Primerica-General Insurance
Life settlements
any financial transaction in which the owner of a life insurance policy sells a policy that is no longer needed to a third party for some form of compensation, usually cash
What is the term for the causes of loss insured against in a insurance policy?
peril
Courts will interpret any ambiguity in an insurance contract:
in the favor of the insured- insurance policies are contracts of adhesion. the insurer writes the contract and the insured accepts the contract as it is written. when ambiguities exist, courts generally rule in the favor of the insured.
debt cancellation
insurance may be used to create a fund to pay off debts of the insured such as home mortgage or auto loans
which of the following is an example of an agent's fiduciary responsibilities?
promptly forwarding premiums to the insurance company-fiduciary refers to a position of trust, they are acting in a fiduciary capacity when handling the premiums
what is the most common way to transfer risk?
purchase insurance- the transfer of loss is borne by another party
insured
the person on whose life an insurance policy is written
what authorities can an agent hold?
express and implied
What company produces evaluations of insurer financial status often used by the Insurance Department?
AM Best & Company- assigns ratings to life, property and casualty insurance companies based upon the financial stability of the insurer.
A state-issued document empowering an insurance company to become an admitted insurer is called what?
Certificate of authority
what must an alien insurer obtain in order to transact insurance within a given state?
Certificate of authority- all insurers, wheter alien, foreign, or domestic, must obtain before transacting insurance within a given state
an insurance company is domicled in Califrnia and transacts insurance in Nevada. What is this insurer's classification in Nevada?
Foreign
What kind of policy issues certificates of insurance to insureds?
Group insurance-individuals covered by group life insurance do not receive a policy, but receive a certificate of insurance from the master policy
An investor buys a life policy on an elderly person in order to sell it for a life settlement. This is an example of:
a STOLI policy
buy-sell agreement
a legal contract that determines what will be done with a business in the event that an owner dies or becomes disabled (business continuation agreement)
a insurer that has not applied, or has applied and has been denied a Certificate of Authority and may not transact insurance is known as which type of insurer?
a non admitted or unauthorized insurer
a insurance company that is domiciled in one country and transacts insurance in another is:
alien insurer
viatical settlements
allow someone living with a life-threatening condition to sell their existing life insurance policy and use the proceeds when they are most needed, before their death. They usually recieve a percentage of the face value from a third party who purchases the policy
which of the folloing 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? a. warrenty b. aleatory c. adhesion d. subrogation
b. aleatory
When a change needs to be made on the application for insurance, which is the best method for correcting the information?
complete a new application or ask the applicant to initial the correction on the original
Which of the following statements is NOT true concerning insurable interest as it applies to life insurance? a. business partners have an insurable interest in each other b. a husband or wife has an insurable interest in their spouse c. an individual has an insurable interest in his/her own life d. a debtor has an insurable interest in the life of a lender
d. a debtor has an insurable interest in the life of a lender-but only to the extent of the debt. The debtor does not have an insurable interest in the life of the lender.
A participating insurance policy may:
pay dividends to the policy owner based upon actual mortality cost, plus interest earned, less expenses of running the business
a ______ company results from an interchange of _______ agreements of indemnity among subscribers
reciprocal
which type of insurance is based on mutual agreements among subscribers?
reciprocal insurance
retention
retaining of assets
Adverse selection is a concept best described as:
risks with higher probability of loss seeking insurance more often than other risks
Liquidation
selling assets as a method of raising capital
an insured modifies his insurance claims, illegally adjusting them to display a lower amount. what insurance concept does this violate?
utmost good faith
Three factors that determine insurable interest
1. insuring one's own life 2. insuring the life of a family member 3. insuring the life of a business partner, employee, or someone who has a financial obligation to them
the authority granted to an agent through the agent's contract is referred to as:
Express authority: express powers are written into the contract between the insurer and the agent
A projection of insurance needs that is based upon the capitalization of a applicant's future earnings is:
Human life value approach- is determined by the loss of income that would result with the death of the insured, after making adjustments for expenses, inflation, etc.
what entities make up the Medical Information Bureau?
Insurers
A person who does not lock the doors to his/her house show an indifferent attitude. This person presents what type of hazard?
Morale
the type of insurance company organized to return any surplus money to its policyholders is known as what?
Mutual Company
Stranger-Originated Life Insurance (STOLI)
a person with no relationship to the insured purchases a life policy on the insured's life with the intent of selling the policy to an investor and profiting financially when the insured dies. It violates the principle of insurable interest
which of the following is NOT an essential element of an insurance contract? a. counteroffer b. consideration c. agreement d. legal purpose
a. counteroffer- is not required for a contract to be legally binding 4 essential elements are agreement and acceptance consideration competent parties legal purpose
most common use of life insurance by businesses is:
an employee benefit-serves a a protection for employees and their beneficiaries
which type of authority is based on the actions, words, or deeds of the principal?
apparant
a morale hazard may exist due to: a. tendency toward alcoholism b. indifference to loss c. past fraudulent claims against the insurer d. past medical history
b. indifference to loss-morale hazards arise from a state of mind that causes indifference to loss, such as carelessness
an insurer incorporated in which of the following locations would be considered a foreign insurer in Washington D.C.? a. Canada b. Washington D.C. c. Maryland d. Mexico
c. Maryland-foreign is a insurance company that is incorporated in another state or territorial possession. Mexico and Canada are foreign countries, so their insurers will be considered alien. Insurer that is incorporated and operates in Washington D.C. would be considered domestic.
all of the following actions by a person could be described as risk avoidance EXCEPT a. never flying in an airplane b. taking a flu shot each year c. investing in the stock market d. refusing to scuba dive
c. investing in the stock market is not an example of risk avoidance; it creates a possibility of a loss
all of the following are examples of risk retention EXCEPT a. co-payments b. self-insurance c. premiums d. deductibles
c. premiums- retention is a planned assumption of risk, or acceptance of responsibility for the loss by an insured through the use of deductibles, co-payments, or self-insurance
an individual's tendency to be dishonest would be indicative of a:
moral hazard-an applicant that is dishonest in completing an application for insurance or submitting fraudulent claims would be deemed a moral hazard and could be uninsurable from an underwriting standpoint
A situation in which a person can only experience a loss and no gain presents what type of risk?
pure risk
When risks with higher probability of loss are seeking insurance more often than other risks, this is known as what?
Adverse selection
What is the name of the process that insurance companies use to determine whether or not an applicant is insurable?
Underwriting
concerning insurance, the definition of a fiduciary responsibility is
handling insurer funds in a trust capacity
for the purpose of insurance, risk is defined as:
the uncertainty or chance of loss
According to the Law of Agency, a principal is represented by a/an:
Agent-a person who acts for another person or entity known as the principal with regard to contractual arrangements with third parties
Lump-sum needs
Post-mortem (costs associated with death): medical expenses, funeral expenses, day to day expenses of maintaining family Other Needs and Objectives: estate taxes, day care, insurance premiums, etc.
When an insurance company agrees to automatically assume a portion of the risk written by another insurance company, it is known as a(n):
Reinsurance treaty-insurers limit their exposure to catastrophic losses by purchasing insurance from a reinsurance company. a reinsurance agreement whereby the re insurer automatically assumes the risks ceded to it is a reinsurance treaty.
The insurer organized to return a profit to the stockholder is what type of insurer?
Stock company
which insurer is owned by stockholders who have the usual rights of ownership, including the right of voting and incurring profits or losses?
Stock insurance
under which type of receipts will the coverage begin immediately even if the applicant is later found uninsurable?
Unconditional-with the binding receipt (or temporary insurance agreement), coverage begins immediately and continues for a specific length of time or until the policy is issued or declined.
under what conditions would a contract between an insurer and prospective insured be legal? a. the applicant is drunk at the time of the application b. the applicant is a 12-year-old student c. the applicant is high on meth at the time of the application d. the applicant has been convicted of a felony
d. the applicant has been convicted of a felony-both parties must be of legal age and mentally competent.
The purchase of life insurance creates an immediate _______
estate- an estate can be created through earnings, savings, and investments, but life insurance is the only legal method by which an immediate estate can be created at such a small cost
what type of risk is insurable?
pure risk
what is the major difference between a stock company and a mutual company?
the ownership-mutual companies are owned by policyholders, while stock companies are owned by stockholders
All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT: a. the policy is owned by the company b. any type of insurance policy may be used c. the employer pays a bonus to a selected employee to fund the policy d. it is considered a nonqualified employee benefit
a. the policy is owned by the company-the policy is actually owned by the employee
retirement fund
insurance proceeds may be used as a source of retirement income
education funds
insurance proceeds may be used to pay for children's education expenses so they can remain in school
When a replacement is involved, a replacing insurance company is responsible for all of the following EXCEPT: a. obtain from the producer a list of the applicant's life insurance or annuity contracts to be replaced b. provide a copy of the Important Notice Regarding Replacement of Life Insurance to the applicant. c. send the existing insurance company a written notice of replacement d. include a policy summary on the proposed life insurance in the communication with the existing company
b. provide a copy of the Important Notice Regarding Replacement of Life Insurance
an insured purchased an insurance policy 5 years ago. last year she received a dividend check from the insurance company which was not taxable. this year she did not receive a check from the insurer. from what type of insurer did the insured purchase the policy?
Mutual-funds not paid out after paying claims and other operating costs are returned to the policy owners in the form of a dividend. if all funds are paid out, no dividends are paid.
which authority is NOT stated in an agent's contract but is required for the agent to conduct business?
implied-it exists because not every single detail of an agent's authority can be written in a contract
insurance companies may be classified according to the legal form of their ownership. the typeof company organized to return any surplus money to their policyholders is a:
Mutual insurer-mutual companies are owned and controlled by their policyholders. any surplus money is returned to the policy holders as dividends.
Which rule would apply if an agent knows an applicant is going to cash in an old policy and use the funds to purchase new insurance?
Replacement rule- anytime a new policy is issued that replaces or modifies existing insurance, a replacement form must be submitted to the ceding company
What law protects consumers from the circulation of inaccurate or obsolete information?
The Fair Credit Reporting Act
If an applicant does not receive his or her insurance policy, who would be held responsible?
The agent
bequests
an insured may wish to leave funds to their church, school, or other organization at the time of their death
an agent is acting ethically in all of the following situations EXCEPT: a. keeping customers' best interests in mind b. always representing the insured c. working within the conditions of his/her contract d. representing the insurer, not the insured
b. always representing the insured-an agent is deemed to represent the insurer, not insured. if an agent is working within the conditions of the contract, the insurance company is fully responsible for his/her actions. however, when making a sale, the agent should keep the customers' best interest in mind
Needs approach
based on the predicted needs of a family after the premature death of the insured. Some factors considered are: income, amount of debt (including mortgage), investments, and other expenses.
Which of the following would describe a legal document which would dictate who can buy a deceased partner's share of a business and for what amount? a. key person agreements b. split dollar agreement c. buy-sell agreement d. profit and loss agreement
c. buy-sell agreement
Which of the following statements would best describe the difference between viatical settlements and accelerated death benefits? a. viaticals are determined by morbidity, but Accelerated Death benefits use mortality tables b. viaticals use mortality tables, but Accelerated Death benefits are determined by morbidity c. viaticals are funded by a third party, and Accelerated Death benefits are provided by the insurer that issued the original policy d. viaticals are provided by the insurer that the issued the original policy, and Accelerated Death benefits are funded by a third party.
c. viaticals are funded by a third party, and Accelerated Death benefits are provided by the insurer that issued the original policy-viatical settlements allow someone living with a life threatening condition to sell their existing life insurance policy and use the proceeds when they are most needed, before their death. Viatical settlements are separate contracts in which the insured sells the death benefit to a third party at a discounted rate.
a insurance company that is domiciled in one state and transacts insurance in another is:
foreign
an insurance company that is formed under the laws of another state is known as which type of insurer?
foreign
Human life value approach
gives the insured an estimate of what would be lost to the family in the event of the premature death of the insured. It looks at eh insured's wages, inflation, the # of years to retirement, and the time value of money.
units with the same or similar exposure to loss are referred to as:
homogeneous-the basis of insurance is sharing risk between a large homogeneous group with similar exposure to loss.
Stranger-originated life insurance policies are in direct opposition to the principle of:
insurable interest-because the purchaser of a stranger-oriented life insurance policy doesn't know the insured, ore have any interest in the insured's longevity, STOLI policies violate the principle of insurable interest
emergency reserve funds
insurance proceeds may be used to assist in paying for sudden expenses following the death of the insured
________ refers to the situations that can only result in a loss or no change
pure risk
Cash accumulation
specific amounts of money for specific needs that some life insurance policies include-the cash value can be BORROWED (meaning it's not really their money) against at any time and used for immediate needs
what first three elements must be present before a pure risk can be insured?
the loss must: 1. be due to chance (outside the insured's control) 2. be definite and measurable (definite to a cause, time, place, and amount) 3. be statistically predictable (enables insurers to estimate the average frequency and severity of future losses)
what last three elements must be present before a pure risk can be insured?
the loss: 4. cannot be catastrophic (like wars or nuclear events) 5. loss exposure to be insured must be large (large pool to be insured and grouped into classes with similar risks-law of large numbers) 6. insurance must not be mandatory (must not be required to issue a policy to each applicant applying. they need the ability to require certain underwriting guidelines to be met)
insurable interest
the possibility of losing money or something of value in the event of loss, property which may be the subject of insurance (insurable risk), the person purchasing a life insurance policy is actually interested in the longevity of the insured
in insurance policies, contract ambiguities are automatically ruled in the favor of the insured. what privilege does the insurer have in order to balance this?
the right to determine the wording of a policy-the policyholder will receive benefits denied due to a contract ambiguity
blackout period
the time during which the surviving spouse and/or children do not recieve social security survivor benefits. (youngest child turns 16-until the spouse qualifies for retirement benefits.)
In forming an insurance contract, when does an acceptance usually occur?
when the insurer approves a prepaid application
are insurance company underwriters allowed to discriminate?
yes, but not unfairly, the company will discriminate in favor of good risks and not of poor risks; however, it cannot discriminate unfairly by using factors such as race or national origin in their underwriting