1 2-15 INSURANCE LICENSE FLORIDA/ EXAM REVIEW
QUESTIONS AND ANSWERS, GRADED A+
Speculative Risk - ✅✅-Risk that involves chance of both loss and gain; not insurable
Pure Risk - ✅✅-Risk that involves the chance of loss only, there is no opportunity for gain; insurable
Law of Large Numbers - ✅✅-Basic principle of insurance that the larger the number of individual risks
combined into a group, the more certainty there is in predicting the amount of loss that will be incurred
in any given period.
Elements of Insurable Risk - ✅✅-Loss must be: due to chance, definite and measurable, predictable,
cannot be catastrophic, loss exposures to be insured must be large, loss exposures to be insured must
be randomly selected.
Hazard - ✅✅-Any factor that gives rise to a peril.
Peril - ✅✅-Specific event causing loss and giving rise to risk. (Fire is a peril to a burning building)
Risk Pooling - ✅✅-Basic principle of insurance whereby a large number contribute to cover the losses of
a few. The risk is transferred from an individual to a group.
Physical Hazard - ✅✅-Individual characteristics that increase the chance of peril. (Blindness or
deafness)
Moral Hazard - ✅✅-Tendencies that people may have that increase risk and the chance of loss. (Alcohol
and drugs)
Morale Hazard - ✅✅-Individual tendencies that arise from an attitude or state of mind causing
indifference to loss. (Driving reckless with no fear of death)
,Risk Avoidance - ✅✅-Avoiding as many risks as possible. (Never flying, never driving, never investing)
Risk Reduction - ✅✅-Taking actions to reduce risk. (Installing a smoke alarm)
Risk Retention - ✅✅-Accepting the risk and confronting it if and when it occurs. (Self-insurance)
Risk Transfer - ✅✅-The practice of passing on the risk in question to another entity, such as an
insurance company.
Adverse Selection - ✅✅-less favorable insurance risks (people in poor health) to seek or continue
insurance to a greater extent than other risks. Tendency of policymakers to take advantage of favorable
options in insurance contracts.
Multi-line insurers - ✅✅-Companies that write more that one line of insurance
Stock Insurance Company - ✅✅-A private insurance company owned and controlled by a group of
stockholders whose investment in the company provides the safety margin necessary in issuance of
guaranteed, fixed premium, nonparticipation policies. Purpose is making profit for stockholders.
mutual insurance company - ✅✅-Insurance company characterized by having no capital stock; it is
owned by it's policyowners and usually issues participating insurance.
Participating companies because policyowners participate in policy dividends.
Mutualization - ✅✅-Stock company converts to a mutual company
Demutualizing - ✅✅-Mutual company convert to stock company
Commercial Insurers - ✅✅-Stock and mutual companies; they both write life, health, property, and
casualty insurance.
,Assessment Mutual Company - ✅✅-An insurance company characterized by member-insureds who are
assessed an individual portion of each loss that occurs. No premium payment is payable in advance.
Not permitted in Florida
Advance premium assessment mutual - ✅✅-Charges a premium in advance, at the beginning of the
policy period.
Not permitted in Florida
Reciprocal Insurance Company - ✅✅-Insurance company characterized by the fact it's policyholders
insure the risks of other policyholders.
Lloyd's of London - ✅✅-An association of individuals and companies that underwrite insurance on their
own accounts and provide specialized coverages.
Not an insurer
Reinsurers - ✅✅-Specialized branch of the insurance industry because they insure insurers.
Reinsurance - ✅✅-Arrangement by which an insurance company transfers a portion of a risk it has
assumed to another insurer.
Limit the loss any one insurer would face should a very large claim become payable.
ceding company - ✅✅-Insurance Company transferring risk
Risk Retentio Group (RRG) - ✅✅-Mutual insurance company formed to insure people in the same
business, occupation, or profession (pharmacy, dentist, engineers)
Fraternal benefit society - ✅✅-Non-profit benevolent organization that provides insurance to its
members. Based on religious, national, or ethnic lines
Home service or Debt Insurance - ✅✅-Industrial insurance
, Insurance in small amounts (usually $1,000 to $2,000) with premiums collected weekly by the selling
agent
Reinsurer - ✅✅-An insurance company assuming the risk
Service providers - ✅✅-Organization that provides health coverage by contracting with service
providers to provide medical services to subscribers who pay in advance through premiums.
HMOs PPOs
Participating Life Insurance - ✅✅-Policy which pays a dividend to its owner based on financial success
of the insurance company
When a stock life insurance company issues both participating and nonparticipating policies, the
company is doing business as a ________________? - ✅✅-MIXED PLAN
nonparticipating policy - ✅✅-life insurance that does not provide policy dividends; also called a nonpar
policy
Mutual Life Insurance Companies - ✅✅-owned by policyholders
mutual insurers - ✅✅-Participating policies
Owned by policyholders
Vote for directors and trustees
Directors and management have control
Typically higher rates
Demutualization - ✅✅-a mutual insurer is converted into a stock insurer
Domiciliary State - ✅✅-The state in which the decedent's domicile (legal home) is located.
QUESTIONS AND ANSWERS, GRADED A+
Speculative Risk - ✅✅-Risk that involves chance of both loss and gain; not insurable
Pure Risk - ✅✅-Risk that involves the chance of loss only, there is no opportunity for gain; insurable
Law of Large Numbers - ✅✅-Basic principle of insurance that the larger the number of individual risks
combined into a group, the more certainty there is in predicting the amount of loss that will be incurred
in any given period.
Elements of Insurable Risk - ✅✅-Loss must be: due to chance, definite and measurable, predictable,
cannot be catastrophic, loss exposures to be insured must be large, loss exposures to be insured must
be randomly selected.
Hazard - ✅✅-Any factor that gives rise to a peril.
Peril - ✅✅-Specific event causing loss and giving rise to risk. (Fire is a peril to a burning building)
Risk Pooling - ✅✅-Basic principle of insurance whereby a large number contribute to cover the losses of
a few. The risk is transferred from an individual to a group.
Physical Hazard - ✅✅-Individual characteristics that increase the chance of peril. (Blindness or
deafness)
Moral Hazard - ✅✅-Tendencies that people may have that increase risk and the chance of loss. (Alcohol
and drugs)
Morale Hazard - ✅✅-Individual tendencies that arise from an attitude or state of mind causing
indifference to loss. (Driving reckless with no fear of death)
,Risk Avoidance - ✅✅-Avoiding as many risks as possible. (Never flying, never driving, never investing)
Risk Reduction - ✅✅-Taking actions to reduce risk. (Installing a smoke alarm)
Risk Retention - ✅✅-Accepting the risk and confronting it if and when it occurs. (Self-insurance)
Risk Transfer - ✅✅-The practice of passing on the risk in question to another entity, such as an
insurance company.
Adverse Selection - ✅✅-less favorable insurance risks (people in poor health) to seek or continue
insurance to a greater extent than other risks. Tendency of policymakers to take advantage of favorable
options in insurance contracts.
Multi-line insurers - ✅✅-Companies that write more that one line of insurance
Stock Insurance Company - ✅✅-A private insurance company owned and controlled by a group of
stockholders whose investment in the company provides the safety margin necessary in issuance of
guaranteed, fixed premium, nonparticipation policies. Purpose is making profit for stockholders.
mutual insurance company - ✅✅-Insurance company characterized by having no capital stock; it is
owned by it's policyowners and usually issues participating insurance.
Participating companies because policyowners participate in policy dividends.
Mutualization - ✅✅-Stock company converts to a mutual company
Demutualizing - ✅✅-Mutual company convert to stock company
Commercial Insurers - ✅✅-Stock and mutual companies; they both write life, health, property, and
casualty insurance.
,Assessment Mutual Company - ✅✅-An insurance company characterized by member-insureds who are
assessed an individual portion of each loss that occurs. No premium payment is payable in advance.
Not permitted in Florida
Advance premium assessment mutual - ✅✅-Charges a premium in advance, at the beginning of the
policy period.
Not permitted in Florida
Reciprocal Insurance Company - ✅✅-Insurance company characterized by the fact it's policyholders
insure the risks of other policyholders.
Lloyd's of London - ✅✅-An association of individuals and companies that underwrite insurance on their
own accounts and provide specialized coverages.
Not an insurer
Reinsurers - ✅✅-Specialized branch of the insurance industry because they insure insurers.
Reinsurance - ✅✅-Arrangement by which an insurance company transfers a portion of a risk it has
assumed to another insurer.
Limit the loss any one insurer would face should a very large claim become payable.
ceding company - ✅✅-Insurance Company transferring risk
Risk Retentio Group (RRG) - ✅✅-Mutual insurance company formed to insure people in the same
business, occupation, or profession (pharmacy, dentist, engineers)
Fraternal benefit society - ✅✅-Non-profit benevolent organization that provides insurance to its
members. Based on religious, national, or ethnic lines
Home service or Debt Insurance - ✅✅-Industrial insurance
, Insurance in small amounts (usually $1,000 to $2,000) with premiums collected weekly by the selling
agent
Reinsurer - ✅✅-An insurance company assuming the risk
Service providers - ✅✅-Organization that provides health coverage by contracting with service
providers to provide medical services to subscribers who pay in advance through premiums.
HMOs PPOs
Participating Life Insurance - ✅✅-Policy which pays a dividend to its owner based on financial success
of the insurance company
When a stock life insurance company issues both participating and nonparticipating policies, the
company is doing business as a ________________? - ✅✅-MIXED PLAN
nonparticipating policy - ✅✅-life insurance that does not provide policy dividends; also called a nonpar
policy
Mutual Life Insurance Companies - ✅✅-owned by policyholders
mutual insurers - ✅✅-Participating policies
Owned by policyholders
Vote for directors and trustees
Directors and management have control
Typically higher rates
Demutualization - ✅✅-a mutual insurer is converted into a stock insurer
Domiciliary State - ✅✅-The state in which the decedent's domicile (legal home) is located.
