Chapter 1 - Insurance 101 Flashcards
1
Q
Insurer
A
The insurance company or carrier
2
Q
Insured
A
The person upon whom the insurance is written and rated
3
Q
Policy owner
A
The person with ownership rights in the policy. This may or may not be the insured. King of policy
4
Q
Beneficiary
A
The person designated to receive death benefits in a life or health policy
5
Q
Insurability
A
The acceptability of an applicant for an insurance policy from an insurer at a given rate
6
Q
Underwriting
A
Underwriting is the process of classifying a risk for the purpose of issuing insurance coverage
7
Q
Insurable Interest
A
- Insurable interest is a principle that requires the purchaser of life
insurance to suffer financially in the event of a loss (death of the
insured) to obtain insurance and collect claim payment.
2.In life & health insurance, insurable interest must exist at the time of application.
8
Q
Non-renewal
A
This is the discontinuation of a policy at the end of its term
9
Q
Rider/endorsement
A
A policy form used to add or revise coverage in a life or health policy
10
Q
Exclusion
A
This is the cause of loss or situation not covered by the policy
11
Q
The commissioner of Insurance
A
The Commissioner of Insurance is appointed by the Governor to be the Department of Insurance’s chief executive and administrative officer
12
Q
Commissioner’s power:
Enforce insurance rules and law
A
Can
13
Q
Commissioner’s power:
Issue Subpoenas, hold hearings, administer oaths, take testimony, assess and enforce penalties
A
Can
14
Q
Commissioner’s power:
Sets continuing education requirements
A
Can
15
Q
Commissioner’s power:
Endure the fair treatment of consumers
A
Can
16
Q
Commissioner’s power:
Administers the Workers’ Compensation system
A
Can
17
Q
Commissioner’s power:
Approves producer licenses and insurer’s Certificate of Authority
A
Can
18
Q
Commissioner’s power:
Approves insurers policy and endorsement forms
A
Can
19
Q
Commissioner’s power:
Make insurance law or any law
A
Cannot
20
Q
Commissioner’s power:
Prosecute non-insurance related crimes
A
Cannot
21
Q
Commissioner’s power:
Sentence anyone to jail or prison
A
Cannot
22
Q
Reinsurance Reserves
A
A reinsurance reserve is a required fund set up by the insurer for the protection of its policyholders.
The Department does not have the right to tell an insurer when to release the funds.
23
Q
Domicile of insurer
A
Jurisdiction under which an insurer is formed, incorporated, or has its home office
24
Q
Domestic domicile
A
Formed, incorporated, and home office in Texas
25
Foreign domicile
Formed, incorporated, and home office in any other state than Texas
26
Alien domicile
Formed, incorporated, and home office in another country
27
Admitted insurer
Allowed to sell policies in Texas
28
Certificate of Authority
Admitted insurers receive a Certificate of Authority
29
Sanctions and Penalties
The Commissioner must provide the insurer 10 days’ notice before revoking the insurer’s Certificate of Authority
The insurer can request a hearing, which must be held within 30 days of the request
30
Who cannot request information about fraudulent claims?
The insured
30
How often will the Department of Insurance examine the books and records of each domestic and admitted insurer?
At least every five years. To determine their financial stability
31
Who is responsible for computing the amount of reinsurance reserves necessary for all policies?
The Department of Insurance.
32
What doesn’t the Department of Insurance have the right to?
When to release the funds
33
What is a reinsurance reserve?
It is a required fund set up by the insurer for the protection of its policyholders
34
What is the term for an insurer that is allowed to sell in Texas?
Admitted
35
What do admitted insurers receive?
A Certificate of Authority
36
How many days must the Commissioner provide to the insurer before revoking their license?
10 days
37
How many days must a hearing be held once the Certificate of Authority is revoked?
30 days.
38
What is the 10/30 rule?
10 days’ notice to get out.
| If a hearing is to be held, 30 days
39
What are guarantee associations?
Policy holders get paid if the insurer goes bankrupt
40
What are the different types of insurers?
Stock Insurer
Mutual Insurer
Fraternal Benefit Society
41
Who owns a Stock Insurer?
Stockholders or shareholders
42
How does a Mutual Insurer work?
Owned by its policyholders.
43
How does a Fraternal Benefit Society work?
It provides insurance only to their members.
| Must be a member of the organization to obtain insurance
44
The transaction of insurance includes all the following
Collecting a premium, commission, or other fee
Issuing or delivering a proposal or policy IN PERSON
Receiving an application for insurance
Directly or indirectly acting as a producer
45
What does Transacting insurance NOT involve?
It doesn’t involve setting up appointments, selling mutual funds, and paying claims
46
What must an insurer do in order to advertise insurance?
Full or corporate name
47
What is one of the requirements to license for general lines Life, Accident, Health?
Pass the exam within 12 months
48
What are NOT requirements to have a General Lines Health, Accident & Health license?
NOT required: be at least 21, have a high school diploma, be a U.S. Citizen
49
Who is not required to test to obtain license?
CLU - Chartered Life Underwriter
50
What is a temporary license?
Expensive. For individuals being considered for appointment by a producer or insurer. License is valid for 90 days and cannot be renewed more than once within 6 months.
40 hours of supervised training with 10 hours classroom setting. No exam required.
51
Life and Health Insurance Counselor
They give advice for a fee. Limited Lines licensees cannot charge a fee for advice
52
What, besides a license, is necessary to sell insurance in Texas?
Appointment by insurer
53
What terminates relationship between producer and insurer?
Cancelling appointment
54
Continuing education
Licenses expire after 24 months.
Before license expires: 24 hours of class. 50% in a classroom equivalent (12 hours)
2 hours of the 24 must cover ethics
55
What is the penalty for not completing Continuing Education in time?
$50 for every hour not properly completed.
56
What are the producer responsibilities?
Producers represent the interests of both insurer and insured.
Fiduciary duty.
Report material facts to underwriting
Understanding all the applicant’s insurance needs
Only recommend appropriate policies to applicants
57
Unfair Business Practices - Boycott
Refusing to do business with someone
58
Unfair Business Practices - Coercion
Compelling someone to act against their own interest. For example, telling a claimant that they must sign a release before they will receive aid in handling the claim.
59
Unfair Business Practices - Intimidation
Causing someone to fear harm or injury
60
Unfair Business Practices - commingling
Life insurance policy proceeds received by a trustee may be commingled with any other assets properly coming into a trust
61
Unfair Business Practices - controlled business
Selling only to friends, family, employer or neighbors
62
Unfair Business Practices - defamation
Written or spoken statement about a person or organization that is false and maliciously critical with the intent to injure that person or company engaged in the business of insurance
63
Unfair Business Practices - discrimination
Unfair or illegal treatment of or denial of rights to a person for age, race, gender (but age and sex determine rates), religion, marital status, sexual orientation, national origin
64
Unfair Business Practices - false advertising
Publicly made statement that is deceptive or untrue or aimed to mislead the public about a person working in insurance. Must be published and placed before the public.
Insurer who misleads the public about itself
65
Unfair Business Practices - Rebating
You cannot give anything to the client to induce the purchase of insurance from that producer.
66
What is commission sharing?
Rebating from producer to producer. It is allowed.
67
Unfair Claim Settlement Practices Act
Failing to promptly provide a reasonable explanation for the denial or a claim.
Refusing to pay claims without first conducting a reasonable investigation.
68
Disciplining a licensee
A licensee cannot be convicted of a felony. Misdemeanor is okay. Filing for bankruptcy is okay.
69
How long does an applicant have to wait if the license has been revoked, denied, or suspended?
5 years before reapplying. Still no guarantees.
70
Fair Credit Reporting Act
Legal requirements to ensure the protection of the public from overly intrusive information collection practices by making sure data is confidential, accurate...
71
When must an applicant be notified that a credit report will be obtained?
At the time of application! Producer must also obtain applicant’s signed permission to do so.
72
USA Patriot Act
Enacted after 9/11. To monitor criminal acts used to finance terrorism or drug trafficking.
73
Speculative risk
Like gambling. Opportunity for loss, gain, or neither.
| Like stock market
74
Pure risk
No chance of gain. Loss or nothing.
It must be pure to insure!!
For example, if I crash my 2017 car, insurance won’t give me a 2019 car.
75
Methods of risk management - Transfer
Shifting the burden of the risk onto another party. Insurance transfers risk from insured to insurer.
76
Methods of risk management - retain
Not carrying insurance for the risk
77
ON EXAM 4 elements of a legal contract
Legal purpose
Competent parties (18 or older. Sober. Sane)
Agreement (offer & acceptance)
Consideration (money)
78
Agreement
Offer & acceptance.
In insurance, the offer is the applicant submitting the application and initial premium.
Acceptance is when insurer issues the policy
79
Consideration
4 P’s.
| Premium Payment for Promise to Pay
80
Contract of Adhesion
Take it or leave it. Tapes adhere, so Tape it or Leave it
| Only insurer can make changes to contract
81
Aleatory contract
Insured potentially pays less money than receives.
| Unequal transfer of money between parties
82
Conditional contract
Both parties fulfill certain conditions to keep contract
83
Representation
Statement made by applicant believed to be true
84
Offer =
Application and premium
85
Acceptance =
Policy. How do I know my offer was accepted? I was issued a policy!
86
Warranty
Guarantee that something is true. Like name, social security number
87
Misrepresentations
False statement made by an applicant. It voids the policy
88
Concealment
Withholding or hiding information
89
Waiver
Wave goodbye.
An insurer waives their rights to use any information from unanswered questions on an application. If the insurer issues the policy, they must honor it as it is. It never happens anymore because applications are filled on computers!!
