MN LIFE ACCIDENT & HEALTH PRODUCER EXAM (2024)QUESTIONS WITH COMPLETE SOLUTIONS.

Speculative Risk - involves the chance of loss or gain, and is not insurable Pure Risk - involves the chance of loss only, and is insurable Peril - Something that causes a direct loss Physical Hazard - Visible (Black ice) Moral Hazard - dishonest tendencies (Fraud) Morale Hazard - Carless, Irresponsible (leaving keys in car) Exposure - susceptibility to loss Adverse selection - those with high risk situations attempt to purchase insurance before those with average or below- avg. risk Insurance - The transfer of risk from one to many Pooling of Risk - A large reserve of money available to pay claims Law of Large numbers - the accuracy of the insurance companies loss projections will increase, need large numbers in order to predict accurate predictions Certificate of Insurance - - used after policy is issued- contains summary of policy coverage & limits - required in loan transactions and other matters Deductibles - Straight: the insured pays a certain amount owe loss before the insurer is required to make a payment Aggregate: the insured pays for all losses until they exceed a certain amount (apply per policy period) Corridor: is applied before benefits under major medical plans are paid, happens middle of deductible Elimination period: used w/ disability income policies & long term care insurance Methods of Managing risk - Avoidance: avoiding a particular activity that could turn into a loss Reduction: taking action to reduce the possibility of a loss Retention: the insured accepts possibility of loss and assumes part of risk, (a deductible is a form of retention) Transfer: Shifting financial burden to one another Sharing: chance of loss is shared among individuals (Pooling) Indemnity - -restoring the insured to approx. the same position before there was a loss - actual cash value= replacement-depreciation - common exceptions replacement cost: reimburses insured for damaged or destroyed property w/o subtraction depreciation valued policy: pays face amount of total loss regardless of actual cash value pro -rata-bility: insurer will pay proportional share of loss Primary & excess indemnity - primary insurer pays first, then once exhausted, the excess insurer pays too Coordination of benefits -provisions apply when more than one group health insurance policy covers the same loss Insurable interest - property casualty: at time of losslife & health: at time of application Subrogation - gives insurer the right to collect from a negligent 3rd party after taking a loss payment to insurer (prevents from collecting twice ) Utmost Good faith - representation: statements made on application that are entirely true misrepresentation: incorrect statements in application that don't affect insurability material misrepresentation: incorrect statements in application that involve info used to make underwriting decisions (usually void coverage) concealment: intentionally hiding info (fraud) Warranty: statements that must be true at time of loss, not obligated to pay claim if breached Consideration (legal contract) - an exchange of value between the parties to the contract (payment of prem) insurer: promise to provide indemnity in event of loss insured's: pay prems & have truthful representations