Insurance Introduction Flashcards

1
Q

What is risk?

A

The uncertainty about whether a loss will occur.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What types of risk are there?

A

Speculative risk and pure risk.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What type of risks do insurance companies insure?

A

Pure risk.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is pure risk?

A

A risk that only involves the chance of loss, there is no chance for gain.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is speculative risk?

A

A risk that has the possibility of a loss AND the possibility of a gain.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Gambling is an example of what type of risk?

A

This is an example of speculative risk.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

The risk of a car accident is what type of risk?

A

This is an example of pure risk.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is the insurance definition of a loss?

A

The reduction in value of an asset.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is the insurance definition of exposure?

A

This is the risk assumed by an insurer and the amount that the insurer may be responsible to pay out to the insured if the risk becomes a reality.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is the insurance definition of a peril?

A

This is the cause of a loss.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What insurance term describes the cause of a loss?

A

This is known as a peril.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is the insurance definition of a hazard?

A

This is anything that increases the chance that a loss will occur. A slippery floor is an example of a peril. It increases the chance that an employee will slip, and injure their backs resulting in a disability. The slippery floor increased the chances of loss in the form of a disability.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What are the three main types of hazards?

A

Physical hazards, moral hazards, and morale hazards.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is a moral hazard?

A

This is a hazard that stems from an individual’s character.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Dishonesty is considered what type of hazard?

A

A moral hazard.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is a morale hazard?

A

This is a hazard that stems for a state of mind, usually one that is careless or forgetful.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Leaving the door open is what type of hazard?

A

Morale hazard.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What are the 5 main methods for handling risk?

A

Sharing, Transfer, Avoidance, Reduction, and Retention. S.T.A.R.R.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Sharing is a method for handling risk, describe it:

A

This method shares the risk between two or more individuals/parties. Two or more individual agree to pay a portion of any loss incurred by any member of the group.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Transfer is a method for handling risk, describe it:

A

This method for handling risk involves the transfer of risk from one individual or group to another. The insurer agrees to pay if an individual or business has a loss, the loss is transferred from the insured to the insurance company.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Avoidance is a method for handling risk, describe it:

A

This method for handling risk eliminates a risk by not engaging in a certain risky activity.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Not getting on an airplane as to not get in a crash is an example of what method for handling risk?

A

This is an example of avoidance.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Reduction is a method for handling risk, describe it:

A

This method for handling risk works by lessening the chance that a loss will occur, or by lessening the extent of a loss when it does occur. An example is wearing a seatbelt to reduce the risk of harm to the driver and/or passengers.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Retention is a method for handling risk, describe retention:

A

This method for handling risk means that the individual will pay for the loss, or part of the loss, if it occurs. Deductibles are an example.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

If a fire causes damage to a building, it is a -

A

peril

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Wearing a seat belt in a car is an example of what method for managing risk?

A

Reduce

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Tiffany leaves her car unlocked when she goes shopping. What type of hazard is this?

A

Morale

28
Q

What is underwriting?

A

This is the process of evaluating a risk to determine if it is acceptable based on established insurance company guidelines. Is insuring the prospective client worth the risk?

29
Q

What must the client do if the representative makes a change to the application before submitting it?

A

The client must initial next to the changes! As proof that he/she read and agrees with the alteration.

30
Q

When is it okay to backdate an application?

A

When you are trying to save the client’s age on the application.

31
Q

For how long do insurance companies allow representatives to backdate clients’ applications?

A

For 6 months after receiving the application from the client.

32
Q

What parties are required to sign the documents for a life insurance policy?

A

The insured must sign (if the applicant is not the insured), A company officer of the insurance corporation must sign, and a parent or legal guarding must sign any juvenile policies.

33
Q

What is a producer’s statement?

A

A producer’s statement includes anything the producer knows about the potential insured, such as financial status, habits, and character.

34
Q

Do proposed insureds every see the producer’s report?

A

No, it is not attached to the policy and the application when it is issued, and so the client never sees the producer report.

35
Q

when does ‘offer to buy’ insurance policy exist?

A

When the client submits the life insurance application along with the first premium.

36
Q

If no premium is submitted with the application, when does coverage begin?

A

Coverage begins when the first premium is paid.

37
Q

When is the effective date of a ‘conditional receipt’?

A

The date of the application being given to the representative with at least one month of premium paid.

If an exam was required to meat the company’s underwriting rules, then the date of conditional receipt is the date of the official medical exam.

38
Q

What is a ‘Binding Receipt’?

A

These receipts are most often found with homeowners insurance and auto insurance, and are temporary receipts which may be either issued or canceled before the end of a stated period of time.

39
Q

What is range of time in which a binding receipt lasts?

A

Binding receipts are effective for 30 - 60 days from the date of application, even if the applicant is found to be uninsurable.

40
Q

What is a life insurance binding receipt (binder) called?

A

A ‘Temporary Insurance Agreement’.

41
Q

What is an underwriter’s primary source of information?

A

The application.

42
Q

What does the FIRST part of a life insurance application ask for?

A

General or personal data regarding the insured is requested in this FIRST part of the application.

43
Q

Date of birth, gender, social security number, marital status, income, occupation, beneficiary, name, address, are all examples of information requested in which part of the Life Insurance Application?

A

Part I of the Life Insurance Application

44
Q

What does the SECOND part of a life insurance application ask for?

A

This SECOND part of the life insurance application asks for information regarding the insured’s PHYSICAL CONDITION AND HABITS.

45
Q

This part of the life insurance application may ask for information such as; height & weight, drug usage, tobacco usage, travel, current medical treatments, medications being taken, history of disability claims, family health conditions, high-risk hobbies, and even the information of the insured’s current physician.

A

Part II of the Life Insurance Application.

46
Q

What is an ‘Attending Physician’s Statement’? (APS)

A

This a statement requested by the insurance company of the insured’s primary care physician for purpose of attaining current condition and medical history information regarding the client.

47
Q

What condition usually causes the underwriter to a medical examination of the prospective insured?

A

The size of the death benefit! The higher the death benefit, the more exams will be conducted and required of the insured. The insurance company always pays for meical exams and tests required for the underwriting process.

48
Q

Aids testing can be required by the insurance company. Where is this information sent if the test comes back positive?

A

To the Medical Information Bureau (MIB).

49
Q

What is the general purpose of the Health Insurance Portability and Accountability Act? HIPAA?

A

To ensure that health information remains confidential and to protect the applicant’s privacy. It ensures that applicants must be given full notice of information-sharing, their right to maintain privacy, and that the client must of the opportunity to refuse to have information released.

50
Q

What is the MIB (Medical Information Bureau)?

A

The MIB is a non-profit insurance trade association that maintains underwriting information on applicants. 99% of individual life insurance policies are members of MIB companies, 80% of health and disability policies in the US & Canada are members of MIB companies.

51
Q

What is the major purpose of the Medical Information Bureau? (MIB)

A

The main purpose of the MIB is to reduce and prevent instances of misrepresentation and fraud.

52
Q

Insurers may not make an adverse underwriting decision solely on the information from the MIB, what may it be used for?

A

Information obtained by the insurance companies may only be used to further their investigation into a client’s history.

53
Q

Do insurers report their underwriting decisions (such as accepting or rejecting an application) to the MIB?

A

They do not! This prevents other member insurers from accepting or rejecting an applicant based on what other insurance companies have done.

54
Q

Do insurance companies need potential clients’ consent regarding information reported to and obtained from the Medical Information Bureau?

A

Yes! An applicant must be given written notice that information may be reported and obtained from the MIB. Insurers must get a written authorization to do so!

55
Q

With regard to the MIB, applicants must also be notified that applying for insurance or filing a claim with another company may trigger what?

A

The release of the clients’ MIB information.

56
Q

Where is the information obtained for ‘investigative consumer reports’?

A

This information is collected from interviews of individuals who know something about the consumer, such as associates, friends, and neighbors.

57
Q

What must be done before conducting an investigative consumer report?

A

The insurance company must attain the insured’s written consent to having such a report conducted.

58
Q

What are Investigative consumer reports called in the insurance industry?

A

Inspection Reports

59
Q

What are the underwriting sources of information? A.M.A.A.M.C.I.

A
Application.
Medical Exams and Tests
Attending Physician Statements (APS)
Aids Testing
MIB - Medical Information Bureau
Consumer Reports
Investigative Reports
60
Q

A company that is doing business in the state in which it is incorporated is considered a _______ insurer.

A

Domestic

61
Q

Insurers not licensed to transact insurance within a state are considered _____ or _______.

A

Nonadmitted or Unauthorized.

62
Q

A company that is doing business in a state where it is not domiciled is considered a ________ insurer.

A

Foreign

63
Q

A company who receives a license to do business in a state is considered _____ into a state as a legal insurer and is ______ to do business in that state.

A

Admitted into a state / Authorized to do business in that state.

64
Q

A company that is doing business in country where it is not domiciled is considered an ______ insurer

A

alien

65
Q

A person who protects themselves against risk by purchasing an insurance policy is called:

A

The insured