MORAL HAZARD - ANSWER Moral hazards are an individual's traits or habits that increase
the chance of a loss. Alcoholism, smoking, and drug addiction are examples of moral
hazards. A willingness to defraud insurers is considered a moral hazard for which insurers
remain alert
MORALE HAZARD - ANSWER Morale hazards are also individual tendencies, but they
arise from a state of mind, attitude, or indifference to loss. Driving recklessly is an example
of a morale hazard. In fact, doing anything recklessly because "I have insurance for that"
demonstrates a morale hazard
PHYSICAL HAZARD - ANSWER Physical hazards are individual physical characteristics that
increase the chance of loss. They exist due to a person's physical condition as opposed to
arising from his or her character. High cholesterol is an example of a physical hazard. As a
means of identifying physical hazards, an insurer may require that a life insurance applicant
submit to basic medical laboratory tests as part of the application process.
actuaries - ANSWER insurance company mathematicians
adverse selection - ANSWER An important goal of the underwriting process is to avoid.
(Adverse selection means to "select against)
Federal laws that have a direct bearing on insurance - ANSWER •Fair Credit Reporting Act
(FCRA)
•Employee Retirement Income Security Act (ERISA)
•Consolidated Budget Reconciliation Act (COBRA)
•Health Insurance Portability and Accountability Act (HIPAA)
•Patient Protection and Affordable Care Act (PPACA)
1
,"regulatory associations" that work to promote uniformity among the STATE - ANSWER
National Association of Insurance Commissioners (NAIC),
National Conference of Insurance Legislators (NCOIL)
National Association of Insurance Commissioners (NAIC), - ANSWER represents the
insurance department of every state, the District of Columbia, and several U.S. territories.
The NAIC meets regularly to review developing insurance issues and to promote uniformity
by developing model insurance regulations
National Conference of Insurance Legislators (NCOIL) - ANSWER comprised of state
legislators from every state. The NCOIL works to help state legislators make informed
decisions on insurance issues that affect their constituents
Financial Industry Regulatory Authority (FINRA), - ANSWER variable life insurance and
variable annuities are regulated primarily by
LOSS - ANSWER an unplanned reduction in economic value
RISK - ANSWER chance of loss
HAZARD - ANSWER a condition that raises the chance of encountering a peril or increases
the severity of a loss
RISK RETENTION - ANSWER •The use of deductibles in health and property insurance
RISK TRANSFER - ANSWER transferring the loss to a third party—is the basis for most
forms of insurance today.
2
,UNDERWRITING PROCESS - ANSWER insurance company underwriters determine if the
risk proposed for insurance should be accepted or rejected
LAW OF LARGE NUMBERS - ANSWER the mathematical principle of probability that
insurance is based on.
MORTALITY TABLE - ANSWER used in determining life insurance premiums, while
morbidity tables are the basis of health insurance premiums
PRIVATE INSURANCE/ COMMERICAL - ANSWER STOCK, MUTUAL, AND OTHER
COMPANIES
GOVERMENT INSURANCE - ANSWER FEDERAL AND STATE
Stock insurance companies - ANSWER owned by stockholders, just like many other major
public companies. The stock of these companies may be publicly traded on stock exchanges
or privately held by small groups of investors or even families. These companies pay stock
dividends, when declared, to their stockholders
Mutual insurance companies - ANSWER owned by their policyowners; they have no
stockholders. Similar to stock insurers, mutual insurance companies have minimum capital
requirements and are governed by a board of directors. But a mutual company's board of
directors is elected by the policyowners
participating policies - ANSWER pay policy dividends to their policyowners. Policy
dividends, which cannot be guaranteed, are typically not taxable since they are viewed as a
return of excess premiums. ISSUES BY MUTUAL COMPANIES
fraternal benefit society - ANSWER an organization of people who share a common
ethnic, religious, or vocational affiliation
3
, Fraternal insurers - ANSWER nonprofit organizations that operate under a special section
of the insurance laws of the state in which they are approved.specialize primarily in life
insurance and annuity products that are usually available only to the society's members
INDUSTRIAL LIFE / ORDINARY LIFE INSURANCE - ANSWER Traditionally offered as "burial
insurance," industrial life insurance offers individual coverage in small face amounts, usually
less than $10,000 (and frequently between $1,000 and $2,500). These policies generally
require no medical exam to qualify
reciprocal insurance exchange - ANSWER an unincorporated group of individuals (called
subscribers), working together through an attorney-in-fact, who each agree to pay a pro rata
share of any loss suffered by any other member
home service insurance company - ANSWER insurance company that sells its products to
the general public and which specializes in life insurance policies designed for burial and last
expense purposes, generally with face amounts of $10,000 or less, for which she oftentimes
collects premiums weekly
All the following statements regarding the career agency distribution system are correct
EXCEPT:
The general agency system is a form of career agency system.
The managerial form of career agency system uses company employees as the agency
managers.
It uses producers who primarily if not exclusively represent one insurer.
Personal producing general agents (PPGAs) are commonly hired to manage career agencies.
- ANSWER Personal producing general agents (PPGAs) are commonly hired to manage
career agencies.
4
the chance of a loss. Alcoholism, smoking, and drug addiction are examples of moral
hazards. A willingness to defraud insurers is considered a moral hazard for which insurers
remain alert
MORALE HAZARD - ANSWER Morale hazards are also individual tendencies, but they
arise from a state of mind, attitude, or indifference to loss. Driving recklessly is an example
of a morale hazard. In fact, doing anything recklessly because "I have insurance for that"
demonstrates a morale hazard
PHYSICAL HAZARD - ANSWER Physical hazards are individual physical characteristics that
increase the chance of loss. They exist due to a person's physical condition as opposed to
arising from his or her character. High cholesterol is an example of a physical hazard. As a
means of identifying physical hazards, an insurer may require that a life insurance applicant
submit to basic medical laboratory tests as part of the application process.
actuaries - ANSWER insurance company mathematicians
adverse selection - ANSWER An important goal of the underwriting process is to avoid.
(Adverse selection means to "select against)
Federal laws that have a direct bearing on insurance - ANSWER •Fair Credit Reporting Act
(FCRA)
•Employee Retirement Income Security Act (ERISA)
•Consolidated Budget Reconciliation Act (COBRA)
•Health Insurance Portability and Accountability Act (HIPAA)
•Patient Protection and Affordable Care Act (PPACA)
1
,"regulatory associations" that work to promote uniformity among the STATE - ANSWER
National Association of Insurance Commissioners (NAIC),
National Conference of Insurance Legislators (NCOIL)
National Association of Insurance Commissioners (NAIC), - ANSWER represents the
insurance department of every state, the District of Columbia, and several U.S. territories.
The NAIC meets regularly to review developing insurance issues and to promote uniformity
by developing model insurance regulations
National Conference of Insurance Legislators (NCOIL) - ANSWER comprised of state
legislators from every state. The NCOIL works to help state legislators make informed
decisions on insurance issues that affect their constituents
Financial Industry Regulatory Authority (FINRA), - ANSWER variable life insurance and
variable annuities are regulated primarily by
LOSS - ANSWER an unplanned reduction in economic value
RISK - ANSWER chance of loss
HAZARD - ANSWER a condition that raises the chance of encountering a peril or increases
the severity of a loss
RISK RETENTION - ANSWER •The use of deductibles in health and property insurance
RISK TRANSFER - ANSWER transferring the loss to a third party—is the basis for most
forms of insurance today.
2
,UNDERWRITING PROCESS - ANSWER insurance company underwriters determine if the
risk proposed for insurance should be accepted or rejected
LAW OF LARGE NUMBERS - ANSWER the mathematical principle of probability that
insurance is based on.
MORTALITY TABLE - ANSWER used in determining life insurance premiums, while
morbidity tables are the basis of health insurance premiums
PRIVATE INSURANCE/ COMMERICAL - ANSWER STOCK, MUTUAL, AND OTHER
COMPANIES
GOVERMENT INSURANCE - ANSWER FEDERAL AND STATE
Stock insurance companies - ANSWER owned by stockholders, just like many other major
public companies. The stock of these companies may be publicly traded on stock exchanges
or privately held by small groups of investors or even families. These companies pay stock
dividends, when declared, to their stockholders
Mutual insurance companies - ANSWER owned by their policyowners; they have no
stockholders. Similar to stock insurers, mutual insurance companies have minimum capital
requirements and are governed by a board of directors. But a mutual company's board of
directors is elected by the policyowners
participating policies - ANSWER pay policy dividends to their policyowners. Policy
dividends, which cannot be guaranteed, are typically not taxable since they are viewed as a
return of excess premiums. ISSUES BY MUTUAL COMPANIES
fraternal benefit society - ANSWER an organization of people who share a common
ethnic, religious, or vocational affiliation
3
, Fraternal insurers - ANSWER nonprofit organizations that operate under a special section
of the insurance laws of the state in which they are approved.specialize primarily in life
insurance and annuity products that are usually available only to the society's members
INDUSTRIAL LIFE / ORDINARY LIFE INSURANCE - ANSWER Traditionally offered as "burial
insurance," industrial life insurance offers individual coverage in small face amounts, usually
less than $10,000 (and frequently between $1,000 and $2,500). These policies generally
require no medical exam to qualify
reciprocal insurance exchange - ANSWER an unincorporated group of individuals (called
subscribers), working together through an attorney-in-fact, who each agree to pay a pro rata
share of any loss suffered by any other member
home service insurance company - ANSWER insurance company that sells its products to
the general public and which specializes in life insurance policies designed for burial and last
expense purposes, generally with face amounts of $10,000 or less, for which she oftentimes
collects premiums weekly
All the following statements regarding the career agency distribution system are correct
EXCEPT:
The general agency system is a form of career agency system.
The managerial form of career agency system uses company employees as the agency
managers.
It uses producers who primarily if not exclusively represent one insurer.
Personal producing general agents (PPGAs) are commonly hired to manage career agencies.
- ANSWER Personal producing general agents (PPGAs) are commonly hired to manage
career agencies.
4
