Quick Study (Life & Health insurance & Annuities)

Question 1

The Role of an Insurance Company is

Answer 1

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.

Question 2

Life Insurance

Answer 2

Guarantees a specific sun of money when someone dies.

Question 3

Health Insurance and Annuities

Answer 3

Provides funds to cover medical bills due to sickness or injury and to also cover the loss of money because of a disability.

Question 4

Annuities

Answer 4

Provide a stream of income by making a series of payments over a certain period of time.

Question 5

Insurance is available from both Private companies and the Government.

Answer 5

• Private companies are also known as commercial insurance companies.
• They are funded through premiums and sell insurance for a profit.

Question 6

Government programs

Answer 6

Are funded with taxes and serve national and state social purposes.

Question 7

What are the two most popular types of Commercial insurers?

Answer 7

Stock Companies and Mutual Companies

Question 8

Stock company

Answer 8

• 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.

Question 9

Mutual Insurers

Answer 9

• 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.

Question 10

Mutualization

Answer 10

The process of a stock company being converted into a mutual company.

Question 11

Demutualization

Answer 11

The process of a mutual company being converted into a stock company.

Question 12

Lloyd’s of London

Answer 12

An association to underwrite and issue insurance like coverage on certain items and areas that might otherwise be uninsurable.

Question 13

Reinsurers

Answer 13

Reinsurers are a specialized branch of the insurance industry that insures other insurance company’s risk.

Question 14

Reinsurance

Answer 14

Is an arrangement by which an insurance company transfers or sells a portion of the risk to a reinsurance company.

Question 15

Ceding Company

Answer 15

The insurance company transferring the risk.

Question 16

Reinsurer

Answer 16

The company assuming the risk.

Question 17

Home service insurers

Answer 17

• 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.

Question 18

Service Providers

Answer 18

Offer benefits to subscribers in return for the payment of a premium.

Question 19

Most common service providers

Answer 19

HMOs- Health Maintenance organization

PPOs- Preferred provider organizations

Question 20

Government insurance programs

Answer 20

Are offered through:

• Social Security
• Medicare
• Medicaid

Question 21

How insurance is sold

Answer 21

• 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.

Question 22

Agent Classification

Answer 22

• 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.

Question 23

1945 McCarran & Furguson Act:

Answer 23

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.

Question 24

1970 Fair Credit Reporting Act:

Answer 24

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.

Question 25

The National Association of Insurance Commissioners (NAIC)

Answer 25

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,

Question 26

State Guarantee Associations

Answer 26

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.

Question 27

Independent Rating Services

Answer 27

• Independent credit rating agencies rate or grade the financial strength and stability of insurance companies.
• Ratings are based on claims. reserves, and company profits.

Question 28

Independent rating services

Answer 28

• AM Best
• Standard and Poor’s
• Moody’s
• Fitch