Gen Ins Flashcards
The chance of loss with NO possibility of gain
Pure risk
(gambling) a risk situation that offers the opportunity for gain
Speculative risk
a cause of loss
Peril
Something that increases the risk
Hazard
the attitudes and habits of an individual (character and reputation)
Moral Hazards
individual’s indifference (apathy) toward loss. A careless person
Morale hazard
The larger the number of separate risks of a like nature combined into one group, the more predictable the number of future losses of that group within a given time period
Law of large numbers
condition that could result in a loss
A loss exposure
Provides general information about the applicant
The application
reveals hazards related to the health of the applicant or the use
Physical Examination
include information about the applicant’s finances, background, habits, and reputation
Consumer credit reports
risks are not considered insurable unless the insurance company has a large enough number of similar risks and knows enough about its previous loss experience to be able to predict the future reliably
Large number of homogenous units
The insurer must be able to place a monetary value on the loss
loss must be ascertainable
being unable to predict what is going to happen to the individual exposure unit
Loss must be uncertain
The nature of the loss must be such that an economic hardship must occur should that loss occur
Economic hardship
catastrophic perils include wars, nuclear risks, and floods. They are excluded from coverage
Exclusion of catastrophic perils
a person has an insurable interest in another if they would benefit if that other person continues to live
Insurable interest
restores the insured person, in whole or in part, to the condition they enjoyed prior to the loss
principle of Indemnity
The process of examining, accepting, or rejecting insurance risks
Underwriting
agents are “frontline” or “field” underwriters
Agent as underwrite
evaluates and rate the risk based on the information provided in the application as well as Medical Information Bureau (MIB) reports, med exams, physician statements, special questionnaires, inspection reports and credit reports
Home office underwriters
when clients, due to a particularly company’s underwriter standards, take advantage of a situation that ends up costing the insurance company money in excess claims.
Adverse Selection
employee joins company to take advantage of health benefits because he would not qualify for his own policy otherwise
Example
employee pays part of the premium
Contributory group
the risk is transferred from an individual to a group
Profitable distribution of exposures
the company has a legally enforceable obligation to make all benefits payable for which premiums have been paid
Contract law
Civil injury. Most common is neglect: the failure to act as a reasonable person would in the same set of circumstances
Tort law
The possibility (uncertainty) that a loss might occur
Risk
any ambiguity will be construed in favor of the insured
Doctrine of Adhesion
conditions that apply to both parties to the contract
Conditional contract
the outcome depends upon chance
Aleatory
only one party to the contract, the insurer, makes an enforceable promise to pay a covered claim if the premium has been paid
Unilateral
concern an individual insured, not the insured’s property
Personal
truth to the best of the client’s knowledge, it is assumed that insurance contracts are entered into in good faith
utmost good faith
restores the insured person, in whole or in part, to the condition they enjoyed prior to the loss
Indemnity
the written instrument in which a contract of insurance is set forth
policy
an intentional and fraudulent omission
fraud
neglect to communicate that which a party knows, and ought to communicate
concealment
the probable and reasonable influence of the facts upon the party to whom the communication is due
materiality
- written or oral
- may be made at the time of, or before, issuance of the policy
- altered or withdrawn before the insurance is affected, but not afterwards
representation
shall not cause or permit to be issued, circulated or used, any statement that is known, or should have been known.
- terms of policy issued by insurer
- benefits or privileges promised
- future dividends payable
- penalties
~ fine not exceeding $25,000
~ suspended the license of such person for not exceeding three years
~ suspended the insurer’s certificate of authority to do the class of insurance in respect to which the violation occured
Misrepresentation
Six required specifications for all insurance policies
- parties between whom the contract is made
- the property of life insured
- the interest of the insured in property insured, if he or she is not the absolute owner thereof
- the risks insured against
- the period during which the insured is to continue
- either:
* a statement of the premium
* if the insurance is of a character where the exact premium is only determinable upon the termination of the contract, a statement of the basis and rates upon which the final premium is to be determined and paid.
to cancel or void a contract and the return of the parties to the position they would have occupied if the contract had not been made.
recission
A form on which the prospective insured states facts requested by the insurer
Application
the agreement between the insurer and the insured
Policy
a form attached to a policy that modifies the conditions of the policy
Rider
termination of a contract of insurance mid-term
cancellation
termination of a policy because of failure to pay the premium
lapse
the automatic continuation of an insurance policy for another policy period
renewal
the discontinuation of an insurance policy at its normal expiration date
Non-renewal
a period of time after premium date during which a policy remains in force without penalty
grace period
the cost per unit charged by an insurer for insurance coverage
rate/premium
that portion of the premium paid that the insurer is entitled to for providing insurance coverage
earned premium
that portion of the premium paid that the insurer is not entitled to.
unearned premium
a lower expectation of incurring a loss than a standard risk (ex: applicant who doesn’t smoke can expect reduced premium)
preferred risk
regarded as average and insurable as standard rates.
Standard risk
regarded as below average (even though they have dangerous occupatiion, may be insured as substandard risk at higher premium)
substandard risk
requires pre-notification of any possible investigation and post-notification if any adverse underwriting action is taken by the company
the fair credit reporting act
nonprofit association that maintains medical data on applicants for life or health insurance
The Medical Information Bureau (MIB)
person is authorized to represent and act for another person corporation
agency
enters into an agency agreement with one or more insurers
an independent produce
producers represent single insurer and are obligated to submit business only to that company
Exclusive
sell insurance directly to insure through their own employees, through the mail or via the internet
Direct response
agents sell industrial life insurance on which premium is usually collected on weekly basis at the home of the policy holder
Home Service
a person who is in a position of holding in trust and confidence that affairs of another, especially as it pertains to financial matters
fiduciary
Explicit, definite agreement
express authority
is not expressly granted under an agency contract, but it is actual authority the producer has.. by accepting the premiums from the producer, the company has implied that the producer has the authority to conduct this practice
Implied Authority
the authority a producer seems to have
Apparent authority
As front line, producers initiate the underwriting process by completing the application, gathering necessary additional information and required signatures, collecting the initial premium, and issuing the conditional receipt. it’s the producer’s responsibility to seek out those applicants that would present the lowest risk to the insurer
Producer’s responsibilities
pre-select good risks before being evaluated by home office underwriter
Pre-selection
process where underwriter evaluates and rates a risk based on information in the application as well as other sources
Post selection
authorized to transact life insurance, accident and health insurance, and life and accident and health insurance
life agent only
transact insurance coverage for sickness, bodily injury, or accidental death and may include benefits for disability income and 24 hr. care.
accident and health agent
advises or offers to advise any person insured under, named as beneficiary of, or having any interest in, a life or disability insurance contract
Life and disability insurance analyst
person authorized to act as a life agent on behalf of a life or disability insurer
life licensee
entitle the licensee to transact insurance coverage on human lives, including benefits of endowment and annuities and may include benefits in the event of death or dismemberment by accident and benefits for disability income
life only
entitle the licensee to contract insurance coverage for sickness, bodily injury, or accidental death and may include benefits for disability income
accident and health
commissioner may decline to issue a license to an applicant if:
~ has been refused a license or had a license revoked by any public authority
~ has been convicted of a misdemeanor or felony which involved the misappropriation of money or property.
to transact insurance, include any of the following:
- solicitaition
- Negotiation preliminary to execution
- execution of contract insurance
- Transaction of matters subsequent to execution of the contract and arising our of it
person authorized by and on behalf of an insurer, to transact all classes of insurance other than life, disability or health insurance
Insurance agent
a person authorized to act on behalf of a life insurer or a disability insurer to transact life insurance, accident and health insurance, and life, accident & health insurance
a life licensee
person who, for compensation and on behalf of another person, transacts insurance other than life, disability or health insurance with, but not on behalf of an admitted insurer
insurance broker
a natural person employed to aid an insurance agent or insurance broker transaction insurance other than life disability or health insurance
Insurance solicitor
Any person who transacts insurance w/o a valid license so to act is guilty of misdemeanor punishable by fine not exceeding $_______ or by imprisonment in county jail for period not exceeding _________
$50,000, one year
insurers are responsible for the acts of their agents
Doctrine of agency
natural person employed to aid an insurance agent or broker who appointed them.
Insurance solicitor
type of professional liability that is desired to protect the insured against legal liability resulting from negligence
Error and omissions
protect producers from financial losses they might incur for giving incorrect advice (or error) or for not providing a client with information regarding an important issue (or omission)
Errors and omissions policies
