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Colorado Life Insurance > CO Life Insurance Chapter 1 > Flashcards

CO Life Insurance Chapter 1 Flashcards

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 policy owner

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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 entitled to exercise the rights and privileges in the policy

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13
Q

stock company

A

owned by the stockholders who provide the capital necessary to establish and operate the insurance company and who share in any profits or losses

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14
Q

nonparticipating policies (stock company)

A

policyowners do not share in profits or losses ; does not pay dividends to policyowners but taxable dividends are paid to stockholders

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15
Q

Dividends

A

a sum of money paid regularly (typically quarterly) by a company to its shareholders out of its profits (or reserves)

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16
Q

Mutual companies

A

owned by policyowners and issue participating policies

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17
Q

Participating policy (mutual company)

A

policyowners are entitled to dividends, which are a return of excess premiums and are nontaxable, though not guaranteed.

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18
Q

Domicile of Insurer

A

location of incorporation - domestic, foreign, alien

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19
Q

Domestic insurer

A

operating in the state they are incorporated in

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20
Q

foreign insurer

A

the insurer is operating in a state other than the one they are incorporated in

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21
Q

alien insurer

A

the insurer is incorporated outside the United States

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22
Q

Contract

A

an agreement between two or more parties enforceable by law.

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23
Q

Elements of a Legal Contract

A
  1. Agreement (offer or acceptance) 2.Consideration 3. Competent Parties 4. Legal purpose
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24
Q

Offer and Acceptance

A

The applicant makes the OFFER when submitting the application and ACCEPTANCE takes place when an insurer’s underwriter approves the application and issues a policy.

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25
Q

Consideration

A

Binding force; something of value that each party gives to the other ; for the insured - payment of premium and the rep’s made in the app. for the insurer - the promise to pay in the event of loss.

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26
Q

Insurer’s consideration

A

the promise to pay for losses

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27
Q

Insured’s consideration

A

payment of premiums and statements on the application

28
Q

competent parties

A

must be capable of entering into a contract in the eyes of the law.

29
Q

contract of adhesion

A

prepared by insurer and accepted or rejected by the insured with no negotiations. i.e. insurance contracts are offered on a take-it or leave-it basis by insurer

30
Q

aleatory contract

A

there is an exchange of unequal amounts or values i.e. the premium paid by the insured is small in relation to the amount that will be paid by insurer in the event of loss.

31
Q

unilateral contract

A

only one party is legally bound to do anything. the insured - no legal binding promises. the insurer - legally bound to pay losses covered by a policy in force

32
Q

conditional contract

A

certain conditions must be met by the policyowner and the company in order for the contract to be executed AND before each party fulfills its obligations. i.e. the insured must pay premium and provide proof of loss in order for the insurer to cover claim

33
Q

representations

A

statements made by the applicant on the insurance application that are believed to be true, but are not guaranteed to be true. i.e. insured’s statements on the application

34
Q

warranty

A

an absolutely true statement upon which the validity of the insurance policy depends

35
Q

misrepresentation

A

untrue statements on the application

36
Q

material misrepresentation

A

a statement that would alter the underwriting decision of the insurance company

37
Q

fraud

A

if material misrepresentations are intentional

38
Q

Components of Application

A
  1. General Information and 2. Medical Information
39
Q

Nonmedical Application

A

Typically small amount of insurance where the agent (me) and proposed insured will complete the medical information.

40
Q

field underwriter

A

the company’s frontline i.e. the agent (me) ; responsible for soliciting the potential insured, completing application, collection premiums, and delivering the policy

41
Q

agent’s report

A

provides the agent’s personal observations concerning the proposed insured

42
Q

premium receipt

A

issued whenever agent (me) collects premiums

43
Q

conditional receipt

A

most common type of premium receipt ; used only when the applicant submits a prepaid application ; says coverage will be effective either on date of application or date of medical exam (whichever occurs last) AS LONG AS the applicant is a standard risk and policy is issued exactly as applied.

44
Q

standard risk

A

an applicant or insured who is considered to have an average probability of a loss based on health, vocation, and lifestyle

45
Q

rider

A

any supplemental agreement attached to and made a part of the policy indicating the policy expansion by additional coverage, or a waiver of a coverage or condition.

46
Q

replacement

A

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

47
Q

underwriting

A

the risk selection process

48
Q

underwriter’s responsibilities

A

selecting only those risks that are considered insurable and meet the insurer’s underwriting standards

49
Q

purpose of underwriting

A

to protect the insurer against adverse selection

50
Q

adverse selection

A

risks which are more likely to suffer a loss ; the tendency of risks with higher probability of loss to purchase and maintain insurance more often than the risks who present lower probability.

51
Q

insurable interest

A

a financial interest in the life of another person; a possibility of losing something of value if the insured should die. In life insurance, insurable interest must exist at the time of policy application or policy issue ; insuring one’s own life, family member, or a business partner

52
Q

consumer report

A

includes written and/or oral information regarding a consumer’s credit, character, reputation, or habits collected by a reporting agency from employment records, credit reports, and other public sources.

53
Q

investigative consumer reports

A

similar to consumer reports with primary difference being the information is obtained through an investigation and interviews with associates, friends, and neighbors of the consumer. These CANNOT be made unless the consumer is advised in writing about the report within 3 days.

54
Q

prohibited information in consumer reports under $150,000 in policy

A
  1. bankruptcies over 10 years old 2. civil suits, records of arrest or convictions of crimes, or any other negative information over 7 years old.
55
Q

Negative information (as defined by the Fair Credit Reporting Act)

A

information regarding a customer’s delinquencies, late payments, insolvency, or any other form of default.

56
Q

MIB

A

Medical Information Bureau

57
Q

Medical Information Bureau (MIB)

A

a nonprofit trade organization and membership corporation owned by member insurance companies. It receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals.

58
Q

rating classification

A

risk rating

59
Q

preferred risks

A

individuals who meet certain requirements and qualify for lower premiums than the standard risk i.e. superior physical condition, lifestyle, and habits

60
Q

standard risks

A

persons who are entitled to insurance protection without extra rating or special restrictions ; representative of the majority of people at their age and with similar lifestyles ; average risk

61
Q

Substandard (high exposure) risks

A

an applicant or insured who has a higher than normal probability of loss, and who may be subject o an increased premium.

62
Q

declined risks

A

applicants who are rejected for a variety of reasons

63
Q

STOLI

A

stranger-originated life insurance

64
Q

IOLI

A

Investor-originated Life insurnance

65
Q

Stranger-originated life insurance (STOLI)

A

life insurance arrangement in which a person with no relationship to the insured (a “stranger”) purchases a life policy on the insured’s life without the intent of selling the policy to an investor and profiting financially when the insured dies.

66
Q

Investor-owned life insurance

A

a third-party investor who has no insurable interest in the insured initiates a transaction designed to transfer the policy ownership rights to someone with no insurable interest in the insured and who hopes to make a profit upon the death of the insured.

67
Q

indemnity

A

security or protection against a loss or other financial burden.

Colorado Life Insurance (2 decks)

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