Ch. 1 - Basic Principles of Life and Health Insurance

Question 1

Actuarial Department

Answer 1

The actuarial department calculates policy rates, reserves, and dividends.

Question 2

Alien Insurer

Answer 2

An alien insurer in the United States is an insurer whose principal office and domiciled location is outside the country.

Question 3

Admitted Insurer

Answer 3

An admitted or authorized insurer is an insurer who has received a certificate of authority from a state’s department of insurance authorizing them to conduct insurance business in that state.

Question 4

Broker

Answer 4

A broker represents themselves and the insured (i.e., the client or customer).

Question 5

Captive Insurer

Answer 5

A captive insurer is an issuer established and owned by a parent firm for the purpose of ensuring the parent firm’s loss exposure.

Question 6

Certificate of Authority

Answer 6

A certificate of authority is a license issued to an insurer by a department of insurance (or equivalent state agency), which authorizes that company to conduct insurance business in that particular state.

Question 7

Claims Department

Answer 7

The claims department is responsible for processing, investigating, and paying claims.

Question 8

Divisible Surplus

Answer 8

Divisible surplus is the amount of earnings paid to policyowners as dividends after the insurance company sets aside funds required to cover reserves, operating expenses, and general business purposes.

Question 9

Domestic Insurer

Answer 9

A domestic insurer is an insurer with its principal or home office in a state where it is authorized.

Question 10

Foreign Insurer

Answer 10

A foreign insurer is an insurer with its principal office or domicile location in estate different from the state it is transacting insurance business.

Question 11

Fraternal Benefit Society

Answer 11

Fraternal benefit society’s are nonprofit benevolent organizations that provide insurance to its members.

Question 12

Industrial Insurer

Answer 12

Industrial insurers make up a specialized branch of the industry, primarily providing policies with small face amounts with weekly premiums. Other names for industrial insurers include home service or debit insurers.

Question 13

Insurance

Answer 13

The transfer of risk through the pooling or accumulation of funds.

Question 14

Insurer

Answer 14

The insurer is the insurance company.

Question 15

Lloyds of London

Answer 15

Lloyds of London is NOT an insurer, but a group of individuals and companies that underwrite unusual insurance.

Question 16

Multi-line Insurer

Answer 16

A multi-line insurer is an insurance company or independent agent that provides a one-stop-shop for businesses or individuals seeking coverage for all their insurance needs. For example, many large insurers offer individual policies for automobile, homeowner, long-term care, life, and health insurance needs.

Question 17

Mutual Insurance Company

Answer 17

Mutual insurance companies are insurance companies characterized by having no capital stock, being owned by its policy owners, and usually issue participating insurance.

Question 18

Non-admitted Insurer

Answer 18

A non-admitted or unauthorized insurer is an insurer who has not received a certificate of authority from a state’s department of insurance authorizing them to conduct insurance business in that state.

Question 19

Nonparticipating policy

Answer 19

A non-participating insurance policy, typically issued by stock companies, do not allow policyowners to participate in dividends or electing the board of directors.

Question 20

Participating Plan

Answer 20

A participating plan is an insurance policy under which the policyowners share in the company’s earnings through receipt of dividends and also elect the companies Board of Directors.

Question 21

Private (Commercial) Insurer

Answer 21

Private or commercial insurance companies are companies owned by private citizens or groups that offer one or more insurance lines. Commercial insurers are NOT government-owned.

Question 22

Reciprocal Insurer

Answer 22

A reciprocal insurer is an unincorporated organization in which all members insure one another.

Question 23

Reinsurance

Answer 23

Reinsurance is the acceptance by one or more insurers, called reinsurers, of a portion of the risk underwritten by another insurer who has contracted for the entire coverage.

Question 24

Reinsurer

Answer 24

A reinsurer is a company that provides financial protection to insurance companies. Reinsurers 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.

Question 25

Risk Retention Group

Answer 25

A risk retention group is a group-owned liability insurer which assumes and spread product liability and other forms of commercial liability risks among its members.

Question 26

Self-Insurers

Answer 26

A self-insurer establishes a self-funded plan to cover potential losses instead of transferring the risk to an insurance company.

Question 27

Stock Insurance Company

Answer 27

A stock company is an insurance company owned and controlled by a group of stockholders (or shareholders) whose investment in the company provides the safety margin necessary in the issuance of guaranteed, fixed premium, nonparticipating policies.

Question 28

Surplus Lines Insurance

Answer 28

Surplus lines insurance is nontraditional insurance only available from a surplus lines insurer. They offer coverage for substandard or unusual risks not available through private or commercial carriers.

Question 29

Underwriting Department

Answer 29

The underwriting department is the department within an insurance company responsible for reviewing applications, approving or declining applications, and assigning risk classifications.

Question 30

Insured

Answer 30

The insured is the customer receiving insurance protection under an insurance policy.