• Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off
Reading...
Front

Card Range To Study

through

image

Play button

image

Play button

image

Progress

1/165

Click to flip

Use LEFT and RIGHT arrow keys to navigate between flashcards;

Use UP and DOWN arrow keys to flip the card;

H to show hint;

A reads text to speech;

165 Cards in this Set

  • Front
  • Back

Define Insurance

Insurance company agrees to Indemnify (make whole) loss of insured party (at a cost).

Transfer of risk

transfers risk of loss from an individual or group to insurance company

Risk

uncertainty or chance of a loss occuring

Two types of risk

pure and speculative



pure risk

can only result in a loss or no change

Speculative risk

involves the opportunity for either loss or gain

Exposure

unit of measure used to determine rates charged for insurance coverage (i.e. age, medical history, occupation, sex)

Homogeneous

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

Hazard

conditions or situations that increase the probability of a loss occurring

Physical Hazard

increase chance of loss (ie physical condition, medical history, condition at birth

Moral hazard

evaluated by character or rep of person.


Fraud, lies

Morale hazards

state of mind of person


carelessness

perils

causes of loss

loss

reduction, decrease or disappearance of value of person or property caused by a peril

avoidance

eliminating exposure to a loss



risk retention

planned assumption of risk by the insured through the use of deductibles, co payments or self insurance

purpose of risk retention

1. reduce expenses and improve cash flow


2.increase control of claim reserving and claims settlement


3.fund for losses that cannot be insured

Sharing

method of dealing with risk for a group of individual persons or businesses with the same or similar exposure to loss to share the losses that occur within that group

reciprocal insurance exchange

formal risk sharing arrangement

reduction

attempt to reduce or lessen risk (ie smoke detectors, physicals, etc)

what is the most common method of transferring risk?

Through insurance

what is the safest method of transferring risk?

Through insurance

insurable risks involve the following losses:

due to chance


definite and measurable


statistically predictable


not catastrophic


randomly selected and large loss exposure

What is the only type of insurable risk?

Pure risk

Due to chance

a loss that is outside of the insureds control

definite and measurable

a loss that is specific as to the cause, time, place and amount

statistically predictable

insurer must be able to estimate the average frequency and severity of future loses and set appropriate premium rates

not catastrophic

insurers must be reasonable certain their losses will not exceed specific limits

Randomly selected and large loss exposure

there must be a sufficiently large pool of the insured that represents a random selection of risks

policy that does not pay dividends

nonparticipating policy

Policy that pays dividends

Participating policies

type of company that has participating stocks

mutual companies

are participating policies taxable?

no

are dividends of participating policies guaranteed

no

what is a fraternal benefit society?

an organization formed to provide insurance benefits for members of an affiliated lodge, religious organization or fraternal organzation

who can a fraternal organization sell insurance to?

its members

what is an admitted insurer

an insurer who is authorized (for financial reasons) to sell insurance in a given state

What is a non admitted insurer

An insurer who is not authorized (for financial reasons) to sell insurance in a given state

What is a domestic insurer?

an insurer who is incorporated in this state

What is a foreign insurer?

an insurer who is incorporated in another state or territory

What is an alien insurer?

An insurer who is incorporated in another country

What is a producer or agent?

Ab individual who is licensed to sell, solicit or negotiate insurance contracts on behalf of the insurer

What is the law of agency?

It dinners the relationship between the principal (insurer) and the producer: the acts of the agent within the scope of authority are deem to be acts of the insurer

What 3 types of agent authority are there?

1.express


2. Implied


3. Apparent

What is express authority?

Authority WRITTEN in the contract

What is implied authority?

Authority that is ASSUMED to have in order to transact the bussiness

What is apparent authority?

The appearance or the assumption of authority based on the actions words or deeds of the principle or because of the circumstances the principle created

What is a fiduciary?

Someone in a position of trust

What is fiduciary responsibility?

The ethical handling of the funds of others

Is it legal to commingle premiums collected from an applicant with personal funds?

No

What is a contract?

An agreement between 2 or more parties enforceable by the law

What are the 4 elements of a contract?

1.Agreement- offer and acceptance


2. Consideration


3. Competent parties


4. Legal purpose

What is offer and acceptance?

Applicant submits offer when he submits the application




Acceptance takes place when an insurer's underwriter approves the application and issues a policy

What is consideration

Is something of value that each party gives to each other. (I.e. Payment, insurance coverage, etc)

What are competent parties?

Parties capable to enter into contract (legal age, mentally competent, not under influence of drugs or alcohol)

What is legal purpose?

The purpose of the contract must be legal and not against public policy

If the is any ambiguity in the contract, to whom should the contract be in favor?

The insured

If an agent implies through advertising, sales literature or statements that certain provisions exist, what should the insured reasonable expect?

Coverage

What is indemnity?

A provision in an insurance policy that states that in the event of loss, an insured ir beneficiary is permitted to collect only to the extent of the financial loss and is not able to gain financially

What is utmost good faith?

It implies that there will be no fraud misrepresentation or concealment between parties

What is representation?

Statements believed to be true to the best of one's knowledge, but they are not guaranteed to be true.

What are misrepresentations?

Untrue statements on the application

What is fraud?

Intentional misrepresentations or concealments

What is a warranty?

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

What is concealment?

intentional withholding of information of a material fact that is crucial in making a decision

Which statement regarding insurable risks is NOT correct?


A: An insurable risk must involve a loss that is definite as to cause, time, place and amount.


B: Insureds cannot be randomly selected.


C: Insurance cannot be mandatory.


D: The insurable risk needs to be statistically predictable.

B: Insureds cannot be randomly selected.

An applicant knowingly fails to communicate information that would help an underwriter make a sound decision regarding coverage. This is an example of

concealment

The risk management technique that is used to prevent a specific loss by not exposing yourself to that activity is called...

avoidance

A tornado that destroys property would be an example of which of what?

A peril

An agent accepts the premium payment 35 days after it is due, telling the insured that there will not be a problem keeping the policy in force. This is an example of what kind of authority?

Apparent

What is synonymous term for authorized insurer

admitted insurer

What must be obtained in order to transact insurance within a given state?

Certificate of authority

What type of insurers are owned by stockholders who have the usual rights of ownership including the right of voting?

Stock

In insurance an offer is usually made when...

the application is submitted

A participating insurance policy may do what?

Pay dividends to the policy owner

What does life insurance do?

1. protects against financial loss associated with an insured's death.


2. pays death benefit to beneficiaries upon death of the insured

by whom may life insurance be purchased?

individuals or businesses

To whom does the policy owner pay the premium?

The insurance company

To whom does the insurance company pay the benefit?

The beneficiary

What is insurable interest?

The policy owner losing something of value (normally money) in the event of a loss

Insurable interest must exist between the policy owner and the beneficiary...

at the time of the application

Once a life insurance policy has been issued, does the insurance company have to pay the benefit if there is no longer insurable interest?

Yes

What are 4 examples of insurable interest?

1. policy owners own life


2. the life of a family member


3. The life of a key business partner


4. the life of someone who has a financial obligation to the policy owner (i.e. debtor to a creditor)

Does the purchase of life insurance create an immediate estate?

yes

What are the 5 uses of life insurance?

1. survivor protection


2. estate creation


3. cash accumulation


4. estate conversion


5. liquidity

What are the 2 ways to determine the amount of personal life insurance?

1. human life value approach


2. needs approach

What does the human life value approach estimate?

what would be the loss to the family in the event of a premature death of the insured (i.e wages, inflation, number of years to retirement, time value of money)

What does the needs approach estimate?

the needs of the family after the premature death of the insured (i.e. income, debt, investments, other expenses)

What are 6 needs that a family may have when determining their lump-sum needs

1. cost of death


2. paying off debt


3. emergency reserve funds


4. education funds


5. retirement funds


6. bequest (last wishes) funds

What are 3 longer term (income) needs when planning life insurance

1. Replacing insured's income or lost services


2. social security income "blackout" period


3. liquidation vs. retention of capital

What is the social security "blackout" period

When surviving spouse and/or children do not receive social security survivor benefits (between when the youngest child turns 16 until the surviving spouse qualifies for retirement benefits)

What is the most common use of insurance used by employers?

Life insurance as a benefit

What is key person insurance?

when a company insures someone who has specialized knowledge, skills or business contacts

Who the following in a key person insurance policy?


1. applicant


2. policy owner


3. premium payer


4. beneficiary

the business

Who is the in insured in a key person insurance policy?

the key employee

In the event of death of a key employee, what would the business use the benefit for?

1. additional costs of running the business


2. replacing the key employee

For a key person policy, can the business take a tax deduction for the expense of the premium?

NO

If the key employee dies in a key person policy, are the benefits usually paid tax free?

YES

What is a Buy-Sell agreement (or business continuation agreement)?

a legal contract that determines what will be done with a business in the event that the owner dies or becomes disabled

Name 4 buy-sell agreements

1. cross purchase


2. entity purchase


3. stock purchase


4. stock redemption

an arrangement where the employer offers to give the employee a wage increase in the amount of the premium on a new life insurance policy, is an example of what?

Executive bonus

what is an Executive bonus

an arrangement where the employer offers to give the employee a wage increase in the amount of the premium on a new life insurance policy

Who owns the executive bonus policy

the employee

Is the executive bonus seen as tax income to the employee?

Yes

Is the executive bonus a tax deduction to the employer?

Yes

What are the 4 phases of issuing a life insurance policy?

1. Solicitation and sales presentation


2. Underwriting and field company


3. Premium determination


4. Policy issue and delivery



What is the solicitation and sales portion phase of issuing a life insurance policy?

The attempt to persuade a person to buy an insurance policy

Any sales presentations used by insurers must...

be accurate and not misrepresent the facts

Who is responsible for all insurance advertisements?

The insurer who presented the advertisments

What is a buyers guide?

provides basic info about life insurance policies

What provides basic info about life insurance policies?

a buyers guide

Do insurers have to provide a buyers guide before accepting the first premium from the customer?

YES

What is the free look period?

a 10 day period where the customer can get a complete refund

If the policy contains an unconditional refund provision of at least 10 days, when can the buyer's guide be delivered?

with the delivery of the policy

What is a policy summary?

a written statement describing the features and elements of the policy being issued

What 8 items does a policy summary contain?

1. name and address of agent


2. full name and home office address of the insurer


3. generic name of policy


4. each rider


5. Premium


6. cash value


dividend


7. surrender value


8. death benefit

Do you have to provide the policy summary when delivering the policy?

YES

What must an insurer provide an investigator when seeking info from the investigator?

a written disclosure authorization notice

What is a guarantee association?

an association that pays covered claims up to a certain limit set by the state

What guarantee association do Utah insurers have to be a part of?

Utah Life and Health Insurance Guarantee Association (ULHIGA)

Is it a fair trade practice to make any statement that an insurer's policies are guaranteed by the existence of the insurance guarantee association?

NO

My an insurance producer recommend the purchase, sale or exchange of an insurance policy or annuity contract without the reasonable belief that the transaction is in the best interest if the insured

NO

What 7 factors must a producer consider when recommending an annuity?

1. age


2. annual income


3. investment objectives


4. intended use of annuity


5.financial experience


6. tax status


7. risk tolerance

What is underwriting?

the risk selection and classification process

What are the 4 primary criterion that an underwriter must off of?

1. applicant's health


2. occupation


3. lifestyle


4. hobbies/habits

What are an agent's 6 field underwriting duties?

1. Proper solicitation of applicants


2. helping to prevent adverse selection


3. completing the application


4. obtaining proper signatures


5. collecting initial premium and issuing receipt


6. delivering policy

What are the 2 parts of an application (life insurance)?

1. general information


2. medical information

What 8 bits of information is included on the general information part of an application?

1. age


2. name


3. address


4. birthday


5. Gender


6. income


7. marital status


8. occupation

What 5 bits of information is included on the medical information part of an application?

1. medical background


2. present health


3. medical visits during the last few years


4. medical status of living relatives


5. cause of death of deceased relatives

If the amount of life insurance is relatively small, can the agent and investigator complete the medical portion?

YES

What is a non-medical application?

An application that does not require a physician's help

Whose responsibility is it to make certain that the application is complete, correct and to the best of the applicant's knowledge?

The agent's

What is the agent's report?

The agent's personal observations concerning the proposed insured

Does the agent's report become part of the entire contract?

NO

Who must sign the application?

The agent and the proposed insured

If the proposed insured is not the policy holder, does he have to sign the application?

YES

How can an application be corrected?

1. correcting info and having customer initial


2. starting a new application

Should an agent erase or use white out on an application?

NEVER

When an agent collects a premium what must he give the customer?

a premium receipt

What kind of premium receipt is the most common?

a conditional receipt

Replacing insurers are permitted to use electronically completed notice of replacement. However, when this method is used a printed copy of the notice must be sent to the applicant within how many days?

5 days

Whose duty is it to initial next to a corrected statement on an application?

the applicant's

Whose duty is it to ensure that there are no unanswered questions on an application?

the agent's

Whose duty is it to explain the nature and type of any receipt the producer is giving to the applicant?

the agent's

Whose duty is it to probe beyond the stated question if the producer feels the applicant is misrepresenting or concealing info?

the agent's

Medical Information Bureau (MIB) was created to protect...

Insurance companies from adverse selection by high risk persons

Is the beneficiary's age used in determining annuity suitability?

NO

What is another name for substandard risk classification?

Rated

An insurer receives a report regarding a potential insured that includes the insured's financial status, hobbies and habits. What type of report is that?

Inspection report

Replacing insurers that use producers must provide applicants with the right to return their policy within a few days of its delivery. How many days?

30 days

Which organization provides the underwriter with info concerning an applicant's health history?

The Medical Information Bureau (MIB)

If the insurer acknowledges receipt if the premium with a conditional receipt, the policy is in effect on the date if the application or the date of the medical exam, which ever is...

last

Who makes up the Medical Information Bureau?

Insurers

Upon policy delivery, the producer may be required to obtain the signed waiver of premium (T/F)

FALSE

What form of life insurance may be used in securing a buy-sell agreement where if one partner died the other could buy out the company?

Any type of life insurance

A producer is helping someone determine the financial needs of their children in the event that they should die prematurely. This is a personal use of life insurance known as...

Survivor protection

Life insurance as an Executive Bonus is owned by the...

employee

What is a description of gross annual premium?

Net premium plus expenses (loading)

In the Executive Bonus plan, who is the owner of the policy and who pays the premium?

The executive and the executive (the company reimburses the executive)

Who must have insurable interest in the insured?

The policyowner

Who is the owner and beneficiary on a Key Person life policy?

The employer

What is used to compare the cost of one life insurance policy against another in order to guide prospective purchasers to policies that are competitively priced

Cost comparison methods

Are the premiums tax deductible as a business expense in key-person life insurance policies?

NO

Is funding against GENERAL company financial losses a business use of life insurance?

NO

What is a term that would be permissible in advertising a life insurance policy?

Variable plan