Insurance & Benefits Flashcards
Define risk.
- uncertainty about financial loss
What are 2 types of risk?
- Speculative risk
- pure risk
What is speculative risk?
- win, lose, or no change
- risk is taken on by choice
- normally not insurable
What is pure risk?
- events beyond one’s control
- outcome=loss
- insurance covers pure risk
- allows for protection against loss, but does not allow for possibility of gain
What are 4 types of risk management techniques?
- risk avoidance
- loss control
- risk retention
- risk transfer
What is risk avoidance?
- elimination (of source of risk)
- substitution (of a thing)
- separation (of things)
What is loss control?
- reduce the possibility of a loss, or reduce the size/scale of a loss
- loss prevention= before the fact (stop something from happening)
- loss reduction= after the fact (once a loss has occurred, reduce the size/severity of the loss)
What is risk retention?
- “self-insure” against certain types of risks
- high frequency, low severity losses
- losses that are so unlikely to occur that one would not be likely to spend money to insure against that risk
What is risk transfer?
- non-insurance transfer- liability waiver
- insurance transfer
Describe risk pooling.
- group sharing of losses= transfer risk from one to everyone in a group/pool
- applies to all insurance, not just group insurance
Describe the law of large numbers.
- using probability and large numbers of people, that which is unpredictable for an individual, becomes predictable for the group
What is insurance?
- the undertaking by one party to protect another party against loss or liability
- in the event of a loss, one party promises to pay a sum of to the other party
What are the characteristics of insurable risk? (must have all these characteristics to be insurable)
- must be a chance event
- loss must be definite (in time and in the amount of money)
- contract of indemnity- covers actual amount of loss
- valued contract- amount payable is fixed and known - loss must be significant
- rate of loss must be predictable
- the loss must not be too large for the insurer to bear
What is the purpose of life insurance?
- death benefit (non-taxable)
- last expenses
- mortgage fund
- dependency period income
- emergency fund
- education fund
- spousal income
What are the advantages of group insurance?
- all employees covered
- low cost
- efficient premium collection
- wide range of options
Discuss group insurance.
- duration of coverage- 1 yr renewable
- waiver of premium
- conversion privilege
- pre-existing conditions
- non-medical evidence max
- benefit schedule
Discuss AD&D.
- insurance for accidental death/injury
- lump-sum payment in event of death
- pct. of death benefit for injury
- “meat charts”
- excludes: war, terrorism, and other
Discuss Dependent life.
- lump-sum benefit on death of spouse/child
- one election, or independent options
- coverage in flat dollar amounts
- usually on a contributory basis
- premiums taxed, benefits tax-free
What is survivor income?
- rare
- monthly payments to dependents
- benefits either flat amount or pct. of pay
- different amounts for spouse/children
- coverage usually on contributory basis
- remarriage clause (don’t get payment until you remarry)
What are some operational issues with insurance?
- exclusions and limitations (military services)
- law requires they be clearly written and specific
- courts adopt narrowest, most restrictive interpretation - underwriting
- designed to help categorize, properly price or eliminate serious risk cases
- ensures fair treatment of policy holders and beneficiaries
What is the equation for group life underwriting?
premiums= claims paid+retention (+refund)
What does retention cover?
- taxes, commissions, contingency
- operating expenses of insurance carrier, profit
What happens to the refund?
- excess amount is refunded to the employer, if experience rated
- amount is usually rolled over into next contract
List the types of underwriting methods.
- fully pooled
- fully experience rated
- experience rated with pooling limit
- experience rated with annual stop-loss
- non-insured death benefits
Describe fully pooled.
- not experience-rated
- claims, costs allocated to pool
- premiums based on experience of policy holders with similar characteristics
- at year-end no premium is returned, even if experience is lower than expected
Describe fully experience rated.
- underwritten on plan’s past experience
- claims, costs charged to policy, rest refunded
What are some issues and developments?
- client asset management focus
- critical illness insurance
- asset management and performance
- environmental factors
What is critical illness insurance?
- insurance for specified medical condition
- lump sum payout upon diagnosis
- design options
- coverage
- taxations
What are living benefits?
- compassionate assistance
- payment of life insurance proceeds to terminally ill individuals
- like a loan
- interest is charged
- limited to percentage of value of policy
What are some problems with insurance?
- fraud
- on application
- in making claims (false claims)
- in details of claims
- conspiracy to defraud
