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Life and Health Insurance > Unit 1 General Insurance > Flashcards

Unit 1 General Insurance Flashcards

1
Q

Insurance

A

a contract that transfers the risk of financial loss from an individual or business to an insurer

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2
Q

Risk

A

the uncertainty about whether a loss will occur

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3
Q

2 types of risk

A

speculative and pure

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4
Q

speculative risk

A

a possibility of a loss or gain. not insurable

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5
Q

pure risk

A

only the possibility or experiencing a loss. insurable

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6
Q

loss

A

a reduction in the value of an asset

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7
Q

total amount of loss

A

value before loss - value after loss

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8
Q

exposure

A

risks for which the insurance company would be liable

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9
Q

peril

A

cause of loss. examples include accidents, sickness, lightning, fire, etc.

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10
Q

hazard

A

anything that increases the chance a loss will occur. does not cause a loss, but makes them more likely to occur

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11
Q

3 types of hazards

A

-physical hazard
-moral hazard
-morale hazard

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12
Q

physical hazard

A

a type of hazard with physically identifiable factors that increase the chance of loss (heart condition, wet floor)

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13
Q

moral hazard

A

a type of hazard due to an individual’s character (dishonesty, thief)

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14
Q

morale hazard

A

a type of hazard due to a state of mind or careless attitude (leaving the door unlocked)

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15
Q

STARR

A

methods of handling risk
-Sharing
-Transfer
-Avoidance
-Retention
-Reduction

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16
Q

Sharing (STARR)

A

a method for handling risk in which 2+ individuals agree to pay a portion of any loss incurred by any member in the group

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17
Q

Transfer (STARR)

A

a method for handling risk which occurs with insurance. The insurer agrees to pay if an individual or business has a loss and the cost is in the form of a premium payment

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18
Q

Avoidance (STARR)

A

a method for handling risk which eliminates a particular risk by not engaging in a certain activity

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19
Q

Reduction (STARR)

A

a method for handling risk which lessens the chance a loss will occur or lessening the extent of a loss (wearing seatbelts)

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20
Q

Retention (STARR)

A

a method for handling risk in which the individual will pay for the loss if it occurs

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21
Q

law of large numbers

A

the larger the group, the more accurate losses can be predicted

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22
Q

CANHAM

A

elements of insurable risk
-Calculable
-Affordable
-Non-Catastrophic
-Homogeneous
-Accidental
-Measurable

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23
Q

Calculable (CANHAM)

A

a characteristic of insurable risk. states that premiums must be determined based on prior statistics for that particular risk to predict future losses

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24
Q

Affordable (CANHAM)

A

a characteristic of insurable risk. states the premium for transferring risk should have costs achievable for the average customer

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25
Q

Non-Catastrophic (CANHAM)

A

a characteristic of insurable risk. states insurance cannot insure events that cause wide-spread losses to large numbers

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26
Q

Homogeneous (CANHAM)

A

a characteristic of insurable risk. states the individual risks that the insurer covers must all be similar in regard to factors that affect the chance of loss

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27
Q

Accidental (CANHAM)

A

a characteristic of insurable risk. states insurance must be a method of handling risk. if loss is certain to occur, there is no risk

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28
Q

Measurable (CANHAM)

A

a characteristic of insurable risk. states it must be possible to estimate the loss as a dollar amount

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29
Q

adverse selection

A

the tendency for higher-risk individuals to get and keep insurance more than individuals at an average level of risk

risks that have a greater than average chance of loss

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30
Q

underwriting

A

the process of insurers making an extensive evaluation of information related to a particular risk

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31
Q

reinsurance

A

an insurance company (the ceding company) paying another insurance company (reinsurer) to take some of the company’s risk of catastrophic loss

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32
Q

2 types of reinsurance

A

-facultative
-treaty

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33
Q

facultative reinsurance

A

the reinsurer evaluates each risk before allowing the transfer

34
Q

treaty reinsurance

A

the reinsurer accepts the transfer according to an agreement (called a treaty)

35
Q

6 types of insurers

A

-stock insurers
-mutual insurers
-fraternal benefit societies
-reciprocal insurers
-Lloyd’s associations
-self-insurance

36
Q

stock insurers

A

a type of insurer that is owned by stockholders/ shareholders.
-has a board of directors chosen by the stockholders/ shareholders
-if the company makes money, a taxable dividend from the profits may be paid to the stockholders/ shareholders
-issues non-par policies

37
Q

mutual insurers

A

a type of insurer that is owned by the policyholders (customers)
-board of directors chosen by the policyholders
-if the company is profitable, excess premiums can be returned to its policyholders-nontaxable dividend
-issues participating (par) policies

38
Q

fraternal benefit societies

A

a type of insurer that provides insurance and other benefits
-must be a member of the society to get the benefits
-policies are called certificates
-assessable (open contract) meaning may need to pay additional charges if premiums are not sufficient

39
Q

reciprocal insurers

A

a type of insurer that is unincorporated
-members are assessed the amount they have to pay if a loss to any member of the group occurs
-run by an attorney-in-fact

40
Q

Lloyd’s associations

A

a type of insurer that provides insurance from individual underwriters, not insurance companies. may insure unusual risks

41
Q

self-insurers

A

a type of insurer where a business pays its own claims

42
Q

residual market

A

insurance from the state or federal government

43
Q

domestic insurer

A

the state in which the insurer was formed is also the state in which it does business

44
Q

foreign insurer

A

the insurer does business in a different state than in which it was formed

45
Q

alien insurer

A

the insurer does business in a different country than in which it was formed (outside of US and it’s territories)

46
Q

certificate of authority

A

state license for an insurance company

47
Q

surplus lines

A

exceptionally large or specialized risk insurance that may be obtained from an unauthorized/ non-admitted insurer

48
Q

financial strength rating

A

a report card of the company. most insurance companies use AM Best

49
Q

4 types of agents

A

-independent
-exclusive or captive
-general or managing general
-direct-writing companies

50
Q

independent insurance agent

A

type of agent. sales are made by agent/ producer who represent more than one company. they own the renewals of the policies they sell

51
Q

exclusive or captive agent

A

type of agent that sells insurance for one company. the insurance company owns the renewals of the policies sold on their behalf

52
Q

general agents (GA) or managing general agents (MGA)

A

type of agent who recruits other agents in a certain area who actually sell the insurance to the customer. they do not sell insurance

53
Q

direct-writing companies

A

type of agent that uses direct response marketing. the company sells the insurance through salaried employees of the company

54
Q

direct response marketing

A

no producer/ agent involved. policies are sold directly to the public by the insurer by using advertisements

55
Q

agency

A

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

56
Q

law of agency

A

contacts made by the agent are considered to be contracts of the principal

57
Q

3 types of agent authority

A

-express
-implied
-apparent

58
Q

express agent authority

A

what the agents written contract with the company says

59
Q

implied agent authority

A

not written, but the things agents normally do to sell insurance (taking applications)

60
Q

apparent agent authority

A

things the agent does that a reasonable person would assume as authority, based on the agents’ actions and statements (wearing branded clothing)

61
Q

fiduciary

A

a person in position of financial trust. must have knowledge of products and comply with laws and regulations

62
Q

commingling

A

mixing personal funds with the insured’s or insurer’s funds

63
Q

suitability considerations

A

the responsibility of an agent to make appropriate purchase recommendations

64
Q

CLOAC

A

elements of a legal contract
-consideration
-legal purpose
-offer
-acceptance (offer and acceptance can be combined to agreement)
-competent parties (age 18+)

65
Q

adhesion

A

a characteristic of an insurance contract. the policy is written by the insurance company and if something is ambiguous (not clear) a court will take the side of the insured

66
Q

aletory

A

a characteristic of an insurance contract. meaning not of equal value. a small premium for a large amount of coverage

67
Q

utmost good faith

A

a characteristic of an insurance contract. the insured and insurance company have a reasonable expectation to expect honesty

68
Q

unilateral

A

a characteristic of an insured contact. the contract is one-sided because only one party is legally bound to perform under the contract
-insurance company promises to pay for a covered loss
-insured does not promise to pay the premium

69
Q

personal

A

a characteristic of an insured contract. the contact between the insurance company and the insured and cannot be changed to someone else

70
Q

conditional

A

a characteristic of an insured contract. the insured must pay the premium for coverage and file a claim if a loss occurs

71
Q

indemnity

A

restore to the insured’s original pre-loss condition, no better or worse

72
Q

representation

A

a statement that is believed to be true

73
Q

misrepresentation

A

information given that is not true- however, the correct information would not affect the insurance company’s decision. example- providing an incorrect middle initial

74
Q

material misrepresentation

A

information given that is not true and does affect the insurer’s decision. example- stating a clean driving history, when you have tickets

75
Q

warranty

A

promise - a statement that is guaranteed to be true. if this is broken, the contract is void

76
Q

concealment

A

failure to disclose known facts. if intentional, coverage can be voided

77
Q

fraud

A

intentional act designed to deceive and induce another party. voids the policy

78
Q

fraud/ false statements

A

may include a fine and/ or imprisonment (10-15 years). includes embezzelment

79
Q

waiver

A

intentional voluntary giving up of a known right

80
Q

estoppel

A

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

Life and Health Insurance (22 decks)

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