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Life Insurance > Ch 1: Insurance Basics > Flashcards

Ch 1: Insurance Basics Flashcards

1
Q

Pure Risk

A

Chance of loss

Absolutely no chance of gain

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2
Q

Speculative Risk

A

Involves uncertainty of a loss

Chance of a gain

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3
Q

What does S.T.A.R.R. Stand for?

A 
Share
Transfer
Avoid
Retain
Reduce

The five ways of managing risk

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4
Q

Give an example of AVOIDING risk

A

If you’re concerned of being in a car accident, do not own, operate, or ride in an automobile.

Eliminates a loss exposure and reduces chance of loss to ZERO

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5
Q

Give an example of REDUCING risk

A

You can reduce the chance of being in an auto accident by not driving during rush hour and not driving when it’s raining.

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6
Q

Give an example of RETAINING risk

A

A company is able to predict its health insurance liability (which had been low for the last few years) so they decided to self insure their employee health insurance.

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7
Q

Give an example of TRANSFERING risk

A

Auto insurance. The insurer (the company) gets the risk of accodent transferred to them in exchange of premium payments.

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8
Q

Give an example of risk SHARING

A

Closely related to transferring.

Insurers are part of a pool of other insureds. They make premium payments to insurer (the company), who then has adequate funds to pay for lossss incurred by the insureds.

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9
Q

What is a peril?

A

The potential or actual CAUSE of loss

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10
Q

What is a hazard?

A

Anything that increases the chance of loss

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11
Q

What are the four types of hazards?

A

Physical
Moral
Morale
Legal

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12
Q

What is a physical hazard?

A

Things that we can touch, see, hear, feel, or smell. Example, a slippery flooor caused a slip and fall accident.

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13
Q

What is a moral hazard?

A

Results from individuals’ values and character traits. Examples: lying on an application, drug abuse.

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14
Q

What is morale hazard?

A

Arise due to person’s indifference or carelessness. Example: person always drives fast and recklessly

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15
Q

What is a legal hazard?

A

Court actions that increase likelihood of people filing a claim and being awarded large amounts. Think: lawsuit

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16
Q

What does indemnify mean?

A

To restore the victim of a loss, in whole or in part, to the financial position prior to loss. (No profit or gain involved)

17
Q

What’s an exposure unit?

A

Each insured individual or item of property that is exposed to or has a potential for suffering a loss

18
Q

Mortality tables are used for what kind of insurance?

A

Life insurance

19
Q

Morbidity tables are used for what kind of insurance?

A

Disability & health insurance

20
Q

The 2001 commissioners standard ordinary (CSO) mortality table ends at what age?

A

Age 120

21
Q

What age do whole life policies mature or endow?

A

Age 100

22
Q

What is an insurable interest?

A

A financial interest in having the life of the person insured live.

23
Q

In life insurance, who must have an insurance interest at the time of application for the insurance?

A

The policy owner.

24
Q

In life insurance, what must exist when the insurance e takes effect (in the beginning) but big needed at the time of death?

A

An insurable interest

25
Q

A “Person” refers to?

A
  • a company
  • entity
  • an individual
26
Q

A natural person refers to?

A

An individual

27
Q

A life insurance is a contract between?

A

The insurer and the policy owner.

Policy holder = policy owner
Remember, policy owner is not always the insured

28
Q

In life insurenace, what is a consideration?

A

A premium

29
Q

All legal contracts should have four elements. What are they?

A

Mutual assent (offer and acceptance, agreement)

Legal capacity (competent parties)

Consideration (premium payment)

Legal purpose (insurable interest)

30
Q

What is aleatory?

A

Outcomes depends upon uncertain future event. There will be an unequal exchange of money.

31
Q

What is meant by adhesion?

A

The insurance company has a contract drawn and offers it to its policy owner, who “adheres” to its terms.

32
Q

What is unilateral?

A

Only the insurer is olbligated to perform. “A premium for a promise”

33
Q

What’s utmost good faith?

A

Truthful representation.

Does not apply to the state.

34
Q

Executory refers to?

A

Performance promises at a future date. In life, death would trigger the promise.

Life Insurance (11 decks)

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