Nc Life Insurance 1

Front 1

Peril

Back 1

This is a specific event that causes a loss.

For example, fire, flood, earthquake, explosion, wind, death and disability are some notable perils.

Front 2

Hazard

Back 2

This is any factor that increases the chances of a peril occurring.

Three basic types:
- Physical
- Moral
- Morale

Front 3

Physical (Hazard)

Back 3

Material, structural or operational features that increase the chances of a peril occurring.

For example, improper storage of combustibles is a physical hazard.

Front 4

Moral (Hazard)

Back 4

Tendencies people have that could increase risk such as criminal activity or personal habits

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Morale (Hazard)

Back 5

Tendencies to do things that could cause a loss through an indifferent attitude.

For example, failing to lock doors and windows before leaving home is a morale hazard.

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Risk

Back 6

The uncertainty of a financial loss. (For example, the inability to work and earn a living due to injury constitutes a financial risk.)

There are two types:
- Speculative
- Pure

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Speculative (Risk)

Back 7

These types of risks are not insurable because they involve the possibility of both loss and gain.

For example, placing a wager on a sporting event is a speculative risk

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Pure (Risk)

Back 8

These types of risks are insurable. They only involve the possibility of loss.

For example, a house fire constitutes a pure risk.

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Risk Avoidance

Back 9

Avoiding activities that could lead to loss.

For example, if Joe decides not to skydive, he is practicing risk avoidance.

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Risk Assumption

Back 10

Retaining the entire risk and paying any expenses incurred from it.

For example, if Bob does not include his rowboat on an insurance policy, he is assuming all financial responsibility for its repair in the event that it is damaged.

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Risk Transference

Back 11

Shifting the risk to another party, usually through insurance.

For example, Jill pays premiums to an insurance company for her diamond ring. In exchange for her premiums, the company accepts financial responsibility (indemnifies) for replacing her ring if it is stolen

Front 12

Risk Sharing

Back 12

Assuming part of the risk and transferring part of the risk.

For example, if Sue makes a co-payment to cover part of the cost for a doctor’s visit and her insurance company covers the rest of the cost, Sue is using the method of risk sharing.

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Risk Reduction

Back 13

Taking action to lower the possibility of loss.

For example, Bill uses his seatbelt every time he gets in his car because it reduces his chances of being killed in an accident.

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Requirements of an Insurable Risk (5)

Back 14

- There must be a large number of similar exposures
- The potential loss must be significant in scope
- The potential loss must be measurable
- The potential loss must be accidental
- The potential loss must be non-catastrophic

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Domestic Insurers

Back 15

These companies are organized under the laws of the same state in which they are domiciled.

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Foreign Insurers

Back 16

These companies are formed under the laws of a different state from the one in which they are doing business.

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Alien Insurers

Back 17

These companies are formed under the laws of another country from the one in which they are doing business.

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Stock Insurance Company (Traditional Insurance Sources)

Back 18

Also known as a “capital stock” company because it sells stock and is owned by its stockholders. The stockholders share in the company’s profits through stock dividends.

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Mutual Insurance Company (Traditional Insurance Sources)

Back 19

Does not have stockholders; it is owned by its policyowners instead. They share in the company’s profits through policy dividends.

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Reciprocal Insurance Exchange

Back 20

Unincorporated association of members in which each member insures the other members.

- Each member is both and insurer and an insured

- Administered by an attorney-in-fact

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Reinsurance

Back 21

Insurance that an insurance company buys for its own protection.

- Allows companies to spread the risk of loss so that a disproportionally large loss under a single policy does not fall on a single company.

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Automatic "Treaty" (Reinsurance)

Back 22

A ceding company is contractually bound to surrender a percentage of the risk and a reinsurer is bound to accept amounts of risk.

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Facultative (Reinsurance)

Back 23

Negotiated separately for each insurance contract.

Normally purchased by ceding companies for:
- Individual risks not covered by the reinsurance treaties
- Amounts in excess of the limits on their insurance treaties
- Unusual risks

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Lloyd’s of London (Reinsurance)

Back 24

NOT an insurance company but a society of members (corporate and individual) who underwrite in syndicates.

- Famous for insuring unusual and even speculative risks.

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What are the 3 recognized systems of Marketing of Insurance

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1) General Agency
2) Branch Office
3) Direct Response Marketing

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General Angency (Marketing of Insurance)

Back 26

Typically has a General Agent who is contracted with more than one insurance company and operates on an independent basis.

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Branch Office (Marketing of Insurance)

Back 27

Local office of an insurance company which markets and services products for that company.

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Direct Response Marketing (Marketing of Insurance)

Back 28

A method of selling insurance directly to the insured’s through a company’s own employees or through mail.

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Captive agents

Back 29

Usually operate branch offices. They generally represent ONE insurance company

- These agents are employees of the insurer.

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Agent

Back 30

An individual or company that has been authorized by an insurance company to act as its representative and offer its insurance products to the public. Solicits policies of insurance on behalf of the insurance company

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Broker

Back 31

A licensed Agent who obtains insurance for third parties through an Agent of the insurance company that the Broker is not authorized to act as an Agent. Solicits policies of insurance on behalf of the insured.

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Producer

Back 32

A licensed person or entity that is involved in the writing of insurance applications and contracts. Basically a sales representative.

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Adjuster

Back 33

An individual who represents the insurance company and acts for the company in working on agreements regarding the amount of a loss and the liability of the company in claim.

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Contract of Agency

Back 34

Executed between the agent and insurance company

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Agency

Back 35

Represents the relationship between insurance agents and insurance companies.

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Express Authority

Back 36

Authority expressly given to the agent to act on behalf of the insurer.

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Implied Authority

Back 37

Authority that is NOT expressed in the contract, but the insurer endures the agents actions as necessary to carry on business on its behalf.

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Apparent Authority

Back 38

Between the insurance agent and the public NOT between the insurance agent and the insurance company.

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Underwriting

Back 39

The process in which insurers evaluate the individual characteristics of a risk to determine if the risk meets risk tolerance guidelines.

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Underwriter

Back 40

An individual that works in the home office of an insurance company and performs the function of determining if a risk is suitable for the company or not.

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Agent responsibilities in Underwriting

Back 41

- Report all required application information to the insurer

- Report any observations or other pertinent information regarding risk

- Provide the applicant with and legally required documents

- Issue a conditional receipt or interim contract upon payment of the premium deposit

- Submit the application, premium and any other required forms to insurer

- Deliver policy as required by state law

Front 42

Preferred Risk

Back 42

The best risk in the view of the insurance company. Will be given best rates and benefits

Front 43

Standard Risk

Back 43

The next best after Preferred.

Example - person in good health w/ history of tobacco use

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High Risk

Back 44

A risk with either health issues or involvement in occupations or hobbies that might have a higher than normal chance of loss.

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Uninsurable Risk

Back 45

Has some characteristics that the insurance company finds unacceptable.

Front 46

Errors and Omission (E&O)

Back 46

Agents and Brokers should carry a professional liability policy called Errors and Omission (E&O) coverage which ONLY covers mistakes – not illegal actions.

Front 47

Contract

Back 47

An oral or written agreement that is enforceable in a court of law or through arbitration.

Front 48

Residents of NC may enter into a life insurance or annuity contract at the age of...

Back 48

15

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Contracts must be:

Back 49

- For legal purposes and have no illegal element; If one has an illegal element it is considered void.

- There must be an “Offer and Acceptance.”

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Example of "Offer" in Contract

Back 50

Application for coverage

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Example of "Acceptance" in Contract

Back 51

When the insurer issues the policy

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Example of "Consideration" in Contract

Back 52

The payment of the premium (along with the contract)

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Aleatory

Back 53

Values exchanged in contract are not equal.

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Unilateral

Back 54

There is only one party, the insurer, which makes promises legally enforceable in a court of law or through arbitration.

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Contract of Adhesion

Back 55

States if there is any ambiguity in the wording of the contract it will be held against the party writing the contract.

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Insurance Contracts are...

Back 56

- Conditional bc the insurers promise to pay benefits as stated in the contract is dependent upon the occurrence of a stated risk.

- Based on the legal principle of utmost good faith.

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Warranty

Back 57

- Refers to a provision in a policy pledging that a condition does or will exist at some point in the future.

- A guarantee that statments given by the applicant in the application for insurance are absolute facts about a risk

Front 58

Waiver

Back 58

The voluntary relinquishment of a known legal right. If an insurer waives a legal right, it cannot later deny a claim based on a violation of that right.

Example - if an agent grants permission on a homeowner’s policy for an insured to store explosives in
his or her home, the agent has waived the insurer’s defense against increased hazards.

Front 59

Estoppel

Back 59

A legal impediment to one party denying the consequences of its own actions.

Example - an insurer has waived a known right, it cannot reassert that right after a claim has been
filed.

Front 60

Indemnity Contract

Back 60

Promises to pay an amount equal to the loss covered under the policy.

- Although all insurance contracts promise to pay some amount for loss, only PROPERTY contracts follow the strict definition on indemnity.

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Reimbursement Contract

Back 61

Reimburses expenses.

- Typically refers to MEDICAL insurance contracts

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Valued Contract

Back 62

The insurer agrees to pay a specific sum of money, no matter what the amount of lass may be.

- LIFE insurance contracts are these.

Front 63

Declarations Page

Back 63

Identifies the insured, the policy period, premiums and rates, and a list of covered perils.

Front 64

Insuring Agreement Section

Back 64

Describes the obligations of the insurance company in return for the premiums paid by the policy owner.

Front 65

Conditions Section

Back 65

Describes the rights and duties of the policyowner and insuring company.

Front 66

Who can alter insurance contracts?

Back 66

ONLY Officers of the Insurance company can alter an insurance contract