in a state because it didn't meet requirements or did not apply for approval.

Question 27

What does the Fair Credit Reporting Act (FCRA) do?

Answer 27

Is a law that protects your credit and financial information by making sure it is: -private: only share with. permission - accurate: information must be correct -relevant: only used for vail reasons - properly used: can only be used in certain situations

Question 28

FCRA: Before requesting a credit report

Answer 28

The insurer must notify you (pre-notification) and ask for your written permission.

Question 29

FCRA: if something negative happens (adverse action)

Answer 29

If you are denied insurance or charged a higher premium because of the report, the insurer must: The insurer must notify you (post-notification) why give you information on how to get a copy of the report from the credit agency.

Question 30

What is the Principle of Indemnity?

Answer 30

It is the insurer's job to restore you to the same financial or physical condition you were in before the loss-- not to let you profit.

Question 31

What is Insurable Interest?

Answer 31

You can only buy insurance if you suffer financially or emotionally from the loss of the person or insured item.

Question 32

Why was the Patriot Act Created?

Answer 32

it was introduced to detect and prevent illegal activities like: - drug trafficking - terrorism - money laundering

Question 33

Currency Transaction Repot (CTR)

Answer 33

Financial institutions are required to notify FINCEN ( Finacial Crimes Enforcement Network) for: 1: cash transactions over 10,000 2: wire transfers over 3,000

Question 34

What is Representations?

Answer 34

Statements you make on the application that you believe to be true at the time

Question 35

What are Material Representations?

Answer 35

Important statements that affect the insurer's decision to accept or reject your application.

Question 36

What are Immaterial Representations?

Answer 36

Small details that do not impact the insurers decision.

Question 37

What are Misrepresentations?

Answer 37

False statements made on an application

Question 38

What is Material Misrepresentation?

Answer 38

If the False statements are important enough to affect the insurer's decision, the policy will be voided. ex: if you claim that you are a non-smoker but later discover you do, the insurer might cancel your policy or deny claims.

Question 39

What are Immaterial Misrepresentations?

Answer 39

A false statement that does not affect the policy's term or issuance.

Question 40

What is a Warranty?

Answer 40

A statement or promise is guaranteed to be true. If it is later found to be false, the insurer can cancel the contract. Warranties are stricter than representations.