California-Primerica Chapter 1

A contract whereby one party (insurer) agrees to indemnify or guarantee another party (insured) against loss by a specified future contingency or peril in return for payment of a premium

SS1. What is insurance?

The face value/amount or death benefit of an individual life insurance policy

SS10. Define the term "limit of Liability"

The uncertainty or chance of a loss occurring. *Pure risk-only resulting in a loss or no change *Speculative risk- opportunity for either loss or gain

SS2. What is risk?

To restore the the insured to the same condition as prior to loss with no intent of loss of gain. AKA reimbursement

SS6. What does indemnify mean?

1. The policyowner's life 2. The life of a family member 3. The life of a business partner, key employee, or someone who has a financial obligation to the policyowner (such as a debtor to a creditor)

SS7. What are some common personal uses of life insurance?

The predicted needs of a family after the premature death of the insured; income, amt of debt (i.e. mortgages), investments, and ongoing expenses

SS8. What is the needs approach to determining amounts of life insurance based upon?

In the event of a premature death of a key employee, or someone who has specialized knowledge, skills or business contacts

SS9. What is the purpose of key person insurance?

PQ5. Based on Human Life Value approach, which of the following is used to calculate an insured's life value?

Wages, inflation, the number of years to retirement, and the time value of money

T4. Insurance Policy

a contract between a policyowner (and/or insured) and an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events

T1. Agent/Producer

a legal representative of an insurance company; the classification of Producer usually includes agents and brokers; agents are the agents of the insurer

Sharing

a method of dealing with risk for a group of individual persons or businesses with the same or similar exposure to loss to sharing that occur within that group

T11. Reciprocity/Reciprocal

a mutual interchange of rights and privileges

T2. Applicant or proposed insured

a person applying for insurance

T8. Mortality table

a table showing the probability of death at specified ages within a specified group

T3. Broker

an insurance producer not appointed by an insurer and is deemed to represent the client

Hazards

conditions or situations that increase the probability of an insured loss occurring

Physical hazards

individual characteristics that increase the chances of the cause of loss (i.e. physical condition, medical history, or condition at birth; blindness)

Adverse Selection

insuring risks that are more prone to losses than the average risk

Pure risk

only result in a loss or no change. There is no opportunity for financial gain. THE ONLY TYPE OF RISK THAT INSURANCE COMPANIES ARE WILLING TO ACCEPT

Speculative risk

opportunity for either loss or gain THESE TYPES OF RISKS ARE NOT INSURABLE

T7. Mortality

rate of death with a segment of the population

Morale hazards

similar to moral, except they arise from a state of mind that causes indifference to loss, such as carelessness. Actions taken without forethought may cause physical injuries

Moral hazards

tendencies towards increased risk (ex: lying on an application for insurance, or submitted fraudulent claims against an insurer)

T6. Insurer (principal)

the company who issues an insurance policy

T10. Premium

the money paid to the insurance company for the insurance policy

Transfer

the most effective way to handle risk, so that the loss is borne by another party. Insurance is the most common method of transferring risk from an individual or group to an insurance company.

T5. Insured

the person covered by the insurance policy. This person may or may not be the policyowner

T9. Policyowner

the person entitled to exercise the rights and privileges in the policy

Risk

the uncertainty or chance of a loss occurring. Two types: Pure and Speculative

Slide 1. Uses of Life Insurance:

1. Suvivor protection 2. Estate Creation 3. Estate Conservation 4. Cash Accumulation 5. Liquidity

Law of large numbers

A principle stating that the larger the number of similar exposure units considered, the more closely the losses reported will equal the underlying probability of loss

Exposure

A unit of measure used to determine rates charged for insurance coverage.

PQ6. All of the following are appropriate uses of business life insurance:

A. Compensating executives C. Covering the costs of training a replacement for a key employee D. Funding business continuation agreements

CQ8. Which of the following is a type of hazard

A. Physical B. Moral C. Morale

CQ5. Examples of retention:

A. Self-insurance C. Deductibles D. Copayments

CQ1. Risk in insurance terminology refers to

A. The uncertainty of financial loss

PQ4. The insurer must be able to rely on the statements in the application, and the insured must be able to rely on the insurer to pay valid claims. In the forming of an insurance contract, this is referred to as:

A. Utmost good faith

CQ3. When must insurable interest exist in life insurance?

B. Date of the application

CQ2. Conditions that increase the chances of an insured loss occurring are referred to as

B. Hazards

CQ9. Which of the following would be eligible for coverage under key person insurance?

B. The manager of a small store C. The pharmacist in a drug store D. The executive officer of a company

CQ7. Which provision states that if a policy allows for great greater compensation than the financial loss incurred, the insured may only receive benefits for the amount lost?

C. Indemnity

Perils

CAUSES of loss insured against in an insurance policy

CQ6. Which method of dealing with risk is applied when a person purchases insurance?

D. Transfer

CQ4. The insurer must be able to rely on the statements in the application, and the insured must be able to rely on the insurer to pay valid claims. In the forming of an insurance contract, this is referred to as

D. Utmost good faith

CQ10. Which of the following methods of calculating the amount of life insurance needed takes into account the insured's salary and years until retirement?

B. The human life value approach

Perils are the causes of loss insured against in an insurance policy

SS3. What is peril

*Due to chance *Definite and measurable *Statistically Predictable *Not catastrophic *Randomly selected/ large loss exposure

SS4. What are the elements of insurable risk?

Insurable interest must exist at the time of policy application of policy issue

SS5. In life insurance policy, when must insurable interest exist?