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Credit Insurance 2021 > Defining Insurance & Risk > Flashcards

Defining Insurance & Risk Flashcards

1
Q

Insurance

A

A social device for transferring risk through an accumulation of funds

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2
Q

Policy

A

Contract between the policyowner and the insurance company

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3
Q

Premium

A

Method of compensation a policyowner pays to the insurer

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4
Q

Speculative Risk

A

Type of risk that involves both the chance of loss and gain

Gambling

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5
Q

Pure Risk

A

Type of risk that only involves the possibility of loss. Creates a financial loss so it is insurable

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6
Q

Risk Avoidance

A

The act of avoiding or eluding a risk

Someone afraid of car wreck so they only walk to their destination

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7
Q

Risk Reduction

A

Reducing risk

Only driving on vacant roads on sunny days

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8
Q

Risk Retention

A

Retaining the possibility of loss

Driving w/o insurance

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9
Q

Risk Sharing

A

Pooling the risk with a large number of people

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10
Q

Risk Transfer

A

Shifting a risk to another

Basis for Insurance

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11
Q

Elements of Insurable Risk

A
  1. The loss must be Predictable
  2. The loss must be definite, can place a price on the loss
  3. The loss must be due to chance
  4. The loss cannot be catastrophic, not a result of war or “Acts of God”
  5. The loss exposure must be large, There must be a large number of people that can potential experience the same loss
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12
Q

Stock Insurance Company

A

Considered a non-par company because the policyowners do not participate in dividends. Owned by the stock holders of the company

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13
Q

Mutual Insurance Company

A

Policyowners own the company so they “Par”-ticipate in dividends that are due from overpayment of dividends.
Considered a Mutual Company

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14
Q

Government Insurers

A

Rely on tax dollars to fund social Insurance programs

ie, SSI, Medicaid and Medicare, Worker’s Comp.

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15
Q

Authorized Company

A

An insurer licensed to transact insurance in Michigan, admitted to do business in the state

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16
Q

Unauthorized Company

A

An insurer not licensed to transact business in Michigan

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17
Q

Adverse Selection

A

When the insurer has a selected a less than average risk that may result in increased claims and reduced profitability

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18
Q

Underwriter

A

a person who conducts the underwriting process for the insurer to guarantee that all applicants satisfy the company’s minimum insurability and underwriting requirements

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19
Q

Insurable Interest

A

a financial connection between the policy owner and the insured at the time of inception of the policy.

Mother on child
Husband on wife
Business partner on business partner or key employee

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20
Q

Avocation

A

An applicants hobbies

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21
Q

Medical Information Bureau

A
22
Q

Standard Risk

A

Average Risk

23
Q

Substandard Risk

A

Less than average risk

24
Q

Preferred Risk

A

Risk that exceeds the insurers average risk requirements, usually will pay a lower premium than standard risk

25
Q

Uninsurable

A

Cannot be insured

26
Q

Expressed Authority

A

Written Authority in the agents agreement

27
Q

Implied Authority

A

Authority assumed or implied for the agent to do their job

-an agent has the authority to collect payment for the policy

28
Q

Offer and Acceptance

A

Constitutes agreement between the parties in the insurance contract.
-a policy owner gives their premium and the insurer provides a policy

29
Q

Consideration

A

Something of value that must be exchanged between the parties of the contract

30
Q

Consideration

A

Something of value that must be exchanged between the parties of the contract

The insured provides the premium and the insurer provides the policy

31
Q

Competent Parties

A

Of legal age, usually 18, and mentally competent. Not under the influence of drugs or alcohol

32
Q

Personal Contract

A

Insurance Contracts are personal in nature

33
Q

Conditional Contract

A

Certain conditions or losses must be met before a claim can be paid

34
Q

Aleatory Contract

A

Equal value is not given to both parties of the contract. A one sided contract

35
Q

Contract of Adhesion

A

The contract and its provisions are prepared by one party, the insurer

36
Q

Ambiguities

A

vagueness or uncertainties in the contract will be in the favor of that party that did not create the contract, the insured individual

37
Q

Unilateral Contract

A

Only the insurer must abide by the terms of the contract

38
Q

Valued Contract

A

Pays a specified amount that is stated on the policy

39
Q

Indemnity Contract

A

Pays an equal amount equivalent to the loss,

The insured is restored to the same financial condition as before the loss

40
Q

Waiver

A

Giving up of a known or legally enforceable right

41
Q

Estoppel

A

One party is prevented from asserting a right that would be to the detriment of another party

42
Q

Warranty

A

A statement that is guaranteed to be True

43
Q

Representation

A

Statement by the applicant that is believed to be true

44
Q

Concealment

A

The applicant failing to disclose a known material fact in an application
Considered defrauding the insurer

45
Q

Fraud

A
  • in the event of fraud the contract is null and void

- the insurer has a limited time, usually 2 years, to challenge fraudulent statements

46
Q

Entire Contract

A

Policy, a copy of the application and any policy amendments

47
Q

Free Look

A

The right to look/ review the policy for free with a return of premiums paid within a certain period of time

48
Q

Grace Period

A

Period of time that the policyowner has to pay the premium after the due date

49
Q

Other Insurer Provision

A

Allows insurer to control over insurance with other insurers, prevents over insurance

50
Q

Other Insurance in this Insurer

A

Controls over insurance from an insurer through its own policy

51
Q

Elimination Period

A

Period of days that must occur after the onset of an illness or occurrence of an accident before benefits are payable

Credit Insurance 2021 (2 decks)

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