Basic principles of insurance Flashcards
What is the transfer of risk from one party to another through a legal contract?
Concept of insurance
What is the transfer of risk through pooling or accumulation of funds?
Insurance
Insurers’s Policies which restore insured to the financial position they enjoyed before the insured loss is called what?
Indemnify
What are the two classifications for an insurers? Insurance Companies?
Private (commercial) companies
Or
Government providers
What is the company providing the insurance called?
Insurer
What is the covered person known as?
The insured
Insurance programs provided by federal and state governments are known as what?
Social insurance
Government insurers are owned and operated by who?
Federal or state entity
Companies that sell more than one line of insurance are known as what?
Multi line insurers
What is a company that only sells one line of insurance called?
Mono-line insurer 
public or private company owned by shareholders, who have bought shares in the company that, in the case of a public company, trade on a stock exchange.
Stock insurance company
What is a non-participating issue policies?
- They don’t pay dividends because policy owners do not own the insurance company
- Neither does purchase of nonparticipating insurance policies grant any ownership Privilege.
What insurance company organize and Incorporated on the state law but have no stockholders?
Mutual insurance companies
Anyone who purchased insurance from a mutual insurer is both what and what?
A policy holder and owner
Mutual companies are referred to as participating companies because?
Policyholders participate in the distribution of dividends
Can policyholders in a mutual company have the right to select the board of directors?
They have a vote For members of the board of directors. Yes
The amount of earning paid to a policyholder as dividends as of the insurance company set-asides funds required to cover reserves, operating expenses, any general business purposes.
Divisible surplus
When a stock company may be converted into a mutual company, what is this process called?
Mutualization
Mutual companies can convert to stock companies through a process called?
Demutualization
This is a rare case
An insurance company issuing both participating and non-participating policies is called what?
Using a mixed plan
 Participating policies versus non-participating policies? What’s the difference
Participating policies allow policy holders to elect board directors and receive dividends from the surplus
Nonparticipating do not allowed policyholders in election or receive dividends
 What type of company are classified by the way they charge premiums?
Assessment mutual companies
This society primary for their social, charitable, and benevolent activities?
Fraternal
Societies
Fraternal societies memberships are based on what three things?
- Religion
- Nationality
- Ethnicity
What are three things to be Characterized as fraternal benefit society?
- Be a nonprofit organization
- Have a log system that includes which ritualistic work & maintain rep gov’t form w/ elected officers
- Must exist for reasons other than obtaining insurance. 
An unincorporated organization overseen by a board of governors /directors in which individuals (subscribers)agree to ensure each other?
Reciprocal insurers
Who handles the transaction for reciprocal insurers? Also, authorize to conduct data day affairs of the insurer on behalf of the subscribers
Attorneys in fact
What does RRG stands for?
Risk Retention Group
This is a specialized insurance company created under the terms of the federal liability risk retention act of 1986 to provide liable insurance for individuals and entities with a common Von
Risk Retention Group (RRG)
What is the primary purpose of a RRG?
Retain or pool risks.
Are risk retention groups only license in their state of domicile?
Yes
What does RPGs stands for?
Risk purchasing group
How is a RPG different from RRGs?
RPG purchase Insurance from an insurance company. They do not themselves act as a insurer
Who are a specialized branch of the insurance industry because they ensure other insurance?
Reinsurers.
An arrangement by which an insurance company transfer a portion of an assume risk to another insurer
Reinsurance 
In a reinsurance agreement, the insurance company that transfer some or all of his loss exposure (risk) to another insurer is called what?
Primary insurer (also called ceding company)
What is a company assuming the risk?
Re-insurer or assuming company
A portion of the risk that the ceding insurer retains is called what?
Net retention or net line
An insurer established and owned by parent firm or group of firms to insure the parent’s loss exposed is known as what?
Captive insurer
What is referred to a non-traditional insurance market?
Surplus line insurance
A typical reinsurance contract between two insurance companies is called what?
Treaty reinsurance
This involves an automatic sharing of the risk as soon based on previous establish criteria?
Treaty reinsurance
In some situations, a primary insurer will seek reinsurance tailored to a covert specific risk or exposure without an ongoing agreement? 
Facultative reinsurance
What needs to be done to qualify for surplus line coverage?
The insured must demonstrate that he has made an unsuccessful effort to secure coverage in an authorize market. An individual may not attempt to secure coverage just because it’s less expensive.
Does service providers sell insurance?
No, they sell medical and hospital care services to their subscribers
What is a HMO?
Health maintenance organization
What does a health maintenance organization HMO offers.
Wide range of health care services to subscribers. 
Who sells medical & health care services to their subscribers, not insurance.
Service providers
What does PPO stand for?
Preferred provider organization
How are HMOs and PPOs different
HMO-Specific doctors and hospitals contract to work with HMO.
PPO-Group desireing healthcare services Little team priced discounts or special services from certain selected healthcare providers in exchange for four fern its members or employees to them
This organization is not I insure her rather a syndicate of individuals and companies that individually on the right insurance. Who am I?
Lloyd of London
What is a self-funded plan to cover potential losses?
Self insurers
 characterized by relatively small face amounts(1k to 2k). Selling agent visits the policy owners home each week to collect premiums. Who am I?
Industrial Insurer
And ensure it miss or authorized to transact insurance business in a particular state is referred to as what?
Authorized insurer 
 Also known as an admitted insurers, an authorize company is issued what?
Certificate of authority
This insurer is organized and incorporated in the state where it is writing business, which usually contains its principal office
Domestic insurer
This ensure is authorize in one state but organize and incorporate it into the laws of a different state?
Foreign insurer
This is sure is authorized in any state within the United States but as pressal office is located outside this country?
Alien insurer
A division ,within insurance company, responsible for increasing the number of prospective applicants.
Marketing or sales
This department Completing the application and face-to-face appointments with individual prospective buyers
Sales department
A department Responsible for reviewing applications, conducting an investigation to gain additional information about applicants, assigned risk classification, and approving or declining an application.
Underwriting
This department is responsible for processing, investigating, and pain cleans for losses incurred by the insured
Claims
This department calculates policy rates, reserves, and dividends and makes other applicable statistical studies and reports focusing on morbidity & morality tables.
Actuarial
 These individuals who solicitor sales of insurance products to the public.
Producers
1 or more insurer under the terms of their appointments contract
Agents
Represents themselves and the insured
Brokers
Not licensed to sell insurance. Represents a producer or solicit perspective applicants to meet and discuss their insurance needs with that producer on their behalf.
Solicitor
Insurance company employees who do not engage in sales activity that pays commission.

Service representatives
This person identify, excess, examine, and classifies the amount of risk represented by an applicant to determine if coverage should be provided and at what cost. They also approve or decline an insurance application and determine the cost to provide insurance?
Underwriter
This person calculate policy rates, reserves, and dividends. They also make statistical studies and reports.
Actuaries
This person engages in investigation work to obtain information for adjusting, sadly, or denying insurance claims.
Insurance adjuster
This title referred to a person who, for compensation, Acts on behalf of the insured or aids them with insurance claim supplements
Public adjuster
What is the difference between a captive or a career agent to a independent agent?
Capture/career agent works for Why insurance company and cells only the insurance company policies
A independent agent works for themselves and sells the insurance products of many companies.
The primary agency is the cell insurance, although they may build a small salesforce to a system. Responsible for maintaining their own office and administrative staff.
Personal producing general agency (PPGA)
This agency is a creation of property and casualty industry, does not tie a sales staff or agency to any particular insurance company. They are compensated on a commission or feed base for a business they produce?
Independent agency
This type of agency recruits train and supervise agents to managerial or general agents. They primarily build staff.
Career agencies
This agency do not train recruit or supervise agents. they primarily sell insurance
Personal producing general agencies PPGA
These Types of agents represent in the number of insurance companies through contractual agreements
Independent agents (American agency system)
This case involved 1 state’s attempt to regulate an insurance company domiciled in another state.
1868 Paul v. Virginia
In the southern eastern on the writer association case, Supreme court ruled
At the insurance industry is a form of interstate commerce Regulated by the federal government. It did nullify laws that conflicted with the federal legislation. 
1944 US versus southern eastern underwriters association (SEUA)
 this law made it clear that states continue to participate in the Regulation of insurance was in the public’s best interest. Also made possible the application of Federal any trust laws to the extent that is not regulated by state law.
1945 McCarran-Ferguson Act
Intervention of the federal trade commission, sought to control the health insurance industry advertising and sales literature.
1958 intervention by the FTC. Federal tray commission
Intervention by the security and exchange commission, The Supreme Court rule that federal security laws apply to ensures that issue variables annuities and does requires insurers to conform to both SEC and state regulation
1959 intervention by the security and exchange commission. 
This law is the authorization that requires fair and accurate reporting of information about consumers including insurance applications. 
1970 passage of the fair credit reporting act
A criminal offense for individuals convicted of a felony involving dishonesty or a breach of trust to participate in the insurance business without first obtaining a letter of written consent to engage in the business of insurance from the appropriate state regulator
1994 United States code section 1033 and 1034 regarding fraud and false statements
This act allow commercial banks, investment banks, retail brokerage, and insurance company to engage in each others lines of business
1999 federal service moderation act
Also called(Gramm-Leach-Bliley Act)
Was adopted in response to the September 11, 2001 Terrace attacks. The law aims to detect, deter, and disrupt terrorists efforts and funding while prosecuting international money laundering. 
2001 uniting and strengthening America by providing appropriate tools required to enter step and instruct terrorism act
(Patriot Act)
Do not call registry allow consumers to list their phones in a registry of numbers who telemarketers,including insurers, cannot legally make solicitation calls.
2003 do not called implementation act. 
To spread risk by separating the cost of possible losses over a large number of people
Risk pulling or loss sharing
What is the principle of indemnity?
To restore the insured to the same financial position prior to the loss in question occurred.
Predicting the level of future losses expected across a large group is known as?
Spread of risk/risk spreading 
immediate specific event that causes a loss
Perils
 Insurance Policy define the peril they protect against. IE cancer, fire or lightning, very specific.
Specified (name) Perils
Policies that doesn’t name the perils they cover. They cover all perils.
Special or Open Peril Insurance
An unintended Unforeseen reduction or destruction of financial or economic value?
Loss
Losses can be defined as what two occurrences
Accident or occurrence
And unforeseen unexpected unattended and setting event
Accident
In the event that causes a loss
Occurrence
The risk of possible loss
Loss exposure
Similar objects of insurance expose the same group perils
Homogeneous exposure units
Physical hazard or tangible conditions existing in a manner that makes the laws more likely to occur
Physical hazards
The loss is more lightly to occur due to the dishonest character of the insured, who may be more disposed to either engage in the criminal activity or cause a laws because of negative habits
Moral hazards
Result from the personal or subjective thoughts process of the insured
Morale hazards
Potential or uncertainty of loss
Risk
A potential for loss only with no possibility of gain
Pure risk
Risk that presents to chance for both loss and gain
Speculative risk
A potential for loss only with no possibility of gain
Pure risk
The importance of Representation is demonstrated in what Rule?
Materiality of concealment
Which of the following is not a requirement of a contract?
Equal consideration between parties is not a requirement of a contract
What does the insurance term indemnity refers to
Make whole 
A contract requires
And offer and acceptance of the contract terms
Which statement is correct when describing a contract of adhesion 
Contract may be excepted or rejected by the insured
Which course of action is the insurer entitled to when deliberate concealment is committed by the insured
Rescinding the contract
Reasonable necessary acts that an agent must perform for carrying out his or her especially authorized duties are covered by an agent
Implied authority
Restoring insured to the same condition as before a loss is an example of the principle of
Indemnity
Which of the following is not required in the content of a policy
The probability of loss
Which of the following statements about the aleatory contracts is NOT true?
The insured and insurer contributes equally to the contract
Which of the following contracts is the fine as one that restores and injured party to the condition that presents before the loss
Indemnity contract
Which principal is accurately described when the statement “insureds are entitled to recover an amount not greater than the amount of their loss”
Indemnity
When handling premiums for a insured, and Agent is acting in which capacity?
Fiduciary
Which of the following statements correctly describe a contract of indemnity? 
One party is restored to the same financial position the party was in before the loss occurred
If a material warranty violates on the part of the insured is found, what recourse does an insurer have?
Rescind the policy.
Scott has just purchased a new home. He is now shopping for a life insurance policy that provides a death benefit that matches the projected outstanding debt of his mortgage. Which life policy would best suit his needs?
Mortgage redemption
A life insurance policy limits of liability would be
The policy’s face value
A life insurance policy that pays the face amount if the insured survives to a specific period of time is called?
Endowment insurance
Mark, age 45, has a modified endowment contract. What is the tax penalty for taking a loan against his policy prior to the age of 59 1/2?
10%
Any modified endowment contract, the penalty tax imposed on premature withdrawals is?
10%
Which of the following types of life insurance is normally associated with a mortgage loan?
Decreasing term
Which of the following is a life insurance policy that does not require a physical exam?
Non-medical
In a renewable term life insurance policy, the contract will usually
Require a higher premium payable at each renewal
Which of the following type of life insurance combines a saving element along with a flexible premium option?
Universal life
Insurance policy written after 1988 that fails to pass the seven pay test is known as?
A modified endowment contract
Term insurance is appropriate for someone who
Seeks temporary protection and Lower premiums
Tom is shopping for a policy that covers two people and would pay the face amount only when the first person dies. The type of life policy he is looking for is called a?
Joint life policy
All of these are characteristics I have a universal life insurance policy except
Fixed surrender value
Which of the following is not true regarding a family policy that covers children
Conversion of Child’s coverage to permanent insurance requires evidence of insurability
John and Mary have a handicapped child that is financially dependent upon them. The death of one of the parents would not be financially disastrous, however the death of both likely would be. Which policy would best be suited for them?
Second to die policy
A life insurance policy with the insured can choose where the cash value can be invested is?
Variable life
What is the proper order of an initial life insurance premiums from lowest to highest?
Modified premium, ordinary life, single premium.
Lynne owns a life policy that guarantees the right to renew the policy each year, regardless of health, but add an increase premium. What kind of policy is this?
Renewable term
Which of the following statements do not apply to child coverage in a family policy?
Only children born prior to policy issue date may be included
Which of the following is not a true description of non-medical life insurance
Applicants are not required to answer medical questions on the application
How is a life insurance policy dividends legally defined?
A return of excess premiums not taxable
What are collateral assignment normally associated with?
Bank loans
Jerry is an insured who understated his age on his life insurance application, paint while I was per 1000 of insurance instead of $15 per 1000. If he dies, how will the adjusted death benefits be calculated?
12/15th of the policy’s face policy
Which statement is true regarding policy dividends?
A dividend option is selected by the insured at the time of policy purchase
Mike and Ike are 30 year old identical twins. Both are in excellent health. Each brother purchase a life policy that has a $750 annual premium. Mike’s by 18 year renewable return policy. I purchase a whole life policy. All of the following statements are true except
Mike has the option of using his cash value to purchase it reduce amount of pay up whole life insurance
Which provision will pay a portion of the death benefit prior to the insured death due to a serious illness?
Accelerated death benefit
Bruce is involved in an accident and becomes totally and permanently disabled. His insurance policy continue to force without payments further premiums. Which policy provision is responsible for this?
Waiver of premium provisions
What time period allows an insured life insurance policy to return in force even if the premium was not paid on the due date?
Grace period
