Insurance Study Cards

Front 1

what is the definition of insurance?

Back 1

the transfer of financial responsibility associated witha potential of a loss (risk) to an insurance company, which in turn spreads the costs of unexpected losses to many individuals.

Front 2

what is the definition of indemnify?

Back 2

to compensate for damage or loss sustained, expense incurred.

Front 3

what is defined as a hazard?

Back 3

conditions or situations that increase the probabilty of an insured loss occuring.

Front 4

what are the three types of hazards?

Back 4

physical. moral, and morale.

Front 5

what is a risk?

Back 5

the uncertainty or chance of a loss occuring.

Front 6

what are the 2 types of risks?

Back 6

pure and speculative risks.

Front 7

what is a pure risk?

Back 7

situations that can only result in a loss or no change. there is no gain. this is the only type of risk that insurance companies are willing to accept.

Front 8

what is a speculative risk?

Back 8

involves the oppurtunity for either a loss or gain. i.e gambling. these types are not insurable.

Front 9

what is an exposure?

Back 9

unit of measure to determine the rates charged for insurance coverage.

Front 10

what factors are considered when determining rates for life insurance?

Back 10

age, medical history, sex, occupation.

Front 11

what is refered to as homogeneous?

Back 11

a large number of units having the same or similar exposure to loss.

Front 12

what is a peril?

Back 12

the cause of loss insured against in an insurance policy. i.e health insurance covers the peril of medical bills.

Front 13

what is refered to as a loss?

Back 13

the reduction, decrease, or dissapearance of the value of a person or property insured in a policy, by a peril insured against.

Front 14

what characteristics must be present before a pure risk can be insured?

Back 14

1. must involve the chance of loss that is outside the insured's control.
2. the loss must be definite and measureable in regards to time, place and amount.
3. the loss must be statistically predictable in order to estimate the frequency and severity of future occurences and to establish rates.
4. the loss can not be catostrophic to where the insurer would have to pay out a huge sum. it must be within the insurer's limitaions.
5. the loss of exposure to be insured must be large. (it must be a risk that is similar to a large group of people who share the same type of insurance so that the insurer can better predict the rates.
6. it is not mandatory that insurance be provided. there must be certain criteria met first.

Front 15

what is adverse selection?

Back 15

the insuring of risks that are of a poorer class (more prone to losses) than the average risk.

Front 16

who protects insurer's from adverse selection?

Back 16

the underwriting department

Front 17

what are three ways the underwriting dept protects insurer's?

Back 17

1. restriction of coverage
2. acceptance only at a higher rate
3. refusal to accept the risks

Front 18

what is the law of large numbers?

Back 18

a principle stating that the larger the number of similar exposure units considered, the more closely the losses reported will equal the underlying probability of loss.

Front 19

what is reinsurance?

Back 19

a form of insurance wherby one insurance company (the reinsurer) in consideration of a premium paid to it, agrees to indemnify another insurance company (the ceding company) for part of or all of its liabilities from insurance policies it has issued. this is a method used by insurers to protect against catostrophic losses.

Front 20

what is faculative reinsurance?

Back 20

when reinsurance is purchased on a specific policy.

Front 21

what is a reinsurance treaty?

Back 21

when an insurer has an automatic reinsurance agreement between itself and the reinsurer in which the reinsurer is bound to accept all risks ceded to it.

Front 22

ho long are reinsurance treaties usually negotiated for?

Back 22

for a period of a year or longer.

Front 23

what is a stock company?

Back 23

insnurance companies owned by stockholders who provide the capital neccessary to establish and operate the company. earnings may be distrubed as dividends or kept as retained earnings.

Front 24

what is a mutual company?

Back 24

insurance organizations owned by policyholders. profits are returned to policy holders as non-profit dividends (return of premiums).

Front 25

what is a fraternal benefit society?

Back 25

a voluntarily formed organization that provides life or health insurance benefits for an affiliated lodge, religous organization, or fraternal organization with a representative form of government.

Front 26

what is a reciprocal exchange?

Back 26

insurance resulting from an interchange of reciprocal agreements of indemnity among persons known as subscriber. subscribers agree to become liable for their share of losses as well as expenses incured by all subcribers, and they authorize the attorney-in-fact to manage and operate the exchange.

Front 27

what is the lloyd's association?

Back 27

it is not an insurance company. lloyd's provides support facilities for underwriters or groups of individuals that accept insurance risks. lloyd's association uses some of the same principle of individual liability of insurer's that lloyd's of london uses, in that each individual underwriter assumes a part of each risk. each individual promises to pay a specified amount in the event that the contingency insured against occurs. those lloyd's which do exist operate almost exclusively in the property iinsurance field.

Front 28

what are the major differences between private and government insurers?

Back 28

government programs are funded by taxes and serve national and state social purposes (i.e medicare, social security), while private policies are funded by premiums. the government provides insurance where the private insurers either cannot or will not write insurance.

Front 29

what is an admitted insurer?

Back 29

an insurance company that has qualified and received a certificate of authority from the department of insurance to transact insurance in the state.

Front 30

what is a nonadmitted insurer?

Back 30

an insurance company that has not applied, or has applied and been denied a certificate of authority and may not transact insurance.

Front 31

what is a domestic insurer?

Back 31

an insurance company that is incorporated in the same state.

Front 32

what is a foreign insurer?

Back 32

an insurance company that is incorporated in another state (i.e a company chartered in california would be a foreign company within the state of new york.

Front 33

what is an alien insurer?

Back 33

a company that is incorporated outside of the unites states.

Front 34

what is the financial strength of an insurance company based on?

Back 34

1. prior claims experience
2. investment earnings
3. level of reserve (money kept in a seperate account to cover debts to policyholders)
4. management

Front 35

guides to insurance companies' financial integrity are publilshed regularly by which 5 independent rating services?

Back 35

1. AM best
2. fitch
3. standard and poors
4. moody's
5. weiss

Front 36

how does an independent agency system/american agency system function?

Back 36

an independent agent represents several companies on a non-exclusive basis.

Front 37

how does an exclusive agency system/captive agents function?

Back 37

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

Front 38

what is defined as an agent/producer?

Back 38

a person who acts for another person or entity, known as the principle, with regards to contractual agreements with third parties.

Front 39

in applying the law of agency, the acts of the agent/producer, while acting within the scope of their authority, are the acts of the _______.

Back 39

insurer

Front 40

when is the agent is responsible to the insurer?

Back 40

when completing applications for insurance, submitting the application to the insurer for underwriting, and when issued, delivering the policy to the policy owner and explaining the contract.

Front 41

what are the 3 different types of authorities an agent can posses?

Back 41

1. express (the authority given to an agent by the principle "insurer" by means of a written contract)
2. implied ( no written contract involve, agent is assumed to have things in ordeer)
3. apparent

Front 42

an agent is legally obligated to perform min an _______ manner.

Back 42

ethical.

Front 43

an insurance agent who agrees to obtain insurance for a client is obligated to exercise the same degree of care as would be expected from a reasonable, prudent, and competent professional in the field. this responsibility is refered as the the agant's _________?

Back 43

fiduciary responsiblity

Front 44

what is a fidicuary?

Back 44

a producer (agent) who handles insurer's funds in a trust capacity.

Front 45

what describes the ways producers and companies should conduct their buisness?

Back 45

market conduct

Front 46

what is a contract defined as?

Back 46

an agreement between two or more parties enforcable by law.

Front 47

what are the 4 essential elements of a legal contract?

Back 47

1. offer and acceptance
2. consideration
3. competent parties
4. legal purpose

Front 48

what is considered an aleatory contract?

Back 48

contract in which unequal amounts or values are exchanged. (i.e monthly payment is $100 and beneficiary receives $75,000 when insured passes away)

Front 49

what is a personal contract?

Back 49

it is strictly between the insurance company and the insured individual. the contract cannot be transfered without written consent of the insurer.

Front 50

what is a unilateral contract?

Back 50

only one of the parties in the contract is legally bound to do anything. the insured makes no legally binding promises: however an insurer is legally bound to pay losses covered by a policy in force.

Front 51

what is a conditional contract?

Back 51

requires both the insurer and policyowner to meet certain conditions before the contract can be executed.

Front 52

what is the principle of utmost good faith?

Back 52

it implies that there will be no fraud, misrepresentaion or concealment between the parties.

Front 53

what is the provision in an insurance policy that states that in the event of a loss, an insured is only permitted to collect to the extent of their financial loss and is not allowed to gain financially because of the existance of an insurance contract?

Back 53

indemnity (also refered to as reimbursement)

Front 54

statements that are believed to be true to the best of one's knowledge, but they are not guaranteed to be true are known as?

Back 54

representations.

Front 55

if the insured answers questions untruthfully, the statements are considered to be ________.

Back 55

misrepresentations

Front 56

what is considered a warranty
?

Back 56

an absolutely true statement upon which the validity of the insurance policy depends.

Front 57

what is concealment?

Back 57

the legal term for the intentional withholding of information that will result in an imprecise underwriting decision.

Front 58

what is considered as fraud?

Back 58

the intentional misrepresentation or intentional concalment of a material fact used to induce another party to make or refrain from making a contract, or to decieve or cheat a party.

Front 59

what is considered as a waiver?

Back 59

the intentional act of given up a known right, claim, or privelage. (i.e when an insurer allows a late payment without charging a late fee).

Front 60

what is considered estoppel?

Back 60

a legal process that can be used to prevent a party to a contract from reasserting a right or privelage after the right or privelage has been waived. (i.e denying coverage for someone who incurs a loss because they are late on a payment, when in the past the insurance company waived the late fees and accepted late payments)