Quick Study (Life & Health insurance & Annuities) Flashcards
The Role of an Insurance Company is
To transfer the risk of financial loss from an individual or business to an insurance company.
Insurance spreads the cost of the unexpected financial loss to many individuals.
Life Insurance
Guarantees a specific sun of money when someone dies.
Health Insurance and Annuities
Provides funds to cover medical bills due to sickness or injury and to also cover the loss of money because of a disability.
Annuities
Provide a stream of income by making a series of payments over a certain period of time.
Insurance is available from both Private companies and the Government.
- Private companies are also known as commercial insurance companies.
- They are funded through premiums and sell insurance for a profit.
Government programs
Are funded with taxes and serve national and state social purposes.
What are the two most popular types of Commercial insurers?
Stock Companies and Mutual Companies
Stock company
- A stock insurance company is organized and incorporated under state law.
- They are owned by the stock holders, who get paid a share of the company’s profit through dividends.
- They are owned by the stockholders, who get paid a share of the company’s profit through dividends.
- Referred to as Non-Participating or Non-Par because policy holders do not participate in being paid dividends.
Mutual Insurers
- Mutual Insurance companies are also organized and incorporated under state laws.
- They have no stockholders, instead the policyholders own the company.
- Owners get paid a share of the company’s profits through dividends.
- Are also referred to as participating or par companies because the policy owners do participate in being paid dividends.
Mutualization
The process of a stock company being converted into a mutual company.
Demutualization
The process of a mutual company being converted into a stock company.
Lloyd’s of London
An association to underwrite and issue insurance like coverage on certain items and areas that might otherwise be uninsurable.
Reinsurers
Reinsurers are a specialized branch of the insurance industry that insures other insurance company’s risk.
Reinsurance
Is an arrangement by which an insurance company transfers or sells a portion of the risk to a reinsurance company.
Ceding Company
The insurance company transferring the risk.
Reinsurer
The company assuming the risk.
Home service insurers
- Home service insurance is the industrial insurance sold by home service or debit insurance companies.
- The face amounts are very small. Usually $1,000-$2,000
- Premiums are collected weekly, door to door, by agents.
Service Providers
Offer benefits to subscribers in return for the payment of a premium.
Most common service providers
HMOs- Health Maintenance organization
PPOs- Preferred provider organizations
Government insurance programs
Are offered through:
- Social Security
- Medicare
- Medicaid
How insurance is sold
- Most consumers purchase insurance from licensed insurance producers
- insurance producers may be agents who represent a specific company or broker’s who represent several companies.
Agent Classification
- An agent can be classified as Captive meaning they work for and represent only one insurance company.
- An agent can be classified as independent meaning they can represent several different insurance companies.
1945 McCarran & Furguson Act:
States that, while the federal government has authority to regulate the insurance industry, it would not exercise that right if the insurance industry was run effectively and adequately by the states.
1970 Fair Credit Reporting Act:
Provides individual’s privacy protection and fair and accurate credit reporting.
-Insurance companies are required to notify applicants of the credit check that will be made on them and allow them access and notification on anything that may be found.
The National Association of Insurance Commissioners (NAIC)
An organization composed of insurance commissioners from all 50 states, the District of Columbia and the four US territories.
- NAIC is responsible for resolving insurance regulatory problems and the are active in the formation and recommendation of insurance legislation, which is designed to bring uniformity from state to state and simplify the marketing of insurance,
State Guarantee Associations
Guarantee association protect policy owners in the event of any insurance company going out of business, becoming insolvent or the in ability to pay claims.
Independent Rating Services
- Independent credit rating agencies rate or grade the financial strength and stability of insurance companies.
- Ratings are based on claims. reserves, and company profits.
Independent rating services
- AM Best
- Standard and Poor’s
- Moody’s
- Fitch
