LOMA 280 mod.1 ch.1 rated A+

LOMA 280 mod.1 ch.1 rated A+ risk The chance or possibility of an unexpected result, either a gain or a loss. speculative risk Three possible outcomes - loss, gain, or no change. This risk cannot be insured. Example: stocks. pure risk No possibility of gain: Loss or no-loss occurs. Ex: possibility of becoming disabled. This is the only risk that can be insured. risk management Process by which individuals and businesses identify and access the risks they face and take measures to eliminate or reduce their exposure to those risks. insurer A company that accepts risk and makes a promise to pay a policy benefit if a loss does occur. policy benefit A specific amount of money the insurer agrees to pay under an insurance policy when a specific loss occurs. insurance policy a written document between the insured and an insurance company that promises to pay for all or part of a loss. premium the specified amount of money an insurer charges in exchange for agreeing to pay a policy benefit when a specified loss occurs. personal risk Risk of economic loss associated with death, poor health, injury, and outliving one's economic resources. life and health insurance company Life and Health Insurance Companies issue and sell products against personal loss. life insurance Insurance that pays a benefit upon the death of a named person. annuity contract A contract under which an insurer promises to make a series of periodic payments to a named individual in exchange for a premium or series of premiums. health insurance Insurance that provides protection against the risk of financial loss resulting from illness, injury, or disability. individual insurance policy Policy that is issued to insure the life or health of a named person. group insurance policy issued to insure the lives or health of a specific group of people, such as a group of employees. property/casualty (P&C) insurance company insurers that issue and sell insurance policies that cover property damage risk and liability risk. applicant the person or business that applies for an insurance policy. policyowner the person or business that owns the insurance policy. insured the person whose life, health, or property is insured under the policy. third-party policy a policy purchased by one person or business on the life of another person. beneficiary the person or party the policyowner names to receive the life insurance policy benefit. claim a request for payment under the terms of an insurance policy. risk pooling if the economic losses that actually result from a given peril, such as disability, can be spread across a large pool of people who are all subject to the risk of such losses and the probability of loss is relatively small for each person, then the cost to each person will be relatively small. contract of indemnity an insurance policy under which the amount of the policy benefit payable for a covered loss is based on the actual amount of financial loss that results from the covered event, as determined at the time of the event. Ex: health insurance might cover total expenses or up to a max $ amount. valued contract specifies the amount of policy benefit that will be payable when a covered loss occurs, regardless of the actual amount of loss that was incurred. face amount amount of the policy benefit that is payable if the insured dies while the policy is still in force. Appears on the first page of the policy. law of large numbers the more times we observe a particular event, the more likely that our observed results will approximate the true probability - or likelihood - that the event will occur. mortality table / rates charts that indicate with great accuracy the number of people in a large group (100,000+) who are likely to die at each age. Rates at which death occurs among a specified group of people during a specified time. morbidity table / rates incidence of sickness and accidents by age occurring among a given group of people. Can predict the probable loss rates for given groups which are used for premium rates to pay claims. reinsurance insurance that one insurance company - the direct writer - purchases from another insurance company - the reinsurer - to transfer all or part of the risk on insurance policies direct writer the insurerr that issues a policy. also called ceding company reinsurer the insurer that accepts part or all of the insurance from the ceding company underwriting the process of identifying and classifying the degrees of risk represented by an insured (also known as risk selection). underwriter insurance company employees who are responsible for evaluating proposed risks. antiselection (adverse selection) the tendency of individuals who believe they have a greater-than-average likelihood of loss to seek insurance protection to a greater extent than do other individuals. Ex: someone in poor health to apply for health insurance. physical hazard physical characteristic that may increase the likelihood of a loss. Ex: heart disease history. moral hazard characteristic that exists when the reputation, financial position, or criminal record of an applicant indicates that the person may act dishonestly in the transaction. risk class grouping of insureds who represent a similar level of risk underwriting guidelines general rules used when assigning proposed insureds to an appropriate risk class. standard risk / premium rate likelihood of loss that is not significantly greater than average. most individual life insurance policies have been issued at standard premium rates. preferred risk / premium rate present a significantly lower-than-average likelihood of loss. charged lower-than-standard premium rates. substandard risk / premium rate significantly greater-than-average likelihood of loss but are still found to be insurable. typically charge higher-than-standard premium rate. declined risk those proposed insureds who are considered to present a risk that is too great for the insurer to cover. includes poor health and those who participate in risky activity. insurable interest policyowner must be likely to suffer a genuine loss or detriment should the event insured against occur.