INTRO TO LIFE INSURANCE Flashcards
What is it called when someone owns a life insurance policy on his spouse?
Third-party ownership
When an insurer approves coverage for more bad risks than good risks, he is exposed to __ selection.
adverse
What are the two major approaches used to determine the amount of life insurance needed?
Human life value and needs approach
What is the human life value approach
Method of calculating how much life insurance is needed for a family that is based upon their financial loss when the insured person in the family passes away
The HLV method considers factors like income, retirement age, taxes, expenses, and inflation rate. Income: HLV uses your current income to predict your future earning potential. Because a job change can impact your HLV calculation, review your life insurance annually to be sure it reflects your current needs.
What is the needs approach
Estimate the amount of insurance coverage an individual needs by considering how much money they need to cover burial expenses as well as debts and other financial obligations
The “needs approach” is a method used to determine the appropriate amount of life insurance coverage an individual should purchase by calculating the financial needs of their dependents in the event of their death, taking into account factors like funeral expenses, debt obligations, and future income replacement to maintain their family’s lifestyle after their passing; essentially, it focuses on covering essential expenses rather than just the potential future earnings of the insured person.
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.
Which type if reinsurance does not allow the reinsurer to reject the risk?
Treaty or automatic reinsurance
T or F: Physical hazards include faulty wiring and slippery floors.
True
What two factors make up the net single preimium?
Mortality and interest
Who are the owners of a stock company?
stockholders - shareholders
T or F: extra charges may apply if the premium is paid on other than an annual basis
True
When a life insurance death benefit is paid, it creates an __.
estate
T or F: A foreign insurer is authorized in a state, but its principle office is in another country.
False. A foreign insurer has its principal office in another state.
Direct writers employ ___ agents.
Captive
T or F: An individual is not required to be licensed to receive commissions
False. An individual receiving or sharing commissions must have an insurance license.
An alien insurer is authorized in ___ and its principal office is located ___ this country.
Any state, outside this country
“The gre
The greater the number of lives insured, the more predictable losses will be, is attributable to what law?
The law of large numbers
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
Give an example of a moral hazard:
Filing a false insurance claim
What are the two basic types of reinsurance?
Facultative and automatic
T or F: The expense factor in the gross premium is based on what the insurer pays for operating expenses.
True
T or F: Speculative risk provides the chance for financial gain.
True
What general name is used to describe agents, brokers and consultants?
Producer
What three factors are used to determine the gross premium for a life insurance policy?
Mortality, interest, and expenses
An unincorporated organization which members insure one another is known as a:
reciprocal
Name the two types of risk.
Pure risk and speculative risk
Who manages a reciprocal?
An attorney-in-fact
Insurance policies are contracts of:
indemnity
Name the three types of hazards.
Physical, moral, and morale
T or F: Insurance should restore a person to a better financial position then existed prior to the loss.
False. Insurance should restore a person to the same financial position that existed prior to the loss.
Where does a domestic insurer have its principle or home office?
In the state where it is headquartered
Who do solicitors represent?
Agents
Explain the concept of actual or express authority
when an agent’s authority is defined in the agent’s contract
What is loss exposure?
A hazardous condition brought about by the nature of an insured’s activities
Who issues participating life insurance policies?
mutual companies
List some of the personal uses for life insurance.
Funeral expenses, estate protection, survivor protection, debt payment, education expenses, etc.
___ risk is the only type of that may be insured.
Pure risk
What is implied authority?
Authority not specifically defined in the contract but considered to be an extension of regular duties.
What is the name of the price paid per unit of coverage?
Rate
The insurer’s return on its investments is used to determine which factor in the gross premium?
Interest
What is apparent authority?
When the public merely perceives an agent has having a type of authority
Name four independent insurance rating services:
A.M. Best Review, Moody’s Investment, Standard and Poor’s, and Weiss Research
T or F: An independent agency may place business with only one insurer.
False. An independent agency may place business with multiple insurers.
Describe the needs approach.
Which type of insurer is owned by its policyholders?
In order for a risk to be insurable, the chance of loss must be ___, ___, and ____.
accidental, measurable, and definable
The uncertainty or chance of financial loss is known as ___.
risk
What term describes a business that assumes the total risk of potential losses?
self-insured
What term describes a business that assumes the total risk of potential losses?
self-insured
Which type of reinsurance allows the reinsurer to reject the risk?
Facultative reinsurance
Who do agents represent?
The insurer that sponsors them
Which valuation approach measures a person’s potential future earnings to determine the amount of life insurance needed?
The human life value approach
Name five methods of risk management.
Avoidance, retention, sharing, reduction, and transfer
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)
T or F: Insurable interest must exist when a life insurance policy is issued.
True
Define blackout period.
The time period from the insured’s death until the surviving spouse is permitted to receive retirement income benefits
What must exist for an individual to purchase life insurance on another individual?
Insurable interest
An exclusive agency employs ____ agents who agree to market products of ___ insurer.
independent agents, one insurer.
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 non-admitted companies.
Premiums that an insurer is entitled to are referred to as ___ premiums.
earned premiums
Identify the contents of the total premium.
The earned and the unearned premium.
T or F: Insurable interest must exist at the time of death.
F: Insurable interest must exist at the time of policy issue, not death.
T or F: Insurance is defined as the transfer of risk from one party to another.
True
Define the term reinsurance
When an insurer seeks insurance from another insurer
Define insurance producer
An individual who sells insurance products to the public
T or F: A fraternal association provides insurance only to its members.
True
The insurer seeking reinsurance is the ___ insurer, while the insurer assuming the risk is the ____.
ceding insurer, reinsurer.
Premiums paid for insurance coverage that is not provided are referred to as ____ premiums.
unearned premiums
Mortality is the _____ of death at a particular age for an individual.
probability
T or F: Driving under the influence is an example of a moral hazard.
False: it is a “morale” hazard
Explain error and omission
An unintentional error or honest mistake by a producer
Explain error and omission
An unintentional error honest mistake by a producer
Identify the two parties in a life insurance contract.
The policyowner and the insurer
Who do brokers represent?
themselves and they policyowner/insured
An insurer assumes the risk in an insurance policy since it receives a ____.
premium
True or False: The most common method of managing risk is to transfer risk.
True
If a person needs to obtain coverage for a substandard or unusual risk, he would use a _____ broker.
a surplus lines broker
