HLT362 WEEK 3 COMPLETE STUDY GUIDE
WITH SOLVED QUESTIONS
◉ Valid life insurance contracts must identify:.
Answer: 1: parties to contract; 2: insured party or life; 3: insurable
interest, if 3rd party; 4: risks insured against; 5: policy period
(term); 6: premium & mode.
◉ Insurable interest.
Answer: Financial interest in insured party that must exist @ time of
application OR policy issuance. Requires consent (except minors).
◉ Indemnify.
Answer: To "make whole again" w/out benefit or detriment; neither
monetary profit nor loss.
◉ Adverse selection.
Answer: Tendency of poorer risks to seek insurance.
◉ Peril vs. Hazard.
Answer: Peril is the CAUSE of loss. Hazard is a condition that
increases LIKELIHOOD of loss.
,◉ Pure risk vs. Speculative risk.
Answer: Pure risk involves chance of loss ONLY (accident or
misfortune). Speculative risk involves chance of loss OR gain
(gambling, stock investment).
◉ Risk management.
Answer: Treating or mitigating loss exposures through 1: avoidance;
2: retention (deductibles); 3: sharing; 4: reduction; or 5: transfer.
◉ Mortality vs. Morbidity tables.
Answer: Mortality is the statistical possibility of death @ each age.
Morbidity is the statistical possibility & extent of disability @ each
age.
◉ Loss exposure.
Answer: Potential circumstance that could cause a loss; measured in
dollars.
◉ Law of Large Numbers.
Answer: Mathematical law stating the larger # of occurrences, the
more predictable the losses; used to calculate premiums.
◉ Types of hazards.
,Answer: Physical - slippery floor; Moral - dishonest acts; Morale -
carelessness or recklessness.
◉ Factors that determine premium.
Answer: 1: mortality probability charge; 2: Insurer's investment
return; 3: expenses (admin costs, commissions). 1 - 2 = net; 1 - 2 + 3
= gross.
◉ Rate (as defined by CIC).
Answer: Price of insurance per exposure unit.
◉ Premium modes.
Answer: Monthly; Quarterly; Semi-annually; Annually (cheapest due
to less admin cost).
◉ Earned vs. Unearned premium.
Answer: Earned premium is $ paid for coverage to date. Unearned
premium is $ paid & returnable due to coverage not provided.
◉ Insurer (as defined by CIC).
Answer: Any person, assoc., org., partnership, business trust, LLC, or
corp. capable of making an insurance contract.
, ◉ Departments of an Insurer.
Answer: Underwriting - determines insurability; Marketing/Sales -
determines products; Actuarial - determines rates; Claims -
investigates/pays claims.
◉ Types of Insurers (by domicile).
Answer: Domestic - within home state; Foreign - outside home state;
Alien - outside home country.
◉ Types of Insurers (by ownership).
Answer: Policyholders - Mutual (participating) co., may pay
dividends; Stockholders - Stock (non-participating) co., no
dividends.
◉ Types of Insurers (by authorization).
Answer: Authorized (admitted) - can conduct business in state;
Unauthorized (non-admitted) - cannot conduct business in state (w/
one exception).
◉ Types of Insurers (by sector).
Answer: Private sector (Commercial) - provides LA&H, P&C, & LTC;
Public sector (Gov't) - provides flood, work. comp.,
Medicare/Medicaid, Group Life (SGLI/FEGLI).
WITH SOLVED QUESTIONS
◉ Valid life insurance contracts must identify:.
Answer: 1: parties to contract; 2: insured party or life; 3: insurable
interest, if 3rd party; 4: risks insured against; 5: policy period
(term); 6: premium & mode.
◉ Insurable interest.
Answer: Financial interest in insured party that must exist @ time of
application OR policy issuance. Requires consent (except minors).
◉ Indemnify.
Answer: To "make whole again" w/out benefit or detriment; neither
monetary profit nor loss.
◉ Adverse selection.
Answer: Tendency of poorer risks to seek insurance.
◉ Peril vs. Hazard.
Answer: Peril is the CAUSE of loss. Hazard is a condition that
increases LIKELIHOOD of loss.
,◉ Pure risk vs. Speculative risk.
Answer: Pure risk involves chance of loss ONLY (accident or
misfortune). Speculative risk involves chance of loss OR gain
(gambling, stock investment).
◉ Risk management.
Answer: Treating or mitigating loss exposures through 1: avoidance;
2: retention (deductibles); 3: sharing; 4: reduction; or 5: transfer.
◉ Mortality vs. Morbidity tables.
Answer: Mortality is the statistical possibility of death @ each age.
Morbidity is the statistical possibility & extent of disability @ each
age.
◉ Loss exposure.
Answer: Potential circumstance that could cause a loss; measured in
dollars.
◉ Law of Large Numbers.
Answer: Mathematical law stating the larger # of occurrences, the
more predictable the losses; used to calculate premiums.
◉ Types of hazards.
,Answer: Physical - slippery floor; Moral - dishonest acts; Morale -
carelessness or recklessness.
◉ Factors that determine premium.
Answer: 1: mortality probability charge; 2: Insurer's investment
return; 3: expenses (admin costs, commissions). 1 - 2 = net; 1 - 2 + 3
= gross.
◉ Rate (as defined by CIC).
Answer: Price of insurance per exposure unit.
◉ Premium modes.
Answer: Monthly; Quarterly; Semi-annually; Annually (cheapest due
to less admin cost).
◉ Earned vs. Unearned premium.
Answer: Earned premium is $ paid for coverage to date. Unearned
premium is $ paid & returnable due to coverage not provided.
◉ Insurer (as defined by CIC).
Answer: Any person, assoc., org., partnership, business trust, LLC, or
corp. capable of making an insurance contract.
, ◉ Departments of an Insurer.
Answer: Underwriting - determines insurability; Marketing/Sales -
determines products; Actuarial - determines rates; Claims -
investigates/pays claims.
◉ Types of Insurers (by domicile).
Answer: Domestic - within home state; Foreign - outside home state;
Alien - outside home country.
◉ Types of Insurers (by ownership).
Answer: Policyholders - Mutual (participating) co., may pay
dividends; Stockholders - Stock (non-participating) co., no
dividends.
◉ Types of Insurers (by authorization).
Answer: Authorized (admitted) - can conduct business in state;
Unauthorized (non-admitted) - cannot conduct business in state (w/
one exception).
◉ Types of Insurers (by sector).
Answer: Private sector (Commercial) - provides LA&H, P&C, & LTC;
Public sector (Gov't) - provides flood, work. comp.,
Medicare/Medicaid, Group Life (SGLI/FEGLI).
