LIFE AND HEALTH INSURANCE
COMPREHENSIVE EXAM STUDY GUIDE
COMPLETE QUESTIONS AND SOLUTIONS
●● insurance contract
Answer: legal agreement made between an insurance company and an
individual
●● premium
Answer: set cost of insurance coverage payed by policyholder
●● claim
Answer: insureds notification to the insurer that a payment is requestedq
●● risk
Answer: possibility of a loss occuring
●● law of large numbers
Answer: States that as a group increases in size, the easier it is to predict
the number of future losses over a certain period of time
●● actuaries
,Answer: mathematicians employed by insurance companies who collect
and analyze risk data
●● Insurable Interest
Answer: A party wishing to buy an insurance policy on another party-
valid concern about the health or well being of the party- business
partner, blood relationship, marriage etc. [[must show interest when the
other person is applying for the policy]]
●● risk pooling
Answer: sharing possibility of loss over a large group of people
●● speculative risks
Answer: not covered by insurance. ex gambling
●● pure risks
Answer: insurable. accent, illness, death
●● peril
Answer: cause of the loss and the event insured against. In life and
health insurance, the perils are premature death, dependency during old
age, accident, and sickness.
●● exposure
,Answer: being subject to loss because of your surroundings. ex) living
with a smoker
●● hazard
Answer: anything that increases the chance of a loss occurring. icy
roads, driving while intoxicated
●● Adverse Selection
Answer: tendency for poorer than average risks to seek out insurance
(smokers). Insurers must seek to minimize this.
●● reinsurance
Answer: spreading risk from one insurer to one or more other insurers.
●● beneficiaries
Answer: The named individuals or entities designated by the
policyowner to receive the policy proceeds/benefits
●● indemnity insurance
Answer: insurance that compensates the beneficiaries of the policies for
their actual economic losses, up to the limiting amount of the insurance
policy. [INDEMNITY=TO MAKE WHOLE]
●● life insurance
, Answer: intended to ward off financial hardship that may result due to a
person's premature death. (burial costs, funeral cost, final expenses)
●● limit of liability
Answer: total amount the insurer will pay for an insured risk
●● deductible
Answer: amount the insured must pay before the insurer will pay for the
claim. [EXAMPLE- if an insured has a $500 deductible but incurs
$3,000 worth of loss, the insured will be required to pay $500 out-of-
pocket before the insurer will cover the remaining $2,500] ((Prevents
abuse of a policy by unnecessary claim))
●● coinsurance
Answer: cost-sharing mechanism between the insurer and the insured,
and applies only to medical insurance. Insurer agrees to pay a large
percentage of the expenses, and the insured is responsible for paying the
remainder. ((typical coinsurance is 80/20))
●● health insurance
Answer: protects against the severity of financial loss due to illness,
disease, short or long-term disability, wages lost while ill or disabled,
and medical expenses.
●● annuities
COMPREHENSIVE EXAM STUDY GUIDE
COMPLETE QUESTIONS AND SOLUTIONS
●● insurance contract
Answer: legal agreement made between an insurance company and an
individual
●● premium
Answer: set cost of insurance coverage payed by policyholder
●● claim
Answer: insureds notification to the insurer that a payment is requestedq
●● risk
Answer: possibility of a loss occuring
●● law of large numbers
Answer: States that as a group increases in size, the easier it is to predict
the number of future losses over a certain period of time
●● actuaries
,Answer: mathematicians employed by insurance companies who collect
and analyze risk data
●● Insurable Interest
Answer: A party wishing to buy an insurance policy on another party-
valid concern about the health or well being of the party- business
partner, blood relationship, marriage etc. [[must show interest when the
other person is applying for the policy]]
●● risk pooling
Answer: sharing possibility of loss over a large group of people
●● speculative risks
Answer: not covered by insurance. ex gambling
●● pure risks
Answer: insurable. accent, illness, death
●● peril
Answer: cause of the loss and the event insured against. In life and
health insurance, the perils are premature death, dependency during old
age, accident, and sickness.
●● exposure
,Answer: being subject to loss because of your surroundings. ex) living
with a smoker
●● hazard
Answer: anything that increases the chance of a loss occurring. icy
roads, driving while intoxicated
●● Adverse Selection
Answer: tendency for poorer than average risks to seek out insurance
(smokers). Insurers must seek to minimize this.
●● reinsurance
Answer: spreading risk from one insurer to one or more other insurers.
●● beneficiaries
Answer: The named individuals or entities designated by the
policyowner to receive the policy proceeds/benefits
●● indemnity insurance
Answer: insurance that compensates the beneficiaries of the policies for
their actual economic losses, up to the limiting amount of the insurance
policy. [INDEMNITY=TO MAKE WHOLE]
●● life insurance
, Answer: intended to ward off financial hardship that may result due to a
person's premature death. (burial costs, funeral cost, final expenses)
●● limit of liability
Answer: total amount the insurer will pay for an insured risk
●● deductible
Answer: amount the insured must pay before the insurer will pay for the
claim. [EXAMPLE- if an insured has a $500 deductible but incurs
$3,000 worth of loss, the insured will be required to pay $500 out-of-
pocket before the insurer will cover the remaining $2,500] ((Prevents
abuse of a policy by unnecessary claim))
●● coinsurance
Answer: cost-sharing mechanism between the insurer and the insured,
and applies only to medical insurance. Insurer agrees to pay a large
percentage of the expenses, and the insured is responsible for paying the
remainder. ((typical coinsurance is 80/20))
●● health insurance
Answer: protects against the severity of financial loss due to illness,
disease, short or long-term disability, wages lost while ill or disabled,
and medical expenses.
●● annuities
