General Insurance

Question 1

What is insurance?

Answer 1

Transfer of risk of loss from an individual or business entity to an insurance company, which, in turn spreads the cost of unexpected losses to many individuals

Question 2

Pure risk

Answer 2

Refers to situation that can only result in a loss or no change. Only type of risk insurance companies are willing to accept

Question 3

Speculative risk

Answer 3

Involves the opportunity for either loss or gain. Not insurable

Question 4

Exposure

Answer 4

A unit of measurement used to determine rates charged for insurance coverage

Question 5

Homogeneous

Answer 5

A large number of units having the same or similar exposure to loss

Question 6

Hazards

Answer 6

Conditions or situations that increase the probability of an insured loss occurring

Question 7

Perils

Answer 7

The causes of loss insured against in an insurance policy

Question 8

Loss

Answer 8

Defined as the reduction, decrease,or disappearance of value of a person or property insured in a policy, caused by a named peril

Question 9

Avoidance

Answer 9

Eliminating exposure to loss, example never flying on airplane to avoid a crash

Question 10

Retention

Answer 10

The planned assumption of risk by an insured through the use of deductibles, copayments, or self insurance

Question 11

Sharing

Answer 11

A method of dealing with risk for a group of individual persons or businesses with the same or similar exposure to loss to share the losses that occur within the group

Question 12

Reduction

Answer 12

Includes actions such as installing smoke detectors in your home having an annual physical to detect health problems early or perhaps making a change in our lifestyle

Question 13

Transfer

Answer 13

Most effective way to handle risk, insurance is the most common method of transferring risk from an individual or group to an insurance company

Question 14

Due to chance

Answer 14

A loss that is outside the insureds control

Question 15

Definite and measurable

Answer 15

A loss that is specific as to the cause, time, place, and amount

Question 16

Statistically predictable

Answer 16

Insurers must be able to estimate the average frequency and severity of future losses and set appropriate premium rates

Question 17

Not catastrophic

Answer 17

Insurers need to be reasonably certain their losses will not exceed specific limits

Question 18

Randomly selected and large loss exposure

Answer 18

There must be a sufficiently large pool of the insured that represents a random selection of risks in terms of age, gender, occupation, health, economic status, and geographic location

Question 19

Adverse selection

Answer 19

The insuring of risk that are more prone to losses than the average risk

Question 20

Law of large numbers

Answer 20

The larger the number of people with a similar exposure to loss, the more predictable actual loss will be

Question 21

Reinsurance

Answer 21

A contract under which a one insurance company indemnifies another insurance company for part or all of its liabilities.

Question 22

Insurer

Answer 22

Any person or company engaged as the principal party in the business of entering into insurance contracts

Question 23

Stock companies

Answer 23

Owned by stockholders who provide capital necessary to establish and operate the insurance company and who share in any profits or losses. Issue nonparticipating policies, in which policy owners do not share in profits or losses

Question 24

Mutual companies

Answer 24

Owned by the policy owners and issue participating policies. Entitled to dividend that are not taxable, but dividends are not garunteed

Question 25

Independent agency/American agency system

Answer 25

An independent agent represents several companies and is appointed an a non exclusive basis

Question 26

Exclusive agency system/ captive agents

Answer 26

The agent represents only one insurer and is appointed on an exclusive basis

Question 27

General agency system

Answer 27

A general agent is an entrepreneur, empowered by the insurer that he or she represents on an exclusive basis to sell insurance in a specified territory and to appoint subagents

Question 28

Managerial system

Answer 28

A sales force is supervised by a branch manager who in contrast to the general agent is a salaried employee of the insurer

Question 29

Direct marketing system

Answer 29

A company which advertises through the mail, internet, television, or through other mass marketing techniques and requires the applicant to complete the application and return it directly to the insurer by mail or online therefore bypassing the agent, is a direct response marketing system

Question 30

Express agent authority

Answer 30

A principal intends to grant to an agent by means of the agent s contract, it is the Authority that is written in the contract

Question 31

Implied agent authority

Answer 31

Authority that is not expressed or written into the contract , but which the agent is assumed to have in order to transact the business of the insurance for the principal

Question 32

Apparent authority

Answer 32

The appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created

Question 33

Contract

Answer 33

An agreement between two or more parties enforceable by law

Question 34

4 essential elements of a legal contract

Answer 34

Agreement, consideration, Competent parties, Legal purpose

Question 35

Consideration

Answer 35

The binding force in a contract

Question 36

Contract of adhesion

Answer 36

Insurance contracts are offered on a take it or leave it basis by the insurer

Question 37

Aleatory contract

Answer 37

Insurance contracts are aleatory which means there is an exchange of unequal amounts or values

Question 38

Personal contracts

Answer 38

Between the insurance company and an individual

Question 39

Unilateral contract

Answer 39

Only one of the parties to the contract is legally bound to do anything

Question 40

Conditional contract

Answer 40

Requires that certain conditions must be met by the policy owner and the company in order for the contract to be executed and before each party fulfills it’s obligations

Question 41

Indemnity (reimbursement)

Answer 41

A provision in an insurance policy that states that in the event of loss an insured or beneficiary is permitted to collect only to the extent of the financial loss and is not allowed to gain financially because of existence of an insurance contract

Question 42

Utmost good faith

Answer 42

Implies that there will be no fraud, misrepresentation, or concealment between parties

Question 43

Representation

Answer 43

Statements believed to be true to the best of one’s knowledge but are not garuteed to be true

Question 44

Misrepresentations

Answer 44

Untrue statements on an application and could void the contract

Question 45

Material misrepresentation

Answer 45

Statement that if discovered would alter the underwriting decision of the insurance company

Question 46

Warranty

Answer 46

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

Question 47

Concealment

Answer 47

The legal term for intentional withholding of information of a material fact that is crucial to making a decision

Question 48

Fraud

Answer 48

The intentional misrepresentation or intentional concealment of material fact used to induce another party to make or refrain from making a contract

Question 49

Risk retention

Answer 49

Reduce expenses and improve cash flow, increase control of claim reserving and claims settlements and to fund losses that cannot be insured