Insurance Flashcards
What is Risk?
A condition where there is a possibility of loss (a situation where exposure to loss exists).
Starting a business
Buying real estate
What is Peril?
The cause of a loss, the event insured against:
Fire
Windstorm
Theft
etc.
What is a Hazard?
A condition that may create or increase the chance of loss arising from a peril.
Owning a home on an earthquake fault
Owning a home by a river
What are the Elements of Insurance?
- Large number of homogeneous exposure units
- Loss must be definite and measurable
- Must be fortuitous or accidental
- Must not be catastrophic (for the insurance company)
What are the Methods to Avoid/Reduce Loss?
- Avoidance: Do not drive, Do not purchase a home but rent
- Diversification: Duplication of assets or activities at different
locations - Transference: INSURANCE
- Retention: Voluntary - Recognizes that the risks exist and assume
- losses (deductible, coinsurance)
- Risk Reduction: Sprinkler system, safety programs
What is Insurable Interest?
- Property and Casualty: At inception and at time of claim
- Life: At inception, but need not be at time of claim
What are the Parts of the Insurance Contract?
- Declarations Page: Factual Statements that identify the specific
person, property or activity being insured. - Definitions: Explanation of key policy terms
- Insuring Agreements: Spells out the basic promise of the insurance
company - Conditions: Spells out in detail the duties and rights of both parties.
- Exclusions: Circumstances when the insurer will NOT pay.
DICE
What are Negligences?
- Attractive Nuisances: Swimming pool, vacant lot
- Negligence per se: Violation of a statute
- Strict Liability/Product Liability
- Absolute Liability: Workers Comp
- Vicarious Liability: Respondeat superior (principal’s liability for their
agents).
What are Defenses?
- Assumption of Risk (skiiing, car racing)
- Contributory (jay walking, being drunk)
- Comparative (A is 20% negligent, B is 80%)
- Last Clear Chance (Rear end someone when you could have avoided
it by swerving, braking in time)
What are two methods of Calculating Life Insurance needs?
- Capital Utilization Approach: Uses annuitization to provide needed
income but leaves no money at the end of the planned period. - Capital Needs Approach: Uses interest only, so the original capital is
still left at the end of the period (also called Capital Retention or
Interest Only).
What are the most comprehensive Insurance Rating Service/Category services?
- A.M. Best: A++ to F
- Standard & Poor: AAA to CCC
What are Sections of a Homeowner’s Policy and
what do they cover?
Section I (Coverage: A B C D)
A - Dwelling and Attached Structures
B - Other structures, separate from dwelling (detached garage,
fences, sheds)
C - Contents and Personal Property
D - Loss of Use Section II (Coverage: E F)
E - Liability
F - Medical Payments
What property is excluded under Personal Property Coverage?
- Animals, Birds, or Fish
- Motorized Land Vehicles and Aircraft
- Property of roomers, boarders or other tenants
- Property contained in an apartment regularly rented or held of
rental to others by the insured (unless specifically endorsed)
What are the Basic Form Perils Covered?
The policy lists perils covered:
Windstorm
Hail
Aircraft
Riot
Vandalism
Vehicles
Explosion
Smoke
Fire
Lightning
Theft
Study Hint: Remember: WHARVVES/FLT
What are the Broad Form Perils Covered?
- Rupture of a System
- Artificially Generated Electricity
- Falling Objects
- Freezing of Plumbing
- Study Hint: Remember Basic plus RAFF
Homeowner’s Policy Exclusions include:
“OPENN WIF”
Ordinance/Law
Power Failure
Earthquake
Nuclear Hazard
Neglect
War
Intentional Loss
Flood
Note: Sinkhole is a covered peril for the exam
What is the formula for Replacement Cost Coverage?
- Replacement Cost x Coinsurance Percentage = Insurance Required
- Insurance Carried ÷ Insurance Required x Loss - Deductible =
Amount Paid by Insurance
*Usually Commercial 90%, Residential 80%
What are the requirements for a vehicle to be eligible for:
Insurance Services Office (ISO)
Personal Auto Policy (PAP)
- Be owned by an individual or by a husband and wife living in the
same household - Be private passenger auto*
- Not be used as public or livery conveyance
- Not be rented to others
What are the Parts of an Auto Insurance Policy?
What do they cover?
Part A - Liability to third parties
Part B - Medical payments
Part C - Uninsured/Underinsured motorists
Part D - Damage to the covered auto
What is classified as a “Covered Auto” under an
Auto Insurance policy?
Any vehicle shown on the declarations page
Any of the following which you acquire during the policy period:
- Private Passenger Auto
- Pickup Truck
- Panel Truck or Van
NO coverage for any of these used in a business (need a commercial policy for that)
- Any trailer you own listed on the declarations page
- Any auto or trailer you do not own while used as a temporary
substitute for any vehicle described herein which is out of normal
use because of a breakdown, repair, servicing, loss or destruction
What is Uninsured Motorist Coverage (UM)?
This agreement promises to pay the amount an injured insured could have collected from the uninsured driver if such driver had carried auto liability insurance. The term “covered person” as used under the uninsured motorist coverage of the PAP includes the following:
- The named insured and any family member
- Any other person occupying the insured’s covered auto
- Any person, for damages that person is entitled to recover because
of injury to a person described above
Note: UM is liability protection, NOT medical payments
Who are the Persons Insured under medical payments coverage of the PAP?
- The named insured and any family member who suffers bodily
injury caused by accident while occupying covered vehicle - The named insured and family members who if, while a pedestrian,
are struck by any motor vehicle designed for use on public roads or
by a trailer - Other persons while an occupant of the insured’s auto (passengers)
What are the perils covered under the “Other Than Collision” Provision of an Auto Policy?
Glass Breakage
Loss caused by:
Falling Objects
Fire
Theft
Explosion
Earthquake
Windstorm
Hail
Water
Flood
Riot or Civil Commotion
Contact with Birds or Animals
What are the benefits of an Umbrella Liability Insurance?
- Nearly always a correct answer since it is smart coverage
- Provides liability coverage (BI/PD) for catastrophic claims
- Requires policy owner to carry certain underlying coverage of
specified amounts - Professional acts are specifically EXCLUDED!
What are the two types Professional Liaiblity Insurance and who/what does it cover?
- Malpractice - Bodily Injury (doctors, dentists)
- Errors and Omissions (E&O) - Monetary damages (financial advisors,
lawyers, accountants, insurance agents)
What does Worker’s Compensation cover?
- Unlimited Medical Expenses
- Disability Income (TAX FREE)
- Death Benefits
Rehabilitation (Medical and Vocational) - Absolute Liability
Medicare does NOT cover…
- Routine foot care, glasses, hearing aids, and dental
- Emergency Care outside the US (some exceptions for Canada,
Mexico and Caribbean)
Explain the limitations of Medicare’s Long Term Care coverage.
Benefits are Limited: Pays all of the first 20 days of SKILLED care and everything over a specified amount per day for the next 80 days of SKILLED care (100 day max)
The Limited Benefit is Subject to Substantial Restrictions: Pays for SKILLED care only:
- Admission to a nursing home must follow within 30 days of the
hospital stay of three days or more - The patient’s condition must be expected to improve
Compare HMO vs PPO
HMO:
- Provider paid monthly fee regardless of services rendered
(Capitation) - Out of Network care not covered at all
PPO:
- Provider paid for actual services rendered
- Out of network partially covered, usually 70%
What are the COBRA coverage requirements and
Qualifying Events?
- Must have 20 Full/Part-Time Employees.
- The option to buy Continuation.
Coverage must be offered to: (Qualifying Event?)
- Terminated employees/dependents up to 18 mo.
- Voluntary or involuntary termination, change from FT to PT
- Spouses and other dependents up to 36 mo.
- Employee’s death, divorce, legal separation, or eligibility for Medicare Children of Employees up to 36 mo.
- Loss of dependent status (marriage)
- Reaching dependency age limit specified by plan
What is a Health Savings Account (HSA) and
what are its benefits?
- Used in conjunction with High Deductible Health Plan (HDHP)
- Distributions are tax free if used for health care
- Contributions not spent are carried forward and portable
- Unused assets become property of named bene on death
- Distributions for non-medical are ordinary income plus 20% penalty
if under 65
What are the Definitions of Disability?
Own Occupation - Best definition for the insured
Modified any occupation
Split Definition - Own then modified
Any Occupation (Social Security definition)
Loss of Income
What are the Policy Continuation Provisions for Disability Income?
- Noncancellable “Noncan”: Continuous term policy guaranteeing the
insured’s right to maintain the policy at the stated premium - Guaranteed Renewable: Continuous right to maintain the policy, but
the insurer may increase the premium by class of insureds
Property loss calculation
Default coinsurance is 80%
Workers Comp
Benefits under workers comp:
- Medical Expenses paid (no limits)
- disability income with very short waiting period
- Deathe benefits payable to family
- rehab benefits
Medicare Part A
Benefits of Part A:
Hospital stays:
- First 60 days: Subject to a deductible
- Next 30 days: Second deductible
- Additional 60 days: Third deductible
- Max 150 days per stay
- Post-hospital skilled nursing care: Up to 100 days
Home health services: UNLIMITED post-hospital care
Hospice care: Covered for terminally ill patients
Blood coverage:
- Patient pays for/donates first 3 pints
- Medicare covers additional blood
Medicare Part A Limitations
Limited international coverage:
- Generally, services outside the U.S. are not covered
- Some exceptions in Canada, Mexico, the Caribbean, and U.S.
territorial waters - Medicare as a secondary payor when:
- Employer group health insurance applies
- Veteran’s benefits apply
- Covered by workers’ compensation
Life insurance dividend options
Endowments
Wrong answer on the exam
Life insurance Nonforfeiture Options
Life Insurance Settlement options
- Cash
- Interest only
- Fixed period
- Fixed Installment
- 4 life income options
Life settlement
Old person still alive sells policy
- Ordinary income on difference of cash value and the surrender value
- LTCG on higher of cash surrender value or net settlement proceeds
Section 1 Coverages
Section II coverage
HO-1
Dwelling, Basic
HO-2
Home, broad
HO-3
Open, B-open 10% of A, Broad 50% of A, Open 30% of A
HO-5
Open, open 10% of A, open 50% of A, Open 30% of A
HO-8
Older home, basic
HO-4
Renters, Broad-C, Broad 30% C
HO-6
Condo owner, Open C, Broad 50% C
Attractive nuisances
Swimming pool or open lot
Negligence per se
Violating a statute
