Analysis and Evaluation of Risk Exposures (Slides)

Question 1

Health Insurance Mortality vs Morbidity

Answer 1

Mortality Rate: the number of deaths per thousand among a group of people

Morbidity Rate: the ratio of the occurrence of sickness to the number of healthy persons among a group of people over a given period of time

Question 2

7 Risks Associated with Owned Property

Answer 2

1. Negligence
2. Acting as a childcare provider
3. Renting property to others
4. Employing household workers directly
5. Engaging in business activities
6. Engaging hobbies that have the potential to cause harm to others
7. Owning pets

Question 3

4 Factors that Increase the Need for Disability Insurance

Answer 3

1. Excess body weight
2. Tobacco use
3. Participation in high-risk activities
4. Chronic health conditions (i.e. diabetes, drugs, depression)

Question 4

Difference Between Strict and Absolute Liabilities

Answer 4

Strict Liability: refers to the accountability of a firm when a product or service is used by consumers

Absolute Liability: arises from a client’s dangerous activities
- most states have attractive nuisance laws based on Absolute Liability

Attractive nuisance: something owned by a client that may attract children to the person’s property and requires the client to use special care to protect trespassers from harm caused by the property

Question 5

6 Risk Factors for Auto Insurance

Answer 5

1. Gender
2. Age
3. Marital status
4. Credit history
5. Car’s make and model
6. City and neighborhood where housed

Question 6

5 Types of Auto Insurance Coverage

Answer 6

1. Liability coverage
2. Uninsured motorist coverage
3. Collision coverage
4. Underinsured motorist coverage
5. Comprehensive coverage

Question 7

8 Types of Homeowners Policies

Answer 7

1. Basic Homeowner’s Policy (HO-1)
2. Broad Form Policy (HO-2)
3. Special Form Policy (HO-3)
4. Tenants and Cooperative Policies (HO-4)
5. Comprehensive Form Policy (HO-5)
6. Condominium Policies (HO-6)
7. Market Value Policy (HO-8)
8. Farm and Ranch Policies

Question 8

Elements Associated with a Typical Homeowners Policy

Answer 8

Declarations
Names of the insureds
Policy number
Inception/issue date
Current policy period (typically one year)
Effective dates for changes or endorsements
Agent / Insurer contact information
List of all properties covered by the policy
Type of policy
Deductible amount
Coverage on the home’s physical structure and the premium
Coverage for other structures
Clarification on the replacement or actual cash value coverage
Living expenses if the home is uninhabitable due to a covered loss
Personal liability limit
Medical expense limit if a person is injured on the property
Definitions
Insurance agreement listing covered perils
Conditions (what the client must do to main coverage)
Exclusions
Modifications and credits
Lender information
Hurrican coverage details
Inflation endorsement
Flood Form endorsement

Question 9

2 Concepts Insurance Companies Use to Price

Answer 9

EMPL: estimated maximum possible loss (worst-case scenario for a single risk

EPL: estimated probable loss (estiate of a realistic loss, assuming that the insured has and will continue to take steps to avoid losses)

Question 10

10 Common Exclusions to Special Form Policy (HO-3)

Answer 10

1. Termites
2. Flood
3. Earthquakes
4. Landslides
5. Ordinance of Law
6. Damage from Water
7. War
8. Power Failure
9. Intentional Damage
10. Neglect

Question 11

Homeowners / Renter’s Contract Specifications

Answer 11

Specifies what the insurance company agrees to do in exchange for the premium the client pays

Describes

• the client responsibilities
• terms of the coverage

An insured may not assign a homeowner’s policy to another person or entity

Question 12

Types of Coverage Within a Homeowners Policy

Answer 12

Dwelling Coverage (Coverage A)
Appurtenant Structures Coverage (Coverage B)
Personal Property / Content Coverage (Coverage C)
Additional Living Expenses Coverage (Coverage D)
Liability Coverage (Coverage E)
Medical Payments Coverage (Coverage F)
Property of Other Coverage (Coverage G)

Question 13

Approaches Used by Insurance Companies to Settle

Answer 13

1. Replacement cost
2. Repair cost
3. Actual cash value

Question 14

11 Supplemental Coverage (can be purchased)

Answer 14

1. Additional replacement cost coverage
2. Tree removal coverage
3. Trees, shrubs and other plants coverage
4. Fire department service charge coverage
5. Credit card, fund transfer card forgery and counterfeit money charge
6. Ordinance and law coverage
7. Personal property endorsement coverage
8. Water backup and sump pump overflow coverage
9. Earthquake insurance coverage
10. Flood insurance coverage
11. Watercraft endorsement coverage

Question 15

8 Underwriting Factors

Answer 15

1. Amount and type of coverage
2. A home’s age and condition
3. A client’s claim history
4. Construction material
5. Availability of local fire protection
6. Availability of law enforcement or crime prevention services
7. Location
8. The cost to rebuild a client’s home

Question 16

Homeowners Policy Discounts

Answer 16

1. Paid-in-full discount
2. Older homeowner discount
3. Claim-free discount
4. Non-smoker discount
5. New home discount
6. Credit-score insurance discount
7. Multi-policy discount
8. Protective devices discount (smoke detectors, fire extinguishers, burglar alarms, heavy duty locks, etc.)

Question 17

3 Ways Insurance Companies View the Value of a Home

Answer 17

1. Market Value: what the property would sell for on the open market
2. Actual Cash Value: what the property is worth today after adjusting for normal wear and tear
3. Replacement Cost: the cost to rebuild if destroyed

Question 18

80% HomeOwner Rule

Answer 18

A homeowner must maintain coverage equal to 80% of the home’s replacement value
* if the coverage falls below this threshold, the insurance company will pay a proportional amount of the total claim

Amt of Coverage / Replacement Value x 80% x (loss - deductible)

Question 19

6 Elements Typically Found in Personal Automobile Policy

Answer 19

Part A: Liability Limits
Part B: Medical Payments and Exclusions
Part C: Uninsured Motorists Coverage
Part D: Collision Coverage - payment for damage to an inanimate objective
Comprehensive Coverage - payment for damage to client’s vehicle
Part E: Duties After an Accident of Loss
Part F: General Provisions and Exclusions

Question 20

PAP Liability (Personal Automobile Policies) from Part A of Auto Insurance

Answer 20

Bodily injury liability insurance
Property damage liability insurance
Uninsured motorist’s insurance

Question 21

Optimal Coverage for Additional Premium for Auto

Answer 21

Accidental death benefit
Auto replacement coverage
Comprehensive coverage
Customer / Non-factory Equipment
Gap coverage for leased or financed vehicles
Medical payments
Physical damage / Repair / Replace coverage
Rental reimbursement
Towing
Uninsured motorist property damage

Question 22

Split Limit Auto Coverage

Answer 22

25 / 50 / 10

$25,000 is the maximum bodily injury liability payment under the policy for injury (or deaths) to one person involved in a single accident

$50,000 is the maximum bodily injury liability payment that can be made for injuries (or death) to all persons involved in a single accident

$10,000 is the maximum property damage liability payment that can be made under the policy for damages to another person’s property from a single accident

Question 23

8 Factors That May Affect a Client’s Auto Insurance Premium

Answer 23

1. Age, gender and marital status
2. Coverage limits
3. Driving record
4. Household driving information
5. Location
6. Type of vehicle
7. Use of vehicle; how far a client drives to work and annual mileage
8. Credit history

Question 24

PAP (Personal Auto Policy) Discounts

Answer 24

Anti-theft devices
Auto club memberships
Auto / home packages
Car pool
College student away from home
Defensive driver
Good driver
Good student
Low annual mileage
Mature driver credit
Multiple vehidles
Safety devices

Question 25

5 Strategies to Reduce Auto Insurance Costs

Answer 25

1. Elect the highest deductible they can afford
2. Consolidate insurance needs
3. Maintain a good driving record
4. Choose a client’s vehicle carefully
5. Maintain a good credit history

Question 26

PUP (Personal Umbrella liability Policy) Definition and 2Types of Damages Coverages

Answer 26

Also known as Excess Liability policy

Extend a client’s coverage above the limits of the liability coverage from the homeowners and auto insurance policies

1. Compensatory Damages: financial losses suffered by the injured party and future losses they may suffer resulting from an injury they claim in the lawsuit.
2. General Damages: non-monetary losses suffered by the injured party, such as pain and suffering or mental anguish

Question 27

Professional Liability Insurance (Errors and Omissions)

Answer 27

Coverage is for wrongful practices by professional service providers
- Malpractice is a specific type of professional liability police that protects physicians and other licensed professionals from liability associated with body injury, medical expenses, and property damage, as well as the cost of defending lawsuits related to such claims

Question 28

Workers’ Compensation Insurance

Answer 28

Protects a client who owns a business from claims by employees who suffer a work-related injury or illness

Question 29

Health Savings Accounts

Answer 29

An HSA allows clients to pay for current health expenses and save for future qualified medical expenses on a pretax basis.

A health savings account (HSA) generally is available to those who enroll in an HDHP
- Under current law, an insured person must be covered under an HDHP to open an HSA

Contributions to HSAs are limited to $3,600 for individuals and $7,200 for families in 2021.
- Those aged 55 or older may increase their contribution by $1,000. Funds deposited into an HSA are not taxed.

The balance of an HSA account grows tax-free, and any amounts held in the account are available on a tax-free basis to pay medical costs.. Additionally, an insured person cannot be eligible for Medicare or covered by another plan that is not an HDHP, or a general-purpose healthcare flexible spending account (HCFSA), or be a dependent on another person’s tax return.

HSA monies must be used to pay qualified medical expenses. Examples include:

• Unreimbursed medical expenses, such as deductibles and copayments
• Long-term-care insurance premiums
• Health insurance premiums associated with a termination of service through the Consolidated Omnibus Budget Reconciliation Act (COBRA)
• funds may not be used for elective cosmetic surgery or over-the-counter drugs in order to be considered a tax-free distribution,

Distributions that are used for any other purpose are subject to a 20% penalty and income taxation. The penalty is waived if the client is 65 years of age or older, disabled, or deceased.

HSA accounts can have a named beneficiary. If a spouse is the named beneficiary, due to the tax-free nature of the account, the surviving spouse may roll over the balance into their own HSA.-

• If the beneficiary is a non-spouse, the balance in the account must be distributed and taxed. If no beneficiary is named, the account balance will be taxed to the account owner’s estate.
• It is also possible to use IRA account balances to fund an HSA. The IRS allows clients to transfer funds from an IRA to an HSA one time during their lives. The amount of the transfer is limited to the annual HSA contribution limit.

Question 30

Examples of Intentional Torts

Answer 30

Assault and battery
Slander
Trespassing
Being convicted of fraud

Question 31

Definition off Negligent, and 4 Features Needed to Exist

Answer 31

The failure to use a degree of care that an ordinary person of reasonable prudence would use under a given or similar circumstance

1. The client must have a duty to act
2. The client must engage in a break of the duty to act
3. The client must cause injury or damage due to the breach of duty to act
4. The injury or damage must be a direct result of the negligence

Answer 32

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