Insurance terms and definitions UPDATED ACTUAL Questions
and CORRECT Answers
Purpose of Insurance Provide financial protection against risk and loss
Risk Uncertainty or chance of loss
Law of Large Numbers Predicts losses more accurately as the number of exposures increases
Domestic Insurance Company Insurer incorporated in the same state it operates
Foreign Insurance Company Insurer operating in a state other than where it is incorporated
Alien Insurance Company Insurer incorporated in another country
Admitted Insurer Authorized to do business in a state
Nonadmitted Insurer Not authorized but may operate under special conditions
Contract A legal agreement between two or more parties
Elements of a Contract Agreement, consideration, competent parties, legal purpose
Law of Agency Relationship where agent acts on behalf of principal
Agent Person authorized to act for an insurer
Express Authority Authority given directly by the insurer
Implied Authority Authority not stated but necessary to carry out duties
Apparent Authority Authority perceived by others
Underwriting Process of evaluating risk
Risk Classification Group individuals by similar risk levels
Preferred Risk Lower than average risk
, Standard Risk Average Risk
Substandard Risk Higher than average risk
Premium Payment made for insurance coverage
Mortality Risk Factors Age, gender, health, lifestyle
Premium Modes Frequency of premium payments (monthly, quarterly, annually)
and CORRECT Answers
Purpose of Insurance Provide financial protection against risk and loss
Risk Uncertainty or chance of loss
Law of Large Numbers Predicts losses more accurately as the number of exposures increases
Domestic Insurance Company Insurer incorporated in the same state it operates
Foreign Insurance Company Insurer operating in a state other than where it is incorporated
Alien Insurance Company Insurer incorporated in another country
Admitted Insurer Authorized to do business in a state
Nonadmitted Insurer Not authorized but may operate under special conditions
Contract A legal agreement between two or more parties
Elements of a Contract Agreement, consideration, competent parties, legal purpose
Law of Agency Relationship where agent acts on behalf of principal
Agent Person authorized to act for an insurer
Express Authority Authority given directly by the insurer
Implied Authority Authority not stated but necessary to carry out duties
Apparent Authority Authority perceived by others
Underwriting Process of evaluating risk
Risk Classification Group individuals by similar risk levels
Preferred Risk Lower than average risk
, Standard Risk Average Risk
Substandard Risk Higher than average risk
Premium Payment made for insurance coverage
Mortality Risk Factors Age, gender, health, lifestyle
Premium Modes Frequency of premium payments (monthly, quarterly, annually)
