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Insurance Exam > Chapter 2 > Flashcards

Chapter 2 Flashcards

(48 cards)

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1
Q

Insurance

A

Transfers the risk from individuals to a group

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2
Q

Risk

A

uncertainty of loss

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3
Q

Pure Risk

A

Insurable. Chance of loss is present without the potential for a financial gain.

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4
Q

Speculative Risk

A

Chance is taken that may result in a financial gain. NOT insurable

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5
Q

Hazard

A

Increase the chances or frequency or severity of a loss.

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6
Q

Exposure

A

Possibility of a loss caused by surroundings

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7
Q

Peril

A

Causes a loss

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8
Q

Loss

A

reduction of value of an asset

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9
Q

Direct Loss

A

Loss incurred as a direct result of a peril

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10
Q

Indirect Loss

A

Any loss that is a consequence of the direct loss ( example: Hotel and eating expenses)

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11
Q

Methods of Handling Risk (STARR)

A

Sharing: Sharing the exposure to a loss with another person

Transfer: Transferring the financial impact of a loss to another party

Avoidance: Eliminating the risk entirely

Retention: Absorbing all or part of the risk involved with a particular exposure. (deductibles)

Reduction: Reducing the severity of losses that do occur. (Fire extinguishes)

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12
Q

Elements of Insurable Risk (6)

A

Independence: Many people must be independently exposed to the same or similar risk.

Definiteness: Losses must be definite as to cause, time, place, and amount.

Calculability: Losses must be frequent enough and in an amount sufficient to calculate rates equitable to all policyholders.

Accidental: Loss must be a random event over which the insured has no control.

Losses cannot be catastrophic.

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13
Q

Adverse Selection

A

Selecting risks that are against the interest of the insurance company. Poor underwriting.

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14
Q

Law of large numbers

A

The greater the numbers the more accurate the statistics will be to predict the frequency and severity of losses.

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15
Q

Reinsurance

A

Allows insurance company to “sell” part of the risk.

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16
Q

Types of Insurance (9)

A

Stock Companies

Mutual Companies

County Mutual Companies

Farm Mutual Companies

Reciprocal Exchanges

Risk Retention Groups

Purchasing Groups

Lloyds Plan

Self-Insurers

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17
Q

Stock Commpanies

A

Owned by Stockholders

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18
Q

Mutual Companies

A

Owned by the policyholders

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19
Q

County Mutual Companies

A

High risk auto coverage and low value dwelling coverage

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20
Q

Farm Mutual Companies

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A

Rural or urban dwellings coverages.

21
Q

Reciprocal Exchanges

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A

Owned by Policyholders. Operated by an attorney-in-fact and normally created by stock companies to escape regulation.

22
Q

Risk Retention Groups

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A

Entities formed by similar businesses to insure each others commercial and professional liability risks.

23
Q

Purchasing Groups

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A

Group policies purchased from a commercial insurance company to cover commercial and professional liability risks.

24
Q

Lloyds Plan

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A

Non-regulated rates offered for a full range of property and casualty insurance except life.

25
Self-Insurers
Companies choose to self-insure rather than pay premium to an insurance company.
26
Private vs Governmental Insurers
Most insurance is covered through private insurers. Some insurance can only be purchased through the federal government.
27
Authorized vs Unauthorized Insurers
Listed by the state or not listed by the state.
28
Domestic Insurer
Companies initiated in the same state
29
Foreign Insurer
Insurance from a different state
30
Alien Insurer
Insurance from another country
31
Financial Status
Financial rating services to make a reasonable determination of a company's strength.
32
Institutional Advertisement
Promotes an idea, big picture.
33
Invitation to inquire
Promotes a type of product.
34
Invitation to contract
Promotes a specific product
35
Responsibilities to Insurer (5)
Making mistakes Failure to follow company instructions Failure to disclose information Delay in forwarding information Exceeding the express or implied authority given by a company
36
Responsibilities to the Insured/Customer (5)
Misrepresenting Insurance coverage Failure to procure insurance Procurement of inadequate coverage Failure to inform insured of renewal Failure to investigate an insurer's financial solvency
37
Law of Agency (4)
Independent - represents several insurance on a commission basis Captive or Exclusive - Represents only one company and is usually on commission basis Direct Writer - Employee of the insurance company working on a salaried basis Direct Mail/Direct Response - They sell insurance by mail or internet directly to the consumer.
38
Authority (3)
Express Authority - written or oral contract Implied Authority - Agent assumes based on what he/she has been told Apparent Authority - Customer's belief of the agent's authority
39
Contracts (CLAP)
Consideration - Both parties assume responsibility Legal Purpose - They have to be legal contracts Agreement - Offer and acceptance Competent Parties - The incompetence of either party can void coverage
40
Distinct Characteristics of an Insurance contract (5)
Contract of Adhesion - Contract prepared by one party on a take-or-leave-it basis. Aleatory Contract - Equal value is not paid by each party Personal Contract - The insurer and the policyholder both consider the credit, conduct, and the character of the other Unilateral Contract - A contract in which only one party make an enforceable promise Conditional Contract - Both parties must still perform certain acts to make the contract legally enforceable.
41
Legal Interpretations Affecting Contracts (2)
Ambiguity of a contract are resolved in the favor of the insured Doctrine of Reasonable Expectations permits the reasonable and objective expectations of insureds regarding the terms of the insurance contract
42
Indemnity
Indemnification is placing the insured back at the same financial position prior to the loss
43
Utmost Good Faith
Each party in the contract will assume that the other is acting truthfully
44
Representations
Statements made by the applicant to the insurance company during the process of obtaining a policy
45
Concealment
Failure to disclose a known truth
46
Fraud
Intentional perversion of the truth for the purpose of inducing an insurance company to accept an application
47
Warranties
Stipulations in the insurance contract that if breached, may void the contract
48
Waiver and Estoppel
Waiver - Relinquishing of a know right Estoppel - Results of that waiver

Insurance Exam (11 decks)

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