Key Terms

Question 0

Refers to situations that can only result in a loss or no change. The is no opportunity for financial gain. This is the only type of risk insurance companies are willing to accept.

Answer 0

Pure risk

Question 1

The uncertainty or chance of a loss occurring. There are two types: pure and speculative

Answer 1

Risk

Question 2

This term involves the opportunity for either loss or gain. An example is gambling. This type of risk is not insurable

Answer 2

Speculative risk

Question 3

The causes of loss insured against in an insurance policy

Answer 3

Perils

Question 4

Conditions or situations that increase the probability of an insured loss occurring.

Answer 4

Hazards

Question 5

Individual characteristics that increase the chances of the cause of loss. This type of hazard exist because of a physical condition, past medical history, or a condition at birth

Answer 5

Physical hazard

Question 6

Tendencies towards increased risk. These hazards involve evaluating the character and reputation of the proposed insured. This term refers to those applicants that may lie on an application for insurance, or in the past, have submitted fraudulent claims against an insurer

Answer 6

Moral hazard

Question 7

Similar to moral hazards, except that they arise from a state of mind that causes indifference to loss, such as carelessness. Actions taken without fore thought may cause physical injuries.

Answer 7

Morale hazard

Question 8

The risk of loss from an individual or business entity to an insurance company, which in turn spreads the costs of unexpected losses to many individuals. If the were no insurance mechanism, the cost of a loss would have to be borne solely by the individual who suffered the loss

Answer 8

Insurance transfers

Question 9

Elements of Pure Risk

Loss must be…

Answer 9

• must be due to chance
• must be definite and measurable
• must be statistically predictable
• cannot be catastrophic
• loss exposure must be large
• insurance must NOT be mandatory

Question 10

Method of dealing with risk that eliminates exposure to a loss

Answer 10

Avoidance

Question 11

The planned assumption of risk by an insured through the use of deductibles, copayments, or self-insurance

Answer 11

Risk retention

Question 12

Purposes of risk retention:

Answer 12

1 To reduce expenses and improve cash flow
2 To increase control of claim reserving and settlements
3 To fund for losses that cannot be insured

Question 13

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 13

Sharing

Question 14

A formal risk-sharing arrangement

Answer 14

Reciprocal insurance exchange

Question 15

Method for dealing with risk including actions that attempt to lessen the possibility or severity of a loss

Answer 15

Reduction

Question 16

Three Factors to Determine Insurable Interest:

Answer 16

1 Insuring one’s own life
2 Insuring the life of a family member (relative or spouse)
3 Insuring the life of a business partner, key ee, someone w financial obligation

Question 17

Four Elements of a Contract:

Answer 17

1 Agreement - offer & acceptance
2 Consideration - premium payment & representations in app
3 Competent Parties
4 Legal Purpose

Question 18

The binding force in any contract. Something of value that each parties gives to the other. The ______ on the part of the insured is the payment if premium and representations made in the app. The ______ on the part of the insurer is the promise to pay in the event of loss.

Answer 18

Consideration

Question 19

Term for a contract prepared by one of the parties (insurer) and accepted/rejected by the other party (insured). Insurance policies are not drawn up through negotiations and an insured has little to say about its provisions.

Answer 19

Contract of adhesion

Question 20

Term for a contract wherein there is an unequal amounts of values. The premiums paid by the insured is small in relation to the amount that will be paid by the insurer in the event of loss

Answer 20

Aleatory

Question 21

Term for a contract wherein only one of the parties to the contract is legally bound to do anything. The insured makes no legally binding promises while the insurer is legally bound to pay losses covered by a policy in force

Answer 21

Unilateral contract

Question 22

Term for a contract requiring that certain conditions must be met by the policy owner and the company in order for the contract to be executed and before each party fulfills it’s obligations

Answer 22

Conditional contract

Question 23

A provision in an insurance policy that states that in the event of loss, an insured or a bene is permitted to collect only to the extent of the financial loss and is not allowed to gain financially because of the existence of an insurance contract. Also referred to as reimbursement

Answer 23

Indemnity

Question 24

A statement that, if discovered, would alter the underwriting decision of insurer. Considered fraud.

Answer 24

Material misrepresentations

Question 25

An absolutely true statement upon which the validity of the insurance policy depends. Breach of _____ can be considered grounds for voiding the policy.

Answer 25

Warranty

Question 26

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

Answer 26

Concealment

Question 27

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 deceive or cheat a party. Grounds for voiding an insurance contract.

Answer 27

Fraud

Question 28

The intentional act of relinquishing a known right, claim, or privilege

Answer 28

Waiver

Question 29

A legal process that can be used to prevent a party to a contract from re-asserting a right or privilege after that right or privilege has been waived

Answer 29

Estoppel

Question 30

The relationship of the number of deaths that occur within a group to the number of people who belong to the group over a particular period of time

Answer 30

Mortality rate

Question 31

The appearance of, or an assumption of, authority based on the actions, words, or deeds of the principal or because of circumstances the principal created.

Answer 31

Apparent

Question 32

This type of plan allows a closely held corporation to, upon the death of a stockholder, purchase their stock from the deceased's estate.

Answer 32

Stock redemption plan

Question 33

Where should disclosure statements be placed in an insurance advertisement?

Answer 33

In close proximity to the statements to which the information relates or so prominent that it cannot be minimized, obscured or ambiguous.

Question 34

The cash value in a ________ policy has to build up faster since the funds are intended to be used while the insured is alive, the premium for this type of policy is considerably more expensive than an ordinary straight life policy.

Answer 34

An endowment policy

Question 35

__________ is something of value that each party gives to the other. The consideration on the part of the insured is the payment of premium and the representations made in the application.

Answer 35

Consideration

Question 36

__________ dividends are paid when fewer insured died than were actuarially projected; therefore, fewer death claims were paid so dividends are paid out.

Answer 36

Mortality

Question 37

The type of interest that the insurer assumes that investment premium dollars will earn.

Answer 37

Assumed rate of interest

Question 38

When do full social security benefits begin?

Answer 38

When the worker reaches age 65 and has earned the required amount of work credits

Question 39

A type of decreasing term insurance in which the face amount directly correlates with the amount of outstanding loan and length of time remaining on the mortgage. The face amount decreases as the amount owed on the mortgage decreases.

Answer 39

Mortgage Protection Term (Mortgage Redemption)

Question 40

The term used for a term life insurance policy with the convertible option because the policyholder wants to convert the policy to permanent insurance.

Answer 40

Interim term

Question 41

Type of term insurance featuring level annual premiums and a death benefit that increases each year over the duration of the policy term.

Answer 41

Increasing term life insurance

Question 42

What does level refer to in level term insurance?

Answer 42

Face amount

Question 43

When a breadwinner insured by a Family Policy dies, what rights are provided to other family members that are covered under the policy?

Answer 43

They can convert their coverage to permanent insurance if requested within the time star in the policy

Question 44

This type of policy combines decreasing term insurance with whole life insurance to provide the insured's family with a monthly income upon the death of the insured, while maintaining permanent coverage until the end of the income payments?

Answer 44

Family income policy

Question 45

What policy component must decrease in decreasing term insurance?

Answer 45

Face amount

Question 46

A ________ policy provides permanent life insurance for the breadwinner and term riders for other family members. With this type of policy, the principal wage earner is the only family member insured.

Answer 46

Family policy

Question 47

Two features of level premium term:

Answer 47

Level DB | Level premium

Question 48

Two features of annually renewable term:

Answer 48

Renews each year w/o proof of insurability | Premiums increased at attained age

Question 49

Two features of decreasing term:

Answer 49

Coverage gradually decreases at predetermined times | Premiums stay level

Question 50

2 Features of increasing term life insurance

Answer 50

Coverage increases each year | Premiums stay level