Term
| What are the four elements of an insurance contract? |
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Definition
- Agreement (offer by the applicant when submitting an application and acceptance by the underwriter who approves the application and issues the policy)
- Consideration (premium from the insured and the promise to pay by the insurer in the event of a loss)
- Competent parties (legal age, mentally compentent, not under the influence of drugs or alcohol)
- Legal purpose (purpose for the contract must be legal and not against public policy)
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Term
| What are five characteristics of an insurance contract? |
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Definition
- Adhesion
- Aleatory
- Personal
- Unilateral
- Conditional
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Term
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Definition
| Contract prepared by the insurer and is either accepted or rejected by the insured. Insurance contracts are offered on a "take-it-or-leave-it" basis. |
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Term
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Definition
| Insurance contracts are aleatory which means there is an exchange of unequal amounts or values. The premium paid by the insured is small in relation to the amount that will be paid by insurer in the event of a loss. |
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Term
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Definition
| An insurance contract is personal because it is between the insurance company and an individual. |
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Term
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Definition
| Only one of the parties to the contract is legally bound to do anything. The insured makes no legally binding promises. However, the insurer is legally bound to pay losses covered by an in-force policy. |
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Term
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Definition
| Requires that certain conditions must be met by the policyowner and the company in order for the contract to be executed and before each party fulfills its obligations. Example: The insured must pay the premium and provide proof of loss in order for the insurer to cover the claim. |
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Term
| How does the court rule when an insurance contract has an ambiguious clause? |
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Definition
| The court rules in favor of the insured. |
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Term
| Indemnity (Reimbursement) |
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Definition
| In the event of a loss, the insured or a beneficiary is permitted to collect only to the extent of the financial loss and is not allowed to gain financially. The purpose of insurance is to restore, but not let an insured or a beneficiary profit from the loss. |
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Term
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Definition
| Implies that there will be no fraud, misrepresentation, or concealment between the parties. |
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Term
| Representation versus Misrepresentation |
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Definition
- In representation -- the statement is believed to be true to the best of one's knowledge, but they are not guaranteed to be true.
- In misrepresentation -- the statement is untrue and could void the contract.
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Term
| Material misrepresentation |
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Definition
- A statement that, if discovered, would alter the underwriting decision of the insurance company.
- If the material misrepresentation was intentional, this would be considered fraud.
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Term
| Warranty and Breach of Warranty |
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Definition
- A warranty is an absolutely true statement upon which the validity of the insurance policy depends.
- A breach of warranty can be considered grounds for voiding the policy or a return of premium.
- An example of a breach would be if you accepted a premium reduction by saying you had a smoke detector, but the house burnt down because there wasn't one.
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Term
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Definition
| A legal term for the intentional withholding of information of a material fact that is crucial in making a decision. |
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Term
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Definition
| A voluntary act of giving up a legal right, claim, or privilege. |
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Term
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Definition
| A legal process that can be used to prevent a party in a contract from re-asserting a right or privilege after that right or privilege has be waived. |
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Term
| How does representation differ from a warranty? |
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Definition
- A representation is a statement believed to be true to the best of one's knowledge.
- A warranty is an absolutely true statement.
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Term
| Punishment for insurance fraud |
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Definition
- Can be fined
- Can be imprisoned for up to 15 years
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Term
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Definition
| A person convicted of a crime involving dishonesty, breach of trust, or a violation of the Violent Crime Control and Law Enforcement Act of 1994 must receive writtent consent from the Director or Commissioner of Insurance in order to work in the business of insurance affecting interstate commerce. The written consent is a Form 1033 Waiver. |
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Term
| Penalty for violating Section 1033 |
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Definition
| Fines up to $50K for each violation or the amount of compensation the person received as a result of the prohibited conduct; whichever is greater. |
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Term
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Definition
| Temporary agreement issued by an agent or insurer providing temporary coverage until a policy can be issued. Usually in writing, but may be oral. |
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Term
| Expiration date of a binder |
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Definition
- Binders expire when the policy is issued.
- If the insured declines the policy, the binder expires on the date after the receipt of the notice of cancellation.
- The policy effective date would be the same date when the binder was issued.
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Term
| Components of a Property/Casualty policy |
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Definition
- Declarations page
- Definitions
- Insuring Agreement
- Additional coverages
- Conditions
- Endorsements
- Exclusions and policy limits
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Term
| What can be found on the declarations page? |
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Definition
- Insured's name
- Insured's address
- Amount of coverage
- Premiums
- Description of the insured's locations
- Any supplemental representations
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Term
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Definition
The section of the policy that contains:
- the insurer's promise to pay
- the parties to the contract
- the effective and renewal dates
- the description of coverage provided
- the perils
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Term
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Definition
| Ensures that if the insurer introduces an improved free coverage, the insured will get the benefit of the new coverage immediately and will not need to wait until the policy renews. |
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Term
| What is the function of the Underwriter? |
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Definition
- Evaluates the application
- Determines whether a policy should be issued
- If the policy is issued, the terms, conditions and rates for that policy
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Term
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Definition
| Amount charged for a particular amount of coverage. |
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Term
| Class Rating (aka Manual Rating) |
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Definition
- The practice of computing a price per unit of insurance that applies to all applicants possessing a given set of characteristics.
- It permits the insurer to apply a single rate to a large number of insured.
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Term
| What are the five individual basic rates? |
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Definition
- Judgement rating
- Schedule rating
- Eperience rating
- Retrospective rating
- Merit rating
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Term
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Definition
| Used when credible statistics are not there or when the exposure units are so varied that it is impossible to construct a class. Generally used in Ocean Marine insurance. |
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Term
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Definition
| These are rates developed by applying a schedule of charges and credits to some base rate to determine the appropriate rate for an individual exposure. |
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Term
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Definition
| Uses the insured's own past loss experience determines the final premium. Used in WC or health insurance. |
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Term
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Definition
- A self–rating plan where the actual losses during the policy period determines the final premium.
- There is a minimum and maximum premium amount.
- A deposit premium is required at the inception of the policy.
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Term
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Definition
| The insured's premium is based NOT on the actual loss record, but on other factors that indicate the PROBABILITY that a loss will occur. Commonly used in auto insurance. |
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Term
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Definition
- A loss cost is the portion of the rate component covering only losses and the costs associated with settling losses.
- Each company must determine their own expense provisions and include provisions for underwriting profit and contingencies.
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Term
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Definition
- The section of an insurance policy that clarifies the terms used in a policy.
- The words that are printed in bold, italics, or quotations have a defintion as to their meaning in that contract.
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Term
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Definition
Section of the insurance policy that indicates the general rules or procedures that the insurer and insured agree to follow under the terms of the policy such as:
- Inspections
- Changes to the policy
- Liberalization clause
- Return of premium
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Term
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Definition
| Printed addendums to a contract that are used to change the policy's original terms, conditions or coverages. They may be included at the time the policy is issued or added during the policy term. |
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Term
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Definition
| Section of the insurance policy that details the perils that are not insured against and what persons are not insured. |
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Term
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Definition
| A principle that states that the larger the number of similar exposure units, the more closely the losses reported will equal the probability of loss. |
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Term
| Fair Credit Reporting Act |
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Definition
| Issued by the Federal Trade Commission to protect consumers against the circulation of inaccurate or obsolete information and to ensure that the consumer is treated fairly. |
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Term
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Definition
Defines the relationship between the principal and the agent/producer. In this relationship
- an agent represents the insurer, not the insured
- any knowledge of the agent is presumed to be the knowledge of the insurer
- if the agent works within the conditions of his/her contract, the insurer is fully responsible
- when the insured submits payment to the agent, it is the same as submitting payment to the insurer
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Term
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Definition
| The insurer in relationship between the insurer and the agent/producer. |
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Term
| What are the three authorities/powers of producers |
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Definition
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Term
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Definition
| The authority a principal intends to grant to an agent by means of an agency contract. |
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Term
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Definition
| Authority that is not expressed or written into the contract but which the agent is assumed to have in order to transact business of insurance for the principal |
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Term
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Definition
| The appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstance the principal created. Example: The insurer gives the agent a rate book, application forms, and sales literature, the insurer cannot later deny that such a relationship existed. |
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Term
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Definition
Describes the way companies and producers should conduct their business. It is a type of Code of Conduct for producers. Example:
Conflict of interest
a request of a gift or loan as a condition to complete business
supplying confidential information
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Term
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Definition
| A producer that is not appointed by an insurance company but is deemed to be a legal representative of the client. Brokers do not have an agency agreement with any company; therefore, their words and actions are not legally binding to the company, |
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Term
| What is the Inflation Guard endorsement? |
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Definition
| Used to maintain insurance to value requirements for replacement cost coverage. Coverage automatically increases by a selected percentage on dwellings. Not needed on ACV policies. |
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Term
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Definition
| If an agent implies through advertising, sales literature or statements that there is coverage, the insured can expect there is coverage. |
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Term
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Definition
| A provision in the insurance policy that states that in the event of loss, the insured is permitted to collect only to the extent of the financial loss and is not allowed to gain financially. |
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Term
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Definition
| Describes a loss caused by continual exposure to a condition |
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Term
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Definition
| Transfers the risk of loss from an individual or business entity to an insurance company. The insurance company in turn spreads the costs of unexpected losses to many individuals. |
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Term
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Definition
| A planned assumption of risk by an insured through the use of deductibles, co–payments, or self–insurance. |
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Term
| Purpose of risk retention |
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Definition
| 1. To reduce expense and improve cash flow 2. To increasse control of claim reserves and claim settlements; 3. To fund for losses that cannot be insured. |
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Term
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Definition
| To lessen the possibility of risk such as installing smoke detectors. |
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Term
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Definition
| Most effective way to handle risk is to transfer it so that the loss is taken on by another party. Insurance is the most common way to transfer risk. |
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Term
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Definition
| Insuring of risks that are more prone to losses than the average risk. Insurance companies work hard to protect themselves from adverse selection. |
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Term
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Definition
| Single property insurance policy that provides coverage for multiple classes of property at one location. All properties are written for one total amount of insurance |
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Term
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Definition
| Property insurance policy that covers a specific kind or unit of property for a specific amount of insurance. |
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Term
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Definition
| The insurer's liability for payment as stated in the insurance policy. |
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Term
| Per occurrence (accident) |
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Definition
| A sublimit in a liability policy that puts a ceiling on the payment for all claims that arise from a single accident/occurrence. |
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Term
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Definition
| Sudden, unplanned an unexpected event, not under the control of the insured, resulting in injury or damage that is neither expected nor intended. |
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Term
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Definition
| An accident that includes losses caused by continuous or repeated exposure to conditions resulting in injury to persons or damage to property that is neither intended nor expected. |
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Term
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Definition
| Direct, physical damage to buildings or personal property (Property insurance only.) |
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Term
| Indirect Loss (Consequential Loss) |
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Definition
| Losses that are a result of a direct loss (Property insurance only.) The most common type of indirect loss is extra living expense for homeowners while their home is being repaired or loss of profits a business may suffer because of having to close their business until damages are repaired. |
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Term
| Countersignature requirements |
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Definition
| Most states have laws requiring policies sold by nonresident agents also be signed by a licensed resident agent. |
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