History of Insurance Flashcards
1
Q
Actuarial department
A
Calculates statistics: policy rates, reserves and dividends
2
Q
Alien Insurer
A
Someone in the USA whose main office is outside of the USA
3
Q
Admitted Insurer
A
A certificate of authority for a person to conduct insurance business in that particular state
4
Q
Broker
A
one who represents themselves and the person insured, can sell insurance for any company.
5
Q
Captive Insurer
A
owned and operated by a parent firm, used to insure the parent firm, minimize losses
6
Q
Certificate of Authority
A
Certificate that allows a company to conduct insurance business in a particular state
7
Q
Captive Agents vs. Broker
A
Captive Agents - only sell one company’s insurance
Brokers - “free” per se, do not sell for just one company
8
Q
1868 Paul V. Virginia
A
Decided that insurance was a state to state thing, not to be controlled by another state.
9
Q
1944 United States v. Southeastern Underwriters Association
A
shifted control from states to federal government
10
Q
1945 McCarran - Ferguson Act
A
made it clear that this act is not regulated by state law.
11
Q
1958 FTC Intervention
A
Federal trade commission’s attempt to control the health insurance industry’s advertising
12
Q
1959 SEC intervention
A
Argued that insurers that issue variable annuitites need to conform to their regulations and the state’s
13
Q
1970 Fair Credit Reporting Act
A
Requires fair and accurate reports of clients. Insurers must tell the consumer about any investigations being made.
14
Q
What is the role of insurance?
A
Transfer financial risks from an individual to a company
15
Q
Annuities
A
Provides a stream of income by making a series of payments over a certain period of time
16
Q
Mutual Insurance Companies
A
Insurance companies with no stockholders. Policyholders own the company.
(Participating or par companies)
17
Q
Participating or Par Companies
A
Policy owners do participate in being paid dividends
18
Q
Mutualization
A
The process of a stock company being converted to a mutual company
19
Q
Stock Insurance Companies
A
Companies that are owned by stockholders. Stockholders get a portion of the company’s profit.
20
Q
Demutualization
A
Mutual Insurance Company going to a Stock Insurance Company
21
Q
Lloyd’s of London
A
Association dedicated to underwrite and create coverage for items or areas that aren’t easily insured.
22
Q
Reinsurers
A
Specialists who insure other insurance company’s risks.
Insurance company sells a portion of their risk
23
Q
What do ceding companies do?
A
Transfer the risk from one company to another
24
Q
Home Service Insurers
A
Industrial insurance, sold by home service or debit insurance companies. Collected weekly, door to door. Usually 1k-2k.
25
What government programs offer insurance?
Social Security
Medicare
Medicaid
26
State Guarantee Associations
Protects policy owners in the event the insurance company goes out of business or unable to pay claims
27
What is the purpose of insurance?
To provide financial protection against losses from death, illness or accident
28
What is the law of large numbers?
The larger the number of people, the more predictable the losses will be.
29
What is a speculative risk?
It involes the opportunity to either lose or gain. It is not covered by insurance companies.
30
What is a pure risk?
Only opportunity for losses, no gains. Only type of risk that is insurable.
31
What are the five ways to handle risks?
Avoidance-avoiding as many risks as possible
Reduction-taking action to decrease the possibility of a loss
Sharing-group of individuals sharing the losses within the group
Retention-AKA Self-insurance, people are financially stable enough to fund their losses
Transfer- Risk is transferred to another party
32
What is the only insurable risk?
Pure risk.
Must be due to chance, not catastrophic and must be randomly selected.
33
What is an insurance contract?
legally binding agreement between two or more parties where a promise of benefits is exchanged for a consideration
34
What are the four elements a contract must have to be considered binding?
Offer and Acceptance - an offer is made when application is submitted to insurance company, then is accepted by the insurance company
Consideration - something of value exchanged between the two. Premium (payment) and promise to pay if there is a loss
Legal Purpose- contract must be legal and not against public policy. if the insured has given consent and the company is legit, it has legal purpose.
Competent parties - they must be of legal age, mentaly capable and not under the influence.
35
What is aleatory?
When there is not an equal exchange of value.
Premiums vs. amount insurance company would payout in the event of an accident
36
What is adhesion?
"Take it or leave it" agreements. It is either accepted or rejected by the consumer with no negotiations or changes.
37
What is a unilateral contract?
When only one party, the insurance company, is legally required to do anything.
*Consumer is not legally required to pay the premiums, but the company IS legally required to cover any losses
*Company does of course have the right to terminate when premiums are not made
38
What is a personal contract?
Insurance contracts are between one person and the company. Cannot be transferred to anybody else without written permission from the company
39
What does it mean when a contract is 'conditional'?
Both sides of the agreement must be upheld in order for the policy to be enforcable.
*If the policyholder's policy is past due at the time of death, company is not required to pay out the benefit.
40
What does it mean for a contract to be valued or have indemnity?
Valued contract pay the amount stated in the contract, regardless of the actual amount of loss.
Indemnity contracts only pays the amount equal to the loss.
41
Utmost Good Faith
Implies there is no fraud or misrepresentation on either end
42
What are warranties?
Statements that are guaranteed to be true and are parts of legal contracts
43
What are representations?
Statements that are believed to be true to the best of one's knowledge
I.E.- the answers the applicant puts on an insurance application
44
What are misrepresentations?
Statements that are found to be false and can void a contract
45
What is concealment?
Intentional witholding of information
*In regards to insurance, applicant lies and gets an inaccurate underwriting. Can void the policy.
46
What is insurable interest
The possibility of the policy owner losing money or something of value when there is a loss
*Part of legal purpose
47
What is an Agent's Authority?
licensed insurance producer representating an insurance company, performing acts on the behalf of the company.
*AKA principal
48
What are the 3 types of Agent's Authority?
Express Authority - granted to the agent by the principal (insurance company)
Implied Authority - Authority not written into the contract, but is assumed by the agent
Apparent Authority - Assumption of authority, based solely on actions or words of the prinicpal.(I.E. - principal giving an agent application, rate books, etc. without a contract, they cannot later deny a relationship)
49
What is a waiver?
Voluntarily giving up a legal right
50
What is Estoppel?
Legal process used to prevent someone from reclaiming their rights they previously waived?
51
What is the parole evidence rule?
Prevents people from changing the meaning behind a written contact by trying to add oral or written statements made before the contract was formed.
52
What is Ordinary Life insurance?
Individual insurance that includes temporary and permanent insurance protection plans.
53
Term or Pure life insurance
Temporary life insurance provided for a certain period of time.
*Provides the greatest amount of coverage for the lowest premiums
*AKA pure death protection - if the insured dies during the policy term, the policy pays the beneficiary
54
What are the three types of term coverage?
Level Term Insurance - death benefit doesn't change through the life of the policy
Increasing Term Insurance - level premium, death benefit increases yearly.
Decreasing Term Insurance - level premium and death benefit that decreases yearly. (I.E. - to insure payment of mortgage. The mortgage amount decreases as the policy amount decreases, too).
55
What does a term policy that is renewable mean?
At the end of the policy, policyholders do not have to prove insurability
*Premium will be based on the insured's age
56
What is a term policy that is convertible mean?
It allows policyholders to converse the coverage to a permanent, whole life insurance policy without proving insurability.
*Premium will be based on the insured's age
57
What is whole life insurance?
Permanent life insurance policied that remain in effect until age 100, as long as the premium is paid.
Includes a savings element known as cash value.
*Usually higher than term
58
What are Level Premiums based on?
The age of the individual when originally purchased.
59
What is a level death benefit?
The death benefit is guaranteed and remains the same for the whole life of the policy
60
What is cash value? AKA Nonforfeiture values.
Created by accumulation of the premium, scheduled to equal the face of the polcy when the policyholder reaches 100
61
What are living benefits?
Allows a policy owner to borrow against the cash value while the policy is still active or allows the policy to give the cash value when the policy is over
62
What are the three basic types of whole life insurance?
Straight Whole Life - also called continuous premium, policy owner pays a fixed premium until death or age 100.
Limited Pay Whole Life - designed so premiums will be completely paid well before 100. (Most often 20 years or paid by 65)
Single Premium Whole Life - One time lump sum payment is made, generates cash value immediately.
63
Rights of Ownership
Specifies the policy owner's right to transfer ownership of the policy
64
Absolute Assignment
Transfering all rights of ownership to somebody else, permanent
65
Collateral assignment
Partially transferred to somebody else temporarily, often used to secure a loan. Transferred back to owner once the debit is repaid.
66
Entire Contract Provisions
Stipulates that the policy and a copy of the application with any riders or amendment's makeup the contract
67
What is the insuring clause?
The companys agreement and promise to pay the death benefit
68
Consideration Clause
Policy owners promise to pay
69
Free Look Provision
Gives policy owner a certain amount of days to look at the policy
70
Grace Period Provision
THe period of time after the period is due, usually 30 days. *If the insured dies during the grace period, any past due premiums will be deducted from the payout.
71
Reinstatement provision
Allows a lapsed policy to be reinstated. *Have to prove insurability, pay all backed premiums with interest
72
Policy Loan Provision
Allows the policy owner to borrow an amount equal to the cash value.
*If there is an outstanding loan at the time of death, the benefit will be reduced
73
Incontestable clause
Prevents the insurance company from denying a claim, because of incorrect information or a concealment, once the policy has been in place for two years.
74
Suicide Provision
If the person on the policy commits suicide in the first two years of the policy, their benefit will not be paid out. They will return the premiums that have been paid.
75
Misstatement of Age or Sex Provision
Allows the insurance company to adjust the policy at any time due to a misstatement of age or gender.
76
Automatic Premium Loan Provision
If there is a missed payment, the policy is paid usung the policies cash value
77
Exclusions
The type of risk insurance companies don't cover. I.E - war, aviation, commission of a Felony, hazardous occupation or hobbies, suicide
78
Non-forfeiture options
Cash surrender - take the cash
Reduce paid up - purchase another insurance policy, no premiums necessary but it will continue to gain cash value
Extended term - buying a new term policy that will have the same face value amount as the original policy and will last for a set amount of time
79
Dividends
For participating policies only! When they purchase policies from participating companies, they receive dividends.
80
5 Options to receive dividends
Cash
Use for Premiums
Allow them to accumulate interest
Buy a Whole Life Policy
Purchase one year term insurance
81
Policy Riders
Poeple added to the basic life insurance policy that ride along.
Have to be added to a policy to have value.
