1: Insurance Basics for Life and Health Flashcards
Insurance is defined as the ___________ of risk.
transference
Risk is defined as the “_________ or possibility of a loss.”
chance
In life insurance, an insured’s risk is ___________ _______
premature death
Insurance takes that large uncertain financial risk, and for a relatively minimal ____, passes the responsibility to the insurer.
fee
Once the insurer accepts the _____, it then spreads that _____ among other insureds with like exposure.
risk, risk
Insurance then becomes the “_____” paying for the few.
many
Risk has now been defined as the “____________ or chance of a loss.”
possibility
There are 2 types of risk: one type is ________, while the other is not.
insurable
The first type of insurance is referred to as “______ risk”
pure
In a pure risk, there is only a
possibility of loss
Examples of pure risk:
death, sickness, house burning down
The second type of insurance is ________ risk
speculative
With a speculative risk, an individual has the chance to _____ or lose.
gain
The insurance companies never insure speculative risks; they ONLY insure ______ risks.
pure
When Jill purchases an insurance policy, she is _________ risk from herself to the insurance company.
transferring
If Jill chooses not to expose herself to the risk, the risk can be ________
avoided
By ________ the risk, the chance of it occurring is less.
reducing
When Jill _______ the risk or a portion of the risk, she is willing to pay for the loss, when and IF it occurs.
retains
When a risk is ______, Jill assumes a portion of the risk in relationship to her invested portion.
shared
________ means that Jill takes the risk she is personally responsible for and ________ it to another party, who then assumes the risk.
transferring, transfers
A _______ is defined as a cause of a loss.
peril
Perils are two things:
accidents and sickness
Premature death, medical expenses and disabilities are caused by _______
perils
Hazards increase the _________ of a loss
chance
A hazard makes the risk ______ likely to occur.
more
3 TYPES OF HAZARDS
physical hazard, moral, morale
these hazards are physical in nature. you can see, touch or smell them. the ice in the above example is a _______ hazard. smoking is also this type of hazard.
physical
A ________ hazard is based on a person’s values or ethics.
moral
a policyholder might attempt to create a loss on purpose in order to take advantage of the insurance company is an EXAMPLE of what hazard?
moral
This hazard increases the chance that a company might have to pay a claim.
moral
This hazard deals more with carelessness or irresponsibility.
morale
Morale hazard: Someone who lives an unhealthy lifestyle or takes unnecessary risks may increase the chance of a ______
loss
the LAW OF LARGE NUMBERS is a concept that states the _______ numbers used to a establish a statistic, the more accurate it will be.
more
The chance of heads turning up in a coin toss is?
50/50
Statistics would be much more accurate after how many coin tosses?
100
Because insurance companies have access to statistics on large numbers of our population, they can adequately predict an insured’s chance of death at a ________ age or the chance that a house might burn to the ground.
specific
The LAW OF LARGE NUMBERS is used to adequately ___________ and _________ risk.
predict, anticipate
Lloy’s is a company that insures by:
spreading risk over a group of investors
Lloyd’s of London is the original ______
Lloyd’s
Whereas Lloyd’s is not considered is not considered to be an insurance company, they do _______
insure
Lloyd’s specialize in what type of situations:
unique, hard
Stock companies are companies owned by who?
stock or shareholders
The policyholder does not normally participate in receiving any
divisible surplus
STOCK companies both the product and company are referred to as
nonparticipating
Stock companies do not generally pay what to the policyholders?
dividends
Mutual companies owned by its
policyholders
Since each policyholder has an ownership interest in the company, when the company makes a _______, it pays it out to the policyholder as a ________ surplus.
profit, divisible
IN mutual companies, since the policy owner is receiving the dividend, this is referred to as a ____________ product or company.
participating
The dividend from a participating product is defined as a
return of premium
The GROSS premium of the insurance contract is determined by 3 SOURCES:
risk, interest and expenses
For example, if fewer people had claims than the company expected in the current year, the company may not need as much as it collected and as a result has a ________ surplus.
divisible
Any dividend returned to the policyholder will not be what?
taxed
A fraternal is a nonprofit entity that organized under what type of system?
lodge
It has a large enough membership that the organization is able to provide insurance protection to WHO?
its own members
Dividends can be project, but NEVER what?
guaranteed
Reinsurance is between what?
Insurers
Occasionally an insurance company will need to spend its risk beyond its own policyholders is known as what?
ceding company
If a risk is larger than the company is comfortable with, it may seek out a reinsurer known as?
assuming company
A reinsurance treaty is the agreement between the ___________ and the _________ company.
ceding, assuming
The four elements of a legal contract are
competent parties, legal purpose, offer and acceptance, consideration
In a legal binding contract, each party must be ______ competent
legally
The intent of the contract itself must be for a _____ purpose
legal
For offer and acceptance, the offer is most typically made by who?
the applicant
The first party to offer full “__________” as part in the transaction makes the offer.
consideration
Agreement then results when an offer is
made and accepted
Counter offers occur when an applicant what that is REJECTED
application and premium
In the insurance transaction contract, CONSIDERATION is defined as something of value exchanged between who
each party of the contract
In the insurance transaction the applicant gives what 2 things of value:
premium and information on the application
In exchange for the applicant’s consideration, the company gives the promise to
pay
A warranty is a ________ or a guarantee
promise
A representation is the truth to the best of who’s knowledge?
applicant
A misrepresentation is a
mistruth or a lie
A material statement is something that had the insurance company been aware of, the information would have
affected how or IF the policy was issued
concealment is the hiding or withholding of the
truth
Insurable interest the
financial or emotional interest
Insurable interest must exist at the time of the
sale
Consent is established by obtaining a
signature on the application
Based upon contract law, a contract does not go into effect until after the ___________ is complete
agreement
