PA Life Insurance Exam – Latest 2024 Graded A+

PA Life Insurance Exam – Latest 2024 Graded A+ Risk Uncertainty or chance of loss. When you buy or purchase insurance, you transfer the risk of Financial Liability to the Insurer (Risk Transferred). Self Insured You are considered to be Self-Insured if you do not purchase insurance. Risk Retention Not transferring the risk to the insurer. If you are Self Insured, then you are practicing Risk Retention. Pure Risk Chance of LOSS with NO chance of gain. Insurance is based upon this. Speculative Risk Opposite of insurance - there is a chance of gain when taking Speculative Risk. Reinsurance Where companies share risks between one another. It does not affect the insured. Reinsurer When a company insures another company, they would be considered the reinsurer. Law of Large Numbers or Averages Insurance is based on this law, which is the assumption that as the number of Insured Units Increases, Predictability of Loss will improve. Morbidity Units Actuaries place individuals into Groups then study the results to determine the Risk Factor, known as Mortality Units. indemnity The principle of insurance is that the insured should be restored to the same Financial Condition as they were prior to suffering the loss. Indemnity means you get paid money. In life insurance, the beneficiary will be indemnified (paid) Domestic, Foreign, Alien Domestic: insured organized and chartered within the state. Foreign: insurer organized and chartered from another state. Alien: insurer organized and chartered in any other COUNTRY. All must maintain an office in the state they would like to sell life insurance in. Stock Companies, Mutual Companies, Fraternal Organizations Stock companies: owned by the stock holders (shareholders) Mutual companies: owned by their policy holders, issuing participating policies. The policy holders share in the profits by receiving dividends. Non-participating policies do not pay dividends. Fraternal organizations: tax-EXEMPT and sell only to their members (moose, elks, knights of columbus). Do NOT issue participating policies. Independent vs Captive Producers Independent Producers can represent more than one company. Own their Book of Biz, renewals, and are responsible for their own operating expenses. Captive producers represent only one insurer and do not own their book of business or renewals. They are APPOINTED by the insurer. Expressed, Implied, and Apparent Authority Producers have EXPRESSED AUTHORITY through their Agent or Agency Agreement; must be in writing on paper. IMPLIED AUTHORITY would not be in writing. Producers having Company Forms, business cards, and sample policies would have APPARENT AUTHORITY. Errors & Omissions Policies (E&O) E&Os are purchased by Producers to provide them with LIABILITY insurance in the event they are sued by their client. The E&O policy would not protect you from the IRS. Underwriters Underwriters are the only people that can bind the company to a risk. They choose the effective date as well as the final premium. They are there to AVOID adverse selection and to determine Acceptable Risks. Underwriters cannot use Race, Religion, or Nationality as a rating criteria. Nor can they discriminate against the client's GEOGRAPHICAL LOCATION or the client's level of education. Redlining is when an underwriter discriminates against your geophraical location. Upon application receipt, the underwrite should begin their process asap. The app CANNOT be submitted with omitted info. Also, the underwriter may order inspection reports/medical reports. They can pull credit but NOT federal tax returns. Discrimination is allowed if it is applied equally (men vs female lifespan, etc.) If an underwriter or insurer makes unreasonable demand