Life & Health Insurance Exam (Answered) With Complete Solution 100% Rated

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 standard, preferred, substandard, declined Standard risks average health and normal life expectancy Preferred risks excellent health, risk of loss is below average Substandard risks aka rated below average health and short life expectancy can only be accepted by charging higher rates Insurable interest person applying for insurance must be at risk of suffering a significant loss if the insured dies the loss may be emotional or financial When must insurable interest exist? home and auto- time of loss life- time of application Human life value approach annual income x years to retirement Needs approach focuses on both cash and income needs Social Security blackout period time during which a surviving spouse is ineligible to receive SS survivor benefits stops after the youngest child turns 16, resume at age 60 2 types of buy-sell agreements entity plan and cross purchase plan entity plan- business owns policy on business owner's life cross purchase- each business owner owns a policy on the other business owners Executive bonus plans (section 162) employer pays a bonus to employee, who uses the bonus to pay for life insurance premiums. bonus is tax deductible to employer as salary and is included in the employees gross income employee has full access to living benefits during lifetime Industrial life insurance issues very small face amounts premiums paid weekly and collected in person Home service life insurance