Basic Principles of Insurance Vocab & Notes Chap 1 Flashcards
Funds held by the company to help fulfill future claims.
Reserve
What are usually set by the state Department of Insurance?
Minimum reserves
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
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.
Stock Companies
Insurance under which the insured is not entitled to share in the divisible surplus of the company.
Nonparticipating plan
Insurance companies characterized by having no capital stock; it is owned by its policy owners and usually issues participating insurance.
Mutual Companies
A plan under which the policy owner receives shares (commonly called dividends) of the divisible surplus of the company.
Participating Plan
A company that provides financial protection to insurance companies. Handling 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
Nonprofit benevolent organizations that provide insurance to its members. Producers or agents who only sell within their society, do not receive commission, and stay under a specific premium threshold often have less stringent licensing requirements.
Fraternal Benefit Societies
A federal law requiring an individual to be informed if she is being investigated by an inspection company. The law also outlines the sharing and impact of such information and requires individuals to be notified prior to being investigated.
Fair Credit Reporting Act
An informational consumer guide books that explain insurance policies and insurance concepts; in many states, they are required to be given to applicants when certain types of coverages are being considered. Often used with life insurance, long-term care insurance, and annuities.
Buyer’s Guide
A summary of the terms of an insurance policy, including the conditions, coverage limitations, and premiums. Often used with life insurance, long-term care insurance, and annuities.
Policy Summary
An association of all of the state insurance commissioners active in insurance regulatory problems and in forming and recommending model legislation and requirements. They do not directly MAKE laws, as laws are made at the state level. They do work on suggesting standards for states to adopt with the goal of a standardizing the insurance industry throughout the United States of America.
National Association of Insurance Commissioners (NAIC)
Established by each state to support insurers and protect consumers in the case of insurer insolvency, they are funded by insurers through assessments. All authorized insurers are legally required to participate in the ___________________ for any state they are authorized to do business in regardless of where their corporate office is.
State Guaranty Association
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. In its purist form, it states, “we will pay this amount when this person dies.”
Life Insurance
A protection for a set number of years; expiring without value if the insured survives the stated period, which may be one or more years. It is designed to provide temporary protection in case a person dies during a set period of time.
Term Life Insurance
A permanent level insurance protection for a person’s “whole of life,” from policy issue to the death of the insured. Characterized by level premiums, level benefits, and cash values.
Whole Life
A single contract covers an entire group of people. Most often, the group is an employer-employee group. Those covered under this policy may or may not pay a portion of the premium and can usually choose their beneficiary. However, the insured typically does NOT own the policy, the group (employer) owns and controls the policy.
Group Life
The part of an insurance contract setting forth the amount of initial and renewal premiums and frequency of future payments. This is often said to include the initial premium and completed application for insurance. In other words, the applicant is saying, “please CONSIDER me for insurance, here is my initial premium, my completed application, and how much\how often I agree to pay in the future. Please CONSIDER me.”
Consideration
This is the portion of the insurance policy in which the insurer promises to make payment to or on behalf of the insured. It states the scope and limits of coverage. It is usually contained in a coverage form from which a policy is constructed. In other words, it is the insurance company saying, “We ensure to INSURE you under these conditions for this amount.”
The Insuring Agreement (Insuring Clause, Insurance Provision)
A general way of describing insurance against loss through sickness or accidental bodily injury. It is also called accident and health, accident and sickness, sickness and accident, or disability insurance. It is important to remember the general term “________________” applies to many different types of insurance, not just the medical insurance that pays for doctor and hospital visits.
Health Insurance
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. Although it is designed to protect one’s income, there are typically rules and regulations in place limiting the benefits of this policy to one’s income level, and typically only allowing protection for a portion of their income.
Disability income
________or________
Disability Insurance
This pays benefits for nonsurgical doctors’ fees commonly rendered in a hospital; sometimes pays for home and office calls.
Medical expense insurance
An insurance policy provision stating that the application and policy contain all provisions and constitute the _____________.
Entire Contract
A policy provision that describes the policy owner’s obligation to provide notification of loss to the insurer within a reasonable period of time. This only requires the insurance company be NOTIFIED of a loss, it does not require that proof of the loss is provided.
Notice of Claim
The act of putting a lapsed policy back in force by producing satisfactory evidence of insurability and paying any past-due premiums required. Most states have these types of laws requiring an insurer to allow for a policy to be re-established upon request of the policy owner within a specified period of time.
Reinstatement
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. Simply put it protects the things you own and rent.
Property Insurance
Insurance which broadly encompasses insurance not directly concerned with life insurance, health insurance, or property insurance. This includes vehicle insurance, liability insurance, theft insurance, workers’ compensation insurance, and elevator insurance. This protects you financially in the event that someone sues you.
Casualty (Liability) Insurance
Insurance, often referred to collectively as _____________________ because the things you own have the potential to harm people in ways that could cause them to sue you. The main kinds of this insurance include auto insurance, home-owner’s insurance, renter’s insurance and umbrella insurance.
Property and Casualty Insurance
A mandatory health insurance provision stating that the insured must provide a completed claim form to the insurer within days of the date of loss. If the insured wants paid, they must PROVE the loss occurred.
Proof of loss
The amount of expense or loss to be paid by the insured before an insurance policy starts paying benefits. It is typically applied to property, casualty, and health insurance.
Deductible
A piece of paper which provides basic information about an insurance policy. It is typically the first page (face) of an insurance policy, which normally specifies the named insured, address, policy period, location of property, policy limits, and other key information.
An insurance Declaration page
The insurance company transferring the risk to a reinsurer.
Ceding Company
Industrial Insurance sold by home service or debit insurance companies. Small face amounts $1000- 2000. Premiums door to door by agents weekly.
Home Service Insurance
Offer benefits provided by subscribers in return of the payment of a premium. Commonly known as Health Maintenance Organizations (HMO) and Preferred Provider Organizations (PPO)
Service Providers
An agent only working for or representing 1 company
Captive Agent
An agent working for or representing multiple companies.
Independent Agent
-AM Best
-Standard and Poor’s
-Moody’s
-Fitch
Independent Rating Services
The sharing of risk within in a large group of people to better predict losses and help to determine rates.
Law of large numbers
Has opportunity of loss or gain which does not get covered by insurance companies. Examples such as gambling.
Speculative risk
No opportunity for gain, only losses. Which is covered by insurance.
Pure Risk
Avoiding as much risk as possible
Avoidance
Attempting to lessen the possibility of loss by taking action to minimize risk.
Reduction
A group with similar exposures take on the losses that occur in that group together.
Sharing
Also known as self-insurance, is when people can fund the losses by themselves as they occur.
Retention
When someone gives the risk to to another party. Insurance being the the most common method for a person or a group to do so.
Transfer
-Avoidance
-Reduction
-Transfer-
-Retention
-Sharing
Ways to handle risk
Elements of Insurable risk
Pure risk that is due to chance; Not Catastrophic and randomly selected
A group-owned insurance that is formed to assume and spread the liability risk of it’s members
Risk Retention group
When a policy pay dividend to its policyholders.
It is Participating
