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LAH Course > Intro to Life Insurance > Flashcards

Intro to Life Insurance Flashcards

1
Q

Identify the two parties in a life insurance contract.

A

The policy owner and insurer

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2
Q

The insurer assumes the risk in an insurance policy since it receives a ______________.

A

premium.

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3
Q

Which type of insurer is owned by its policy holder?

A

A mutual company

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4
Q

The insurer’s return on its investments is used to determine which factor in the gross premium?

A

Interest

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5
Q

List some of the personal uses for life insurance.

A

Funeral expenses, estate protection, survivor protection, debt payment, education expenses, etc.

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6
Q

True or False: Extra charges may apply if the premium is paid on other than an annual basis.

A

True

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7
Q

“The greater the number of lives insured, the more predictable losses will be,” is attributable to what law?

A

The law of large numbers

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8
Q

Name the three types of hazards.

A

Physical, moral, and morale

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9
Q

What two factors make up the single premium?

A

Mortality and interest

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10
Q

An alien insurer is authorized in _____________ and its principal office is located _______________ this country.

A

An alien insurer is authorized in ANY STATE and its principal office is located OUTSIDE this country.

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11
Q

True or False: Physical hazards include faulty wiring and slippery floors.

A

True

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12
Q

Which type of reinsurance allows the reinsurer to reject the risk?

A

Facultative reinsurance

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13
Q

True or False: Driving under the influence is an example of a moral hazard.

A

False.

DUI is an example of a morale hazard

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14
Q

True or False: The expense factor in gross premium is based on what the insurer pays for operating expenses.

A

True

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15
Q

Insurance policies are contracts of ________________.

A

Indemnity

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16
Q

True or False: Insurance should restore a person to a better financial position than existed prior to the loss.

A

False.

Insurance should restore a person to the same financial position that existed prior to the loss.

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17
Q

Which type of reinsurance does not allow the reinsurer to reject the risk?

A

Treaty or automatic reinsurance

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18
Q

True or False: Speculative risk provides the chance for financial gain.

A

True

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19
Q

True or False: An individual is not required to be licensed to receive commission.

A

False.

An individual receiving or sharing commissions must have an insurance license.

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20
Q

Authorized insurers are known as ____________ companies, while unauthorized insurers are known as ____________ companies.

A

Authorized insurers are known as ADMITTED companies, while unauthorized insurers are known as NONADMITTED companies.

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21
Q

Premiums that an insurer is entitled to are referred to as _____________ premiums.

A

EARNED premiums.

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22
Q

What is it called when someone owns a life insurance policy on his spouse?

A

Third-party ownership

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23
Q

Direct writers employ ___________ agents.

A

Captive

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24
Q

Who do solicitors represent?

A

Agents

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25
Q

Explain errors and omission.

A

An unintentional error or honest mistake by a producer.

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26
Q

Define the terms peril and hazard.

A

Peril is a cause of a loss. Hazard is a condition that increases the chance of a loss occurring.

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27
Q

Define the term reinsurance.

A

When an insurer seeks insurance from another insurer.

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28
Q

Identify the contents of the total premium.

A

The earned and the unearned premium.

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29
Q

Who do agents represent?

A

The insurer that sponsors them.

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30
Q

True or False: An independent agency may place business with only one insurer.

A

False.

An independent agency may place business with multiple insurers.

31
Q

Where does a domestic insurer have its principal or home office?

A

And the state where it is headquartered.

32
Q

The insurer seeking insurance is the _____________ insurer, while the insurer assuming the risk is the _____________.

A

The insurer seeking insurance is the CEDING insurer, while the insurer assuming the risk is the REINSURER.

33
Q

Name four Independent insurance rating services.

A

A.M. Best, Moody’s Investment, Standard and Poor’s, and Weiss Research.

34
Q

What are the two major approaches used to determine the amount of Life insurance needed.

A

Human life value and needs approach.

35
Q

True or False: Insurable interest must exist at the time of death.

A

False.

Insurable interest must exist at the time of policy issue, not death.

36
Q

Name five methods of risk management.

A

Avoidance, retention, sharing, reduction, and transfer.

37
Q

What must exist for an individual to purchase life insurance on another individual?

A

Insurable interest

38
Q

Described the Needs Approach.

A

Determining the amount of life insurance the person needs by using her/his specific financial goals and objectives.

39
Q

The uncertainty or chance of financial loss is known as ____________.

A

Risk.

40
Q

Premiums paid for insurance coverage that is not provided are referred to as ____________ premiums.

A

Unearned.

41
Q

Define insurance producer.

A

An individual who sells insurance products to the public.

42
Q

When a life insurance death benefit is paid , it creates an _____________.

A

Estate.

43
Q

What is the name of the price paid per unit of coverage?

A

Rate.

44
Q

If a person needs to obtain coverage for a substandard or unusual risk, he would use a ______________ broker.

A

Surplus lines

45
Q

In order for a risk to be insurable, the chance of loss must be ___________, ____________, and ___________.

A

In order for a risk to be insurable, the chance of loss must be ACCIDENTAL, MEASURABLE, and DEFINABLE.

46
Q

Who issues participating life insurance policies?

A

Mutual Companies

47
Q

Who manages a reciprocal?

A

An attorney-in-fact

48
Q

Mortality is the _____________ of death at a particular age for an individual.

A

Probability

49
Q

True or False: A fraternal association provides insurance only to its members.

A

True

50
Q

Who are the owners of a stock company?

A

Its stockholders

51
Q

Which valuation approach measures a person’s potential future earnings to determine the amount of life insurance needed?

A

The human life value approach

52
Q

______ risk is the only type that may be insured.

A

Pure

53
Q

Give an example of a moral hazard.

A

Filing a false insurance claim

54
Q

Other than human life value and needs approach, what other methods are used to determine the amount of life insurance?

A

Multiple of earnings, interest-only, single needs, “seat of the pants,” and capital needs

55
Q

What general name is used to describe agents, brokers, and consultants?

A

Producer

56
Q

True or False: A foreign insurer is authorized in a state, but its principal office is in another country.

A

False.

A foreign insurer has its principal office in another state.

57
Q

Define blackout period.

A

The time period from the insured’s death until the surviving spouse is permitted to receive retirement income benefits

58
Q

What is apparent authority?

A

When the public merely perceives an agent as having a type of authority

59
Q

What is loss exposure?

A

A hazardous condition brought about by the nature of an insured’s activities

60
Q

What are the two basic types of reinsurance?

A

Facultative and automatic

61
Q

An unincorporated organization in which members insure one another is known as a __________.

A

Reciprocal

62
Q

Explain the concept of actual or express authority.

A

When an agent’s authority is defined in the agent’s contract

63
Q

An exclusive agency employs ___________ agents who agree to market products of ____ insurer.

A

An exclusive agency employs INDEPENDENT agents who agree to market products of ONE insurer.

64
Q

What term describes a business that assumes the total risk of potential losses?

A

Self-insured

65
Q

True or False: Insurable interest must exist when a life insurance policy is issued.

A

True

66
Q

Name the two types of risk.

A

Pure risk and speculative risk

67
Q

For how long may an agent be imprisoned for making statements that jeopardize the solvency of an insurer?

A

15 years (per Federal Regulation 18, USC 1033/1034)

68
Q

What is implied authority?

A

Authority not specifically defined in the contract but considered to be an extension of regular duties

69
Q

Who do brokers represent?

A

Themselves and the policyowner/insured

70
Q

When an insurer approves coverage for more bad risks than good risks, he is exposed to ________ selection.

A

When an insurer approves coverage for more bad risks than good risks, he is exposed to ADVERSE selection.

71
Q

True or False: Insurance is defined as the transfer of risk from one party to another.

A

True

72
Q

What three factors are used to determine the gross premium for a life insurance policy?

A

Mortality, interest, and expenses

73
Q

True or False: The most common method of managing risk is to transfer risk.

A

True

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