Cfpe 1101 Terms To Define

Front 1

4-TTD

Name the 3 economic theories of regulation

Back 1

1. Market Failure theory
2. Capture theory of regulation
3. Public choice theory of regulation

Front 2

4–2 Identify roles of the adjuster in the loss adjustment process.
Briefly outline and explain the stages of the loss adjustment process (Notice)

Back 2

First step: contact insurer and tell them of the loss

Front 3

4–2 Identify roles of the adjuster in the loss adjustment process.
Briefly outline and explain the stages of the loss adjustment process (Investigation)

Back 3

Insurer determines if there was a loss covered by policy

Front 4

4–2 Identify roles of the adjuster in the loss adjustment process.
Briefly outline and explain the stages of the loss adjustment process (Proof of loss)

Back 4

Sworn statement by insured that states that a loss has occurred and that enumerates the amount of the loss

Front 5

5–1 Explain the steps of the risk management process and their importance.

Why is it important to obtain thorough information on the client and his or her family?

Back 5

Virtually all of the client’s assets and activities may result in liability.
All assets represent the potential for loss of the asset itself—from contracts relating to its acquisition, from liability for losses attending its use, and from consequential losses.
Client activities can result in liability based on tort or contract law.
Obtaining thorough client data is the only way to anticipate these risk exposures.

Front 6

4–2 Identify roles of the adjuster in the loss adjustment process.
Briefly outline and explain the stages of the loss adjustment process (Payment or denial)

Back 6

Insurer pays or denies the claim

Front 7

Describe briefly each of the three major components of the statement of financial position.

Back 7

Assets: What the client owns
Liabilities: What the client owes
Net worth: Residual value after subtracting liabilities from assets

Hint 7

ALN

Front 8

4–3 Describe policy provisions and options for the insured or insurer in settling losses.
Describe seven provisions frequently contained in insurance policies that deal with the insured’s duties relating to loss settlement. (Notice of loss)

Back 8

The insured is required to give immediate notice of a loss to allow insurer to investigate.

Front 9

4–3 Describe policy provisions and options for the insured or insurer in settling losses.
Describe seven provisions frequently contained in insurance policies that deal with the insured’s duties relating to loss settlement.(Protect damaged property)

Back 9

The insured is to protect property from further damage.

Front 10

5–2 Explain a rule of risk management.

What is the #1 basic rule of risk management? Explain.

Back 10

Don’t risk more than you can afford to lose.
Always transfer (get insurance) those risks that could bring severe financial losses and whose potential severity cannot be reduced.

Front 11

4–3 Describe policy provisions and options for the insured or insurer in settling losses.
Describe seven provisions frequently contained in insurance policies that deal with the insured’s duties relating to loss settlement. (Inventory)

Back 11

The insured is required to construct an inventory of damaged property, including quantity, description, actual cash value, and amount of loss; receipts, bills, and related information are to be attached.

Front 12

What is the significance of including the words “For the Year Ending December 31, 20XX” in the heading of the cash flow statement?

Back 12

indicates that the statement summarizes client’s cash inflows and outflows over the past year (or other specified period of time).

Front 13

5–2 Explain a rule of risk management.

What is the #2 basic rule of risk management? Explain.

Back 13

Consider the odds.
Don’t transfer risk (get insurance) where the probability of loss is very high.

Front 14

4–3 Describe policy provisions and options for the insured or insurer in settling losses.
Describe seven provisions frequently contained in insurance policies that deal with the insured’s duties relating to loss settlement. (Evidence)

Back 14

The insured may be required to show the damaged property to the insurer.

Front 15

5–2 Explain a rule of risk management.

What is the #3 basic rules of risk management? Explain.

Back 15

Don’t risk a lot for a little. There should be a reasonable relationship between the cost of transferring risk (getting insurance) and the value to the transferor (your client).

Front 16

4–3 Describe policy provisions and options for the insured or insurer in settling losses.
Describe seven provisions frequently contained in insurance policies that deal with the insured’s duties relating to loss settlement. (Written proof of loss)

Back 16

The insured is to provide written information as to the time and cause of the loss, the interest of the insured and others in the property, other insurance coverage, all encumbrances on property, etc.

Front 17

Identify guidelines for and the purposes of the emergency fund

Back 17

To ensure: that easily accessible funds are available for financial emergencies
To avoid: Having to liquidate investments and assets (nonliquid) or borrow funds for financial emergencies.

Front 18

4–3 Describe policy provisions and options for the insured or insurer in settling losses.
Describe seven provisions frequently contained in insurance policies that deal with the insured’s duties relating to loss settlement. (Assistance and cooperation)

Back 18

The insured may have to attend hearings/trials, present evidence, supply medical reports, submit to physical examination, etc.

Front 19

4–3 Describe policy provisions and options for the insured or insurer in settling losses.
Describe seven provisions frequently contained in insurance policies that deal with the insured’s duties relating to loss settlement. (Appraisal)

Back 19

Either party may request that a controversy be settled by appraisal when the insured and insurer cannot agree on the ACV or the amount of the loss.
(Life insurance policies contain only proof of loss and settlement options as provisions in the contract.)

Front 20

4–3 Describe policy provisions and options for the insured or insurer in settling losses.
Explain three options of the insurer in settling claims.

Back 20

a. Replacement: The insurer may repair or replace damaged property with that of like kind and quality (rather than pay the ACV of the loss).
b. Abandonment and salvage: The insured surrenders ownership of the lost or damaged property to the insurance company to claim a total loss; the property is taken over by the insurer (salvage) to reduce its loss.
Pair or set: This gives the insurer the right to repair or replace any part, to restore the pair or set to the value before the loss, or to pay the difference between the ACV of the property before and after the loss.

Front 21

4–4 Calculate the amount paid on covered losses under coinsurance and deductible clauses in a given situation.
Last year, Tom Jones purchased a warehouse for $700,000. Its current replacement cost is $1 million. The building is covered for fire-related perils by XYZ Insurance Company to a policy limit of $500,000, with an 80% coinsurance provision and a $2,000 straight deductible. Last week, a fire broke out in the building, causing $400,000 of covered damage. What amount of coverage should Tom have on the building for this loss to be fully covered?

Back 21

$800,000, or 80% of $1,000,000

Front 22

4–4 Calculate the amount paid on covered losses under coinsurance and deductible clauses in a given situation.
Last year, Tom Jones purchased a warehouse for $700,000. Its current replacement cost is $1 million. The building is covered for fire-related perils by XYZ Insurance Company to a policy limit of $500,000, with an 80% coinsurance provision and a $2,000 straight deductible. Last week, a fire broke out in the building, causing $400,000 of covered damage. Using the formula provided in Chapter 2 of this module, calculate the amount that XYZ Insurance Company will apportion for this loss.

Back 22

replacement cost x coinsurance % = amt insurance req’d
1,000,000 x .8 = 800,000
(ins carried / ins req’d x loss) – deductible = amt paid
(500,000 / 800,000 x 400,000) - 2000 = 248,000

Front 23

4–5 Evaluate the relevant factors in assessing an insurance agent in order to select an insurance agent.
What are the duties of general agents

Back 23

independent business people empowered by the life insurance company they represent to sell insurance in specified territories and to appoint agents

Front 24

5–3 Explain the elements of an insurable risk.

What are the four elements of an insurable risk?

Back 24

a. There must be a SUFFICIENTLY LARGE NUMBER OF HOMOGENEOUS EXPOSURE UNITS to make the losses reasonably predictable.
b. The LOSS PRODUCED by the risk MUST BE DEFINITE AND MEASURABLE.
c. The loss must be FORTUITOUS OR ACCIDENTAL.
d. The LOSS MUST NOT BE CATASTROPHIC.

Front 25

4–5 Evaluate the relevant factors in assessing an insurance agent in order to select an insurance agent.
What are the duties of independent agents

Back 25

generally represent several property and liability companies doing business under the American Agency System; can place business with any company they represent

Front 26

4–5 Evaluate the relevant factors in assessing an insurance agent in order to select an insurance agent.
What are the duties of producing general agents

Back 26

like general agents, except:
usually sell insurance personally
do not have designated territories
usually do not hire and train agents
may represent more than one life company

Front 27

4–5 Evaluate the relevant factors in assessing an insurance agent in order to select an insurance agent.
What are the duties of brokers

Back 27

find the best coverage possible for clients by working with many insurers and act as the agent of the insurance buyer

Front 28

5–4 Explain the purpose of the underwriting process and its implications for the client.

What are the practical implications of the underwriting process?

Back 28

The most important practical implication is that there are definite limits on the amount and type of insurance that can be obtained for the client, regardless of what the client is willing to pay.
Another practical implication of the underwriting process is that if a situation was not anticipated by normal underwriting guidelines, the planner must be prepared to present information to the underwriter that will make a case for the requested exception.

Front 29

4–5 Evaluate the relevant factors in assessing an insurance agent in order to select an insurance agent.
What are the duties of surplus-line or excess-line brokers or agents

Back 29

handle any type of insurance that cannot be purchased within the state (coverage must be placed with a company not licensed to do business in that state)
the individual may not be able to obtain coverage from an admitted (in-state) insurer because loss is too great or the required amount of insurance is too large
surplus-line agent or broker can place business with unadmitted insurer if necessary coverage cannot be obtained within the state from an admitted insurer at a reasonable price

Front 30

4–6 Evaluate the relevant factors in assessing an insurance company in order to select an insurance company.
What factors may be checked in deciding if an insurance company is strong enough to warrant a client’s business?

Back 30

the company’s rating with various rating companies
the NAIC Watchlist
IMSA (Insurance Mktplace Standards Assn) Membership
RBC (Risk Based Capital) ratios
Size, age and history
Persistency (lapse ratio)
Lines of business (primary)
Investment return
Direct recognition
NAIC illustration guidelines

Front 31

4-TTD

With regard to an agent's ability to bind an insurer, define EXPRESS AUTHORITY

Back 31

- specifically conferred on the agent.
- stated in agent's contract with the insurer.

Front 32

4-TTD

With regard to an agent's ability to bind an insurer, define IMPLIED AUTHORITY

Back 32

- not expressly granted
- which the agnt is assumed to have in order to transact the insurer's business

Front 33

4-TTD

With regard to an agent's ability to bind an insurer, define APPARENT AUTHORITY

Back 33

- a doctrine of ostensible authority
- appearance of, or assumption of authority based on ACTIONS, WORDS or DEEDS
- insured LEAD TO BELIEVE

Front 34

4-TTD

With regard to policy limits & recovery,define DEDUCTABLES

Back 34

- retained risk
- portion of insured losses that insured is expected to pay

Front 35

4-TTD

With regard to policy limits & recovery,define COINSURANCE

Back 35

- sometimes a splitting of the cost (co-pay)
- minimum % of insurance required to avoid being penalized for inadequate insurance when there are partial losses.

Front 36

4-TTD

Covered loss under a typical commercial property contract is the greater of:

Back 36

1) The Actual Cash Value (ACV) of the damaged part of the building
2) The amount determined by:
Ins Req'd = Replacement cost x coins %
Ins Carried / Ins Req'd x LOSS - DED = AMT PAID

Front 37

4-TTD

Regarding the 7 factors that limit an insurer's liability covering losses, define INSURABLE INTEREST

Back 37

exists when the interested party will suffer a loss if insured loss occurs.

Front 38

4-TTD

Regarding the 7 factors that limit an insurer's liability covering losses, define ACTUAL CASH VALUE

Back 38

replacement cost - depreciation

Front 39

adjustable rate mortgage

Back 39

int rate changes w/ prevailing int rate in the economy
Rate tied to changes in a specified economic series
Rates typically limited in the initial mortgage agreement
Borrower bears a greater degree of risk

Front 40

5–5 Apply methods of handling risk in a given situation.

Step 4 of the risk management process, “construct a risk management plan (determine appropriate risk treatment methods),” requires the planner to consider alternative risk treatment approaches and select which should be used for each risk. List the methods of handling risk and give an example of each method.

Back 40

RISK CONTROL:
risk avoidance (e.g., do not drive)
risk reduction (e.g., a fire safety sprinkler system)
RISK FINANCING:
risk retention (e.g., an insurance deductible, obtaining no insurance at all, or self-insuring)
risk transference (e.g., insurance)
risk sharing (e.g., incorporation) Remember that risk sharing is a form of risk reduction, more limited in scope.

Hint 40

ARSTR

Front 41

interest-only mortgage

Back 41

variation of the adjustable rate mortgage
occasionally has fixed rate for the life of the loan
int rate usually tied to an index (LIBOR = London Interbank Offered Rate)
most loans, borrowers make only int payments for some predet per 5/10/20 yrs
then begin making additional payments to reduce the principal.

Front 42

4-TTD

Regarding the 7 factors that limit an insurer's liability covering losses, define POLICY LIMITS or FACE VALUE

Back 42

- maximum amt that will be paid when the insured loss occurs

Front 43

Balloon mortgage

Back 43

monthly payment is calculated based upon a long-term mortgage at a given interest rate.
Initial payment is made for a relatively short period, such as five or seven years.
At the end of that time, the principal balance of the mortgage is payable in full.
The interest rate for a balloon mortgage is typically lower than that for a standard fixed-rate mortgage because of the shorter repayment period and the smaller expected variance of interest rates in the economy during a shorter period.

Front 44

4-TTD

Regarding the 7 factors that limit an insurer's liability covering losses, define OTHER INSURANCE

Back 44

- provision states that when a loss occurs, and there is more than one insrance policy covering the same loss, the insured will not profit from the loss.

Front 45

Graduated payment mortgage

Back 45

payable over a long time period
fixed rate
pmt lower for the first few years of repayment
adjust to higher amount that remains fixed over the duration
Because early payments are lower there typically is negative amortization
payments during the second period typically are larger than those that would have been required using a standard fixed-rate mortgage.

Front 46

4-TTD

Regarding the 7 factors that limit an insurer's liability covering losses, define SUBROGATION

Back 46

The right of the insurance company that has paid for a loss to recover its payments if it is determined that a different insrance company or person is responsible for the loss and is required to pay for it.

Front 47

A conventional mortgage

Back 47

made by a commercial lender in the private sector.

Front 48

4-TTD

Explain HIPAA impacts to PRE-EXISTING CONDITIONS

Back 48

may be excluded for max of 12 months

Front 49

VA mortgage

Back 49

guaranteed VA
only to eligible veterans.

Front 50

4-TTD

Explain HIPAA impacts to PREGNANCY

Back 50

not a pre-existing condition

Front 51

FHA mortgage

Back 51

guaranteed by the Federal Housing Administration.

Front 52

4-TTD

Explain HIPAA impacts to NON-DISCRIMINATION

Back 52

group plans cannot exclude individuals or charge extra because of existing health conditions

Front 53

4-TTD

Explain HIPAA impacts to SPECIAL ENROLLMENT RIGHTS

Back 53

When an individual declines coverage becuase other coverage exists AND THEN HIS STATUS CHANGES, a group plan must allow that individual to enroll without penalty

Front 54

5–6 Identify the advantages and disadvantages of self-insurance.

What are the advantages of self-insurance?

Back 54

Eliminates selling costs
Eliminates state premium taxes
Eliminates insurance company profit
Provides opportunity to benefit directly from more efficient administration
Allows the self-insured to retain the investment returns on any reserves established to pay claims

Front 55

4-TTD

Explain HIPAA impacts to GUARANTEED COVERAGE

Back 55

A person who has been covered under a group plan for at least 18 mos mus be allowed to purchase an individual plan if no group plan is available.

Front 56

5–6 Identify the advantages and disadvantages of self-insurance.

What are the disadvantages of self-insurance?

Back 56

the need to replace all services provided by the insurer, such as:
(1) impartial claims service
(2) loss prevention services
(3) actuarial services
(4) consulting services
(5) investment management services
The possibility of higher income taxes because contributions to the self-insurance fund cannot be deducted; deductions are limited to incurred losses
The potential for losses that exceed the ability of the business to pay or that exceed premiums for insurance

Front 57

4-TTD

Explain HIPAA impacts to LONG-TERM CARE

Back 57

- Defined "qualified LTC insurance policies
- Policies may allow the holder to take an income tax deduction for all or a portion of the premiums as well as make the benefits tax free

Front 58

5–7 Explain an essential legal liability term.

Define each of the following legal terms.

Criminal acts

Back 58

public wrongs
violations of laws governing the relationship of the individual with the rest of society
prosecuted by the state as plaintiff against any citizen for violation of a duty prescribed by statute or common law

Front 59

4-TTD

Explain HIPAA impacts to ACCELERATED DEATH BENEFITS

Back 59

If qualified under HIPAA as terminally or chronically ill, beefits paid from life policy may be fully or partially income tax free.

Front 60

5–7 Explain an essential legal liability term.

Define each of the following legal terms.

Intentional torts

Back 60

Such torts are infringements of the rights of others resulting from an intentional act on the part of the defendant; these include such torts as assault, battery, libel, slander, false arrest, false imprisonment, trespass, and invasion of privacy.

Front 61

5–7 Explain an essential legal liability term.

Define each of the following legal terms.

Trespasser

Back 61

A trespasser is a person who comes onto property without right and without consent of the owner or occupier.

Front 62

With regard to college funding, what are some characteristics of a CRUMNEY INVASION TRUST

Back 62

beneficiary may withdraw an amount equal to the annual addition to the trust or the annual gift tax exclusion, whichever is less,during intervals specified in the trust agreement
trust property is distributed to the beneficiary at the age chosen by the grantor
accumulated income is taxed at the trust’s rates

Front 63

5–7 Explain an essential legal liability term.
Define each of the following legal terms. Licensee

Back 63

A licensee is a person who comes onto property with the knowledge or tolerance of the owner but for no purpose of, or benefit to, the latter (e.g., door-to-door salespeople).

Front 64

5–7 Explain an essential legal liability term.
Define each of the following legal terms. Invitee

Back 64

An invitee is a person who has been invited into or onto the property for some purpose of the owner (e.g., delivery people) or any person on premises open for admission to the general public, such as a church, a theater, etc.

Front 65

5–7 Explain an essential legal liability term.
Define each of the following legal terms. Attractive nuisance

Back 65

A high degree of care is imposed on a land occupier for certain conditions on the land (attractive nuisances) that attract and possibly injure children; the land occupier is obligated to use due care to discover children on property, then warn them to protect them from conditions threatening death or serious bodily harm.

Front 66

5–7 Explain an essential legal liability term.
What is the collateral source rule and what prevents a plaintiff from using it to defeat the concept of indemnity under an insurance contract?

Back 66

The collateral source rule states that A TORTFEASOR (ONE WHO COMMITS A TORT) WILL BE LIABLE FOR FULL DAMAGES EVEN THOUGH THE PLAINTIFF HAS AVAILABLE TO HIM OR HER OTHER SOURCES OF RECOVERY that can compensate for his or her loss.
Note that if the plaintiff recovered from his or her insurance and also from the tortfeasor, as allowed by the collateral source rule, the principle of indemnity would be violated. For this reason, insurance companies put a “subrogation” clause in the insurance contract, giving the insurance company the insured’s right to recover from the defendant an amount equal to what the company has paid the insured.

Front 67

MOD 1

With regard to college funding what are some characteristics of a MINOR'S TRUST?

Back 67

- uses $13k (26k married) annual gift tax exclusion
- many permit accum of income on behalf of child
- not considered a gift of future interest as long as property & income ar payable to kid at 21
- escapes kiddie tax, but taxed at trust rate

Front 68

5–7 Explain an essential legal liability term.
Define each of the following legal liability terms. Negligence (unintentional tort)

Back 68

This term refers to wrongs resulting from negligence or carelessness.

Front 69

5–7 Explain an essential legal liability term.
Define each of the following legal terms.Negligence per se

Back 69

Negligence per se describes a situation where the standard of care (duty) of the defendant is set by statute. For this to occur, the statute generally must be found to be intended to protect the class of people to which the plaintiff belongs; it must also be intended to protect against the type of harm which has in fact occurred in the case. In such a situation, an unexcused violation of the statute is held to be negligence.

Front 70

5–7 Explain an essential legal liability term.
Define each of the following legal terms. Absolute liability

Back 70

If a person maintains an extra-hazardous condition (such as keeping wild animals) or engages in extra-hazardous activities (such as dynamite blasting), he or she will have to bear such losses as result to others even though he or she may not be negligent in the typical meaning of the word.
Workers’ compensation is not, to be precise, an application of absolute liability in tort. Rather, it is a statutory preemption of tort law for work-related injuries—i.e., it applies the tort law concept of absolute liability to implement a public policy compromise.
Strict liability is generally limited to product liability situations.

Front 71

5–7 Explain an essential legal liability term.
Define each of the following legal terms. Vicarious liability

Back 71

This is imputed liability: one person is held liable for the negligent behavior of another. For example, principals can be held liable for the negligent acts of their agents.

Front 72

5–7 Explain an essential legal liability term.
Define each of the following legal terms. Res ipsa loquitur

Back 72

Literally, “the thing speaks for itself.”
It is a name given to circumstantial evidence in certain situations; the requirements for using res ipsa loquitur generally are formulated as follows:
(1) the accident was caused by something under the exclusive control of the defendant,
(2) the accident involved an event that does not ordinarily happen in the absence of negligence, and
(3) the plaintiff did not contribute to the accident.

Front 73

5–7 Explain an essential legal liability term.
Briefly explain the defenses to a negligence suit. Assumption of risk

Back 73

This refers to risk assumed by the injured party. If one party recognizes and understands danger in an activity and voluntarily chooses to encounter it, another party cannot be held responsible for the injury.

Front 74

5–7 Explain an essential legal liability term.
Briefly explain the defenses to a negligence suit. Contributory negligence

Back 74

Any negligence on the part of the injured party, even though slight, defeats the claim.

Front 75

5–7 Explain an essential legal liability term.
Briefly explain the defenses to a negligence suit. Comparative negligence

Back 75

This is an alternative to contributory negligence. Comparative negligence means that contributory negligence on the part of the injured party does not defeat the claim but is used in some manner to mitigate damages payable by the other party.

Front 76

5–7 Explain an essential legal liability term.
Briefly explain the defenses to a negligence suit. Last clear chance

Back 76

This is a modification of the contributory negligence rule. According to the last clear chance doctrine, contributory negligence of the injured party will not bar recovery if the other party, immediately prior to the accident, had a last clear chance to prevent the accident but failed to seize the chance.

Front 77

5–9 Identify a legal requirement for an enforceable contract.
List five legal requirements for an enforceable insurance contract. Explain each requirement.

Back 77

Offer and acceptance There must be an offer by one party, and the offer must be accepted by the other party.
Consideration Each party must give the other something of value.
Legal object The purpose of the contract must be legal.
Competent parties The parties to the agreement must be capable of entering into a contract in the eyes of the law.
Legal form If there are legal requirements concerning the form of the particular type of contract entered into, the contract must meet those requirements.

Front 78

5–11 Identify a concept, doctrine, or remedy used in settling disputes among parties to an insurance contract.
Explain the following as used in the process of settling contract disputes. Doctrine of Waiver

Back 78

Waiver occurs when a party, with full knowledge of the material facts and by his or her own actions (or the actions of his or her agent), has voluntarily relinquished or surrendered a known right. No action is required by the other party.

Front 79

5–11 Identify a concept, doctrine, or remedy used in settling disputes among parties to an insurance contract.
Explain the following as used in the process of settling contract disputes. Parol evidence rule

Back 79

Under this rule, when the parties put their agreement into a final, complete, binding, written contract (in the absence of fraud, mutual mistake, duress, or the like), evidence, whether oral or written, of PRIOR UNDERSTANDINGS WILL NOT BE ADMITTED TO CONTRADICT THE WRITING.
Note, however, that the parol evidence rule does not apply to subsequent modifications: evidence of oral modifications made after the agreement is in written form are admissible to clarify the parties’ intent.

Front 80

5–11 Identify a concept, doctrine, or remedy used in settling disputes among parties to an insurance contract.
Explain the following as used in the process of settling contract disputes. Waiver provision

Back 80

TO AVOID LIABILITY FROM AN AGENT OFFERING THE CLIENT TERMS NOT CONTEMPLATED BY THE CONTRACT, INSURERS GENERALLY PLACE A WAIVER CLAUSE IN INSURANCE CONTRACTS providing that “only the president, a vice president, or the secretary of the company has authority to alter this contract or to waive any of its provisions.” Such provisions are not always successful.

Front 81

5–11 Identify a concept, doctrine, or remedy used in settling disputes among parties to an insurance contract.
Explain the following as used in the process of settling contract disputes. Rescission

Back 81

Rescission is an equitable remedy by which the CONTRACT IS DEEMED NULL FROM ITS BEGINNING due to fraud, impossibility, misrepresentation of a material fact, concealment in the application, or mutual mistake as to a material fact.

Front 82

5–11 Identify a concept, doctrine, or remedy used in settling disputes among parties to an insurance contract.
Explain the following as used in the process of settling contract disputes. Reformation

Back 82

Reformation is an equitable remedy by which THE WRITTEN INSTRUMENT BETWEEN THE PARTIES IS CHANGED TO EXPRESS THE ORIGINAL INTENTIONS OF THE PARTIES. It must be shown that there was a mutual mistake, or a unilateral mistake coupled with actual or equitable fraud by the other party, duress, or related misconduct. The purpose of reformation is not to change the contract but to make the written contract conform to what was originally intended.

Front 83

5–12 Identify a description, explanation, or example of an essential term in a contract or insurance policy, or a related legal term.
Give an example of a bilateral contract and a unilateral contract.

Back 83

Bilateral “I will pay you $100 per month and you will make sure all of my bills get paid on time.”
Unilateral “If you mow the lawn before Saturday, I will take you to the baseball game on Sunday.”

Front 84

5–12 Identify a description, explanation, or example of an essential term in a contract or insurance policy, or a related legal term.
There are six contract characteristics generally applicable to insurance contracts that make them unusual as compared with other types of contracts. Describe these characteristics. Contract of Indemnity

Back 84

The insured is entitled to payment from the insurance company only if he or she suffered a loss and only to the extent of the financial loss sustained.

Front 85

5–12 Identify a description, explanation, or example of an essential term in a contract or insurance policy, or a related legal term.
There are six contract characteristics generally applicable to insurance contracts that make them unusual as compared with other types of contracts. Describe these characteristics. Personal contract

Back 85

The insured cannot transfer the contract to another without the consent of the insurer (with the exception of life insurance).

Front 86

5–12 Identify a description, explanation, or example of an essential term in a contract or insurance policy, or a related legal term.
There are six contract characteristics generally applicable to insurance contracts that make them unusual as compared with other types of contracts. Describe these characteristics. Unilateral contract

Back 86

Only one party to the contract is legally bound to do anything; the insured makes no promise that can be legally enforced.

Front 87

5–12 Identify a description, explanation, or example of an essential term in a contract or insurance policy, or a related legal term.
There are six contract characteristics generally applicable to insurance contracts that make them unusual as compared with other types of contracts. Describe these characteristics. Contract of adhesion

Back 87

The contract is prepared by one of the parties (the insurance company) and accepted “as is” or not at all by the other party (the insured).

Front 88

5–12 Identify a description, explanation, or example of an essential term in a contract or insurance policy, or a related legal term.
There are six contract characteristics generally applicable to insurance contracts that make them unusual as compared with other types of contracts. Describe these characteristics. Aleatory contract

Back 88

The outcome is affected by chance, and the amount of money given up by each party is unequal.

Front 89

5–12 Identify a description, explanation, or example of an essential term in a contract or insurance policy, or a related legal term.
There are six contract characteristics generally applicable to insurance contracts that make them unusual as compared with other types of contracts. Describe these characteristics. Contract of utmost good faith

Back 89

Both the insurer and insured enter into an agreement where mutual honesty is of paramount importance; this is given legal effect by the doctrines of:
misrepresentation,
warranty, and
concealment.

Front 90

4-TTD

What are the three economic theories of insurance regulation?

Back 90

1. Market failure theory
2. Capture theory of regulation
3. Public Choice Theory of regulation

Front 91

4-TTD

Define Market Failure Theory of regulation

Back 91

Based on the view that the purpose of regulation is to correct market failures

Front 92

4-TTD

Define Public Choice theory of regulation

Back 92

Views regulation as part of the system that serves to reallocate wealth among competing groups. Regulation tends to favor small, well organized groups with a high per capita stake at the expense of relatively large, poorly organized groups

Front 93

4-TTD

Define Capture theory of regulation

Back 93

Regulators generaly come from within the industry being regulated and/or leave the regulatory agency for a position in industry. This results in the industry being more for the benefit of the industry than for consumers. This theory does not hold up when evaluating the insurance industry.

Front 94

5-TTD

Define PERIL

Back 94

The cause of the loss (i.e. fire)

Front 95

5-TTD

Define HAZARD

Back 95

That which increases the potential for loss.

Front 96

5-TTD

3 basic types of risk exposure

Back 96

1. Asset related
2. Risk of liability baed on contract law related to an asset or activity
3. Risk of liability based upon tort law, wich is liability for a loss related from the use of an asset or from an activity

Front 97

5-TTD

Types of risk

Back 97

Pure risk: ?
Speculative risk: ?
Dynamic risks:?
static risks: ?

Front 98

5-TTD

Define Moral hazard

Back 98

possible motiviation supplied by the availability o insurance compensation for a loss. Isurance must be offered on a basis that does not encourage intentional destruction of the asset insured.

Front 99

4-TTD

Name the types of forms of ownership in insurance companies

Back 99

mutual companies
stock companies
frateral benefit societies
risk retention groups

Front 100

4-TTD

Explain Market Failure theory

Back 100

Based on the view that the purpose of regulation is to correct market failures.

Front 101

4-TTD

Explain Public choice theory

Back 101

This views regulation as part of the system that serves to reallocate wealth among competing groups. Reg will tend to favor small, well-organized groups

Front 102

4-TTD

Explain Capture theory

Back 102

Regulators generally come from within the industry being regulated and/or leave the regulatory agency for industry. This results in the regulation of an industry geing more for the benefit of the industry than for consumers.

Front 103

4-TTD

Name 4 examples of federal regulation of the insurance industry

Back 103

IRC
SEC
ERISA/PBGC/DOL
COBRA

Front 104

5-TTD

Define Morale hazard

Back 104

?

Front 105

5-TTD

Define Physical hazard

Back 105

?

Front 106

5-TTD

Define pure risks for individuals and businesses

Back 106

1. Persona risks (disability, premature death)
2. Property risks
3. Liability risks
4. Risks arising from the failure of others

Front 107

5-TTD

Name two critical assumptions for actuaries

Back 107

1. Elements of insured risk must be met
2. Adverse selection must be controlled

Front 108

5-TTD

Self insurance (form of risk retention) req's:

Back 108

1. Losses must be predictable; exposure units should be geo dispersed
2. Adequate funds must be accumulated to cover plan losses
3. Self insurer must be able to administer the insurance function
4. Self insurer must be able to competently manage the investment

Front 109

5-TTD

Define risk retention groups

Back 109

A group formed to insure its own members due to cost or unavailability of coverage in certain industries

Front 110

5-TTD

Define purchasing groups

Back 110

any group of persons/groups with similar risk exposures that for an organization with the purpose of purchasing insurance on a group basis. Unlike risk retention groups, these groups do not have to invest capital, submit a feasibility study or make any long term commitments.

Front 111

5-TTD

Name 3 liability considerations

Back 111

1. Being liable doesn't necessarily mean being wrong
2. While being irresponsible may invite liability, being responsible will not necessarily prevent it
3. Liability judgements are determined independent of insurance coverage

Front 112

5-TTD

Name 3 risk management considerations for the planner

Back 112

1. Avoid doing anything that is contrary to the letter ad intent of the contract
2. Establish standard procedures and checklists
3. Transfer much of the financial risk by buying E&O insurance

Front 113

5-TTD

A contract can be binding 2 ways:

Back 113

Form
Substance

Front 114

5-TTD

Define respondeat superior

Back 114

?

Front 115

5-TTD

Define strict liability

Back 115

a form of absolute liability that does allow for defense. Generally limited to liability situations.

Front 116

2-TTD

List principles of CFP code of ethics

Back 116

1. Integrity
2. Objectivity
3. Competence
4. Fairness
5. Confidentiality
6. Professionalism
7. Diligence

Front 117

2-TTD

List CFP Rules of Conduct

Back 117

1. Defining the relationship with the client
2. Info disclosed to client
3.Client information and property
4. Obligations to client
5. Obligations to employers
6. Obligations to board

Front 118

2-TTD

Fair credit reporting act

Back 118

report related

Front 119

2-TTD

Truth in lending act

Back 119

contract related

Front 120

2-TTD

Ch 7 Bankruptcy

Back 120

Liquidation

Front 121

2-TTD

Ch 13 Bankruptcy

Back 121

Wage earner repayment plan