Chapter 1 - General Insurance

Question 1

Insurers (Insurance Companies or Carriers)

Answer 1

Provide insurance coverage by issuing particular insurance policies or contacts

Question 2

Insurance Agencies

Answer 2

Are independent sales organizations that provide service and distribute insurance policies to consumers

Question 3

Insurance Agents or Producers

Answer 3

Are licensed individuals representing an insurance company when transacting insurance business

Question 4

Insured

Answer 4

Person or entity that has insurance protection under a policy for a covered loss

Question 5

Insurance is regulated at what level and what branches

Answer 5

State level

Branches:
Legislative
Judicial
Executive

Question 6

Legislative branch

Answer 6

Writes and passes state insurance laws, or status, designed to protect the insuring public

Question 7

Judicial Branch

Answer 7

Interpreting and determining the constitutionality of the statutes

Question 8

Executive Branch

Answer 8

Enforce the existing statutes that have been put in place

Commissioner, Director, or Superintendent- has power to issue rules and regulations

Question 9

National Association of Insurance Commissioners (NAIC)

Answer 9

Regulatory support organization created and governed by the the chief insurance regulators and commissioners from the 50 states

Provides resources, research, legislative, and regulatory recommendations and interpretation for state insurance regulators

Members may accept or reject recommendations but have no legal authority to enact or enforce insurance laws

Primary goal= promote state uniformity

Question 10

Stock Insurance Companies

Answer 10

Owned by stockholders

Traditionally insurers issue non-participating policies

Question 11

Mutual Insurance Company

Answer 11

Owned by policyholders (members)

Question 12

Policyholders

Answer 12

Considered the owners, but do not directly manage the company

Board of Directors is elected by the policyholders to manage the company

If declared by the board, policyholders may receive non-taxable dividends as a return of unused premium

Mutual insurers typically issue participating policies

Question 13

Fraternal Isurers

Answer 13

Know as Fraternal Benefit Societies

Primary social organizations that engage in charitable and benevolent activities that provide primary life insurance to its members. Usually organized on a nonprofit basis

Membership is typically drawn from members of a given religious organization, lodge, order, or society

Question 14

Domicile

Answer 14

Refers to location or jurisdiction ( state, district, territory, or country) where an insurer is formed or incorporated

3 types:
Domestic
Foreign
Alien

Question 15

Domestic Insurer

Answer 15

Organized under law of state in which it is placing business in that particular state

Can only be domestic to the state it is incorporated

Ex. Organized in TX is domestic in TX

Question 16

Foreign Insurer

Answer 16

Business anywhere within the US other than the state it was organized and incorporated

Ex. Incorporated in NY is foreign in TX

Question 17

Alien Insurer

Answer 17

Placing business within the US which was organized under the laws of anther country

Ex. Incorporated in Canada is considered alien to TX

Question 18

Admitted/Authorized Insurer

Answer 18

Approved to transact insurance in a given state if it has been granted a CERTIFICATE OF AUTHORITY from that states department of insurance

Question 19

Non-admitted/Unauthorized

Answer 19

Not authorized to transact insurance in a given state, either by failing to comply with state requirements or not seeking admission

Question 20

Fair Credit Reporting Act

Answer 20

Protects the consumers right to privacy of credit and financial information

Credit reports may be obtained only to determine the financial and moral status of an applicant

Question 21

US Patriot Act and Anti- Money Laundering (AMIL)

Answer 21

Passed to detect and prevent laundry money

Financial institutions and insurance companies are required to provide (AML) training since insurance products are now being used to give legitimate appearance to money financed by illegal activities

Question 22

Insurance Contract

Answer 22

Insurance policy is a legal contract between 2 parties

Question 23

Principle of Indemnity

Answer 23

Indemnify- Compensation for a loss or to make whole again

Insurance is designed to restore an insured to the same physical or financial condition which existed prior to the loss (without a profit or gain)

Question 24

Elements of Legal Contract

Answer 24

Competent Parties

Legal Purpose

Agreement (Offer and Acceptance)

Consideration

Question 25

Contract of Adhesion

Answer 25

Written by 1 party without any input from the applicant

“Take-it-or-leave-it”

Question 26

Aleatory Contract

Answer 26

Based on an uncertain event or “by chance”

Can’t be know. In advance whether the insurer will have to pay a loss during the policy term

Question 27

Unilateral Contract

Answer 27

Only 1 party is Leah ally bound to the contractual obligations

As long as all conditions are met by the insured, the insurer makes an enforceable promise of future performance and can be charged with a breach of contract if those obligations are not met

Question 28

Conditional Contract

Answer 28

Both parties must perform certain duties to make the contract enforceable

Question 29

Material Risk

Answer 29

Involving the rating of an acceptable risk, or the decision as to weather to accept or decline a risk

Question 30

Warranties

Answer 30

Material statements in the application or stipulation in the policy that are guaranteed true in all respects