Chapter 1-Insurance Basics for Life & Health Flashcards
transfer of risk
Insurance
possibility or chance of loss
Risk
the company accepting the risk
Insurer
only the possibility of loss/insurance companies only take on these types of risks
Pure Risk
Individual has chance of gain or loss (gamble/investment)
Speculative Risk
Avoid
Reduce
Retain
Share
Transfer
Risk Management Techniques
Cause of loss (accidents & sickness)
Peril
Chance of loss
Hazard
physical in nature
Physical Hazard
based on a person’s values or ethics (take advantage)
Moral Hazard
Living an unnecessary, unhealthy or careless lifestyle
Morale Hazard
more numbers used to establish a statistic
Law of Large Numbers
spreading a risk over a group of investors
Lloyd’s
owned by stock or shareholders (non-participating)
Stock Company
policyholder does NOT receive a dividend-stock co
Non-Participating
owned by its policyholders
Mutual Company
policyholder receives a dividend (return of premium)-mutual
Participating
Risk-interest +expenses
Gross Premium
nonprofit entity organized under a lodge system
large enough membership to provide insurance protection to members
Fraternal
insurance between insurers to limit exposure
Reinsurance
of sound mind & legal age
Competent Parties
the purpose of the contract must be legal
Legal Purpose
offer and acceptance between applicant and insurer
Agreement
something of value is exchanged
premium and information for promise to pay
Consideration
when the company rejects the offer of the applicant, but comes back with a new offer
Counter Offer
promise or guarantee
does not apply to statements on an application
Warranties
truth to the best of the applicant’s knowledge
Representation
mistruth or lie
Misrepresentation
had the company been aware of it might change how or if the policy was issued
Material Statement
hiding or withholding of the truth (lack of whole truth)
Concealment
financial or emotional interest at the time of the sale
Insurable Interest
permission of the individual or guardian of the one to be insured
Consent
an agreement for the company to provide coverage on the client while still completing the underwriting process
Interim Insurance Agreement
date coverage starts
Effective Date
states coverage will begin either on the date of application or the date of the physical (if required) whichever is last IF the applicant was insurable on that date
Conditional Receipt
coverage begins on the date of application unless notified otherwise
Binding Receipt
agent checks the health status of the applicant one last time before delivery of the policy
Statement of Good Health
contracts that pay a specified amount; life and disability are examples
Valued Contract
a contract that is designed to reimburse the insured based on the extent of the loss
Reimbursement contract
prepaid coverage that provides protection in the form of services rather than benefits (HMO)
Service Contract
contract that requires certain events to occur before the company will pay claims
Conditional
only one party in the contract can be held to a promise
Unilateral
one party (the insurer) is responsible for wording leaving room for challenge if language is ambiguous
Adhesion
contract of unequal exchange
Aleatory
voluntarily give up known right
Waiver
legally stopped from being able to enforce one’s legal right
Estoppel
lying with the intent to gain
Fraud
contract between the agent and the company
Agency Agreement
representative of a principal
Agent
intermediary who sells, solicits or negotiates insurance on behalf of a client
Broker
clearly spelled out powers
Expressed
powers not spelled out but allowed or expected
Implied
power that looks “real”, but is not exist
Apparent
situations in which an insurance company extends insurance coverage to an applicant whose actual risk is substantially higher than the risk known by the insurance company.
Adverse Selection
written “offer” signed and made by the prospective insured
Application
allows the agent to share information with the company concerning the applicant
Agent/Producer’s Report
report completed by the insured’s current physician
Attending Physician’s Report or Attending Physician’s Statement
a source that subscribing companies use to share application information to verify the information gathered in the application process
Medical Information Bureau (MIB)
federal legislature designed to protect consumer information requiring the applicant the ability to know who is gathering the information, see what is being gathered and correct misinformation collected
Fair Credit Reporting Act
financial report of information on applicant
Credit Report
a report concerning the financial, moral, physical or any other relevant information about applicant
Inspection Report
hobby of applicant that may impact risk
Avocation
better than average risk
Preferred
average risk
Standard
below average risk
Substandard
rejection of risk
Declined
risk-interest=
Net Premium
monthly, annual, etc
Premium Modes
Obligations at Death
Estate Building
Living Benefits
Property
are all what?
Uses for Life Insurance
How much death benefit would it take if the insured died today ?
This is what type of valuation approach?
Needs Approach (Immediate, final exp, future needs of survivors)
if the insured died today, what is the potential loss of future earnings?
This is what type of valuation approach?
Human Life Value Approach
