The Insurance Transaction Flashcards
Explain the role of applications and binders and insurance transactions
The application is the insureds OFFER.
The application is the company’s primary source of information about the risk to be insured, so it is vitally important that the agent fill out the application completely & accurately.
After the agent has completed the application, he may have the authority to issue a Binder for insurance.
This is an oral or written statement that the insured has IMMEDIATE Protection that is valid for a specified time. If it is an oral statement, it must be backed up in writing as soon as possible.
A binder does not guarantee that a policy will be issued; it only guarantees temporary coverage.
…coverage under the binder may be canceled by formal cancellation or rejection notice.
Explain how the federal fair credit reporting act and the Principle of Adverse selection affect the underwriting process
Reports that have traditionally been called credit reports are actually Consumer Reports.
In addition to consumers credit standing, the reports export personal character, reputation, habits, and lifestyle. Public reaction to the miss use of personal information… of the fair credit reporting act. This act protects consumers by requiring that the connser be notified in certain situations and by establishing provisions for the removal of outdated and incorrect information.
One of the purposes of the act is to ensure that credit reporting agencies oversees it’s responsibilities with fairness, and … respect for the consumers right to privacy.
Certain restrictions are not applicable when the consumer credit report is used in connection with a credit transaction of $150,000 or more, a life insurance policy of $150,000 or more, or when it concerns employment of an individual earning $75,000 or more.
Adverse selection is the tendency for people with a greater than average exposure to loss to purchase insurance.
Describe the different method used to rate insurance policies
1: judgment rating: premiums are established using careful judgment, no books are tables are used
2: manual (or class) rating: this is the most common premium determination method or class rating. The companies rates for a particular state or area are obtained by…consulting manual, which is usually stored on a computer. … range by various categories are classes.
The printed rate, which is a rate per unit of insurance, is then multiplied by the number of units of insurance being purchased to calculate the premium. The formula works like this:
Rate/unit x number of units = premium
So, an insured who purchases $60,000 of insurance at a rate of two dollars per $1000 would pay a premium of 120 (2 x 60 = 120).
3: merit rating: typically, merit rating starts with class or manual rates, which are then modified to reflect the unique characteristics of the risk that are not reflected in the manual rate.
Experience Roating is a form of merit rating that modifies the manual premium on the basis of the INSURED’s Loss Experience over some period.
4: retrospective rating: which bases the insurance premium and losses incurred during the policy period
5: schedule rating: which applies a system of debits or credits to reflect characteristics of a particular insured
Explain how misrepresentation, fraud, concealment, warranties, and waiver and estoppel may affect an in-force contract
An Insurance company can void the contract on the basis of misrepresentation, concealment, or fraud by the insured.
Misrepresentation: A written or verbal mis-statement of material facts involved in the contract on which the insurer… Mis-representation will change the policy only if it concerns a material fact.
And material fact is a fact would cause an insurer to decline a risk, Charge a different premium, or change the provisions of the policy that was issued.
Concealment: concealment is similar to mis-representation except that it involves withholding, rather than the Misstating, a material fact.
Fraud: A deliberate misrepresentation that causes harm and act of fraud has four elements:
1: someone deliberately lies
2: The intent of the light is for someone else to rely on that lie
3: another person relies on that Lie
4: The other person suffers harm as a result of relying on that lie
Fraud differs from misrepresentation in that misrepresentation may be intentional or unintentional.
Fraud is always intentional and involves an all out effort by one party to deceive and cheat the other.
Describe material fact, certificate of insurance, and representation
Representations: statements that the applicant believes are true.
Under the law, representation is not considered a manner to which the parties contract, so policy cannot be voided on the basis of the representation.
Warranties: specific agreements made between the insured and insurer that certain conditions will be met.
For example, they might require that where the business is closed, a security guard will be on duty at all times. These agreements, called warranties, become a part of the policy and can void the policy if they are breached, whether the breach was intentional or unintentional.
Certificate of insurance: certificate of insurance is used as proof that a policy has been written.
Describe the rights and responsibilities of insureds and insurance companies when an insurance policy is canceled or nonrenewed
Most insurance policies are issued with a definite effective date and expiration date. The policy. Maybe six months, one year, or even three years. But at times, the insured or the insurance company may want to cancel the insurance for the policy expires.
The insured may cancel the policy by writing a letter to the insurance company or by surrendering the policy to the company. The insurance company returns any unearned premium. These premiums may be returned on the shirt rate basis. This means that the insurance company may keep allowances for expenses such as issuing the policy.
The insurance company doesn’t have the same freedom to cancel as the insured does. When the company does cancel, various state laws require that the insured be notified of the cancellation and riding with in a specified number of days before the effective date of cancellation. When the insurance company cancel supposed to, unearned premium is returned to the insured on a prorated basis the insurance company retains only the earned premium and is not permitted to keep an extra amount for expenses.
Canceling a policy on the effective date is called a flat cancellation.
When a policy reaches its expiration date, it’s customary to renew the policy for another term. The insured as a option not to renew the insurance at this point. The insurance company may also decide not to renew the policy. Although nonrenewal provisions are usually more liberal than cancellation requirements, insurance company may still be limited in the reasons it May non-re-noon and then how and when the insured is notified of the decision not to renew.
Basic types of construction
Class 1: Frame: frame structures have outside support walls, roof, and floors constructed of wood or other combustible materials. The exterior walls may be covered with stucco or brick veneer, and the interior walls are typically lath and plaster.
Class 2: Joisted masonry: Joisted Masonry structures I have outside support walls made of noncombustible masonry materials, (such as concrete, brick, hollow concrete block, stone, or tile) and a roof and floor made of combustible materials (such as wood).
Class 3: Non-combustible: this is one who’s exterior walls, floors, and roof are constructed of and supported by noncombustible materials such as metal, as best dose, or gypsum.
Class 4: masonry noncombustible: structures in this construction class have exterior walls constructed of masonry wall materials and the roof and floor made of metal or other noncombustible materials.
Class 5:modified fire resistant resistive: modified fire resistive have exterior walls, floors and roof constructed a missionary or fire resistant material with fire resistance rating of two hours or less.
Class 6: fire resistive: constructed of masonry or fire resistant material with the fire resistance rating of two hours or more.
Waiver and Estoppel
Waiver: The intentional relinquishment of a known right.
Sometimes an insurer knowingly overlooks the condition or exclusion and that would normally have been grounds for denying coverage, increase in the premium, reducing the benefits provided in the policy, or some other material change in the policy. When the insurer or it’s representative relinquishes the insurance right of denial or refusal, the Act becomes a waiver. Though any policy provision may be waived, the requirement of an insurable interest may not be waived, nor may fax be waived.
Estoppel: if an insurance company representative intentionally or unintentionally creates the impression that a certain fact exists when it does not, and an innocent party relies on that impression and is damaged as a result, the insurance company will be estopped (or prevented) from denying this fact. For example if an agent states or indicates by his actions that there is a particular loss that is covered, the insurance company will be is stopped from the denying the coverage.
1 Test
1:
2:
3:
4:
1
2 Test
1:
2:
3:
4:
2
3 Test
1:
2:
3:
4:
1
4 Test
1:
2:
3:
4:
1
5 Test
1:
2:
3:
4:
1
6 Test
1:
2:
3:
4:
1
7 Test
1:
2:
3:
4:
1
