Brokers exam

Question 1

Commercial Insurers

Answer 1

(Also known as private insurance companies) people in the business of selling insurance for a profit

Question 2

Multi-line insurer

Answer 2

An insurance company selling more than one line of insurance. Commercial insurance is divided into two main groups: stock and mutual insurers

Question 3

Stock Companies

Answer 3

organized and incorporated under state law for the purpose of making a profit for its stockholders. Also called nonparticipating insurers because policy owners do not receive dividends. When declared, stock dividends are paid to stockholders

Question 4

Term Mutilization/ Demutilization

Answer 4

the transformation from a stock insurer to a mutual insurer

Question 5

Mixed Insurer

Answer 5

a company operating as both a participating and nonparticipating insurer. Dividends can never be guaranteed regardless of the type of company offering them

Question 6

how are strong assessment mutual companies classified by?

Answer 6

the way they charge a premium

Question 7

Pure assessment mutual company

Answer 7

operates based on loss sharing by group members, no premium is payable in advance, instead, each member has assessed an individual portion of losses that occur

Question 8

Advanced premium assessment mutual

Answer 8

charges a premium at the beginning of the policy period. if the original premiums exceed operating expenses and losses, the surplus is returned to the policy owners as dividends. If the total premiums are not enough to meet the losses, additional assessments are levied against the members.

Question 9

Fraternal benefit societies

Answer 9

a special type of mutual companies, nonprofit religious, ethnic, or charitable organizations that provide insurance solely to their members. Fraternals must be formed for other reasons than getting insurance.

Question 10

Risk-retention groups

Answer 10

mutual companies formed by a group of people in the same industry or profession. Ex: doctors, dentists, and engineers.

Question 11

Service Providers

Answer 11

offer benefits to subscribers in return for the payment of a premium. These services are packaged into various plans, and those who purchased the plans are known as subscribers. Ex: HMO, PPO

Question 12

Reciprocal Insurers

Answer 12

Unincorporated groups of individual members that provide insurance for other members through indemnity contracts. Each member acts as the insurer and insured and is managed by Attorney in Fact.

Question 13

Reinsurers

Answer 13

make arrangements with other insurance companies to transfer a portion of their risks to the reinsurer. The company transferring the risk is called the Ceding company and the one assuming the risk is the Reinsurer

Question 14

Primary Insurer

Answer 14

the insurance company that transfers its loss exposure to another insurer

Question 15

Captive Insurer

Answer 15

insurer established and owned by the parent company to ensure the parent companies loss exposure

Question 16

Home Service Insurers

also known as industrial insurance

Answer 16

sold by home service or debit life insurance companies. Face amount is small; usually $1,000 to $2,000 and premiums are paid weekly

Question 17

Government Insurance

Answer 17

provide social insurance programs, to protect against universal risks by redistributing income to help people who cannot afford such losses themselves.

Question 18

Medicare

Answer 18

Health insurance to CARE for the elderly

Question 19

Medicaid

Answer 19

Health insurance to Aid the financially needy

Question 20

Self insurers

Answer 20

establish their own self-funded plan to cover potential losses. A self funded plan is a plan in which an employer pays insurance benefits from a fund derived from the employers current revenues

Question 21

Lloyd’s of London

Answer 21

A group of investors who share in unusual risk

Question 22

Distribution Systems

Answer 22

the ways insurance products are marketed and sold to the public. Captive agents work for only one insurer. Independent agents work for themselves for several insurers non-exclusively

Question 23

Career Agency System

Answer 23

commercial insurers establish offices in certain locations where career agents are recruited to work at these location

Question 24

Personal Producing General Agency System

Answer 24

(PPGA) Agents work for an independent agency selling policies from several insurance companies.

Question 25

Independent Agency System

Answer 25

Independent agents represent a number of insurance companies under separate contractual agreements. They may also work for themselves or other agents. They have control and ownership over their client’s accounts. They earn commissions on the sales they make and overrides on the sales made by agents they managed

Question 26

Managerial System

Answer 26

Branch offices are established in several locations. A manager runs the branch, while the insurer pays the branch managers salary and pays him a bonus based on the amount and type of insurance sold and the number of new agents hired

Question 27

1869 Paul v. Virginia

Answer 27

The U.S. Supreme Court ruled that insurance transactions crossing state lines are not interstate commerce

Question 28

1905 The Armstrong Investigation Act

Answer 28

Gave the authority to the states to regulate insurance

Question 29

1944 United States V. South-Eastern Underwriters Association

Answer 29

Ruled that insurance transactions crossing state lines are interstate commerce and are subject to federal regulation. Thus T many federal laws were conflicting with existing state laws.

Question 30

1945 The McCarran Ferguson Act

Answer 30

States that while the federal government has authority to regulate the insurance industry, it would not exercise its right if the insurance industry was regulated effectively and adequately on the state level. The minimum penalty of a producer who has obtained personal information about a client without having a legitimate reason to do so is a fine of $10,000

Question 31

1970- Fair Credit Reporting Act

Answer 31

provides individuals privacy protection and fair and accurate credit reporting. The maximum penalty of a producer who has obtained consumer information reports under false pretenses is a fine of $5,000

Question 32

1999 Gramm-Leach-Billey Act (Financial Services Modernization Act)

Answer 32

This law repealed the Glass-Steagall Act; this allows Banks, retail Brokerages and Insurance companies to enter each other’s line of business

Question 33

2001 USA Patriot Act

Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act

Answer 33

designated to detect and deter terrorists and their funding by imposing anti-money laundering requirements on brokerage firms and financial institutions

Question 34

2010 Patient Protection and Affordable Care Act (PPACA)

Answer 34

often shortened to the Affordable Care Act (ACA) represents one of the most significant regulatory overhauls and expansions of coverage in U.S. history

Question 35

The National Association of Insurance Commissioners (NAIC)

Answer 35

an organization composed of insurance commissioners from all 50 states, the District of Columbia, and the 4 US territories. They recommend appropriate laws and regulations. They are responsible for the creation of the Advertising Code and the Unfair Trade Practices Act and the Medicare Supplement Insurance Minimum Standards Model Act

Question 36

NAIC Objectives

Answer 36

1. To encourage uniformity in the state insurance laws and regulations
2. To assist in the administration of those laws and regulations by promoting efficiency
3. To protect the interest of policy owners and consumers
4. To preserve state regulation of the insurance business

Question 37

Advertising Code

Answer 37

The code specifies certain words and phrases that are considered misleading and are not to be used in advertising of any kind.

Question 38

Unfair Trade Practices Act

Answer 38

Gives the chief financial officer the power to investigate insurance companies and producers to impose penalties. The act gives officers the authority to seek a court injunction to restrain insurers from using any methods believed to be unfair

Question 39

NAIFA ( National Association of Insurance and Financial Advisors)
NAHU ( National Association of Health Underwriters)

Answer 39

Members are life and health agents dedicated to supporting the industry and advancing the quality of service provided by insurance professionals

Question 40

Buyers Guide

Answer 40

explains various types of life insurance products and other information on the recommended policy, such as premiums, dividends, and benefit amounts

Question 41

Policy Summary

Answer 41

Help consumers evaluate the suitability of the recommended product

Question 42

Reserves

Answer 42

the accounting measurements of an insurer’s future obligations to its policyholders. They are classified as liabilities on the insurance companies accounting statements since they must be settled at a future date. Reserves are set aside by an insurance company and designated for the payment of future claims

Question 43

Liquidity

Answer 43

An insurer’s ability to make unpredictable payouts to policy owners

Question 44

Guaranty Associations

Answer 44

Established by all states to support insurers and protect consumers in case an insurer becomes insolvent. Provides a safety net for all member life, health, and annuities insurers in a particular state. They protect insureds in the event of insurer insolvency, or inability to pay claims up to a certain limit.

Question 45

Independent Rating Services

Answer 45

Credit rating agencies rate the financial strength and stability of insurers based on claims, reserves, and company profits.