Chapter: General Insurance

Foreign

insurance company incorporated in another state

Not catastrophic

insurers need to be reasonably certain their losses will not exceed specific limits.

Speculative Risk

involves the opportunity for either loss or gain

reinsurance

is a contract under which one insurance company indemnifies another insurance company for part or all of its liabilities

estoppel

is a legal process that can be used to prevent a party to a contract from re-assessing a right or privilege after that right or privilege has been waived

indemnity

is a provision in an insurance policy that states that in the event of a loss, an insured or beneficiary is permitted to collect only to the extent of the financial loss

Adhesion

is prepared by the insurer and accepted or rejected by the other party (insured)

warranties

is the absolute true statement upon which the validity of the insurance policy depends

apparent authority

is the appearance or the assumption of the authority based on the actions, words, or deeds of the principal because of the circumstances created

Fraud

is the intentional misrepresentation or intentional concealment of a material fact used to induce another party to make or refrain from making a contract, or to deceive or cheat a party.

Exposure

Is a unit of measure used to determine rates charged for insurance coverage. All of the following factors are considered determining rates 1. age 2. medical history 3. occupation 4. sex

Fraternal benefit society

Is an organization formed to provide insurance benefits for members of an affiliated lodge, religious organization, with a representative form of governments

consideration

Is something of value that each person gives to the other

The loss may be intentional

Not all loses are insurable, and there are certain requirements that must be met before a risk is a proper subject for insurance. These requirements include all of the following except

concealment

is the legal term for the intentional withholding of information of a material fact that is crucial in making decisions

Exclusive agency/ Captive agents

1 agent represents 1 company, exclusive, commissions on personal sales, renewals can only be placed with the appointing insurer

Independent Agency/ American Agency

1 independent agent represents several companies, nonexclusive, commissions on personal sales, business renewal with any company

Homogeneous

A large number of units having the same or similar exposures to loss is known as...

commingling

A producer who fails to segregate premiums monies from his own personal funds is guilty of

Premiums

All of the following are examples of risk retention EXCEPT

Direct response marketing

An insurance company sells an insurance policy over the phone in response to a TV ad. Which of the following best describes this act?

concealment

An insured intentionally did not disclose a material fact on an application for insurance. This would be considered

Mutual companies

Are owned by the policy owners and issue participating policies

Peril

Are the causes of loss insured against in an insurance policy

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

Certificate of authority

Before insurers may transact business in a specific state, the must apply for a granted license or...

Avoidance

Eliminating exposures to a loss ex:Not flying on a plane

rescission

Failing to communicate info that the insurer needs, the insurer has the right to cancel the policy even if the failure to communicate is discovered after the policy has been issued

Social Insurance programs

Federal and state governments provide insurance in the areas where private insurance is not available

the uncertainty or chance of loss

For the purpose of insurance, risk is defined as

Larger

For the reported losses of an insured group to become more likely to equal the statistical probability of loss for that particular class, the insured group must become

the completed application is submitted

In insurance, an offer is usually made when

Alien

Insurance company outside of the United States

risk

Insurance is the transfer of

Statistically predictable

Insurers must be able to estimate the average frequency and severity of future losses and set appropriate premium rates

Authorized or admitted

Insurers who meet the state's requirements and are approved to do business in the state

Retention

Planned assumption of risk by an insured through the use of deductibles, co-payments, or self-insurance

Code of ethics

Producers must adhere to certain established procedures, and failure to comply will result in penalties

Pure risk

Refers to the situation that can only result in loss or no change. There is no opportunity for financial gain

express authority

The authority granted to an agent through the agents contract is referred to as

Transfer

The loss is borne by another party

premium

The money paid to the insurance company for the policy of insurance

Competent parties

The parties to a contract must be capable of entering into a contract in the eyes of the law. Legal age of 14 1/2 in NYS

Legal purpose

The purpose of the contract must be ________ and not against public policy

Loss

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

fiduciary responsibility

The requirement that agents not commingling insurance monies with their own funds is known as

avoidance

The risk management technique that is used to prevent a specific loss by not exposing oneself to that activity is called

unauthorized or non admitted

Those insurers who have not been approved to do business in the state

ownership

What is the major difference between a stock company and a mutual company?

Aleatory

Which of the following best describes the concept that the insured pays a small amount of premium for a large amount of risk on the part of the insurance company?

AM Best

Which of the following procedures evaluations of insurers' financial status often used by state departments of insurance?

Reduction

Would include actions such as installing smoking detectors in our homes. Actions that attempt to lessen the possibility of a loss

waiver

is the voluntary act of relinquishing a legal right, claim or privilege

Due to chance

a loss that is outside the insured's control

Definite and measurable

a loss that is specific as to the cause, time, place and amount

Contract

agreement between 2 people enforceable by law

Hazards

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

Stock companies

are owned by shareholders who provide the capital necessary to establish and operate the insurance company and who share in any profits or losses

representations

are statements believed to be true to the best of ones knowledge but they are not guaranteed to be true

personal contract

between the insurance company and the individual

Managerial system

branch manager, salaried, agents can be insurer's employees or independent contractors

Sharing

dealing with risk for a group of individual persons or businesses with the same or similar exposure to loss

the law of agency

defines the relationship between the principal and the agent: 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 the contract, the insurer is fully responsible, when the insured submits payment to the agency, it is the same as submitting a payment to the insurer

General agency system

general agent-entrepreneur represents 1 company, exclusive, compensation and commissions, appoints sub agents

utmost good faith

implies that there will be no fraud, misrepresentation, or concealment between the parties

Domestic

incorporated in this state

intentional

material is misrepresentations they are considered fraud

Direct response Marketing system

no agents, company advertises directly to consumers, consumers apply directly to the company

Unilateral contract

only one of the parties to contract is legally bound to do anything

Moral Hazards

refer to those applications that may lie on an application for insurance, or in the past, have submitted fraudulent claims against an insurer

Morale Hazard

refers to an increase in hazard presented by risk, arising from the insured's indifference to loss because of the existence of insurance (I'm not gonna bother to fix this, it breaks, insurance will pay)

considered true to the best of the applicants knowledge

representatives are written or oral statements made by the applicant that are

conditional contact

requires that certain conditions must be met by the policy owner and the company in order for the contract to be executed, and before each party fulfills its obligations.

Fiduciary responsibility

someone in a position of trust. It is illegal for insurance producers to commingle premiums collected from the applicants with their own personal funds

The law of large numbers

states that the larger the number of people with a similar exposure to loss, the more predictable the actual loss will be

offer and acceptance

the applicant usually makes the offer when submitting the application. Acceptance take place when an insurer underwriter approves the application

Express Authority

the authority a principal intends to grant to an agent by means of the agents contract

Adverse Selection

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

Policy owner

the person who is entitled to exercise the rights and privileges in the policy and who may or may not be the insured

Randomly selected and large loss exposure

there must be a sufficiently large pool of the insured that represents a random selection of risks in terms of age, gender, occupation, health and economic status, a geographical location

Physical hazards

those arising from the material structural, or operational features of the risk, apart from the person owning of managing it. Physical condition that increases the possibility of a loss