General Concepts & Life Insurance basics

What are mutual companies?

Mutual companies are owned by the policyowners and contain participating policies; meaning that policyowners are entitled to dividends. Dividends are not guaranteed.

When the agent collects the premium what must be issued?

The premium receipt, this determines when coverage will be effective.

What is an executive bonus?

An arrangement where the employer offers to give the employee a wage increase in the amount of the premium on a new life insurance policy on the employee. It is tax deductible to the employer and income taxable to the employee.

When is an offer made to the insurer?

An insured makes the offer when submitting the application.

Elements of insurable risk?

1. Due to chance 2. Definite and measurable 3. Predictable 4. Not catastrophic 5. Loss exposure to be insured must be large 6. Insurance must not be mandatory

2 types of risks? Which one is insurable?

1.) Pure: Is insurable because it involves a chance of loss only 2.) Speculative: Not insurable because it involves a chanceof gain

Upon policy delivery, the producer must do what?

1.) Review the contract 2.) Explain the rating procedure 3.) Explain any choices or provision that may become active at this time

What are the type of methods for handling risk?

1.) Sharing 2.) Transfer 3.) Avoidance 4.) Retention 5.) Reduction

What is the purpose of insurance?

1.) Transfers the risk of loss from an individual to an insurer 2.) Based on the principal of indemnity 3.) Based on the spreading of risk and the law of large numbers

What does the term illustration mean?

A presentation or depiction that includes nonguaranteed elements of a policy of individual or group insurance.

What insurer is an insurance company that is incorporated outside the U.S.?

Alien

What is an indemnity?

Also known as a reimbursement. It 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.

Partners in a business enter into a buy-sell agreement to purchase life insurance, which states that should one of them die prematurely, the other would be financially able to buy the interest of the deceased partner. What type of insurance policy may be used to fund this agreement?

Any form of life insurance

What agent authority is considered perceived authority?

Apparent authority

What agent authority is stated by the agents contract?

Expressed authority

What agent authority is not expressed or written into a contract but which the agent is assumed to have to transact the business of insurance?

Implied authority

What hazards arise from the indifference of loss?

Morale

What does liquidity mean in life insurance policies?

It means the policy's cash values can be borrowed against at any time and used for immediate needs.

Do stock companies or mutual companies pay dividends to their policyowners?

Mutual companies

With the conditional receipt, coverage is effective when?

On the date of the application or the date of the medical exam.

What is a fiduciary?

One who must exercise a high standard of care in managing another's money or property.

A prospective insured receives a conditional receipt but dies before the policy is issued. The insurer will?

Pay the policy proceeds only if they have issued a policy

Types of Hazards

Physical, Moral, Morale

The insurance company underwriter could find information concerning the personal activities and character of an applicant from which of the following reports?

Producer's report

What is an absolutely true statement in which the validity of the insurance policy depends?

The warranty

What is the risk selection and classification process called?

Underwriting

What principle implies there will be no fraud, misrepresentation, or concealment between the parties?

Utmost good faith

In forming an insurance contract, when does an acceptance usually occur?

When an insurer's underwriter approves coverage.