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78 Cards in this Set
- Front
- Back
Premium |
The insurance company, or insurer, receives relatively small amounts of money from each of the large number of people buying insurance |
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Policy |
The agreement between the insurer and the insured, the person who is covered by the insurance, is established in a legal document referred to as a contract of insurance |
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Loss |
Reduction in the value of an asset |
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Claim |
To be paid for a loss, the insured must notify the insurer |
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Risk |
The possibility or uncertainty that a loss might occur |
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Speculative Risk |
Such as gambling, creates a risk situation and offers the opportunity for gain as well as the possibility of loss. Insurance does not cover this. |
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Pure Risk |
The possibility that a certain event may occur, such as accident or sickness. The purpose of insurance is to restore the insured to their original position, not to provide a person with the opportunity of making a profit on an accident or sickness |
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Hazard |
Something that increases the risk, or chance of loss |
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Physical hazard |
Such as a dead tree next to your house that could blow over during the next windstorm causing damage to your roof |
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Moral hazard |
Such as presented by a dishonest client who intentionally damages their own property |
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Morale hazard |
Such as presented by a careless client, or one with no pride of ownership in their property |
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Exposure |
Something that could result in a loss |
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Retained risk |
When a person decides to assume financial responsibility for certain events |
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Avoided risk |
Such as when a person stays home rather than driving somewhere |
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Reduced risk |
Such as when a person practices living a healthier lifestyle, thereby reducing the chance of major illness |
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Transferred risk |
Risk can be transferred to another party, either a negligent party, or the insurance company |
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Law of large numbers |
The larger the number of separate risks of a like nature combined into one group, the more predictable the number of future losses of that group within a given time. |
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Insurable interest |
A risk must involve the possibility of loss only, and not gain, and the applicant must have a legitimate interest in the preservation of the life or property insured
Life: at time of application P&C: at time of application AND time of loss |
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Large number of homogenous units |
A group has to experience many instances of the same kind of risk so that an insurance company can, based off of previous knowledge, predict future losses accurately |
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Loss must be calculable |
The insurer must be able to place a monetary value on the loss. Economic loss is measured by lost wages and medical expenses |
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Loss must be uncertain |
Since the purpose of insurance is to reduce or eliminate uncertainty, it is not in the company's interest to write policies for intentional acts or expected losses such as depreciation |
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Loss must present economic hardship |
If the loss occurs, it must present an economic hardship. People will compare how much money they would lose if a loss occurred to how much money they pay for a premium |
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Exclusion of catastrophic perils |
We can't predict catastrophes such as war, nuclear risk, or earthquakes, so we can't insure them |
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Adverse selection |
Only select groups of people would need to buy certain insurance, like flood coverage, so the larger group can't share in that type of risk |
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Principle of indemnity |
The idea that the insured should be restored, in whole or in part, to the condition they enjoyed prior to the loss
In life insurance, the value is placed on the person's earning potential. The family should be able to financially continue as if the person were still alive |
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Stock Insurers |
A stock insurance company, like other stock companies, consists of stockholders who own shares in the company. All stockholders share in any profits and any losses because they all provide capital for the insurer. Management rests with the board of directors, selected by the stockholders |
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Mutual Insurers |
In this company there are no stockholders. Ownership rests with the policyholders. They vote for a Board of Directors and funds not paid out after paying claims may be returned to the policyholder in the form of policy dividends. Dividends are never guaranteed and are not taxable |
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Reciprocal Insurers |
Unincorporated groups of people providing insurance for one another through individual indemnity agreements. Each individual who is a member is called a subscriber. Administration is handled by an attorney in fact |
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Fraternal Insurers |
Exist as social organizations and usually engage in charitable activities. Membership is usually drawn from those who are also members of the fraternity. One characteristic of this type is the open contract, which allows fraternal insurers to assess their policyholders in times of financial difficulty |
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Reinsurance |
A form of insurance between insurers. It occurs when an insurer agrees to except all or a portion of a risk covered by another insurer. Companies often use this to reduce the risk of a catastrophic loss
1. Except of loss= Pay only the portion of loss that exceeds a threshold 2. Quota share= insurers will share a loss on a pro rata or fixed percentage basis 3. Facultative= insurer elects to reinsure certain risks, but not others |
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Captive Insurers |
Stock is controlled by one interest or a group of related interests who have direct involvement and influence of the company's operations. Formed to serve the insurance needs of their stockholders while avoiding the uncertainties related to commercial insurance availability and cost. Most are non-admitted alien corporations |
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Surplus Lines |
When a risk is too large or unusual to be carried by a normal company, a surplus lines broker will attempt to place it with an unauthorized carrier located in another state or out of the country, such as Lloyds of London |
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Lloyd's Association |
Similar but not connected to Lloyds of London, this is an unincorporated group of individuals who band together to assume risks in the area of surplus lines. Each person is individually responsible only for the share of the risk they agree to assume |
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Government Insurers |
The federal government provides life and health insurance, and offers a variety of plans including war risk, nuclear energy liability, federal crime, etc. |
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Government Insurers |
The federal government provides life and health insurance, and offers a variety of plans including war risk, nuclear energy liability, federal crime, etc. |
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Domestic Insurer |
When an insurer is incorporated under the laws of the state in which it conducts its business |
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Government Insurers |
The federal government provides life and health insurance, and offers a variety of plans including war risk, nuclear energy liability, federal crime, etc. |
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Domestic Insurer |
When an insurer is incorporated under the laws of the state in which it conducts its business |
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Foreign Insurer |
When an insurer conducts its business in a state where it is not resident |
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Government Insurers |
The federal government provides life and health insurance, and offers a variety of plans including war risk, nuclear energy liability, federal crime, etc. |
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Domestic Insurer |
When an insurer is incorporated under the laws of the state in which it conducts its business |
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Foreign Insurer |
When an insurer conducts its business in a state where it is not resident |
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Alien Insurer |
When an insurer is incorporated in a country other than the United States |
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Government Insurers |
The federal government provides life and health insurance, and offers a variety of plans including war risk, nuclear energy liability, federal crime, etc. |
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Domestic Insurer |
When an insurer is incorporated under the laws of the state in which it conducts its business |
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Foreign Insurer |
When an insurer conducts its business in a state where it is not resident |
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Alien Insurer |
When an insurer is incorporated in a country other than the United States |
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Admitted (Authorized) Insurers |
Insurance companies must, by law, receive a certificate of authority to conduct business. This is issued by the Department of Insurance to sell in a particular state |
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Independent financial rating services |
Private companies such as Best's Guide and Moody's rate insurance companies according to the amount of financial reserves the company has available to pay future claims and other liabilities |
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Independent insurance producers |
Sell the products of several companies and work for themselves. They are paid a commission for each sale and they own the expirations of every policy sold, meaning that they can place that business with another insurer or company |
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Exclusive or captive insurance producers |
Represent only one company and may be paid a salary or commission. They do not own the policy expirations. |
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Exclusive or captive insurance producers |
Represent only one company and may be paid a salary or commission. They do not own the policy expirations. |
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General Agent |
Have other producers working under them, and collect an overriding commission, in addition to the commissions paid to their producers |
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Direct writing companies |
Pay salaries to employees who sell their product. The company owns the expirations |
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Direct writing companies |
Pay salaries to employees who sell their product. The company owns the expirations |
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Direct response marketing |
Is conducted through mail, print, and TV and radio advertisements. Policies sold usually have limited benefits and low premiums |
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Direct writing companies |
Pay salaries to employees who sell their product. The company owns the expirations |
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Direct response marketing |
Is conducted through mail, print, and TV and radio advertisements. Policies sold usually have limited benefits and low premiums |
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Franchise marketing system |
Provides coverage to employees of small firms or to members of associations. This allows companies who do not qualify for group coverage to offer individual insurance to their employees at a lower premium. Premiums can be deducted from paychecks |
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Non-insurance sponsors |
The most common are banks and companies that issue credit cards. This reaches a select group of individuals who have a history of periodic payments, and usually the sponsor bills the premium to their monthly statement like a checking account |
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Vending machine insurance |
Usually consist of travel accident policies sold at airport counters, and are typically good for a single trip covering accidental death |
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A producer's binding authority |
When a producer is under contract with one particular company they are granted binding power which commits their companies by oral or written agreement. Binders are considered to be temporary insurance and are considered to include all of the terms of the policy to be issued |
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Broker |
An individual sales person who selects for their client insurance coverage from whatever company best fits the clients needs. They may not make binders of coverage since they do not represent any one insurer |
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Law of Agency |
The idea that an insurance company must act through producers and are vicariously liable for their activities. Producers are persons authorized to act on behalf of the company, called the principal. When a producer is empowered to act for a principal, they are legally assumed to be the principal, by the grant of agency |
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Express Authority |
An explicit, definite agreement set forth in a contract that gives the authority of the principal to the producer. If a producer acts outside of the limitations of the contract, they can be held responsible for Errors and Omissions (E&O). Their actions and knowledge are legally binding on the insurance company, so it's important to be alert to the consequences |
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Implied Authority |
Is not expressly granted under a contract, but it is actual authority that the producer has to transact the principal's business in accordance with general practices. For example a contract does not give express authority to collect and submit premiums, but the producer still does so on a regular basis. That is, it is a general business practice to collect payments and the producer has implied authority to do so |
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Apparent Authority |
Authority that the producer seems to have because of actions taken in the past. For example, if a company has a history of accepting late payments and then reinstating a lapsed policy, a court would probably hold that a policyholder was right to assume that the producer had apparent authority |
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Fiduciary duty |
A producer has a fiduciary duty to act in the best interest of the insured. This relationship is developed because a person has trust and confidence that a producer has proper knowledge of all products policies and regulations. |
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Errors and Omissions insurance |
Needed by professionals who give advice to their clients about insurance. In the event that an insured sues them for loss due to a producer giving them incorrect advice, or not informing them of an important issue, this insurance has a high deductible and do not cover embezzlement or filing of false financial statements or bodily injury or property damage liability |
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COAL In order to be enforceable in court, a contract must contain these four essential elements |
Consideration The exchange of something of value between parties
Offer The client must clearly communicate a signed application and give first premium payment
Acceptance of Offer The company must approve the application and issue the policy
Legal Purpose and Legal Capacity The policy must only cover business of a legal nature, and all parties must be competent, meaning of age and a sound mind and not under the influence of drugs or alcohol.
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Doctrine of Adhesion |
Since clients must buy insurance contracts as is, this states that if the insurance contract language is vague or unclear, any ambiguity will be construed in favor of the insured, since that person had no chance to change it when they bought it. |
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Doctrine of Utmost Good Faith |
The idea that all answers and advice given by any party are the truth to the best of their knowledge |
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Legal doctrine of Waiver and Estoppel |
The idea that a waiver is the voluntary giving up of a known right, and once given up that right can no longer be asserted in the future |
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Concealment |
The deliberate omission of a material fact |
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Concealment |
The deliberate omission of a material fact |
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Fraud |
A deliberate attempt to deceive the producer or insurance company |
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Doctrine of Reasonable Expectations |
Most people don't actually read their policies and are not really expected to. It's the producers job to explain any limitations in coverage, and this doctrine holds that certain perils maybe reasonably expected to be covered |
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Representation vs Warranty |
Representation The truth to the best of your knowledge
Warranty A sworn statement of truth, guaranteed to be true |