FLORIDA 2-15 INSURANCE FINAL EXAM NEWEST ACTUAL
EXAM COMPLETE ACCURATE QUESTIONS AND CORRECT
DETAILED ANSWERS (VERIFIED ANSWERS) |ALREADY
GRADED A+
Insurance - ANSWER: Financial protection against loss or harm - An arrangement by
which company gives customers financial protection against loss or harm such as
theft or illness in return for premium payments.
Life Insurance - ANSWER: Is based on actuarial or mathematical principles and
guarantees a specified sum of money upon the death of the person who is insured.
Health Insurance - ANSWER: Evolved from scientific principles to provide funds for
medical expensed due to sickness or injury and to cover loss of income during
disability
Annuities - ANSWER: Provide a stream of income by making a series of payments to
the annuitant for the annuitant's lifetime or for a specifically designated period of
time.
Risk - ANSWER: Uncertainty regarding loss; the probability of loss occurring for an
insured or prospect
Speculative Risks - ANSWER: Involve the possibility of loss and gain. (Not Insurable)
Pure Risks - ANSWER: Involve the possibility of loss only. (Insurable)
Peril - ANSWER: Cause of risk (when a building burns, fire is the peril)
Hazards - ANSWER: The source of danger
Physical Hazard - ANSWER: A hazard being of physical nature.
A person being treated of cancer, the disease is the physical endangerment.
(Blindness & deafness)
Risk Avoidance - ANSWER: Occurs when individuals evade risk entirely. "If you don't
drive, then you avoid getting in an auto accident."
Risk Reduction - ANSWER: Takes place when the chances of loss are lessened.
Changing a lifestyle to minimize a known risk.
Risk Retention - ANSWER: Being aware of the risks involved and taking precautions
for financial protection. Auto policy's deductible is an illustration of risk retention
,Risk Transference - ANSWER: The act of shifting the responsibility of risk to another
in the form of an insurance contract.
Adverse Selection - ANSWER: Refers to the tendency for those individuals who
present less favorable insurance risk to seek or continue insurance to a great extent
than other risks.
Insuring Pure Risk - ANSWER: Loss must be due to chance
Loss must be definite and measurable
Risk must be predictable
Loss must NOT be catastrophic
Exposure to loss must be large
Loss exposures must be randomly selected
Mutual Insurers - ANSWER: Participating policies
Owned by policyholders
Vote for directors and trustees
Directors and management have control
Typically higher rates
Assessment Mutual Insurers - ANSWER: Prohibited in Florida
Pure Assessment Mutual Company - ANSWER: Don't pay premium and total loss is
divided among members
Lloyds of London - ANSWER: NOT considered an insurance company
- An association of individuals and companies that individually underwriter
insurance.
Fraternal Benefit Societies - ANSWER: Must be nonprofit, have a lodge system, and
offer insurance to its members only
Service Providers - ANSWER: Contract for and sell medical and hospital care services.
Participants are known as subscribers.
Home Service Insurer - ANSWER: Insurer that offers relatively small policies with
premiums payable on a weekly basis.
Captive Agents - ANSWER: A.k.a. Career agents
Works for only one insurer and sells only that insurers products
Independent Agents - ANSWER: Is self-governing and actually works for himself. This
affords him the versatility to represent several insurers and their different insurance
products.
Special Agents - ANSWER: Usually not license and don't sell insurance. Assist
insurance companies field representatives.
,Career Agency System - ANSWER: (GA) - Build sales staffs and agents are treated as
employees. They are recruited and trained. A principal of the company supervises
agents.
Personal Producing General Agency System - ANSWER: (PPGA) - The agent supplies
his own working environment. Agents hired by a PPGA are considered employees of
the PPGA, not the insurance company, and are supervised by the regional salary.
Independent Agency System - ANSWER: Agents represent several insurers through
signed contracts and are paid on commission or fee basis, not through salary.
Regulating the business of insurance - ANSWER: Legislation
The Court System
State Insurance Departments
Paul v. Virginia - ANSWER: - State tried to control insurance domiciled from another
state.
- U.S. Supreme Court sided against insurance company
- Upholding the right of sate to regulate insurance
- States WIN
United States v. Southeastern Underwriters Association (SEUA) - ANSWER: - Ruling is
a form of interstate commerce
- Should be regulated by the federal government
- Fed Gov. WINS
The McCarran-Ferguson Act - ANSWER: - Gave back some regulatory authority to the
states
- Did not provide the states to regulate individually
- Insurance regulated by state law "is in the publics best interest"
Intervention by the FTC - ANSWER: - FTC tried to control the advertising and sales
literature used by the health insurance industry
- Thus, supreme court held that the McCarran-Ferguson Act disallowed this
- FTC tried even harder to force more federal control
Intervention by SEC - ANSWER: - Dealing with variable annuities
- Securities and Exchange Commission (SEC) should regulate the variable annuities
(since they're used for investments) & variable life insurance.
- Therefore, agents must obey the rules to both SEC and state regulation.
Fair Credit Reporting Act - ANSWER: - Fair and accurate report of information about
consumers
- Insurers must inform them about any investigations being made
- Then insurers must let the applicants know the name of the reporting agency
, Financial Services Modernization Act - ANSWER: - Revoking the Glass-Steagall Act
- This changed the industry so commercial banks, investment banks, retail
brokerages, and insurance companies can now enter each other's lines of business
Admitted insurance company - ANSWER: - Office of Insurance Regulation has
licensed them to carry out business in Florida
Nonadmitted Insurance Company - ANSWER: - Have not been licensed by the the
Florida Office of Insurance Regulation
HMO - ANSWER: Health Maintenance Organization
- Health care management stressing preventive health care, early diagnosis and
treatment on an outpatient basis
Policy Replacement - ANSWER: - An action which eliminates the original policy or
diminishes its benefits or values
Bad policy remplacement issues - ANSWER: - Most the first year's premium is
consumed by the commission
- The premium is higher due to the insured's advanced age
- Waiting periods begin anew
Misuse of Premiums - ANSWER: - Improper use of premiums collected by an
insurance producer
- Depositing a client's premium in own personal account
Rebating - ANSWER: - Florida and California are the only two states that allow
rebating
- When any part of commission or anything else of value is given to the insured as a
incentive to buy a policy
- Agent must keep copies of rebating schedules for five years
NAIC - ANSWER: - National Association of Insurance Commissioners
- No legal power of its own
- Encourages uniformity in state insurance laws and regulations
Florida Insurance Guaranty Association - ANSWER: - Funded by insurance companies
through assessments
-FIGA is part of a non-profit,
- Guaranty associations protect policyholders and claimants.
- Holds three separate accounts:
- Health Insurance
- Life Insurance
- Annuity Accounts
NAIFA - ANSWER: - National Association of Insurance and Financial Advisors (NAIFA)
- Designed to protect agents
EXAM COMPLETE ACCURATE QUESTIONS AND CORRECT
DETAILED ANSWERS (VERIFIED ANSWERS) |ALREADY
GRADED A+
Insurance - ANSWER: Financial protection against loss or harm - An arrangement by
which company gives customers financial protection against loss or harm such as
theft or illness in return for premium payments.
Life Insurance - ANSWER: Is based on actuarial or mathematical principles and
guarantees a specified sum of money upon the death of the person who is insured.
Health Insurance - ANSWER: Evolved from scientific principles to provide funds for
medical expensed due to sickness or injury and to cover loss of income during
disability
Annuities - ANSWER: Provide a stream of income by making a series of payments to
the annuitant for the annuitant's lifetime or for a specifically designated period of
time.
Risk - ANSWER: Uncertainty regarding loss; the probability of loss occurring for an
insured or prospect
Speculative Risks - ANSWER: Involve the possibility of loss and gain. (Not Insurable)
Pure Risks - ANSWER: Involve the possibility of loss only. (Insurable)
Peril - ANSWER: Cause of risk (when a building burns, fire is the peril)
Hazards - ANSWER: The source of danger
Physical Hazard - ANSWER: A hazard being of physical nature.
A person being treated of cancer, the disease is the physical endangerment.
(Blindness & deafness)
Risk Avoidance - ANSWER: Occurs when individuals evade risk entirely. "If you don't
drive, then you avoid getting in an auto accident."
Risk Reduction - ANSWER: Takes place when the chances of loss are lessened.
Changing a lifestyle to minimize a known risk.
Risk Retention - ANSWER: Being aware of the risks involved and taking precautions
for financial protection. Auto policy's deductible is an illustration of risk retention
,Risk Transference - ANSWER: The act of shifting the responsibility of risk to another
in the form of an insurance contract.
Adverse Selection - ANSWER: Refers to the tendency for those individuals who
present less favorable insurance risk to seek or continue insurance to a great extent
than other risks.
Insuring Pure Risk - ANSWER: Loss must be due to chance
Loss must be definite and measurable
Risk must be predictable
Loss must NOT be catastrophic
Exposure to loss must be large
Loss exposures must be randomly selected
Mutual Insurers - ANSWER: Participating policies
Owned by policyholders
Vote for directors and trustees
Directors and management have control
Typically higher rates
Assessment Mutual Insurers - ANSWER: Prohibited in Florida
Pure Assessment Mutual Company - ANSWER: Don't pay premium and total loss is
divided among members
Lloyds of London - ANSWER: NOT considered an insurance company
- An association of individuals and companies that individually underwriter
insurance.
Fraternal Benefit Societies - ANSWER: Must be nonprofit, have a lodge system, and
offer insurance to its members only
Service Providers - ANSWER: Contract for and sell medical and hospital care services.
Participants are known as subscribers.
Home Service Insurer - ANSWER: Insurer that offers relatively small policies with
premiums payable on a weekly basis.
Captive Agents - ANSWER: A.k.a. Career agents
Works for only one insurer and sells only that insurers products
Independent Agents - ANSWER: Is self-governing and actually works for himself. This
affords him the versatility to represent several insurers and their different insurance
products.
Special Agents - ANSWER: Usually not license and don't sell insurance. Assist
insurance companies field representatives.
,Career Agency System - ANSWER: (GA) - Build sales staffs and agents are treated as
employees. They are recruited and trained. A principal of the company supervises
agents.
Personal Producing General Agency System - ANSWER: (PPGA) - The agent supplies
his own working environment. Agents hired by a PPGA are considered employees of
the PPGA, not the insurance company, and are supervised by the regional salary.
Independent Agency System - ANSWER: Agents represent several insurers through
signed contracts and are paid on commission or fee basis, not through salary.
Regulating the business of insurance - ANSWER: Legislation
The Court System
State Insurance Departments
Paul v. Virginia - ANSWER: - State tried to control insurance domiciled from another
state.
- U.S. Supreme Court sided against insurance company
- Upholding the right of sate to regulate insurance
- States WIN
United States v. Southeastern Underwriters Association (SEUA) - ANSWER: - Ruling is
a form of interstate commerce
- Should be regulated by the federal government
- Fed Gov. WINS
The McCarran-Ferguson Act - ANSWER: - Gave back some regulatory authority to the
states
- Did not provide the states to regulate individually
- Insurance regulated by state law "is in the publics best interest"
Intervention by the FTC - ANSWER: - FTC tried to control the advertising and sales
literature used by the health insurance industry
- Thus, supreme court held that the McCarran-Ferguson Act disallowed this
- FTC tried even harder to force more federal control
Intervention by SEC - ANSWER: - Dealing with variable annuities
- Securities and Exchange Commission (SEC) should regulate the variable annuities
(since they're used for investments) & variable life insurance.
- Therefore, agents must obey the rules to both SEC and state regulation.
Fair Credit Reporting Act - ANSWER: - Fair and accurate report of information about
consumers
- Insurers must inform them about any investigations being made
- Then insurers must let the applicants know the name of the reporting agency
, Financial Services Modernization Act - ANSWER: - Revoking the Glass-Steagall Act
- This changed the industry so commercial banks, investment banks, retail
brokerages, and insurance companies can now enter each other's lines of business
Admitted insurance company - ANSWER: - Office of Insurance Regulation has
licensed them to carry out business in Florida
Nonadmitted Insurance Company - ANSWER: - Have not been licensed by the the
Florida Office of Insurance Regulation
HMO - ANSWER: Health Maintenance Organization
- Health care management stressing preventive health care, early diagnosis and
treatment on an outpatient basis
Policy Replacement - ANSWER: - An action which eliminates the original policy or
diminishes its benefits or values
Bad policy remplacement issues - ANSWER: - Most the first year's premium is
consumed by the commission
- The premium is higher due to the insured's advanced age
- Waiting periods begin anew
Misuse of Premiums - ANSWER: - Improper use of premiums collected by an
insurance producer
- Depositing a client's premium in own personal account
Rebating - ANSWER: - Florida and California are the only two states that allow
rebating
- When any part of commission or anything else of value is given to the insured as a
incentive to buy a policy
- Agent must keep copies of rebating schedules for five years
NAIC - ANSWER: - National Association of Insurance Commissioners
- No legal power of its own
- Encourages uniformity in state insurance laws and regulations
Florida Insurance Guaranty Association - ANSWER: - Funded by insurance companies
through assessments
-FIGA is part of a non-profit,
- Guaranty associations protect policyholders and claimants.
- Holds three separate accounts:
- Health Insurance
- Life Insurance
- Annuity Accounts
NAIFA - ANSWER: - National Association of Insurance and Financial Advisors (NAIFA)
- Designed to protect agents
