MISC DEFINITIONS Flashcards
what is the capital needs approach
most widely used approach based on creation of a budget of expenses that will be incurred by adding up all current and potential expenses and subtracting total amount of existing assets from that sum
single needs approach
determines the necessary coverage based on expenses, income replacement and immediate obligations. contrasts with human-life approach focusing on specific financial needs rather than potential earnings.
multiple of earnings life insurance approach
the simplest method for estimating your clients life insurance needs is the multiple of income approach, replacing the primary breadwinner’s salary for a predetermined number of years.
automatic reinsurance (obligatory reinsurance)
insurance companies automatically shift some portion of their policies guarantees onto the reinsurer. when multiple insurance companies purchase policies to limit their total loss
what is net single premium
lump sum payment made by the policyholder in exchange for a guaranteed death benefit.
what is an elimination period of an individual disability policy?
a wait period after the person becomes disabled before the insurance policy begins paying benefits
what is a non forfeiture insurance clause
the policy owner will receive partial or full benefits or a refund of premium if the policy lapses due to non payment.
what is a surrender value on an insurance policy
guaranteed cash value shown on your policy plus the value of any dividends accumulated in the policy
what is level death benefit (option A)
the sum is a fix amount that doesn’t change over time. pays only the death benefit and no cash value.
what is Combined death benefit (option B)
combines the death benefit plus the policy’s accrued cash value - both of these will be paid.
what is endowment insurance
type of policy that combines death benefit with a long-term savings plan - offers a guaranteed lump sum payout at the conclusion of the policy term as long as premiums are paid
what is the free look insurance provision
consumer protection feature that allows policyholders to cancel their insurance policy within a specified timeframe for a full refund, the buyer can cancel the policy within a specified number of days after active
what are insurance exclusion riders
riders add extra coverage to plans
What is a hazard
a condition or situation that creates or increases a chance of loss
physical hazard
poor health, overweight, blind etc
moral hazard
dishonesty, drugs alcohol etc
morale hazard
careless attitude
what is a loss
the unintentional decrease in the value of an asset due to a peril
what is a peril
an immediate specific event which causes loss
what is risk
the potential for loss
what is speculative risk
risk that presents both the change for loss or gain ex: gambling
pure risk
is the only insurable risk and present a potential for loss only ex: injury illness death
- loss must be due to change
causeless, outside the insured’s control.
- loss must be definite and measurable
time, place, amount, and when payable
- loss must be predictable
statistically able to estimate the average frequency and reasonable
- loss exposure to be insured must be large
ideally, common enough that the insurer can pool many homogenous, or similar exposure units (law of large numbers)
- homogenous exposure units
are similar objects of insurance that are exposed to the same group of perils. for example, insuring a large number of homes in the same geographical area against hail damage
adverse selection
insurers must minimize adverse selection which is defined as the tendency for poorer than average risk to seek out insurance.
risk management
is the process of analyzing exposures that create risk and designing programs to handle them.
treatment of risk
how people deal with risk
avoidance
avoid the risk all together
reduction
take precautions, minimizing severity of a potential loss
retention (self insure)
accepting a risk and confronting it if it occurs.
risk pooling (loss sharing)
when a large grou pof people spread a risk for a small certain cost.
reinsurance
insurers deal with catastrophic loss through reinsurance which is defined as a contractual arrangement that transfers exposure from one insurer to another insurer
principle of indemnity
involves making an insured whole by restoring them to the same condition as before a loss
