LIFE, ACCIDENT AND HEALTH INSURANCE MI STUDY GUIDE – COMPLETE EXAM NOTES
(INSURANCE PRINCIPLES, POLICIES, REGULATIONS & ANNUITIES)
1. Insurance Contract: Legal agreement between an insurance company and an individual, where the
insurer collects a premium from the insured in exchange for the insurers promise to pay potential future benefits
in the event of covered losses.
2. Risk Pooling: Combines similar losses from many people so that the average loss over the entire group is
relatively constant
3. Law of Large Numbers: States that as a group increases in size, it is easier to predict the number of
future losses over a certain period of time.
4. Actuaries: Mathematicians employed by insurance companies, who analyze statistical data to determine
mortality and morbidity rates.
5. Mortality: The rate at which people die.
6. Morbidity: The rate at which people get sick, injured, or disabled.
7. Risk: The possibility of a loss occurring.
8. Pure Risk: The only insurable risks and present a potential for loss such as injury, illness, and death
9. Speculative Risk: Present the chance for loss or gain
10. Loss: The unintentional decrease in the value of an asset due to a peril.
11. Exposure: The condition of being prone to loss due to a hazard or uncertain event
12. Peril: The cause of the loss and the event insured against
13. Life and Health insurance perils: Premature death, dependency during old age, accident, and
sickness
14. Hazard: Anything that increases the chance of loss occurring from a particular peril
15. The 4 types of hazards: Physical, moral, morale, and legal
16. Physical hazard: Physical characteristics which raise the loss potential for a particular peril
17. Moral hazard: The predisposition, character, habits, and values of a person which increase the chance of
a loss occurring
18. Morale hazard: An insureds careless attitude, inditterence or lack of responsibility which increase the
chance of a loss occurring
19. Legal hazard: The application of laws, regulations, and legal court rulings which increase the chance or
amount of loss
20. 5 Methods of handling risk: Avoidance, retention, sharing, reduction and transfer
21. Insurance: Risk Transfer
22. Adverse Selection: Demand for insurance coverage by people who are worse than average risks and
more likely to need and use the coverage
, LIFE, ACCIDENT AND HEALTH INSURANCE MI STUDY GUIDE – COMPLETE EXAM NOTES
(INSURANCE PRINCIPLES, POLICIES, REGULATIONS & ANNUITIES)
23. Reinsurance: Spreads risk from one insurer to one or more other insurers
24. Reinsurer: The insurer that accepts the additional risk
25. Primary Insurer: The insurer that gives the risk to the reinsurer
26. Competent parties Indemnity: "To make whole" provide benefit of payments to restore the
insureds economic loss
27. Limit of liability: The total amount the insurer will pay for an insured risk
28. Premium: Set cost of insurance coverage paid by the policyholder to the insurer
29. Deductible: The amount the insured must pay before the insurer will pay a claim
30. Coinsurance: 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
31. Claim: The insured's notification to the insurer that a payment is requested for a covered loss
32. Life insurance: protects against the risk of premature death
33. Health insurance: 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
34. Annuities: Protects against the risk of living longer than expected and provides guaranteed life income to
protect against the risk of depleting retirement funds
35. Property Insurance: Protects against the risk of damage and destruction to all types of property
36. Casualty Insurance: Protects against the risk of legal liability for injury, death, disability, damage and
destruction to property
37. Credit Insurance
Credit Life/Credit Health: Protects against the risk that a person in debt, termed debtor, cannot repay the
debt to the creditor because of accident, sickness, disability or death
38. Variable: Comprised of variable life and variable annuities.
Invests premium dollars in securities, which carry more risk due to price fluctuations
39. Securities license and life insurance producer license: Requirement of selling variable
products
40. Stock Companies: Incorporated companies owned by thier stockholders, who are paid their share of the
company's profit through dividends
41. Mutualization: Transformation of a stock insurer into a mutual insurer
42. Demutualization: Transformation of a Mutual insurer to a stock insurer
, LIFE, ACCIDENT AND HEALTH INSURANCE MI STUDY GUIDE – COMPLETE EXAM NOTES
(INSURANCE PRINCIPLES, POLICIES, REGULATIONS & ANNUITIES)
43. Mutual Companies: Commercial insurers owned by their policyholders.
Mutual Companies lack capital stock, and profits are paid via dividends to policyholders
44. Participating insurers: Issue dividends to policyholders
45. Noncommercial organizations or Service Providers: Service organizations that provide
prepaid health plans for medical, surgical, and hospital expenses
46. Subscribers: Service provider members
47. Admitted insurer: Insurers that are licensed and received a certificate of authority which authorizes them
to sell insurance for particular lines
48. Admitted insurers are also referred to as: Authorized or licensed insurers
49. Nonadmitted insurers: Non licensed or unauthorized insurers that have not yet applied, have applied
and been denied licensure, or are excess and surplus lines insurers
50. Unauthorized insurers permitted to transact insurance business in a state-
: Excess and surplus lines insurers
51. Domestic insurer: An insurer that conducts business in the state it was incorporated
52. Foreign insurer: An insurer that conducts business in a state or district in which it wasn't incorporated
53. Alien insurer: An insurer that conducts business in a country in which it wasn't incorporated
54. Independent Rating Services - Financial Status: Credit rating agencies that rate or "grade"
the financial strength and stability of Insurers based on claims, reserves, and company profits.
55. The Nationally recognized statistical rating organizations that rate insurers-
: A.M. Best, Moody's Investor Service, Standard and Poor's, Fitch Ratings, Ltd., Lace Financial, and Japan Credit Rating
Agency, Ltd.
56. Letting grading scheme used by most rating service's: A to F
57. Marketing (Distribution) Systems: The ways insurance products are marketed and sold to the
public
58. Licensed Insurance producers can be either: Agents or brokers
59. Agents: Appointed to work on behalf of insurance companies
60. Brokers: Not appointed with any insurance company, and can sell for several companies
61. Agents represent: The insurance company
62. Brokers represent: The purchaser
63. Captive/Career Agents: Work only for one insurer
64. Independent Agents: Work for themselves or for Several Insurers non-exclusively
(INSURANCE PRINCIPLES, POLICIES, REGULATIONS & ANNUITIES)
1. Insurance Contract: Legal agreement between an insurance company and an individual, where the
insurer collects a premium from the insured in exchange for the insurers promise to pay potential future benefits
in the event of covered losses.
2. Risk Pooling: Combines similar losses from many people so that the average loss over the entire group is
relatively constant
3. Law of Large Numbers: States that as a group increases in size, it is easier to predict the number of
future losses over a certain period of time.
4. Actuaries: Mathematicians employed by insurance companies, who analyze statistical data to determine
mortality and morbidity rates.
5. Mortality: The rate at which people die.
6. Morbidity: The rate at which people get sick, injured, or disabled.
7. Risk: The possibility of a loss occurring.
8. Pure Risk: The only insurable risks and present a potential for loss such as injury, illness, and death
9. Speculative Risk: Present the chance for loss or gain
10. Loss: The unintentional decrease in the value of an asset due to a peril.
11. Exposure: The condition of being prone to loss due to a hazard or uncertain event
12. Peril: The cause of the loss and the event insured against
13. Life and Health insurance perils: Premature death, dependency during old age, accident, and
sickness
14. Hazard: Anything that increases the chance of loss occurring from a particular peril
15. The 4 types of hazards: Physical, moral, morale, and legal
16. Physical hazard: Physical characteristics which raise the loss potential for a particular peril
17. Moral hazard: The predisposition, character, habits, and values of a person which increase the chance of
a loss occurring
18. Morale hazard: An insureds careless attitude, inditterence or lack of responsibility which increase the
chance of a loss occurring
19. Legal hazard: The application of laws, regulations, and legal court rulings which increase the chance or
amount of loss
20. 5 Methods of handling risk: Avoidance, retention, sharing, reduction and transfer
21. Insurance: Risk Transfer
22. Adverse Selection: Demand for insurance coverage by people who are worse than average risks and
more likely to need and use the coverage
, LIFE, ACCIDENT AND HEALTH INSURANCE MI STUDY GUIDE – COMPLETE EXAM NOTES
(INSURANCE PRINCIPLES, POLICIES, REGULATIONS & ANNUITIES)
23. Reinsurance: Spreads risk from one insurer to one or more other insurers
24. Reinsurer: The insurer that accepts the additional risk
25. Primary Insurer: The insurer that gives the risk to the reinsurer
26. Competent parties Indemnity: "To make whole" provide benefit of payments to restore the
insureds economic loss
27. Limit of liability: The total amount the insurer will pay for an insured risk
28. Premium: Set cost of insurance coverage paid by the policyholder to the insurer
29. Deductible: The amount the insured must pay before the insurer will pay a claim
30. Coinsurance: 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
31. Claim: The insured's notification to the insurer that a payment is requested for a covered loss
32. Life insurance: protects against the risk of premature death
33. Health insurance: 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
34. Annuities: Protects against the risk of living longer than expected and provides guaranteed life income to
protect against the risk of depleting retirement funds
35. Property Insurance: Protects against the risk of damage and destruction to all types of property
36. Casualty Insurance: Protects against the risk of legal liability for injury, death, disability, damage and
destruction to property
37. Credit Insurance
Credit Life/Credit Health: Protects against the risk that a person in debt, termed debtor, cannot repay the
debt to the creditor because of accident, sickness, disability or death
38. Variable: Comprised of variable life and variable annuities.
Invests premium dollars in securities, which carry more risk due to price fluctuations
39. Securities license and life insurance producer license: Requirement of selling variable
products
40. Stock Companies: Incorporated companies owned by thier stockholders, who are paid their share of the
company's profit through dividends
41. Mutualization: Transformation of a stock insurer into a mutual insurer
42. Demutualization: Transformation of a Mutual insurer to a stock insurer
, LIFE, ACCIDENT AND HEALTH INSURANCE MI STUDY GUIDE – COMPLETE EXAM NOTES
(INSURANCE PRINCIPLES, POLICIES, REGULATIONS & ANNUITIES)
43. Mutual Companies: Commercial insurers owned by their policyholders.
Mutual Companies lack capital stock, and profits are paid via dividends to policyholders
44. Participating insurers: Issue dividends to policyholders
45. Noncommercial organizations or Service Providers: Service organizations that provide
prepaid health plans for medical, surgical, and hospital expenses
46. Subscribers: Service provider members
47. Admitted insurer: Insurers that are licensed and received a certificate of authority which authorizes them
to sell insurance for particular lines
48. Admitted insurers are also referred to as: Authorized or licensed insurers
49. Nonadmitted insurers: Non licensed or unauthorized insurers that have not yet applied, have applied
and been denied licensure, or are excess and surplus lines insurers
50. Unauthorized insurers permitted to transact insurance business in a state-
: Excess and surplus lines insurers
51. Domestic insurer: An insurer that conducts business in the state it was incorporated
52. Foreign insurer: An insurer that conducts business in a state or district in which it wasn't incorporated
53. Alien insurer: An insurer that conducts business in a country in which it wasn't incorporated
54. Independent Rating Services - Financial Status: Credit rating agencies that rate or "grade"
the financial strength and stability of Insurers based on claims, reserves, and company profits.
55. The Nationally recognized statistical rating organizations that rate insurers-
: A.M. Best, Moody's Investor Service, Standard and Poor's, Fitch Ratings, Ltd., Lace Financial, and Japan Credit Rating
Agency, Ltd.
56. Letting grading scheme used by most rating service's: A to F
57. Marketing (Distribution) Systems: The ways insurance products are marketed and sold to the
public
58. Licensed Insurance producers can be either: Agents or brokers
59. Agents: Appointed to work on behalf of insurance companies
60. Brokers: Not appointed with any insurance company, and can sell for several companies
61. Agents represent: The insurance company
62. Brokers represent: The purchaser
63. Captive/Career Agents: Work only for one insurer
64. Independent Agents: Work for themselves or for Several Insurers non-exclusively
