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Life and Health Insurance
40 hour course flash cards (Florida)
82
Business
Professional
07/25/2007

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Term
Speculative risk
Definition
risk that involves the possibility of gain and/or loss
Term
pure risk
Definition
involves only the possibility of loss
Term
law of large numbers
Definition
the larger the number of individual risks that are combined into a group, the more certainty there is as to the amount of loss incurred in any given period.
Term
speculative risk and pure risk - which one is insurable?
Definition
Only pure risk is insurable
Term
6 elements of insurable risk
Definition
1. loss must be due to chance
2. lost must be definite and measurable
3. loss must be predictable
4. loss cannot be catastrophic
5. loss exposures must be large
6. loss exposures must be randomly selected
Term
hazard
Definition
the SOURCE of the risk - any factor that gives rise to a peril
Term
peril
Definition
the immediate event that causes the risk (fire, car accident)
Term
risk pooling
Definition
spreading the risk over a large group - transferring the risk from the individual to the group
Term
4 methods of handling risk
Definition
1. Avoidance
2. Reduction
3. Retention
4. Transference
Term
Risk avoidance
Definition
simply avoiding as many risks as possible
Term
Risk reduction
Definition
reducing the possibility of loss (smoke alarm reduces the risk of loss from fire)
Term
Risk retention
Definition
accepting the risk and confronting it when it occurs (self insuring)
Term
Risk transferrence
Definition
transfer the risk of loss to another party (purchasing insurance)
Term
adverse selection
Definition
less favorable insurance risks tend to seek insurance to a greater extent than other risks (sick people want to buy insurance more than a healthy person would)
Term
physical hazard
Definition
individual characteristics that increase a chance of peril (blindness, deafness)
Term
moral hazards
Definition
tendencies that people have that increase risk and chance of loss (alcoholism, drug addiction)
Term
morale hazards
Definition
individual tendencies that arise from an attitude or state of mind causing indifference to loss (reckless driving with no fear of injury or death)
Term
multi-line insurers
Definition
companies that write more than one line of insurance
Term
stock insurance company
Definition
publicly traded insurance company that is owned and controlled by a group of stockholders
Term
nonparticipating policy
Definition
policy owner does NOT receive policy dividends
Term
participating policy
Definition
policy dividends can be paid to the policy owner
Term
mutualization
Definition
conversion of an insurer's corporate ownership into a mutual company by buying back all the shares of stock and retiring them
Term
a stock insurance company is owned by...
Definition
the stockholders
Term
a mutual insurance company is owned by...
Definition
the policy holders
Term
are assessment insurance allowed in Florida?
Definition
No
Term
Assessment mutual companies are typified by the way in which they...
Definition
charge premiums
Term
a reciprocal insurance company is owned by the...
Definition
policy holders
Term
in a reciprocal insurance company, who assumes the risk of the policyholders?
Definition
all of the policy holders insure the risk of each other (reciprocity)
Term
is Lloyd's of London and insurer?
Definition
no
Term
Lloyd's of London
Definition
an association of individuals and companies that individually underwrite insurance
Term
reinsurance
Definition
one insurer transfers part of its risk to another insurer - protects against catastropic loss for one company
Term
Risk Retention Groups
Definition
provide liability coverage to groups of people who are of the same group (or class) - a group of pharmacists, a group of physicians
Term
industrial insurance
Definition
small face values ($1000-$2000) with premiums paid weekly
Term
HMOs are known for stressing...
Definition
preventative health care
Term
HMO
Definition
Health Maintenance Organization
Term
PPO
Definition
Preferred Provider Organization
Term
Social Security, Medicare, Medicaid and worker's comp are examples of...
Definition
social insurance programs
Term
Self insurers
Definition
create their own reserves to provide coverage for future losses
Term
captive agent
Definition
works only for one insurer and only sells that insurer's products
Term
independent agent
Definition
self-governing, and can represent several different insurers
Term
Legally, the agent represents whom?
Definition
the insurer
Term
The McCarran-Ferguson Act
Definition
exmpted the insurance industry from Federal antitrust legislation and determined that insurance regulated by state law "is in the public's interest"
Term
domestic insurer
Definition
a company practicing within the state in which it is incorporated
Term
foreign insurer
Definition
a company operating in a state other than that in which it is incorporated
Term
alien insurer
Definition
a company incorporated outside the US, that is practicing business in the US
Term
twisting
Definition
inducing a customer to cancel an existing policy and buy a new policy with similar coverage under a different insurer, using incomplete or incorrect representation. Also called External Replacement.
Term
churning
Definition
inducing a customer to drop their current policy and buy another policy with the same insurer and usually the same producer
Term
who bears the burden of proving that policy replacement was in the best interest of the insured?
Definition
the agent (producer)
Term
rebating
Definition
returning part of the commission or giving anything of value to the insured as an inducement to buy the policy.
Term
If you rebate, how long must you keep the paperwork?
Definition
5 years
Term
misrepresentation
Definition
any written or oral statement that does not accurately describe a policy's features, benefits or coverage
Term
rebating is only allowed in what two states?
Definition
Florida and California (and only under strict regulation)
Term
NAIC
Definition
National Association of Insurance Commissioners
Term
4 functions of NAIC (National Association of Insurance Commissioners)
Definition
1. uniformity in state insurance laws
2. assist in administration of state insurance laws
3. protect the interest of policy owners and consumers
4. preserve STATE regulation
Term
Financial Services Modernization Act
Definition
Allows commercial banks, investment banks, retail brokerages, and insurance companies can enter each other's lines of business
Term
Before an entity may practice insurance in Florida, the entity must obtain...
Definition
Certificate of Authority
Term
Florida Life and Health Guaranty Association's limit of liability for an insolvent insurer
Definition
$100k in cash values
$300k for all benefits including cash values
Term
contract
Definition
an agreement enforceable by law
Term
4 elements of a contract
Definition
1. offer and acceptance
2. consideration
3. legal purpose
4. competent parties
Term
Insurance contracts are ALEATORY. This means 2 things:
Definition
1. There is an element of chance for both parties
2. The dollar values exchanged may not be equal
Term
the opposite of an aleatory contract is...
Definition
a commutative contract
Term
A commutative contract means...
Definition
1. there is no element of chance
2. dollar value being exchanged is equal
Term
insurance contracts are contracts of ADHESION. This means...
Definition
one party prepared the contract, and the other party agrees to adhere to it (there was no negotiation to come up with the terms)
Term
insurance contracts are unilateral, which means that...
Definition
only one party (the insurer) makes any kind of enforceable promise
Term
Is life insurance a PERSONAL contract between the insurer and the insured?
Definition
No - the policy owner can give it away (assign it)
Term
Is an insurance contract CONDITIONAL?
Definition
Yes - a certain event must take place in order for the benefit to be paid
Term
a VALUED contract pays...
Definition
a stated sum, regardless of the actual loss incurred
Term
an INDEMNITY contract pays...
Definition
an amount equal to the loss (up to the limit of the contract) - it attempts to restore the insured to the original financial position.
Term
Insurable interest must exist when?
Definition
At the time the policy is purchased (but it does not have to exist at the time of a claim)
Term
agents and brokers are both considered
Definition
Insurance producers
Term
brokers represent...
Definition
insureds
Term
agents represent...
Definition
insurers
Term
The acts of the agents are considered...
Definition
the acts of the company
Term
3 types of authority given by the insurer to the agent
Definition
1. Express authority
2. Implied authority
3. Apparent authority
Term
waiver
Definition
the voluntary surrendering of a legal, given right
Term
estoppel
Definition
legal enforcement of a waiver
Term
The PAROL EVIDENCE RULE prohibits...
Definition
making any additional verbal changes to a contract once it becomes a written document
Term
A VOID CONTRACT is one that is...
Definition
not enforceable by law
Term
With life insurance policies, insurers have typically how much time from the date of the contract to dispute the validity of the contract?
Definition
2 years
Term
3 types of life insurance
Definition
1. Ordinary
2. Industrial
3. Group
Term
What type of insurance has NO cash values?
Definition
Term insurance
Term
Endowment policy
Definition
Stipulates a certain time when the policy matures. If the insured is still alive at that time, he would receive the benefit amount. Otherwise the death benefit goes to the beneficiary.
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