General Insurance (CH 2)

Question 1

Warranty

Answer 1

A statement made on an application for insurance that is warranted to be true in all respects. If untrue in any respect, even though the untruth may not have been known to the person giving the warranty, the contract may be voided without regard to the materiality of the statement. Statements on Life and Health Insurance applications are, in the absence of fraud, not warranties, but representations.

Question 2

Waiver

Answer 2

1) A rider waiving the liability for a stated cause of accident or sickness. 2) A provision or rider agreeing to waive premium payment during a period of disability. 3) The giving up or surrender of a right or privilege that is known to exist.

Question 3

Premium

Answer 3

1) The consideration for the insurance. 2) A periodic payment made to keep a policy in force.

Question 4

Aleatory Contract

Answer 4

A contract in which both parties know that one or the other may receive more than paid in. This payment is dependent upon a fortuitous event.

For example, a person pays the premium for a Term policy for many years and does not die, thus, a claim is never filed.

Question 5

Contract

Answer 5

A Legal agreement between two parties for consideration, such as an insurance policy.

Question 6

General Agent

Answer 6

An individual appointed by an insurer to administer its business in a given territory. Responsible for building the agency and service force. Compensation is on a commission basis, although there may be additional expense allowances. Often called a Managing General Agent.

Question 7

Fraud

Answer 7

An intentional misrepresentation made by a person with intent to take advantage of another.

Question 8

Hazard

Answer 8

Any factor tending to make a policy owner less desirable risk for the insuring company. May be physical or moral.

Question 9

Indemnity

Answer 9

Insurance is designed to restore the policy owner to the same financial condition enjoyed prior to a loss. The intent is to cover the amount of the actual loss only; the insured should not profit from a loss situation.

Question 10

Actuary

Answer 10

One concerned with the application of probability and statistical theory to insurance. This person sets insurance policy rates according to morbidity/mortality, expenses, and interest assumptions.

Question 11

Broker

Answer 11

One who represents an insured in the solicitation, negotiation, or procurement of contracts of insurance, and who may render services incidental to those functions. This person is also called an independent agent. By law, the broker may also be an agent of the insurer for certain purposes such as delivery of the policy or collection of premium.

Question 12

Aleatory

Answer 12

Something that depends upon the chance or is random. It is derived from the Latin idea of ‘rolling the dice.’

Question 13

Representations

Answer 13

The facts that the applicant represents as true and accurate to the best of his knowledge and belief.

Question 14

Conditions

Answer 14

The part of an insurance contract setting out the responsibilities of both the insured and the insurer.

Question 15

Insured

Answer 15

The party to an insurance arrangement to whom, or on behalf of whom, the insurance company agrees to indemnify for losses, provide benefits, or render service. In prepaid hospital service plans, the insured is called the subscriber.

Question 16

Policy Owner

Answer 16

The person who has the right to exercise the privileges and rights in the policy contract. Also called a contract holder.

Question 17

Risk

Answer 17

The uncertainty of loss that exists whenever more than one outcome is possible. In the area of Life insurance, death is certain, but time of death is uncertain.

Question 18

Misrepresentation

Answer 18

The use of written or oral statements of the insured or insurance company misrepresenting the risk, terms, coverages, benefits, privileges, or estimated future dividends of any policy, or the health of the insured.

Question 19

Concealment

Answer 19

The withholding of facts by an applicant for insurance that materially affect an insurance risk or loss.

Question 20

Estoppel

Answer 20

This concept is related to waiver. Once a person or company waives a known right, the wavier cannot be reversed.