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Insurance Principles

TN Accident & Health (Insurance Principals)

TermDefinition
Risk The chance of loss.
Pure Risk & Speculative Risk What are the 2 types of risk?
Speculative Risk What type of risk can result in loss OR gain? (i.e. gambling or investing in the stock market)
Pure Risk What type of risk involves on the chance of a loss, and no gain, to the person assuming the risk? (i.e. beyond the individual's control)
Loss An unplanned LOSS reduction in economic value.
Exposure The state of being subject to a possible loss.
Peril The event that insurance protects against. (i.e. death, disability, accidental injuries and sickness)
The fire If a building burns down to the ground, what is the peril?
Hazard A condition that raises the chance of encountering a peril or increases the severity of a loss. (i.e. potholes along a busy highway, cigarette smoking, poor diet, excessive alcohol consumption)
Moral, Morale, and Physical What are the 3 types of hazards?
Moral Hazard An individual's traits or habits that increase the chance of a loss. (i.e. alcoholism, smoking, drug addiction)
Morale Hazard Individual tendencies that arise from a state of mind, attitude, or indifference to loss. (doing anything "recklessly" because "I have insurance for that")
Physical Hazard Individual physical characteristics that increase the chance of loss. (i.e high cholesterol)
1. Avoiding the risk 2. Reducing the risk 3. Retaining the risk 4. Sharing the risk 5. Transferring the risk What are the 5 Risk Management techniques?
Risk Avoidance Avoiding the risk is called?
Risk Reduction Reducing the risk is called?
Risk Retention The acceptance of risk and dealing with it through the use of of personal funds if a loss occurs.
Risk Sharing people who share a common risk band together and promise to "chip in" and compensate a member of the group.
Risk Transfer Transferring the loss to a 3rd party.
1. Loss must be definable 2. Loss must be measurable 3. Must be accidental or outside the insured's control 4. Part of a large group of similar risks 5. Must NOT be catastrophic 6. Not be one of the company's stated conclusions To be insurable, a Pure Risk must conform to what certain requirements?
Law of Large Numbers A statistically accurate way to "PREDICT" future losses.
Actuaries Using the law of large numbers and risk data, insurance company mathematicians "DETERMINE" the likelihood of death (mortality) or serious illness (morbidity) for males and females at any given age.
Adverse Selection To select against (The tendency of persons at greater risk of loss to seek out insurance)
State Level Insurance is regulated primarily at what level?
Insurance Commissioner The state's insurance head is generally known as...
Fair Credit Reporting Act What does FCRA stand for?
Employee Retirement Income Security Act What does ERISA stand for?
Consolidated Budget Reconciliation Act What does COBRA stand for?
Health Insurance Portability and Accountability Act What does HIPAA stand for?
Patient Protection and Affordable Care Act (Obama Care) What does PPACA stand for?
National Association of Insurance Commissioners What does NAIC stand for? (represents the insurance department of every state)
National Conference of Insurance Legislators What does NCOIL stand for? (Comprised of state legislators from every state)
Financial Industry Regulatory Authority What does FINRA stand for? (A private corporation that acts as a self- regulatory organization overseeing the business of securities brokerage firms and exchange markets.)
Stock Companies Insurance companies owned by stock holders... (Stock dividends are generally taxable to the stock holder)
Mutual Companies Insurance companies owned by policy owners... (Not taxable)
Demutualization When mutual insurance companies transform themselves into stock insurance companies.
Mutualization When stock insurance company transform into mutual insurance companies.
Fraternal Benefit Society An organization of people who share a common ethic, religious, or vocational affiliation. (operate on a lodge system exists solely for the benefit of their members. Non Profit i.e fraternities & sororities)
Home Service Companies Traditionally called "DEBIT COMPANIES"... (Can be either stock or mutual company, they are a DISTRIBUTOR OF Industrial Life Insurance)
Industrial Life Traditionally offered as "Burial Insurance". Offers individual coverage in small face amounts. Usually less than 10,000. (i.e. insurance agent meets the policy owner at home)
Ordinary Life Life Insurance issued in face amounts greater than 25,000.
Lloyd's Associations An association of individuals and companies that band together to underwrite "UNIQUE" insurance risks.
Surplus (Excess) Lines Insurance A market for insurance not available from any admitted company within a state.
Primary Insurer (Ceding company) The insurer SEEKING TO TRANSFER some of its risk
Insurer Accepting The Risk (Reinsurance company) The insurer ACCEPTING some of the risk that is being transferred
Exposure Units The basis for each applicant's premium.
Underwriters Who uses the application, agent's report, and other data to determine if an applicant is uninsurable?
Mortality Tables Tables used in determining life insurance premiums....
Morbidity Tables Tables used in determining health insurance premiums....
Commercial Insurance Companies STOCK insurance companies & MUTUAL insurance companies are 2 of the largest....
Reciprocal Insurance Exchange An unincorporated group of individuals (called subscribers), working together through an attorney-in-fact, who each agree to to pay a "Pro Rata" share of any loss suffered by any other member. (a formal risk-sharing arrangement)
Self Insurers Refers to a large company that is willing and financially able to retain certain risks and to pay for losses that arise from those risks. (A form of risk retention)
Risk Retention Group An insurance company that provides self-insurance services to OWNER-members. The members all have a business, occupation, or professional relationship with one another.
Risk Purchasing Group A group of persons or entities with similar risks who form an organization for the purpose of buying insurance on a group basis.
Reinsurance The ceding company pays a premium to the reinsurer for its coverage. When a reinsured loss occurs, the reinsurer indemnifies the ceding company for its share of the claim. When a claim is paid, it is paid entirely by the ceding company that issued the pol
Federal Government Insurance Programs Social Security Insurance, Medicare, and Medicaid
State Government Insurance Programs Workers Compensation, Unemployment Insurance, State-Run Medical Insurance Plans
Certificate Of Authority Allows the company to transact insurance within the state. (An insurer must be separately admitted in every state in which it transacts business)
Non-Admitted Insurer One that transacts business in a state for which it does not hold a certificate of authority.
Domestic Company Insurers doing business in the state in which they are domiciled/headquartered are classified as...
Foreign Company A company that does business in states other than the one it is domiciled in is classified as....
Alien Company A company that is incorporated in a country outside the United States and doing business in the United States is classified as...
Independent Rating Services 1.) A.M. Best 2.) Standard and Poor's 3.) Moody's 4.) Duff and Phelps
Career (or captive) Agency System This distribution system uses producers who primarily, if not exclusively, represent one insurer.
Managerial System The insurer employs sales representatives through regional offices, branches, or agencies. The agency head (called a general manager, GM) is an employee of the insurer. The insurer is responsible for agency expenses and staffing.
General Agency System The agency head is an independent contractor, (called a General Agent, or GA) who employs sales representatives. The contractor is responsible for agency expenses and staffing and is not an employee of the insurer.
Independent Agency System The agency is not affiliated with any single insurer and in fact represents multiple companies. Managers of independent agents, sometimes called personal producing general agents (PPGA's), are solely responsible for hiring and managing producers
Direct Response System Through mass market advertising such as mail, TV, Internet, or phone, insurers market and sell directly to consumers, without the use of sales representatives.
Producers Agents & Brokers are called.....
The Underwriting Division Responsible for EVALUATING the insurable risks and determining appropriate premium rates and coverages.
The Claims Division Receives reports of claims on policies, investigates them, determines how to respond to these reports, and decides whether to pay the claimant, reject the claim, or offer some other settlement.
The Actuarial Division Responsible for rating risks, determining appropriate cash reserves on claims, and CALCULATING dividends on participating life insurance policies.
Brokers Traditionally and legally been viewed as representing the applicant rather than the insurer...
Agents Legally considered representatives of the insurer that employs them.
A Principal (The party on whose behalf the agent acts) What is an Insurance Company also known as?
Agent (Producer) (A party who acts for another) Who represents the Principal?
Captive Agency System When the agent is employed by one insurance company.....
Independent Insurance Brokers When the BROKER represents multiple insurers...
Fiduciary (Trust) When one party handles money or other property on behalf of another.
1.) Express Authority 2.) Implied Authority 3.) Apparent Authority What are the 3 levels of Producer Authority?
Express Authority (Required) The contract between the producer and insurer sets forth certain acts and duties the producer is SPECIFICALLY AUTHORIZED to perform...
Implied Authority (Optional, Voluntary) Intended to be given by the insurer or not contractually provided or specifically explained....
Apparent Authority (Assume) The contract does not provide, the insurer does not intend, not welcomed by insurers...
Producer Responsibility 1.) Not engage in any form of rebating (refunding or offering to refund a portion of the premium or anything of value, in return for the applicant's purchase of a policy)2.)
The Buyers Guide Explains the general features, benefits, and conditions of the type of insurance being considered....
Policy Summary Provides detailed information about the specific policy being purchased...
Cost Indexes Use the factors of premiums and policy dividends to compare the relative costs of similar policies....
Life Insurance Cost Index Compares costs at a future date when the policy might be surrendered for cash value
Life Insurance Net Payment Cost Index Compares cost at a future date if premiums are continually paid and no cash value is withdrawn
Errors & Omissions Insurance (E&O) Protects from disputes and liability that may arise. Covers injuries and damages that occur due to professional services a producer rendered or failed to render. Real or alleged.
Insurance Company Who is the promisor? (The person making the promise)
Applicant Who is the promisee? (To whom the promise is made)
Applicant Who is the offeror?
Insurance Company Who is the offeree?
Offer, Acceptance, Consideration, Competent Parties, and Legal Purpose What are 5 Basic Elements of A Contract?
Policy What is the legal contract called?
Contract Involves a binding promise for which the law creates a duty of performance.
Offer The first step in the formation of a contract. Can be either verbal or written.Must include premium.
Consideration Anything of value that a party gives to another party. (i.e. the premium)
Legally Competent. (mentally sound, of legal age, and not under the influence of alcohol) For a contract to be valid, all parties must be....
Legal Purpose For a contract to be enforceable, it must serve a......
Legal Characteristics of Insurance Contracts Contracts of Adhesion, Aleatory, Personal, Unilateral, and Conditional are the.....
Contract of Adhesion In the case of an insurance contract, the insurer determines the terms and price. It is a "take it or leave it" proposition. (i.e. drafted by one party)....
Aleatory Contract In the case of an insurance contract, one party may receive a benefit that is entirely out of proportion to the consideration he or she is giving. (i.e. one party receives more benefit)
Personal Contract The agreement between 2 parties cannot be transferred to a 3rd party without the insurer's consent...
Unilateral Contract In the case of an insurance contract, when one party makes an enforceable promise...
Conditional Contracts The continuation of an insurance policy depends on certain actions of the policy owner....
Contract of Indemnity (Reimbursement) Benefit payable cannot be greater than the actual loss the contract owner incurs or the face amount of the policy, whichever is less. (i.e. Medical Expense policies)
Valued Contract (Stated Sum) The guaranteed payment of a stated sum regardless of the perceived "worth" of the insured. (i.e. Life Insurance policies)
Representation A statement made by an insurance applicant, that is "believed" to be true to the best of the makers knowledge, even though in fact it may not be true.
Warranty A statement made by an insurance applicant, that the maker "guarantees" to be true in all ways.
Concealment The deliberate withholding of material facts when applying for insurance....
Fraud Willful deception with the intent to gain something of value (an act of concealment or misrepresentation)...
Waiver When one party to a contract "KNOWINGLY" gives up a right that the party knows he or she holds.
Estoppel When a party gives up a right by it's actions whether it intended to or not.....
Created by: Tiphanie_Dyme