Virginia Life, Health and Annuities Exam
Insurance - ANS -transfer of risk
RIsk - ANS -uncertainty/possibility of a loss
Two types of risk - ANS -Pure and Speculative
Speculative Risk - ANS -chance of loss or gain; not insurable
Pure Risk - ANS -chance of loss only; can be insured
Exposure - ANS -risks for which the insurance company would be liable
Peril - ANS -cause of loss
Hazard (there are 3 types) - ANS -something that causes an increase in the chance of loss
Physical Hazard - ANS -the hazard can be seen
Moral Hazard - ANS -a belief that intentionally causing a loss is acceptable
Morale Hazard - ANS -carelessness
Methods of Handling Risk (STARR) - ANS -Sharing, Transfer, Avoidance, Reduction, Retention
Contract (policy) - ANS -an agreement between the insured and the insurer
1st party - ANS -Insured (customer)
2nd party - ANS -insurer, insurance company
Law of Large Numbers - ANS -larger the group; the more accurate losses can be predicted
Characteristics of risks that can be insured (CANHAM) - ANS -Calculable, affordable,
non-catastrophic, homogeneous, accidental, measurable
Adverse Selection - ANS -risks that have a greater than average chance of loss
,Reinsurance - ANS -an insurance company (the ceding company) paying another insurance
company (reinsurer) to take some of the companies risk of catastrophic loss
Facultative - ANS -the reinsurer evaluates each risk before allowing the transfer
Treaty - ANS -the reinsurer accepts the transfer according to an agreement called a treaty
Stock Insurer - ANS -- publically owned by stockholders/shareholders
- if the company makes money, a taxable dividend from the profits may be paid to the
stockholders/shareholders
- issues non-par policies
Mutual Insurer - ANS --Owned by the policyholders (customers)
-If the company is profitable, can return excess premium to its policyholders--nontaxable
dividend
-Issues participating policies.
Fraternal Insurer - ANS --provides insurance and other benefits
-must be a member of the society to get the benefits
Reciprocal Insurer - ANS --unincorporated
-members are assessed the amount they have to pay if a loss to any member of the group
occurs
-run by an attorney-in-fact
Lloyd's Association - ANS -insurance provided by individual underwriters not companies
Risk Retention Group - ANS -Liability insurance company created for policyholders from the
same industry. Example--car dealers RRG--only car dealers can be policyholders
Risk Purchasing Group - ANS -a group of businesses from the same industry joining together
to buy liability insurance from an insurance company. The RPG is NOT the insurance company
Self-insurance - ANS -a business that pays its own claims
Residual Market - ANS -insurance from the state or federal government
Insurance Company Location - ANS -Domestic-state where company is incorporated
Foreign- any state or U.S. territory other than the state where incorporated
Alien- incorporated in any country other than the USA
Certificate of Authority - ANS -state license for an insurance company
, Admitted or Authorized - ANS -state requires the insurance company to have a Certificate of
Authority
Non-Admitted - ANS -unauthorized-insurance company not required to have a Certificate of
Authority from the state
Surplus Lines - ANS -- Insurance sold by unauthorized/non-admitted insurers; if on the state's
approved list of surplus insurers
- Can only be sold to certain high risk insureds
- Cannot be sold solely for a cheaper rate than licensed/admitted insurers
Financial Strength Rating - ANS -a report card of the company
Methods of Marketing - ANS -- Independent
- Exclusive or captive
- General agents or managing general agents
- direct writing companies
- direct response -- no agent/producer involved
Agency - ANS -the insurance agent acts on behalf of the principal (insurance company)
Agent Authority - ANS -Express - What the agents written contract with the company says.
Implied - Not written but are the things agents normally do to sell insurance.
Apparent - Things the agent does that a reasonable person would assume as authority, based
on the agents' actions and statements.
Fiduciary Trust - ANS -- Promptly sends premiums to insurer
- Has knowledge of products
- Complies with laws and regulations
- Does not commingle funds
Legal Contract (CLOAC) - ANS -Consideration - Give something of value
Legal Purpose - Risk Transfer doesn't violate the law
Offer - Made by insurer
Acceptance - Insurer accepts risk as presented
Competent Parties - Insured age 18 and sane
Adhesion - ANS --policy written by the insurance company
-if ambiguous (not clear) -- court will take the side of the insured
Aleatory - ANS -not equal value - small premium for a large amount of coverage
Utmost Good Faith - ANS -the insured and insurance company have a right to expect honesty
from each other
Insurance - ANS -transfer of risk
RIsk - ANS -uncertainty/possibility of a loss
Two types of risk - ANS -Pure and Speculative
Speculative Risk - ANS -chance of loss or gain; not insurable
Pure Risk - ANS -chance of loss only; can be insured
Exposure - ANS -risks for which the insurance company would be liable
Peril - ANS -cause of loss
Hazard (there are 3 types) - ANS -something that causes an increase in the chance of loss
Physical Hazard - ANS -the hazard can be seen
Moral Hazard - ANS -a belief that intentionally causing a loss is acceptable
Morale Hazard - ANS -carelessness
Methods of Handling Risk (STARR) - ANS -Sharing, Transfer, Avoidance, Reduction, Retention
Contract (policy) - ANS -an agreement between the insured and the insurer
1st party - ANS -Insured (customer)
2nd party - ANS -insurer, insurance company
Law of Large Numbers - ANS -larger the group; the more accurate losses can be predicted
Characteristics of risks that can be insured (CANHAM) - ANS -Calculable, affordable,
non-catastrophic, homogeneous, accidental, measurable
Adverse Selection - ANS -risks that have a greater than average chance of loss
,Reinsurance - ANS -an insurance company (the ceding company) paying another insurance
company (reinsurer) to take some of the companies risk of catastrophic loss
Facultative - ANS -the reinsurer evaluates each risk before allowing the transfer
Treaty - ANS -the reinsurer accepts the transfer according to an agreement called a treaty
Stock Insurer - ANS -- publically owned by stockholders/shareholders
- if the company makes money, a taxable dividend from the profits may be paid to the
stockholders/shareholders
- issues non-par policies
Mutual Insurer - ANS --Owned by the policyholders (customers)
-If the company is profitable, can return excess premium to its policyholders--nontaxable
dividend
-Issues participating policies.
Fraternal Insurer - ANS --provides insurance and other benefits
-must be a member of the society to get the benefits
Reciprocal Insurer - ANS --unincorporated
-members are assessed the amount they have to pay if a loss to any member of the group
occurs
-run by an attorney-in-fact
Lloyd's Association - ANS -insurance provided by individual underwriters not companies
Risk Retention Group - ANS -Liability insurance company created for policyholders from the
same industry. Example--car dealers RRG--only car dealers can be policyholders
Risk Purchasing Group - ANS -a group of businesses from the same industry joining together
to buy liability insurance from an insurance company. The RPG is NOT the insurance company
Self-insurance - ANS -a business that pays its own claims
Residual Market - ANS -insurance from the state or federal government
Insurance Company Location - ANS -Domestic-state where company is incorporated
Foreign- any state or U.S. territory other than the state where incorporated
Alien- incorporated in any country other than the USA
Certificate of Authority - ANS -state license for an insurance company
, Admitted or Authorized - ANS -state requires the insurance company to have a Certificate of
Authority
Non-Admitted - ANS -unauthorized-insurance company not required to have a Certificate of
Authority from the state
Surplus Lines - ANS -- Insurance sold by unauthorized/non-admitted insurers; if on the state's
approved list of surplus insurers
- Can only be sold to certain high risk insureds
- Cannot be sold solely for a cheaper rate than licensed/admitted insurers
Financial Strength Rating - ANS -a report card of the company
Methods of Marketing - ANS -- Independent
- Exclusive or captive
- General agents or managing general agents
- direct writing companies
- direct response -- no agent/producer involved
Agency - ANS -the insurance agent acts on behalf of the principal (insurance company)
Agent Authority - ANS -Express - What the agents written contract with the company says.
Implied - Not written but are the things agents normally do to sell insurance.
Apparent - Things the agent does that a reasonable person would assume as authority, based
on the agents' actions and statements.
Fiduciary Trust - ANS -- Promptly sends premiums to insurer
- Has knowledge of products
- Complies with laws and regulations
- Does not commingle funds
Legal Contract (CLOAC) - ANS -Consideration - Give something of value
Legal Purpose - Risk Transfer doesn't violate the law
Offer - Made by insurer
Acceptance - Insurer accepts risk as presented
Competent Parties - Insured age 18 and sane
Adhesion - ANS --policy written by the insurance company
-if ambiguous (not clear) -- court will take the side of the insured
Aleatory - ANS -not equal value - small premium for a large amount of coverage
Utmost Good Faith - ANS -the insured and insurance company have a right to expect honesty
from each other
