Arizona Health Insurance Exam
Insurance - answer a contract in which one party (the insurance company) agrees to
"make whole" the insured party against loss, damage or liability arising from an unlikely
event
In ___________ insurance, the policy protects survivors from losses suffered after the
insured's death - answer Life
Insurance __________ the risk of loss from an individual or business to an insurance
company - answer Transfers
Risk - answer the uncertainty or chance of a loss occurring
Pure Risk - answer situations that can only result in a loss or no change
In __________ risk, there is no opportunity for financial gain - answerPure
__________ risk is the only type of risk that insurance companies are willing to accept -
answer Pure
Speculative Risk - answer involves the opportunity for loss or gain
__________ risk is not insurable - answerSpeculative
Exposure - answerunit of measurement used to determine rates charged for insurance
coverage
4 Determining Factors in Life Insurance - answer- Age of insured
- Medical history
- Occupation
- Sex of insured
Homogeneous - answera large number of units having the same or similar exposure to
loss
What is the basis of insurance? - answerSharing the risk among members of a large
homogeneous group with similar exposure to loss
Hazards - answerconditions or situations that increase the probability of an insured loss
occurring
,Physical Hazards - answerindividual characteristics that increase the chances of the
cause of loss
__________ hazards exist because of physical condition, past medical history, or a
condition at birth. - answerPhysical
Moral Hazards - answertendencies towards increased risk
__________ hazards involve evaluationg the character and reputation of the proposed
insured. - answerMoral
__________ refer to those applicants who may life on an application for insurance, or in
the past, have submitted fraudulent claims against an insurer. - answerMoral
Morale Hazards - answerarise from a state of mind that causes indifference to loss,
such as carelessness and result from actions taken without forethought.
Peril - answerthe causes of loss insured against an insurance policy.
__________ insures against the financial loss caused by premature death of the
insured. - answerLife
__________ insures against the medical expenses and/or loss of income caused by the
insured's sickness or accidental injury. - answerHealth
__________ insurance insures against the loss of physical property of the loss of
income producing abilities. - answerProperty
__________ insurance insures against the loss and/or damage of property resulting in
liabilities. - answerCasualty
Loss - answerthe reduction, decrease, or disappearance of value of the person or
property insured in a policy, caused by a named peril.
Risk Avoidance - answereliminating exposure to a loss
Risk avoidance is __________ but seldom __________. - answerEffective/Practical
Risk Retention - answerthe planned assumption of risk by an insured throughthe use of
deductibles, co-payments or self-insurance.
Risk retention is also known as __________ when the insured accepts the responsibility
for the loss before the insurance company pays. - answerSelf-insurance
The purpose of retention is: - answer1. to reduce expenses and improve cash flow
2. to increase control of claim reserving and claims settlements
,3. to fund for losses that cannot be insured
Risk Sharing - answera method of dealing with risk for a group of individual persons or
businesses with the same or similar exposure to loss to share the losses that occur
within that group.
A __________ is a formal risk-sharing agreement. - answerReciprocal insurance
exchange
Risk Reduction - answeractions taken to attempt to lessen the possibility or severity of a
loss (ex: installing smoke detectors, annual physicals, making lifestyle changes)
The most effective way to handle risk is to __________ it so that the loss is borne by
another party. - answerTransfer
Insurance is the most common method of __________ risk from an individual or group
to an insurance company. Though the purchasing of insuranc will not eliminate the risk
of death or illness, it relieves the insured of the financial losses these risks bring. -
answerTransferring
Elements of Insurable Risks - answer- Due to chance
- Definite and measurable
- Statistically predictable
- Not catastrophic
- Randomly selected and large loss exposure
Insurable Risks Due to Chance - answera loss that is outside of the insured's control
Insurable Risks that are Definite and Measurable - answera loss that is specific as to
the cause, time, place and amount. An insurer must be able to determine how much the
benefit will be when it becomes payable.
Insurable Risks that are Statistically Predictable - answerinsurers must be able to
estimate the average frequency and severity of future losses and set appropriate
premium rates
Insurable Risks that are Not Catastrophic - answerinsurers need to be reasonably
certain their losses will not exceed specific limits because there is no statistical data that
allows for the development of rates that would be necessary to cover losses from these
events.
Insurable Risks that are Randomly Selected and have Large Loss Exposure -
answerthere must be a sufficiently large pool of the insured that represents a random
selection of risks in terms of age, gender, occupation, health and economic status, and
geographic location.
, Adverse Selection - answerthe insuring of risks that are more prone to losses than the
average risk
__________ risks tend to seen insurance or file claims to a greater extent than
__________ risks. - answerPoorer/Better
To protect themselves from __________, insurance companies have an option to refuse
or restrict coverage for bad risks, or charge them a higher rate for insurance coverage. -
answerAdverse selection
Law of Large Numbers - answerstates that the larger the number of people with a
similar exposure to loss, the more predictable actual losses will be.
Which law forms the basis for statistical prediction of loss upon which insurance rates
are calculated? - answerThe Law of Large Numbers
When an insurance company issues a policy of a 35 y/o male, the company really has
no way of kning or accurately predicting when he will die. So they use the __________
to look at people who are the same age, sex and have similar health and lifestyle
conditions to make conclusions based on the statistics of past losses. This allows the
insurance company yo have a general idea about the predicted time of death for this
type of insured and to set the premiums accordingly. - answerLaw of Large Numbers
What is the major difference between government and private insurance? - answerThe
government programs are funded with taxes and serve national and state social
purposes, while private policies are funded by premiums.
What are the 5 ways that private insurance companies can be classified? - answer-
Ownership
- Authority to transact busniess
- Location
- Marketing and distribution systems
- Rating (financial strength)
Stock Companies - answerinsurance companies that are owned by the stockholders
who provide the capital necessary to establish and operate the insurance company and
who share in any profits or losses
What is a nonparticipating policy? - answerA policy issued by a stock company in which
policy owners do not share in profits or losses that does not pay dividends to policy
owners, but does pay taxable dividends to stock holders.
Mutual Companies - answerinsurance companies that are owned by the policy owners
and issue participating policies
Insurance - answer a contract in which one party (the insurance company) agrees to
"make whole" the insured party against loss, damage or liability arising from an unlikely
event
In ___________ insurance, the policy protects survivors from losses suffered after the
insured's death - answer Life
Insurance __________ the risk of loss from an individual or business to an insurance
company - answer Transfers
Risk - answer the uncertainty or chance of a loss occurring
Pure Risk - answer situations that can only result in a loss or no change
In __________ risk, there is no opportunity for financial gain - answerPure
__________ risk is the only type of risk that insurance companies are willing to accept -
answer Pure
Speculative Risk - answer involves the opportunity for loss or gain
__________ risk is not insurable - answerSpeculative
Exposure - answerunit of measurement used to determine rates charged for insurance
coverage
4 Determining Factors in Life Insurance - answer- Age of insured
- Medical history
- Occupation
- Sex of insured
Homogeneous - answera large number of units having the same or similar exposure to
loss
What is the basis of insurance? - answerSharing the risk among members of a large
homogeneous group with similar exposure to loss
Hazards - answerconditions or situations that increase the probability of an insured loss
occurring
,Physical Hazards - answerindividual characteristics that increase the chances of the
cause of loss
__________ hazards exist because of physical condition, past medical history, or a
condition at birth. - answerPhysical
Moral Hazards - answertendencies towards increased risk
__________ hazards involve evaluationg the character and reputation of the proposed
insured. - answerMoral
__________ refer to those applicants who may life on an application for insurance, or in
the past, have submitted fraudulent claims against an insurer. - answerMoral
Morale Hazards - answerarise from a state of mind that causes indifference to loss,
such as carelessness and result from actions taken without forethought.
Peril - answerthe causes of loss insured against an insurance policy.
__________ insures against the financial loss caused by premature death of the
insured. - answerLife
__________ insures against the medical expenses and/or loss of income caused by the
insured's sickness or accidental injury. - answerHealth
__________ insurance insures against the loss of physical property of the loss of
income producing abilities. - answerProperty
__________ insurance insures against the loss and/or damage of property resulting in
liabilities. - answerCasualty
Loss - answerthe reduction, decrease, or disappearance of value of the person or
property insured in a policy, caused by a named peril.
Risk Avoidance - answereliminating exposure to a loss
Risk avoidance is __________ but seldom __________. - answerEffective/Practical
Risk Retention - answerthe planned assumption of risk by an insured throughthe use of
deductibles, co-payments or self-insurance.
Risk retention is also known as __________ when the insured accepts the responsibility
for the loss before the insurance company pays. - answerSelf-insurance
The purpose of retention is: - answer1. to reduce expenses and improve cash flow
2. to increase control of claim reserving and claims settlements
,3. to fund for losses that cannot be insured
Risk Sharing - answera method of dealing with risk for a group of individual persons or
businesses with the same or similar exposure to loss to share the losses that occur
within that group.
A __________ is a formal risk-sharing agreement. - answerReciprocal insurance
exchange
Risk Reduction - answeractions taken to attempt to lessen the possibility or severity of a
loss (ex: installing smoke detectors, annual physicals, making lifestyle changes)
The most effective way to handle risk is to __________ it so that the loss is borne by
another party. - answerTransfer
Insurance is the most common method of __________ risk from an individual or group
to an insurance company. Though the purchasing of insuranc will not eliminate the risk
of death or illness, it relieves the insured of the financial losses these risks bring. -
answerTransferring
Elements of Insurable Risks - answer- Due to chance
- Definite and measurable
- Statistically predictable
- Not catastrophic
- Randomly selected and large loss exposure
Insurable Risks Due to Chance - answera loss that is outside of the insured's control
Insurable Risks that are Definite and Measurable - answera loss that is specific as to
the cause, time, place and amount. An insurer must be able to determine how much the
benefit will be when it becomes payable.
Insurable Risks that are Statistically Predictable - answerinsurers must be able to
estimate the average frequency and severity of future losses and set appropriate
premium rates
Insurable Risks that are Not Catastrophic - answerinsurers need to be reasonably
certain their losses will not exceed specific limits because there is no statistical data that
allows for the development of rates that would be necessary to cover losses from these
events.
Insurable Risks that are Randomly Selected and have Large Loss Exposure -
answerthere must be a sufficiently large pool of the insured that represents a random
selection of risks in terms of age, gender, occupation, health and economic status, and
geographic location.
, Adverse Selection - answerthe insuring of risks that are more prone to losses than the
average risk
__________ risks tend to seen insurance or file claims to a greater extent than
__________ risks. - answerPoorer/Better
To protect themselves from __________, insurance companies have an option to refuse
or restrict coverage for bad risks, or charge them a higher rate for insurance coverage. -
answerAdverse selection
Law of Large Numbers - answerstates that the larger the number of people with a
similar exposure to loss, the more predictable actual losses will be.
Which law forms the basis for statistical prediction of loss upon which insurance rates
are calculated? - answerThe Law of Large Numbers
When an insurance company issues a policy of a 35 y/o male, the company really has
no way of kning or accurately predicting when he will die. So they use the __________
to look at people who are the same age, sex and have similar health and lifestyle
conditions to make conclusions based on the statistics of past losses. This allows the
insurance company yo have a general idea about the predicted time of death for this
type of insured and to set the premiums accordingly. - answerLaw of Large Numbers
What is the major difference between government and private insurance? - answerThe
government programs are funded with taxes and serve national and state social
purposes, while private policies are funded by premiums.
What are the 5 ways that private insurance companies can be classified? - answer-
Ownership
- Authority to transact busniess
- Location
- Marketing and distribution systems
- Rating (financial strength)
Stock Companies - answerinsurance companies that are owned by the stockholders
who provide the capital necessary to establish and operate the insurance company and
who share in any profits or losses
What is a nonparticipating policy? - answerA policy issued by a stock company in which
policy owners do not share in profits or losses that does not pay dividends to policy
owners, but does pay taxable dividends to stock holders.
Mutual Companies - answerinsurance companies that are owned by the policy owners
and issue participating policies
