General Insurance

Front 1

Premium

Back 1

The insurance company, or insurer, receives relatively small amounts of money from each of the large number of people buying insurance

Front 2

Policy

Back 2

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

Front 3

Loss

Back 3

Reduction in the value of an asset

Front 4

Claim

Back 4

To be paid for a loss, the insured must notify the insurer

Front 5

Risk

Back 5

The possibility or uncertainty that a loss might occur

Front 6

Speculative Risk

Back 6

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.

Front 7

Pure Risk

Back 7

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

Front 8

Hazard

Back 8

Something that increases the risk, or chance of loss

Front 9

Physical hazard

Back 9

Such as a dead tree next to your house that could blow over during the next windstorm causing damage to your roof

Front 10

Moral hazard

Back 10

Such as presented by a dishonest client who intentionally damages their own property

Front 11

Morale hazard

Back 11

Such as presented by a careless client, or one with no pride of ownership in their property

Front 12

Exposure

Back 12

Something that could result in a loss

Front 13

Retained risk

Back 13

When a person decides to assume financial responsibility for certain events

Front 14

Avoided risk

Back 14

Such as when a person stays home rather than driving somewhere

Front 15

Reduced risk

Back 15

Such as when a person practices living a healthier lifestyle, thereby reducing the chance of major illness

Front 16

Transferred risk

Back 16

Risk can be transferred to another party, either a negligent party, or the insurance company

Front 17

Law of large numbers

Back 17

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.

Front 18

Insurable interest

Back 18

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

Front 19

Large number of homogenous units

Back 19

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

Front 20

Loss must be calculable

Back 20

The insurer must be able to place a monetary value on the loss. Economic loss is measured by lost wages and medical expenses

Front 21

Loss must be uncertain

Back 21

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

Front 22

Loss must present economic hardship

Back 22

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

Front 23

Exclusion of catastrophic perils

Back 23

We can't predict catastrophes such as war, nuclear risk, or earthquakes, so we can't insure them

Front 24

Adverse selection

Back 24

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

Front 25

Principle of indemnity

Back 25

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

Front 26

Stock Insurers

Back 26

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

Front 27

Mutual Insurers

Back 27

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

Front 28

Reciprocal Insurers

Back 28

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

Front 29

Fraternal Insurers

Back 29

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

Front 30

Reinsurance

Back 30

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

Front 31

Captive Insurers

Back 31

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

Front 32

Surplus Lines

Back 32

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

Front 33

Lloyd's Association

Back 33

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

Front 34

Government Insurers

Back 34

The federal government provides life and health insurance, and offers a variety of plans including war risk, nuclear energy liability, federal crime, etc.

Front 35

Government Insurers

Back 35

The federal government provides life and health insurance, and offers a variety of plans including war risk, nuclear energy liability, federal crime, etc.

Front 36

Domestic Insurer

Back 36

When an insurer is incorporated under the laws of the state in which it conducts its business

Front 37

Government Insurers

Back 37

The federal government provides life and health insurance, and offers a variety of plans including war risk, nuclear energy liability, federal crime, etc.

Front 38

Domestic Insurer

Back 38

When an insurer is incorporated under the laws of the state in which it conducts its business

Front 39

Foreign Insurer

Back 39

When an insurer conducts its business in a state where it is not resident

Front 40

Government Insurers

Back 40

The federal government provides life and health insurance, and offers a variety of plans including war risk, nuclear energy liability, federal crime, etc.

Front 41

Domestic Insurer

Back 41

When an insurer is incorporated under the laws of the state in which it conducts its business

Front 42

Foreign Insurer

Back 42

When an insurer conducts its business in a state where it is not resident

Front 43

Alien Insurer

Back 43

When an insurer is incorporated in a country other than the United States

Front 44

Government Insurers

Back 44

The federal government provides life and health insurance, and offers a variety of plans including war risk, nuclear energy liability, federal crime, etc.

Front 45

Domestic Insurer

Back 45

When an insurer is incorporated under the laws of the state in which it conducts its business

Front 46

Foreign Insurer

Back 46

When an insurer conducts its business in a state where it is not resident

Front 47

Alien Insurer

Back 47

When an insurer is incorporated in a country other than the United States

Front 48

Admitted (Authorized) Insurers

Back 48

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

Front 49

Independent financial rating services

Back 49

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

Front 50

Independent insurance producers

Back 50

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

Front 51

Exclusive or captive insurance producers

Back 51

Represent only one company and may be paid a salary or commission. They do not own the policy expirations.

Front 52

Exclusive or captive insurance producers

Back 52

Represent only one company and may be paid a salary or commission. They do not own the policy expirations.

Front 53

General Agent

Back 53

Have other producers working under them, and collect an overriding commission, in addition to the commissions paid to their producers

Front 54

Direct writing companies

Back 54

Pay salaries to employees who sell their product. The company owns the expirations

Front 55

Direct writing companies

Back 55

Pay salaries to employees who sell their product. The company owns the expirations

Front 56

Direct response marketing

Back 56

Is conducted through mail, print, and TV and radio advertisements. Policies sold usually have limited benefits and low premiums

Front 57

Direct writing companies

Back 57

Pay salaries to employees who sell their product. The company owns the expirations

Front 58

Direct response marketing

Back 58

Is conducted through mail, print, and TV and radio advertisements. Policies sold usually have limited benefits and low premiums

Front 59

Franchise marketing system

Back 59

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

Front 60

Non-insurance sponsors

Back 60

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

Front 61

Vending machine insurance

Back 61

Usually consist of travel accident policies sold at airport counters, and are typically good for a single trip covering accidental death

Front 62

A producer's binding authority

Back 62

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

Front 63

Broker

Back 63

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

Front 64

Law of Agency

Back 64

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

Front 65

Express Authority

Back 65

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

Front 66

Implied Authority

Back 66

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

Front 67

Apparent Authority

Back 67

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

Front 68

Fiduciary duty

Back 68

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.

Front 69

Errors and Omissions insurance

Back 69

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

Front 70

COAL

In order to be enforceable in court, a contract must contain these four essential elements

Back 70

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.

Front 71

Doctrine of Adhesion

Back 71

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.

Front 72

Doctrine of Utmost Good Faith

Back 72

The idea that all answers and advice given by any party are the truth to the best of their knowledge

Front 73

Legal doctrine of Waiver and Estoppel

Back 73

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

Front 74

Concealment

Back 74

The deliberate omission of a material fact

Front 75

Concealment

Back 75

The deliberate omission of a material fact

Front 76

Fraud

Back 76

A deliberate attempt to deceive the producer or insurance company

Front 77

Doctrine of Reasonable Expectations

Back 77

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

Front 78

Representation vs Warranty

Back 78

Representation

The truth to the best of your knowledge

Warranty

A sworn statement of truth, guaranteed to be true