Insurance Contracts Flashcards
1
Q
Risk
A
Uncertainty regarding the likelihood or severity of an event
2
Q
Speculative Risk
A
Negative, Neutral, or Positive outcome; not compatible w/insurance
3
Q
Pure Risk
A
Negative or Neutral outcome, no Positive; compatible w/insurance
4
Q
Loss
A
Expense or decrease in value
5
Q
Accident
A
Loss that occurs at either an unpredictable time or in an unpredictable amount
6
Q
Are intentional acts with unintentional outcomes still accidents?
A
Yes
7
Q
Insurance only compensates for…
A
Losses that are accidents
8
Q
Peril
A
Cause of a loss
9
Q
Peril: Life Insurance
A
Death and/or accidental death
10
Q
Peril: Health Insurance
A
Accident and sickness
11
Q
Accidents start with…
A
Injury
12
Q
Sicknesses are…
A
Illnesses
13
Q
Accident-only Insurance does not cover…
A
Loss caused by illness
14
Q
Hazard
A
Increases likelihood or scope of loss; increases person’s exposure to loss
15
Q
Physical Hazard
A
Environmental, physical, or biological factor that increases likelihood or severity of loss
16
Q
Moral Hazard
A
Condition that increases temptation to cause loss on purpose
17
Q
Insurers reduce moral hazards by…
A
Principle of indemnity and insurable interest
18
Q
Principle of Indemnity
A
Make people “whole” again after a loss, not better or worse
19
Q
Principe of Indemnity is seen in health by…
A
only paying for costs actually incurred
20
Q
Valued Policy
A
Insurer and policyholder agree on value in advance of a loss
21
Q
In a valued policy, the stated amount is paid…
A
Regardless of the loss’ actual size
22
Q
A valued policy is used to insure…
A
Against losses that are hard to calculate
23
Q
Does a valued policy follow the principle of indemnity?
A
Maybe
24
Q
Insurable Interest
A
To insure a person/thing, you have an obvious desire to avoid a loss
25
Morale Hazard
Risk of being lazy and not worrying about the cost of losses; usually unintentional
26
Morale Hazards are reduced by...
Requiring consumer to pay for a portion of otherwise insured losses ("cost sharing")
27
Deductible
Amount of an otherwise insured loss that must be paid by the consumer before the insurer will provide benefits
28
Bigger deductible =
Lower cost
29
Deductibles reduce...
Morale hazard and small claims
30
In major medical insurance, deductibles are usually enforced...
Annually
31
First-Dollar Coverage
No deductible
32
Risk Transfer/Shift
Transferring consequences of a potential loss from one party to another
33
Law of Large Numbers
More data an insurer has about a risk, easier it is to make predictions about losses
34
Inadequate data can make a risk...
Uninsurable
35
Mortality Tables
Estimate how many people will die at a given age
36
Morbidity Tables
Estimate how many people will be ill at a given age
37
Pooling of Risk
Risk spread across a larger group to minimize impact
38
Pooling of risk allows insurers to...
Diversify their portfolio of risks
39
Rate Class
Risk within this same pool
40
Adverse Selection
Occurs when insurance is purchased disproportionately by high-risk consumers
41
Adverse selection makes insurance...
Unaffordable or unavailable
42
Adverse selection is typically managed by...
Carefully evaluating/charging each insurance application based on risk and/or limiting coverage for pre-existing health conditions
43
Uninsurable Risk
Loss too predictable and not accidental; probability of loss too high; size of loss catastrophic to insurer; insurers lack data to understand risk and pool it with others; speculative and could result in gain
44
Insurance
Contractual arrangement involving risk transfer and the pooling of risk
45
Parties of an Insurance Contract
Insurer and Policyholder/owner
46
The Insurer
Issues insurance policy; accepts risk; receives "premium" as payment; controls policy with policyholder/owner
47
The Policyholder/Owner
Receives insurance policy; transfers risk; responsible for paying premium; controls policy with insurer
48
The policyholder/owner is typically...
The same person covered by the insurance
49
Elements of a Valid Contract
Legal Purpose; Competent Parties; Offer and Acceptance; Consideration
50
Legal Purpose
Contract cannot force someone to break the law
51
Void
Automatically invalid
52
Competent Parties
Must be an adult of sound mind
53
Offer and Acceptance
One party makes an offer and the other party has the opportunity to accept or reject
54
In insurance, the consumer typically makes the offer in the form of...
An application and premium
55
Invitation to make an offer
Application without premium
56
Counteroffer
Insurer refuses to insure someone at the original price but offers to do so for more premiums or with extra exclusions
57
Consideration
Exchange of one thing of value for another
58
In insurance, a premium is given in return for...
Agreeing to receive a transferred risk
59
Consideration Clause
Explains what's being exchanged for in the contract
60
Consideration Clause: Consumer gives...
Application and Premium
61
Consideration Clause: Insurer gives...
The promise to pay
62
Consideration is contingent on...
An accurate and complete application
63
Unilateral Contract
Only one of the parties makes a legally enforceable promise and can be ordered to fulfill its duties by a court
64
Bilateral Contract
Both parties make a legally enforceable promise and can be ordered to fulfill their duties by a court
65
Aleatory Contract
Contract that involves matters of chance
66
Aleatory contract allows consideration to be...
Unequal between two parties
67
Aleatory contract: Buyer can benefit more than insurer (and vice versa) depending on...
If/when a loss occurs
68
Conditional Contract
Besides payment of premium, several rules need to be obeyed and several things need to happen before insurer must act
69
Personal Contract
Contract between insurer and policyholder
70
Does a personal contract allow transfer?
Only with insurer's consent
71
Policy Period
Contractual duration of coverage
72
Policy Period: In major medical insurance...
Often for one year
73
Policy Period: In life insurance...
Might be one year, a few years, or a lifetime
74
Contract of Adhesion
Generally written by just one of the parties
75
Contract of Adhesion: Ambiguous language should be interpreted to favor...
The non-writing party
76
Reasonable Expectation
Policyholders should be compensated for losses based on what can be reasonably be determined by the policy language and what the insurer has disclosed
77
Utmost Good Faith
For the sake of efficiency, insurer and consumer must rely on each other's honesty
78
Warranty (1)
A promise/statement that must be absolutely true at all times in order to keep a contract in force
79
Warranty (2)
A promise to do or not do something during all the contract
80
Representation
Statement of fact at a particular time based on the person's own knowledge
81
Misrepresentation can result in...
Voidable contract if it relates to a "material fact" and was intentional
82
Material Fact
Information that, if known, would influence decision regarding whether to enter into a contract
83
Misrepresentation
Providing false information
84
Concealment
Failing to disclose information
85
Rescission
Contract is treated as if it never existed; puts insurer and policyholder back in the same position they were prior to contract
86
Cancelation
Contract is valid but is ended prior to intended expiration date
87
With a cancelation, each party keeps...
Premiums and benefits already earned/owed
88
Non-Renewal
Contract ends on intended expiration date but cannot be extended, even for more money
89
Insuring Clause
Insurer's basic promise to pay benefits
90
Free-Look Periods
Gives buyers a limited time to review their coverage and get their money back for any reason
91
Free-Look Period time frame
10 days from date policy is delivered (not issued)
92
Lapse
Cancelation by insurer for nonpayment
93
Assignment
Rights of policyholder are transferred to another party who isn't part of the contract
94
Assignment: In health insurance, involves...
Payment of benefits directly to health care providers
95
Assignment often requires...
Insurer's consent
96
Subrogation
Insurer takes certain rights of the policyholder for itself
97
Subrogation typically allows insurance company to...
Sue or collect money from third parties who caused a loss
98
Subrogation allows for insurance companies to...
Reimburse one another
99
Subrogation prevents the policyholder from...
Collecting insurance money and suing for the same loss
100
Riders
Amend the insurer's standard policy
101
Riders often add additional benefits in exchange for...
Additional premiums
102
Impairment Riders
Can reduce premium by excluding certain conditions or activities for that specific person
103
Impairment riders are typically used to insure people with...
Pre-existing conditions, high-risk hobbies, etc.
104
Certificates of Insurance
Proof of insurance provided to a third party
105
Certificates of insurance are NOT...
A contract
106
Changes to a certificate of insurance are invalid unless...
It is reflected in policy, too
