General insurance Principles Flashcards
When an insurance company appoints an agent to represent it, who are the parties to the agency relationship?
principal and agent ..
Life and health insurance companies regulate themselves through each of the following entities or organizations EXCEPT:
Financial industry regulatory authority (FINRA) -they are regulated through variable life products.
Emily postpones buying a life insurance policy, believing that her family will use its savings to pay her final expenses if she dies prematurely. Which method is she using to deal with risk?
risk retention (she chose to accept the exposure to risk rather than take measures to reduce the risk to her family)
Jeremy has had an individual health insurance policy for many years b/c of his family’s history of cancer. The tendency of someone like Jeremy to buy and maintain insurance is known as?
Adverse selection
The tendency of a person that is more likely to have a claim, is higher risk, and usually buys and keeps their insurance b/c of risk is known as what?
Adverse selection
Which entity does NOT rate the solvency of insurance companies?
Lloyd’s of London
A-M Best, Duff and Phelps, and Standard and Poor’s are all rating agencies. True or False
True
Name of an association of individuals and companies that underwrite insurance on their own accounts?
Lloyd’s of London
What is the term that applies to an insurance company domiciled in one state but operating in another, from the perspective of the state in which it operates?
foreign company
Which entity spreads the cost of losses among its members by having each member pay a pro-rata share of these losses?
reciprocal insurer
A group of people or businesses that exchange this promise: Each member agrees to pay a pro-rata share of any loss suffered by any other member. They all add money in to “the pot”
reciprocal insurer
Tim applies for a life insurance policy. His agent gives him a receipt conditioned on Tim’s passing a physical exam to meet underwriting standards. Tim passes the physical exam, but dies before the policy is issued. Will the policy pay the death benefit?
Yes. If the insured dies after the date of the application (or medical exam) and the insurer would have issued the policy, then the coverage takes effect as the date of the application.
State regulation, federal regulation, industry self-regulation, and producer peer review are all means of regulating the insurance business. TRUE or FALSE?
False- Producer peer review is not a means of regulating the insurance business. Producers DO NOT regulate themselves.
The term used to describe the voluntarily surrender of a known right.
Waiver
The name of the term to describe giving up a right WITHOUT the intent to do so. (A party surrenders a right that it failed to preserve)
Estoppel
When classifying insurance risks, insurance underwriters most often use the ____?
Numerical rating system.
Delta insurers typically affirms or denies claims within 120 days after it receives proof of loss statements. What kind of practice is Delta engaging in by doing so?
Unfair claims settlement practice.
It is unfair claims settlement practice for insurers to fail to affirm or deny coverage of claims within how many days after receiving proof of loss statements?
30 days
An insurer must notify its current customers of its privacy policies or practices at least once every how often?
12 months (1 year)
What company regulates agents who sell variable life products?
The financial industry regulatory authority (FINRA)
What was the FINRA (financial industry regulatory authority) formerly known as?
National association of securities dealers (NASD)
An insurance policy provides financial protection against what?
Losses caused by Perils.
By submitting an application along with the first premium, the applicant has done what?
Made an offer to the insurer-which the insurer may or may not accept.
If the applicant submits an application without the first premium, the applicant has done what?
Invited the insurer to make an offer.
For a misrepresentation to affect the validity of an insurance policy, it must be what?
material
In forming the insurance contract, who gives something of value as consideration?
The applicant AND the insurer
What best describes the purpose for the laws of agency?
to govern the authority granted agents to represent the insurers.
The document that defines the agency relationship is the agent’s contract with the insurance company. -What does the “laws of agency” assist/provide?
it expands the agents authority from what is granted/written in the agent’s contract.
An innocent misstatement of age or sex on an insurance application would most likely result in what?
the insurer has the right to adjust the policy’s benefits.
With respect to the insurance contract, the insurance company and the applicant are considered what?
the offeree and offeror
The party making the offer is known as?
The offeror
The party to whom the offer is made to is known as?
the offeree
A form of career agency systems that uses agents dedicated to a single insurer?
General agencies
What kind of company sells insurance to consumers without the use of a licensed producer?
Direct response company
Which company does NOT rate the financial strength of insurance companies? A.M. Best, Duff and Phelps, Moody’s, Securities and exchange commission
securities and exchange commission
What is the difference between pure risk and speculative risk?
Pure risk = loss only
Speculative risk = loss or gain
Only what risk insurable? why?
Pure risk
B/c insurance can only protect against loss, not gains
What term means “The cause of a loss”?
Peril
Term for Something that increases the chance of a loss(peril)
Hazard
What are the three hazards most related to life insurance?
Moral, Morale, Physical
What risk management technique is the basis for most insurance today?
Risk transfer
The mathematical principle of probability that insurance is based on is called?
The law of large numbers
What table is used to determine life insurance premiums?
Mortality table
What table is used to determine health insurance premiums?
Morbidity table
True or False: Only pure risk is insurable, but NOT ALL pure risks are insurable.
True
Has to fit into the 5 categories to be insurable
Most insurance coverage written in the U.S. is written by commercial or private insurance companies?
Commercial
The two types of commercial insurance companies are?
Mutual and stock
Who owns mutual insurance companies?
policyholder
What is the name for the insurers who are issued a certificate of authority to transact business in a state?
Admitted insurer
Producer’s should never sell non-admitted insurers products unless?
They are licensed surplus brokers
An insurance company is often referred to as what?
The principle
What are the three levels of agent authority?
Express, implied, and apparent
Which level of authority is most likely to get a producer and the insurer into trouble?
Apparent
Who makes up a “3rd party contract”? What is an example of a 3rd party contract?
The Insurer, policyowner, and the insured(not the policy owner)
Ex: A mom buying insurance for her child. -She is the policyowner, child is the insured, and insurer.
What is the term for when the insurer determines the contract’s terms on a take-it-or-leave-it proposition?
contract of adhesion
What is true about “Ambiguities” in a contract of adhesion?
Any ambiguities that are in the contract MUST be interpreted to benefit the policyowner.
In the context of a contract- what is the term consideration mean?
What is the applicants consideration? What is the insurer’s?
consideration is something of value that is given by both parties to the contract.
The applicants consideration is the initial premium payment.
The insurer’s is the promise to pay the policy benefits.
What is an indemnity contract?
Reimbursement for the actual value of the loss. ex: medical expense insurance policies.
What is a valued contract?
reimbursement of the actual amount stated in contract. ex: life insurance policies. Policy of 1mill will pay 1mill regardless
What is the name of the amount of time for an insurer to detect any fraud in an insurance contract?
How long is this period?
contestability period
usually 2 years- after that the insurer can not void the contract
Are the applicants statements on an application representations or warranties?
representations.
A. Auto policy
B. Disability income policy
C. Life insurance policy
D. Medical expense insurance policy…All of these types of insurance involve a personal contract, EXCEPT? Why?
C. Life insurance policy- B/c it can be given to the beneficiary making it no longer personal.
What does it mean, “insurance is a unilateral contract”?
A contract in which only one party- the insurer- makes a LEGALLY enforceable promise.
What are the typical insurance benefits offered by a Fraternal Benefit Society?
Life and Health insurance to its members.
When does acceptance typically occur in a life/health insurance contract?
When the insurer accepts the application.
Why is the IGA (insurance guaranty association) NOT considered a ‘marketing system’?
B/C its purpose is not for selling insurance. The IGA is for protecting inured’s, policy owners, etc. if an insurer becomes impaired or insolvent.
What type of authority is demonstrated by an agent’s actions or deeds?
Apparent authority
The type of authority that is given to the agent by the contract between the agent and the insurer?
Expressed authority
The type of authority that isnt written in the contract between agent and insurer, but is apart of the daily job duties as an agent?
Implied authority
What is the name of the insurance that the agent/producer can purchase to protect themselves from liability, that may arise in the conduct of their business?
Errors and omissions insurance
What are the characteristics of a participating insurance policy?
It pays dividends to its policy holders.
The amount returned to the policy owner of a participating policy from an insurance companies surplus funds. Usually viewed as a “return of excess premiums”….Is it taxable?
policy dividends…typically not taxable
Offer + Acceptance= ___?
Agreement
An ORAL or WRITTEN statement made by the agent, that the insured has immediate protection that is valid for a specific time?
Binder
If the applicant submits the initial premium with the application, what action would constitute ‘acceptance’?
The underwriter approving the application and then issuing a policy
Without the initial premium, the application is merely ___ to the insurance company?
An invitation for the insurance company to make an offer
An “offer” from an applicant to an insurance company must include what, to be a true offer?
application AND initial premium
What act/law is for the purpose to protect consumers against the circulation of inaccurate or obsolete information?
The Fair Credit Reporting Act
An applicant gives the agent her application and initial premium. What kind of receipt can the agent give the applicant that acknowledges the payment of premium?
a premium receipt
What is the purpose of the MIB (Medical information Bureau)?
A source of medical information to alert insurer’s to adverse medical history
What is the main responsibility of the insurance company’s underwriting unit?
risk selection and classification
What type of report includes information pertaining to one’s character, credit, reputation, and habits?
Consumer report
