Vocabulary

Question 1

Applicant or proposed insured

Answer 1

A person applying for insurance.

Question 2

Broker

Answer 2

An insurance producer not appointed by an insurer and is deemed to represent the client.

Question 3

Insured

Answer 3

The person covered by the insurance policy. This person may or may not be the policy owner.

Question 4

Insurer(principal)

Answer 4

The company who issues an insurance policy.

Question 5

Policy owner

Answer 5

The person entitled to excessive the rights and privileges of the policy.

Question 6

Premium

Answer 6

The money paid to the insurance company for the insurance policy.

Question 7

Reciprocity/reciprocal

Answer 7

A mutual interchange of rights and privileges.

Question 8

What is insurance?

Answer 8

The transfer of risk of loss

The cost of an insured’s loss is transferred over to the insurer and Soledad among other insured.

Question 9

Agency contract

Answer 9

A contract that is held between an insurer and an agent/producer, containing the expressed authority given to the agent/producer, and the duties and responsibilities to the principal.

Question 10

Agent/producer

Answer 10

A person who acts for another person or entity with regard to contractual arrangements with third parties.

Could include agents and brokers.

Question 11

Death Benefit

Answer 11

Face value/face amount/ coverage. The amount paid when a claim is issued against a policy of insurance.

Question 12

Insurer

Answer 12

The principal

Question 13

Pure risk

Answer 13

The only kind of risk that is insurable.
Situations that can only result in loss or no change.
There is no opportunity for financial gain.

Question 14

Speculative Risk

Answer 14

Opportunity for either loss or gain. Example gambling. Not insurable.

Question 15

Perils

Answer 15

Are the causes of loss insured against in an insurance policy.

Question 16

Hazards

Answer 16

Are situations or conditions that increase the chances of the cause of loss.

Can be physical, moral or morale.

Question 17

Physical Hazards

Answer 17

Exist because of a physical condition, past medical history or condition at birth.

Question 18

Moral hazards

Answer 18

Evaluate the character and reputation of the proposed insured.
Those who might lie or have submitted fraudulent claims in the past.

Question 19

Morale hazards

Answer 19

Arise from a state of mind that causes indifference to loss, such as carelessness.

Question 20

Legal hazard

Answer 20

A set of legal or regulatory conditions that affect an insurers ability to collect premiums that are equal to the exposure to loss that the insurer must bear.

Question 21

Law or large numbers

Answer 21

Sharing the risk among a large group of people with similar exposure to loss makes the losses more predictable.

As a number of people in a risk pool become bigger the future losses become more predictable.

Question 22

Exposure

Answer 22

The unit of measurement used to determine rates charged for insurance coverage.

Question 23

Homogeneous

Answer 23

A group with similar exposure to loss

Question 24

A ————— is a chance that loss will happen.

Answer 24

Risk

Question 25

A ————- increases the probability of loss.

Answer 25

Hazard

Question 26

———— is the cause of loss.

Answer 26

Peril

Question 27

Spread of risk is also know as

Answer 27

Distribution of exposures.

Question 28

Distributing exposure is when

Answer 28

Poor risks are balanced with proffered risks with standard or average risks in the middle.

Question 29

Critical Risks are

Answer 29

All exposures in which the possible losses are of the magnitude that would result in financial ruin to the insured or his or her family and or business.

Question 30

Important risks are

Answer 30

Those in which the losses would lead to major changes in the persons desired lifestyle or profession.

Question 31

Unimportant Risk

Answer 31

The possible losses could be met out of current assets or current income without imposing undue financial strain or lifestyle change.

Question 32

What are the methods of identifying risk?

Answer 32

Sharing, transferring, avoidance, retention, reduction

Question 33

A————— Insurance exchange is a formal risk sharing arrangement.

Answer 33

Reciprocal

Question 34

The most effective way to handle risk is to —————- so that the loss is borne by another party.

Answer 34

Transfer

Question 35

Eliminating the exposure to risk is called

Answer 35

Avoidance

Question 36

Retention is

Answer 36

The planned assumption of risk by the insured through use of deductibles, co payments, or self insurance.

Question 37

The purpose of retention is to…

Answer 37

Reduce expenses and improve cash flow Increase control of claim reserving and claims settlements To fund for losses that cannot be insured

Question 38

To lesson the possibility of severity or loss one would use —————- methods.

Answer 38

Reduction.

Question 39

What is Adverse selection?

Answer 39

The tendency of individuals with higher probability or loss to purchase insurance more often than those who present a lower risk.

Question 40

Cash value is..

Answer 40

Equity amount accumulated in permanent life insurance

Question 41

A persons net worth is know as their…

Answer 41

Estate