Health & Life Insurance Basics - Ch. 1

Question 1

Actuarial Department

Answer 1

The department responsible for calculating policy rates, determining reserves, and estimating dividends.

Question 2

Alien Insurer

Answer 2

An insurer operating within the US but based outside the US.

Question 3

Admitted Insurer

Answer 3

Aka Authorized Insurer, meaning the company has been granted a certificate allowing them to conduct business within the state.

Question 4

Broker

Answer 4

The unbiased middleman between clients and insurance companies, facilitating the buying and selling of policies, not representing one specific insurance company.

Question 5

Captive Insurer

Answer 5

Insurance company that is set up & owned by a parent company to insure its own risks and those of its affiliates

Question 6

Certificate of Authority

Answer 6

A license issued by a state’s department of insurance that allows an insurer to conduct
business within that state

Question 7

Claims Department

Answer 7

In charge of processing, reviewing, and issuing payments for claims

Question 8

Divisible Surplus

Answer 8

Earnings available to be distributed as dividends to policyholders after the
insurance company allocates funds for reserves, operating expenses, and other business
needs

Question 9

Domestic Insurer

Answer 9

Insurer based in the same state they’re authorized to operate in

Question 10

Foreign Insurer

Answer 10

Insurer based in a different state than the state they are authorized to operate in

Question 11

Fraternal Benefit Society

Answer 11

A nonprofit organization that provides insurance benefits exclusively to its members, often based on a common social or religious affiliation. The organization is originally created for non-insurance purposes.

Question 12

Industrial Insurer

Answer 12

Insurer specializing in offering small face amount policies with weekly premium payments. These insurers are also known as home service insurers or debit insurers

Question 13

Insurance

Answer 13

Spreading or transferring risk by collecting a pool of funds

Question 14

Insured

Answer 14

Being protected under an insurance policy

Question 15

Insurer

Answer 15

Provider of insurance coverage

Question 16

Lloyds of London

Answer 16

Not an insurer itself, but a syndicate of individuals and companies that come together to underwrite unique and unusual insurance risks

Question 17

Multi-line Insurer

Answer 17

An insurance company with a wide range of insurance products. Providing coverage in multiple areas such as home, auto, life, and health.

Question 18

Mutual Insurance Company

Answer 18

An insurance company co-owned by its policyholders, which may result in receiving a divisible surplus.

Question 19

Non-admitted Insurer

Answer 19

Aka Non-authorized insurer. An insurer that has not been granted a certificate of authority to conduct business in a particular state

Question 20

Nonparticipating Policy

Answer 20

A type of policy, usually issued by stock companies, that does not allow policyholders to receive
dividends or vote for the company’s board of directors

Question 21

Participating Plan

Answer 21

An insurance policy from a mutual insurance company that allows policyholders to share the company’s profits through dividends and to vote for the company’s board of directors

Question 22

Private Insurer

Answer 22

Aka Commercial Insurer. An insurance company owned by individuals or groups that provide one or more types of insurance. These insurers are not owned or operated by the government.

Question 23

Reciprocal Insurer

Answer 23

An unincorporated group where members insure one another by sharing risk, with each member acting as both an insurer and an insured

Question 24

Reinsurance

Answer 24

A process where one or more insurers take on a portion of the risk from another
insurer, who originally underwrote the entire policy

Question 25

Risk Retention Group

Answer 25

A group-owned insurer that focuses on spreading liability risks among its members.

Question 26

Self-Insurers

Answer 26

A self-insurer creates a self-funded plan to manage potential losses, rather than shifting the risk to an insurance company

Question 27

Stock Insurance Company

Answer 27

Insurance company owned and operated by stockholders or shareholders. Their investment provides the financial stability necessary for issuing guaranteed, fixed premiums on nonparticipating policies.

Question 28

Surplus Lines Insurance

Answer 28

Non-traditional insurance for unusual risks that cannot be covered by standard private insurance.

Question 29

Underwriting Department

Answer 29

Department tasked with evaluating applications, approving or denying potential policyholders, and determining risk classifications

Question 30

Mutualization

Answer 30

The process of converting a stock company into a mutual company.

Question 31

Demutualization

Answer 31

The process of converting a mutual company into a stock company.

Question 32

Mixed Plan

Answer 32

In rare cases, a stock company may issue both participating and nonparticipating policies

Question 33

Pure Assessment Mutual Company

Answer 33

A company that operates on a loss-sharing model where no premiums are paid upfront. Instead, members are assessed a portion of the losses that occur within the group.

Question 34

Advance Premium Assessment Mutual Company

Answer 34

These insurers charge premiums at the start of the policy period. If the total premiums collected exceed operating expenses and losses, the policyholders receive the surplus in the form of dividends. If premiums fall short, additional assessments are charged to members. The amount of additional assessments is generally limited by state law or the company's by-laws

Question 35

Ceding Company

Answer 35

The insurer transferring risk to another company

Question 36

Reinsurer

Answer 36

The company assuming the transferred risk

Question 37

Net Retention or Net Line

Answer 37

The part of the risk that the ceding insurer keeps

Question 38

Service Providers

Answer 38

Service providers differ from traditional insurers by offering medical and hospital care services rather than insurance coverage. Their subscribers receive care from participating hospitals and physicians in exchange for paying premiums

Question 39

HMO

Answer 39

Health Maintenance Organization - HMOs provide a broad range of (preventative) healthcare services to their members. Subscribers pay a set premium upfront, giving them access to the services of certain physicians and hospitals that have contracts with the HMO.

Question 40

PPO

Answer 40

Preferred Provider Organization - PPOs work by arranging special price discounts or services with healthcare providers. Employers or groups negotiate these deals to offer their employees or members access to care at reduced costs.

Question 41

1868 – Paul v. Virginia

Answer 41

This U.S. Supreme Court case involved a state's attempt to regulate an insurance company based in another state.

Question 42

1944 – United States v. Southeastern Underwriters Association (SEUA)

Answer 42

The U.S. Supreme Court determined that the insurance industry is considered a form of interstate commerce, shifting regulatory control towards the federal government.

Question 43

1945 – The McCarran-Ferguson Act (Public Law 15)

Answer 43

States were required to align their insurance laws with federal standards, while the insurance industry was still regarded as being regulated at the state level.

Question 44

1958 – FTC Intervention

Answer 44

The Federal Trade Commission attempted to regulate advertising and sales literature in the health insurance industry. Their attempt was unsuccessful

Question 45

1959 – SEC Intervention

Answer 45

The Supreme Court ruled that variable annuities were securities, requiring insurers to comply with both SEC and state regulations.

Question 46

1970 – Fair Credit Reporting Act

Answer 46

This act mandates fair and accurate reporting of consumer information

Question 47

1994 – United States Code (USC) Sections 1033 and 1034

Answer 47

This prohibits individuals convicted of certain felonies (involving dishonesty or breach of trust) from participating in the business of insurance unless they receive written consent to move forward.

Question 48

1999 – Financial Services Modernization Act

Answer 48

This act repealed the Glass-Steagall Act, allowing banks, brokerages, and insurance companies to operate in each other's business lines

Question 49

2001 – The Patriot Act aka Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act

Answer 49

This law aims to strengthen measures against terrorism and its financing

Question 50

2003 – Do Not Call Implementation Act

Answer 50

This act established the Do Not Call Registry, allowing consumers to opt out of receiving solicitation calls

Question 51

2010 – Patient Protection and Affordable Care Act

Answer 51

One of the most extensive reforms and increases in health insurance coverage in U.S. history

Question 52

Reserves

Answer 52

The accounting estimate of an insurer's future liabilities to its policyholders

Question 53

Liquidity

Answer 53

reflects a company's capacity to meet unexpected payouts to policyholders

Question 54

Adhesion Contract

Answer 54

When the insurer drafts the contract and the policyholder accepts is as-is

Question 55

Aleatory Contract

Answer 55

Outcomes may depend on uncertain events, meaning one party may gain more than the other

Question 56

Unilateral Contract

Answer 56

Only the insurer makes a legally enforceable promise to pay claims

Question 57

Conditional Contract

Answer 57

Certain conditions must be met for the contract to remain valid

Question 58

Valid Contracts must include the following

Answer 58

Offer & Acceptance, Consideration, Legal Purpose, and Competent Parties

Question 59

What are some common exclusions in health insurance policies?

Answer 59

Cosmetic procedures & experimental treatments