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Basics of Life Insurance > unit 1 General Insurance > Flashcards

unit 1 General Insurance Flashcards

1
Q

Insurance is a contract that transfers

A

the risk of financial loss from an individual or business to an insurer.

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2
Q

Risk is uncertainty about whether

A

a loss will occur

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3
Q

Speculative Risks–loss or gain can occur–like gambling

A

not insurable

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4
Q

Pure risk-only loss can occur–like car accident

A

loss is insurable

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5
Q

Loss

A

reduction in the value of an asset

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6
Q

Exposure

A

risks for which the insurance company would be liable

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7
Q

Calculation for insurance premiums

A

rate multiplied by number of exposure units

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8
Q

peril

A

cause of loss–death simply what caused the loss

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9
Q

hazard

A

anything that increases the chance that loss will occur

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10
Q

hazards do not cause the loss

A

it is something that becomes dangerous and can make a loss more likely to happen

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11
Q

three types of hazard

A

physical moral and morale

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12
Q

example of physical hazard

A

heart condition

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13
Q

example of moral hazard

A

dishonesty because it increases the chance that an individual might lie on an insurance application or fake a loss

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14
Q

morale hazard

A

the insured carelessly leaving the doors and windows unlocked when not at home

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15
Q

STARR–Methods of handling risk

A

Sharing Transfer Avoidance Retention Reduction

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16
Q

Sharing

A

Stockholders in a corporation share the risk of profit or loss

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17
Q

Transfer

A

what happens with insurance

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18
Q

Avoidance

A

not engaging in certain activity (like not driving to avoid accident)

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19
Q

Reduction

A

wearing seatbelts–lessening chance that loss will occur or lessening extent of a loss that does occur

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20
Q

Retention

A

individual will pay if loss occurs

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21
Q

CANHAM

A

Calculable Affordable Non-catastrophic Homogeneous Accidental Measurable

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22
Q

Calculable

A

Premiums must be calculable based upon prior loss statistics for that particular risk in order to predict future losses

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23
Q

Affordable

A

The premium for transferring the risk should be affordable for the average consumer

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24
Q

Non-catastrophic

A

Insurance cannot insure events that cause widespread losses to large numbers of insureds at the same time. Ex. Peril of war is excluded

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25
Q

Homogeneous

A

The individual risks that the insurer covers must all be similar or homogeneous in regard to factores that affect the chance of loss

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26
Q

Accidental

A

Insurance is a method of handling risk if a loss is certain to occur there is no risk

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27
Q

Measurable

A

It must be possible to estimate the loss as a dollar amount. Insurance covers the financial loss of unexpected death or medical bills from sickness

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28
Q

Adverse selection

A

the tendencey for higher risk individuals to get and keep insurance more than individual s who represent an average level of risk Risks that have a greater than average chance of loss

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29
Q

To avoid adverse selection insurers make an extensive evaluation of information related to a particular risk

A

underwriting

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30
Q

Reinsurance

A

insurance for insurers

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31
Q

Facultative

A

the reinsurer evaluates each risk before allowing the transfer

32
Q

Treaty

A

the reinsurer accepts the transfer according to an aggrement called a treaty

33
Q

Stock insurer

A

owned by stockholders, if the company makes money, a taxable dividend from the profits may be paid to the stockholders/shareholders

34
Q

Mutual Insurer

A

owned by its policyholders, if the company is profitable excess premiums can be returned to its policy holders nontaxable dividend

35
Q

Fraternal Insurer

A

Provides insurance and other benefits

Must be a member of the society to get the benefits

36
Q

Risk Retention Group

A

Liability insurance company created for policyholders from the same industry . Example care dealers RRG–only car dealers can be policy holders

37
Q

Lloyds Association

A

Insurance provided by individual underwriters, not insurance companies

38
Q

Self-insurance

A

retaining rather than transferring risk

39
Q

Residual Market

A

Insurance from the state or federal government

40
Q

state of domicile

A

insurers home state

41
Q

Domestic

A

the state where a company is incorporated

42
Q

Foreign

A

any state or US territory other than the state where incorporated

43
Q

Alien

A

incorporated in any country other than USA

44
Q

Surplus Lines

A

Insurance sold by unauthorized/non-admitted insurers–if on the states approved list of surplus insurers

45
Q

Surplus Lines

A

Can only be sold to certain high risk insureds

46
Q

Surplus Lines Insurers

A

Cant be sold just for a cheaper rate than licensed/admitted insurers

47
Q

States require companies to have a license to sell insurance in the state. The license is called

A

a certificate of authority

48
Q

Independent agents

A

sales are made by agents/producers who represent more than one company

49
Q

Exclusive or captive agents

A

sell for one company

50
Q

General agent/managing general agent

A

recruits other agents in a certain area who actually sell the insurance to the customer

51
Q

Direct writing

A

the company sells the insurance through salaried employees of the company

52
Q

Direct Response

A

no agent/producer involved

53
Q

Agency

A

Insurance agent acts on behalf of the principal (insurance company)

54
Q

Express

A

what the agents written contract with the company states

55
Q

Implied

A

not written but are the actions agents normally do to sell insurance

56
Q

apparent action

A

the agent does that a reasonable person would assume as authority, based on the agents actions and statements

57
Q

fiduciary

A

a person in a position of financial trust

58
Q

Fiduciary-Trust

A

Promptly send premiums to insurer
Knowledge of products
Comply with laws and regulations
no commingling

59
Q

Independent insurance agents

A

sell the insurance products of several companys and work for themselves or other agents

60
Q

exclusive or captive agents

A

represent one company

61
Q

general agents

A

hire train and supervise other agents within a specific geographical area

62
Q

direct writing companies

A

pay salaries to employees

63
Q

CLOAC

A

Consideration Legal Purpose Offer Acceptance Competent Parties

64
Q

Consideration

A

giving something of value

65
Q

Legal purpose

A

Risk transfer doesnt violate the law

66
Q

Offer

A

Made by insured

67
Q

Counter offer

A

Agrees toe issure policy but with higher premiums or restrictions/exclusion
Insured either accepts the conditions or withdraws her application

68
Q

Acceptance

A

insurer accepts risk ad presented

69
Q

Competent

A

insured age 18 and sane

70
Q

Aleatory

A

not equal value–small premium for a large amount of coverage

71
Q

Utmost good faith

A

the insured and insurance company have a right to expect honesty from each other

72
Q

Unilateral

A

only ONE promise made

73
Q

Insurance company

A

Promises to pay for a covered loss

74
Q

Waiver

A

the intentional and voluntary giving up of a known right

75
Q

Estoppel

A

a legal doctrine that prevents a party from denying an action if it had been accepted previously

Basics of Life Insurance (5 decks)

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