General Section: Cram Course # 1 Flashcards
In health insurance, the rate at which accident, sickness or disability will occur.
Morbidity
The rate at which people die.
Mortality
The unintentional decrease in value of an asset due to a peril.
Loss
Spreading a risk over a large group of people, by substituting a small cost for a large unknown risk (economic risk of dying).
Risk Pooling or Loss Sharing
What do we call the predicting of the approximate number of deaths or the likelihood of disability that will occur among a certain group during a certain period?
Law of large numbers
The item insured in the policy.
Exposure unit
The uncertainty regarding financial loss.
Risk
What type of risk involves both the chance of loss or gain? (Ex. Gambling)
Speculative Risk- NOT Insurable
What type of risk has only the chance of loss? (Ex. injury, illness, and death)
Pure Risk- Insurable
The condition of being prone to loss due to a hazard or uncertain event.
Exposure
Three basic types of Hazards
1) _________- blind, family traits
2) _________- stealing, smoking, habits that increase the probability of loss
3) _________- jay walking, careless, the attitude, state of mind (It’s insured so why worry, whatever)
Physical
Moral
Morale
Six elements of Insurable Risk that make Pure Risks Insurable:
1) LOSS must be due to ___________
2) LOSS must be definite and __________
3) LOSS exposure to be insured must be __________
4) LOSS exposure must be __________ __________
5) LOSS must be ___________
6) LOSS cannot be __________
1) Chance
2) Measurable
3) Large
4) Randomly Selected
5) Predictable
6) Catastrophic
The immediate specific event that causes a loss.
Peril
What gives rise to a peril?
A Hazard
What kind of hazard is it when an employee takes merchandise without paying for it?
Moral
What kind of hazard is it when you are late for an appointment?
Morale
The application of laws, regulations, and legal court rulings which increase the chance or amount of loss.
Legal Hazard
The total amount the insurer will pay for an insured risk.
Limit of liability
Five options to handle risk (ARRTS)
1) A- _________ (don’t fly)
2) R- _________ (smoke alarm)
3) R- _________ (self insured)
4) T- _________ (buys insurance)
5) S- _________ (Copayment/Coinsurance)
1) Avoidance
2) Reduction
3) Retention
4) Transference
5) Sharing
What is a company called that helps an insurance company transfer a portion of its risk?
Reinsurer
What type of company has the purpose to make a profit for the stockholder?
- Structured the same as any corporation
- Pays NO dividends to policyholders
Stock Company
What type of company is owned by its Policy holders?
- Issues participating and non participating policies
- Pays its policyholders dividends
Mutual Company
A refund of Over Payment (partial over payment being returned to policy owner)
Dividends
____________ is also known as Debit Insurer/Industrial Insurance (small face amounts, cash accepted as premiums, more expensive)
Home Service Insurance
Insurance which offers coverage to people through the individual market.
Private Insurers
The entity that assumes the insured’s risk. Synonymous with insurance company.
Insurer
The person who is covered under the insurance policy.
Insured
The person who has all the ownership rights under the policy, pays premiums, and accepts the policy when delivered.
Policy Holder or Policy Owner
A Company doing business in the state in which it is incorporated.
Domestic Insurer
A Company licensed to do business in a state in which it is not incorporated.
Foreign Insurer
A Company licensed to do business in a country outside the U.S.
Alien Insurer
Yes or No
If a company is licensed in the state where it is incorporated, does it need to be licensed in the states where it does business?
YES
People who sell, solicit and negotiate insurance. It is an all-encompassing term which includes agents and brokers.
Producers
Illegally converting another person’s funds for your own use.
Embezzlement
Who regulates the insurance industry?
The States
An international misrepresentation or concealment of material fact made by one party in order to cheat another party out of something that has economic value.
Fraud
What elements are needed for contracts to be legally valid and binding? (HINT: LOCCA)
Legal purpose Offer Consideration- exchange of values Competent parties Acceptance
Name three groups of people who are NOT competent to enter a legal contract.
1) Minors
2) Mentally impaired
3) Under influence of alcohol or drugs
A medical condition, whether physical or mental, resulting from accident or sickness preventing a person from being able to work.
Disability
The rights and responsibilities of all parties of the contract.
Conditions
What is it called when values exchanged are not equal? (Ex. $50 premium/$100,000 Death Benefit)
Aleatory
What is it called when only one party prepares the contract? (Basically policyowner is stuck with the contract as it is)
Adhesion
_________ is the type of contract that only reimburses or pays the amount of loss.
Indemnity
What is it called when information is believed to be true? (Ex. Statements made by the client on application in relation to thier health)
Representation
What is it called when information is guaranteed to be true?
Warranty
What is it called when both parties are trusted to reveal relevant facts?
Utmost Good Faith
What kind of contract pays a stated amount in the event of loss?
Valued Contract
_________ is when an applicant fails to disclose known material facts.
Concealment
Who must sign an application?
Insured
Policy Owner
Agent
*All three must sign
This form is filled out by the agent and includes information about the proposed insured’s health history, occupation, and background.
Application
They select, classify, and rate risks.
Underwriters
A _________ is considered a field underwriter.
Agent
Name the 4 types of underwriting risks.
Preferred
Standard
Substandard
Declined
What risk category is a person that has above agerage health, above average lifestyle, and habits?
Preferred Risk
What risk category is a person that poses a higher risk to the insurer than standard risks.
Substandard Risk
Underwriting classification in which individuals are in average physical condition with average lifestyles and habits for people of their respective sex and age group.
Standard Risk
Underwriting classification in which risk is uninsurable because the applicant poses too great a risk for the insurer to provide coverage.
Declined Risk
The process that insurers use to select, classify, and rate risks so that they accurately reflect the amount of risk undertaken.
Underwriting
What are the five reports an underwriter could use in determining an applicants insurability?
Medical Report
MIB- Collection of complete medical history
Special Questionnaire- for dangerous activities
Inspection Report
Credit Report
Who completes the medical report?
Physician or Paramedic (Either One)
What is the purpose of the MIB?
Holds down insurance costs
The MIB helps prevent ________.
Fraud
The buyer’s guide and policy summary must be given to the insured __________ or at __________. No Exceptions.
prior to or at policy delivery
The insurer’s costs which include: acquistion costs, staff salaries, retirement, contingency funds, and claims payments.
Expenses
The person who is covered under the policy.
Insured
The insured’s notification that a payment is requested for a covered loss.
Claim
Less than favorable insurance risks (such as people in poor health) to seek or continue insurance to a greater extent than people in good health.
Adverse Selection
Method used to establish premium rates for group health plan members, based on the claims experience of the group.
Experience Rating
____________ insurance companies write more than one line of insurance.
Multi-line
Most common type of group insurance:
* each year policy is renewed based on previous years claims.
Annuable Renewable Term Policy
What is a policy called that is issued for Group Insurance?
Master Contract
Employees/Members that are covered by Group Insurance receive a ____________.
Certificate of Insurance
How many employees must participate in a non-contributory plan?
100% of eligible employees, they all must ne insured.
How many employees must participate in a contributory plan?
at least 75% of eligible employees must participate.
