Life & Health Insurance Exam (Answered) With
Complete Solution 100% Rated
Insurance
transfer of risk
Speculative risk
has a possibility of both loss and gain
Pure risk
only has a possibility of loss (no gain)
Exposure
risks for which an insurance company would be liable
expressed in units
Peril
cause of a loss
Hazard
an increase in the chance of loss
Moral hazard
arise from people's character (faking a loss)
Morale hazard
state of mind or careless attitude (accidentally leaving door unlocked)
Methods of handling risk
STARR
Share, transfer, avoid, retain, reduce
The law of large numbers
the larger the group, the more accurately losses can be predicted
Elements of insurable risk
CANHAM
Calculable, affordable, non-catastrophic, homogenous, accidental, measurable
Adverse selection
tendency for higher-risk individuals to get and keep insurance
Reinsurance
an insurance company (ceding) pays another insurance company (reinsurer) to assume
some risk in the event of a catastrophic loss
Facultative reinsurance
reinsurer evaluates each risk before allowing the transfer
Treaty reinsurance
reinsurer accepts all risk of a certain type from the ceding company
Stock insurer
insurance company owned by shareholders who chose the board of directors
taxable dividends can be paid from profits
issues non-participating (non-par) policies
,Mutual insurer
no shareholders, rather policyowners who chose the board of directors
nontaxable dividends can be paid from profits (return of excess premium)
issues participating (par) policies
Fraternal benefit societies
provides insurance and other social benefits to members
members own certificates
Reciprocal insurer
unincorporated group of people that insure each other's losses
members are subscribers
each member is assessed with an equal amount of a claim to pay in the event of a loss
run by an attorney-in-fact
Risk retention group
liability insurance company created for policyholders from the same industry (auto
industry RRG)
Lloyd's association
insurance provided by individual underwriters rather than companies
each underwriter is personally liable for the risks they insure
Self-insurance
business that pays its own claims
risk retention
Residual insurance market
insurance from the state or federal government
Domestics. vs. foreign vs. alien insurers
an insurer that writes business in...
domestic- home state
foreign- another state
alien- another country
Certificate of authority
state license for an insurance company
admitted/authorized/approved- licensed in state
nonadmitted/unauthorized/unapproved- not licensed. sometimes allowed to insure
surplus risks
Surplus lines insurer
,insurance sold by nonadmitted insurers from a state's approved surplus insurers list
can only be sold to high risks insureds
can't be purchased just due to being cheaper than insurance from admitted insurers
4 different types of insurance agents
1. independent agents
2. exclusive/captive agents
3. general agents
4. direct writing companies
Independent agent
reps more than 1 company
General agent
recruits other agents that actually sell the insurance
Direct writing companies
pays salaries to the employees selling the insurance (vs. commission)
Direct response insurance
no agent involved. insurance is sold directly by the company to the public
Agency
relationship in which one person (agent) is authorized to represent another (principal)
Law of agency (insurance)
contracts made by the agent are considered to be contracts of the principal (insurance
company)
3 types of authority
express, implied, apparent
express- written in contract
implied- assumed in accordance with general business practices
apparent- perceived authority
5 elements of a legal contract
1. consideration ($)
2. legal purpose
3. offer
4. acceptance
5. competent parties
Adhesion
insurer writes the contracts and the insured adheres
any ambiguity favors the insured
Aleatory
unequal receipt of value
small premium payments for a large amount of coverage
Unilateral contract
, only one promise is made - insurance company promises to pay in the event of loss
Personal contracts
can't be assigned to someone else (home and auto)
Indemnity
contract restores the insured to a pre-loss condition, no better and no worse
Warranty
a promise
Fraud and false statements punishment
fine and/or imprisonment (10-15 years)
Waiver
voluntarily giving up a right
Estoppel
prevents a party from denying an action if it had been previously accepted
Underwriting
process of evaluating a risk to determine if it's acceptable based on insurance company
guidelines
Allowable backdating window
6 months
allows a 41 year old to obtain coverage as if they were 40
Producer's report
producer/agent records all relevant info on insured
not seen by the proposed insured
Conditional receipt
premium is paid with application and insurance is effective as long as proposed insured
is not uninsurable or substandard
Binding receipt
effective for 30 to 60 days from the date of application, even if the applicant is found
uninsurable
3 parts to a life insurance application
1. general info
2. health info
3. producer's report
Attending physician's statement
statement of medical condition from insured's doctor
Who pays for medical exams during the underwriting process?
the insurer
HIPAA
Health Insurance Portability and Accountability Act
Medical information bureau (MIB)
non-profit insurance trade association that houses underwriting info on applicants who
apply for insurance
goal is to reduce misrepresentation and fraud
4 classifications of insurance risk
Complete Solution 100% Rated
Insurance
transfer of risk
Speculative risk
has a possibility of both loss and gain
Pure risk
only has a possibility of loss (no gain)
Exposure
risks for which an insurance company would be liable
expressed in units
Peril
cause of a loss
Hazard
an increase in the chance of loss
Moral hazard
arise from people's character (faking a loss)
Morale hazard
state of mind or careless attitude (accidentally leaving door unlocked)
Methods of handling risk
STARR
Share, transfer, avoid, retain, reduce
The law of large numbers
the larger the group, the more accurately losses can be predicted
Elements of insurable risk
CANHAM
Calculable, affordable, non-catastrophic, homogenous, accidental, measurable
Adverse selection
tendency for higher-risk individuals to get and keep insurance
Reinsurance
an insurance company (ceding) pays another insurance company (reinsurer) to assume
some risk in the event of a catastrophic loss
Facultative reinsurance
reinsurer evaluates each risk before allowing the transfer
Treaty reinsurance
reinsurer accepts all risk of a certain type from the ceding company
Stock insurer
insurance company owned by shareholders who chose the board of directors
taxable dividends can be paid from profits
issues non-participating (non-par) policies
,Mutual insurer
no shareholders, rather policyowners who chose the board of directors
nontaxable dividends can be paid from profits (return of excess premium)
issues participating (par) policies
Fraternal benefit societies
provides insurance and other social benefits to members
members own certificates
Reciprocal insurer
unincorporated group of people that insure each other's losses
members are subscribers
each member is assessed with an equal amount of a claim to pay in the event of a loss
run by an attorney-in-fact
Risk retention group
liability insurance company created for policyholders from the same industry (auto
industry RRG)
Lloyd's association
insurance provided by individual underwriters rather than companies
each underwriter is personally liable for the risks they insure
Self-insurance
business that pays its own claims
risk retention
Residual insurance market
insurance from the state or federal government
Domestics. vs. foreign vs. alien insurers
an insurer that writes business in...
domestic- home state
foreign- another state
alien- another country
Certificate of authority
state license for an insurance company
admitted/authorized/approved- licensed in state
nonadmitted/unauthorized/unapproved- not licensed. sometimes allowed to insure
surplus risks
Surplus lines insurer
,insurance sold by nonadmitted insurers from a state's approved surplus insurers list
can only be sold to high risks insureds
can't be purchased just due to being cheaper than insurance from admitted insurers
4 different types of insurance agents
1. independent agents
2. exclusive/captive agents
3. general agents
4. direct writing companies
Independent agent
reps more than 1 company
General agent
recruits other agents that actually sell the insurance
Direct writing companies
pays salaries to the employees selling the insurance (vs. commission)
Direct response insurance
no agent involved. insurance is sold directly by the company to the public
Agency
relationship in which one person (agent) is authorized to represent another (principal)
Law of agency (insurance)
contracts made by the agent are considered to be contracts of the principal (insurance
company)
3 types of authority
express, implied, apparent
express- written in contract
implied- assumed in accordance with general business practices
apparent- perceived authority
5 elements of a legal contract
1. consideration ($)
2. legal purpose
3. offer
4. acceptance
5. competent parties
Adhesion
insurer writes the contracts and the insured adheres
any ambiguity favors the insured
Aleatory
unequal receipt of value
small premium payments for a large amount of coverage
Unilateral contract
, only one promise is made - insurance company promises to pay in the event of loss
Personal contracts
can't be assigned to someone else (home and auto)
Indemnity
contract restores the insured to a pre-loss condition, no better and no worse
Warranty
a promise
Fraud and false statements punishment
fine and/or imprisonment (10-15 years)
Waiver
voluntarily giving up a right
Estoppel
prevents a party from denying an action if it had been previously accepted
Underwriting
process of evaluating a risk to determine if it's acceptable based on insurance company
guidelines
Allowable backdating window
6 months
allows a 41 year old to obtain coverage as if they were 40
Producer's report
producer/agent records all relevant info on insured
not seen by the proposed insured
Conditional receipt
premium is paid with application and insurance is effective as long as proposed insured
is not uninsurable or substandard
Binding receipt
effective for 30 to 60 days from the date of application, even if the applicant is found
uninsurable
3 parts to a life insurance application
1. general info
2. health info
3. producer's report
Attending physician's statement
statement of medical condition from insured's doctor
Who pays for medical exams during the underwriting process?
the insurer
HIPAA
Health Insurance Portability and Accountability Act
Medical information bureau (MIB)
non-profit insurance trade association that houses underwriting info on applicants who
apply for insurance
goal is to reduce misrepresentation and fraud
4 classifications of insurance risk
