Life and Health Insurance Exam - Chapter 1: Introduction to Insurance Already Passed

Life and Health Insurance Exam - Chapter 1: Introduction to Insurance Already Passed insurance business that was developed as a means for spreading the result of financial loss among many persons so the cost to any one person is small risk the possibility that loss might occur, reason people purchase insurance speculative risk risk that offers the opportunity to gain as well as the possibility of loss, gambling is an example pure risk possibility of loss only, type of risk that insurers accept; ex: possibility of financial loss due to an accident, sickness, premature death, insurance's purpose is to make those who lose whole again, restore the insured to their original financial position peril the cause of a potential loss. ex: fire, accident, explosion, flood hazard condition that increases the seriousness of a potential loss or increases the likelihood that loss will occur. ex: slippery floors, improperly stored gasoline physical hazards arise from material, structural, operational features of risk situation (slippery floors) moral hazards arise from people's habits and values (false claim) moral(e) hazards arise out of carelessness/irresponsibilities (no seatbelt) legal hazards arise from court actions that increase the likelihood or size of a loss Four ways of managing risk avoid, reduce, retain, transfer avoid risk avoiding an auto accident by never driving a car (not all risk is avoidable) reduce risk control, examine perils and see which ones can be eliminated (health problems identified in a work place lead to customized wellness program) retain risk happens when someone assumes financial responsibility for certain events (insurance deductible in health plans) transfer risk harmless agreements or lawsuits law of large numbers the larger the group, the more predictable the future losses in the group will be for a given period of time necessary for the law of large numbers to operate a large number of similar risks or exposure units (item of property or person insured) be combined actuaries mathematicians who study and compile statistical data regarding exposure units and risks insurable interest before an individual can benefit from insurance, that individual must have a legitimate interest in the preservation of the life or property insured why loss must be ascertainable because the purpose of insurance is to reduce or eliminate the uncertainty of economic loss loss must be uncertain - how uncertainty arises out of not knowing what is going to happen or being unable to predict what is going to happen to the individual or exposure unit economic hardship and magnitude of loss nature of the loss must be such magnitude that it is worthwhile to incur the premium cost catastrophic perils when these perils cause losses, they do not establish a pattern of predictability that can be relied on for future predictions of anticipated loss indemnity concept stating insurance should restore the insured, in whole or in part, to the condition he or she enjoyed prior to the loss; restoration may take form of payment for the loss or repair or replacement of the damaged or destroyed property limit of liability not used in life and health; commonly used in property and casualty; means the maximum amount the insurer will pay for he specified insured contingency deductible the initial amount of a covered loss or losses that the insured must absorb before the insurer begins to pay the additional loss amounts coinsurance within a specified coverage range, the insured and insurer will share the allowable expenses property insurance protects against financial consequences of the direct or consequential loss or damage to property of every kind casualty insurance protects the insured against the financial consequences of legal liability, including that for death, injury, disability, or damage to real or personal property life insurance coverage on human lives including benefits of endowment and annuities, and may include benefits in the event of death or dismemberment by accident and benefits for disability insurance, designed to protect against the risk of premature death annuity guaranteed income for the life of an annuitant; designed to protect against the risk of living too long (outliving financial resources of income during retirement) accident and health or sickness insurance protects against financial loss caused by sickness, bodily injury, accidental death, may include disability income benefits variable life and variable annuity products include insurance coverage provided under variable life insurance contracts and variable annuities; carry investment risk credit insurance limited line of insurance, protecting insured/creditor against the financial consequences should a debtor be unable to pay their debts due to illness or death three major insurance sources private commercial insurers (profit-making), private noncommercial insurers (nonprofit service organizations), and the US Government (special nonprofit) commercial insurers private life and health insurers, in the business to make a reasonable profit noncommercial insurers operate on a nonprofit basis, blue cross blue shield is an example stock insurers commercial; consist of stockholders who own shares in the company; nonparticipating company, policyholders do not participate in dividends mutual company no stockholders, commercial; formation funds must be contributed by someone or some group; ownership rests with the policyholders; participating companies; policyowners participate in dividends service insurance technically not insurers; organizations providing prepaid plans for hospital, medical, and surgical expenses; no cash benefits to plan subscriber, pay the provider of medical services used by the subscriber to the extent covered in the contract. (BLUE CROSS)