Unit One Intro To Insurance

Question 1

What is insurance? 

Answer 1

Transfer of risk from a person or a business to an insurer.

Question 2

What is risk?

Answer 2

Uncertainty, possibility of loss.

Question 3

What are the two types of risk?

Answer 3

Speculative Risk & Pure Risk 

Question 4

What is speculative risk?

Answer 4

Chance of loss or gain; not insurable
Example you cannot put insurance on a trip to Vegas in case you lose your money gambling 

Question 5

What is pure risk? 

Answer 5

Chance of loss only; insurance companies will insure.
Ex obtaining car insurance

Question 6

What is exposure?

Answer 6

Risk for which the insurance company would be liable 

Question 7

What is a peril? 

Answer 7

The cause of loss
Ex: house burns down the peril is the fire 

Question 8

Name the two types of loss?

Answer 8

Direct & Indirect 

Question 9

What is a direct loss?

Answer 9

Physical loss
Ex: house burns down 

Question 10

What is an indirect loss?

Answer 10

Consequence of a physical loss
Ex: if your house burns down, you have to pay for a hotel and eat out and still pay your mortgage 

Question 11

What is the definition of a hazard?

Answer 11

Anything that increases the chance of loss

Question 12

Name the three types of hazards?

Answer 12

Physical hazard, Moral hazard, & Morale hazard

Question 13

What is a physical hazard?

Answer 13

The hazard can be seen

Question 14

What is a moral hazard?

Answer 14

Dishonesty

Question 15

What is a morale hazard?

Answer 15

Carelessness

Question 16

What does STARR stand for?

Answer 16

Sharing
Transfer
Avoidance
Retention
Reduction

Question 17


How many parties are in an insurance contract (policy)? 

Answer 17

Two parties
1st party - insured (customer)
2nd party - insurer (insurance company)

Question 18

Define Law of large numbers?

Answer 18

The larger the group, the more accurately losses can be predicted 

Question 19

What does CANHAM stand for? 

Answer 19

Calculable
Affordable
Non-catastrophic
Homogenous
Accidental
Measurable 

Question 20

What is reinsurance?

Answer 20

An insurance companies insurance company. It helps insurers spread their risk.

Question 21

Define/Describe stock insurer?

Answer 21

Owned by stockholders
Dividend is not guaranteed
Dividend is paid to stockholder
Dividend is taxable to stockholder
Stock insurers non-participating policies

Question 22

Who runs stock insurers? 

Answer 22

The corporation is run by a Board of Directors, elected by the stockholders 

Question 23

If you are a stock insurer, how are the profits distributed? 

Answer 23

Profits from the insurance operation may be distributed to the stockholders as dividends. These dividends are taxable to the stockholder/shareholder.

Question 24

Define /Describe mutual insurer?

Answer 24

Owned by policyholders
Dividend is not guaranteed
Dividend is paid to policyholder
Dividend is not taxable; considered refund of premium
Issue participating policies 

Question 25

What are fraternal policies called? 

Answer 25

Certificates members who have this type of insurance are called certificate holders

Question 26

Define/Describe fraternal benefit society?

Answer 26

Provides insurance and other benefits Must be a member to get the benefits 

Question 27

Define/Describe reciprocal insurer?

Answer 27

Unincorporated Members are assessed if a loss occurs to any member of the group Managed by an attorney-in-fact 

Question 28

What is Lloyd’s association?

Answer 28

Insurance provided by individual underwriters, not companies. It insures unusual risks (Dolly Parton’s hair)

Question 29

Define self insurance 

Answer 29

It is the means of retaining rather than transferring risk.

Question 30

Sum up self insurance

Answer 30

A business that pays for its own claims Reserves funds to cover losses Retains risk rather than transfers

Question 31

Name the six government provided insurances?

Answer 31

War risk insurance (federal) Nuclear energy insurance (federal) Flood insurance (federal) Federal crop insurance (federal) Unemployment insurance (state) Worker’s Compensation (state)

Question 32

Give examples of the following following: Domestic Foreign Alien

Answer 32

Domestic - Minnesota to Minnesota  Foreign - Wisconsin to Minnesota Alien - United Kingdom to Minnesota

Question 33

Define certificate of authority 

Answer 33

State license for an insurance company

Question 34

Give an example of what companies would obtain surplus lines

Answer 34

Gaming, casinos, and entertainment mining and scrapers are all examples of exposures that might require. Surplus Lines insurance.

Question 35

What is financial strength rating?

Answer 35

A report card of the insurance company

Question 36

Name the four types of agents

Answer 36

Independent Exclusive or captive General agents or managing general agents Direct writing companies 

Question 37

What is direct response marketing

Answer 37

Does not involve any agent or producer Only uses direct mail, magazines, television, Internet, and radio advertisements. The customer calls directly in. 

Question 38

Define express authority

Answer 38

Authorities written in agent contract

Question 39

Define implied authority

Answer 39

 Authorities, not written in agent contract, but tasks agents must perform; implied that agent has this authority 

Question 40

Define apparent authority?

Answer 40

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

Question 41

Sum up fiduciary

Answer 41

Promptly send premiums to insurer Has knowledge of products Complied with laws and regulations Does not commingle funds