Chapter 1: General Insurance

Question 1

What is insurance?

Answer 1

The transferring of risk of loss from an individual or a business entity to an insurance company. “Insureds losses are transferred over to the insurer”.

Question 2

What is risk?

Answer 2

The uncertainty or chance of a loss occurring.

Question 3

What is a peril?

Answer 3

Causes of loss

Question 4

Based on the principle of indemity

Answer 4

Insurance

Question 5

Based on the spreading of risk (risk pooling) and the law of large numbers

Answer 5

Insurance

Question 6

3 types of hazards

Answer 6

1. Physical
2. Moral
3. Morale

Question 7

Give rise to a peril

Answer 7

Hazards

Question 8

This type of hazards are individual characteristics that increase the chances of the causes of loss. Ex. Past medical history, physical conditions or condition at birth such as blindness.

Answer 8

Physical Hazard

Question 9

Tendencies towards increased risks. Involves evaluating the character and reputation of the proposed insured. Ex. Those who lie on their application or who submitted fraudulent claims in the past.

Answer 9

Moral Hazards

Question 10

Similar to moral hazards except they arise from a state of mind that causes indifference to loss, such as carelessness that may cause physical harm.

Answer 10

Morale Hazards

Question 11

Agent AKA:

Answer 11

Producer

Question 12

APPLICANT AKA:

Answer 12

Proposed Insured

Question 13

A legal representative of an insurance company

Answer 13

Agent/Producer

Question 14

A person applying for insurance

Answer 14

Applicant/Proposed Insured

Question 15

An insurance producer not appointed by an insurer and is deemed to represent the client

Answer 15

Broker

Question 16

A contract bt a policy owner (and/or insurer) and an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events.

Answer 16

Insurance Policy

Question 17

The person covered by the insurance policy. May ir may not be the policyowner.

Answer 17

Insured

Question 18

Insurer (principal)

Answer 18

The company who issues an insurance policy.

Question 19

The person entitled to exercise the rights and privileges in the policy.

Answer 19

Policyowner

Question 20

The money paid to the insurance company for the insurance policy

Answer 20

Premium

Question 21

Reciprocity/Reciprocal

Answer 21

A mutual interchange of rights and privileges

Question 22

Only ______ risks are insurable

Answer 22

Pure

Question 23

Opportunity for either loss or gain. Risks of gambling. Not insurable.

Answer 23

Speculative risks

Question 24

Defined as the reduction, decrease, or disappearance of value of the person or property. Insurance transfers:

Answer 24

Loss

Question 25

A ______ is a chance that a loss will occur

Answer 25

Risk

Question 26

A _________ increases the probability of loss

Answer 26

Hazard

Question 27

A ________ is the cause of loss

Answer 27

Peril

Question 28

Methods for handling Risks Hint: STARR

Answer 28

1. SHARING 2. TRANSFER 3. AVOIDANCE 4. RETENTION 5. REDUCTION

Question 29

Method for handling risk which means eliminating exposure to a loss. Ex. Not flying on an airplane to avoid dying on an airplane.

Answer 29

Avoidance

Question 30

Reduces expenses and improve cash flow, fund for losses that cannot be insured and increases control of claim reserving and claim settlements by accepting the responsibility of loss b4 the insurance company does:

Answer 30

Retention

Question 31

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.

Answer 31

Sharing

Question 32

A reciprocal insurance exchange is a formal ____________ arrangement

Answer 32

Risk-Sharing

Question 33

Reduction

Answer 33

Actions such as installing smoke detectors, having annual physical exams and making lifestyle changes.

Question 34

The most effective way to handle risk: Hint is with life insurance does.

Answer 34

Transfer

Question 35

Elements of Insurable Risks HINT:DDSNR

Answer 35

Due to chance Definite and measurable Statistically predictable Not catastrophic Randomly selected and large loss exposure

Question 36

Adverse Selection

Answer 36

Insurance companies try to protect themselves from this and have an option to restrict coverage for bad risks or charge them a higher rate for coverage.

Question 37

Law of large numbers

Answer 37

As the number of people in a risk pool increases, future losses become more predictable.

Question 38

Owned by stockholders who provide capital necessary to establish and operate the insurance company.

Answer 38

Stock companies

Question 39

Traditionally stock companies issued ________ policies in which policyowners do not share nonprofits or losses.

Answer 39

Nonparticipating

Question 40

Nonparticipating (stock) policy

Answer 40

Does not pay dividends to policyowners, however, taxable dividends are paid to stockholders.

Question 41

Owned by policyowners and issue participating policies.

Answer 41

Mutual companies

Question 42

Policyowners are entitled to dividends which are a return from over paid premiums and is not taxable. However, dividends are not guranteed.

Answer 42

Participating Policies

Question 43

Certificate Of Authority aka:

Answer 43

License

Question 44

Before insurers may transact business in a specific state, they must apply for and be granted a:

Answer 44

License or Certifcate of Authority

Question 45

Authorized or Admitted

Answer 45

Insurers who meet the state's financial requirements and are approved to transact business on the state.

Question 46

Unauthorized or Nonadmitted

Answer 46

Insurers who are not approved to do business in the state.

Question 47

Defines the relationship between the principal and the agent/producer.

Answer 47

Law of agency

Question 48

The authority that is written in contract.

Answer 48

Express

Question 49

Authority that is not expressed or written into contract, but which agent is assumed to have in order to transact the business of insurance for the principal.

Answer 49

Implied

Question 50

The appearance or the assumption of authority based on actions, words, or deeds of the principal or because of circumstances the principal created. Also know as perceived authority.

Answer 50

Apparent authority

Question 51

Financial responsibility aka:

Answer 51

Fiduciary responsibility

Question 52

Someone in a position of trust

Answer 52

Fiduciary

Question 53

An agreement bt two or more parties enforceable by law.

Answer 53

Contract

Question 54

Elements of a legal contract

Answer 54

1. Agreement 2. Consideration 3. Competent parties 4. Legal purpose

Question 55

Definite offer by one party and the other party must accept this in its exact terms.

Answer 55

Agreement

Question 56

Takes place when an insurers underwriter approves the application and issues a policy.

Answer 56

Acceptance

Question 57

Binding force in any contract. Something of value. The insurer promises to pay for losses and the insured pays the premium and makes truthful statements on the application.

Answer 57

Consideration

Question 58

Competent Parties

Answer 58

Must be legal age, mentally competent to understand contract and not under the influence of drugs or alcohol

Question 59

Not against public policy; must have both insurable interest and consent.

Answer 59

Legal purpose for life insurance policy

Question 60

Unequal values

Answer 60

Aleatory

Question 61

One-sided (only one party makes a promise)

Answer 61

Unilateral

Question 62

Only one party (insurer) prepares a contract, and the other party (insured) accepts it as is.

Answer 62

Adhesion

Question 63

Requires that certain conditions must be met by the policyowner and the company in order for the contract to be executed, and therefore each party fulfills its obligation. Ex. Insured pays premium and provides proof of loss and insurer covers claim.

Answer 63

Conditional contract

Question 64

Somethings referred to as reimbursement. Meaning insured cannot recover more than their loss.

Answer 64

Indemnity

Question 65

Implies that there will be no fraud, misrepresentation or concealment between parties. Ex. Insured provider accurate info for application and insurer clearly and truthfully describes the features and benefits of the policy.

Answer 65

Utmost Good Faith

Question 66

Are statements believed to be true and is the statements the insured put on their application.

Answer 66

Representations

Question 67

Untrue statements on the application that could Void the contract.

Answer 67

Misrepresentations

Question 68

A statement that if discovered would alter the underwriting decision of the insurance company; and if intentional are considered fraud.

Answer 68

Material misrepresentations

Question 69

Gramm-Leach Biley Act

Answer 69

Financial companies must explain sensitive information sharing practices to their customers and safe guard sensitive data.

Question 70

An absolute true statement upon which the validity of the life insurance policy depends.

Answer 70

Warranty

Question 71

The legal term for the intentional withholding of information of a material fact that is crucial in making a decision.

Answer 71

Concealment

Question 72

The intentional misrepresentation or intentional concealment of a material fact used to induce another party to make or refrain from making a contract or to decieve or cheat a party. Is a felony and 4 years in prison.

Answer 72

FRAUD

Question 73

The voluntary act of relinquishing a legal right, claim or privilege

Answer 73

Waiver

Question 74

A legal process that can be used to prevent a party to a contract from re-azzerting a right or privilege after that right or privilege has been waived. A legal consequence of a waiver.

Answer 74

Estoppel

Question 75

An insurance company that is formed under the laws of another state is known as what type of insurer?

Answer 75

Foreign