general insurance concepts

Question 1

insurance

Answer 1

is the transfer of risk from an individual to an insurance company

Question 2

pure risk

Answer 2

can only result in a loss, no opportunity for financial gain. pure risk is insurable

Question 3

speculative risk

Answer 3

either loss or gain. Ex. gambling. No insurable

Question 4

Hazards

Answer 4

are conditions or situations that increase the probability of an insured loss. 3 types of hazards.

Question 5

Physical hazard

Answer 5

individual characteristics that increase the chances of a loss. Exist because of a physical condition, past medical history or condition at birth such as blindness

Question 6

moral hazard

Answer 6

are tendencies towards risk. involve evaluating character and reputation of an insured. someone that lies on a application

Question 7

Morale Hazard

Answer 7

they arise from a state of mind that causes indifference to loss, such as carelessness

Question 8

peril

Answer 8

the causes of loss insured against on an ins policy.

Question 9

Methods for handling risk

Answer 9

1. avoidance: eliminating exposure to loss. ex. not driving
2. risk retention
3. sharing
4. reduction ex. smoke detector

Question 10

elements of insurable risks

Answer 10

1. due to chance: outside of I’s control
2. definite and measurable: specific to cause, time, place, amount
3. statistically predictable
4. not catastrophic
5. randomly selected and large loss exposure: age, gender, occupation etc.

Question 11

Stock companies

Answer 11

owned by stockholders. officers are elected by the stockholders. issue nonparticipating policies, policyholders do not share in profits or losses

Question 12

mutual companies

Answer 12

owned by policy owners. policy owners get dividends are a return of excess premiums

Question 13

3 types of insurers

Answer 13

1. domestic: where the company’s home office is Ex. Washington
2. Foreign: incorpoated in another state
3. Alien: incorporated outside the US

Question 14

the law of agency

Answer 14

1. an agent represents the insurer (principal) not the insured
2. any knowledge of the agent is presumed to be knowledge of the insurer
3. if the agent is working within the conditions of her contract, the insurer is fully responsible
4. when the insured submits payment to the agent it is the same as submitting it to the insurer

Question 15

3 types of agents authority

Answer 15

1. express authority: the authority that is written in the contract
2. Implied: authority that is not expressed or written into the contract, but wich the agent is assumed to ahve in order to transact business.
3. apparent authority: the assumption of authority based on actions, words, or deeds of the principal

Question 16

Fiduciary responsibility

Answer 16

it is illegal for ins agents to commingle premiums collected from applicants with their own personal funds.

Question 17

code of ethics

Answer 17

1. conflict of interest
2. a request of a gift or loan as a condition to complete busienss
3. supplying confidential info

Question 18

4 elements to an insurance contract

Answer 18

1. agreement: offer and acceptance. the applicant makes the offer when submitting the app. acceptance takes place when an insurers UW approves the app and issuses the policy
2. consideration: is the binding force. the insured makes a payment of premium and confirms that the statements on the app are accurate and the consideration for the insurer is the promise to pay in the event of a loss
3. competent parties: legal age, mentally competent, not under the influence
4. legal purpose: must be legal and not against public policy

Question 19

Indemnity

Answer 19

a provison in a policy that states that in the event of a loss, an insured is permitted to collect only to the extent of the financial loss, and is not allpwed to gain financially. the purpose is to restore and not to profit

Question 20

Utmost good faith

Answer 20

there will be no fraud, misrepresentation or concealment between the parties. the insured must provide acurate info on the application and the insurer muct clearly and truthfully describe policy features and benefits and must not conceal or mislead the insured

Question 21

representations

Answer 21

are statements believed to be true to the best of one’s knowledge, but are not guaranteed to be true. they are the answers the I gives on the application

Question 22

Misrepresentations

Answer 22

untrue statements on the application and can void the contract

A material misrepresentation is a statement that if discovered would alter the UW decision of the ins company

***if material misrep are intentional they are considered fraud

Question 23

Warrant

Answer 23

is an absolutely true statement upon which the validity if the INS policy depends. Breach can be grounds for voding the policy or a return in premium.

Question 24

concealment

Answer 24

intentional withholding of info of a material fact that is crucial in making a decision. May void a policy

Question 25

fraud

Answer 25

the intentional misrepresentation or intentional concealment of a material fact used to cheat a party. Grounds for voiding an ins contract

Question 26

waiver

Answer 26

voluntary act of relinquishing a legal right

Estoppel- a consequence of a waiver