ALU 202 EXAM 1 QUESTIONS AND ANSWERS SET A+
✔✔Home Care services - ✔✔are provided in the insured's home by skilled caregivers
such as individuals who can assist with home management or other services to
maintain an individual's functional ability, speech, occupation, or physical therapist.
✔✔Irrevocable Beneficiary - ✔✔is a beneficiary whose interest in an insurance policy
cannot be revoked without that individual's written consent.
✔✔Legally Competent - ✔✔is a person of legal age and sound mind who is recognized
by law as being able to contract with others.
✔✔Motivation for the purposes of disability insurance - ✔✔can be defined as the desire
of the individual to work. Some factors influencing an individual's motivation to work can
include their work ethic, occupation type, personal situation, work environment and
income level.
✔✔Non-Cancelable is a policy type in which - ✔✔as long as premiums are paid on time,
the company cannot cancel the policy, increase the premiums, add restrictive riders,
change policy provisions, or make any changes to the policy.
✔✔Office Overhead Expense Insurance - ✔✔is a type of disability business insurance
in which the monthly benefit payable is contingent on the covered business expenses
incurred by the business during each month of disability.
✔✔Regular Occupation is a definition of total disability - ✔✔defines total disability as the
insured's inability, due to injury or sickness, to perform the important duties of their own
occupation. The insured is not working in any other reasonable occupation. The insured
must be under the regular care and attendance of a legally qualified medical
professional.
✔✔Viatication - ✔✔is purchasing insurance policies for cash from terminally ill
policyholders.
,✔✔Waiting Period - ✔✔is the amount of time that must elapse between the onset of a
disability or loss of the ability to perform two or more activities of daily living, when the
proceeds of the policy become payable.
✔✔The law of large numbers states the greater the number of occurrences that take
place: - ✔✔-The more accurate the prediction of future results
-The less the deviation of the actual losses from the expected losses.
-The more reliable the prediction will be.
✔✔Facultative reinsurance can be used in situations in which: - ✔✔-The case does not
qualify for automatic reinsurance under the treaty.
-The direct carrier cannot place the offer made by its own underwriters and seeks
another underwriting offer on the case.
-The direct carrier does not want to keep its normal retention on this case.
✔✔Commencement of Liability - ✔✔this provision addresses the reinsurer's liability for
a claim and at what point that liability begins.
✔✔Reductions, Terminations and Changes - ✔✔this provision states all policy
increases, risk classification changes, and reinstatements will be underwritten in
accordance with the customary standards and procedures employed by the ceding
company.
✔✔Errors and Omissions - ✔✔this clause deals with mistakes made by the ceding
company or the reinsurer. In general, acceptable errors are unintentional and non-
repetitive and are not the result of negligence or a deliberate act.
✔✔Dispute Resolution - ✔✔if a disagreement arises between ceding company and
reinsurer that cannot be settled, this provision describes the procedure the companies
will take. Generally, it involves senior managers and company officers to negotiate in
good faith and with complete disclosure of all relevant details.
✔✔Arbitration - ✔✔occurs in the event that dispute resolution fails, the binding
arbitration is the next step. This provision describes that process, to include who the
arbitrators are, how many there are, and where/when they meet.
✔✔Alphabetical Split - ✔✔is a method of allocating automatic reinsurance among
several reinsurers, using the first letter of the insured's last name.
✔✔Assumed Risk - ✔✔is the acceptance of a cession by a reinsurer, or a retrocession
by a retrocessionaire.
✔✔Assumption Reinsurance - ✔✔is a reinsurance agreement by which one company
permanently transfers full responsibility for a block of policies to another company.
, ✔✔Automatic Binding Limit - ✔✔is the dollar amount of risk on a single or joint life to
which a reinsurer is willing to obligate itself without making its own underwriting
assessment.
✔✔Automatic Reinsurance - ✔✔is a form of reinsurance in which the ceding company is
obligated to cede and the reinsurer is obligated to assume, risks that meet specific
criteria based on the provisions of the reinsurance treaty and the ceding company's
underwriting guidelines.
✔✔Catastrophe Coverage - ✔✔is a form of reinsurance that provides coverage for
losses resulting from an accident or natural disaster involving more than one insured.
These losses typically must exceed a specified amount and number of insureds and or
locations.
✔✔Ceded Risk - ✔✔is the risk transferred to a reinsurer by a direct writing company or
to a retrocessionaire by a reinsurer.
✔✔Ceding Company - ✔✔is the company that transfers its risk to a reinsurer.
✔✔Cession - ✔✔is the document that describes the risk transferred.
✔✔Coinsurance - ✔✔is a method of reinsurance under which the assuming company
receives a proportionate share of all of the risks and cash flows of the policy. The
reinsurer receives its share of the premiums and benefits and sets up its share of the
reserves.
✔✔Excess of Retention - ✔✔is a type of reinsurance in which a ceding company
establishes a dollar amount retention limit and a reinsurer agrees to assume amounts
over this limit, up to the reinsurer's automatic binding limit.
✔✔Facultative -Obligatory Reinsurance - ✔✔is a form of life reinsurance that is a hybrid
between facultative and automatic. The risk to be ceded is submitted to the reinsurer,
which has limited rights to decline individual risks.
✔✔Facultative Reinsurance - ✔✔is the reinsurance in which the risk is offered by a
direct writer to a reinsurer for underwriting approval. The reinsurer has the option to
accept, rate, or decline the offering.
✔✔Facultative Shopping - ✔✔is the act of submitting an underwriting case to several
reinsurers in order to obtain the most competitive offer.
✔✔Financial Reinsurance - ✔✔is specialized reinsurance transacted primarily to
achieve financial goals such as capital management, tax planning, or the financing of
policy reserves.
✔✔Home Care services - ✔✔are provided in the insured's home by skilled caregivers
such as individuals who can assist with home management or other services to
maintain an individual's functional ability, speech, occupation, or physical therapist.
✔✔Irrevocable Beneficiary - ✔✔is a beneficiary whose interest in an insurance policy
cannot be revoked without that individual's written consent.
✔✔Legally Competent - ✔✔is a person of legal age and sound mind who is recognized
by law as being able to contract with others.
✔✔Motivation for the purposes of disability insurance - ✔✔can be defined as the desire
of the individual to work. Some factors influencing an individual's motivation to work can
include their work ethic, occupation type, personal situation, work environment and
income level.
✔✔Non-Cancelable is a policy type in which - ✔✔as long as premiums are paid on time,
the company cannot cancel the policy, increase the premiums, add restrictive riders,
change policy provisions, or make any changes to the policy.
✔✔Office Overhead Expense Insurance - ✔✔is a type of disability business insurance
in which the monthly benefit payable is contingent on the covered business expenses
incurred by the business during each month of disability.
✔✔Regular Occupation is a definition of total disability - ✔✔defines total disability as the
insured's inability, due to injury or sickness, to perform the important duties of their own
occupation. The insured is not working in any other reasonable occupation. The insured
must be under the regular care and attendance of a legally qualified medical
professional.
✔✔Viatication - ✔✔is purchasing insurance policies for cash from terminally ill
policyholders.
,✔✔Waiting Period - ✔✔is the amount of time that must elapse between the onset of a
disability or loss of the ability to perform two or more activities of daily living, when the
proceeds of the policy become payable.
✔✔The law of large numbers states the greater the number of occurrences that take
place: - ✔✔-The more accurate the prediction of future results
-The less the deviation of the actual losses from the expected losses.
-The more reliable the prediction will be.
✔✔Facultative reinsurance can be used in situations in which: - ✔✔-The case does not
qualify for automatic reinsurance under the treaty.
-The direct carrier cannot place the offer made by its own underwriters and seeks
another underwriting offer on the case.
-The direct carrier does not want to keep its normal retention on this case.
✔✔Commencement of Liability - ✔✔this provision addresses the reinsurer's liability for
a claim and at what point that liability begins.
✔✔Reductions, Terminations and Changes - ✔✔this provision states all policy
increases, risk classification changes, and reinstatements will be underwritten in
accordance with the customary standards and procedures employed by the ceding
company.
✔✔Errors and Omissions - ✔✔this clause deals with mistakes made by the ceding
company or the reinsurer. In general, acceptable errors are unintentional and non-
repetitive and are not the result of negligence or a deliberate act.
✔✔Dispute Resolution - ✔✔if a disagreement arises between ceding company and
reinsurer that cannot be settled, this provision describes the procedure the companies
will take. Generally, it involves senior managers and company officers to negotiate in
good faith and with complete disclosure of all relevant details.
✔✔Arbitration - ✔✔occurs in the event that dispute resolution fails, the binding
arbitration is the next step. This provision describes that process, to include who the
arbitrators are, how many there are, and where/when they meet.
✔✔Alphabetical Split - ✔✔is a method of allocating automatic reinsurance among
several reinsurers, using the first letter of the insured's last name.
✔✔Assumed Risk - ✔✔is the acceptance of a cession by a reinsurer, or a retrocession
by a retrocessionaire.
✔✔Assumption Reinsurance - ✔✔is a reinsurance agreement by which one company
permanently transfers full responsibility for a block of policies to another company.
, ✔✔Automatic Binding Limit - ✔✔is the dollar amount of risk on a single or joint life to
which a reinsurer is willing to obligate itself without making its own underwriting
assessment.
✔✔Automatic Reinsurance - ✔✔is a form of reinsurance in which the ceding company is
obligated to cede and the reinsurer is obligated to assume, risks that meet specific
criteria based on the provisions of the reinsurance treaty and the ceding company's
underwriting guidelines.
✔✔Catastrophe Coverage - ✔✔is a form of reinsurance that provides coverage for
losses resulting from an accident or natural disaster involving more than one insured.
These losses typically must exceed a specified amount and number of insureds and or
locations.
✔✔Ceded Risk - ✔✔is the risk transferred to a reinsurer by a direct writing company or
to a retrocessionaire by a reinsurer.
✔✔Ceding Company - ✔✔is the company that transfers its risk to a reinsurer.
✔✔Cession - ✔✔is the document that describes the risk transferred.
✔✔Coinsurance - ✔✔is a method of reinsurance under which the assuming company
receives a proportionate share of all of the risks and cash flows of the policy. The
reinsurer receives its share of the premiums and benefits and sets up its share of the
reserves.
✔✔Excess of Retention - ✔✔is a type of reinsurance in which a ceding company
establishes a dollar amount retention limit and a reinsurer agrees to assume amounts
over this limit, up to the reinsurer's automatic binding limit.
✔✔Facultative -Obligatory Reinsurance - ✔✔is a form of life reinsurance that is a hybrid
between facultative and automatic. The risk to be ceded is submitted to the reinsurer,
which has limited rights to decline individual risks.
✔✔Facultative Reinsurance - ✔✔is the reinsurance in which the risk is offered by a
direct writer to a reinsurer for underwriting approval. The reinsurer has the option to
accept, rate, or decline the offering.
✔✔Facultative Shopping - ✔✔is the act of submitting an underwriting case to several
reinsurers in order to obtain the most competitive offer.
✔✔Financial Reinsurance - ✔✔is specialized reinsurance transacted primarily to
achieve financial goals such as capital management, tax planning, or the financing of
policy reserves.
