life insurance

the 5 types of marketing?

independent agency system/american agency system, exclusive agency system/captive agents, general agency system, managerial system, and direct response marketing system

physical hazards

individual characteristics that increase the chances of the cause of loss. Physical hazards exist because of a physical condition, past medical history, or a condition at birth, such as blindness.

what do insurance companies do to protect themselves from adverse selection?

insurance companies have an option to refuse or restrict coverage for bad risks, or charge them a higher rate for insurance coverage.

unauthorized or nonadmitted insurer

insurers hwo have not been approved to do business in the state.

authorized or admitted insurer

insurers who meet the state's financial requirements and are approved to transact business in the state legally.

moral hazards

tendencies towards increased risk. Moral hazards involve evaluating the character and reputation of the proposed insured. Moral hazards refer to those applicants who may lie on an application for insurance, or in the past, have submitted fraudulent claims against an insurer.

apparent authority

the appearance or the assumption of authority based on the actions, word, or deeds of the principal or because of circumstances the principal created.

reduction

the attempt to lessen th possibility or svereity of a loss. ex: such as installing smoke detectors in our homes, having an annual physical to detect health problems early, or perhaps making a change in our lifestyles.

express authority

the authority a principal intends to grant to an agent by means of the agent's contract. It is the authority that is written in the contract.

perils

the causes of loss insured against in an insurance policy. ex: life insurance insures against the financial loss caused by the premature death of the insured, health insurance insures against the medical expenses/loss of income daused by the insured's sickness or accidental injury, property insurance, insures against the loss of physical property or the loss of its income-producing abilities, and casualty insurance insures against the loss/damage fo property and resulting liabilities.

what is the major difference between government and private insurance?

the government programs are funded with taxes and serve national and state socail purposes, while private policies are funded by premiums.

adverse selection

the insuring of risks that are more prone to losses than the average risk. Poorer risks tend to seek insurance or file claims to a greater extent that better risks.

The law of large #s

the larger the number of people with a similar exposure to loss, the more predictable actual losses will be. This law forms the basis for statistical prediction of loss upon which insurance rates are calculated.

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. Though the purchasing of insurance will not eliminate the risk of death or illness, it relieves the insured of the financial losses these risks bring.

speculative risk

the opportunity for either loss or gain. An example of speculative risk is gambling. These types of risks are not insurable.

ceding insurer

the originating company that procures insurance on itself from another insurer (because it cedes, or gives, the risk to the reinsurer).

What is the consideration on the part of the insured?

the payment of premium and the representations made in the application

risk retention

the planned assumption of risk by an insured through the use of deductibles, co-payments, or self-insurance. It is also known as self insurance when the insured accepts the responsibility for the loss before the insurance company pays.

What is the consideration on the part of the insurer?

the promise to pay in the event of loss

loss

the reduction, decrease, or disappearance of value of the person or property, insured in a policy, caused by a named peril

risk

the uncertainty or chance of loss occurring.

What are the 3 purposes of risk retention?

to reduce expenses and improve cash flow, to increase control of claim reserving and claims settlements, and to fund for losses that cannot be insured.

when are dividends generated?

when the premiums and the earnings combined exceed the actual costs of providing coverage, creating a surplus. Dividends are not guaranteed.

offer and acceptance

when there is a definite offer by one party, and the other party must accept this offer in its exact terms.

the five independent rating services that publish the financial status of an insurance company?

AM Best, Fitch, Standard and Poor's, Moody's, and Weiss.

what requirements make a party capable/competent to enter into a contract?

Legal age, mentally competent to understand the contract, and not under the influrence of drugs or alcohol

randomly selected and large loss exposure

There must be a sufficiently large pool of the insured that repressents a random selection of risks in terms of age, gender, occupation, heath and economic status, and geographical location.

mutual company

a company owned by the poicy woners and issue participating policies.

contract of adhesion

a contract prepared by one of the parties(insurer) and accepted or rejected by the other party(insured). FYI: insurance policies are offered on a take it or leave it basis.

reinsurance

a contract under which on insurance company(the reinsurer) indemnifies another insurance company for part or all of its liabilites.

certificate of authority

a document that authorizes a company to start conducting busiiness and specifies the kind of insurance a company can transact. It is illegal for an insurance company to transact insurance without this certificate.

Lloyd's associations

a group of individuals who operate an insurance mechanism using the same principles of individual liability of insurers that Lloyd's of London uses, in that each individual underwriter assumes a part of each risk. Each individual promises to pay a specified amount in the event that the contingency insured against occurs. Members are liable only for their poertion of the risk and are not bound to assume any protion of a defaulting member.

law of agency

a law that defines the relaionship between the principal and the agent/producer: the acts of the agent/producer within the scope of authority are deemed to be the acts of the insurer.

due to chance

a loss that is outside of the insured's control.

definate and measurable

a loss that is specific as to the cause, time, place, and amount. An insurer must be able to determine how much the benefit will be and when it becomes payable.

sharing

a method of dealing with risk for a group of individual persons or businesses with the same or similar exposure to loss to share the losses that occur within that group. A reciprocal insurance exchange is a formal risk-sharing arrangement.

nonparticipating policy

a policy in which policyowners do not share in profits or losses and does not pay dividends to policyowners; however taxable dividends are paid to stock holders.

exposure

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

what are the 5 methods of handling risk?

avoidance, retention, sharing reduction, and transfer

what factors are considered in life insurance for determining rates?

age, medical history, occupation, and gender

what 4 essential elements must an insurance contract have to be legally binding?

agreement(offer and acceptance), consideration, competent parties, and legal purpose.

according to the law of agency, what is assumed about the relationship between the agent and insurer?

an agent represents the insurer, not the insured, any knowledge of the agent is presumed to be knowledge of the insurer, if the agent is working within the conditions of his/her contract, the insurer is fully responsible, and when the insured submits payment to the agent, it is the same as submitting a payment to the insurer

not catastrophic

an element of insurable risk where the Insurers need to be reasonably certain their losses will not exceed specific limits. That is why insurance policies usually exclude coverage for losss caused by war or nuclear events: There is no statistical data that allows for the development of rates that would be necessary to cover losses from events of this nature.

statistically predictable

an element of insurable risk where the insurers must be able to estimate the average frequency and severity of future losses and set appropriate premium rates. (in life and health insurance, the use of mortality tables and morbidity tables allows the insurer to project losses based on statistics.)

aleatory

an exchange of unequal amounts or values

agent/producer

an individual licensed to sell, solicit, or negotiate insurance contracts on behalf of the principal (insurer).

foreign insurer

an insurance company tha is incorporated in another state or territorial possesion

domestic insurer

an insurance company that is incorporated in this state.

alien insurer

an insurance company that is incorporated outside the United States.

captive insurer

an insurer organized and owned by a corporation or firm to serve the parent organization's insurance needs at lower rates than other insurers and without the uncertainties of commercial insurance.

a fraternal benefit society

an organization formed to provide insurance benefits for members of an affiliated lodge, religious organization, or fraternal organization with a representative form of government.

implied authority

authority that is not expressed or written into the contract, but which the agent is assumed to have in order to transact the business of insurance for the principal.

stock company

company owned by the stockholders who provide the capital necessary to establish and operate the insurnance company and who share in any profits or losses. Officers are elected by the stockholders and manage.

hazards

conditions or situations that increase the probability of an insured loss occurring. Hazards are classified as physical hazards, moral hazards, or morale hazards. Conditions such as lifestyle and existing health, or activities such as scuba diving are hazards and may increase the chance of a loss occurring.

consideration

consideration is something of value that each party gives to the other.

what 5 elements must an insurable risk involve?

due to chance, definate and measurable, statistically predictable, not catastrophic, and randomly selected and large loss exposure.

avoidance

eliminating exposure to a loss. ex: if a person wanted to avoid the risk of being killed in an airplane crash, he/she might choose never to fly in an airplane.

what are the three types of agent authority?

express, implied, and apparent

what are the 5 ways private insurance companies can be classified?

ownership, authority to transact business, location(domicile), marketing and distribution systems, and rating (financial strength).

what are the 3 types of hazards?

physical, moral and morale

another name for assuming insurer?

reinsurer

what is the basis of insurance?

sharing risk amohng a large pool of people witha similar exposure to loss (a homogeneous group)

morale hazards

similar to moral hazard, except that they arise from a state of mind that causes indifference to loss, such as carelessness. Actions taken without forethought may cause physical injuries. (I'm not going to spend my $ on a flu shot if I get sick my insurance will pay for my care.)

pure risk

situations that can only result in a loss or no change. There is no opportunity for financial gain. Pure risk is the only type insurance companies are willing to accept.

fiduciary

someone in a position of trust