2-15 Insurance License Florida Questions & Answers

Law of Large Numbers - ANSWERSBasic principle of insurance that the larger the number of individual risks combined into a group, the more certainty there is in predicting the amount of loss that will be incurred in any given period. Elements of Insurable Risk - ANSWERSLoss must be: due to chance, definite and measurable, predictable, cannot be catastrophic, loss exposures to be insured must be large, loss exposures to be insured must be randomly selected. Hazard - ANSWERSAny factor that gives rise to a peril. Peril - ANSWERSSpecific event causing loss and giving rise to risk. (Fire is a peril to a burning building) Risk Pooling - ANSWERSBasic principle of insurance whereby a large number contribute to cover the losses of a few. The risk is transferred from an individual to a group. Physical Hazard - ANSWERSIndividual characteristics that increase the chance of peril. (Blindness or deafness) Moral Hazard - ANSWERSTendencies that people may have that increase risk and the chance of loss. (Alcohol and drugs) Morale Hazard - ANSWERSIndividual tendencies that arise from an attitude or state of mind causing indifference to loss. (Driving reckless with no fear of death) Risk Avoidance - ANSWERSAvoiding as many risks as possible. (Never flying, never driving, never investing) Risk Reduction - ANSWERSTaking actions to reduce risk. (Installing a smoke alarm) Risk Retention - ANSWERSAccepting the risk and confronting it if and when it occurs. (Self-insurance) Risk Transfer - ANSWERSThe practice of passing on the risk in question to another entity, such as an insurance company. Adverse Selection - ANSWERSless favorable insurance risks (people in poor health) to seek or continue insurance to a greater extent than other risks. Tendency of policymakers to take advantage of favorable options in insurance contracts. Multi-line insurers - ANSWERSCompanies that write more that one line of insurance Stock Insurance Company - ANSWERSA private insurance company owned and controlled by a group of stockholders whose investment in the company provides the safety margin necessary in issuance of guaranteed, fixed premium, nonparticipation policies. Purpose is making profit for stockholders. mutual insurance company - ANSWERSInsurance company characterized by having no capital stock; it is owned by it's policyowners and usually issues participating insurance. Participating companies because policyowners participate in policy dividends. Mutualization - ANSWERSStock company converts to a mutual company Demutualizing - ANSWERSMutual company convert to stock company Commercial Insurers - ANSWERSStock and mutual companies; they both write life, health, property, and casualty insurance. Assessment Mutual Company - ANSWERSAn insurance company characterized by member-insureds who are assessed an individual portion of each loss that occurs. No premium payment is payable in advance. Not permitted in Florida Advance premium assessment mutual - ANSWERSCharges a premium in advance, at the beginning of the policy period. Not permitted in Florida Reciprocal Insurance Company - ANSWERSInsurance company characterized by the fact it's policyholders insure the risks of other policyholders. Lloyd's of London - ANSWERSAn association of individuals and companies that underwrite insurance on their own accounts and provide specialized coverages. Not an insurer Reinsurers - ANSWERSSpecialized branch of the insurance industry because they insure insurers. Reinsurance - ANSWERSArrangement by which an insurance company transfers a portion of a risk it has assumed to another insurer. Limit the loss any one insurer would face should a very large claim become payable. ceding company - ANSWERSInsurance Company transferring risk Risk Retentio Group (RRG) - ANSWERSMutual insurance company formed to insure people in the same business, occupation, or profession (pharmacy, dentist, engineers) Fraternal benefit society - ANSWERSNon-profit benevolent organization that provides insurance to its members. Based on religious, national, or ethnic lines Home service or Debt Insurance - ANSWERSIndustrial insurance Insurance in small amounts (usually $1,000 to $2,000) with premiums collected weekly by the selling agent Reinsurer - ANSWERSAn insurance company assuming the risk Service providers - ANSWERSOrganization that provides health coverage by contracting with service providers to provide medical services to subscribers who pay in advance through premiums. HMOs PPOs Participating Life Insurance - ANSWERSPolicy which pays a dividend to its owner based on financial success of the insurance company When a stock life insurance company issues both participating and nonparticipating policies, the company is doing business as a ________________? - ANSWERSMIXED PLAN nonparticipating policy - ANSWERSlife insurance that does not provide policy dividends; also called a nonpar policy Mutual Life Insurance Companies - ANSWERSowned by policyholders mutual insurers - ANSWERSParticipating policies Owned by policyholders Vote for directors and trustees Directors and management have control Typically higher rates Demutualization - ANSWERSa mutual insurer is converted into a stock insurer Domiciliary State - ANSWERSThe state in which the decedent's domicile (legal home) is located. Stock and Mutual companies can both write ... - ANSWERSLife, health, property and casualty insurance policies Reciprocal Insurers - ANSWERSare unincorporated groups of individual members that provide insurance for other members through indemnity contracts. Each member acts as both insurer and insured and are managed by Attorney in Fact. Assessment insurance - ANSWERSProhibited in Florida Lloyd's of London - ANSWERSAn association of individuals and companies that underwrite insurance on their own accounts and provide specialized coverages. Reinsurers - ANSWERSCompanies which sell insurance to insurers to reduce the insurer's exposure to loss. ceding company - ANSWERSThe company transferring the risk Risk Retention Group (RRG) - ANSWERSa mutual insurance company formed to insure people in the same business, occupation, or profession Fraternal Benefit Societies - ANSWERSLife or health insurance companies formed to provide insurance for members of an affiliated lodge, religious organization, or fraternal organization with a representative form of government., nonprofit Home Service Insurers - ANSWERShome service insurance is industrial insurance sold by home service or debit life insurance companies. Face amounts are small; usually $1,000 to $2,000 and premiums are paid weekly. Service insurers - ANSWERSCompanies that offer prepayment plans for medical or hospital services, such as health maintenance organizations. HMO (Health Maintenance Organization) - ANSWERSHealth insurance that requires a PCP and wants you to use only in-network doctors PPO (Preferred Provider Organization) - ANSWERSA type of health plan that contracts with medical providers, such as hospitals and doctors, to create a network of participating providers. You pay less if you use providers that belong to the plan's network. You are not required to have a PCP PCP - ANSWERSprimary care physician Self insurers - ANSWERSThese insurers do not transfer their share of a loss to an insurance company, but instead establish their own pool of reserves to cover losses that may arise. Legal reserve - ANSWERSThe minimum reserve which a company must keep to meet future claims and obligations as they are calculated under the state insurance code. A __________ is the cause of a risk. A __________ is the source of danger. - ANSWERS1st - Peril 2nd - Hazard Reciprocal Insurers - ANSWERSunincorporated groups of people that provide insurance for one another through individual indemnity agreements TRUE or FALSE - In a reciprocal insurer structure, each policyholder insures the risks of the other policyholder? - ANSWERSTRUE TRUE or FALSE- Risk retention groups are a form of mutual insurer - ANSWERSTRUE Mutual Insurer - ANSWERSa corporation owned by the policyholders Policyholder - ANSWERSA person who buys an insurance plan; the insured, subscriber, or guarantor. Stockholders - ANSWERSpeople or entities that own stock in a corporation and therefore are its owners Medicare - ANSWERSA federal program of health insurance for persons 65 years of age and older Medicaid - ANSWERSA federal and state assistance program that pays for health care services for people who cannot afford them. OASDI (Old Age, Survivors, and Disability Insurance) - ANSWERSalso known as Social Security Social Security - ANSWERS(FDR) 1935, guaranteed retirement payments for enrolled workers beginning at age 65; set up federal-state system of unemployment insurance and care for dependent mothers and children, the handicapped, and public health Supplemental medical insurance (SMI) - ANSWERSThe Medicare program that pays for a portion of the costs of physicians' services, outpatient hospital services, and other related medical and health services for voluntarily insured and disabled individuals (CMS 2013) renal disease - ANSWERSkidney disease The principal - ANSWERSThe insurer insurance agent - ANSWERSrepresents the insurance company and sells insurance policies to individuals and businesses Insurance Producer - ANSWERSA person required to be licensed under the laws of this state to sell, solicit, or negotiate insurance Captive Agent - ANSWERSan insurance agent who represents only one insurance company and who is, in effect, an employee of that company ... also know as a CAREER AGENT Independent agents - ANSWERSAgents that sell the insurance products of several companies and work for themselves or other agents. Solicitors - ANSWERSSuch as telemarketers... They usually perform the first contact with prospective customers commonly known as cold calling cold calling - ANSWERSa form of lead generation in which the salesperson approaches potential buyers without any prior knowledge of the prospects' needs or financial status Consultants - ANSWERSResearchers and forecasters who provide information about colors and other trends that are occurring in the consumer marketplace. Special agent - ANSWERSAre not usually licensed as they don't actually sell insurance they assist insurance companies as a field representatives rejected business rule - ANSWERSIf an agent turns in an application to his/her standard company and the company declines to issue the policy standard, the rejected business rule allows the agent to then go to another company to issue the policy. Career Agency System - ANSWERS(GA) - Build sales staffs and agents are treated as employees. They are recruited and trained. A principal of the company supervises agents. Personal Producing General Agent (PPGA) - ANSWERSThe agent supplies his own working space (home office) ... supervised by regional directors of the PPGA Independent Agency System - ANSWERSAgents represent several insurers through signed contracts and are paid on commission or fee basis, not through salary. direct selling - ANSWERSmarketing products to ultimate consumers through face-to-face sales presentations at home or in the workplace... The middleman is cut out