LIFE, ACCIDENT AND HEALTH - MICHIGAN
study guide questions and answers with
solutions 2025
Insurance Contract - ANSWER Legal agreement between an insurance company and an
individual, where the insurer collects a premium from the insured in exchange for the insurers
promise to pay potential future benefits in the event of covered losses.
Risk Pooling - ANSWER Combines similar losses from many people so that the average loss over
the entire group is relatively constant
Law of Large Numbers - ANSWER States that as a group increases in size, it is easier to predict
the number of future losses over a certain period of time.
Actuaries - ANSWER Mathematicians employed by insurance companies, who analyze statistical
data to determine mortality and morbidity rates.
Mortality - ANSWER The rate at which people die.
Morbidity - ANSWER The rate at which people get sick, injured, or disabled.
Risk - ANSWER The possibility of a loss occurring.
Pure Risk - ANSWER The only insurable risks and present a potential for loss such as injury,
illness, and death
Speculative Risk - ANSWER Present the chance for loss or gain
Loss - ANSWER The unintentional decrease in the value of an asset due to a peril.
,Exposure - ANSWER The condition of being prone to loss due to a hazard or uncertain event
Peril - ANSWER The cause of the loss and the event insured against
Life and Health insurance perils - ANSWER Premature death, dependency during old age,
accident, and sickness
Hazard - ANSWER Anything that increases the chance of loss occurring from a particular peril
The 4 types of hazards - ANSWER Physical, moral, morale, and legal
Physical hazard - ANSWER Physical characteristics which raise the loss potential for a particular
peril
Moral hazard - ANSWER The predisposition, character, habits, and values of a person which
increase the chance of a loss occurring
Morale hazard - ANSWER An insureds careless attitude, indifference or lack of responsibility
which increase the chance of a loss occurring
Legal hazard - ANSWER The application of laws, regulations, and legal court rulings which
increase the chance or amount of loss
5 Methods of handling risk - ANSWER Avoidance, retention, sharing, reduction and transfer
Insurance - ANSWER Risk Transfer
,Adverse Selection - ANSWER Demand for insurance coverage by people who are worse than
average risks and more likely to need and use the coverage
Reinsurance - ANSWER Spreads risk from one insurer to one or more other insurers
Reinsurer - ANSWER The insurer that accepts the additional risk
Primary Insurer - ANSWER The insurer that gives the risk to the reinsurer
Competent parties Indemnity - ANSWER "To make whole" provide benefit of payments to
restore the insureds economic loss
Limit of liability - ANSWER The total amount the insurer will pay for an insured risk
Premium - ANSWER Set cost of insurance coverage paid by the policyholder to the insurer
Deductible - ANSWER The amount the insured must pay before the insurer will pay a claim
Coinsurance - ANSWER A cost-sharing mechanism between the insurer and insured in medical
insurance, where for a certain range of coverage the insurer agrees to pay a large percentage of
the expenses and the insured is responsible for paying the remainder
Claim - ANSWER The insured's notification to the insurer that a payment is requested for a
covered loss
Life insurance - ANSWER protects against the risk of premature death
, 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 - ANSWER Protects against the risk of living longer than expected and provides
guaranteed life income to protect against the risk of depleting retirement funds
Property Insurance - ANSWER Protects against the risk of damage and destruction to all types of
property
Casualty Insurance - ANSWER Protects against the risk of legal liability for injury, death,
disability, damage and destruction to property
Credit Insurance
Credit Life/Credit Health - ANSWER Protects against the risk that a person in debt, termed
debtor, cannot repay the debt to the creditor because of accident, sickness, disability or death
Variable - ANSWER Comprised of variable life and variable annuities.
Invests premium dollars in securities, which carry more risk due to price fluctuations
Securities license and life insurance producer license - ANSWER Requirement of selling variable
products
Stock Companies - ANSWER Incorporated companies owned by thier stockholders, who are paid
their share of the company's profit through dividends
Mutualization - ANSWER Transformation of a stock insurer into a mutual insurer
study guide questions and answers with
solutions 2025
Insurance Contract - ANSWER Legal agreement between an insurance company and an
individual, where the insurer collects a premium from the insured in exchange for the insurers
promise to pay potential future benefits in the event of covered losses.
Risk Pooling - ANSWER Combines similar losses from many people so that the average loss over
the entire group is relatively constant
Law of Large Numbers - ANSWER States that as a group increases in size, it is easier to predict
the number of future losses over a certain period of time.
Actuaries - ANSWER Mathematicians employed by insurance companies, who analyze statistical
data to determine mortality and morbidity rates.
Mortality - ANSWER The rate at which people die.
Morbidity - ANSWER The rate at which people get sick, injured, or disabled.
Risk - ANSWER The possibility of a loss occurring.
Pure Risk - ANSWER The only insurable risks and present a potential for loss such as injury,
illness, and death
Speculative Risk - ANSWER Present the chance for loss or gain
Loss - ANSWER The unintentional decrease in the value of an asset due to a peril.
,Exposure - ANSWER The condition of being prone to loss due to a hazard or uncertain event
Peril - ANSWER The cause of the loss and the event insured against
Life and Health insurance perils - ANSWER Premature death, dependency during old age,
accident, and sickness
Hazard - ANSWER Anything that increases the chance of loss occurring from a particular peril
The 4 types of hazards - ANSWER Physical, moral, morale, and legal
Physical hazard - ANSWER Physical characteristics which raise the loss potential for a particular
peril
Moral hazard - ANSWER The predisposition, character, habits, and values of a person which
increase the chance of a loss occurring
Morale hazard - ANSWER An insureds careless attitude, indifference or lack of responsibility
which increase the chance of a loss occurring
Legal hazard - ANSWER The application of laws, regulations, and legal court rulings which
increase the chance or amount of loss
5 Methods of handling risk - ANSWER Avoidance, retention, sharing, reduction and transfer
Insurance - ANSWER Risk Transfer
,Adverse Selection - ANSWER Demand for insurance coverage by people who are worse than
average risks and more likely to need and use the coverage
Reinsurance - ANSWER Spreads risk from one insurer to one or more other insurers
Reinsurer - ANSWER The insurer that accepts the additional risk
Primary Insurer - ANSWER The insurer that gives the risk to the reinsurer
Competent parties Indemnity - ANSWER "To make whole" provide benefit of payments to
restore the insureds economic loss
Limit of liability - ANSWER The total amount the insurer will pay for an insured risk
Premium - ANSWER Set cost of insurance coverage paid by the policyholder to the insurer
Deductible - ANSWER The amount the insured must pay before the insurer will pay a claim
Coinsurance - ANSWER A cost-sharing mechanism between the insurer and insured in medical
insurance, where for a certain range of coverage the insurer agrees to pay a large percentage of
the expenses and the insured is responsible for paying the remainder
Claim - ANSWER The insured's notification to the insurer that a payment is requested for a
covered loss
Life insurance - ANSWER protects against the risk of premature death
, 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 - ANSWER Protects against the risk of living longer than expected and provides
guaranteed life income to protect against the risk of depleting retirement funds
Property Insurance - ANSWER Protects against the risk of damage and destruction to all types of
property
Casualty Insurance - ANSWER Protects against the risk of legal liability for injury, death,
disability, damage and destruction to property
Credit Insurance
Credit Life/Credit Health - ANSWER Protects against the risk that a person in debt, termed
debtor, cannot repay the debt to the creditor because of accident, sickness, disability or death
Variable - ANSWER Comprised of variable life and variable annuities.
Invests premium dollars in securities, which carry more risk due to price fluctuations
Securities license and life insurance producer license - ANSWER Requirement of selling variable
products
Stock Companies - ANSWER Incorporated companies owned by thier stockholders, who are paid
their share of the company's profit through dividends
Mutualization - ANSWER Transformation of a stock insurer into a mutual insurer
