Insurance Licensing Exam

Front 1

Define Insurance

Back 1

a contract in which one party agrees to indemnify the other party against loss or damage or liability arising from an unknown event

Front 2

Pure Risk

Back 2

situations that can only result in a loss or no change

Front 3

Speculative Risk

Back 3

opportunity for either loss or gain

Front 4

Which type of risk to insurance companies accept?

Back 4

Only accept pure risk

Front 5

Exposure

Back 5

unit of measurement used to determine rates charged for insurance

Front 6

What are some factors used to determine rates in Life Insurance?

Back 6

age, medical history, occupation and sex

Front 7

Homogenous

Back 7

large number of units having same or similar exposure to loss

Front 8

Hazards

Back 8

conditions that increase probability of loss occurring
(physical, moral and morale)

Front 9

Define physical hazards

Back 9

individual characteristics that increase chance of loss

Front 10

What are some examples of physical hazards?

Back 10

Pre-existing medical condition, birth condition, (blindness)

Front 11

Define Moral Hazards

Back 11

tendencies toward increased risk

Front 12

What are some examples of moral hazards

Back 12

lying on an application for insurance
submitted fraudulent claims

Front 13

Define Morale Hazards

Back 13

indifference to loss

"i don't need to pay for the flu shot, if I get sick my insurance will pay for it"

Front 14

Perils

Back 14

causes of loss insured against in an insurance policy

Front 15

Loss

Back 15

the reduction, decrease, or disappearance of value of the person or property insured in a policy caused a peril

Front 16

What are some methods of handling risks?

Back 16

avoidance
retention
sharing
reduction
transfer

Front 17

What certain characteristics or elements must be present before a pure risk can be insured?

Back 17

loss must be due to chance
loss must be definite and measurable
loss must be statistically predictable
loss cannot be catastrophic
loss exposure to be insured must be large
insurance must not be mandatory

Front 18

Adverse Selection

Back 18

insuring of risks that are of poorer class than the average risk

Front 19

How do underwriters protect the insurer against adverse selection?

Back 19

restriction of coverage
acceptance only at higher rate
refusal to accept risk

Front 20

Law of Large Numbers

Back 20

the larger the number of similar exposure unity considered, the more closely the losses reported will equal the underlying probability of loss.

Front 21

What is the purpose of the law of large numbers?

Back 21

forms the basis for statistical prediction of loss upon which rates for insurance are calculated

Front 22

List the 7 types of insurers

Back 22

captive
stock companies
mutual companies
fraternal benefit societies
reciprocals
risk retentions
lloyd's associations

Front 23

What is the major difference between private and government insurance?

Back 23

government programs are funded with taxes and serve national and state social purposes, while private policies are funded by premiums

Front 24

What must an insurer have to legally transact insurance?

Back 24

Certificate of Authority from the Department of Insurance

Front 25

Define Domestic insurer

Back 25

insurance company that is incorporated in this state

Front 26

Define Foreign insurer

Back 26

insurance company that is incorporated in another state, territorial possession or Washington D.C.

Front 27

Define Alien insurer

Back 27

company incorporated outside of U.S.

Front 28

What are the 5 Marketing Systems?

Back 28

Independent Agency System/American Agency System

Exclusive Agency System/Captive Agents

General Agency System

Managerial System

Direct Response Marketing System

Front 29

Define Independent Agency System/American Agency System

Back 29

an independent agent represents several companies and is appointed on a non-exclusive basis

Front 30

define exclusive Agency System/Captive Agents

Back 30

agent represents only one insurer and is appointed on an exclusive basis

Front 31

Define general agency system

Back 31

general agent is an entrepreneur authorized by the insurer that he or she represents on an exclusive basis to sell life insurance in a specified territory and to appoint subagents

Front 32

Define Managerial System

Back 32

a sales force is supervised by a branch manager who, in contrast to the general agent, is a salaried employee of the insurer

Front 33

Define Direct Response Marketing System

Back 33

a company which advertises its insurance through the mail, internet, tv or other amss marketing and requires the applicant to complete and return the application directly to the insurer by mail or online

Front 34

Name and define the general rules of agency

Back 34

insurer as principal- acts of an agent/producer, while acting within the scope of their authority are the acts of the insurer

producer/insurer relationship- agent will always be deemed to represent the insurer, not the insured

authority and powers of producers- agency contract details the authority an agent has within his/her company

Front 35

what are the three types of agent authority

Back 35

express-written in contract

implied- not written but assumed

apparent- not expressed or written, but based on circumstances

Front 36

What is an agent legally obligated to do?

Back 36

Perform in an ethical manner

Front 37

define fiduciary

Back 37

agent/broker who handles insurer's funds in a trust capacity

Front 38

Name some regulation in the Market Conduct

Back 38

conflict of interest
request of a gift or loan as a condition to complete business
supplying confidential information

Front 39

define Market Conduct

Back 39

code of ethics for producers

Front 40

define contract

Back 40

agreement between two or more parties enforceable by law

Front 41

what are the four elements to a contract?

Back 41

agreement: offer/acceptance
consideration
competent parties
legal purpose

Front 42

define personal contract

Back 42

agreement between an insurance company and an individual that states that insurance policies cover the individual's insurable interest

Front 43

define unilateral contract

Back 43

contract that legally binds only one party to contractual obligations after the premium is paid

Front 44

define conditional contract

Back 44

type of an agreement in which both parties must perform certain duties and follow rules of conduct to make the contract enforceable

Front 45

Courts have held that any ambiguity in the contract should be interpreted...

Back 45

in favor of the insured

Front 46

define indemnity

Back 46

restoration of the insured to the same condition as prior to loss with no intent of loss or gain

Front 47

What does utmost good faith imply?

Back 47

there will be no fraud, misrepresentation or concealment between the parties

Front 48

define representations

Back 48

statements believed to be true to the best of on's knowledge, but they are not guaranteed to be true

Front 49

define misrepresentations

Back 49

intentionally untruthful answers

Front 50

define warranty

Back 50

material stipulation in the policy that if breached may void contract

Front 51

define estoppel

Back 51

legal impediment to denying a fact or restoring a right that has been previously waived