General Insurance

Question 1

Insurance

Answer 1

is a contract that transfers the risk of financial loss from an individual or business to an insurer. In return the insurer agrees to cover the individual or business from certain losses if they occur

Question 2

Risk

Answer 2

is uncertainty about whether a loss will occur. If a loss is certain to occur, it does not involve risk.

Question 3

Speculative Risk

Answer 3

have a possibility of a loss and also hold the possibility of making a gain - gambling - loss is NOT INSURABLE

Question 4

Pure Risks

Answer 4

only involve the possibility of experiencing a loss and they can be covered by insurance - car accident - loss IS INSURABLE

Question 5

How is the insurance premium calculated?

If life insurance rate is $32 per $1000 of death benefit

Answer 5

is the rate multiplied by the number of exposure units.

the premium for a $100k policy would be $32 x $100 = $3200

Question 6

Exposure

Answer 6

Risks for which the insurance company would be liable

Question 7

Peril

Answer 7

is a cause of loss. for life insurance the peril is death

Question 8

Hazard

Answer 8

anything that increases the chance that a loss will occur. Hazards do not cause the loss but they make loss more likely

Question 9

Three types of Hazard

Answer 9

physical, moral, morale
heart condition is a physical hazard
moral hazards arise from an individuals character - dishonesty
morale hazard are a state of mind or careless attitude - leaving windows and doors unlocked at home

Question 10

Methods for handling risk - STARR

Answer 10

Sharing
Transfer
Avoidance
Retention - the individual will pay if the loss occurs
Reduction

Question 11

Risks that can be insured have the following characteristics - CANHAM

Answer 11

Calculable 
Affordable
Non-Catastrophic - insurance cannot insure events that cause widespread losses to large numbers of insured such as war 
Homogeneous
Accidental
Measurable

Question 12

Adverse Selection

Answer 12

is the tendency for higher-risk individuals to get an keep insurance more than individuals who represent an average level of risk

Question 13

Reinsurance

Answer 13

transfers risk from one insurer to another insurer. the company reducing its risk is called the ceding insurer, the company assuming the risk is called the reinsurer

Question 14

Facultative

Answer 14

the reinsurer evaluates each risk before allowing the transfer

Question 15

Treaty

Answer 15

the reinsurer accepts the transfer according to an agreement called a treaty

Question 16

Reciprocal Insurers

Answer 16

unincorporated groups of people that agree to insure each other’s losses under a contract. the members of the reciprocal groups are known as subscribers.
run by an attorney-in-fact

Question 17

Risk Retention Group

Answer 17

an insurer formed for the sole purpose of providing liability insurance to its policyholders (example car dealers)

Question 18

Lloyd’s

Answer 18

famous underwriting group. insurance provided by individual underwriters, not insurance companies

Question 19

Residual Market

Answer 19

insurance from the state or federal government

Question 20

Domestic insurer
Foreign insurer
Alien insurer

Answer 20

Domestic - the state in which the insurer was formed and is headquartered
Foreign - insurer that writes business in states other than where it is domiciled
Alien - an insurer formed under the laws of any country other than the US and its territories

Question 21

Certificate of Authority

Answer 21

license to operate business in a state. When a company is licensed it is called admitted or authorized

Question 22

Surplus lines

Answer 22

sometimes an individual or a business will have an exceptionally large or specialized risk that no authorized insurer can or will cover. In such cases, insurance may be obtained from an unauthorized / non-admitted insurer on a surplus lines basis.

Gaming, casinos and entertainment, mining and skyscrapers are all examples of exposures that might require surplus lines insurance

• insurance sold by unauthorized / non-admitted insurers - if on the states approved list of surplus insurers
• can only be sold to certain high risk insureds
• cant be sold just for a cheaper rate than licensed/admitted insurers

Question 23

Rate Unsurers

Answer 23

AM Best
S&P 
Moody
Duff & Phelps
Weiss

Question 24

Four types of agents:
Independent insurance agents
exclusive or captive agents
general agents or managing partner agents
direct-writing companies

Answer 24

Independent insurance agents - sell the insurance products of several companies and work for themselves or other agents

Exclusive or captive agents - represent only one company. these captive or career agents are compensated by commissions

General agents - hire, train and supervise other agents within a specific geographical area

Direct- writing companies - usually pay salaries to employees whose job function is to sell the company’s insurance products from a company office

Question 25

Agency

Answer 25

insurance agent acts on behalf of the principal (insurance company) is a relationship in which one person is authorized to represent and act for another person of for a corporation

Question 26

Agent

Answer 26

the person authorized to act on behalf of the other is called an agent

Question 27

Principal

Answer 27

the person on whose behalf the agent acts is called the principal

Question 28

Agent Authority: Express Implied Apparent

Answer 28

express - what the agents written contract with the company states implied - not written buy are the actions agents normally do to sell insurance apparent - actions the agent does that a reasonable person would assume as authority, based on the agents actions and statements

Question 29

Fiduciary

Answer 29

- promptly send premiums to insurer - knowledge of products - comply with laws and regulations - no commingling

Question 30

To form a valid contract, what four elements must be present CLOAC

Answer 30

Consideration - giving something of value Legal purpose - risk transfer doesn't violate the law Offer - made by insured Acceptance - insurer accepts risk as presented Competent Parties - insured age 18 and sane

Question 31

Adhesion

Answer 31

policy written by the insurance company | if ambiguous - court will take the side of the insured

Question 32

Aleatory

Answer 32

value received from the contract by each party may be unequal - small premium for a large amount of coverage

Question 33

Unilateral

Answer 33

only ONE promise made - insurance promises to pay for a covered loss - insured does not promise to pay the premium

Question 34

Personal Contracts

Answer 34

Cant not be assigned to someone else Auto and homeowners insurance policies are personal contracts. However assignment can take place with life insurance policies pledged as a security for a bank loan.

Question 35

Indemnity

Answer 35

restore to the insured original pre-loss condition, no better, no worse

Question 36

Mis-representation vs. material mis-representation

Answer 36

misrepresentation - information given that is not true - however the correct information would not affect the insurance companies decision- bad address Material mis-representation - information given not true does affect the insurers decision - DUI

Question 37

Warranty

Answer 37

If a warranty is not kept it voids the contract - hiring a security guard - always made by the insurance company - if promise to pay is broken - company could be sued by the insured - may be made by the insured - if promise is broken - insured may have no coverage - guaranteed to be true

Question 38

Fraud and False Statements

Answer 38

fine and or imprisonment (10-15 years) | embezzlement included