Chapter: General Insurance

What is insurance?

The transfer of risk from an individual to a insurance company

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

When an insurer's underwriter approves coverage

What is a Peril?

cause of loss

Type of Insurers

-Stock Insurer issue nonparticipating polices owner by stock holders -Mutual Insurer issue participating policies owned by policyowners pay dividends (return of unused premiums) Admitted/Authoized certificte of authority approved to transact insurance in a state Nonadmitted/Unauthorized no certificate of authority prohibited from transacting insurance in a state Domestic Insurer I incorporated in this state Foreign Insurer I incorporated in another state or territory Alien Insurer I incorporated outside of the U.S.

Elements of a Legal Contract

1. Agreement - offer(application) and acceptance(issued policy) 2. Consideration - applicant -representation and premium 3. Competent parties- legal age mentally competent not under the influence of drugs' or alcohol 4. Legal purpose- not against public policy

Elements of Insurable Risk

1. Due to chance ( random not intentional) 2. Definite and measurable 3. Predictable 4. Not catastrophic 5. large Loss exposure /randomly selected

Two Types of Perils

1. Property - The loss of physical property or of its income producing abilities (my car , my belongings I'm making a claim for) 2.Casualty- The loss of and/or damage to property and resulting liabilities (Making a claim for some one else's property that I'm liable to pay for )

If an insurer meets the state's financial requirements and is approved to transact business in the state are considered authorized or admitted into the state as a legal insurer

Authorized

An insurer that holds a Certificate of Authority in the state in which it transacts business is considered a/an

Authorized Insurer

An individual was involved in a head on collision while driving home one day . His injuries were not serious , and he recovered. However, he decided that in order to never be involved in another accident , he woul dnot drive or ride in a car ever again . Which method of risk management does this describe ?

Avoidance

Handling Risk

Avoidance- avoiding driver all together or situations where you can be in an accident Retention- self insuring , you don't have insurance and take on the risks yourself Sharing - similar to transfer but different Reduction- reduce your risk by doing what you can to not cause issues Transfer- What you do with insurance

A producer who fails to separate premium monies from his own personal funds is guilty of

Commingling

An insurance contract requires that both the insured and insurer meet certain conditions in order for the contract to be enforceable . What contract characteristics does this describe ?

Conditional

Which of the following best describes an insurance company that has been formed under the laws of this state ?

Domestic

Agent Authority

Express - What the agents written contract with the company says. Implied - Not written but are the things agents normally do to sell insurance. Apparent - Things the agent does that a reasonable person would assume as authority, based on the agents' actions and statements.

Which of the following are the authorities that an agent can hold

Express and Implied

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

Express authority

When doing business in this state, an insurance company that is formed under the laws of another state is known as which type of insurer?

Foreign

The reduction, decrease, or disappearance of value of the person or property insured in a policy is known as what?

Loss

An insured purchased an insurance policy 5 years ago. Last year, she received a dividend check from the insurance company that 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

A participating insurance policy may do which of the following?

Pay dividends to the policy owner

Types of Hazards

Physical - characteristics that increase your chance of being a risk an example of physical risk would be a smoker Moral - dishonest acts such as lying on your application Morale - carelessness or recklessness mindset "if I'm insured would should I worry"

Types of Risk

Pure - Only have a chance of loss No financial gain Only Risk that can be insured Speculative- Could have a loss or financial gain NOT INSURABLE

A situation in which a person can only lose or have no change represents

Pure Risk

What type of insurance is based on mutual agreements among subscribers ?

Reciprocal Insurance

Installing deadbolt locks on the doors of a home is an example of which method of handling risk?

Reduction

Indemnity

Reimbursement -Key principle in all insurance contracts -Insureds can only collect to the extend of their financial loss -insureds cannot gain financially after a loss **Only giving a customer what they had before as we promised , customers should not gain more than what they had before using insurance **

What method do insurers use to protect themselves against catastrophic losses

Reinsurance

Events in which a person has both the chance of winning or losing are classified as

Speculative Risk

Law of Agency

agents represent the insurer knowledge of the agents = knowledge of the insurer the insurer is responsible for agent's action payment to the agents = payment to the insurer

Relationship of Perils to Loss

hazards- conditions that increase chance of loss perils-causes loss- reduction insurance- transfer of loss

Adverse Selection

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

Loss

reduction in value, destruction , or disappearance of property or person insured in a policy

Contracts that are prepared by one party and submitted to the other party on a take it or leave it basis are classified as

Contracts of adhesion

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

Fiduciary responsibility

Which authority is NOT stated in an agent's contract but is required for the agent to conduct business?

Implied

What insurance principle states that if a policy allows for greater compensation than the financial loss incurred, the insured may only receive benefits for the amount lost

Indemnity

Law of Large Numbers

Insurance is spreading risk among a large pool of people with similar exposure to loss

Rates that are established based on the similarities of the risk with other risks are known as

Manual Rates or Class Rates

Pertaining to insurance, what is the definition of a fiduciary responsibility?

Promptly forwarding premiums to the insurance company