General Insurance Flashcards
General Insurance terms & concepts
What is an Agent/Producer?
A legal representative of an insurance company; the classification of producer usually includes agents and brokers; agents are the agents of the insurer.
Who is an Applicant or Proposed Insured?
A person applying for insurance.
What is a Beneficiary?
A person who receives the benefits of an insurance policy.
What is a Broker?
An insurance producer not appointed by an insurer and is deemed to represent the client.
What does Indemnity mean in insurance?
The main principle of insurance, meaning that the insured cannot recover more than their loss; the purpose of insurance is to restore the insured to the same position as before the loss.
What is an Insurance Policy?
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.
Who is the Insured?
The person covered by the insurance policy. This person may or may not be the policyowner.
What is an Insurer (Principal)?
The company who issues an insurance policy.
What is the Law of Large Numbers?
The larger the number of people with a similar exposure to loss, the more predictable actual losses will be.
Who is the Policyowner?
The person entitled to exercise the rights and privileges in the policy.
What is a Premium?
The money paid to the insurance company for the insurance policy.
What does Reciprocity/Reciprocal mean?
A mutual interchange of rights and privileges.
What is peril?
Peril is the cause of loss like a fire or accident.
What is loss?
Loss is the reduction or disappearance of value.
What is indemnity?
Indemnity is to restore the insured to their previous financial condition after the loss.
What does the Law of Large Numbers state?
The Law of Large Numbers says the more stats you have to look at, the more predictable losses will be.
What are Certificates of Authority?
Certificates of Authority allow insurers to sell in that state, making them admitted and authorized.
What are Stock Companies?
Stock Companies are owned by shareholders, issue non-participating policies, and dividends are taxed.
What is insurance?
Insurance is the transfer of risk of loss.
What is risk?
Risk is the uncertainty or chance of loss occurring.
What is Pure Risk?
Pure Risk is loss or nothing, with no chance of gain. Only Pure Risks are insurable.
What are the methods of handling risk?
Handling Risk: Sharing, Transfer, Avoidance, Reduction, Retention (I am a STARR @ Handling Risk).
What are Mutual Companies?
Mutual Companies are owned by policyholders, issue participating policies, and dividends are not taxed.
What is reinsurance?
Reinsurance is when a company indemnifies another.
What does indemnify mean?
Indemnify means to make whole again after a loss.
What is a Domestic Insurer?
A Domestic Insurer is a state where they are incorporated (headquartered and selling).
What is a Foreign Insurer?
A Foreign Insurer is a state where they are not headquartered, but they are selling.
What is an Alien Insurer?
An Alien Insurer is completely outside of the United States.
What is the Law of Agency?
The Law of Agency states that the agent represents the insurer and the knowledge of the agent is knowledge of the insurer.
What are the types of Agent Authority?
Agent Authority: Express (written/contract), Implied (assumed by insurer), Apparent (perceived by customer).
What is Fiduciary Responsibility?
Fiduciary Responsibility means the agent submits premium collected to the insurance company.
What are the elements of a legal contract?
Elements of a legal Contract: Agreement (Offer and Acceptance), Consideration, Competent Parties, Legal Purpose.
What is an Offer in a legal contract?
Offer = Customer submits an application.
What is Acceptance in a legal contract?
Acceptance = insurer issues policy.
What is Consideration in a legal contract?
Consideration: Both parties bring something of value.
What are Competent Parties?
Competent Parties are not under the influence of drugs or alcohol, have a sound mind, and are of legal age.
What is Legal Purpose?
Legal Purpose means the contract cannot be against public policy or break the law.
What is Adhesion in a contract?
Adhesion means the insurer writes the policy, and the customer either takes it or leaves it.
What is Aleatory in a contract?
Aleatory refers to an unequal exchange (customer pays small monthly premium, insurer pays very large claim).
What does Personal mean in a contract?
Personal means the contract is between the customer and the insurer.
What does Unilateral mean in a contract?
Unilateral means it is a one-sided promise; only the insurer is legally bound to do anything.
What is the consideration on the side of the insured?
Consideration on the side of the insured = Application + Premium.
What is the consideration on the side of the insurer?
Consideration on the side of the insurer = promise to pay a claim.
What is Conditional in a contract?
Conditional means both parties have rules/duties they must follow.
What are Reasonable Expectations?
Reasonable Expectations mean a customer can expect coverage if an agent implied it during the sale.
What is Representation?
Representation refers to statements that are believed to be true but are not guaranteed to be true.
What is Misrepresentation?
Misrepresentation is an untrue statement.
What is a Warranty?
Warranty refers to absolutely true statements.
What is Concealment?
Concealment is withholding or hiding information on the application.
What is Fraud?
Fraud is deceiving or lying to cheat the insurance company.
What is exposure in insurance?
Exposure is the unit of measurement to determine rates for an insured based on how risky they are.
What do hazards do in the context of insurance?
Hazards increase the chance of the risk occurring.
What are physical hazards?
Physical hazards are material and structural things you can see and touch.
What are moral hazards?
Moral hazards involve lying on purpose, example: lying on the insurance application.
What are morale hazards?
Morale hazards refer to a sense of carelessness.
What is Pure Risk?
Pure Risk is loss or nothing, with no chance of gain.
Only Pure Risks are insurable.
What is Speculative Risk?
Speculative Risk involves loss or gain, win or lose.
Example: gambling.
What are the methods of Handling Risk?
The methods of Handling Risk are Sharing, Transfer, Avoidance, Reduction, and Retention.
I am a STARR @ Handling Risk.
