Texas Life Insurance Exam Flashcards

Front 1

Commingling Mixing personal funds with the insured’s or insurer’s funds.

Back 1

Mixing personal funds with the insured’s or insurer’s funds.

Front 2

Contract

Back 2

An agreement enforceable by law. It is the means by which one or more parties bind themselves to certain promises. With a life insurance contract, the insurer binds itself to pay a certain sum upon the death of the insured. In exchange, the policyowner pays premiums. Because contracts of insurance are binding and enforceable, certain legal concepts extend to the contract parties: the applicant and the insurer, as well as the agent who brings them together.

Front 3

Three Types of Authority for an Agent

Back 3

1) Express
2) Implied
3) Apparent

Front 4

Utmost Good Faith

Back 4

Each party is entitled to rely on the representations of the other, and each party should have a reasonable expectation that the other is acting in good faith without attempts to conceal or deceive.

Front 5

Implied Authority

Back 5

Authority that is not expressly granted under an agency contract, but it is actual authority granted to an agent in accordance with general business practices. Implied authority addresses the relationship between the producer and the company. For example, these authorities are not written into the contract but are necessary to conduct insurance business; for example, when the producer collects the initial premium from an applicant on behalf of the insurer.

Front 6

Express Authority

Back 6

The explicit, definite authority which the insurer has given the producers under the terms of the agent’s written contract.

Front 7

Fraud

Back 7

An intentional act designed to deceive and induce another party to part with something of value.

Front 8

Exclusions

Back 8

A basic part of the contract, and a complete knowledge of them is essential to a thorough understanding of the agreement. Certain risks must be excluded from insurance contracts because they are not insurable. Such risks include war and acts of war, self-inflicted injuries, and certain hazardous occupations or avocations, such as sky diving, scuba diving, and auto racing.

Front 9

Warranty

Back 9

Something that becomes part of the contract itself and is a statement that is considered to be guaranteed to be true. Under a strict interpretation, any breach of warranty provides grounds for voiding the contract.

Front 10

Adhesion

Back 10

The insurance company drafts the wording of the contract and the insured simply adheres to it. As a result, any ambiguity in the contract is usually resolved in favor of the insured. Courts will usually grant any reasonable expectation on the part of the policyowner or the beneficiaries from a contract that was drawn up by the insurance company.

Front 11

Agent

Back 11

A person authorized to act on behalf of another person

Front 12

Omission

Back 12

Failure to inform of an important issue.

Front 13

Agency

Back 13

A relationship in which one person is authorized to represent and act for another person or for a corporation.

Front 14

Conditions

Back 14

Provisions that apply to the insured and insurer.

Front 15

Estoppel

Back 15

One party who has given up a right may be blocked (or stopped) from changing conduct and reasserting the right, after another party has begun to rely upon it, if doing so would be to the detriment of the second party.

Front 16

Suitability considerations

Back 16

Before an agent takes an applica tion for insurance or an annuity product, the agent and the insurer should obtain information from the prospective applicant that will help determine if either an insurance or annuity product is an appropriate means of addressing the prospect’s needs and, if so, what kind of product will best address those needs.

Front 17

Material Information/Material Fact

Back 17

Something that is crucial to acceptance of the risk. For example, if the correct information about something would have caused the insurance company to deny a risk or issue a policy on a different basis, the information is material. If a person misrepresents her age or gender, this may be considered material misrepresentation, and the policy could be voided as a result. However, the policy would only be voided if the company would not have issued the policy at all had the company possessed the correct information.

Front 18

Offer

Back 18

A proposal that becomes a contract if accepted by the person being offered the proposal.

Front 19

Concealment

Back 19

The failure to disclose known facts. Generally, an insurer may be able to void the insurance if it can prove that the insured intentionally concealed a material fact.

Front 20

Consideration

Back 20

The price requested and given in exchange for a promise or an act. In terms of insurance, it is the price of the contract, or the premium, the insured pays to keep the contract and its promised benefits in force.

Front 21

Fiduciary

Back 21

A person in a position of financial trust.

Front 22

Four Parts of an Insurance Policy

Back 22

1) Policy Face
2) Insuring Clause
3) Conditions
4) Exclusions

Front 23

Insuring Clause

Back 23

A statement by the insurance company that sets out the essential element of insurance— the promise to pay for losses covered by the policy in exchange for the insured’s premium and compliance with policy terms.

Front 24

Apparent Authority

Back 24

Authority the agent seems to have because of certain actions undertaken by the agent, thereby giving members of the public reason to believe that the agent does indeed have such authority to conduct business. For example, business cards and rate books give the impression to the applicant that the producer works for and represents the company; the agent’s words could appear to be the company’s words.

Front 25

Policy Face

Back 25

The first page of the insurance policy. It includes the policy number, name of the insured, policy issue date, the amount of premium and dates the premium is due, and the limits of the policy. The policy face also includes the signatures of the secretary and president of the issuing insurance company. In addition, generally there are clauses required by law to give the insured information on the right to cancel and a warning to the insured to read the policy carefully.

Front 26

Representation

Back 26

A statement believed to be true to the best of one’s knowledge. An insurer seeking to void coverage on the basis of a misrepresentation usually has to prove that the misrepresentation is material to the risk.

Front 27

Error

Back 27

Providing incorrect advice or information.

Front 28

Misrepresentation

Back 28

A written or oral statement that is false. Generally, for a misrepresentation to be grounds for voiding an insurance policy, it has to be material to the risk.

Front 29

Aleatory

Back 29

Performance depends upon an uncertain event.

Front 30

Waiver

Back 30

The intentional and voluntary giving up of a known right.

Front 31

False Pretenses

Back 31

Also known as impersonation. It means assuming the name and identity of another person for the purpose of committing a fraud.

Front 32

Principal

Back 32

The person the agent is acting on behalf of.

Front 33

Non-Participating Stock Company

Back 33

A stock company where policyholders do not participate in dividends resulting from stock ownership.

Front 34

Indemnify

Back 34

To make a person whole by restoring that person to the same financial position that existed before the loss.

Front 35

Insurance

Back 35

A contract that indemnifies another against loss, damage, or liability arising from an unknown event.

Front 36

Risk

Back 36

Uncertainty of financial loss, or the chance of loss, when more than one outcome is possible.

Front 37

Moral Hazards

Back 37

Hazards that arise from people's morals or values. Filing a false claim is an example of a moral hazard.

Front 38

Peril

Back 38

The immediate specific event causing loss and giving rise to risk. It is the cause of a risk. For example, when a building burns, fire is the peril. When a person dies, death is the peril.

Front 39

Fraternal Benefit Societies

Back 39

Primarily life insurance carriers that exist as social organizations and usually engage in charitable and benevolent activities. Fraternals are distinguished by the fact that their membership is usually drawn from those who are also members of a lodge or fraternal organization. They operate under a special section of the state insurance code and receive some income tax advantages. One distinctive characteristic of fraternal life insurance is the open contract, which allows fraternals to assess their certificateholders (charge additional, unscheduled premiums) in times of financial difficulty.

Front 40

Foreign Insurers

Back 40

A foreign insurer is licensed to conduct business in states (the District of Columbia or other US territories) other than the one in which it is incorporated.

Front 41

Insured

Back 41

The person who is covered by the insurance.

Front 42

General Agents or Managing General Agents (MGA's)

Back 42

People who hire, train, and supervise other career agents within a specific geographical area. The MGA is compensated by commissions earned on business sold by herself as well as an overriding commission (overrides) on the business produced by the other agents managed by the general agent. An MGA has field underwriting and binding authority only in property and casualty insurance.

Front 43

Alien Insurers

Back 43

Alien insurers are companies incorporated in a country other than the United States, the District of Columbia, or any US territorial possession.

Front 44

Domestic Insurers

Back 44

A company is a domestic insurer in the state in which it is incorporated.

Front 45

Pure Risk

Back 45

Risk involving only a chance of loss - the loss may or may not happen - but there is no possibility for a gain. The risk associated with an accident is an example of pure risk. Only pure risk is insurable.

Front 46

Facultative Reinsurance

Back 46

Negotiated on an individual risk basis. The reinsurer retains the right to accept or reject each risk, so there must be an offer and acceptance on each reinsurance contract.

Front 47

Reinsurers

Back 47

Reinsurers make up a specialized branch of the insurance industry that insures insurers. Reinsurance is an arrangement by which an insurance company trans fers a portion of a risk it has assumed to another insurer. Usually, reinsurance takes place to limit the loss any one insurer would face should a very large claim become payable. The company transferring the risk is called the ceding company; the company assuming the risk is the reinsurer.

Front 48

Claim

Back 48

A demand for payment of the insurance benefit to the person named in the policy.

Front 49

The United States Government as Insurer

Back 49

The federal government provides a wide variety of insurance benefits through various programs. These include Social Security benefits, military life insurance benefits, federal employee compensation benefits, and various retirement benefit programs. It also provides, supports, or subsidizes a number of insurance programs designed to cover catastrophic risks, including insurance for war risks, nuclear energy liability, flood, and crop losses.

Front 50

Policy Dividends

Back 50

Funds not paid out after paying claims and other operating costs that are returned to the policyowners.

Front 51

Annuity

Back 51

Provides guaranteed income for the life of an annuitant. Annuities are designed to protect against the risk of living too long—that is, outliving one’s financial resources during retirement.

Front 52

Insurer

Back 52

The company or organization who provides the life insurance.

Front 53

Exclusive or Captive Agents

Back 53

People who represent only one company. These agents are sometimes referred to as career agents working from career agencies. Most often, these captive or career agents are compensated by commissions.

Front 54

Hazard

Back 54

Any factor that gives rise to a peril. For purposes of life insurance, there are three basic types of hazards: physical, moral, and morale.

Front 55

Accident and health or sickness insurance.

Back 55

Protects the insured against financial loss caused by sickness, bodily injury, or accidental death and may include benefits for disability income. It may reimburse the insured for actual medical expenses incurred as a result of an accident or illness (hospitalization insurance), or it may provide protection for loss of income experienced by the insured during periods of disability resulting from accident or sickness (i.e., disability income insurance). Health insurance can be written on either an individual or group basis and may include medical expense, hospital indemnity, major medical, hospital, surgical, disability, cancer, accident, dental expenses, eyeglasses, prescription medication, and other health-related expenses.

Front 56

Limit of Liability

Back 56

The maximum amount the insurer will pay for a specified insured contingency.

Life insurance policies usually use the term face amount to refer to the maximum liability of the insurer for a death claim.

Health and disability policies are more likely to specify a maximum benefit amount or period instead of a limit of liability. Basic medical insurance often has a maximum benefit amount (such as $10,000), and major medical insurance usually has a lifetime maximum benefit (such as $1 million).

Front 57

Life Insurance

Back 57

insurance coverage on human lives, including endowments and annuities, and may include benefits in the event of accidental death or dismemberment and benefits for disability. It is designed to protect against the risk of premature death, which exposes a family or a business to certain financial risks, such as burial expenses, paying debts, loss of family income, and business profits.

Front 58

Variable life and variable annuity products

Back 58

Include insurance coverage provided under variable life insurance contracts and variable annuities. Variable products carry investment risk—that is, the insured may lose money because of a decrease in the price of the securities underlying the policy. For this reason, individuals selling such products are required to carry a securities license as well as an insurance license.

Front 59

Treaty Reinsurance

Back 59

Involves the automatic sharing of risks by the ceding company.

Front 60

Speculative Risk

Back 60

A risk that involves an uncertainty of both loss and gain. Examples: betting on horse racing or the stock market. Speculative risk cannot be insured.

Front 61

Stock Insurance Company

Back 61

Consists of stockholders, also known as shareholders, who own shares in the company. Stockholders select the board of directors, and the board elects the officers who conduct the daily operations of the business.

Front 62

Morale Hazards

Back 62

Hazards that arise out of human carelessness or irresponsibility. Examples would be failing to take safety precautions.

Front 63

Loss

Back 63

Reduction in the value of an asset.

Front 64

Policy

Back 64

A legal document, also referred to as a contract of insurance, that defines the agreement between the insurer and the insured.

Front 65

Twisting

Back 65

Occurs when a producer convinces a policyowner to lapse or surrender a present policy in order to sell him another one, usually from a different company. Any attempt by the producer to misrepresent another insurer by falsely making statements about the financial condition of the company or by giving an incomplete comparison of policies is an unfair trade practice.

Front 66

Churning

Back 66

The practice of using misrepresentation to induce replacement of a policy issued by the insurer the producer is representing, rather than the policy of a competitor. The impetus behind churning is to allow the producer to collect a large first-year commission on a new policy. Churning is the result of a producer putting his interests above those of the client.

Front 67

The three major channels of regulation of the insurance industry are;

Back 67

1) Federal Regulation
2) State Regulation
3) Self Regulation

Front 68

Rebating

Back 68

Any inducement in the sale of insurance that is not specified in the insurance contract. An offer to share commissions with the insurance applicant is an inducement in the sale of insurance that is not part of the insurance policy, and thus, constitutes rebating. Rebates include not only cash but also personal services and items of value.

Front 69

Guaranty Associations

Back 69

organized to protect claimants, policyholders, annuitants, and creditors of financially impaired or insolvent insurers by providing funds for the payment of claims and other related policy benefits. Associations are composed of insurers authorized to transact insurance business within the state. Association membership exceptions include fraternal organizations and nonprofit companies. Member insurers are assessed certain sums of money to cover the association’s operating expenses. If insurer insolvency occurs, each member insurer will be assessed additional fees to cover the insolvency.

Front 70

Rules and Regulations

Back 70

Developed by the Department of Insurance to expand upon statutory requirements and legislative intent.

Front 71

Insurance Code

Back 71

The body of laws governing insurance at the state level.