1 - General Insurance Flashcards
What is a Peril?
- for life insurance the peril is death - insurance agrees to cover perils
What is the law of large numbers?
- The larger the group the more accuracy losses can be predicted - this prediction allows the issuers to charge premiums that will properly cover all claims and operating costs
What is a Stock Insurer and how does it function regarding dividends?
- stock insurers are owned by stockholders - therefore dividends are paid to the stockholders - stock insurers offer non-par policies meaning they don’t pay out dividends to the policy holders (because their stockholders get dividends)
What is a Mutual Insurer and how does it function with paying dividends?
-owned by policy holders - therefore policy holders get dividends - issue whole life policies or participating policies - the profits returned to policyholders as dividends are non-taxable and considered partial return of premium
What are Domestic, Foreign and Alien Insurance companies?
- Domestic: state where the company is incorporated - Foreign: any state or U.S. territory other than the state where the company is incorporated - Alien: incorporated in any country other then the US
What is a Participating Policy?
Policies that pay dividends
What are the elements of a legal contract? Describe them.
CLOAC 1) Consideration: exchanging things of value. insured gives information and pays the premium in exchange for the promise to pay policy by insured. 2) Legal Purpose: risk transfer doesn’t violate the law. 3) Offer: made by the insured. insured submits application and 1st months premium to insurer. counteroffer made by the insurer and either agrees to issue the policy but with a higher premium or restrictions and insured either accepts the conditions or withdraws her application. 4) Acceptance: insurer accepts risk as presented 5) Competent Parties: insured is age 18 and sane
What makes up a life insurance policy/contract?
1) Policy 2) Amendment or Rider 3) Copy of Original Contract
Adhesion - Characteristic of an Insurance Company
Provisions are written by one party (insurer) and adhered to by the other (insured). If the contract is not clear the court will take the side that adhered (insured)
Aleatory - Describe why contracts are aleatory.
The value received by each party may be unequal
Unilateral - Describe why contracts are Unilateral
Only one party is required to take action. The insurance company is legally required to pay covered losses bu the insured does not have to continue paying premiums
Conditional - Describe why contracts are conditional.
In order for the insurance company to pay a covered loss, there must be conditions. The insured pays the premium and proves that a loss occurred (ex: a death certificate)
What is the difference between a
1) Representation
2) Misrepresentation
3) Material Misrepresentation
1) Representation - information that is believed to be true to be the best of one’s knowledge at the time it is given
2) Misrepresentation - the information given that is not true but would not affect the insurance companies decision (ex: incorrect address)
3) Material Misrepresentation - incorrect information given that would affect the insurance companies decision
How many years does an insurance company have to find a Material Misrepresentation
2 years
Warranty - What is a warranty in a contract?
A warranty is a statement that is guaranteed to be true. If a warranty is not kept there is a breach of warranty and the contract is voided.
Insurance companies must always make a warranty, which is the agreement to pay if a covered loss occurs. If they do not pay then the breach their warranty and may be sued.
Insured may make a warranty, but are not obligated to. For example, they promise to not smoke. If they do end up smoking then the warranty would be breached and the contract could be voided.
