chapter 1 life and health insurance exam

reduction (important)

if we can't avoid the risk entirely, then we'd do this to lessen the possibility or severity of a loss. like installig smoke detecotrs in our homes, having an annual physical to detect health problems early, or making a change in our lifestyle.

authorized insurer

insurance company that has qualified and received a certificate of authority there for they can transact insurance transcations. have to have ccertificate of authority.

Life insurance

insures against the financial los caused by the premature death of an insured;

Health Insurance

insures against the medical expenses and/or loss of income caused by the insured's sickness or accidental injury.

speculative risk

involves opportunity for either loss or gain. Not insurable. gambing is an example.

pure risk

is insurable. refers to situations that can only result in a loss or no change. No opportunity for financial gain.

Estoppel

legal process that can be used to prevent a party to contract from re-asserting a right or privilege after that right or privilege has been waived, or was admitted to be true by a previous action.

sharing

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.

avoidance

method of handling risk. eliminating exposure to a loss

medicare

the US plan for paying certain hospital and medical expense for persons that qualify.

consideration

the binding force in any contract. The consideration on the part of the insured is the payment of premium and the representations made in the application. the consideration on the part of the insurer is the promise to pay in the event of the loss

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 than better risks.

Loss

the reduction, decrease, or disappearance of value of the person or property insured in a policy, caused by a named peril. Insurance provides a meanns to transfer this.

insurance transfers

the risk of loss from an individual or business entity to an insurance company which in turn spreads the costs of unexpected losses to many individuals.

waiver

the voluntary act of relinquishing a legal right, claim or previlege

concealment

the witholding of known of material facts which, if disclosed, can reder a void contract

non participating polices

traditionally stock companies issue these in which policy owners do not share in profits or losses.

Hazards

Hazards are conditions or situations that increase the probablity of an insured loss occuring.

Mutual Companies

Mutual Companies are owned by the policy owners and issue participating policies. They recieve dividends from excess premiums over earnings.

Exposure

a unit of measure used to determine rates charged for insurance coverage. like: age, medical history, occupation, and gender

certificate of authority

authorizes a companie to start conducting business and specifies the kinds of insurance a company can transact. It is illegal for an insurance company. its illegal for an insurer to transact insurance without this certificate

perils

causes of los insured against in an insurance policy

Reinsurance (important)

contract under which one insurance company indemnifies another company for part of all of it's liabilities. Original insurer is called the ceding insurer because it cedes risk to the assuming insurer (reinsurer)

pure risks must have these characteristics to be insured

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

Physical Hazards

exists because of a physical condition, past medical history, or a condition at birth, like blindness

transfer

most effective way to handle risk so that the loss is borne by another party. relieves the insured of the financial losses these risks bring.

captive companies

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.

retention

planned assumption or risk by an insured through the use of deductibles, co payments, or self insurance. reasons 1)reduce expenses and improve cash flow. 2) increase control of claim reserving and claims settlements; and 3)fund for losses that connot be insured.

Morale hazards

similar to moral hazards, except that they arise from a state of mimd that causes indifference to loss, such as carelessness or actions taken without forethought like a flu shot, if I get sick, my insurace will pay for me.

representations

statements made by the applicant on the insurance application, that are believed to be true, but are not guaranteed to be true.

law of large numbers (important)

states that the larger the number of people with 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.

Stock Companies

stock companies are owned by the stockholders who provid the capital necessary to establish and operate the insurance company and who share in any profits or losses.

Moral Hazards

tendencies towards increased risk that involve evaluating the character and reputations of the proposed insured. they may be applicants who may lie on an application for insurance, or in the past, have submitted fraudulent claims against an insurer.