,Life, Accident and Health - Michigan
Study Guide EXAM QUESTIONS AND
ANSWERS 100% CORRECT!
Insurance Contract - ANSWER Legal agreement between an insurance company and
an individual, where the insurer collects a premium from the insured in exchange for the
insurer's promise to pay potential future benefits in the event of covered losses.
Risk Pooling - ANSWER Combines similar losses from many people so that the
average loss over the entire group is relatively constant
Law of Large Numbers - ANSWER States that as a group increases in size, it is easier
to predict the number of future losses over a certain period of time.
Actuaries - ANSWER Mathematicians employed by insurance companies, who analyze
statistical data to determine mortality and morbidity rates.
Mortality - ANSWER The rate at which people die.
Morbidity - ANSWER The rate at which people get sick, injured, or disabled.
Risk - ANSWER The possibility of a loss occurring.
Pure Risk - ANSWER The only insurable risks and present a potential for loss such as
injury, illness, and death
Speculative Risk - ANSWER Present the chance for loss or gain
Loss - ANSWER The unintentional decrease in the value of an asset due to a peril.
Exposure - ANSWER The condition of being prone to loss due to a hazard or uncertain
event
Peril - ANSWER The cause of the loss and the event insured against
Life and Health insurance perils - ANSWER Premature death, dependency during old
age, accident, and sickness
,Moral hazard - ANSWER The predisposition, character, habits, and values of a person
which increase the chance of a loss occurring
Morale hazard - ANSWER An insureds careless attitude, indifference or lack of
responsibility which increase the chance of a loss occurring
Legal hazard - ANSWER The application of laws, regulations, and legal court rulings
which increase the chance or amount of loss
5 Methods of handling risk - ANSWER Avoidance, retention, sharing, reduction and
transfer
Insurance - ANSWER Risk Transfer
Adverse Selection - ANSWER Demand for insurance coverage by people who are
worse than average risks and more likely to need and use the coverage
Reinsurance - ANSWER Spreads risk from one insurer to one or more other insurers
Reinsurer - ANSWER The insurer that accepts the additional risk
Primary Insurer - ANSWER The insurer that gives the risk to the reinsurer
Competent parties Indemnity - ANSWER "To make whole" provide benefit of payments
to restore the insured's economic loss
Limit of liability - ANSWER The total amount the insurer will pay for an insured risk
Premium - ANSWER Set cost of insurance coverage paid by the policyholder to the
insurer
Deductible - ANSWER The amount the insured must pay before the insurer will pay a
claim
Coinsurance - ANSWER A cost-sharing mechanism between the insurer and insured in
medical insurance, where for a certain range of coverage the insurer agrees to pay a
large percentage of the expenses and the insured is responsible for paying the
remainder
Hazard - ANSWER Anything that increases the chance of loss occurring from a
particular peril
, The 4 types of hazards - ANSWER Physical, moral, morale, and legal
Physical hazard - ANSWER Physical characteristics which raise the loss potential for a
particular peril
Claim - ANSWER The insured's notification to the insurer that a payment is requested
for a covered loss
Life insurance - ANSWER protects against the risk of premature death
Health insurance - ANSWER Protects against the severity of financial loss due to
illness, disease, short or long-term disability, wages lost while ill or disabled, and
medical expenses
Annuities - ANSWER Protects against the risk of living longer than expected and
provides guaranteed life income to protect against the risk of depleting retirement funds
Variable - ANSWER Comprising variable life and variable annuities.
Invests premium dollars in securities, which carry more risk due to price fluctuations
Securities license and life insurance producer license - ANSWER Requirement of
selling variable products
Stock Companies - ANSWER Incorporated companies owned by thier stockholders,
who are paid their share of the company's profit through dividends
Mutualization - ANSWER Transformation of a stock insurer into a mutual insurer
Demutualization - ANSWER Transformation of a Mutual insurer to a stock insurer
Mutual Companies - ANSWER Commercial insurers owned by their policyholders.
Mutual Companies lack capital stock, and profits are paid via dividends to policyholders
Participating insurers - ANSWER Issue dividends to policyholders
Non Commercial organizations or Service Providers - ANSWER Service organizations
that provide prepaid health plans for medical, surgical, and hospital expenses
Subscribers - ANSWER Service provider members
Study Guide EXAM QUESTIONS AND
ANSWERS 100% CORRECT!
Insurance Contract - ANSWER Legal agreement between an insurance company and
an individual, where the insurer collects a premium from the insured in exchange for the
insurer's promise to pay potential future benefits in the event of covered losses.
Risk Pooling - ANSWER Combines similar losses from many people so that the
average loss over the entire group is relatively constant
Law of Large Numbers - ANSWER States that as a group increases in size, it is easier
to predict the number of future losses over a certain period of time.
Actuaries - ANSWER Mathematicians employed by insurance companies, who analyze
statistical data to determine mortality and morbidity rates.
Mortality - ANSWER The rate at which people die.
Morbidity - ANSWER The rate at which people get sick, injured, or disabled.
Risk - ANSWER The possibility of a loss occurring.
Pure Risk - ANSWER The only insurable risks and present a potential for loss such as
injury, illness, and death
Speculative Risk - ANSWER Present the chance for loss or gain
Loss - ANSWER The unintentional decrease in the value of an asset due to a peril.
Exposure - ANSWER The condition of being prone to loss due to a hazard or uncertain
event
Peril - ANSWER The cause of the loss and the event insured against
Life and Health insurance perils - ANSWER Premature death, dependency during old
age, accident, and sickness
,Moral hazard - ANSWER The predisposition, character, habits, and values of a person
which increase the chance of a loss occurring
Morale hazard - ANSWER An insureds careless attitude, indifference or lack of
responsibility which increase the chance of a loss occurring
Legal hazard - ANSWER The application of laws, regulations, and legal court rulings
which increase the chance or amount of loss
5 Methods of handling risk - ANSWER Avoidance, retention, sharing, reduction and
transfer
Insurance - ANSWER Risk Transfer
Adverse Selection - ANSWER Demand for insurance coverage by people who are
worse than average risks and more likely to need and use the coverage
Reinsurance - ANSWER Spreads risk from one insurer to one or more other insurers
Reinsurer - ANSWER The insurer that accepts the additional risk
Primary Insurer - ANSWER The insurer that gives the risk to the reinsurer
Competent parties Indemnity - ANSWER "To make whole" provide benefit of payments
to restore the insured's economic loss
Limit of liability - ANSWER The total amount the insurer will pay for an insured risk
Premium - ANSWER Set cost of insurance coverage paid by the policyholder to the
insurer
Deductible - ANSWER The amount the insured must pay before the insurer will pay a
claim
Coinsurance - ANSWER A cost-sharing mechanism between the insurer and insured in
medical insurance, where for a certain range of coverage the insurer agrees to pay a
large percentage of the expenses and the insured is responsible for paying the
remainder
Hazard - ANSWER Anything that increases the chance of loss occurring from a
particular peril
, The 4 types of hazards - ANSWER Physical, moral, morale, and legal
Physical hazard - ANSWER Physical characteristics which raise the loss potential for a
particular peril
Claim - ANSWER The insured's notification to the insurer that a payment is requested
for a covered loss
Life insurance - ANSWER protects against the risk of premature death
Health insurance - ANSWER Protects against the severity of financial loss due to
illness, disease, short or long-term disability, wages lost while ill or disabled, and
medical expenses
Annuities - ANSWER Protects against the risk of living longer than expected and
provides guaranteed life income to protect against the risk of depleting retirement funds
Variable - ANSWER Comprising variable life and variable annuities.
Invests premium dollars in securities, which carry more risk due to price fluctuations
Securities license and life insurance producer license - ANSWER Requirement of
selling variable products
Stock Companies - ANSWER Incorporated companies owned by thier stockholders,
who are paid their share of the company's profit through dividends
Mutualization - ANSWER Transformation of a stock insurer into a mutual insurer
Demutualization - ANSWER Transformation of a Mutual insurer to a stock insurer
Mutual Companies - ANSWER Commercial insurers owned by their policyholders.
Mutual Companies lack capital stock, and profits are paid via dividends to policyholders
Participating insurers - ANSWER Issue dividends to policyholders
Non Commercial organizations or Service Providers - ANSWER Service organizations
that provide prepaid health plans for medical, surgical, and hospital expenses
Subscribers - ANSWER Service provider members
