General Insurance

Question 1

What is an Agent/Producer?

Answer 1

A legal representative of an insurance company; the classification of producer usually includes agents and brokers; agents are the agents of the insurer.

Question 2

Who is an Applicant or Proposed Insured?

Answer 2

A person applying for insurance.

Question 3

What is a Beneficiary?

Answer 3

A person who receives the benefits of an insurance policy.

Question 4

What is a Broker?

Answer 4

An insurance producer not appointed by an insurer and is deemed to represent the client.

Question 5

What does Indemnity mean in insurance?

Answer 5

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.

Question 6

What is an Insurance Policy?

Answer 6

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.

Question 7

Who is the Insured?

Answer 7

The person covered by the insurance policy. This person may or may not be the policyowner.

Question 8

What is an Insurer (Principal)?

Answer 8

The company who issues an insurance policy.

Question 9

What is the Law of Large Numbers?

Answer 9

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

Question 10

Who is the Policyowner?

Answer 10

The person entitled to exercise the rights and privileges in the policy.

Question 11

What is a Premium?

Answer 11

The money paid to the insurance company for the insurance policy.

Question 12

What does Reciprocity/Reciprocal mean?

Answer 12

A mutual interchange of rights and privileges.

Question 13

What is peril?

Answer 13

Peril is the cause of loss like a fire or accident.

Question 14

What is loss?

Answer 14

Loss is the reduction or disappearance of value.

Question 15

What is indemnity?

Answer 15

Indemnity is to restore the insured to their previous financial condition after the loss.

Question 16

What does the Law of Large Numbers state?

Answer 16

The Law of Large Numbers says the more stats you have to look at, the more predictable losses will be.

Question 17

What are Certificates of Authority?

Answer 17

Certificates of Authority allow insurers to sell in that state, making them admitted and authorized.

Question 18

What are Stock Companies?

Answer 18

Stock Companies are owned by shareholders, issue non-participating policies, and dividends are taxed.

Question 19

What is insurance?

Answer 19

Insurance is the transfer of risk of loss.

Question 20

What is risk?

Answer 20

Risk is the uncertainty or chance of loss occurring.

Question 21

What is Pure Risk?

Answer 21

Pure Risk is loss or nothing, with no chance of gain. Only Pure Risks are insurable.

Question 22

What are the methods of handling risk?

Answer 22

Handling Risk: Sharing, Transfer, Avoidance, Reduction, Retention (I am a STARR @ Handling Risk).

Question 23

What are Mutual Companies?

Answer 23

Mutual Companies are owned by policyholders, issue participating policies, and dividends are not taxed.

Question 24

What is reinsurance?

Answer 24

Reinsurance is when a company indemnifies another.

Question 25

What does indemnify mean?

Answer 25

Indemnify means to make whole again after a loss.

Question 26

What is a Domestic Insurer?

Answer 26

A Domestic Insurer is a state where they are incorporated (headquartered and selling).

Question 27

What is a Foreign Insurer?

Answer 27

A Foreign Insurer is a state where they are not headquartered, but they are selling.

Question 28

What is an Alien Insurer?

Answer 28

An Alien Insurer is completely outside of the United States.

Question 29

What is the Law of Agency?

Answer 29

The Law of Agency states that the agent represents the insurer and the knowledge of the agent is knowledge of the insurer.

Question 30

What are the types of Agent Authority?

Answer 30

Agent Authority: Express (written/contract), Implied (assumed by insurer), Apparent (perceived by customer).

Question 31

What is Fiduciary Responsibility?

Answer 31

Fiduciary Responsibility means the agent submits premium collected to the insurance company.

Question 32

What are the elements of a legal contract?

Answer 32

Elements of a legal Contract: Agreement (Offer and Acceptance), Consideration, Competent Parties, Legal Purpose.

Question 33

What is an Offer in a legal contract?

Answer 33

Offer = Customer submits an application.

Question 34

What is Acceptance in a legal contract?

Answer 34

Acceptance = insurer issues policy.

Question 35

What is Consideration in a legal contract?

Answer 35

Consideration: Both parties bring something of value.

Question 36

What are Competent Parties?

Answer 36

Competent Parties are not under the influence of drugs or alcohol, have a sound mind, and are of legal age.

Question 37

What is Legal Purpose?

Answer 37

Legal Purpose means the contract cannot be against public policy or break the law.

Question 38

What is Adhesion in a contract?

Answer 38

Adhesion means the insurer writes the policy, and the customer either takes it or leaves it.

Question 39

What is Aleatory in a contract?

Answer 39

Aleatory refers to an unequal exchange (customer pays small monthly premium, insurer pays very large claim).

Question 40

What does Personal mean in a contract?

Answer 40

Personal means the contract is between the customer and the insurer.

Question 41

What does Unilateral mean in a contract?

Answer 41

Unilateral means it is a one-sided promise; only the insurer is legally bound to do anything.

Question 42

What is the consideration on the side of the insured?

Answer 42

Consideration on the side of the insured = Application + Premium.

Question 43

What is the consideration on the side of the insurer?

Answer 43

Consideration on the side of the insurer = promise to pay a claim.

Question 44

What is Conditional in a contract?

Answer 44

Conditional means both parties have rules/duties they must follow.

Question 45

What are Reasonable Expectations?

Answer 45

Reasonable Expectations mean a customer can expect coverage if an agent implied it during the sale.

Question 46

What is Representation?

Answer 46

Representation refers to statements that are believed to be true but are not guaranteed to be true.

Question 47

What is Misrepresentation?

Answer 47

Misrepresentation is an untrue statement.

Question 48

What is a Warranty?

Answer 48

Warranty refers to absolutely true statements.

Question 49

What is Concealment?

Answer 49

Concealment is withholding or hiding information on the application.

Question 50

What is Fraud?

Answer 50

Fraud is deceiving or lying to cheat the insurance company.

Question 51

What is exposure in insurance?

Answer 51

Exposure is the unit of measurement to determine rates for an insured based on how risky they are.

Question 52

What do hazards do in the context of insurance?

Answer 52

Hazards increase the chance of the risk occurring.

Question 53

What are physical hazards?

Answer 53

Physical hazards are material and structural things you can see and touch.

Question 54

What are moral hazards?

Answer 54

Moral hazards involve lying on purpose, example: lying on the insurance application.

Question 55

What are morale hazards?

Answer 55

Morale hazards refer to a sense of carelessness.

Question 56

What is Pure Risk?

Answer 56

Pure Risk is loss or nothing, with no chance of gain. ## Footnote Only Pure Risks are insurable.

Question 57

What is Speculative Risk?

Answer 57

Speculative Risk involves loss or gain, win or lose. ## Footnote Example: gambling.

Question 58

What are the methods of Handling Risk?

Answer 58

The methods of Handling Risk are Sharing, Transfer, Avoidance, Reduction, and Retention. ## Footnote I am a STARR @ Handling Risk.