Life & Health Insurance Exam
Insurance>>> transfer of risk
Speculative risk>>> has a possibility of both loss and gain
Pure risk>>> only has a possibility of loss (no gain)
Exposure>>> risks for which an insurance company would be liable
expressed in units
Peril>>> cause of a loss
Hazard>>> an increase in the chance of loss
Moral hazard>>> arise from people's character (faking a loss)
Morale hazard>>> state of mind or careless attitude (accidentally leaving door unlocked)
Methods of handling risk>>> STARR
Share, transfer, avoid, retain, reduce
The law of large numbers>>> the larger the group, the more accurately losses can be predicted
Elements of insurable risk>>> CANHAM
Calculable, affordable, non-catastrophic, homogenous, accidental, measurable
Adverse selection>>> tendency for higher-risk individuals to get and keep insurance
Reinsurance>>> an insurance company (ceding) pays another insurance company (reinsurer) to assume
some risk in the event of a catastrophic loss
Facultative reinsurance>>> reinsurer evaluates each risk before allowing the transfer
Treaty reinsurance>>> reinsurer accepts all risk of a certain type from the ceding company
Stock insurer>>> insurance company owned by shareholders who chose the board of directors
taxable dividends can be paid from profits
,issues non-participating (non-par) policies
Mutual insurer>>> no shareholders, rather policyowners who chose the board of directors
nontaxable dividends can be paid from profits (return of excess premium)
issues participating (par) policies
Fraternal benefit societies>>> provides insurance and other social benefits to members
members own certificates
Reciprocal insurer>>> unincorporated group of people that insure each other's losses
members are subscribers
each member is assessed with an equal amount of a claim to pay in the event of a loss
run by an attorney-in-fact
Risk retention group>>> liability insurance company created for policyholders from the same industry
(auto industry RRG)
Lloyd's association>>> insurance provided by individual underwriters rather than companies
each underwriter is personally liable for the risks they insure
Self-insurance>>> business that pays its own claims
risk retention
Residual insurance market>>> insurance from the state or federal government
,Domestics. vs. foreign vs. alien insurers>>> an insurer that writes business in...
domestic- home state
foreign- another state
alien- another country
Certificate of authority>>> state license for an insurance company
admitted/authorized/approved- licensed in state
nonadmitted/unauthorized/unapproved- not licensed. sometimes allowed to insure surplus risks
Surplus lines insurer>>> insurance sold by nonadmitted insurers from a state's approved surplus insurers
list
can only be sold to high risks insureds
can't be purchased just due to being cheaper than insurance from admitted insurers
4 different types of insurance agents>>> 1. independent agents
2. exclusive/captive agents
3. general agents
4. direct writing companies
Independent agent>>> reps more than 1 company
General agent>>> recruits other agents that actually sell the insurance
Direct writing companies>>> pays salaries to the employees selling the insurance (vs. commission)
Direct response insurance>>> no agent involved. insurance is sold directly by the company to the public
Agency>>> relationship in which one person (agent) is authorized to represent another (principal)
, Law of agency (insurance)>>> contracts made by the agent are considered to be contracts of the
principal (insurance company)
3 types of authority>>> express, implied, apparent
express- written in contract
implied- assumed in accordance with general business practices
apparent- perceived authority
5 elements of a legal contract>>> 1. consideration ($)
2. legal purpose
3. offer
4. acceptance
5. competent parties
Adhesion>>> insurer writes the contracts and the insured adheres
any ambiguity favors the insured
Aleatory>>> unequal receipt of value
small premium payments for a large amount of coverage
Unilateral contract>>> only one promise is made - insurance company promises to pay in the event of
loss
Personal contracts>>> can't be assigned to someone else (home and auto)
Indemnity>>> contract restores the insured to a pre-loss condition, no better and no worse
Warranty>>> a promise
Fraud and false statements punishment>>> fine and/or imprisonment (10-15 years)
Insurance>>> transfer of risk
Speculative risk>>> has a possibility of both loss and gain
Pure risk>>> only has a possibility of loss (no gain)
Exposure>>> risks for which an insurance company would be liable
expressed in units
Peril>>> cause of a loss
Hazard>>> an increase in the chance of loss
Moral hazard>>> arise from people's character (faking a loss)
Morale hazard>>> state of mind or careless attitude (accidentally leaving door unlocked)
Methods of handling risk>>> STARR
Share, transfer, avoid, retain, reduce
The law of large numbers>>> the larger the group, the more accurately losses can be predicted
Elements of insurable risk>>> CANHAM
Calculable, affordable, non-catastrophic, homogenous, accidental, measurable
Adverse selection>>> tendency for higher-risk individuals to get and keep insurance
Reinsurance>>> an insurance company (ceding) pays another insurance company (reinsurer) to assume
some risk in the event of a catastrophic loss
Facultative reinsurance>>> reinsurer evaluates each risk before allowing the transfer
Treaty reinsurance>>> reinsurer accepts all risk of a certain type from the ceding company
Stock insurer>>> insurance company owned by shareholders who chose the board of directors
taxable dividends can be paid from profits
,issues non-participating (non-par) policies
Mutual insurer>>> no shareholders, rather policyowners who chose the board of directors
nontaxable dividends can be paid from profits (return of excess premium)
issues participating (par) policies
Fraternal benefit societies>>> provides insurance and other social benefits to members
members own certificates
Reciprocal insurer>>> unincorporated group of people that insure each other's losses
members are subscribers
each member is assessed with an equal amount of a claim to pay in the event of a loss
run by an attorney-in-fact
Risk retention group>>> liability insurance company created for policyholders from the same industry
(auto industry RRG)
Lloyd's association>>> insurance provided by individual underwriters rather than companies
each underwriter is personally liable for the risks they insure
Self-insurance>>> business that pays its own claims
risk retention
Residual insurance market>>> insurance from the state or federal government
,Domestics. vs. foreign vs. alien insurers>>> an insurer that writes business in...
domestic- home state
foreign- another state
alien- another country
Certificate of authority>>> state license for an insurance company
admitted/authorized/approved- licensed in state
nonadmitted/unauthorized/unapproved- not licensed. sometimes allowed to insure surplus risks
Surplus lines insurer>>> insurance sold by nonadmitted insurers from a state's approved surplus insurers
list
can only be sold to high risks insureds
can't be purchased just due to being cheaper than insurance from admitted insurers
4 different types of insurance agents>>> 1. independent agents
2. exclusive/captive agents
3. general agents
4. direct writing companies
Independent agent>>> reps more than 1 company
General agent>>> recruits other agents that actually sell the insurance
Direct writing companies>>> pays salaries to the employees selling the insurance (vs. commission)
Direct response insurance>>> no agent involved. insurance is sold directly by the company to the public
Agency>>> relationship in which one person (agent) is authorized to represent another (principal)
, Law of agency (insurance)>>> contracts made by the agent are considered to be contracts of the
principal (insurance company)
3 types of authority>>> express, implied, apparent
express- written in contract
implied- assumed in accordance with general business practices
apparent- perceived authority
5 elements of a legal contract>>> 1. consideration ($)
2. legal purpose
3. offer
4. acceptance
5. competent parties
Adhesion>>> insurer writes the contracts and the insured adheres
any ambiguity favors the insured
Aleatory>>> unequal receipt of value
small premium payments for a large amount of coverage
Unilateral contract>>> only one promise is made - insurance company promises to pay in the event of
loss
Personal contracts>>> can't be assigned to someone else (home and auto)
Indemnity>>> contract restores the insured to a pre-loss condition, no better and no worse
Warranty>>> a promise
Fraud and false statements punishment>>> fine and/or imprisonment (10-15 years)
