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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
Q

avoidance

A

eliminating exposure to a loss

Ex. person who wants to avoid risk of being killed in an airplane crash, never flies

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26
Q

retention

A

planned assumption of risk by an insured through the use of deductibles, co-payments, or self-insurance.

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27
Q

Purpose of retention

A
  1. ) reduce expense and improve cash flow
  2. ) increase control of claim reserving and claims settlements
  3. ) fund for loss that cannot by insured
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28
Q

sharing

A

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

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29
Q

reduction

A

attempting to lessen the possibility of severity

Ex. installing smoke detectors or yearly physical exams

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30
Q

transfer

A

loss is borne by another party; insurance is the most common method

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31
Q

due to chance

A

a loss that is outside the insured’s control

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32
Q

definite and measurable

A

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)

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33
Q

statistically predictable

A

insurer must be able to estimate the average frequency and severity of future losses and set appropriate premium rates

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34
Q

not catastrophic

A

insurers need to be reasonably certain their losses will not exceed specific limits

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35
Q

randomly selected and large loss exposure

A

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
Q

law of large numbers

A

the larger the number of people with a similar exposure to loss, the more predictable the actual loss will be

37
Q

chance; probability; cause

A

A risk is a ___ that a loss will occur; a hazard increases the ___ of loss; a peris is the ___ of loss (KNOW)

38
Q

increases; predictable

A

As the number of people in a risk pool ___, future losses become more ___.

39
Q

adverse selection

A

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
Q

insurers classification:

A

ownership, authority to transact business, location, marketing and distributing systems, or rating (financial strength)

41
Q

stock companies

A

(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
Q

nonparticipating policies

A

policyowners do not share in profits or losses

43
Q

mutual companies

A

owned by policyowners and issue participating policies; entitled to dividends

44
Q

dividends

A
  • excess premium that are nontaxable, generated when premiums and earnings combined exceed actual costs of providing coverage, creating a surplus and not guaranteed
45
Q

fraternal benefit society

A

organization formed to provide insurance benefits for members of an affiliated lodge, religious organization, or fraternal organization with a representative from or government

46
Q

llyod’s association

A

(not an insurance company) provides support facilities for underwriters or groups of individuals that accept insurance risk

47
Q

risk retention group (RRG)

A

liability insurance company owned by its members; spread all or part of the liability of its group members

48
Q

risk purchasing group

A

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
Q

reciprocals

A

insurance resulting from an interchange or reciprocal agreements of indemnity among persons known as subscribers

50
Q

certificate of authority

A

authorizes a company to start conducting business and specifies the kind of insurance a company can transact; illegal without this certificate (KNOW)

51
Q

domicile

A

A ___ refers to the location where an insurer is incorporated, not necessarily where the insurer conducts business

52
Q

domestic

A

incorporated in this state

53
Q

foreign

A

incorporated in another state or territory

54
Q

alien

A

incorporated outside the US

55
Q

independent agency system

A

1 independent agent represents several companies, commission on personal sales, business renewal with any company

56
Q

exclusive agency system

A

1 agent represents 1 company, commissions on personal sales, renewals can only be placed with appointing insurer

57
Q

general agency system

A

general agent-entrepreneur represents 1 company, compensation and commissions, appoints subagents

58
Q

managerial system

A

branch manager (supervises agents), salaried, agents cab be insurer’s employees or independent contractors

59
Q

direct response marketing system

A

no agents, company advertises directly to consumers (mail, net, tv, mass marketing), consumers apply directly to the company

60
Q

reinsurance

A

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
Q

law of agency

A

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
Q

insurer (principal)

A

insurance agent represents the ___ (KNOW)

63
Q

express authority

A

the authority a principal intends to grant to an agent by means of the agent’s contract. (written contract)

64
Q

implied authority

A

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
Q

apparent authority

A

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
Q

fiduciary responsibilities

A

agent handles the funds of insured and the insurer, he/she is in a position of trust

67
Q

professionalism

A

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
Q

contracts

A

agreement between two or more parties enforceable by law, modified to fit the needs of insurance

69
Q

elements of a legal contract

A
  1. ) agreement - offer and acceptance
  2. ) considerations
  3. ) competent parties
  4. ) legal purpose
70
Q

acceptance

A

takes place when an insurer’s underwriter approves the application and issues a policy

71
Q

consideration

A

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
Q

competent parties (parties to a contract)

A

capable, legal of age, mentally competent to understand the contract and not under the influence of drugs or alcohol

73
Q

aleatory

A 
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
Q

unilateral

A

one-sided; only one of the parties to the contract is legally bound to do anything (KNOW)

75
Q

adhesion

A

only one party (insurer) prepares a contract, and the other party (insured) accepts it as is (KNOW)

76
Q

contract of adhesion

A

prepared by one of the parties (insurer) and accepted or rejected by the other parth (insured)

77
Q

personal contract

A

contract between the insurance company and individual. Business has the right to decide whom it will and will not do business.

78
Q

conditional contract

A

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
Q

indemnity

A

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
Q

utmost good faith

A

there will be no fraud, misrepresentation or concealment between the parties

81
Q

representations

A

statements believed to be true to the best of one’s knowledge, but they are not guaranteed to be true

82
Q

misrepresentations

A

untrue statements that are intentional that could void the contract; considered fraud

83
Q

warranty

A

absolutely true statement upon validity of the insurance policy

84
Q

concealment

A

(legal term) for the intentional withholding of information of a material fact that is crucial in making a decision; may void a policy

85
Q

fraud

A

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
Q

waiver

A

voluntary act of relinquishing a legal right, claim or privilege

87
Q

estoppel

A

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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