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Life and Health Kansas Insurance > Chapter 1: General Insurance > Flashcards

Chapter 1: General Insurance Flashcards

1
Q

Define Insured

A

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

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2
Q

Define Insurers

A

Insurance Companies or Carriers

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3
Q

What do insurers provide?

A

Insurance coverage by issuing particular insurance policies or contracts

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4
Q

What are Insurance Agencies?

A

Independent sales organizations that provide service and distribute insurance policies to consumers

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5
Q

What are Insurance Agents or Producers?

A

Licensed individuals representing an insurance company when transacting insurance business

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6
Q

How is the insurance industry regulated?

A

The Insurance industry is regulated primarily at the state level through the legislative, judicial, and executive branches.

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7
Q

How does the state legislative branch regulate the insurance industry?

A

The legislative branch writes and passes state insurance laws, or statues, designed to protect the insuring public

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8
Q

How does the state judicial branch regulate the insurance industry?

A

The judicial branch is responsible for interpreting and determining the constitutionality of the statutes.

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9
Q

How does the state executive branch regulate the insurance industry?

A

The Executive Branch enforces the existing statues that have been put in place.

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10
Q

How does the state executive branch regulate the insurance industry?

A

The Executive Branch enforces the existing statutes that have been put in place.

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11
Q

What is the National Association of the Insurance Commissioners (NAIC)?

A

The regulatory support organization is created and governed by the chief insurance regulators and commissioners from the 50 states, D.C., and 5 U.S. territories.

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12
Q

What does the NAIC do?

A

The NAIC provides resources, research, legislative and regulatory recommendations, and interpretations for state insurance regulators.

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13
Q

What is the primary goal of the NAIC?

A

to promote state uniformity

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14
Q

How do Stock Insurance companies work?

A
  1. stockholders elect a Board of Directors to manage the company
  2. the Board then elects the officers to handle the day-to-day activities
  3. Stockholders share in the company’s profits and may receive corporate dividends taxable as ordinary income IF declared by the Directors
  4. The dividends are not guaranteed.
  5. Stock insurers issue non-participating policies since the policyholders are not entitled to dividends.
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15
Q

Who are mutual insurance companies owned by?

A

Policyholders (may be referred to as members)

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16
Q

How do mutual insurance companies work?

A
  1. A board of directors is elected by the policyholders to manage the company
  2. Officers elected by the Board handle the day-to-day operations.
  3. When declared by the Board, policyholders may receive non-taxable dividends as a return of unused premium
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17
Q

What kind of policies do mutual insurers typically issue?

A

Participating policies

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18
Q

Are dividends from mutual policies guaranteed?

A

No, they are considered a return of premium based on any surplus at the end of the year once all claims and operating expenses have been paid.

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19
Q

What are Fraternal insurers also known as?

A

Fraternal Benefit Societies

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20
Q

What are Fraternal insurers?

A

They are primarily social organizations that engage in charitable and benevolent activities that provide primarily life insurance to their members. They are usually organized on a nonprofit basis.

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21
Q

Where is membership typically drawn from in Fraternal insurers?

A

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

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22
Q

A____ insurance company is owned by its policyholders.

a. Stock
b. reciprocal
c. fraternal benefits society
d. mutual

A

D. Mutual

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23
Q

Define Domicile

A

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

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24
Q

What are the three kinds of insurer domicile?

A

Domestic, foreign, and alien

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25
Q

What is a domestic insurer?

A

An insurer organized under the laws of a state in which it is placing business is considered a domestic insurer in that particular state. An insurer can only be domestic to the state in which it is incorporated

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26
Q

Give an example of domestic insurers

A

An insurer organized under the laws of New York is considered domestic to New York

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27
Q

What is a foreign insurer?

A

An insurer placing business anywhere within the United States OTHER THAN the state, district, or territory in which it was organized and incorporated is a considered a foreign insurer in that jurisdiction

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28
Q

Give an example of a foreign insurer

A

An insurer incorporated in New York is considered foreign to Kansas

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29
Q

What is an alien insurer?

A

an insurer placing business within the United States which was organized under the laws of another country is considered an alien insurer within the U.S. jurisdiction

30
Q

Give an example of an alien insurer

A

An insurer incorporated in Ontario, Canada, is considered alien to New York

31
Q

What is an admitted or authorized insurer?

A

An admitted or authorized insurer is approved to transact insurance in a given state if it has been granted a Certificate of Authority from that state’s Department of Insurance.

32
Q

What is a non-admitted or unauthorized insurer?

A

A non-admitted or unauthorized insurer is not authorized to transact insurance in a given state, either by failing to comply with state requirements or by not seeking admission

33
Q

Which of the following is an insurance company that is organized under the laws of another state within the United States?

a. domestic
b. alien
c. foreign
d. authorized

A

C. Foreign

34
Q

What is the Fair Credit Reporting Act (15 USC 1681-1681d)?

A

It protects the consumer’s right to the privacy of credit and financial information, ensuring that all collected data is confidential, accurate, relevant, and properly used.

35
Q

Under what circumstances can credit reports be obtained, per the FCRA?

A

credit reports may be obtained only to determine the financial and moral status of an applicant, such as for employment screening or loan approval, or to assist in underwriting by an insurer

36
Q

What must the insurer give to the consumer (insurance applicant) to request a report?

A

They must give a pre-notification to the consumer that a credit report may be requested as part of the insurer’s underwriting requirements, and must have pre-authorization by obtaining the applicant’s written consent to request the report

37
Q

After the pre-notification and written consent for the credit report is given, what actions are taken?

A
  1. the producer will obtain the signature at the time of application
  2. If an adverse action is taken, such as denial of coverage, the insurer must provide post-notification to the applicant by stating the reasons for the adverse action and the right to request a copy of the credit report.
  3. the insurer must provide information as to how the applicant can request a copy of the report from the consumer agency that compiled the report.
  4. The insurer or producer does not provide a copy of the report to the applicant
38
Q

What happens if the applicant challenges the accuracy of information found in the report according to the Fair Credit Reporting Act?

A
  1. The credit reporting agency is required to investigate the matter through the source that provided such information and correct the information if necessary
  2. The applicant is entitled to be informed of anyone who requested a copy of the report in the prior 6 months
39
Q

Why was the PATRIOT Act passed?

A

To help detect and prevent this illegal activity of laundering money

40
Q

Why was the Anti-money laundering training given to producers of financial institutions and insurance companies?

A

Insurance products are now being used to give legitimate appearance to money financed by and for illegal activities

41
Q

What are financial institutions required to report?

A
  1. Any activity they believe or even have reason to suspect is an effort to launder money.
  2. A Currency Transaction Report must be filed with FINCEN (Financial Crimes Enforcement Network) through the Department of Treasury for every cash transaction that exceeds $10,000 and wire transfers in excess of $3,000
42
Q

A federal regulation called the ____ protects consumer privacy.

a. Consolidated Omnibus Budget Reconciliation Act
b. Fraudulent Insurance Act
c. Privacy Protection Act
d. Fair Credit Reporting Act

A

D. Fair Credit Reporting Act

43
Q

What is an insurance contract?

A

An insurance policy is a legal contract between two parties, purchased by the insured and stating that the insurance company promises to make payment for a loss arising from an unexpected event.

44
Q

What does an insurance policy/contract involve?

A

The contract involves the exchange of a relatively small and definite expense (known as premium) for the promise of payment for a large uncertain loss

45
Q

What is indemnify?

A

To compensate for a loss, or to make one whole again.

46
Q

What is the Principle of Indemnity?

A

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

47
Q

Since life and health and insurance may not be possible to truly indemnify a person for all losses, what do the companies do instead?

A

In this case, indemnity takes the form of cash (a death or disability income benefit) or payments to physicians or hospitals for care and services provided to an insured who is injured or ill

48
Q

What needs to happen for someone to get insurable interest?

A
  1. Insurable interest requires a financial or economic hardship in the event of a loss due to an accident, sickness or death of the insured.
  2. Insurable interest must exist between the person buying the insurance, the policy owner, and the person insured under the policy.
  3. contract law requires that insurable interest must exist at the time of the application, not the time of the loss
49
Q

What can make the purchase of insurance or payment of a claim illegal?

A

lack of insurable interest, because benefiting from the policy without suffering a financial or economic loss would allow for a person to profit from the loss

50
Q

For life and health insurance, insurable interest must exist at the time of:

a. application
b. loss
c. application and loss
d. policy delivery

A

A. Application

51
Q

What are the 4 elements of a legal contract?

A
  1. Competent parties
  2. Legal Purpose
  3. Agreement (Offer and Acceptance)
  4. Consideration
52
Q

What would mean for a person to not have legal capacity?

A
  1. minors- for the purposes of insurance, a minor is a person under age 16
  2. Mentally incompetent
  3. Under the influence of drugs or alcohol
53
Q

What must constitute a legal purpose to have a legal contract?

A
  1. Insurance may not be issued for an illegal activity or immoral purpose
  2. intentional acts that cause a loss to collect from a policy, such as arson or murder, remove the legal aspect of purchasing insurance
  3. a contract must be issued in good faith that the owner is not looking to gain from a loss
54
Q

What is involved in an agreement for a legal contract?

A

An offer (by submitting an application to the insurance company for insurance along with the initial premium)
Acceptance (the approved application allowing the policy to be issued)

55
Q

Can the insurer still issue a policy if a premium does not accompany the application?

A

Yes. In this case, the policy is considered the offer and the premium, when paid, becomes the acceptance

56
Q

What is the consideration part of a legal contract?

A

Consideration is the exchange of value that makes a contract binding

57
Q

What is the insured’s consideration?

A

the payment of premium along with an agreement to abide by the conditions of the contract

58
Q

What is the insurer’s consideration?

A

the promise to indemnify in the vent of a loss is its consideration, as is specified in the insuring clause of the policy

59
Q

Each of the following is an element of a legal contract EXCEPT:

a. consideration
b. legal purpose
c. agreement
d. indemnity

A

d. indemnity

60
Q

What are the 4 characteristics of an insurance contract?

A
  1. contract of adhesion
  2. Aleatory Contract
  3. Unilateral Contract
  4. Conditional Contract
61
Q

What are the 2 legal interpretations affecting contracts?

A
  1. representations
  2. warranties
62
Q

What is a contract of adhesion?

A
  1. the contract is written by one party, the insurance company, without any input from the applicant
  2. The insurer prepares the contract and presents it to the applicant on a “take-it-or-leave-it” basis
  3. Because the insured has no input regarding the terms of the contract, it is NOT NEGOTIABLE.
63
Q

What is an aleatory contract?

A

A contract that is based on an uncertain event, or “by chance”.
2. It can’t be known before making the contract whether the insurer will have to pay a loss during the policy term, or whether the insured will make premium payments without receiving anything in return. Both parties agree to the terms of the contract, despite the uncertainty.
3. Likely there will be an unequal exchange of consideration by either party

64
Q

What is a unilateral contract?

A
  1. a contract in which only on party is legally bound to the contractual obligations
  2. as long as all the 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
  3. the insured has the right to cancel the policy at any time and cannot be legally forced to pay the premiums
65
Q

What is a conditional contract?

A

a contract in which both parties must perform certain duties to make the contract enforceable.

The insured can only collect if there has been a covered loss, and the insurer has a list of conditions stated in the contract that must be met before a claim will be paid. (as long as the specified conditions or duties are performed, the insurer must pay the claim)

66
Q

What is a representation?

A

Statements made by the applicant on the application

67
Q

Material vs. Immaterial representation-

A

Statements that impact the acceptance of an insurable risk- whether involving the rating of an acceptable risk, or the decision as to whether to accept or decline a risk- are considered to be material. Immaterial representations do not affect the acceptance or rating of the risk

68
Q

Misrepresentation-

A
  1. a false statement contained in the application is considered a misrepresentation
  2. coverage does not apply, if the misrepresentation is material and the price of premium or coverage amount would have changed because of the misrepresentation
  3. a material misrepresentation may void the policy
69
Q

What are warranties?

A

Warranties are material statements in the application or stipulations in the policy that are guaranteed true in all respects. If warranties are later discovered untrue or breached, coverage and the contract may be voided.

70
Q

A warranty is defined as which of the following?

a. intentional misrepresentation on the application
b. statement in the application that is guaranteed to be true
c. a false statement in the application
d. a substantially true statement

A

c. a false statement in the application

Life and Health Kansas Insurance (13 decks)

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