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Principles of Insurance and General Insurance > Principles of Insurance and General Insurance > Flashcards

Principles of Insurance and General Insurance Flashcards

1
Q

insurance policy

A

a contract between a policyowner and an insurance company which agrees to pay the insured or beneficiary for loss caused by specific events

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2
Q

agent

A

a legal representative of an insurance company

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3
Q

applicant/Proposed insured

A

a person applying for insurance

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4
Q

death benefit

A

The amount payable upon the death of the insured in a life insurance policy

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5
Q

beneficiary

A

one who receives benefits of insurance policy

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6
Q

insured

A

A person covered by an insurance policy (may or may not be the policyowner)

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7
Q

insurer (principal)

A

the company who issues an insurance policy

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8
Q

policyowner

A

the person entitled to exercise the rights and privileges in the policy

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9
Q

premium

A

The money paid to an insurance company for the insurance policy

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10
Q

reciprocity

A

a mutual interchange of rights and privileges

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11
Q

transfer; losses

A

Insurance is the ___ of risk. Insured’s ___ are transferred over to the insurer. (KNOW)

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12
Q

risk

A

the uncertainty or chance of a loss occurring.

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13
Q

pure risk

A

refers to situations that can only result in a loss or no change (KNOW: only this is insurable)

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14
Q

speculative risk

A

involved the opportunity for either loss or gain

Ex. gambling, is not insurable

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15
Q

exposure

A

A unit of measure used to determine rates charged for insurance coverage

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16
Q

Determining rates:

A

Age, medical history, occupation, and sex

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17
Q

homogenous

A

a large number of units having the same or similar exposure to loss

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18
Q

hazard

A

conditions or situations that increase the probability of an insured loss occurring

(Ex. lifestyle and existing health, or activities such as scuba diving that increases chance of loss)

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19
Q

physical hazard

A

individual characteristics that increase the chances of the cause of loss

(Ex. past medical history, condition at birth - blindness)

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20
Q

moral hazards

A

tendencies towards increased risk

(Ex. applicants who may lie on an application for insurance or in the past, submitting fraudulent claims against insurer)

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21
Q

morale

A

state of mind that causes indifference to loss such as carelessness

(Ex. actions taken without forethought may cause physical injuries)

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22
Q

perils

A

the cause of loss insured against in an insurance policy

Ex. Life - insures against premature death
Health - insures against medical expenses caused from sickness/accident
Property - insures against loss of physical property
Casualty - insures against loss or damage of property and resulting in liabilities

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23
Q

loss

A

reduction, decrease, or disappearance of value of the person or property insured in a policy, caused by a named peril

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24
Q

insurance

A

provides a means to transfer loss

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25
avoidance
eliminating exposure to a loss Ex. person who wants to avoid risk of being killed in an airplane crash, never flies
26
retention
planned assumption of risk by an insured through the use of deductibles, co-payments, or self-insurance.
27
Purpose of retention
1. ) reduce expense and improve cash flow 2. ) increase control of claim reserving and claims settlements 3. ) fund for loss that cannot by insured
28
sharing
method of dealing with risk for a group of individual persons or businesses with the same or similar exposure to loss to share the losses that occur within that group
29
reduction
attempting to lessen the possibility of severity | Ex. installing smoke detectors or yearly physical exams
30
transfer
loss is borne by another party; insurance is the most common method
31
due to chance
a loss that is outside the insured's control
32
definite and measurable
a loss that is specific as to the cause, time, place and amount (insurer must be able to determine how much the benefit will be and when it becomes payable)
33
statistically predictable
insurer must be able to estimate the average frequency and severity of future losses and set appropriate premium rates
34
not catastrophic
insurers need to be reasonably certain their losses will not exceed specific limits
35
randomly selected and large loss exposure
must be sufficiently large pool of the insured that represents a random selection of risks in terms of age, gender, occupation, health and economic status, and geographic location
36
law of large numbers
the larger the number of people with a similar exposure to loss, the more predictable the actual loss will be
37
chance; probability; cause
A risk is a ___ that a loss will occur; a hazard increases the ___ of loss; a peris is the ___ of loss (KNOW)
38
increases; predictable
As the number of people in a risk pool ___, future losses become more ___.
39
adverse selection
insuring risks that are more prone to losses then the average risk Ex. insurance companies will refuse or restrict coverage for bad risks by charging a higher premium
40
insurers classification:
ownership, authority to transact business, location, marketing and distributing systems, or rating (financial strength)
41
stock companies
(most common type:) are owned by the stockholders who provide the capital necessary to establish and operate the insurance company and who share in any profits or losses
42
nonparticipating policies
policyowners do not share in profits or losses
43
mutual companies
owned by policyowners and issue participating policies; entitled to dividends
44
dividends
- excess premium that are nontaxable, generated when premiums and earnings combined exceed actual costs of providing coverage, creating a surplus and not guaranteed
45
fraternal benefit society
organization formed to provide insurance benefits for members of an affiliated lodge, religious organization, or fraternal organization with a representative from or government
46
llyod's association
(not an insurance company) provides support facilities for underwriters or groups of individuals that accept insurance risk
47
risk retention group (RRG)
liability insurance company owned by its members; spread all or part of the liability of its group members
48
risk purchasing group
an entity which offers insurance to groups of similar businesses with similar exposure to risk; policy is based on insured's loss and expense experience and is not afforded to other policyholders with respect to rates, policy forms, or coverage
49
reciprocals
insurance resulting from an interchange or reciprocal agreements of indemnity among persons known as subscribers
50
certificate of authority
authorizes a company to start conducting business and specifies the kind of insurance a company can transact; illegal without this certificate (KNOW)
51
domicile
A ___ refers to the location where an insurer is incorporated, not necessarily where the insurer conducts business
52
domestic
incorporated in this state
53
foreign
incorporated in another state or territory
54
alien
incorporated outside the US
55
independent agency system
1 independent agent represents several companies, commission on personal sales, business renewal with any company
56
exclusive agency system
1 agent represents 1 company, commissions on personal sales, renewals can only be placed with appointing insurer
57
general agency system
general agent-entrepreneur represents 1 company, compensation and commissions, appoints subagents
58
managerial system
branch manager (supervises agents), salaried, agents cab be insurer's employees or independent contractors
59
direct response marketing system
no agents, company advertises directly to consumers (mail, net, tv, mass marketing), consumers apply directly to the company
60
reinsurance
contract under which one insurance company indemnifies another insurance company for part or all of its liabilities. Purpose is to protect insurers against catastrophic losses.
61
law of agency
relationship between the principal and agent/producer - agent represents the insurer, not insured - knowledge of the agent is presumed to be knowledge of the insurer - agent is working within the conditions of his/her contract, insurer is fully responsible - insured submits payment to the agent, it is the same a s submitting a payment to the insurer
62
insurer (principal)
insurance agent represents the ___ (KNOW)
63
express authority
the authority a principal intends to grant to an agent by means of the agent's contract. (written contract)
64
implied authority
not expressed or written into the contract, but which the agent is assumed to have in order to transact the business of the insurance for the principal
65
apparent authority
the appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created Ex. if an agent uses an insurer's station when soliciting coverage, applicant may believe that the agent is authorized to transact insurance on behalf of the insurer
66
fiduciary responsibilities
agent handles the funds of insured and the insurer, he/she is in a position of trust
67
professionalism
person is engaged in an occupation requiring an advanced level of training, knowledge, or skill Ex. placing public's interest above one's own in all situations, deviation could result in a penalty
68
contracts
agreement between two or more parties enforceable by law, modified to fit the needs of insurance
69
elements of a legal contract
1. ) agreement - offer and acceptance 2. ) considerations 3. ) competent parties 4. ) legal purpose
70
acceptance
takes place when an insurer's underwriter approves the application and issues a policy
71
consideration
the binding force in any contract, something of value that each party gives to the other Ex. insured makes payment of premium and insurer promise to pay in the event of loss (KNOW)
72
competent parties (parties to a contract)
capable, legal of age, mentally competent to understand the contract and not under the influence of drugs or alcohol
73
aleatory
``` unequal values (KNOW) Ex. person pays $100 premium in exchange for $100k face amount, dies within 2 months, and when he dies his family receives the $100k ```
74
unilateral
one-sided; only one of the parties to the contract is legally bound to do anything (KNOW)
75
adhesion
only one party (insurer) prepares a contract, and the other party (insured) accepts it as is (KNOW)
76
contract of adhesion
prepared by one of the parties (insurer) and accepted or rejected by the other parth (insured)
77
personal contract
contract between the insurance company and individual. Business has the right to decide whom it will and will not do business.
78
conditional contract
requires certain conditions must be met by the policyowner and the company in order for the contract to be executed, and before each party fulfills its obligations
79
indemnity
provision in an insurance policy that states that in the event of a loss, an insured or beneficiary is permitted to collect only to the extent of the financial loss --> Cannot recover more than their loss (KNOW) Ex. when the civic was total and I was only given the amount of it's worth
80
utmost good faith
there will be no fraud, misrepresentation or concealment between the parties
81
representations
statements believed to be true to the best of one's knowledge, but they are not guaranteed to be true
82
misrepresentations
untrue statements that are intentional that could void the contract; considered fraud
83
warranty
absolutely true statement upon validity of the insurance policy
84
concealment
(legal term) for the intentional withholding of information of a material fact that is crucial in making a decision; may void a policy
85
fraud
intentional misrepresentation or intentional concealment of a material fact used to induce another party to make or refrain from making a contract, or to deceive or cheat a party
86
waiver
voluntary act of relinquishing a legal right, claim or privilege
87
estoppel
legal process that can be used to prevent a party to contract from re-asserting a right or privilege after that right or privilege has been waived

Principles of Insurance and General Insurance (2 decks)

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