Florida Insurance 2-14 Exam
Insurance correct answersFinancial 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 correct answersIs based on actuarial or mathematical
principles and guarantees a specified sum of money upon the death of
the person who is insured.
Annuities correct answersProvide 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 correct answersUncertainty regarding loss; the probability of loss
occurring for an insured or prospect
Speculative Risks correct answersInvolve the possibility of loss and
gain. (Not Insurable)
Pure Risks correct answersInvolve the possibility of loss only.
(Insurable) Peril correct answersCause of risk (when a building
burns, fire is the peril) Hazards correct answersThe source of
danger
Physical Hazard correct answersA hazard being of physical
nature.
A person being treated of cancer, the disease is the physical endangerment.
(Blindness & deafness)
Risk Avoidance correct answersOccurs when individuals evade risk
entirely. "If you don't drive, then you avoid getting in an auto accident."
Risk Reduction correct answersTakes place when the chances of loss are
lessened. Changing a lifestyle to minimize a known risk.
Risk Retention correct answersBeing aware of the risks involved and taking
precautions for financial protection. Auto policy's deductible is an illustration
of risk retention
Risk Transference correct answersThe act of shifting the responsibility of risk
to another in the form of an insurance contract.
Adverse Selection correct answersRefers 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 correct answersLoss 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 correct answersParticipating
policies Owned by policyholders
Vote for directors and trustees
Directors and management have
control Typically higher rates
Assessment Mutual Insurers
correct answersProhibited in
Florida
Pure Assessment Mutual Company correct answersDon't pay premium and
total loss is divided among members
Lloyds of London correct answersNOT considered an insurance company
- An association of individuals and companies that individually underwriter
insurance.
Fraternal Benefit Societies correct answersMust be nonprofit, have a lodge
system, and offer insurance to its members only
Home Service Insurer correct answersInsurer that offers relatively small
policies with premiums payable on a weekly basis.
Captive Agents correct answersA.k.a. Career agents
Works for only one insurer and sells only that insurers products
Independent Agents correct answersIs self-governing and actually works for
himself. This affords him the versatility to represent several insurers and
their different insurance products.
Special Agents correct answersUsually not license and don't sell
insurance. Assist insurance companies field representatives.
Career Agency System correct answers(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 correct answers(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 correct answersAgents represent several
insurers through signed contracts and are paid on commission or fee basis,
not through salary.
Regulating the business of insurance correct
answersLegislation The Court System
State Insurance Departments
Paul v. Virginia correct answers- 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) correct
answers- Ruling is a form of interstate commerce
- Should be regulated by the federal government
- Fed Gov. WINS
The McCarran-Ferguson Act correct answers- 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 SEC correct answers- 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 correct answers- 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 correct answers- 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 correct answers- Office of Insurance
Regulation has licensed them to carry out business in Florida
Nonadmitted Insurance Company correct answers- Have not been licensed
by the the Florida Office of Insurance Regulation
Policy Replacement correct answers- An action which eliminates the
original policy or diminishes its benefits or values
, Bad policy remplacement issues correct answers- 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 correct answers- Improper use of premiums
collected by an insurance producer
- Depositing a client's premium in own personal account
Rebating correct answers- 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 correct answers- National Association of Insurance Commissioners
- No legal power of its own
- Encourages uniformity in state insurance laws and regulations
Florida Insurance Guaranty Association correct answers- 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 correct answers- National Association of Insurance and Financial
Advisors (NAIFA)
- Designed to protect agents
- Dedicated to supporting life insurance industry
A.M. Best Rating Agency correct answers- Profitability, leverage, &
liquidity
- A++ to F and S (suspended)
Standard and Poors (S&P) Rating Agency correct answers- Claims and the
ability to pay
- AAA to C to R
Moodys Investor Services Rating Agency correct answers- Financial
strength
- Aaa to C
Fitch IBCA (formerly Duff & Phelps) correct answers- Credit worthiness of
securities
- AAA to CCC
Insurance correct answersFinancial 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 correct answersIs based on actuarial or mathematical
principles and guarantees a specified sum of money upon the death of
the person who is insured.
Annuities correct answersProvide 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 correct answersUncertainty regarding loss; the probability of loss
occurring for an insured or prospect
Speculative Risks correct answersInvolve the possibility of loss and
gain. (Not Insurable)
Pure Risks correct answersInvolve the possibility of loss only.
(Insurable) Peril correct answersCause of risk (when a building
burns, fire is the peril) Hazards correct answersThe source of
danger
Physical Hazard correct answersA hazard being of physical
nature.
A person being treated of cancer, the disease is the physical endangerment.
(Blindness & deafness)
Risk Avoidance correct answersOccurs when individuals evade risk
entirely. "If you don't drive, then you avoid getting in an auto accident."
Risk Reduction correct answersTakes place when the chances of loss are
lessened. Changing a lifestyle to minimize a known risk.
Risk Retention correct answersBeing aware of the risks involved and taking
precautions for financial protection. Auto policy's deductible is an illustration
of risk retention
Risk Transference correct answersThe act of shifting the responsibility of risk
to another in the form of an insurance contract.
Adverse Selection correct answersRefers 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 correct answersLoss 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 correct answersParticipating
policies Owned by policyholders
Vote for directors and trustees
Directors and management have
control Typically higher rates
Assessment Mutual Insurers
correct answersProhibited in
Florida
Pure Assessment Mutual Company correct answersDon't pay premium and
total loss is divided among members
Lloyds of London correct answersNOT considered an insurance company
- An association of individuals and companies that individually underwriter
insurance.
Fraternal Benefit Societies correct answersMust be nonprofit, have a lodge
system, and offer insurance to its members only
Home Service Insurer correct answersInsurer that offers relatively small
policies with premiums payable on a weekly basis.
Captive Agents correct answersA.k.a. Career agents
Works for only one insurer and sells only that insurers products
Independent Agents correct answersIs self-governing and actually works for
himself. This affords him the versatility to represent several insurers and
their different insurance products.
Special Agents correct answersUsually not license and don't sell
insurance. Assist insurance companies field representatives.
Career Agency System correct answers(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 correct answers(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 correct answersAgents represent several
insurers through signed contracts and are paid on commission or fee basis,
not through salary.
Regulating the business of insurance correct
answersLegislation The Court System
State Insurance Departments
Paul v. Virginia correct answers- 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) correct
answers- Ruling is a form of interstate commerce
- Should be regulated by the federal government
- Fed Gov. WINS
The McCarran-Ferguson Act correct answers- 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 SEC correct answers- 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 correct answers- 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 correct answers- 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 correct answers- Office of Insurance
Regulation has licensed them to carry out business in Florida
Nonadmitted Insurance Company correct answers- Have not been licensed
by the the Florida Office of Insurance Regulation
Policy Replacement correct answers- An action which eliminates the
original policy or diminishes its benefits or values
, Bad policy remplacement issues correct answers- 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 correct answers- Improper use of premiums
collected by an insurance producer
- Depositing a client's premium in own personal account
Rebating correct answers- 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 correct answers- National Association of Insurance Commissioners
- No legal power of its own
- Encourages uniformity in state insurance laws and regulations
Florida Insurance Guaranty Association correct answers- 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 correct answers- National Association of Insurance and Financial
Advisors (NAIFA)
- Designed to protect agents
- Dedicated to supporting life insurance industry
A.M. Best Rating Agency correct answers- Profitability, leverage, &
liquidity
- A++ to F and S (suspended)
Standard and Poors (S&P) Rating Agency correct answers- Claims and the
ability to pay
- AAA to C to R
Moodys Investor Services Rating Agency correct answers- Financial
strength
- Aaa to C
Fitch IBCA (formerly Duff & Phelps) correct answers- Credit worthiness of
securities
- AAA to CCC
