Chapter 1 Flashcards
Who do agents represent?
The insurer that sponsors them
T/F: Insurance is defined as the transfer of risk from one party to another.
True
_______ risk is the only type that may be insured.
Pure
T/F: An individual is not required to be licensed to receive commissions.
F; an individual receiving or sharing commissions must have an insurance license.
Name the two types of risk.
Pure risk and speculative risk
The insurer assumes the risk in an insurance policy since it receives a ________.
Premium
Authorized insurers are known as _________ companies, while unauthorized insurers are known as ___________ companies.
Admitted; nonadmitted
Direct writers employ ________ agents.
Captive
In order for a risk to be insurable, the chance of loss must be _______, _______, and __________.
Accidental, measurable, and definable
An alien insurer is authorized in ________ and its principal office is located ________ this country.
Any state; outside
Give an example of a moral hazard.
Filing a false insurance claim.
What is loss exposure?
A hazardous condition brought about by the nature of an insured’s activities.
What is apparent authority?
When the public merely perceives an agent as having a type of authority.
If a person needs to obtain coverage for a substandard or unusual risk, he would use a _____________ broker.
Surplus lines
Describe the Needs Approach.
Determining the amount of life insurance a person needs by using their specific financial goals and objectives.
Which type of reinsurance allows the reinsurer to reject the risk?
Facultative reinsurance
T/F: A foreign insurer is authorized in a state, but its principal office is in another country.
F; A foreign insurer has its principal office in another state.
Which type of reinsurance does not allow the reinsurer to reject the risk?
Treaty or automatic reinsurance
What three factors are used to determine the gross premium for a life insurance policy?
Mortality, interest and expenses
Define insurance producer.
An individual who sells insurance products to the public.
Explain error and omission.
An unintentional error or honest mistake by a producer.
Who do solicitors represent?
Agents
What is implied authority?
Authority not specifically defined in the contract but considered to be an extension of regular duties.
Define the term insurance.
When an insurer seeks insurance from another insurer.
When a life insurance death benefit is paid, it creates an __________.
Estate
What general name is used to describe agents, brokers, consultants?
Producer
T/F: Driving under the influence is an example of a moral hazard.
F; DUI is an example of a morale hazard
T/F: An independent agency may place business with only one insurer.
F; an independent agency may place business with multiple insurers
What are the two basic types of reinsurance?
Facultative and automatic
The insurer’s return on investments is used to determine which factor in the gross premium?
Interest
Define blackout period.
The time period from the insured’s death until the surviving spouse is permitted to receive retirement income benefits.
“The greater the number of lives insured, the more predictable losses will be”, is attributable to what law?
The law of large numbers
Premiums paid for insurance coverage that is not provided are referred to as _______ premiums.
Unearned
Define the terms peril and hazard.
Peril is a cause of a loss.
Hazard is a condition that increases the chance of loss occurring.
List some of the personal uses for life insurance.
Funeral expenses, estate protection, survivor protection, debt payment, education expenses, etc.
T/F: Physical hazards include faulty wiring and slippery floors.
T
What is the name of the price paid per unit of coverage?
Rate
T/F: Insurable interest must exist at the time of death.
F; insurable interest must exist at the time of policy issue, not death
Which valuation approach measures a persons potential future earnings to determine the amount of life insurance needed?
The human life value approach
Premiums that an insurer is entitled to are referred to as ______ premiums.
Earned
Name four independent insurance rating services.
AM Best Review, Moody’s Investment, S&P, and Weiss Research
Insurance policies are contracts of __________.
Indemnity
What must exist for an individual to purchase life insurance on another individual?
Insurable interest
T/F: Insurance should restore a person to a better financial position than existed prior to the loss.
F; insurance should restore a person to the same financial position that existed prior to the loss.
Identify the two parties in a life insurance contract.
The policyowner and insurer.
T/F: Speculative risk provides the chance for financial gain.
T
Who issues participating life insurance policies?
Mutual companies
What is it called when someone owns a life insurance policy on his spouse?
Third party ownership
What two factors make up the net single premium?
Mortality and interest
Identify the contents of the total premium.
The earned and the unearned premium
Explain the concept of actual or express authority.
When an agent’s authority is defined in the agent’s contract
T/F: Insurable interest must exist when a life insurance policy is issued.
T
Other than human life value and needs approach, what other methods are used to determine the amount of life insurance?
Multiple of earnings, interest only, single needs, “seat of the pants”, and capital needs
T/F: The expense factor in the gross premium is based on what the insurer pays for operating expenses.
T
Name the three types of hazards.
Physical, moral, and morale
For how long may an agent be imprisoned for making statements that jeopardize the solvency of an insurer?
15 years (per Federal Regulation 18, USC 1033/1034)
The uncertainty or chance of financial loss is known as _________.
Risk
Who do brokers represent?
Themselves and the policy owner/insured
Where does a domestic insurer have its principal or home office?
In the state where it is headquartered
Name five methods of risk management.
Avoidance, retention, sharing, reduction and transfer.
What term describes a business that assumes the total risk of potential losses?
Self-Insured
Morality is the __________ of death at a particular age for an individual.
Probability
T/F: A fraternal association provides insurance only to its members.
T
T/F: the most common method of managing risk is to transfer risk.
T
T/F: Extra charges may apply if the premium is paid on other than an annual basis.
T
Which type of insurer is owned by its policy holders?
A mutual company
Who are the owners of a stock company?
It’s stockholders
When an insurer approves coverage for more bad risks than good risks, he is exposed to ___________ selection.
Adverse
What are the two major approaches used to determine the amount of life insurance needed?
Human life value and needs approach
An exclusive agency employs ________ agents who agree to market products of ___ insurer.
Independent; one
An unincorporated organization in which members insure one another is known as a ___________.
Reciprocal
Who manages a reciprocal?
An attorney-in-fact
The insurer seeking reinsurance is the _______ insurer, while the insurer assuming the risk is the __________.
Ceding; reinsurer
