General Insurance Concepts

Question 1

Adverse Selection

Answer 1

insuring of risks more prone to loss than the average risk

Question 2

Agent / Producer

Answer 2

a legal representative of an insurance

Question 3

Applicant / Proposed Insured

Answer 3

a person applying for insurance

Question 4

Hazard

Answer 4

conditions that increase the probability of a loss
* PHYSICAL (physical conditions)
* MORAL (tendency toward increased risk)
* MORALE (indifference to loss)

Question 5

Indemnity

Answer 5

restoring the insured to the condition that existed before loss

Question 6

Insurance

Answer 6

transfer of risk of loss from an individual to an insurer

Question 7

Insurance Transaction

Answer 7

solicitation, negotiations, or effectuation of a contract

Question 8

Insured

Answer 8

the person covered by the insurance policy

Question 9

Insurer (Principal)

Answer 9

a company that issues an insurance policy

Question 10

Law of large numbers

Answer 10

the larger the number of people with the same exposure to loss, the more predictable the actual loss will be

Question 11

Peril

Answer 11

the cause of loss

Question 12

Policyowner

Answer 12

the person who has the rights and privileges in the policy

Question 13

Risk

Answer 13

uncertainty or chance of a loss
-Pure (insurable)
-Speculative (uninsurable)

Question 14

TYPES OF INSURERS
Ownership

Answer 14

-Stock (nonparticipating)
-Mutual (participating= dividend to policyowner)

Question 15

TYPES OF INSURERS
Authority to Transact Business

Answer 15

-Admitted/ Authorized (have a certificate of authority)
-Nonadmitted/ Unauthorized

Question 16

TYPES OF INSURERS
Location (Domicile)

Answer 16

-Domestic (this state)
-Foreign (another state)
-Alien (another country)

Question 17

INSURANCE CONTRACT
4 Required Elements:

Answer 17

-Agreement (offer and acceptance)
-Consideration (exchange of something of value)
-Competent parties (of legal age and mentally competent)
-Legal purpose (must have insurable interest and consent)

Question 18

INSURANCE CONTRACT
Contract Characteristics:

Answer 18

-Personal (between an insurer and an individual)
-Aleatory (exchange of unequal values)
-Unilateral (only one party is legally bound to a contract)
-Adhesion (contracts are accepted by the applicants as is)
-Conditional (certain conditions must be met by both parties for the contract
to be executed)

Question 19

INSURANCE CONTRACT
Legal Terms:

Answer 19

-Representation (a statement believed to be true to the best of one’s
knowledge)
-Misrepresentation (an untrue statement on the insurance application)
-Material misrepresentation (a statement that, if discovered, can alter the
underwriting decision)
-Warranty (an absolutely true statement)
-Concealment (intentional withholding of material information)
-Fraud (intentional act with the purpose of deceiving another party)

Question 20

INSURANCE CONTRACT
Ideally Insurable Risk:

Answer 20

-Due to chance
-Definite and measurable
-Statistically predictable
-Not catastrophic
-Randomly selected from a large pool

Question 21

Law of Agency

Answer 21

acts of the agents within the scope of their authority are deemed to be the acts of the insurer

Question 22

3 types of Agent Authority

Answer 22

-Express (written in the contract)
-Implied (assumed necessary to conduct business)
-Apparent (based on agent’s words and actions)

Question 23

KNOW THIS……

Answer 23

Insurance is the transfer of risk

Question 24

KNOW THIS……

Answer 24

Statements on the application are representations

Question 25

KNOW THIS……

Answer 25

Agents represent the insurer