chapter 1 Basic Principals of Life Insurance Flashcards
Life Insurance is based on
Actuarial or mathematical principles
Health insurance is based on
Scientific Principles
2 basic reason for insurance
- protection against financial loss
2. restores insured back to some condition as before the loss
Pooling of Risks
primary principal of insurance
large numbers contribute to cover losses of a few
Law of large numbers
Larger the number of individual risks combined in a group the more certainty their is in predicting the degree or amount of loss that will be incurred.
Morbidity
sickness
Mortality
death
Speculative Risk
- involves possibility of loss or gain
2. not insurable because their is possibility of gain
Pure Risk
- possibility of loss only, unexpected and outside of control
- insurable
Peril
The cause of a risk
ex. fire
Hazard
Source of the danger, factor behind the peril
4 ways to deter insurance risk levels
- risk avoidance
- risk reduction
- risk retention
- risk transference
Risk Avoidance
Evade risk entirely
ex. if you dont drive you cant wreck
Risk Reduction
Chances of loss are lessened
ex. buy car with alarm, lessens chance of theft
Risk Retention
being aware of risks and taking precautions for financial protection.
ex. deductible on car insurance
Risk Transference
shifting risk responsibility to another in form of insurance contract.
Adverse Selection
Selection against the company. Tendency for those individuals who present less favorable insurance risk to seek or continue insurance to a greater extent than other risks.
3 types of hazards
Physical- cancer etc
moral- bad habits, smoking etc
morale- mental, road rage etc
2 main classifications of insurance providers
- Private insurers
2. Gov’t insurers
Stock insurance companies
owned by stockholders in the company
if they offer participating and non participating policies it is referred to as a mixed plan.
Mutual Insurers
owned by the policyholders
provide insurance to its owners at lowest possible cost
Lloyds of London
Underwrites insurance, not an insurance company
Fraternal Benefit Societies
must be non profit
have a lodge system
offer insurance to ITS members only
Service Providers
Contract for and sell medical and hospital care services.
participants known as subscribers
HMO’s- stress preventative healthcare and screenings
