Terms Flashcards
(48 cards)
Actuarial Department
This is the department that calculates policy rates, reserves, and dividends.
🔹 Memory Tip: Think: “Insurance Math Experts.”
🔹 Real-World Connection: Actuaries are like financial fortune-tellers—they use math, statistics, and risk analysis to predict how much the company needs to charge to stay profitable.
🔹 Anecdote: Ever wonder why younger people pay lower premiums? Actuaries analyze risk—since younger people are less likely to pass away soon, their rates are lower.
🔹 Popular Tip: If you’re good at math and love data, actuarial science is one of the highest-paying careers in insurance!
Alien Insurer
In the United States, this is the insurer whose principal office and domicile location is outside this country
🔹 Memory Tip: Think: “Foreign Company Operating in the U.S.”
🔹 Real-World Connection: If a life insurance company is headquartered in Canada but sells policies in the U.S., it is considered an alien insurer in the U.S.
🔹 Popular Tip: Not to be confused with a foreign insurer, which is based in another U.S. state but operates outside its home state.
Adjuster
This is the person who investigates claims and arranges for them to be settled or denied
🔹 Memory Tip: Think: “Claims Investigator.”
🔹 Real-World Connection: Like a referee in a game—adjusters review the situation, check the facts, and make a final decision based on the rules (policy terms).
🔹 Popular Tip: Adjusters may work for the insurance company (staff adjusters) or independently (independent adjusters). If there’s a dispute, policyholders can hire a public adjuster to negotiate on their behalf.
Admitted Insurer
This is an insurer who has received a certificate of authority from a state’s department of insurance which authorizes them to conduct insurance business in that state.
🔹 Memory Tip: Think: “State-Approved Insurer.”
🔹 Real-World Connection: Just like a licensed driver needs a state-issued driver’s license, an insurer needs state approval to operate legally.
🔹 Popular Tip: Policies from admitted insurers are protected by the state’s Guaranty Association, meaning if the insurer goes bankrupt, policyholders may still receive coverage up to state limits.
Agent
This is an individual or organization that’s authorized to solicit, sell, and transact (bind) coverage for specific insurance providers under the terms of one or more agent contracts.
🔹 Memory Tip: Think: “Middleman Between Insurer & Customer.”
🔹 Real-World Connection: Like a car dealership that sells vehicles from specific manufacturers, an insurance agent sells policies from specific insurance companies.
Authorized Insurer
This is an admitted insurer.
Definition: Another term for an admitted insurer, meaning the insurance company has received a certificate of authority from the state’s Department of Insurance to legally operate in that state.
🔹 Memory Tip: Think: “State-Approved & Regulated.”
🔹 Real-World Connection: Just like a restaurant needs a health permit to operate legally, an authorized insurer needs state approval to sell insurance.
🔹 Popular Tip: Authorized (admitted) insurers are backed by the State Guaranty Association, which helps cover claims if the insurer goes bankrupt.
Broker
A person who represents the insured (client) rather than the insurance company. Brokers help clients find the best policy but cannot bind coverage because they are not directly appointed by an insurer.
🔹 Memory Tip: Think: “Shopping Assistant for Insurance.”
🔹 Real-World Connection: Like a mortgage broker who shops around for the best loan, an insurance broker compares policies from different companies to find the best fit for the client.
🔹 Popular Tip: Unlike agents, who represent insurance companies, brokers work for the client and must obtain coverage through an authorized insurer.
Captive Insurer
An insurance company that is owned and controlled by a parent company to insure the parent company’s risks.
🔹 Memory Tip: Think: “In-House Insurance Company.”
🔹 Real-World Connection: Large corporations sometimes create their own insurance companies instead of buying policies from traditional insurers. For example, Amazon could set up a captive insurer to cover risks for its warehouses and delivery operations.
🔹 Popular Tip: Captive insurers help companies save money and customize coverage, but they must still comply with insurance regulations.
Certificate of Authority
A license issued by a state’s Department of Insurance that allows an insurer to legally conduct business in that state.
🔹 Memory Tip: Think: “Insurance Company’s Business License.”
🔹 Real-World Connection: Just like a doctor needs a medical license to practice in a state, an insurance company needs a certificate of authority to sell policies in that state.
🔹 Popular Tip: Insurers with this certificate are called admitted (authorized) insurers and are backed by the State Guaranty Association for policyholder protection.
Claims Department
This is the department that’s responsible for processing, investigating, and paying claims.
🔹 Memory Tip: Think: “Where Claims Get Approved or Denied.”
🔹 Real-World Connection: When a policyholder files a claim (e.g., after a car accident or a death in the family), the claims department reviews the details, checks policy coverage, and determines if and how much will be paid.
🔹 Popular Tip: The adjuster (from the claims department) investigates claims to prevent fraud and ensure fair payouts.
Divisible Surplus
The portion of an insurance company’s earnings that is left over after setting aside money for reserves, operating expenses, and other obligations. This surplus is then paid to policyowners as dividends (for participating policies).
Domestic Insurer
An insurance company that is incorporated, headquartered, and authorized in the same state where it conducts business.
🔹 Memory Tip: Think: “Home-State Insurer.”
🔹 Real-World Connection: If an insurance company is founded in California and sells policies there, it is considered a domestic insurer in California.
🔹 Popular Tip: A domestic insurer follows the regulations of its home state, even if it operates in other states. If it sells policies outside its home state, it may be considered a foreign insurer in those states.
Foreign Insurer
An insurance company that is domiciled in one U.S. state but is authorized to do business in a different state.
🔹 Memory Tip: Think: “Out-of-State Insurer.”
🔹 Real-World Connection: If an insurer is domiciled in Montana but sells policies in California, it is considered a foreign insurer in California.
🔹 Popular Tip: A foreign insurer must obtain a certificate of authority from the state where it wants to do business. However, it still follows the financial regulations of its home state.
Fraternal Benefit Society
A non-profit, member-based organization that provides insurance benefits only to its members. These societies are often based on a common religious, ethnic, or professional affiliation.
🔹 Memory Tip: Think: “Member-Only Insurance Club.”
🔹 Real-World Connection: Groups like the Knights of Columbus or Modern Woodmen of America offer life insurance to their members as part of their fraternal benefits.
🔹 Popular Tip: Since they are non-profit, fraternal insurers are not subject to all the same regulations as commercial insurers, and their policies are typically considered participating (eligible for dividends).
Independent Insurance Agency
An insurance agency that can represent multiple insurance companies through contractual agreements, rather than being tied to just one insurer.
🔹 Memory Tip: Think: “Many Companies, More Options.”
🔹 Real-World Connection: Similar to a travel agent who can book flights with multiple airlines, an independent insurance agency can shop around and offer clients policies from different insurers.
🔹 Popular Tip: Unlike a captive agency (which sells policies for only one insurer), an independent agency can compare multiple policies to find the best fit for the client.
Insurance
This is the transfer of risk through the pooling or accumulation of funds.
🔹 Memory Tip: Think: “Sharing the Risk.”
🔹 Real-World Connection: Just like a GoFundMe helps a group of people collectively cover someone’s unexpected expenses, insurance spreads financial risk among many policyholders so no one person bears the full burden.
🔹 Popular Tip: Insurance follows the law of large numbers—the more people insured, the more predictable losses become, allowing insurers to set fair premiums.
Insurer
An insurance company that provides coverage and assumes financial risk in exchange for premiums.
🔹 Memory Tip: Think: “The Risk Taker.”
🔹 Real-World Connection: If you buy life insurance from XYZ Insurance Co., that company is the insurer—it collects premiums and agrees to pay out claims if a covered event occurs.
🔹 Popular Tip: The insurer issues the policy, while the insured is the person or entity covered by it.
Lloyds of London
This is NOT an insurer but a group of individuals and companies that underwrite unusual insurance policies.
🔹 Memory Tip: Think: “Insurance Stock Market.”
🔹 Real-World Connection: Lloyd’s is known for insuring unusual risks, like a celebrity’s vocal cords, an athlete’s legs, or even a space mission.
🔹 Popular Tip: The actual insurers within Lloyd’s are called “syndicates”, and they specialize in high-risk or specialty insurance that traditional insurers may avoid.
Marketing Division
The department responsible for attracting potential customers and promoting insurance products through advertising, branding, and sales strategies.
🔹 Memory Tip: Think: “Getting Customers In the Door.”
🔹 Real-World Connection: Just like a restaurant markets its menu to attract diners, an insurance company’s marketing division promotes policies through TV ads, social media, agents, and direct mail.
🔹 Popular Tip: The marketing division works closely with the sales team and agents/brokers to generate leads and convert prospects into policyholders.
Monoline Insurer
An insurance company that specializes in selling only one type (line) of insurance instead of offering multiple coverage options
🔹 Memory Tip: Think: “One Specialty, One Focus.”
🔹 Real-World Connection: A company that only sells workers’ compensation insurance or only provides auto insurance would be considered a monoline insurer.
🔹 Popular Tip: Monoline insurers focus on expertise in a single area, while multi-line insurers offer a variety of coverages (e.g., auto, home, and life insurance).
Multi-Line Insurer
An insurance company or agent that offers multiple types (lines) of insurance, providing a one-stop shop for customers’ coverage needs.
🔹 Memory Tip: Think: “Bundle & Save!”
🔹 Real-World Connection: Companies like State Farm, Allstate, and Nationwide sell auto, home, life, and health insurance, allowing customers to get all their coverage from one place.
🔹 Popular Tip: Many multi-line insurers offer multi-policy discounts (e.g., bundling auto and home insurance for a lower rate).
Mutual Insurance Company
An insurance company owned by its policyholders rather than stockholders. It has no capital stock and typically issues participating policies, which may pay dividends to policyholders.
🔹 Memory Tip: Think: “Owned by Policyholders, Not Investors.”
🔹 Real-World Connection: Companies like New York Life and Northwestern Mutual are mutual insurers—since they don’t have stockholders, any profits are either reinvested or returned to policyholders as dividends.
🔹 Popular Tip: Mutual insurers typically sell participating policies, meaning policyholders may receive dividends, but dividends are never guaranteed.
Not-Admitted (Unauthorized) Insurer
An insurance company that does not have a certificate of authority to operate in a specific state. It cannot sell standard policies but may offer specialty or high-risk coverage through surplus lines brokers.
🔹 Memory Tip: Think: “Not State-Approved, But Still Available.”
🔹 Real-World Connection: If someone needs earthquake insurance in California but standard insurers won’t cover them, they might turn to a non-admitted insurer for a specialized policy.
🔹 Popular Tip: Non-admitted insurers are NOT backed by the State Guaranty Association, meaning if they go bankrupt, policyholders are not protected by the state.
Nonparticipating Policy
This is a policy that’s typically issued by stock companies. This type of policy doesn’t allow policy owners to participate in dividends or to elect the board of directors.
🔹 Memory Tip: Think: “No Dividends, No Voting.”
🔹 Real-World Connection: Just like stockholders control public companies, in a stock insurance company, only shareholders—not policyowners—receive profits (dividends).
🔹 Popular Tip: Nonparticipating policies usually have lower premiums compared to participating policies because they don’t include potential dividend payouts.
