Basic Principles of Insurance Flashcards
a company that provides financial protection to insurance companies
They handle risks that are too large for insurance companies to handle on their own and make it possible for insurers to obtain more business than they would otherwise be able to.
reinsurer
a federal law requiring an individual to be informed if she is being investigated by an inspection company
it also outlines the sharing and impact of such information and requires individuals to be notified prior to the start of the investigation
Fair Credit Reporting Act
a form of insurance that insures the beneficiary’s earned income against the risk that a disability creates a barrier for a worker to complete the core functions of their work
Disability
a general way of describing insurance against loss through sickness or accidental bodily injury; applies to many different types of insurance
health insurance
a guarantee to restore the insured to the position they were in before the uncertain incident that caused a loss for the insured
principle of indemnity
a mandatory health insurance provision stating that the insured must provide a completed claim form with proof to the insurer of their loss within days of the date of loss
proof of loss
a piece of paper which provides basic key information about the insurance policy including name and address of the insured, policy period, location of property, and policy
declaration page
a plan under which the policy owner receives shares (or dividends) of the divisible surplus of the company
participating plan
a policy provision that describes the policy owner’s obligation to provide notification of loss to the insurer within a reasonable period of time; only requires the insurance company to be notified, not proven
notice of claim
an informational document with a summary of the terms of an insurance policy, including the conditions, coverage limitations, and premiums
the insurance company is required to give this to the applicant
Policy Summary
a type of life insurance in which a single contract covers an entire group of people; the insured typically does not own the policy
group life insurance
an association established by each state to support insurers and protect consumers in the case of insurere insolvency
State Guaranty Association
an association of all of the state insurance commissioners active in insurance regulartory problems and in forming and recommending model legislation and requirements
this association does not make laws, but rather works on suggesting standards for state adoption; their goal is to standardize the insurance industry
National Association of Insurance Commissioners (NAIC)
An insurance company or independent agent that provides a one-stop shop for businesses or individuals seeking coverage for all their insurance needs.
multi-line insurer
an insurance policy provision stating that the application and policy contain all provisions
entire contract
an insurance policy that provides financial reimbursement to the owner or renter of a structure and its contents in the event of damage or theft
property insurance
any situation that presents the possibility of a loss
loss exposure
home service or “debit” insurance companies that specialize in insurance for work related injuries and illnesses (worker’s compensation)
industrial insurer
individual characteristics that increase the chance of peril
physical hazards
industrial insurer
home service or “debit” insurance companies that specialize in insurance for work related injuries and illnesses (worker’s compensation)
informational consumer guide books that explain insurance policies and concepts
they are often required to be given to applicants who are considering certain types of coverage
often used with life insurance, long-term care insurance, and annuities
Buyer’s Guide
insurance against loss due to the death of a particular person (the insured) upon whose death the insurance company agrees to pay a stated sum or income to the beneficiary
“we will pay this amount when this person dies”
life insurance
Insurance companie characterized by having no capital stock; it is owned by its policy owners and usually issues participating insurance
for the purposes of insurance
mutual companies
Insurance companies owned and controlled by a group of stockholders whose investment in the company provides the safety margin necessary in issuance of guaranteed, fixed premium, nonparticipating policies.
for the purposes of insurance
stock companies
insurance that pays benefits for nonsurgical doctors’ fees commonly rendered in a hospital; sometimes pays for home and office calls
medical expense insurance
Insurance under which the insured is not entitled to share in the divisible surplus of the company
nonparticipating plan
insurance which broadly encompasses insurance not directly concerned with life, health or property insurance; it protects you financially in the event that someone sues you
casualty (liability) insurance
life insurance
insurance against loss due to the death of a particular person (the insured) upon whose death the insurance company agrees to pay a stated sum or income to the beneficiary
“we will pay this amount when this person dies”
insurance that provides beneficiaries with a lump sum upon the insured’s death
life insurance protection for a set number of years
designed to provide temporary protection in case a person dies during a set period of time
term life insurance
nonprofit benevolent organization that provides insurance to its members
Fraternal Benefit Societies
permanant life insurance protection for a person’s “whole of life,” from policy issue to the death of the insured
whole life insurance
protects the insured from damage caused by property owned by the insured
main kinds include auto, homeowner’s, renters, and umbrella insurance
property and casualty insurance
risks that are not insurable because they involve the chance of both loss and gain
Example: gambling at the casino, or investing in the stock market
speculative risks
similar objects of insurance that are exposed to the same group of perils
homogeneous exposure units
something that can cause a financial loss; the accident itself
peril
states that the larger the number of individual risks (or exposures) that are combined in a group, the more certainty there is as to the amount of loss incurred in any given period
Law of Large Numbers
tendencies that people may have that arise from an attitude or state of mind causing indifference to loss, and loss increasing the chance of loss
Example: someone with a habit of driving recklessly
morale hazards
tendencies that people may have which increase risk and the chance of loss
Example: alcoholism and drug addiction
moral hazards
the act of putting a lapsed policy back in force by producing satisfactory evidence of insurability and paying any past-due premiums requires
reinstatement
the amount of expense or loss to be paid by the insured before an insurance policy starts paying benefits
typically applies to property, casualty, and health insurance
deductible
the only insurable type of risks; they involve only the chance of loss and there is never a possibility of gain or profit
pure risks
- the value given in exchange for the promises sought
- a clause in an insurance contract setting forth the amount of initial and renewal premiums and frequency of future payments
Consideration
the portion of the insurance policy in which the insurer promises to make payment to or on behalf of the insured; states the scope and limits of coverage
the insuring agreement
aka insuring clause or insurance provision
the practice of accepting the risk and confronting it if and when it occurs through self-insurance
risk retention
the practice of attempting to lessen the possibility of loss by taking action to reduce the risk
Example: installing a smoke alarm to reduce the risk of loss from fire
risk reduction
the practice of avoiding as many risks as possible
Example: avoiding vehicular peril by choosing not to drive or own a vehicle
risk avoidance
the practice of transferring the risk to another party so that, if a loss occurs, it’s absorbed by the other party
risk transference
the process of analyzing exposures that create risk and designing programs to handle them
risk management
the unintentional decrease in the value of an asset due to a peril
loss
These are funds held by the company to help fulfill future claims. Minimums are usually set the state Department of Insurance
reserve
this spreads risk by sharing the possibility of loss over a large number of people; it transfers risk from an individual to a group
risk pooling
uncertainty regarding loss
risk
whole life insurance
permanant life insurance protection for a person’s “whole of life,” from policy issue to the death of the insured
the practice of spreading risk from one insurer to one or more other insurers in order to minimize exposure to loss and deal with catastrophic loss
reinsurance
reinsurer
a company that provides financial protection to insurance companies
They handle risks that are too large for insurance companies to handle on their own and make it possible for insurers to obtain more business than they would otherwise be able to.
Fair Credit Reporting Act
a federal law requiring an individual to be informed if they are being investigated by an inspection company
it also outlines the sharing and impact of such information and requires individuals to be notified prior to the start of the investigation
Disability
a form of insurance that insures the beneficiary’s earned income against the risk that a disability creates a barrier for a worker to complete the core functions of their work
health insurance
a general way of describing insurance against loss through sickness or accidental bodily injury; applies to many different types of insurance
principle of indemnity
a guarantee to restore the insured back to the position they were in before the uncertain incident that caused a loss for the insured
A concept that states the insurance company will make the insured whole again.
proof of loss provision
a mandatory health insurance provision stating that the insured must provide a completed claim form with proof to the insurer within days of the date of loss
declaration page
a piece of paper which provides basic key information about the insurance policy including name and address of the insured, policy period, location of property, and policy
participating plan
a plan under which the policy owner receives shares (or dividends) of the divisible surplus of the company
notice of claim provision
a policy provision that describes the policy owner’s obligation to provide notification of loss to the insurer within a reasonable period of time
only requires the insurance company to be notified, not proven
a provision stating that the policy owner must notify the insurance company of any losses within a reasonable amount of time
Policy Summary
an informational document with a summary of the terms of an insurance policy, including the conditions, coverage limitations, and premiums
the insurance company is required to give this to the applicant
group life insurance
a type of life insurance in which a single contract covers an entire group of people; the insured typically does not own the policy
State Guaranty Association
an association established by each state to support insurers and protect consumers in the case of insurer insolvency
National Association of Insurance Commissioners (NAIC)
an association of all of the state insurance commissioners active in insurance regulatory problems and in forming and recommending model legislation and requirements
this association does not make laws, but rather works on suggesting standards for state adoption; their goal is to standardize the insurance industry
multi-line insurer
An insurance company or independent agent that provides a one-stop shop for businesses or individuals seeking coverage for all their insurance needs.
entire contract
an insurance policy provision stating that the application and policy contains all provisions and contitute the entire contract
property insurance
an insurance policy that provides financial reimbursement to the owner or renter of a structure and its contents in the event of damage or theft
loss exposure
any situation that presents the possibility of a loss
physical hazards
individual characteristics that increase the chance of peril
Buyer’s Guide
informational consumer guide books that explain insurance policies and concepts
they are often required to be given to applicants who are considering certain types of coverage
often used with life insurance, long-term care insurance, and annuities
mutual companies
Insurance companies characterized by having no capital stock; it is owned by its policy owners and usually issues participating insurance
stock companies
Insurance companies owned and controlled by a group of stockholders whose investment in the company provides the safety margin necessary in issuance of guaranteed, fixed premium, nonparticipating policies.
Insurance companies owned by stockholders that provide a safety net for the insurance company
medical expense insurance
insurance that pays benefits for nonsurgical doctors’ fees commonly rendered in a hospital; sometimes pays for home and office calls
nonparticipating plan
Insurance under which the insured is not entitled to share in the divisible surplus of the company
casualty (liability) insurance
insurance which broadly encompasses insurance not directly concerned with life, health or property insurance
it protects you financially in the event that someone sues you
term life insurance
life insurance protection for a set number of years
designed to provide temporary protection in case a person dies during a set period of time
Fraternal Benefit Societies
nonprofit benevolent organiztion that provides insurance to its members
Producers or agents who only sell within their society do not receive commission, stay under a specific premium threshold, and often have less stringent licensing requirements.
property and casualty insurance
protects the insured from being from damage caused by property owned by the insured
main kinds include auto, homeowner’s, renters, and umbrella insurance
speculative risks
risks that are not insurable because they involve the chance of both loss and gain
Example: gamblinb at the casino, or investing in the stock market
homogeneous exposure units
similar objects of insurance that are exposed to the same group of perils
peril
something that can cause a financial loss; the accident itself
Law of Large Numbers
states that the larger the number of individual risks (or exposures) that are combined in a group, the more certainty there is as to the amount of loss incurred in any given period
morale hazards
tendencies that people may have that arise from an attitude or state of mind causing indifference to loss, and loss increasing the chance of loss
Example: someone with a habit of driving recklessly
moral hazards
tendencies that people have that may increase risk and the chance of loss
Example: alcoholism and drug addiction
reinstatement
the act of putting a lapsed policy back in force by producing satisfactory evidence of insurability and paying any past-due premiums requires
deductible
the amount of expense or loss to be paid by the insured before an insurance policy starts paying benefits
typically applies to property, casualty, and health insurance
pure risks
the only insurable type of risks; they involve only the chance of loss and there is never a possibility of gain or profit
Consideration
- the value given in exchange for the promises sought
- a clause in an insurance contract setting forth the amount of initial and renewal premiums and frequency of future payments
the insuring agreement
aka insuring clause or insurance provision
the portion of the insurance policy in which the insurer promises to make payment to or on behalf of the insured; states the scope and limits of coverage
risk retention
the practice of accepting the risk and confronting it if and when it occurs through self-insurance, a fund set up to offset the costs of a potential loss
risk reduction
the practice of attempting to lessen the possibility of loss by taking action to reduce the risk
Example: installing a smoke alarm to reduce the risk of loss from fire
risk avoidance
the practice of avoiding as many risks as possible
Example: avoiding vehicular peril by choosing not to drive or own a vehicle
risk transference
the practice of transferring the risk to another party so that, if a loss occurs, it’s absorbed by the other party
risk management
the process of analyzing exposures that create risk and designing programs to handle them
loss
the unintentional decrease in the value of an asset due to a peril
reserve
These are funds held by the company to help fulfill future claims. Minimums are usually set the state Department of Insurance
risk pooling
this spreads risk by sharing the possibility of loss over a large number of people; it transfers risk from an individual to a group
risk
uncertainty regarding loss
reinsurance
the practice of spreading risk from one insurer to multiple other insurers in order to minimize exposure to loss and deal with catastrophic loss
an association of individuals and companies that individually underwrite insurance
a formal group of individual underwriters
Lloyd’s of London
Lloyd’s of London
an association of individuals and companies that individually underwrite insurance
a formal group of individual underwriters
a common reinsurance contract between two insurance companies that involves an automatic sharing of the risks assumed
treaty reinsurance
treaty reinsurance
a common reinsurance contract between two insurance companies that involves an automatic sharing of the risks assumed
an insurer established and owned by a parent firm for the purpose of insuring the parent firm’s loss exposure
captive insurer
captive insurer
an insurer established and owned by a parent firm for the purpose of insuring the parent firm’s loss exposure
insurer who insures their parent firm
a mutual insurance company formed to insure people in the same business, occupation, or profession
risk retention group (RRG)
risk retention group (RRG)
a mutual insurance company formed to insure people in the same business, occupation, or profession
