Unit 1 Flashcards
Insurance is a legal contract that serves what purpose
To transfer risk from the insured to the insurer
What type of risk is insurable?
Speculative risk
Definition of Loss
The reduction of value of an asset
Definition of Exposure
The risk assumed by the insurer and amount responsible to pay out at any given time
What is unit is Exposure expressed in and how is it measured? What is the purpose of this calculation
Units
Rate x Exposure units
To figure out premium costs
Definition of Peril
The cause of Loss
Definition of Hazard
anything that increases the likelihood of peril
Types of Hazard and their definintons
Moral: conscious traits, ex. dishonesty
Morale: a state of mind or unconscious change of behaviors ex. careless attitude
Methods for handling risk includes STARR what does this acronym stand for
Sharing, Transfer, Avoidance, Reduction, Retention
The law of large numbers states what
The larger the group the more accurately losses can be predicted
CANHAM is an acronym used to formulate insurance policies what does it stand for
Calculable, Affordable, Non-catastrophic, Homogenous, Accidental, Measurable
Definition of Adverse selection
an applicant at higher risk of loss than average
Definition of Underwriting
An extensive evaluation of an applicant in which an insurance company uses to avoid adverse selection, or reduce risk of loss
Definition of Reinsurance
transferring risk from one insurer to another by paying premiums to reduce potential loss
In reinsurance there are 2 parties, what are the names and definitions of the parties
Ceding insurer, company offloading risk
Reinsurer, company assuming risk
There are 2 types of reinsurance evaluations what are they
Facultative reinsurance, where the reinsurer considers each risk before allowing the transfer
Treaty reinsurance, reinsurers accepts all risks of a certain type from ceding insurer
A Stock insurer is owned by who
Stockholders/shareholders
Policies issued by a stock insurer are considered what
Non-participating
Mutual insurers are owned by who
Policy holders/ policy owners
Dividends are distributed in 2 types of insurance companies what are they. These types of companies are sometimes referred to
Stock insurer and Mutual insurer
Legal reserve
Policies created by Mutual insurers are called what
Participating
Members of Fraternal Benefit Societies with insurance policies are called
Certificate holders
A distinctive feature of certificate holders, policies with this feature are called
They may assess additional chargers if premiums don’t cover claims, open contracts
What is the name of an unincorporated group with the agreement insure each others’ losses
Reciprocal Insurers
What are the members of Reciprocal insurers called
Subscribers
What person handles the business side of a Reciprocal insurer
An Attorney-in-fact
What is the name for an insurance group created with the purpose of providing liability insurance to policyholders, and owned by the insureds, with the condition the members must all be apart of the same type of business
Risk Retention group
Lloyd’s associations provide what and are not
A hub for information exchange for member underwriters, insurance companies
Self Insurers do what
Retain the risk of loss, often setting aside savings to cover their own losses
What type of insurance does the state government provide
Unemployment, Disability, Medical
What type of insurance does the federal government provide
Social Security, Military life, Federal Employee comp, Retirement
Insurance from the government is considered
Residual Market
If an insurance company is operating in the state it was created it’s considered
Domestic
If an insurance company is operating in a state other than the one it was created it’s considered
Foreign
An insurance company from outside the US is considered
Alien
What is a Certificate of Authority
An insurance license
When an insurance company is licensed it’s considered
Admitted or Authorized
A non licensed insurance company
Non-admitted, unauthorized, non-approved
A surplus line insurer is considers
non approved, non admitted, unauthorized
You can only use a surplus line insurer if
You have exceptionally large or specialized risk and no authorized insurer will cover you
What is the difference between a broker and an agent
Brokers legally represent the insured
Agents legally represent the insurer
Individuals that sell the insurance of several companies and are independent contractors, they own the renewals of the policies they sell
Independent Insurance agents
Agents representing only one company, independent contractors and own their renewals
Exclusive or Captive agents
Hire, train, and supervise other agents within a specific geographical area
General Agents
Insurance companies that pay a salary to an employee to sell insurance typically not paid a commission
Direct-writing Companies
Policies sold directly to the consumer with no agent or producer involved
Direct Response Marketing
In the Law of Agency who is represented and who is representing
Represented is the Principal, representing is the agent
Express authority is what
Explicitly stated in a written agreement between the principal and the agent
Implied authority is what
Not written in a contract but assumed to be granted in accordance with general business practice
Apparent Authority is what
Authority others believe an agent has
A person in a position of financial trust is
A Fiduciary
Mixing personal funds with insurance funds is what
Commingling
What are suitability considerations
the responsibility to make purchase recommendations that are suitable to the applicant
What are the 5 things necessary for a legal contract
Consideration, Legal Purpose, Offer, Acceptance, Competent Paties
What is considered the Offer in an Insurance contract
Payment
Contract in which one party has written and the other party is to adhere
Contract of Adhesion
What does in mean to be an Aleatory contract
An unequal contract, meaning on party is receiving unequal benefits or risk
A contract in which one can make the reasonable assumption that the other party wont act deceptively
Utmost Good Faith contract
A contract in which only one party is required to preform
Unilateral Contract
What does a contract of Indemnity mean
Intended to restore the insured back to the financial state prior to loss
Definition of warranty
A statement guaranteed to be true
Definition of Concealment
intentional failure to disclose a known fact
Intentional act to deceive or induce another party to part with something of value
Fraud
A person in insurance who commits Fraud can be subject to
A fine, Imprisonment of up to 10 years, both
Intentional and voluntarily giving up a known right
Waiver
Estoppel
A legal doctrine that prevents a party from denying an action that was accepted previously
