LOUISIANA LIFE, ACCIDENT & HEALTH INSURNACE STUDY
GUIDE
Self-Insurance - Answer -the retention of risk by providing funding for smaller, specified
loss from within company reserves
retaining risk is only used in circumstances where a large enough group of similar
(homogeneous) exposure units exist, and the business has the necessary amount of
capital available on reserve to cover the potential loss
Reciprocals
(Inter-insurance) - Answer -a type of risk retention between members, known as
subscribers, consisting of individual business owners, corporations, or municipalities
subscribers 'reciprocate' in sharing risks and participate in indemnifying members who
encounter loss
as a type of insurance, each member can absorb larger loss by sharing it and through
its participation in the reciprocal; it pays a lesser amount of loss since it is shared by the
other subscribers in the reciprocal
Stock Insurance Company - Answer -Non-Participating or 'Non-Par'
a private insurance company that is established to provide insurance to policyowners
and to make a profit for its stockholders
the insured policyowners do not own the company, nor do they receive any dividends
that to company returns
stock insurers do not issue participating policies; therefore, two groups exist:
shareholders and policyowners - though a shareholder could also be a policyowner
Mutual Insurance Company - Answer -Participating or 'Par'
a private insurance company that is established to provide insurance to policyowners
who are also the company's stockholders (owners)
it issues 'participating policies' in which policyowners share in the company's ownership
and receive dividends from the earned surplus of the company's profits
Dividend - Answer -reimbursement of excess premium that remains after the company
has set aside its needed reserves and has deducted the necessary amount to cover
annual claims and other company expenses
paid out on an annual basis to policyowners of a Mutual Insurance policy
,Reinsurance - Answer -the sharing of risk between an insurance company and a re-
insurance company, known as a Reinsurer, to provide additional insurance coverage for
risks that are too large for the single insurer to adequately cover
Actuary - Answer -statistical analysts, hired by insurers, to analyze and predict potential
loss in order to set and maintain premium pricing for the insurer's products
Pure Risk - Answer -the only type of insurable risk, in which there is only a chance of
loss and not gain
Risk Pooling - Answer -the combining of similar 'exposure units' to spread specific risk,
or the exposure of a specific loss, across a sizable number of individuals instead of
bearing all costs on the individual person
Elements of Insurable Risk - Answer -1. any outcome of the risk must result by accident
and produce a loss (Pure Risk)
2. insurable 'interest' must exist between two parties where the loss of one party results
in an economic hardship for the other party
3. the insurer must by able to calculate the risk and the amount of loss incurred (Risk
Pooling)
4. there must be a large enough number of similar risks being insured (Law of Large
Numbers)
5. the risk cannot be catastrophic as to not be able to be fully funded by the insurance
company while still maintaining a profit
6. the risk cannot be 'adversely' selected
Hazard - Answer -is the factor, or underlying condition, that gives rise to a peril
there are 3 types: Physical, Moral, and Morale
Peril - Answer -the specific event that causes, or is the grounds, for loss
in an example of a house being destroyed by a fire, the fire is the peril
Physical Hazard - Answer -defined by physical conditions which have the potential to
lead to loss, such as unsafe working conditions (blocked fire exists, exposed electrical
wiring, damaged or unsafe tools)
diseases and medical conditions that can lead to loss, such as cancer, are also
considered to be physical hazards
Moral Hazard - Answer -defined by human behavior, actions, habits, and lifestyles such
as smoking, eating an unhealthy diet, drug abuse, texting while driving, and drunk
driving, all of which increase the risk of a peril
,dishonesty, bad credit, intentionally filing false insurance claims, abusing credit cards,
and suing for the sole purpose of the potential for gain are also examples of moral
hazards
Morale Hazard - Answer -defined by a TEMPORARY lapse in judgement that leads to a
brief indifference in attitude toward risk
(ex.) a driver might fail to stop at a stop light because the driver was texting, the
carelessness of running a red light is considered a morale hazard; however, the act of
texting while driving is considered a moral hazard
primary difference is INTENTION
Risk Avoidance - Answer -method of handling risk
risk can be avoided in a given situation by not participating; impractical
Reducing Risk - Answer -method of handling risk
actions taken to help reduce risk, like wearing a helmet and the correct clothing while
riding a motorcycle, or having a fire extinguisher available in the house in case of
emergency
Retaining Risk - Answer -method of handling risk
defined as accepting and managing risk with it occurs, such as having reserve funds
available in the event of an accident or illness
Risk Sharing - Answer -method of handling risk
self-insurance, sharing of risk between the company and an insurer by retaining and
managing small risks through company funds, while transferring larger, more costly
risks to an insurance company
Transferring Risk - Answer -method of handling risk
Preferred Risk - Answer -classification of risk
applicants who are in good health, based on age, height, weight, and smoking status,
as well as occupation and hobbies, and even good credit
Standard Risk - Answer -classification of risk
average classification for the majority of applicants
Substandard Risk - Answer -classification of risk
, applicants with preexisting conditions that are within the risk acceptance levels of the
insurer, and can include higher premium payment to offset the increased risk
can also exclude certain benefits of the policy, or types of medical conditions from
receiving coverage in order to prevent abnormal loss to the insurance company
commonly in poor health, has already manifested a preexisting condition, or might
engage in a dangerous hobby or occupation
Declined Risk - Answer -classification of risk
un-insurable risk, can include specific life-threatening conditions, a combination of
multiple conditions, or even an applicant's extreme weight limit
all insurance companies have their own underwriting guidelines, so just because an
applicant receives a 'declined risk' rating with one insurer doesn't mean they would with
all insurers
Certificate of Authority - Answer -provided to an insurance company as proof of
licensure within the state, once certified by the state, the insurer is considered Admitted
and is authorized to conduct business within the state
Captive Agent - Answer -agent's who market only one insurer's products
Producer - Answer -individuals licensed by their home STATE to solicit insurance,
collect premium, and deliver policies to newly insured individuals
Agent - Answer -an individual authorized by an INSURANCE COMPANY to solicit and
negotiate insurance products on their behalf
represents the insurer
Broker - Answer -works on behalf of a consumer to negotiate and transact insurance
with one or more insurers
represents the consumer
Appointment - Answer -a legal contract between an insurance company and a licensed
agent by which the insurer gives an agent the contractual permission, or 'express
authority' to conduct insurance business on behalf of the insurer in exchange for
compensation, referred to as commission
Express Authority - Answer -defined as the contractual agreement to market and sell
the insurer's products, it is clearly defined in words through the company's contract, or
appointment, with the agent
GUIDE
Self-Insurance - Answer -the retention of risk by providing funding for smaller, specified
loss from within company reserves
retaining risk is only used in circumstances where a large enough group of similar
(homogeneous) exposure units exist, and the business has the necessary amount of
capital available on reserve to cover the potential loss
Reciprocals
(Inter-insurance) - Answer -a type of risk retention between members, known as
subscribers, consisting of individual business owners, corporations, or municipalities
subscribers 'reciprocate' in sharing risks and participate in indemnifying members who
encounter loss
as a type of insurance, each member can absorb larger loss by sharing it and through
its participation in the reciprocal; it pays a lesser amount of loss since it is shared by the
other subscribers in the reciprocal
Stock Insurance Company - Answer -Non-Participating or 'Non-Par'
a private insurance company that is established to provide insurance to policyowners
and to make a profit for its stockholders
the insured policyowners do not own the company, nor do they receive any dividends
that to company returns
stock insurers do not issue participating policies; therefore, two groups exist:
shareholders and policyowners - though a shareholder could also be a policyowner
Mutual Insurance Company - Answer -Participating or 'Par'
a private insurance company that is established to provide insurance to policyowners
who are also the company's stockholders (owners)
it issues 'participating policies' in which policyowners share in the company's ownership
and receive dividends from the earned surplus of the company's profits
Dividend - Answer -reimbursement of excess premium that remains after the company
has set aside its needed reserves and has deducted the necessary amount to cover
annual claims and other company expenses
paid out on an annual basis to policyowners of a Mutual Insurance policy
,Reinsurance - Answer -the sharing of risk between an insurance company and a re-
insurance company, known as a Reinsurer, to provide additional insurance coverage for
risks that are too large for the single insurer to adequately cover
Actuary - Answer -statistical analysts, hired by insurers, to analyze and predict potential
loss in order to set and maintain premium pricing for the insurer's products
Pure Risk - Answer -the only type of insurable risk, in which there is only a chance of
loss and not gain
Risk Pooling - Answer -the combining of similar 'exposure units' to spread specific risk,
or the exposure of a specific loss, across a sizable number of individuals instead of
bearing all costs on the individual person
Elements of Insurable Risk - Answer -1. any outcome of the risk must result by accident
and produce a loss (Pure Risk)
2. insurable 'interest' must exist between two parties where the loss of one party results
in an economic hardship for the other party
3. the insurer must by able to calculate the risk and the amount of loss incurred (Risk
Pooling)
4. there must be a large enough number of similar risks being insured (Law of Large
Numbers)
5. the risk cannot be catastrophic as to not be able to be fully funded by the insurance
company while still maintaining a profit
6. the risk cannot be 'adversely' selected
Hazard - Answer -is the factor, or underlying condition, that gives rise to a peril
there are 3 types: Physical, Moral, and Morale
Peril - Answer -the specific event that causes, or is the grounds, for loss
in an example of a house being destroyed by a fire, the fire is the peril
Physical Hazard - Answer -defined by physical conditions which have the potential to
lead to loss, such as unsafe working conditions (blocked fire exists, exposed electrical
wiring, damaged or unsafe tools)
diseases and medical conditions that can lead to loss, such as cancer, are also
considered to be physical hazards
Moral Hazard - Answer -defined by human behavior, actions, habits, and lifestyles such
as smoking, eating an unhealthy diet, drug abuse, texting while driving, and drunk
driving, all of which increase the risk of a peril
,dishonesty, bad credit, intentionally filing false insurance claims, abusing credit cards,
and suing for the sole purpose of the potential for gain are also examples of moral
hazards
Morale Hazard - Answer -defined by a TEMPORARY lapse in judgement that leads to a
brief indifference in attitude toward risk
(ex.) a driver might fail to stop at a stop light because the driver was texting, the
carelessness of running a red light is considered a morale hazard; however, the act of
texting while driving is considered a moral hazard
primary difference is INTENTION
Risk Avoidance - Answer -method of handling risk
risk can be avoided in a given situation by not participating; impractical
Reducing Risk - Answer -method of handling risk
actions taken to help reduce risk, like wearing a helmet and the correct clothing while
riding a motorcycle, or having a fire extinguisher available in the house in case of
emergency
Retaining Risk - Answer -method of handling risk
defined as accepting and managing risk with it occurs, such as having reserve funds
available in the event of an accident or illness
Risk Sharing - Answer -method of handling risk
self-insurance, sharing of risk between the company and an insurer by retaining and
managing small risks through company funds, while transferring larger, more costly
risks to an insurance company
Transferring Risk - Answer -method of handling risk
Preferred Risk - Answer -classification of risk
applicants who are in good health, based on age, height, weight, and smoking status,
as well as occupation and hobbies, and even good credit
Standard Risk - Answer -classification of risk
average classification for the majority of applicants
Substandard Risk - Answer -classification of risk
, applicants with preexisting conditions that are within the risk acceptance levels of the
insurer, and can include higher premium payment to offset the increased risk
can also exclude certain benefits of the policy, or types of medical conditions from
receiving coverage in order to prevent abnormal loss to the insurance company
commonly in poor health, has already manifested a preexisting condition, or might
engage in a dangerous hobby or occupation
Declined Risk - Answer -classification of risk
un-insurable risk, can include specific life-threatening conditions, a combination of
multiple conditions, or even an applicant's extreme weight limit
all insurance companies have their own underwriting guidelines, so just because an
applicant receives a 'declined risk' rating with one insurer doesn't mean they would with
all insurers
Certificate of Authority - Answer -provided to an insurance company as proof of
licensure within the state, once certified by the state, the insurer is considered Admitted
and is authorized to conduct business within the state
Captive Agent - Answer -agent's who market only one insurer's products
Producer - Answer -individuals licensed by their home STATE to solicit insurance,
collect premium, and deliver policies to newly insured individuals
Agent - Answer -an individual authorized by an INSURANCE COMPANY to solicit and
negotiate insurance products on their behalf
represents the insurer
Broker - Answer -works on behalf of a consumer to negotiate and transact insurance
with one or more insurers
represents the consumer
Appointment - Answer -a legal contract between an insurance company and a licensed
agent by which the insurer gives an agent the contractual permission, or 'express
authority' to conduct insurance business on behalf of the insurer in exchange for
compensation, referred to as commission
Express Authority - Answer -defined as the contractual agreement to market and sell
the insurer's products, it is clearly defined in words through the company's contract, or
appointment, with the agent
