Arizona Life Insurance Exam - General
Insurance
Agent/Producer - answer Legal representative of an insurance company (classification
of producer usually includes agents and brokers, agents are the agents of the insurer)
Applicant (proposed insured) - answer Person applying for insurance
Broker - answer Insurance producer not appointed by an insurer and is deemed to
represent the client
Insurance Policy - answer Contract between a policy owner (and/or insured) and an
insurance company which agrees to pay the insured or the beneficiary for loss caused
by specific events
Insured - answer Person covered by the insurance policy (this person may or may not
the policy owner)
Insurer (principal) - answer Company who issues an insurance policy
Policy owner - answer Person entitled to exercise the rights and privileges in the policy
Premium - answerMoney paid to the insurance company for the insurance policy
Reciprocity/Reciprocal - answerMutual interchange of rights and privileges
Insurance - answerTransfers the risk of loss from an individual or business entity to an
insurance company, which in turn spreads the costs of unexpected losses to many
individuals
Risk - answerUncertainty or chance of loss occuring
Pure Risk - answerSituations that can only result in a loss or no change (no opportunity
for financial gain) (insurable)
Speculative Risk - answerSituations with opportunity for either loss or gain
(noninsurable)
Exposure - answerUnit of measure used to determine rates charged for insurance
coverage
Factors of Exposure - answer1. Age of Insured
, 2. Medical History
3. Occupation
4. Sex
Homogenous - answerA large number of units having the same or similar exposure to
loss
Hazard - answerCondition or situation that increases the probability of an insured loss
occuring
Physical Hazard - answerIndividual characteristics that increase the chances of the
cause of loss
Moral Hazard - answerTendencies toward increased risk (applicants who lie on an
application for insurance or have committed fraud)
Morale Hazard - answerHazards that arise from a state of mind that causes indifference
to loss, such as carelessness
Peril - answerCause of loss insured against in an insurance policy
Loss - answerThe reduction, decrease, or disappearance of value of the person or
property insured in a policy, caused by a named peril
Life Insurance - answerInsures against the financial loss caused by the premature death
of the insured
Avoidance - answerEliminating exposure to a loss
Retention - answerPlanned assumption of risk by an insured through the use of
deductibles, co-payments, or self-insurance
Purpose of Retention - answer1. To reduce expenses and improve cash flow
2. To increases control of claim reserving and claims settlements
3. To fund for losses that cannot be insured
Sharing - answerMethod of dealing with risk for a group of individual persons or
businesses with the same or similar exposure to loss to share the losses that occur
within that group
Reduction - answerLessening the probability or severity of a loss
Transfer - answerThe most effective way to handle risk so that the loss is borne by
another party
Elements of Insurable Risk - answer1. Due to Chance
Insurance
Agent/Producer - answer Legal representative of an insurance company (classification
of producer usually includes agents and brokers, agents are the agents of the insurer)
Applicant (proposed insured) - answer Person applying for insurance
Broker - answer Insurance producer not appointed by an insurer and is deemed to
represent the client
Insurance Policy - answer Contract between a policy owner (and/or insured) and an
insurance company which agrees to pay the insured or the beneficiary for loss caused
by specific events
Insured - answer Person covered by the insurance policy (this person may or may not
the policy owner)
Insurer (principal) - answer Company who issues an insurance policy
Policy owner - answer Person entitled to exercise the rights and privileges in the policy
Premium - answerMoney paid to the insurance company for the insurance policy
Reciprocity/Reciprocal - answerMutual interchange of rights and privileges
Insurance - answerTransfers the risk of loss from an individual or business entity to an
insurance company, which in turn spreads the costs of unexpected losses to many
individuals
Risk - answerUncertainty or chance of loss occuring
Pure Risk - answerSituations that can only result in a loss or no change (no opportunity
for financial gain) (insurable)
Speculative Risk - answerSituations with opportunity for either loss or gain
(noninsurable)
Exposure - answerUnit of measure used to determine rates charged for insurance
coverage
Factors of Exposure - answer1. Age of Insured
, 2. Medical History
3. Occupation
4. Sex
Homogenous - answerA large number of units having the same or similar exposure to
loss
Hazard - answerCondition or situation that increases the probability of an insured loss
occuring
Physical Hazard - answerIndividual characteristics that increase the chances of the
cause of loss
Moral Hazard - answerTendencies toward increased risk (applicants who lie on an
application for insurance or have committed fraud)
Morale Hazard - answerHazards that arise from a state of mind that causes indifference
to loss, such as carelessness
Peril - answerCause of loss insured against in an insurance policy
Loss - answerThe reduction, decrease, or disappearance of value of the person or
property insured in a policy, caused by a named peril
Life Insurance - answerInsures against the financial loss caused by the premature death
of the insured
Avoidance - answerEliminating exposure to a loss
Retention - answerPlanned assumption of risk by an insured through the use of
deductibles, co-payments, or self-insurance
Purpose of Retention - answer1. To reduce expenses and improve cash flow
2. To increases control of claim reserving and claims settlements
3. To fund for losses that cannot be insured
Sharing - answerMethod of dealing with risk for a group of individual persons or
businesses with the same or similar exposure to loss to share the losses that occur
within that group
Reduction - answerLessening the probability or severity of a loss
Transfer - answerThe most effective way to handle risk so that the loss is borne by
another party
Elements of Insurable Risk - answer1. Due to Chance
