WEBCE Prep Exam Life Insurance-EXAM STUDY
GUIDE ACCURATE QUESTIONS AND CORRECT
DETAILED ANSWERS WITH RATIONALES ||
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Risk Management
using strategies to reduce the amount of risk
Risk
The chance of loss from an event that cannot be entirely controlled
Pure risk
The possibility of loss with no chance of gain. That which can result only in a loss to the person
at risk.
Speculative risk
Chance of loss or gain
loss
unplanned reduction in economic value. can be either direct or indirect.
Underwriting
The process that determines if the risk proposed for insurance should be accepted or rejected.
peril
A condition that involves either danger or risk and is the cause of a loss.
hazard
a condition that increases the number of or severity of loss
Risk Avoidance
,avoiding an act that would create a risk
Risk Retention
Choosing to use assets to pay for any losses if the risk becomes a reality
risk sharing
One of the oldest ways to manage risks; similar to buying insurance in that a part of the risk is
transferred to others
Risk transfer
An individual or business transfers the risk of loss to an insurance company in return for a
premium
insurable risk
An applicant is an insurable risk to the insurer if he or she meets certain criteria for insurability;
if these criteria are met, then the applicant is insurable.
Law of Large Numbers
A method of predicting future losses with great accuracy.
mortality
Is the rate of death in the target population; it is a significant factor in calculating life insurance
premiums
morbidity
Used by insurers in pricing health insurance policies. Indicates the average number of persons at
various ages who can be expected to become disabled because of illness or accident.
adverse selection
The tendency of those who most need insurance to buy insurance. Those who don't have as
much of a need for a particular type of insurance are less likely to buy it
Stock insurance companies
Owned by stockholders these companies pay dividends, when declared, to their stockholders
Mutual insurance companies
Owned by policyowners; mutual companies have no stockholders
policy dividend
, An amount returned to the owner of a participating insurance policy out of an insurance
company's surplus funds.
self-insurers
Refers to a large company that is willing and financially able to retain certain risks and to self-
fund for that purpose.
Fraternal Benefit Society
An organization composed of individuals who typically share a common ethnic or religious
affiliation.
Fraternal insurance companies
nonprofit organizations that are affiliated with a fraternal society and operate under a special
section of the insurance laws of the state in which they are domiciled.
Surplus Lines Insurance
not a type of insurance company or product, but a market for insurance that is not available
through any admitted companies in a state.
Reinsurance
An insurer that sells insurance to the public enters into agreement with another insurance
company to accept some of its risks
admitted insurer
A company that has received a certificate of authority from the state. This certificate permits
the company to transact insurance within the state. It certifies that the company has met the
state's requirements for conducting the business of insurance.
Domestic Insurance Company
The insurance company's domicile (home office) is its state of incorporation. Insurers doing
business in the state in which they are domiciled.
Foreign Insurance Company
Any company that does business in a state other than the one in which it is domiciled.
Alien Insurance Company
A company that is incorporated in a country outside the United States and is doing business in
the United States
GUIDE ACCURATE QUESTIONS AND CORRECT
DETAILED ANSWERS WITH RATIONALES ||
100% GUARANTEED PASS <BRAND NEW
VERSION>
Risk Management
using strategies to reduce the amount of risk
Risk
The chance of loss from an event that cannot be entirely controlled
Pure risk
The possibility of loss with no chance of gain. That which can result only in a loss to the person
at risk.
Speculative risk
Chance of loss or gain
loss
unplanned reduction in economic value. can be either direct or indirect.
Underwriting
The process that determines if the risk proposed for insurance should be accepted or rejected.
peril
A condition that involves either danger or risk and is the cause of a loss.
hazard
a condition that increases the number of or severity of loss
Risk Avoidance
,avoiding an act that would create a risk
Risk Retention
Choosing to use assets to pay for any losses if the risk becomes a reality
risk sharing
One of the oldest ways to manage risks; similar to buying insurance in that a part of the risk is
transferred to others
Risk transfer
An individual or business transfers the risk of loss to an insurance company in return for a
premium
insurable risk
An applicant is an insurable risk to the insurer if he or she meets certain criteria for insurability;
if these criteria are met, then the applicant is insurable.
Law of Large Numbers
A method of predicting future losses with great accuracy.
mortality
Is the rate of death in the target population; it is a significant factor in calculating life insurance
premiums
morbidity
Used by insurers in pricing health insurance policies. Indicates the average number of persons at
various ages who can be expected to become disabled because of illness or accident.
adverse selection
The tendency of those who most need insurance to buy insurance. Those who don't have as
much of a need for a particular type of insurance are less likely to buy it
Stock insurance companies
Owned by stockholders these companies pay dividends, when declared, to their stockholders
Mutual insurance companies
Owned by policyowners; mutual companies have no stockholders
policy dividend
, An amount returned to the owner of a participating insurance policy out of an insurance
company's surplus funds.
self-insurers
Refers to a large company that is willing and financially able to retain certain risks and to self-
fund for that purpose.
Fraternal Benefit Society
An organization composed of individuals who typically share a common ethnic or religious
affiliation.
Fraternal insurance companies
nonprofit organizations that are affiliated with a fraternal society and operate under a special
section of the insurance laws of the state in which they are domiciled.
Surplus Lines Insurance
not a type of insurance company or product, but a market for insurance that is not available
through any admitted companies in a state.
Reinsurance
An insurer that sells insurance to the public enters into agreement with another insurance
company to accept some of its risks
admitted insurer
A company that has received a certificate of authority from the state. This certificate permits
the company to transact insurance within the state. It certifies that the company has met the
state's requirements for conducting the business of insurance.
Domestic Insurance Company
The insurance company's domicile (home office) is its state of incorporation. Insurers doing
business in the state in which they are domiciled.
Foreign Insurance Company
Any company that does business in a state other than the one in which it is domiciled.
Alien Insurance Company
A company that is incorporated in a country outside the United States and is doing business in
the United States
