Basic Principles Cont’d Flashcards

1
Q

The Role of Insurance

A
  1. To transfer the risk of financial loss from one party( an individual) to another (insurance company) through a legal contract.

– Also transfer of risk through the pooling or accumulation of funds.

– Insurance spreads the cost of the unexpected financial loss to many individuals.

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2
Q

Premium

A

Amount to be paid for an insurance policy.

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3
Q

Indemnified

A

The policy of the insured restores them to the financial position they enjoyed before they’re insured loss.

Most insurance contracts pay off financial losses and reimburse the insured.

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4
Q

Annuity

A

A series of payments made at equal intervals parentheses (e.g., savings account, monthly mortgage payments, insurance payments, and pension payments).

I knew what he’s provided stream of income by making a series of payments over the certain period of time.

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5
Q

Types of Insurance Companies

classified in broad terms

A
  • Private/commercial

- Government

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6
Q

Private (commercial) Insurance Companies

A

Commercial insurers are private companies offering many lines of insurance. They are funded through premiums and sell insurance for profit.

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7
Q

Multi-Line Insurers

A

Companies that sell more than one line of insurance.

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8
Q

Monoline Insurer

A

The company that only sells one light of insurance.

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9
Q

Government Funded Insurance

A

Grant programs are funded with taxes and serve national and state social purposes.

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10
Q

Stock Insurance Companies

A
  • Organized and incorporated understate law.
  • Nonparticipating, meaning policyholders do NOT participate in the companies profits NOR in electing the companies Board of Directors.

- Owned by the stockholders, who get paid a share of the company’s profit through dividends.

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11
Q

Mutual Insurers

A
  • Also organized and incorporated under state laws.
  • Participating, meaning these companies have no stockholders, instead the policyholders on the company. The insured are both customers and owners, having the right to vote for board members and get paid a share of the companiy’s profits through dividends.
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12
Q

Mutualization

A

The process of a stock company being converted into a mutual company.

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13
Q

Demutualization

A

The process of a mutual company being converted into a stock company.

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14
Q

Strong Assessment Mutual Insurers

A

Classified by the way they charge premiums. (Assessment of loss method)

Pure assessment mutual companies operate on the basis of loss-sharing by group members.

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15
Q

 Risk Retention and Risk Purchasing Groups (RRG)

A

A mutual insurance company formed to insure people in the same business, occupation, or profession.

Group owned liability: assumes and spreads product liability and commercial risks among members.

Primary purpose is to retain or pool risks

Licensed in state of domicile

Owned by policyholders (business owners who are also shareholders).

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16
Q

Reciprocal Insurers

A

Similar to mutual insurers

Organized on the basis of ownership by their policyholders

It is the policyholders themselves who ensure other policyholders’ risks.

An attorney-in-fact manages reciprocal insurers.

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17
Q

Reinsurers and Retention Limits

A

Reinsurers are a specialized branch of the insurance industry because they insure insurers.

Reinsurance is an arrangement by which an insurance company transfers a portion of an assumed risk to another insurer.

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18
Q

Ceding company

A

Company transferring the risk.

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19
Q

Reinsurer

A

The company assuming the risk.

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20
Q

Net Retention

A

Also known as net line, the portion of the risk the ceding insurer retains.

21
Q

Primary Insurer

Reinsurance

A

The company that transfers it’s less exposure to another insure

22
Q

Treaty Reinsurance

A

A typical reinsurance contract between two insurance companies, which involves an automatic sharing of the risks assumed.

23
Q

Service providers

A

Sell medical hospital services to their subscribers, NOT insurance, in return for premium payment.

  • HMOs
  • PPOs
24
Q

Fraternal Benefit Societies

A

Noted primarily for their social/charitable/benevolent activities, have memberships based on religious, national, or ethnic lines.

Must be nonprofit, have a large system that includes ritualistic work, and maintain a representative form of government with elected officers.

25
Q

Lloyd’s of London

A

Not an insurer, but rather a syndicate of individuals that underwrite insurance.

They gather and disseminate underwriting information that helps their associates settle claims and disputes through member underwriters.

Provides coverage that might otherwise be unavailable in certain areas.

26
Q

Self-Insurers

A

Not a method of transferring-risk

Defined as a self-funded plan to cover potential losses

27
Q

Types of Insurance Companies

A

Captive Insurer

Surplus Lines Insurance

Industrial Insurer

28
Q

Private Versus Government as Insurer

A

Private or commercial insurance companies may be proprietary or cooperative (like a profit motivated stock company), and they offer individual, group, or blanket insurance policies.

Also commonly called social insurance programs, owned and operated by federal/state entities and may either:
1. Write insurance to cover perils not insurable by commercial insurance (i.e., war, flood, nuclear reactions).
2. Write insurance on risks that are insurable and does compete with the commercial marketplace.
Generally Ray insurance to cover catastrophic pearls or a segment of society against catastrophic medical costs.

29
Q

Social Insurance Programs

A

Generally cover catastrophic perils (i.e., flood) or protect a segment of society (elderly, veterans, etc.) against catastrophic medical costs.

30
Q
OASDI
Medicare
Medicaid
SGLI & VGLI
National Flood Insurance Program
Federal Crop Insurance Program
A

(Government Insured) Social Insurance Programs

31
Q

Insurer Classification According to Authorization

A

And the insurar that is admitted or authorized to transact insurance business in a particular state is referred to as an authorized ensure in that stated.

Also known as admitted insurer‘s, an authorized company is issued a certificate of authority.

32
Q

Insurer Classification According to Domicile

A

A domestic insurer has its principal or home office and the state where it is authorized.

33
Q

Departments within an Insurance Company

A
Marketing/sales
Sales
Underwriting
Claims
Actuarial
34
Q

Producers

A

Agents (rep the insurer)
Brokers (rep the insured)
Solicitors (rep/solicit on behalf of agent)
Service reps (do not engage in sales)

35
Q

Underwriter

A

The person who identifies, assesses, examines, and classifies the amount of risk represented by an applicant to determine if coverage should be provided (determining premium), and approve/denies applications.

36
Q

How Insurance is Sold

A
  • Mostly purchased through licensed producers
  • Producers may be agents who rep a particular company, or brokers who aren’t tied to any particular company.
  • An agent or broker’s contract and appointment with the insurance company are what grant them authority to bind an insurer to an insurance contract.
37
Q

Career Agency System

A
38
Q

Managerial System

A
39
Q

Personal Producing General Agency System

A
40
Q

Independent Agency System

A
41
Q

Other Methods of Selling Insurance

A
42
Q

Carrier Agencies

A
43
Q

Personal Producing General agencies

(PPGs)

A
44
Q

Captive Insurer

A

And insurer established and owned by a parent firm for the purpose of ensuring the parent firm’s loss exposure is known as a captive ensurer.

45
Q

Surplus Lines Insurance

A

Not available through private or commercial carriers.

Refers to the non-traditional insurance market.

Personal will seek coverage through a surplus lines broker in order to secure coverage for high, substandard, or unusual biks. Next

In order to qualify for surplus lines coverage, an effort has to be made to secure coverage in the authorized market. An individual may not attempt to secure coverage just because it may be less expensive.

46
Q

Industrial Insurer

A

Characterized by relatively small face amounts (usually $1000-$2000) with premiums paid weekly.

47
Q

Actuary

A

Calculates policy rates, reserves, and dividends and makes other applicable statistical studies and reports. An actuary is concerned about the cost of insurance as a hole for a specific class of risk.

48
Q

Adjuster

A

Engages in investigative work to obtain information for adjusting, settling, or denying insurance claims.