General Insurance Terms

Front 1

Actuaries

Back 1

Statistical analysts employed by an insurer to analyze and predict potential loss in order to set and maintain premium pricing for the insurer's products.

Front 2

Risk

Back 2

The potential for an outcome to result in either a gain or a loss based on a given action, event, or occurrence.

Front 3

Risk Pooling (Loss Sharing)

Back 3

The spreading of a specific risk, or the exposure of a specific loss, across a sizable number of individuals instead of bearing all costs on individual person.

Front 4

Insurance

Back 4

Form of risk management used to protect the financial well-being of an individual, company, or other entity in the event of an unexpected financial loss. It is considered a legal contract between an insurance company and a consumer or business.

Front 5

Insurer

Back 5

The insurance company is referred to as this.

Front 6

Policyowner (Policyholder)

Back 6

The consumer or business that purchases the insurance.

Front 7

Insured

Back 7

The individual for which the insurance policy is purchased. Usually it is the policyowner or policyholder.

Front 8

Premium

Back 8

The payment for which an insurance policy transfers the risk of a specific financial loss from one party to another.

Front 9

Claim

Back 9

A demand of payment for a loss which must be filed with the insurance company.

Front 10

Indemnify

Back 10

The overall purpose of insurance, to compensate the insured for loss or damage, regardless of which each type of insurance is designed to cover specifically.

Front 11

Certificate of Authority

Back 11

Provided to an insurance company as proof of licensure within the state.

Front 12

Admitted

Back 12

Once certified by the state, the insurer is considered to be admitted and is authorized to conduct insurance business within the state.

Front 13

Non-admitted

Back 13

Non-licensed, insurer is prohibited from conducting business within a state until it becomes licensed by that state.

Front 14

Domestic Insurer

Back 14

An insurance company that conducts insurance business in the same state in which it is incorporated.

Front 15

Foreign Insurer

Back 15

An insurance company that conducts insurance business in any state that it is not incorporated.

Front 16

Alien Insurer

Back 16

Any insurance company incorporated outside of the United States is considered to be an alien insurer while conducting business within the US and must follow all federal and respective state laws.

Front 17

Insurer Financial Rating

Back 17

An insurance 'financial rating' represents its financial strength and is based on its claims experience, investment performance, and in dividend returns, as well as an insurer's management team among other factors. Letter grade A++ or Aa1 to D.

Front 18

Self-Insurance

Back 18

Many businesses choose to self-insure to cover smaller employee claims that can be paid by the company instead of filing a claim through the insurer.

Hint 18

Smaller claims avoid costly premium for relatively small claims.

Front 19

Reciprocals

Back 19

Also known as 'Inter-Insurance', is a form of risk retention between members, known as 'subscribers' consisting of individual business owners, corporations, are municipalities.

Hint 19

Subscribers reciprocate in sharing risks and participate in indemnifying members who encounter loss.

Front 20

Attorney in Fact (AIF)

Back 20

Type of lawyer who administers reciprocal self-insurance.

Front 21

Stock Insurance Company (Non-participating Company)

Back 21

A private insurance organization whose main purpose is to make a profit for its stockholders. The insured policy owners do not own the company nor do they receive any dividends it returns.

Front 22

Mutual Insurance Company (Participating Company)

Back 22

An insurance company in which insured policy owners are also the company's stockholders. Policy owners share in the company's ownership and receive dividends of the surplus of the earned company's profits.

Front 23

De-mutualization

Back 23

Changing the corporate structure of a company from a mutual company to a stock company for the purpose of increasing capital.

Front 24

Mutualization

Back 24

Just as a mutual insurance company can 'de-mutualize', a stock insurance company can also change its corporate structure to become a mutual insurance company.

Front 25

Reinsurance

Back 25

The sharing of risk between an insurance company and a re-insurance company, to provide additional insurance coverage for risks that are too large for the single insurer to adequately cover.

Front 26

Cedent Insurer

Back 26

In a reinsurance agreement, a cedent insurer is the insurer that purchases additional insurance from a reinsurer.

Front 27

Social Insurance

Back 27

Includes all government-sponsored Insurance such as Social Security, Medicare and Medicaid to US citizens through federal and state legislation.

Front 28

Fraternal Associations & Benefit Societies

Back 28

Include non-profit organizations that are recognized for their social and charitable activities. These associations, often called 'societies', offer Insurance to its members in addition to other membership benefits.

Front 29

Lloyd's of London

Back 29

Considered the oldest insurance marketplace, and is an exchange marketplace consisting of individuals and companies and underwriters who provide 'high-risk' insurance products.

Front 30

Speculative risk (Not Insurable)

Back 30

Involves the chance of either loss or gain, such as gambling. Health and life insurance do not consider speculative risk to be insurable because of its potential for gain.

Front 31

Pure Risk (Insurable)

Back 31

Involves only the chance of loss, such as the chance of an injury from an accident. Due to the certainty of an outcome resulting only in loss, Insurance focuses only on pure risk.

Front 32

Loss Exposure

Back 32

All insured individuals contribute small amounts of premium on a regular basis to cover a much larger amount of loss.

Front 33

Exposur Units

Back 33

Economic value of the person's life or property being insured.

Front 34

Law of Large Numbers

Back 34

The concept that the larger the number of individual risks that are combined into a group, the more certain an insurance company is to knowing the amount of loss sustained that will occur in any given period of time. The more homogeneous a group is, the more accurate this prediction can be.

Front 35

Elements of Insurable Risk

Back 35

A risk is considered insurable when it meets the following requisites:

1. Any outcome must result by accident and produce a loss.

2. The insurer must be able to calculate the risk in the amount of loss incurred.

3. There must be a large enough number of similar risks being insured.

4. The risk cannot lead to catastrophic loss for the insurer.

5. The risk cannot be adversely selected.

Front 36

Adverse Selection

Back 36

The concept of adverse selection refers to the tendency of more unhealthy people being insured than healthy people, thus demanded more funding for claims from the insurer.

Front 37

Hazard

Back 37

The factor, or underlying condition, that gives rise to a peril.

Front 38

Peril

Back 38

The specific event that causes, or is the grounds, for loss. For example a house being destroyed by a fire, the fire is the peril.

Front 39

Types of Hazards

Back 39

Physical, Moral and Morale

Front 40

Physical Hazard

Back 40

Defined by physical conditions that exist which have the potential to lead to loss, such as unsafe working conditions.

Hint 40

Blocked fire exit, exposed electrical wiring, damaged or unsafe tools.

Front 41

Moral Hazard

Back 41

Defined by human behavior, actions, habits and lifestyles such as smoking, eating an unhealthy diet, drug abuse, texting while driving and drunk driving, all of which increase the risk of a peril.

Hint 41

Dishonesty, bad credit, intentionally filing false insurance claims, abusing credit cards and suing for the sole purpose of the potential for gain.

Front 42

Morale Hazard

Back 42

Defined by a temporary lapse in judgment that leads to a brief indifference and attitude towards risk. As an example, a driver might fail to stop at a stoplight because the driver was texting.

Front 43

Methods of Handling Risk

Back 43

1. Avoidance

2. Reduction

3. Retention

4. Sharing

5. Transference

Front 44

Risk Avoidance

Back 44

Avoiding Risk by not participating, such as by not riding on a motorcycle to avoid an accident. This is not practical in everyday life.

Front 45

Risk Reduction

Back 45

Controlling risk through a conscious effort. For instance, wearing a helmet and the correct clothing when riding a motorcycle will reduce the risk of serious injury if an accident were to occur, or having a fire extinguisher available in a home in case of an emergency.

Front 46

Risk Retention

Back 46

Accepting and managing risk when it occurs, such as having reserved funds available in the event of an accident or illness.

Front 47

Risk Sharing

Back 47

Self Insurance often involves sharing risk between the company and an insurer by retaining and managing small risks through company funds, while transferring larger, more costly risk to an insurance company.

Front 48

Transferring Risk

Back 48

Transfer risk to insurance company, cost resulting from an insured's futures risks are paid by the insurer, and in exchange, the insurer charges a monthly premium to the insured.

Front 49

Insurance Policy

Back 49

A binding agreement designed to protect against financial loss, and as a legal contract, it reflects the insurer's responsibilities of covering the insured losses.

Front 50

Preferred Risk

Back 50

Reserved for people with good health and good habits. Based on age, height, weight, and smoking status, individuals that fit within this classification are considered a low or preferred risk, and will often pay less premium than a standard risk policy.

Front 51

Standard Risk

Back 51

This classification is the average, or normal classification for the majority of applicants. Insurance companies commonly promote 'anticipated rates' based on standard risk classification.

Front 52

Substandard Risk

Back 52

An applicant rated as a substandard risk is commonly an individual who is in poor health, has already manifested a pre-existing condition that is beyond the standard risk classification, or might engage in a dangerous hobby or occupation.

Front 53

Declined Risk

Back 53

Unaccepted risks are declined by an insurance company's underwriters if the risk associated with the applicant exceeds the company's acceptable risk limits according to its underwriting guidelines.

Front 54

Home Service System

Back 54

System is the oldest and considered the original system for marketing insurance products. Various types of insurance products have been marketed using the home service approach including property and casualty, health and life products.

Hint 54

Utilizing this approach, a representative of the insurer meets initially with the insured to deliver the policy and collect the initial premium.

Front 55

Direct Response System

Back 55

Insurers market products directly to consumers through mass marketing as well as through their own salesforce, including company sales employees and 'captive agents'.

Front 56

Agency System

Back 56

This agency marketing distribution system incorporates agents, either exclusive to the insurer, or who are considered independent agents, meaning that they market several insurers products to consumers with the goal of matching the correct insurance policy based on the needs of the consumer.

Front 57

Producers

Back 57

Individual's licensed by their home state to solicit insurance, collect premium and deliver policies to newly insured individuals. In comparison to direct marketing practices, producers are given the authority to solicit Insurance to the general public and are paid a commission on insurance sales.

Hint 57

Generally categorized as agent, brokers, or solicitors.

Front 58

Agent

Back 58

Authorized by an insurance company to solicit and negotiate its Insurance products on its behalf. All states provide for the licensing of life, annuity, health, accident, disability and sickness agents.

Front 59

Principal

Back 59

The insurance company is often referred to as this, or the insurer.

Front 60

Broker

Back 60

Works on behalf of a consumer to negotiate and transact insurance with one or more insurers. An agent represents the insurer, while a broker represents the consumer.

Front 61

Solicitor

Back 61

Individuals hired by agents and brokers in some states to help with the sales process in an effort to increase revenue.

Front 62

Captive Agent

Back 62

An agent that sells Insurance on behalf of a single Insurance company, either as an employee or as a commission-based agent.

Front 63

Non-Captive Agent

Back 63

An agent that sells Insurance on behalf of multiple insurance companies and is paid commission from each insurer in which he or she is appointed.

Hint 63

A benefit of being an independent agent is that he or she can provide many options to help find the correct plan based on the needs of the applicant.

Front 64

Managing General Agent (MGA)

Back 64

An MGA is essentially an experienced agent who manages additional agents who work under the MGA and receives override commissions on each sub-agents sales in addition to his or her own commissions.

Front 65

Personal Producing General Agent (PPGA)

Back 65

Similar to an MGA in which sub-agents are managed and an override commission is paid to the PPGA. Sub-agents are usually employed by the PPGA, but receive commissions from the various insurers that are marketed through the PPGA.

Front 66

Internet Marketing

Back 66

Online marketing is a more efficient way of marketing products. Internet marketing has greatly reduced insurer overhead and marketing costs, as well as provided for quicker policy approval by expedite in the entire insurance process.

Front 67

Appointment

Back 67

A legal contract between an insurance company and a licensed agent by which the insurance company gives an agent the express authority to conduct Insurance business on behalf of the insurer in exchange for compensation, referred to as Commission.

Front 68

Express Authority

Back 68

Defined as a contractual agreement between an insurance company and an agent to market and sell the insurance products.

Front 69

Implied Authority

Back 69

Defined as the general business practices that an agent could perform that is not necessarily part of the agent's contract, but could be acceptable by the insurer.

Front 70

Apparent Authority

Back 70

Defined as being a vague and somewhat misleading Authority and agent has, based solely on the actions of the agent and the 'apparent' acceptable response of the insurer.

Front 71

Errors and Omissions Professional Liability Insurance (E&O)

Back 71

A type of insurance purchased by insurance agents to provide financial protection against consumer lawsuits resulting from the agent's actions. Two types of E&O policies exist: 'Occurrence' and 'Claims-Made' policies.

Front 72

Occurrence Policy

Back 72

A type of E&O policy that provides an agent with liability coverage against any current or future claims that result from negligent errors or omissions that occur during the period of time in which the E&O policy is in force.

Hint 72

Under an occurrence policy, an agent continues to be covered for incidents that occurred while the policy was enforced that are claimed after the policy has terminated.

Front 73

Claims-Made Policy

Back 73

A type of E&O policy that provides an agent with liability coverage against claims that are filed while the agent is insured under the claims-made policy.

Hint 73

Instead of providing protection against future claims, it insures against any claims of current or prior incidents that occurred, as long as the agent is insured under the claims-made made policy.

Front 74

Extended Reporting Coverage

Back 74

Also known as 'Tail' Coverage, this type of coverage can be purchased as an add-on to claims-made made E&O policy to protect against claims-made after the agent cancels his or her e&o coverage and is sued while not currently covered under a claims-made policy.

Front 75

Prior Acts Coverage

Back 75

Also known as a 'Nose' Provision, this type of coverage retroactively dates the agent's new E&O policy to an earlier date, usually to the beginning of his or her prior E&O coverage.

Front 76

Retroactive Date

Back 76

A prior acts policy's effective date of liability coverage in which an agent is covered in a claims-made E&O policy.

Front 77

'Full' Prior Acts Coverage

Back 77

Further protects the agent by covering any incident prior to the current policy, instead of limiting coverage to a specific retroactive date, as is required by a typical prior acts policy.

Front 78

Agent as a Fiduciary

Back 78

An individual who possesses a certain trust and/or confidence is known as a 'fiduciary'. Since an insurance agent has the authority by the insurance company it represents to collect an applicant's initial premium and submit it with the application, the agents 'fiduciary responsibility' is to act in good faith and maintain an honest and trustworthy work ethic.

Front 79

National Do-Not-Call Registry

Back 79

Enacted in 2003, the Do-Not-Call Implementation Act was created to provide consumers with the opportunity to restrict telemarketers' access to telephone numbers by adding them to the National Do-Not-Call Registry and reduce the amount of unwanted telemarketing communication on both an intra- and interstate basis.

Front 80

Do-Not-Call Exemptions

Back 80

1. Calls from organizations in which a consumer has established a business or customer relationship.

2. Calls made with permission from the consumer.

3. Cause made by or on behalf of nonprofit, tax-exempt groups and organizations.

4. Calls which are not commercial or do not include 'unsolicited advertisements' including calls from political organizations, charities and telephone surveyors.

Front 81

Unsolicited Advertisements

Back 81

Any material advertising the commercial availability or quality of any property, goods or services, which is transmitted to any person without that person's prior express invitation or permission, and write it or otherwise.

Front 82

Established Business Relationship (EBR)

Back 82

A prior or existing relationship formed by a voluntary two-way communication between a person or entity and a business or residential subscriber with or without an exchange of consideration (payment), on the basis of an inquiry, application, purchase or transaction by the business or residential subscriber regarding products or services offered by such person or entity, which relationship has not been previously terminated by either party.

Hint 82

As stated by the FTC, an established business relationship with a company exists for 3 months after the inquiry or application.

Front 83

Do-Not-Call Improvement Act of 2007

Back 83

Implemented additional efforts in removing disconnected and reassigned phone numbers, as well as retaining phone numbers within the National Do-Not-Call Registry on a permanent basis, as compared to the original five-year renewal requirement.

Front 84

Ethics in Insurance Marketing

Back 84

Deceptive, misleading, and untrue advertising is illegal and includes any form of communication from the insurer to the consumer. Defamation and disparagement, or expressing an untrue or negative opinion of a competitor, is also illegal and prohibited.

Front 85

Misrepresentation

Back 85

Lying to a customer regarding covered benefits or the terms of the policy, or guaranteeing insurance is illegal and grounds for license revocation. Promising dividend returns or company profits as an inducement to a sales also prohibited.

Front 86

Twisting

Back 86

The practice of inducing a policy owner through misrepresentation to forfeit or change insurance from one company to another in order to gain commission for an agent or agency

Front 87

Churning

Back 87

Similar to twist and, it is the act of deplete in the funds of one insurance policy to purchase another policy within the same company for no purpose other than to generate new commission for an agent or agency from an existing customer period

Front 88

Sliding

Back 88

Charging an applicant for ancillary (supplemental) coverage without their knowledge or advising that such additional coverage is required by law with the purchase of insurance.

Front 89

Rebating and Fraud

Back 89

The practice of rebating, or offering anything of value (including personal favors) to a customer as an inducement to purchase and insurance contract.

Hint 89

Paying dividends or bonuses fairly to all policyholders in a mutual or stock company is not considered rebating, nor is adjusting premiums over time based on the risk experience of a group.

Front 90

False Financial Statements

Back 90

It is illegal to publish false statements regarding an insurer's financial condition with the intent to deceive.

Front 91

Boycott, Coercion, and Intimidation

Back 91

It is illegal to commit an act of boycott, coercion, or intimidation that results in unreasonable restraint of, or monopoly in, the insurance business.

Front 92

Defamation

Back 92

Making or circulating false or malicious information regarding an insurer is illegal and includes both Libel (written defamation) and Slander (spoken defamation).

Front 93

Unfair Discrimination

Back 93

Unlawfully discriminating between individuals of the same class or insurance risk by charging different rates of premium, offering different benefits, or charging extra fees based on residence, race, religion, or national origin.

Front 94

Federal Regulation of Interstate Commerce

Back 94

The business of insurance often times crosses state lines and is considered by the federal government to be interstate commerce. As a result, in addition to state insurance laws, federal laws also apply to individuals involved in the business of insurance, whose activities affect interstate commerce.

Front 95

Federal Interstate Commerce Prohibitions and Penalties 1

Back 95

Any officer, director, agent, or employee of any person engaged in the business of insurance, whose activities affect interstate commerce and who willfully embezzles, or misappropriates any funds or policy premiums of an applicant or insurer shall be punished by a fine or imprisonment for not more than 10 years, or both.

Front 96

Federal Interstate Commerce Prohibitions and Penalties 2

Back 96

If such embezzlement or misappropriation jeopardizes the safety and soundness of insurer and was a significant cause of such insurer being placed in conservation, rehabilitation, or liquidation by an appropriate court, such as imprisonment shall shall be not more than 15 years.

Front 97

Federal Interstate Commerce Prohibitions and Penalties 3

Back 97

If the amount or value so embezzled, abstract, purloined, or misappropriated does not exceed $5,000, whoever violates such law shall be fined or imprisoned not more than one year, or both.

Front 98

Federal Interstate Commerce Prohibitions and Penalties 4

Back 98

Anyone engaged in the business of insurance and whose activity affects interstate commerce knowingly makes any false material fact in any book, report, or statement of such person with intent to deceive any person shall be punished by a fine or imprisonment for not more than 10 years, or both.

Front 99

Federal Interstate Commerce Prohibitions and Penalties 5

Back 99

If the false entry in any book, report, or statement of such person jeopardized the safety and soundness of an insurer and was a significant cause of such insurer being placed in conservation, rehabilitation, or liquidation by an appropriate court, such imprisonment shall be not more than 15 years.

Front 100

Federal Interstate Commerce Prohibitions and Penalties 6

Back 100

Anyone who, by threat or force or by any threatening letter or communication, corruptly influences, obstructs, or impede or endeavors corruptly to influence, obstruct, or impede the do and proper administration of the law shall be fined or imprisoned not more than 10 years, or both.

Front 101

Federal Interstate Commerce Prohibitions and Penalties 7

Back 101

Any individual who has been convicted of any criminal felony involving dishonesty or a breach of trust, and who willfully engages in the business of insurance, whose activities affect interstate commerce or participates in such business, should be fined or imprisoned not more than 5 years, or both.

Front 102

Federal Interstate Commerce Prohibitions and Penalties 8

Back 102

Any individual who is engaged in the business of insurance, whose activities affect interstate commerce and who willfully permits to participation of an individual defined above, should be fined or imprisoned not more than 5 years, or both.

Front 103

Written Consent

Back 103

An individual, as defined above, may only engage in the business of insurance or participate in such business if such person has the 'written consent' of any insurance regulatory official authorized to regulate insurance.

Front 104

Insurance Application - General Questions

Back 104

1. Contact and Residence Info

2. D.O.B (Age)

3. Sex / Height / Weight

4. Tobacco Status

5. Occupation / Hobbies / Vocations

6. Type of policy for which the individual is applying

7. Name in relationship of the policies beneficiary if applicable

8. Any other insurance applications that may be pendant either with the same or different insurer

Front 105

Insurance Application - General Medical

Back 105

1. Any current health conditions of the applicant

2. Any current medications being taken by the applicant

3. Any recent doctor or hospital (emergency room) visits or stays

Front 106

Insurance Application - Health History

Back 106

1. Any prior health conditions (within a stated period of time, usually 6 to 12 months or longer dependent on type of condition).

2. Any prior medications, doctors visits or hospital stays.

3. Previous insurance policy information and claims made while insured.

Front 107

Non-Medical Application

Back 107

Is common for a health insurance policy to be issued to an applicant based solely on the medical information gathered from the application that is submitted by the applicant to the insurer. This is usually the case when switching from one insurer to another, or when an individual is in good health when applying for insurance.

Front 108

Guaranteed Issue

Back 108

Simplified issue life insurance, this basic form of term life insurance typically provides face amounts between $1,000 to $5,000, and is issued based solely on the application, often asking basic applicant questions regarding gender, age, residence address and specific catastrophic medical history such as heart attack.

Front 109

Medical Application

Back 109

Several factors including the age and health of the applicant, and the type and amount of insurance for which is being applied, a life or health insurance applicant can be required to undergo a quick medical exam, in addition to submit an application. Most policies with less than $200,000 do not require a medical examination, sometimes the applicants age or poor health prompts to insured to require one.

Front 110

Additional Information that may be required from applicant

Back 110

Additional information may be required if an applicant reveals certain health conditions or other risk exposures.

1. Doing an applicant MIB file and even require a medical or paramedical exam

2. Reviewing an applicant's department of motor vehicle report

3. Reviewing credit and or inspections report

4. Requiring the completion of hazardous activity questionnaires )aviation, skydiving, scuba diving, auto/boat/motorcycle racing, mountain climbing)

Front 111

Attending Physician's Statement

Back 111

When necessary, an applicant may be required to provide a medical statement from the applicant's physician or provide specific medical records to the insurer when confirmation of a current or prior condition is needed by the insurer to accurately underwrite the applicant.

Front 112

Agent's Report

Back 112

In addition to the application, and insurer might request an agent's report which includes any immediate observations by the agent regarding an applicant's background, demeanor and character. An insurance agent must also say on the application if the applicant is replacing an existing policy with a new policy and whether it is being replaced by the same insurer or through a different insurance.

Front 113

Required Disclosures

Back 113

When an applicant submits his or her application, private information is being released about the individual that is legally protected under various privacy and health disclosure laws such as 'Health Insurance Portability and Accountability Act' and the 'Fair Credit Reporting Act', 'Privacy Act' and the 'Financial Services Modernization Act'.

Front 114

Required Signatures

Back 114

Upon submittent application for insurance, and applicant verifies his or her identity and personal information by providing his or her signature at the end of the application. The applicant signature attached to the accuracy of the information in the application.

Front 115

Changes in the application

Back 115

Once an application has been submitted, any changes in the application must be recognized as such by the applicant and the insurer to ensure that such changes are accurate and correct to what the applicant intended to provide on the application. An additional signature will be needed.

Front 116

Consequences of Incomplete Applicatioms

Back 116

Incomplete or inaccurate applications cannot be processed by an insurers underwrite in department till the such changes or completions are made by the applicant. This would delay the process.

Front 117

Collecting initial premium and issuing a conditional receipt

Back 117

A common practice and insurance industry is to collect an applicant's initial premium at the time of application, allowing the insurer to issue the policy ones underwriting it's completed.

Front 118

Conditional receipt

Back 118

Depending on the type of insurance in which an application is being submitted, the insurer provides the applicant with a 'receipt of submission', known as a conditional receipt. Provides the applicant with a very important protection against any event that may occur after the submission of the application and before it's approval that must be covered by the insurer of such events were to occur.

Front 119

Insurance Policy Underwriting

Back 119

The process of reviewing application for insurance where an insurance company determines an applicant's eligibility in premium amount based on the total overall risk, and how it is classified according to the company's risk limits in standards.

Front 120

Underwriters

Back 120

Individuals who are employed by the insurance company to review and determine whether an applicant is acceptable or declinable, based on the medical history of the applicant.

Front 121

Risk Selection

Back 121

The method with which underwriters used to establish whether an applicant is insurable and to what level of risk might they pose to the insurer.

Front 122

MIB Group Inc.

Back 122

The MIB is a medical information retention agency whose objective is to provide reliable medical information regarding an applicant. It is supported by and serves over 700 member insurance companies throughout the US and canada.

Front 123

Paramedical Exam

Back 123

A paramedical exam can be required by an insurer when underwrite in an applicant. It generally includes:

1. Recording the applicant's height and weight

2. Conducting a verbal questionnaire regarding the applicant medical history and lifestyle

3. Checking the applicant's blood pressure and pulse rate

4. Collecting blood in urine for analysis

Front 124

Mortality rate

Back 124

Known as the death rate, it is the rate at which death occurs within a given population, and is a factor used to determine the premium of a life insurance contract.

Front 125

Morbidity rate

Back 125

Rate of incidents in which disability due to accident or illness occurs in a given population. It is a factor used to determine the premium of a health insurance contract.

Front 126

Interest

Back 126

A large percentage of the insurance premium paid by policy owners is invested by the insurance company to earn interest.

Front 127

Expense Loading

Back 127

The process of adding premium dollars to a policy to cover company expenses associated with the issuance of a policy (underwriting and administrative cost).

Front 128

Net Premium

Back 128

The premium amount before expense loading is added.

Front 129

Gross Annual Premium

Back 129

The premium amount determined after expense loading is added and is the total annual cost of the policy that the insured pays.

Front 130

Premium Mode

Back 130

Frequency in which a policy owner pays his or her premium. Most policies are paid on a monthly basis; however, quarterly and semi-annual payments, as well as one lump sum annual premium, are also options with most companies.

Front 131

Reserves

Back 131

State and federal regulation requires insurance companies to maintain funds necessary to pay its expenses and claims. A company's reserve should be equal to the amount that will exactly equal all of the company's contractual obligations.

Front 132

Loss Ratio

Back 132

Defined as the ratio between company losses (annual claims) and company revenue (annual collected premium), and is calculated by dividing losses by the total premiums received.

Front 133

Expense Ratio

Back 133

Defined as the ratio between annual company operating expenses and company annual revenue, and is calculated by dividing operating expenses by total premiums received.

Front 134

Contract Law

Back 134

The branch of law that regulates the rights and responsibilities of parties that enter into contracts, and any contractual disputes arise from written or verbal agreements. Insurance is regulated under contract law, as opposed to tort law

Front 135

Tort Law

Back 135

The branch of law covering most civil lawsuits based on personal liabilities and damages resulting from the 'wrongful acts of others', except for contractual disputes.

Front 136

4 Elements of a Legal Contract

Back 136

1. Agreement (Offer and Acceptance)

2. Consideration

3. Legal Purpose

4. Competent Parties

Front 137

Agreement (Offer & Acceptance)

Back 137

A contractual agreement is achieved when one party, the insurer, accepts an offer made by another party, the applicant. If the insurer does not accept the applicant's offer, the insurer will provide the applicant with a 'counter offer'.

Front 138

Consideration

Back 138

As part of the contractual agreement, each party must give consideration towards the agreement, meaning that each party must commit to the agreement by providing the other party with something of value that is either payable to the other party or as promised in exchange for such payment.

Front 139

Consideration (Insurance Industry)

Back 139

The initial monetary premium that the applicant pays to the insurer in exchange for the promise of benefits provided by the insurer, although, in different industries, consideration is more broadly defined as any payment, promise, promise to act or promise not to act between two parties.

Front 140

Consideration (simplified)

Back 140

Consideration = application + initial premium

Front 141

Legal Purpose

Back 141

A valid contract is one with legal purpose. Must have a legal purpose to provide Financial protection to one party in exchange for regular premium payments to the other party.

Front 142

Competent Parties

Back 142

All parties in a contract must be of a 'legal capacity' and be able to understand the purpose and requirements for such a contract. An applicant for insurance is presumed to be competent to enter into a contract.

Front 143

What voids competency

Back 143

1. If the applicant is a minor

2. If the applicant is mentally unfit to enter into a contract

3. If the applicant is under the influence of alcohol or drugs

Front 144

Controlled Busines

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Defined as selling Insurance to oneself and immediate family members, friends or business acquaintances.

Hint 144

Controlled business is permissible by almost all insurers.

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Insurance Policy

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A formal contract issue by an insurance company to a policyowner (life insurance) or (policyholder) health insurance, and states the insured's name, coverage and premium terms and conditions, as well as any policy beneficiaries, if necessary.

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Insurable Interest

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In order to obtain insurance, an interest must exist between two parties where one party has the potential to suffer a loss in the event that a particular negative outcome occurs to the other party involved in the policy.

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Indemnity

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The actual compensation paid by the insurer to the insured, or to the policy' beneficiary for loss that has occurred.

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Subrogation

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The process in which an insurer pursues reimbursement from another insurer for indemnifying an insured when the insurer is ultimately not responsible for paying such claim.

Hint 148

In the event that a third party insurer is responsible, or partially responsible, for indemnifying the insured, the insurer who has paid such claim will communicate to the responsible third party insurer it's intention to recoup the amount that such as should have indemnified the insurance

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Limit of Liability

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The Financial limit of the insurer in indemnifying the insured or policy beneficiary, based on the terms of the contract.

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Valued Contract

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A contract that pays a stated sum, regardless of the amount of loss that has occurred. Life insurance, disability insurance, and AD&D policies are all examples of ‘valued’ contracts.

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Indemnity Contract

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A contract that pays out benefits that are equal to the actual loss incurred, up to the policy stated limits, in order to make the insured 'whole' again.

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Policyowner

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Owner of a life insurance policy. This individual can also be the insured being covered under the policy. A policyowner can also be a separate individual from the insured as long as insurable interest exists at the time of application.

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Policyholder

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Pertaining to health insurance, a policyholder is an individual who is covered under an insurer's health plan.

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Policy Assignment

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Life insurance is considered legal property of the policyowner, and as such, a policyowner can transfer ownership rights to another individual without needing approval by the insurer

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Personal Contract

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A health insurance policy creates a personal contract between the insurer and the insured, and does not allow for policy assignment without approval by the insurer.

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contract of adhesion

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Unique to the insurance industry, an insurance policy is considered to be a 'contract of adhesion', meaning that only one party, the insurer, defines and prepares the insurance contract, which is non-negotiable by the other party.

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Aleatory

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Dependent on chance, or an uncertain outcome, where one party may receive more value than the other party based on uncertain future circumstances.

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Unilateral

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only one party makes promises to the other party, as opposed to a bilateral contract in which both parties make a promise to each other. As such, only one party, the insurer, is required to follow through on any promise it makes to the insurance contract regarding the policies schedule of benefits.

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Conditional Contract

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Conditions that must be satisfied in order for benefits to be paid to the insured. Policy benefits are only payable to the insured in the event that risk materializes into a loss.

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Utmost Good Faith

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The intent that both parties in a contract will act with the utmost good faith toward each other.

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Representation

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A statement that the applicant believes to be true to the best of his or her knowledge.

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Warranty

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A statement that the applicant promises to be true, such as his or her age or gender. Such warranties are important to the creation of the insurance policy and are included in the contract between the applicant and insurer.

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Title Page (Declaration Page)

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As the first page in an insurance contract, the title, also referred to as the declaration page, list the insured's personal information including name and address, as well as unique policy number assigned to the insured, the policies issue date, the amount and date of the month that the premium is due. It also lists any benefit limits placed on the policy by the insurer.

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Definitions Page

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Policy terms are defined to provide clarity in contract interpretation by the insured.

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Insuring agreement

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Defines the scope of the coverage and all promises of insurance coverage made by the insurer in exchange for premium.

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Policy Conditions

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Every insurance policy contains certain conditions and obligations that must be met by the insured in order to receive benefits. An insured cannot simply call the insurance company up and demand payment for a medical expense. Filing a proof of loss form and submitting it to the insurer in a timely manner is required for an insurer to process the claim.

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General Policy Exclusions

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Put parentheses around includes exclusion hazards specified in the contract for which the insurer will not provide coverage, such as not covering any loss resulting from an act of war or military service, or loss resulting from hazardous occupations and personal avocations like skydiving or auto racing.

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The current life and health insurance industry also allow for the exclusion of certain pre-existing conditions based on each insurer's ability to absorb risk each insurer's follows its own underwriting guidelines in determining if any exclusions are to be added to a policy based on the applicant's health history.

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Added Policy Riders (Endorsements)

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Benefits to be added by an applicant to a policies base package such as a maternity rider to cover pregnancy costs in a health contract.

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Entire Contract Clause

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According to the court interpretation, to fully understand the validity of an insurance contract, the court examines the entirety of a contract in determining the intent of both parties.

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Written Contracts

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Any handwritten or typed material that is added to an insurance policy by the insurer after the original printed contract is formed is interpreted by the courts as intended by the insured to be included, and serves as a better indication of the parties intent over the original printed material.

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Parol (Oral) Evidence Rule

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A court ruling stating that once an insurance contract is provided to the insured in written form, it cannot be modified by any oral statements made by either party.

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Misrepresentation

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Promoting false information in an attempt to mislead the other party.

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Concealment

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An omission or an attempt to avoid disclosing a fact in order to deceive or mislead the other party in a contract. under state insurance law, either intentional or unintentional concealment entitles an injured party to rescission of a contract.

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Fraud

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The act of dishonesty, whether by misrepresentation or concealment, in order to gain benefit from another party.