Chapter 1 - General Insurance Concepts Flashcards
What is the term for the causes of loss insured against in an insurance policy?
Peril
In insurance, when is the offer usually made on a contract?
When the insurance application is submitted.
When does an insurance policy go into effect?
When the policy is delivered and the premium is paid
What do individuals use to transfer their risk of loss to a larger group?
Insurance
What are the three types of agent authority?
Express, implied, and apparent
In the agent/insurer relationship, who is considered the principal?
Insurer
Insurance is a contract that protects the insured from what?
Loss
A person who does not lock the doors to his or her house shows and indifferent attitude. This person presents what type of hazard?
Morale
An insurance company that is formed under the laws of another state is known as what type of insurer?
Foreign
When agents act within the scope of their contract, their actions will be assumed to be the acts of whom?
Insurer
Insurers are classified according to their domicile. What are the three types of insurers?
Domestic, Foreign, Alien
If an insurer meets the state’s financial requirements and is approved to transact business in the state, it is considered what type of insurer?
Authorized and admitted
What type of risk is insurable?
Pure
When would a misrepresentation on an insurance application be considered fraud?
When it is intentional and material
If an applicant does not receive his or her insurance policy, who would be held responsible?
The Agent
An insurance company is domiciled in California and transacts insurance in Nevada. What is this insurer’s classification in Nevada?
Foreign
What are the four elements of an insurance contract?
Agreement (offer and acceptance), consideration, competent parties, and legal purpose
For the purpose of insurance, What is risk?
uncertainty of loss.
What type of report provides information about the applicants hobbies, habits and financial status?
Inspection report
Whose responsibility is it to determine that all the questions on an insurance application are answered?
The agent’s
What are the strategies used by underwriters to prevent adverse selection?
Restriction of coverage, refusal to accept a risk, and accepting a risk at a higher rate
Who owns stock companies?
Stockholders
The insurer organized to return a profit to the stockholders is what type of insurer?
Stock company
What document is required for an insurance company to transact insurance?
Certificate of authority
What is the best way to handle incomplete insurance applications?
Return the application to the applicant for completion.
The reduction, decrease, or disappearance of value of the person or property insured in a policy is known as what?
Loss
Insuring of risks that are more prone to losses than average risk. Insurers may protect themselves by refusing or restricting coverage or by charging a higher rate.
Adverse selection
In the agent/insurer relationship, who is considered the principal?
Insurer
The type of insurance company organized to return any surplus money to its policyholders is known as what?
Mutual Company
In forming an insurance contract, when does an acceptance usually occur?
When the insurer approves a prepaid application
If an agent fails to obtain the applicant’s signature on the insurance application, what must the insurer do?
Send the application boack to the applicant for signature
When a change needs to be made on the application for insurance, which is the best method for correcting the information?
Complete a new application or ask the applicant to initial the correction on the original application
According to the Law of Agency, a principal is represented by whom?
Agent or producer
What two elements are necessary for a life insurance contract to have a legal purpose?
insurable interest and consent
An applicant conceals relevant health information on the application. The applicant presents what type of hazard?
Moral
What entities make up the medical information bureau?
Insurers
When agents act within the scope of their contract, their actions will be assumed to be the acts of whom?
Insurer
Wagering on a sporting event is known as what type of risk?
Speculative
Conditions that increase the chance of a loss are known as what?
Hazards
What type of insurer is formed under the laws of another country?
Alien
A situation in which a person can only experience a loss and no gain presents what type of risk?
pure
What is a warranty in an insurance contract?
An absolutely true statement upon which the validity of the insurance contract is based.
An insurance policy paid a nontaxable dividend to the insured one year, and nothing the next. From what type of insurer did the insured purchase the policy?
Mutual
The requirement that agents must account for and promptly remit all insurance funds collected is known as what type of agent responsibility?
Fiduciary
What are the three types of hazards?
Physical, moral, and morale
Insurer collects only to the extent of the financial loss
indemnity
Hazards give rise to _____
peril
Type of insurer that is non-par
Stock
Type of insurer that is par (participates in dividends)
mutual
non for profit orgnaizations with member based insurance
fraternal benefit society
Not specifically stated in contract but assumed neccessary to conduct business
implied
The appearance of a relationship between agent and prinicipal based on words or actions
apparent
Company is approved by dept. of insurance ad has certificate of authority
authorized / admitted
not agains public policy
legal purpose
premiums and representations on behallf of the insured; payment of claims on part of the insurer
consideration
always resolved in favor of the insured
ambiguities
voluntary act of reliquishing a legal right; estoppel
waiver
The planned assumption of risk by an insured through the use of deductibles, co-payments, or self insurance.
Risk retention
The purpose of ______ is to
1. Reduce expenses and improve cash flow
2. Increase control of claim reserving and claims settlements
3. To fund for losses that cannot be insured
Retention
One party prepares the contract; the other party must accept it.
Adhesion
Exchange of unequal amounts
Aleatory
- adhesion
- aleatory
- conditional
- personal
- unilateral
Contract characteristics
Material misrepresentations (if intentional), breach of warranties, concealment, fraud can al ——- the contract.
Void
Consequence of a waiver
Estoppel
What type of risk is insurance?
Pure risk that results in a loss or no change
Avoidance, retention, sharing, reduction, transfer are all means of ___________ _________
Handling risk
Due to chance
Definite and measurable
Statistically predictable
Not catastrophic
Randomly selected / large loss exposure
Elements of insurance risk
Spreading risk among a large pool of people with a similar exposure to loss.
Law of large numbers
A company that insures what other companies consider too high risk to take on. (Ie railcars, airlines, a persons body parts,) and are never authorized/admitted in any particular state
Excess / surplus lines
An insurer that is incorporated in this state
Domestic insurer
An insurer incorporated in another state or territory
Foreign insurer
An insurer incorporated outside of the U.S.
Alien insurer
According to the ___________ knowledge of the agent = knowledge of insurer and payment to agent = payment to insurer
Law of agency
Authority written in the contract
Express authority
Authority not written in contract, but is assumed
Implied authority
Authority based on the principals actions or words
Apparent authority
Element of a legal contract that is represented the offer and acceptance of that offer.
Agreement
Element is a legal contract represented by the payment and info on application
Consideration
Element of a legal contract that states all actions must not be against law or public policy.
Legal purpose
An unequal exchange of values. Ie a premium is much less than the amount paid out in the case of an event.
Aleatory
Contract language stating between insurer and insured
Personal
Insurance language that suggests you take it or leave it
Adhesion
Contact language that presents a policy as a one sided promise. The insurance company is contractually obligated to hold up their end of the deal whereas the insured can cancel at anytime.
Unilateral
Contract language that states that certain conditions must be met.
Conditional
Application statement may that are absolutely true. A breach of these can void a policy
Warranties
Statements on an app that are true to the best of their knowledge and are not necessarily guaranteed to be true
Representations
Intentional withholding of information of a material fact that is crucial in making an underwriting decision
Concealment
A fact that would lead to a different underwriting decision had the insurer known about it
Material fact
When insurance is obtained through a __________ insurer, the insureds are sharing the risk of loss with other subscribers.
Reciprocal
