Intro to Life Insurance Flashcards
Identify the two parties in a life insurance contract.
The policy owner and insurer
The insurer assumes the risk in an insurance policy since it receives a ______________.
premium.
Which type of insurer is owned by its policy holder?
A mutual company
The insurer’s return on its investments is used to determine which factor in the gross premium?
Interest
List some of the personal uses for life insurance.
Funeral expenses, estate protection, survivor protection, debt payment, education expenses, etc.
True or False: Extra charges may apply if the premium is paid on other than an annual basis.
True
“The greater the number of lives insured, the more predictable losses will be,” is attributable to what law?
The law of large numbers
Name the three types of hazards.
Physical, moral, and morale
What two factors make up the single premium?
Mortality and interest
An alien insurer is authorized in _____________ and its principal office is located _______________ this country.
An alien insurer is authorized in ANY STATE and its principal office is located OUTSIDE this country.
True or False: Physical hazards include faulty wiring and slippery floors.
True
Which type of reinsurance allows the reinsurer to reject the risk?
Facultative reinsurance
True or False: Driving under the influence is an example of a moral hazard.
False.
DUI is an example of a morale hazard
True or False: The expense factor in gross premium is based on what the insurer pays for operating expenses.
True
Insurance policies are contracts of ________________.
Indemnity
True or False: Insurance should restore a person to a better financial position than existed prior to the loss.
False.
Insurance should restore a person to the same financial position that existed prior to the loss.
Which type of reinsurance does not allow the reinsurer to reject the risk?
Treaty or automatic reinsurance
True or False: Speculative risk provides the chance for financial gain.
True
True or False: An individual is not required to be licensed to receive commission.
False.
An individual receiving or sharing commissions must have an insurance license.
Authorized insurers are known as ____________ companies, while unauthorized insurers are known as ____________ companies.
Authorized insurers are known as ADMITTED companies, while unauthorized insurers are known as NONADMITTED companies.
Premiums that an insurer is entitled to are referred to as _____________ premiums.
EARNED premiums.
What is it called when someone owns a life insurance policy on his spouse?
Third-party ownership
Direct writers employ ___________ agents.
Captive
Who do solicitors represent?
Agents
Explain errors and omission.
An unintentional error or honest mistake by a producer.
Define the terms peril and hazard.
Peril is a cause of a loss. Hazard is a condition that increases the chance of a loss occurring.
Define the term reinsurance.
When an insurer seeks insurance from another insurer.
Identify the contents of the total premium.
The earned and the unearned premium.
Who do agents represent?
The insurer that sponsors them.
True or False: An independent agency may place business with only one insurer.
False.
An independent agency may place business with multiple insurers.
Where does a domestic insurer have its principal or home office?
And the state where it is headquartered.
The insurer seeking insurance is the _____________ insurer, while the insurer assuming the risk is the _____________.
The insurer seeking insurance is the CEDING insurer, while the insurer assuming the risk is the REINSURER.
Name four Independent insurance rating services.
A.M. Best, Moody’s Investment, Standard and Poor’s, and Weiss Research.
What are the two major approaches used to determine the amount of Life insurance needed.
Human life value and needs approach.
True or False: Insurable interest must exist at the time of death.
False.
Insurable interest must exist at the time of policy issue, not death.
Name five methods of risk management.
Avoidance, retention, sharing, reduction, and transfer.
What must exist for an individual to purchase life insurance on another individual?
Insurable interest
Described the Needs Approach.
Determining the amount of life insurance the person needs by using her/his specific financial goals and objectives.
The uncertainty or chance of financial loss is known as ____________.
Risk.
Premiums paid for insurance coverage that is not provided are referred to as ____________ premiums.
Unearned.
Define insurance producer.
An individual who sells insurance products to the public.
When a life insurance death benefit is paid , it creates an _____________.
Estate.
What is the name of the price paid per unit of coverage?
Rate.
If a person needs to obtain coverage for a substandard or unusual risk, he would use a ______________ broker.
Surplus lines
In order for a risk to be insurable, the chance of loss must be ___________, ____________, and ___________.
In order for a risk to be insurable, the chance of loss must be ACCIDENTAL, MEASURABLE, and DEFINABLE.
Who issues participating life insurance policies?
Mutual Companies
Who manages a reciprocal?
An attorney-in-fact
Mortality is the _____________ of death at a particular age for an individual.
Probability
True or False: A fraternal association provides insurance only to its members.
True
Who are the owners of a stock company?
Its stockholders
Which valuation approach measures a person’s potential future earnings to determine the amount of life insurance needed?
The human life value approach
______ risk is the only type that may be insured.
Pure
Give an example of a moral hazard.
Filing a false insurance claim
Other than human life value and needs approach, what other methods are used to determine the amount of life insurance?
Multiple of earnings, interest-only, single needs, “seat of the pants,” and capital needs
What general name is used to describe agents, brokers, and consultants?
Producer
True or False: A foreign insurer is authorized in a state, but its principal office is in another country.
False.
A foreign insurer has its principal office in another state.
Define blackout period.
The time period from the insured’s death until the surviving spouse is permitted to receive retirement income benefits
What is apparent authority?
When the public merely perceives an agent as having a type of authority
What is loss exposure?
A hazardous condition brought about by the nature of an insured’s activities
What are the two basic types of reinsurance?
Facultative and automatic
An unincorporated organization in which members insure one another is known as a __________.
Reciprocal
Explain the concept of actual or express authority.
When an agent’s authority is defined in the agent’s contract
An exclusive agency employs ___________ agents who agree to market products of ____ insurer.
An exclusive agency employs INDEPENDENT agents who agree to market products of ONE insurer.
What term describes a business that assumes the total risk of potential losses?
Self-insured
True or False: Insurable interest must exist when a life insurance policy is issued.
True
Name the two types of risk.
Pure risk and speculative risk
For how long may an agent be imprisoned for making statements that jeopardize the solvency of an insurer?
15 years (per Federal Regulation 18, USC 1033/1034)
What is implied authority?
Authority not specifically defined in the contract but considered to be an extension of regular duties
Who do brokers represent?
Themselves and the policyowner/insured
When an insurer approves coverage for more bad risks than good risks, he is exposed to ________ selection.
When an insurer approves coverage for more bad risks than good risks, he is exposed to ADVERSE selection.
True or False: Insurance is defined as the transfer of risk from one party to another.
True
What three factors are used to determine the gross premium for a life insurance policy?
Mortality, interest, and expenses
True or False: The most common method of managing risk is to transfer risk.
True
