Life Insurance Questions

Question 1

What is Insurance?

Answer 1

A contract that transfers the risk of a financial loss from an individual or business to an insurer.

Question 2

What is Risk?

Answer 2

Uncertainty about whether a loss will occur.

Question 3

What is speculative Risk?

Answer 3

A chance of loss, no loss, or gain.

Question 4

What is pure Risk?

Answer 4

Only the possibility of loss but can be covered by insurance.

Question 5

What is Exposure?

Answer 5

Risks for which the insurance company would be liable.

Question 6

What is Peril?

Answer 6

The cause of loss.

Question 7

What is a Hazard?

Answer 7

Anything that increases the chances of loss occurring.

Question 8

What are Moral Hazards?

Answer 8

Arise from an individual’s character.

Question 9

What are Morale Hazards?

Answer 9

A state of mind or careless attitude.

Question 10

What is Risk Sharing?

Answer 10

Two or more individuals agree to pay a portion of any loss incurred by any member in the group.

Question 11

What is Transfer?

Answer 11

Transfer of risk is what happens with insurance.

Question 12

What is Risk Avoidance?

Answer 12

Eliminating a particular risk by not engaging in a certain activity.

Question 13

What is Risk Reduction?

Answer 13

May refer to lessening the chance that a loss will occur.

Question 14

What is Risk Retention?

Answer 14

The individual will pay for the loss if it occurs.

Question 15

What is the Law of Large Numbers?

Answer 15

The larger the group- the more accurate losses can be predicted.

Question 16

What does calculable mean?

Answer 16

Premiums must be calculable based upon prior loss statistics for that particular risk in order to predict future losses.

Question 17

What does affordable mean?

Answer 17

The premium for transferring the risk should be affordable for the average customer.

Question 18

What is Non-Catastrophic?

Answer 18

Insurance cannot insure events that cause widespread losses to large numbers of insureds at the same time.

Question 19

What does Homogeneous mean?

Answer 19

The individual risks that the insurer covers must all be similar in regard to factors that affect the chance of loss.

Question 20

What is Accidental?

Answer 20

If a loss is certain to occur there is no risk.

Question 21

What is Measurable?

Answer 21

It must be possible to estimate the loss in a dollar amount.

Question 22

What is Adverse Selection?

Answer 22

Risks that have a greater than average chance of loss.

Question 23

What is a treaty?

Answer 23

The reinsurer accepts the transfer according to an agreement.

Question 24

What does Facultative mean?

Answer 24

The reinsurer evaluates each risk before allowing the transfer.

Question 25

What is a Stock Insurer?

Answer 25

A business formed as a private corporation and owned by its stockholders.

Question 26

What is a Mutual Insurer?

Answer 26

Does not have stock or stockholders. It is owned by its policyholders.

Question 27

What are Fraternal Benefit Societies?

Answer 27

Exist for the benefit of their members and offer insurance as one of the benefits of membership. You must be a member to get the benefits.

Question 28

What is a Reciprocal Insurer?

Answer 28

An unincorporated organization in which all members insure one another.

Question 29

What is a Risk Retention Group (RRG)?

Answer 29

Liability insurance company created for policyholders from the same industry.

Question 30

What is Lloyd's Association?

Answer 30

Insurance provided by individual underwriters not companies, insure unusual risks.

Question 31

What is a Residual Market?

Answer 31

Insurance from the state or federal government.

Question 32

What does Domestic mean?

Answer 32

The state where the company is incorporated.

Question 33

What does Foreign mean?

Answer 33

Any state or US territory other than the state where incorporated.

Question 34

What does Alien mean?

Answer 34

Incorporated in any other country than the US.

Question 35

What is a Certificate of Authority?

Answer 35

State license for an insurance company.

Question 36

What does Admitted, Authorized, or Approved mean?

Answer 36

The state requires the insurance company to have a certificate of authority.

Question 37

What does Non-Admitted, unauthorized, or nonapproved mean?

Answer 37

Insurance companies are not required to have a certificate of authority from the state.

Question 38

What are Surplus Lines?

Answer 38

Insurance sold by unauthorized/non-admitted insureds. Can only be sold to certain high-risk insureds.

Question 39

What is a Financial Strength Rating?

Answer 39

A report card of the insurance company.

Question 40

What is an Independent Insurance Agent?

Answer 40

Represents many different insurance companies.

Question 41

What are General Agents or Managing General Agents?

Answer 41

Individuals that hire, train, and supervise other agents within a specific geographical area.

Question 42

What are Direct Writing Companies?

Answer 42

Usually pay salaries to employers whose job function is to sell the company's insurance products.

Question 43

What is Direct Response Marketing?

Answer 43

There is no producer or agent. Policies are sold directly to the public by the insurer.

Question 44

What is an agency?

Answer 44

The insurance agent acts on behalf of the principal (insurance company).

Question 45

What does Express mean?

Answer 45

What the agent's written contact with the company says.

Question 46

What does Implied mean?

Answer 46

Not written; activities an agent normally does to sell insurance.

Question 47

What does Apparent mean?

Answer 47

The actions that the agent first uses that reasonable person would assume as authority, based on the agent's actions and statements.

Question 48

What is a Fiduciary?

Answer 48

The person in a position of trust, held by law to high standards of good faith and loyalty.

Question 49

What is Commingling?

Answer 49

Mixing the broker's money with that of others.

Question 50

What are Suitability Considerations?

Answer 50

An agent has a responsibility to make purchase recommendations that are appropriate, or suitable, in light of a client's particular needs, objectives, and circumstances.

Question 51

What is an offer?

Answer 51

A proposal made by one of the potential parties of the contract.

Question 52

What is Acceptance?

Answer 52

Must be unconditional and unqualified.