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Chapter One Terms to Know > Chapter One > Flashcards

Chapter One Flashcards

Completing the Application, Underwriting, and Delivering the Policy

1
Q

Adverse selection

A

Insuring of risks that are more prone to losses than the average risk

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2
Q

Agent/Producer

A

A legal representative of an insurance company; the classification of producer usually includes agents and brokers; agents are the agents of the insurer

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3
Q

Applicant or proposed insured

A

A person applying for insurance

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4
Q

Beneficiary

A

A person who receives the benefits of an insurance policy

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5
Q

Death benefit

A

The amount paid upon the death of the insured in a life insurance policy

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6
Q

Fraud

A

Intentional misrepresentation or deceit with the intent to induce a person to part with something of value

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7
Q

Insurance policy

A

A contract between a policyowner (and/or insured) and an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events

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8
Q

Insured

A

Person covered by the insurance policy; may or may not be the policyowner

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9
Q

Insurer (principal)

A

The company who issues an insurance policy

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10
Q

Lapse

A

Policy termination due to nonpayment of premium

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11
Q

Life Insurance

A

Coverage on human lives

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12
Q

Policyowner

A

The person that pays premium to the insurance company

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13
Q

Premium

A

The money paid to the insurance company for the insurance policy

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14
Q

Insurance

A

Insurance is the transfer of risk of loss.
- Transfers the risk of loss from an individual to an insurer
- Based on the principle of indemnity
-Based on the spreading of risk (risk pooling) and the law of large numbers

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15
Q

Contract

A

A contract is an agreement between two or more parties enforceable by law.

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16
Q

Consideration

A

Consideration is something of value that each party gives to the other. The consideration on the part of the insured is the payment of premium and the representations made in the application. The consideration on the part of the insurer is the promise to pay in the event of loss.

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17
Q

Insurer’s consideration

A

Insurer’s consideration is the promise to pay for losses; insured’s consideration is the payment of premium and statements on the application.

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18
Q

Contract of Adhesion

A

A contract of adhesion is prepared by one of the parties (insurer) and accepted or rejected by the other party (insured)

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19
Q

Aleatory Contract

A

Insure contracts are aleatory, which means there is an exchange of unequal amounts or values. The premium paid by the insured is small in relation to the amount that will be paid by the insurer in the event of loss.

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20
Q

Unilateral Contract

A

In a unilateral contract, only one of the parties to the contract is legally bound to do anything. The insured makes no legally binding promises. However, an insurer is legally bound to pay losses covered by a policy in force.

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21
Q

Warranty

A

A warranty is an absolutely true statement upon which the validity of the insurance policy depends.

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22
Q

Representations

A

Representations are statements believed to be true to the best of one’s knowledge, but they are not guaranteed to be true. Insured’s statements on the application are representations.

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23
Q

Misrepresentations

A

Untrue statements on the application are considered misrepresentations and could void the contract.

24
Q

Material misrepresentation

A

A material misrepresentation is a statement that, if discovered, would alter the underwriting decision of the insurance company. Furthermore, if material misrepresentations are intentional, they are considered fraud.

25
Q

Field underwriter

A

A life insurance producer

26
Q

Replacement

A

Replacement is a practice of terminating an existing policy or letting it lapse, and obtaining a new one.

27
Q

Underwriting

A

Underwriting is the risk selection process.

28
Q

Pure risk

A

No financial gain

29
Q

Speculative risk

A

Chance for financial gain (lottery ticket)

30
Q

Elements of Insurable Risk

A
  • Due to chance
  • Definite and measurable
  • Statistically predictable
  • Not catastrophic
  • Randomly selected/large loss exposure
30
Q

Express

A

Written in the contract

30
Q

Implied

A

Not written into the contract, but is assumed

31
Q

Apparent

A

Based on the principal’s actions or words

32
Q

Agreement

A

An agreement is made when one party presets an offer, and another party accepts it

33
Q

Conditional insurance contract

A

Certain conditions must be met

34
Q

Personal insurance contract

A

Between insurer and insured

35
Q

A life insurance policy with a cash value that fluctuates depending upon the performance of the separate account is?

A

Variable life

36
Q

USA PATRIOT Act and Anti-Money Laundering

A

The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act

37
Q

FinCEN

A

Financial Crime Enforcement Network

38
Q

SARs

A

Suspicious Activity Report

39
Q

BSA

A

Bank Secrecy Act

40
Q

MSB

A

Money Service Business

41
Q

Insurable interest

A
  1. Must exist at the time of application
  2. Insuring one’sown life, family member, or a business partner
42
Q

Elements of a legal contract

A
  • Agreement - offer and acceptance
  • Consideration - premiums and representations on the part of insured; payment of claims on the part of the insurer
  • Competent parties - of legal age, sound mental capacity, and not under the influence of drugs or alcohol
    *Legal purpose - not against public policy
43
Q

Contract Characteristics

A
  • Adhesion - one party prepares the contract; the other party must accept it as is
  • Aleatory - exchange of unequal amounts
  • Conditional - certain conditions must be met
  • Unilateral - only one o the parties to the contract is legally bound to do anything
44
Q

Field Underwriting (by agent)

A
  • Application - completed and signed
  • Agent’s report - agent’s observations about the applicant that can assist in underwriting
  • Premiums with application and conditional receipts
45
Q

Company Underwriting

A
  • Multiple sources of information: application, consumer reports, MIB
  • Risk classification - 3 types of risks: standard, substandard, preferred
46
Q

Premium Determination

A
  • 3 key factors for life insurance: mortality, interest, and expense
  • Mode - the more frequently premium is paid, the higher the premium
47
Q

Policy Issue and Delivery

A

Effective date of coverage - if the premium is not paid with the application, the agent must obtain the premium and a statement of continued good health at the time of policy delivery

48
Q

Fair Credit Reporting Act

A

Protects consumers against circulation of inaccurate or obsolete personal financial information

49
Q

Gramm-Leach-Bliley Act

A

Prohibits insurers from disclosing nonpublic personal information to nonaffiliated third parties

50
Q

USA PATRIOT Act

A
  • Helps address social, economic, and global initiatives to fight and prevent terrorist activities
  • Anti-money laundering (AML) standards
  • Suspicious Activity Report (SAR) for any transactions of $5,000 or more if they raise red flags for suspicious activity
51
Q

APS

A

Attending Physician Statement
- greater risk
-need to obtain specific medical information
-helps determine likelihood of claims
- less expensive than a medical exam

52
Q

MIB

A

Medical Information Bureau
- nonprofit trade organization comprised of member insurance companies
-stores and shares medical information among member insurers
- helps uncover misrepresentations and prevent concealment
- adverse medical information from MIB cannot be sole reason for denial of coverage

53
Q

Mode of Premium Payment

A
  • Annual
  • Semiannual
  • Quarterly
  • Monthly
54
Q

What type of report provides information about the applicant’s hobbies, habits and financial status?

A

Investigative consumer report

Chapter One Terms to Know (1 decks)

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