Life Insurance Unit 1 Terms Flashcards
Insurance
Transfers the risk
Risk
Uncertainty about whether a loss will occur
Speculative risks
Possibility of loss OR gain to occur, I.e. Gambling, Not Insurable
Pure Risks
Possibility of only loss to occur, I.e. Car Accident, Insurable
Loss
measurable reduction in value of an asset
Exposure
The risk assumed by an insurer, the amount to be paid
peril
Cause of Loss, Ie. Fire
Hazard
Increase of chance of a loss, I.e.
Physical Hazard
a physically identifiable hazard, I.e. Heart Condition
Moral Hazard
a character hazard I.e. Dishonesty on an application
Morale Hazard
a state of mind Hazard, I.e. leaving your car doors unlocked
STARR
Sharing, Transfer, Avoidance, Reduction, Retention
Sharing
two or more individuals agree to pay a portion of any loss incurred by ANYONE in the group
Transfer
portion of STARR that involves purchasing insurance
Avoidance
eliminating a risk by not engaging in a certain activity
Reduction
taking steps to reduce risk that may occur
Retention
Paying the bill yourself in case of a loss
Law of Large Numbers
more people=more accurate loss can be predicted
CANHAM
Calculable, Affordable, Non-Catastrophic, Homogenous, Accidental, Measurable
Calculable
premiums must be calculable based upon prior statistics
Affordable
the cost of transferring the risk should be affordable for the average customer
Non-Catastrophic
not cause drastic loss to the company based on geographical location I.e. Hurricanes
Accidental
Must have risk, can not be a purposeful act
Measurable
ability to estimate the loss in a dollar amount
Reinsurance
insurance for the insurance company
Ceding Insurer
Company reducing the risk from the original insurer, company A
reinsurer
Company assuming a portion of the risk, Company B
facultative Reinsurance
Considering and picking and choosing which risks to reinsure
Treaty Reinsurance
Accepting ALL risks to reinsure
Stock Insurer
Non-Par policies owned by stock holders run by a board of directors, legal reserve companies
Mutual Insurers
Par Policies, owned by its policy holders run by a board of directors, legal reserve companies
Fraternal Benefit Societies
Certificate holders who purchase insurance based on a lodge system. sometimes the receive income tax advantages, run with an open contract
Reciprocal Insurer
Unincorporated groups of people that agree to insure each others losses under a contract, members are known as subscribers, HANDLED BY AN ATTORNEY-IN-FACT.
Risk Retention Groups-RRG
Liability insurance company created for policyholders from the same industry. I.e. Car Dealers RRG
Lloyd's Asscoiations
Famous Underwriting group that is not an insurance company, insure strange things such as Tina Turners legs
Self-Insurance
Retaining Risk, rather than transferring risk. Pays its own claims
Residual Market
Federal or state government
Domestic Insurers
Class of insurance that is within the state, I.e. Gerber Life in New York
Foreign Insurers
Class of insurance that is within the country or territories, I.e. Gerber Life in Michigan
Alien Insurers
Class of insurance that is outside the home country, I.e. Gerber Life in Canada
Certificate of Authority
License to sell regular insurance
Authorized
Approved to sell insurance
Non-Admitted
not approved to sell insurance
Surplus Lines Insurance
Non admitted legal sale of insurance
Financial Ratings of Insurers
Report card for insurance companies
Agency Systems
Selling through Agents
Captive Agents
Represent one company
General Agents
Hire, Train and Supervise other agents within a geographical area
Direct Writing Companies
Salary paid employees not paid comission
Direct Response Companies
Add running companies that do not have agents
Law of Agency
Insurance agent acts of behalf of the principal
Expressed Authority
Written authority
Implied Authority
Authority that is Not written but assumed
Apparent Authority
Authority that is believed
Fiduciary
Person in position of financial Trust
Commingling
mixing personal and business funds
Suitability Considerations
Purchases made on behalf of the insured that makes suitable sense
CLOAC
Consideration, Legal Purpose, Offer, Acceptance, Competent Parties
Adhesion
An binding contract
Aleatory Contact
an unequal contract
Utmost Good Faith
each party is entitled to a reasonable expectation
Unilateral
one sided contract
Conditional
Insured must pay for the premium for coverage and file a claim if a loss occurs
Indeminty
Restoring money not making money
Representation
Believed to be true
Misrepresentation
Not 100% correct, but it wont make a difference
Material Misrepresentation
Information that is not true and can affect the decision
Warranty
guaranteed to be true
Concealment
Failure to disclose
Fraud
Intention to cheat
Waiver
Voluntarily giving up rights
Estoppel
Keeps a waiver in place so that a party can not be denied do to previous agreements