Chapter 1 -Primerica
domestic
Insurer is an insurance company that is incorporated in THIS state
Alien
Insurer is an insurance company that is incorporated outside the United States
Which provision states that if a policy allows for greater compensation than the financial loss incurred, the insured may only receive benefits for the amount lost?
No loss no gain
Is all risk insurable?
No only pure risk
Unilateral Contract
Only one of the parties to the contract is legally bound to do anything. The insured makes no legally binding promises. However and insurer is legally bound to pay losses covered by a policy in force
Classifications is private companies
Ownership Authority to transact business Location (domicile) Marketing and distribution Rating
Factors considered to determine rates:
The age of the insured Medical history Occupation Sex
peril
causes of loss insured against in an insurance policy
How many types of risk are there?
2 (pure and speculative)
Insurance
A contract whereby one party (insurer) agrees to indemnify or guarantee another party (insured) against a loss by a specified future contingency or peril in return for payment of a premium.
Homogeneous
A large number of units having the same or similar exposure to loss
In Louisiana
A minor who is 15 years old may purchase life or health insurance for his or her own benefit or the benefit of a parent, grandparent, spouse, sibling or any person with an insurable interest.
Reciprocity/Reciprocal
A mutual interchange of rights and privileges
Applicant/Proposed insured
A person applying for insurance
Insured
A person covered by an insurance policy (this person may or may not be the policy owner)
Exposure
A unit of measure used to determine rates charged for insurance coverage.
Who acts on behalf of the principal?
Agent
Apparent
Also known as perceived authority, is the appearance or the assumption of authority based on the actions, words, or deeds of principal or because of circumstances the principal created.
Agent/produxer
An individual licensed to sell, solicit or negotiate contracts on behalf of the principal (insurer)
Broker
An insurance producer not appointed by an insurer and is deemed to represent the client
An agent's actions show what kind of authority?
Apparent
Express
Authority is the authority a principal intended to grant an agent by means of the agents contract-written in the contract
Implied
Authority that is not express or written into the contract, but which the agent is assumed to have in order to transact the business of insurance for the principal...derives from expressed authority
Why do physical hazards exist?
B/c of physical condition, past medical history or condition at birth.
Fiduciary Responsibility
Because an agent handles the funds of the insured and the insurer, he/she has _______
Certificate of Authority
Before insurers may transact business in a specific state, they must apply and be granted license
Loss
Defined as the reduction, decrease, or disappearance of value of the person or property insured in a policy, caused by a named peril.
Policy owners are entitled to?
Dividends
What characteristics does insurable risk involve?
Due to chance Definite and measurable Statistically predictably Not catastrophic Randomly selected and large loss exposure
Which program is funded with taxes? Private or government?
Government
Reasonably expect coverage
If an agent implies through advertising, sales literature or statement that these provisions exist
Utmost Good Faith
Implies that there will be no fraud, misrepresentation or concealment between the parties.
Offer and Acceptance
In insurance the applicant usually makes an offer when submitting the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy
What is the most common method of transferring risk?
Insurance
Aleatory contract
Insurance contracts are? Which means there is an exchange of unequal amounts or values
Foreign
Insurer is an insurance company that is incorporated in another state or territorial possession (Puerto RICO, Guam)
Material Misrepresentation
Is a statement that if discovered would alter the underwriting decision of the insurance company
Warranty
Is an absolutely true statement upon which the validity of the insurance policy depends
Contract of adhesion
Is prepared by one of the parties (insurer) and accepted or rejected by the other party (insured)
Concealment
Is the legal term for the intentional withholding of information of a material fact that is crucial in making a decision
Mutual Companies
Issue participating policies
Reduction
Lessen the possibility of risk. Reduction includes actions such as installing a smoke detector in your home
Example of hazards
Lifestyle, scuba diving all can increase chance of loss
indemnify
Make whole
Transfer
Most effective way to handle risk is to transfer it so that the loss is borne by another party
Parties to a contract
Must be capable of entering into a contract in the eyes of the law (generally requires both parties to be of legal age, mentally competent to understand the contract, and not under the influence of drugs or alcohol)
Legal purpose of a life insurance policy
Must have both: insurable interest and consent, a contract without legal purpose is considered void and cannot be enforced by any party
Retention
Planned assumption of risk by an insured through the use of deductibles, co-payments, or self-insurance.
Mutual companies are owned by?
Policyownwers
What are private policies funded with?
Premiums
Who is insurance available from?
Private and government companies
Code of Ethics
Producers must adhere to certain established procedures and failure to comply will result in penalties.
Conditional contact
Requires that certain conditions must be met by the policy owner and the company in order for the context to be executed and before the party fulfills the obligations
All of the following are examples of risk
Self insurance Deductibles Copayments
Sharing
Sharing is a method of dealing with fish for a group of individual persons or businesses with the same or similar exposure to loss to share the losses that occur within a group.
Fiduciary
Someone in position of trust
Indemnify
Sometimes referred to as reimbursement, a provision in an insurance policy that started that in the event of loss, an insured or beneficiary is permitted to collect only to the extent of the financial loss, and is not allowed to gain financially because of the existence of an insurance xontract
In an insurance contracts, a warranty is a?
Statement that must be true
Representations
Statements believes fo be true to the best of ones knowledge but they are not guaranteed to be true
What are the types of ownership?
Stock companies and Mutual funds
Stock companies are owned by?
Stockholders
Moral Hazard
Tendencies towards increased risk.
Consideration
The binding force in any contract is ______ (Something of value that each party gives to the other)
Fraud
The intentional misrepresentation or intentional concealment of a material fact used to induce another party to make or refrain from making a contact or to deceive or cheat a party
Premium
The money paid to an insurance company for the insurance policy
insurance policy
a contract between a policy owner (and/or insured) and an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events
Agent/Producer
a legal representative of an insurance company; the classification of producer usually includes agents and brokers; agents are the agents of the insurer
Hazards
are conditions or situations that increase the probability of an insured loss occurring.
Law of agency
defines the relationship 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
Market conduct
describes the way companies and producers should conduct their business, it is a Code if Ethics
Types of agent authority
express, implied, apparent
Physical Hazard
individual characteristics that increase the chances of the cause of loss.
life insurance
insures against the financial loss caused by the premature death of the insured
Casualty insurance
insures against the loss and/or damage of property and resulting liabilities
Property insurance
insures against the loss of physical property or the loss of its income-producing abilities
health insurance
insures against the medical expenses and/or loss of income caused by the insured's sickness or accidental injury
Speculative Risk
involves the opportunity for either loss or gain. (gambling) can not be insured
Pure Risk
refers to situations that can only result in a loss or no change. NO opportunity for financial gain
Insurer (principal)
the company who issues an insurance policy
Policy owner
the person entitled to exercise the rights and privileges in the policy
Location of incorporation
How insurance companies are classified
Dividends
A return of excess premiums and are nontaxable
Contract
An agreement between two or more parties that is enforceable by law
Avoidance
Eliminating exposure to loss
Risk
The uncertainty or chance of loss occurring
Agreement
There must be a definite offer by one party, and the other party must accept this offer in its exact terms
Morale Hazard
They arise from a state of mind that causes indifference to loss such as carelessness. Texting while driving
Elements of a legal contract
They must have 4 essential elements: Agreement (offer and acceptance) Consideration Competent parties Legal purpose
Which method of dealing with risk is applied when a person purchases insurance?
Transfer
What does insurance do?
Transfers the risk of loss from an individual or business entity to an insurance company
Misrepresentation
Untrue statements on the application
Example of apparent authority
When an insurer furnished an agent with a rate book, application forms, and sales literature, the insurer cannot later deny that such relationship existed