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MI Life Insurance Exam > Chapter 1: General Insurance > Flashcards

Chapter 1: General Insurance Flashcards

1
Q

What is insurance?

A

The transferring of risk of loss from an individual or a business entity to an insurance company. “Insureds losses are transferred over to the insurer”.

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2
Q

What is risk?

A

The uncertainty or chance of a loss occurring.

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3
Q

What is a peril?

A

Causes of loss

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4
Q

Based on the principle of indemity

A

Insurance

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5
Q

Based on the spreading of risk (risk pooling) and the law of large numbers

A

Insurance

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6
Q

3 types of hazards

A
  1. Physical
  2. Moral
  3. Morale
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7
Q

Give rise to a peril

A

Hazards

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8
Q

This type of hazards are individual characteristics that increase the chances of the causes of loss. Ex. Past medical history, physical conditions or condition at birth such as blindness.

A

Physical Hazard

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9
Q

Tendencies towards increased risks. Involves evaluating the character and reputation of the proposed insured. Ex. Those who lie on their application or who submitted fraudulent claims in the past.

A

Moral Hazards

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10
Q

Similar to moral hazards except they arise from a state of mind that causes indifference to loss, such as carelessness that may cause physical harm.

A

Morale Hazards

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11
Q

Agent AKA:

A

Producer

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12
Q

APPLICANT AKA:

A

Proposed Insured

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13
Q

A legal representative of an insurance company

A

Agent/Producer

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14
Q

A person applying for insurance

A

Applicant/Proposed Insured

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15
Q

An insurance producer not appointed by an insurer and is deemed to represent the client

A

Broker

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16
Q

A contract bt a policy owner (and/or insurer) and an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events.

A

Insurance Policy

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17
Q

The person covered by the insurance policy. May ir may not be the policyowner.

A

Insured

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18
Q

Insurer (principal)

A

The company who issues an insurance policy.

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19
Q

The person entitled to exercise the rights and privileges in the policy.

A

Policyowner

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20
Q

The money paid to the insurance company for the insurance policy

A

Premium

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21
Q

Reciprocity/Reciprocal

A

A mutual interchange of rights and privileges

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22
Q

Only ______ risks are insurable

A

Pure

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23
Q

Opportunity for either loss or gain. Risks of gambling. Not insurable.

A

Speculative risks

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24
Q

Defined as the reduction, decrease, or disappearance of value of the person or property. Insurance transfers:

A

Loss

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25
Q

A ______ is a chance that a loss will occur

A

Risk

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26
Q

A _________ increases the probability of loss

A

Hazard

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27
Q

A ________ is the cause of loss

A

Peril

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28
Q

Methods for handling Risks
Hint: STARR

A
  1. SHARING
  2. TRANSFER
  3. AVOIDANCE
  4. RETENTION
  5. REDUCTION
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29
Q

Method for handling risk which means eliminating exposure to a loss. Ex. Not flying on an airplane to avoid dying on an airplane.

A

Avoidance

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30
Q

Reduces expenses and improve cash flow, fund for losses that cannot be insured and increases control of claim reserving and claim settlements by accepting the responsibility of loss b4 the insurance company does:

A

Retention

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31
Q

A method of dealing with risk for a group of individual persons or businesses with the same or similar exposure to loss to share the losses that occur within that group.

A

Sharing

32
Q

A reciprocal insurance exchange is a formal ____________ arrangement

A

Risk-Sharing

33
Q

Reduction

A

Actions such as installing smoke detectors, having annual physical exams and making lifestyle changes.

34
Q

The most effective way to handle risk:
Hint is with life insurance does.

A

Transfer

35
Q

Elements of Insurable Risks
HINT:DDSNR

A

Due to chance
Definite and measurable
Statistically predictable
Not catastrophic
Randomly selected and large loss exposure

36
Q

Adverse Selection

A

Insurance companies try to protect themselves from this and have an option to restrict coverage for bad risks or charge them a higher rate for coverage.

37
Q

Law of large numbers

A

As the number of people in a risk pool increases, future losses become more predictable.

38
Q

Owned by stockholders who provide capital necessary to establish and operate the insurance company.

A

Stock companies

39
Q

Traditionally stock companies issued ________ policies in which policyowners do not share nonprofits or losses.

A

Nonparticipating

40
Q

Nonparticipating (stock) policy

A

Does not pay dividends to policyowners, however, taxable dividends are paid to stockholders.

41
Q

Owned by policyowners and issue participating policies.

A

Mutual companies

42
Q

Policyowners are entitled to dividends which are a return from over paid premiums and is not taxable. However, dividends are not guranteed.

A

Participating Policies

43
Q

Certificate Of Authority aka:

A

License

44
Q

Before insurers may transact business in a specific state, they must apply for and be granted a:

A

License or Certifcate of Authority

45
Q

Authorized or Admitted

A

Insurers who meet the state’s financial requirements and are approved to transact business on the state.

46
Q

Unauthorized or Nonadmitted

A

Insurers who are not approved to do business in the state.

47
Q

Defines the relationship between the principal and the agent/producer.

A

Law of agency

48
Q

The authority that is written in contract.

A

Express

49
Q

Authority that is not expressed or written into contract, but which agent is assumed to have in order to transact the business of insurance for the principal.

A

Implied

50
Q

The appearance or the assumption of authority based on actions, words, or deeds of the principal or because of circumstances the principal created. Also know as perceived authority.

A

Apparent authority

51
Q

Financial responsibility aka:

A

Fiduciary responsibility

52
Q

Someone in a position of trust

A

Fiduciary

53
Q

An agreement bt two or more parties enforceable by law.

A

Contract

54
Q

Elements of a legal contract

A
  1. Agreement
  2. Consideration
  3. Competent parties
  4. Legal purpose
55
Q

Definite offer by one party and the other party must accept this in its exact terms.

A

Agreement

56
Q

Takes place when an insurers underwriter approves the application and issues a policy.

A

Acceptance

57
Q

Binding force in any contract. Something of value. The insurer promises to pay for losses and the insured pays the premium and makes truthful statements on the application.

A

Consideration

58
Q

Competent Parties

A

Must be legal age, mentally competent to understand contract and not under the influence of drugs or alcohol

59
Q

Not against public policy; must have both insurable interest and consent.

A

Legal purpose for life insurance policy

60
Q

Unequal values

A

Aleatory

61
Q

One-sided (only one party makes a promise)

A

Unilateral

62
Q

Only one party (insurer) prepares a contract, and the other party (insured) accepts it as is.

A

Adhesion

63
Q

Requires that certain conditions must be met by the policyowner and the company in order for the contract to be executed, and therefore each party fulfills its obligation.

Ex. Insured pays premium and provides proof of loss and insurer covers claim.

A

Conditional contract

64
Q

Somethings referred to as reimbursement. Meaning insured cannot recover more than their loss.

A

Indemnity

65
Q

Implies that there will be no fraud, misrepresentation or concealment between parties.
Ex. Insured provider accurate info for application and insurer clearly and truthfully describes the features and benefits of the policy.

A

Utmost Good Faith

66
Q

Are statements believed to be true and is the statements the insured put on their application.

A

Representations

67
Q

Untrue statements on the application that could Void the contract.

A

Misrepresentations

68
Q

A statement that if discovered would alter the underwriting decision of the insurance company; and if intentional are considered fraud.

A

Material misrepresentations

69
Q

Gramm-Leach Biley Act

A

Financial companies must explain sensitive information sharing practices to their customers and safe guard sensitive data.

70
Q

An absolute true statement upon which the validity of the life insurance policy depends.

A

Warranty

71
Q

The legal term for the intentional withholding of information of a material fact that is crucial in making a decision.

A

Concealment

72
Q

The intentional misrepresentation or intentional concealment of a material fact used to induce another party to make or refrain from making a contract or to decieve or cheat a party. Is a felony and 4 years in prison.

A

FRAUD

73
Q

The voluntary act of relinquishing a legal right, claim or privilege

A

Waiver

74
Q

A legal process that can be used to prevent a party to a contract from re-azzerting a right or privilege after that right or privilege has been waived. A legal consequence of a waiver.

A

Estoppel

75
Q

An insurance company that is formed under the laws of another state is known as what type of insurer?

A

Foreign

MI Life Insurance Exam (7 decks)

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