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Life Insurance License > Chapter 1 - Insurance 101 > Flashcards

Chapter 1 - Insurance 101 Flashcards

1
Q

Insurer

A

The insurance company or carrier

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2
Q

Insured

A

The person upon whom the insurance is written and rated

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3
Q

Policy owner

A

The person with ownership rights in the policy. This may or may not be the insured. King of policy

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4
Q

Beneficiary

A

The person designated to receive death benefits in a life or health policy

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5
Q

Insurability

A

The acceptability of an applicant for an insurance policy from an insurer at a given rate

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6
Q

Underwriting

A

Underwriting is the process of classifying a risk for the purpose of issuing insurance coverage

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7
Q

Insurable Interest

A
  1. 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.

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8
Q

Non-renewal

A

This is the discontinuation of a policy at the end of its term

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9
Q

Rider/endorsement

A

A policy form used to add or revise coverage in a life or health policy

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10
Q

Exclusion

A

This is the cause of loss or situation not covered by the policy

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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

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12
Q

Commissioner’s power:

Enforce insurance rules and law

A

Can

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13
Q

Commissioner’s power:

Issue Subpoenas, hold hearings, administer oaths, take testimony, assess and enforce penalties

A

Can

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14
Q

Commissioner’s power:

Sets continuing education requirements

A

Can

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15
Q

Commissioner’s power:

Endure the fair treatment of consumers

A

Can

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16
Q

Commissioner’s power:

Administers the Workers’ Compensation system

A

Can

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17
Q

Commissioner’s power:

Approves producer licenses and insurer’s Certificate of Authority

A

Can

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18
Q

Commissioner’s power:

Approves insurers policy and endorsement forms

A

Can

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19
Q

Commissioner’s power:

Make insurance law or any law

A

Cannot

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20
Q

Commissioner’s power:

Prosecute non-insurance related crimes

A

Cannot

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21
Q

Commissioner’s power:

Sentence anyone to jail or prison

A

Cannot

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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.

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23
Q

Domicile of insurer

A

Jurisdiction under which an insurer is formed, incorporated, or has its home office

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24
Q

Domestic domicile

A

Formed, incorporated, and home office in Texas

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25
Q

Foreign domicile

A

Formed, incorporated, and home office in any other state than Texas

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26
Q

Alien domicile

A

Formed, incorporated, and home office in another country

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27
Q

Admitted insurer

A

Allowed to sell policies in Texas

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28
Q

Certificate of Authority

A

Admitted insurers receive a Certificate of Authority

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29
Q

Sanctions and Penalties

A

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

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30
Q

Who cannot request information about fraudulent claims?

A

The insured

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30
Q

How often will the Department of Insurance examine the books and records of each domestic and admitted insurer?

A

At least every five years. To determine their financial stability

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31
Q

Who is responsible for computing the amount of reinsurance reserves necessary for all policies?

A

The Department of Insurance.

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32
Q

What doesn’t the Department of Insurance have the right to?

A

When to release the funds

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33
Q

What is a reinsurance reserve?

A

It is a required fund set up by the insurer for the protection of its policyholders

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34
Q

What is the term for an insurer that is allowed to sell in Texas?

A

Admitted

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35
Q

What do admitted insurers receive?

A

A Certificate of Authority

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36
Q

How many days must the Commissioner provide to the insurer before revoking their license?

A

10 days

37
Q

How many days must a hearing be held once the Certificate of Authority is revoked?

A

30 days.

38
Q

What is the 10/30 rule?

A

10 days’ notice to get out.

If a hearing is to be held, 30 days

39
Q

What are guarantee associations?

A

Policy holders get paid if the insurer goes bankrupt

40
Q

What are the different types of insurers?

A

Stock Insurer
Mutual Insurer
Fraternal Benefit Society

41
Q

Who owns a Stock Insurer?

A

Stockholders or shareholders

42
Q

How does a Mutual Insurer work?

A

Owned by its policyholders.

43
Q

How does a Fraternal Benefit Society work?

A

It provides insurance only to their members.

Must be a member of the organization to obtain insurance

44
Q

The transaction of insurance includes all the following

A

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
Q

What does Transacting insurance NOT involve?

A

It doesn’t involve setting up appointments, selling mutual funds, and paying claims

46
Q

What must an insurer do in order to advertise insurance?

A

Full or corporate name

47
Q

What is one of the requirements to license for general lines Life, Accident, Health?

A

Pass the exam within 12 months

48
Q

What are NOT requirements to have a General Lines Health, Accident & Health license?

A

NOT required: be at least 21, have a high school diploma, be a U.S. Citizen

49
Q

Who is not required to test to obtain license?

A

CLU - Chartered Life Underwriter

50
Q

What is a temporary license?

A

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
Q

Life and Health Insurance Counselor

A

They give advice for a fee. Limited Lines licensees cannot charge a fee for advice

52
Q

What, besides a license, is necessary to sell insurance in Texas?

A

Appointment by insurer

53
Q

What terminates relationship between producer and insurer?

A

Cancelling appointment

54
Q

Continuing education

A

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
Q

What is the penalty for not completing Continuing Education in time?

A

$50 for every hour not properly completed.

56
Q

What are the producer responsibilities?

A

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
Q

Unfair Business Practices - Boycott

A

Refusing to do business with someone

58
Q

Unfair Business Practices - Coercion

A

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
Q

Unfair Business Practices - Intimidation

A

Causing someone to fear harm or injury

60
Q

Unfair Business Practices - commingling

A

Life insurance policy proceeds received by a trustee may be commingled with any other assets properly coming into a trust

61
Q

Unfair Business Practices - controlled business

A

Selling only to friends, family, employer or neighbors

62
Q

Unfair Business Practices - defamation

A

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
Q

Unfair Business Practices - discrimination

A

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
Q

Unfair Business Practices - false advertising

A

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
Q

Unfair Business Practices - Rebating

A

You cannot give anything to the client to induce the purchase of insurance from that producer.

66
Q

What is commission sharing?

A

Rebating from producer to producer. It is allowed.

67
Q

Unfair Claim Settlement Practices Act

A

Failing to promptly provide a reasonable explanation for the denial or a claim.
Refusing to pay claims without first conducting a reasonable investigation.

68
Q

Disciplining a licensee

A

A licensee cannot be convicted of a felony. Misdemeanor is okay. Filing for bankruptcy is okay.

69
Q

How long does an applicant have to wait if the license has been revoked, denied, or suspended?

A

5 years before reapplying. Still no guarantees.

70
Q

Fair Credit Reporting Act

A

Legal requirements to ensure the protection of the public from overly intrusive information collection practices by making sure data is confidential, accurate…

71
Q

When must an applicant be notified that a credit report will be obtained?

A

At the time of application! Producer must also obtain applicant’s signed permission to do so.

72
Q

USA Patriot Act

A

Enacted after 9/11. To monitor criminal acts used to finance terrorism or drug trafficking.

73
Q

Speculative risk

A

Like gambling. Opportunity for loss, gain, or neither.

Like stock market

74
Q

Pure risk

A

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
Q

Methods of risk management - Transfer

A

Shifting the burden of the risk onto another party. Insurance transfers risk from insured to insurer.

76
Q

Methods of risk management - retain

A

Not carrying insurance for the risk

77
Q

ON EXAM 4 elements of a legal contract

A

Legal purpose
Competent parties (18 or older. Sober. Sane)
Agreement (offer & acceptance)
Consideration (money)

78
Q

Agreement

A

Offer & acceptance.
In insurance, the offer is the applicant submitting the application and initial premium.
Acceptance is when insurer issues the policy

79
Q

Consideration

A

4 P’s.

Premium Payment for Promise to Pay

80
Q

Contract of Adhesion

A

Take it or leave it. Tapes adhere, so Tape it or Leave it

Only insurer can make changes to contract

81
Q

Aleatory contract

A

Insured potentially pays less money than receives.

Unequal transfer of money between parties

82
Q

Conditional contract

A

Both parties fulfill certain conditions to keep contract

83
Q

Representation

A

Statement made by applicant believed to be true

84
Q

Offer =

A

Application and premium

85
Q

Acceptance =

A

Policy. How do I know my offer was accepted? I was issued a policy!

86
Q

Warranty

A

Guarantee that something is true. Like name, social security number

87
Q

Misrepresentations

A

False statement made by an applicant. It voids the policy

88
Q

Concealment

A

Withholding or hiding information

89
Q

Waiver

A

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!!

Life Insurance License (3 decks)

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