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LM Chapter 4

The Insurance Transaction

QuestionAnswer
This provides temporary coverage while the application is being processed. Binder
This act protects consumers by requiring that the consumer be notified in certain situations and by establishing provisions for the removal of outdated and incorrect information. Fair Credit Reporting Act
Responsible for protecting the insurer against advers selection. Underwriters
The tendency for people wiht a greater than average exposer to loss to purchase insurance. Adverse selection
3 ways in which a premium can be computed. Judgement rating, Manual rating, Merit rating
The premium is determined by considering the individual risk. No books or tables are used; premiums are established through careful judgement. Judgement Rating
The most common method of premium determination that are obtained by consulting a manual, which is usually stored on a computer. Manual or Class rating
Starts with class or manual rates, which are then modified to reflect the unique characteristics of the risk that are not reflected in the manual rate. Merit rating
A form of merit rating that modifies the manual premium on the basis of the insured's loss experience. Experience rating
Bases the insured's premium on losses incurred during the policy period. Retrospective rating
Applies a system of debits or credits to reflect characteristics of a particular insured. Schedule rating
Contains a general summary of the policy's coverage and is frequently required in loan transactions and other legal matters. Certificate of Insurance
Written or verbal misstatement of a material fact involved in the contract on which the insurer relies. Misrepresentation
Similar to misrepresentation except that it involves withholding, rather than misstating a material fact. Concealment
A deliberate misrepresentation that causes harm Fraud
4 Elements of fraud. Someone deliberately lies. The intent of the lie is for someone to rely on that lie. Another person relies on the lie. The other person suffers harm as a result of relying on the lie.
Statements in the application for insurance that the applicant believes to be true. Representations
Specific agreements made between the insured and the insurer that certain conditions will be met. Warranties
The intentional relinquishment of a known right. Waiver
Creating an impression that a certain fact exists when it does not and an innocent party relies on that impression and is damaged as a result of the fact. Estoppel
The time between the effective date and the expiration date. Policy period or Term
Any premium not yet used during the policy period. Unearned premium
When the insured cancels before the expireation date and the company not only keeps the premium for insurance already provided but also keeps any allowance for expenses such as issuing the policy. Short Rate Basis
Means that company retains only the erned premium and is not permitted to keep an extra amount for expenses. Pro Rata Basis
When a policy is cancelled on the effective date. Flat cancellation
Created by: landonhill