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Insurance Licensing Exam > Introduction to Insurance > Flashcards

Introduction to Insurance Flashcards

1
Q

Name the two categories of Risk:

A

Speculative and Pure

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2
Q

Define “Speculative” Risk

A

Possibility for Loss AND Gain

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3
Q

Define “Pure” Risk

A

Possibility of Only Loss

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4
Q

Name the two categories of Loss:

A

Direct and Indirect

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5
Q

Define Direct Loss

A

Physical Damage: House Burnt Down

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6
Q

Define Indirect Loss

A

Consequential Damage: Hotel Stay

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7
Q

Name the three categories of Hazards:

A

Physical, Moral, and Morale

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8
Q

Define “Physical Hazard”

A

A tangible threat

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9
Q

Define “Moral Hazard”

A

An individual’s character

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10
Q

Define “Morale Hazard”

A

State of mind/Careless attitude

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11
Q

Name the five methods of handling Risk

A

STARR: Sharing/Transfer/Avoidance/Retention/Reduction

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12
Q

What is the purpose of STARR?

A

STARR categorizes the five ways to manage Risks.

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13
Q

What are the six elements necessary for insuring Risk?

A

CANHAM: Calc/Afford/Non-Cat/Homo/Acci/Meas

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14
Q

What does “CANHAM” stand for?

A

Calculable/Affordable/Non-Catastrophic/Homogenous/Accidental/Measurable

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15
Q

What is a ceding Insurer?

A

The company reducing risk by insuring with a reinsurer

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16
Q

What is a reinsurer?

A

The company assuming risk by insuring an insurance company

17
Q

Name the two categories of Reinsurance:

A

Facultative and Treaty

18
Q

Define “Facultative Reinsurance”

A

When the reinsurer chooses to insure individual policies on a case by case basis

19
Q

Define “Treaty Reinsurance”

A

When the reinsurer chooses to insure all policies of one specific type

20
Q

What is a stock insurer?

A

An insurance company that is owned by its shareholders. These companies are considered “non-participating,” as their policy holders do not receive a share of dividends

21
Q

What is a mutual insurer?

A

An insurance company that is owned by its policy holders. These companies are considered “participating,” as their policy holders receive a share of dividends in the form of a premium refund.

22
Q

What are Fraternal Benefit Societies?

A

A society that includes insurance as a benefit of membership

23
Q

What are reciprocal insurers?

A

A group of insurance companies who agree to insure each other, thereby agreeing to split losses.

24
Q

What is the Lloyd’s Association?

A

An association of independent underwriters selling policies

25
Q

What is a risk retention group?

A

An insurance group formed by various businesses, created solely for obtaining liability insurance

26
Q

What is a risk purchasing group?

A

A group formed by various businesses, created solely for purchasing liability insurance

27
Q

What is self-insurance?

A

When a business or individual purchases no insurance, and chooses to retain the risk on their own

28
Q

What are the three categories of insurance, based on where an insurance company is headquarted in relation to where they practice?

A

Domestic (practices in same state they’re HQed in), Foreign (practices in a difference state from where they’re HQed), Alien (practices in a different country than they’re HQed in)

29
Q

What are the four types of agency systems?

A

Independent, Captive, General, Direct-Writing

30
Q

What is an “Independent Agent”?

A

An agent who sells for different companies, is an independent contractor, and keeps all policy renewals

31
Q

What is a “Captive Agent”?

A

An agent who sells for one insurance company, is an independent contractor, and does not keep policy renewals

32
Q

What is a “General Managing Agent”?

A

An agent who trains and hires agents to work for them, and has overriding commission on all policies

33
Q

Direct-Writing

A

An agent who works for a single insurance company, is a formal employee, and does not keep policy renewals

34
Q

What are the three types of agent authorities?

A

Express (written), Implied (reasonably assumed by the agent), Apparent (reasonably assumed by the customer)

35
Q

What is a fiduciary?

A

A person in a position of financial trust

36
Q

What is the meaning of commingling in insurance?

A

The illegal act of mixing a customer’s premium with an agents’ own funds

Insurance Licensing Exam (5 decks)

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