Insurance study guide

Insurer

(principal) the company who issues an insurance policy

Morale

A person who does not lock the doors to his or her house shows an indifferent attitude. This person presents what type of hazard?

Commingling

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

Pure risk

A situation in which a person can only experience a loss and no gain presents what type of risk?

A level annual premium for life of the insured

A straight life policy has what type of premium

Agent or Producer

According to the Law of Agency , a principal is represented by whom?

Guaranteed surrender value

According to the nonforfeiture law, if the owner decides to surrender a deferred annuity prior to annuitization , the owner is entitled to which of the following

30 days

Agents who change their state of residence must notify the Director within how many days of any chance in address

30 days

Agents who change their state of residence must notify the Director within how many days of any change in address

Essential Elements of a Contract

Agreement (offer and acceptance), Consideration, Competent parties , and legal purpose

Dividends from a mutual insurer

All of the following could be considered rebates if offered to an insured in the sale of insurance EXCEPT

Obtaining an insurance license

All of the following would be considered an insurance transaction except

The coverage period

An adjustable life policy owner can change which of the following policy features

30 days

An agent changes his residential address . Within how many days must the Director be notified ?

The interest will continue to accumulate tax deferred

An annuitant dies before the effective date of a purchased annuity. Assuming that the annuitant's wife is the beneficiary , what will occur

Concealment

An applicant knowingly fails to communicate information that would help an underwriter make a sound decision regarding coverage. This is an example of

Guaranteed insurability option

An individual is purchasing a permanent life insurance policy with a face value of $25,000 . While this is all the insurance that he can afford at this time, he wants to be sure that additional coverage will be available in the future. Which of the following options should be included in the policy

3 years

An insolvent insurer is one who is unable pay its obligations when they are due or has fewer assets than liabilities for a period of

Foreign

An insurance company is domiciled in California and transacts insurance in Nevada.What is this insurers classification in Nevada?

Foreign

An insurance company that is formed under the laws of another state is known as what type of insurer?

Mutual

An insurance policy paid a nontaxable dividend to the insured one year , and nothing the next. From what type of insurer did the insured purchase the policy ?

Pay a lower renewal premium by proving insurability

An insured has a level term life insurance policy that is guaranteed renewable and also includes a re- entry provision . The re-entry provision would allow the insured to renew the policy and

Industrial life

An insured has a life insurance policy with a face amount of $500. He pays a premium each week to the agent who sold him the policy . What kind of policy does the insured have?

The policy will terminate when the loan amount with interest equals or exceeds the cash value

An insured stops making payments on a loan taken from his cash value policy . What will most likely happen

Retirement plans

Annuities can be used to fund which of the following

Yes, but not unfairly

Are insurance company underwriters allowed to discriminate

Adjustable Life

At age 30, an applicant wants to start an insurance program , but realizing that his insurance needs will likely change , he wants a policy that can be modified to accommodate those changes as they occur. Which of the following policies would most likely fit his needs

By the last day of their birth month

By what date in each licensing period are agents required to renew their license

Hazards

Conditions that increase the chance of a loss are known as what?

Underwriting

During which stage in the insurance process do insurers evaluate information that identifies adverse selection risks?

2 years

Each person licensed as an agent or solicitor is required to complete continuing education instruction every

Speculative risk

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

Uncertainty of loss

For the purpose of insurance , what is risk?

30

How an agent's appointment has been terminated , the insurer must notify the Director within how many days

90 days

How many days after being licensed to place business transactions in Ohio must an insurer have antifraud program in place

15 calendar days

How many days does the Viator have to rescind a contract after receiving the vatical settlement proceeds

The producer responds to an applicant wishing to replace existing life insurance

How must a replacing producer respond to an applicant wishing to replace existing life insurance

Every two years

How often are agents required to renew their insurance license

Reasonable Expectations

If a court ordered payment for a loss that was not covered in the policy even if it was clearly worded, it would be an example of which legal concept?

Modified endowment contract

If a life insurance policy develops cash value faster than a seven pay whole life contract , it becomes a / an

Guaranteed Insurability Rider

If a life policy allows the policy owner to make a periodic additions to the face amount at standard rates , without providing insurability , the policy includes a

Send application back to the applicant for signature

If an agent fails to obtain the applicant's signature on the insurance application , what must the insurer do?

Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount

If an annuitant dies before annuitization occurs , what will the beneficiary receive

Agent

If an applicant does not receive his or her insurance policy , who would be held responsible

The agent

If an applicant does not receive his or her insurance policy , who would be held responsible?

Require evidence of insurability

If an employee wants to enter the group outside of the open enrollment period , to reduce adverse selection , the insurer may

insolvent

If an insurer has fewer assets than liabilities and is unable to pay its financial obligations for at least 3 years , the insurer is considered

Grow tax deferred

If life insurance policies , cash value increases

trustee to trustee

In a direct transfer , how is money transferred from one retirement plan to a traditional IRA

The individual insured

In a group policy , who is issued a certificate of insurance

When the insurer approves a prepaid application

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

Peril

In insurance , what is the term used for cause of loss

Handling insurer funds in a trust capacity

In insurance transactions , fiduciary responsibility means

When the insurance application is submitted

In insurance, when is the offer usually made on a contract ?

Insurer

In the agent/insurer relationship who is considered the principal?

45 days

In the event a policy lapses due to nonpayment of premium , within how many days would the policy be automatically reinstated the outstanding premium is paid ?

Rent

In the event of a loss, business overhead insurance will pay

Loss

Insurance is a contract that protects the insured from what?

domestic, foreign, alien

Insurers are classified according to their domicile. What are the three types of insurers?

Generally not taxed as income

Life insurance death proceeds are

NAIC

National Association of Insurance Commissioners , an organization composed of insurance commissioners from all 50 states

Types of Risk

Pure and Speculative

Must allow the policy owner to return the policy for a full refund

Regarding the free look provision , the insurance company

Insurance Transactions

Solicitation , Negotiations, Sale, Advising individual concerning coverage or claims

The insurer

The director may examine books and records of all authorized insurers in Ohio . Who is responsible for paying for the examination

The insurer

The director may examine books and records of all authorized insurers in Ohio. Who is responsible for paying for the examination

15

The hearing for a cease and desist order must occur within how many days of the order date

Stock company

The insurer organized to return a profit to the stockholders is what type of insurer ?

2 years

The limit of certain defenses provisions prohibits insurers from denying a claim due to misrepresentation, as long as the policy has been in force for at least

180 days

The maximum duration of a temporary license in this state is

Fiduciary

The requirements that agents must account for and promptly remit all insurance funds collected is knows as what type of agent responsibility?

Mutual Company

The type of insurance company organized to return any surplus money to it's policyholders is known as what ?

The director

To whom does the insurer certify that an appointee is competent , financially , responsible , and suitable to represent them

Joint life

Twin brothers are starting a new business. They know it will take several years to build the business to the point that they can pay off the debt incurred in the starting the business. What type of insurance would be the most affordable and still provide a death benefit should one of them die

Speculative

Waggering on a sport event is known as what type of risk?

Loss must be 1)due to chance 2)definite and measurable 3)statistically predicatble 4)not catastrophic , and 5) coverage cannot be mandatory.

What are the five characteristics of an ideally insurable risk?

Agreement (offer and acceptance), consideration , competent parties, and legal purpose

What are the four elements of an insurance contract?

Restriction of coverage, refusal to accept a risk, and accepting a risk at a higher rate

What are the strategies used by underwriters to prevent adverse selection ?

Physical , moral and morale

What are the three types of hazards ?

insurance

What do individuals use to transfer risk of loss to larger group

Insurance

What do individuals use to transfer their risk of loss to a larger group?

Agent's contract with the principal

What documentation grants express authority to an agent?

Cash values can be borrowed at any time

What does "liquidity " refer to in the life insurance

Insurers

What entities make up the Medical Information Bureau?

An absolutely true statement upon which the validity of the insurance is based

What is a warranty in an insurance contract

People who are more likely to submit insurance claims are seeking insurance more often than preferred risk

What is adverse selection

Return the application to the applicant for completion

What is the best way to handle incomplete insurance applications?

$10,000

What is the maximum penalty for violating the Diector's cease and desist order

18

What is the minimum age for obtaining an insurance agent license in this state

Viator

What is the name for the owner of a life insurance policy who enters into a vatical settlement contract

minimize risk of financial loss caused by death

What is the purpose of key person insurance

Income tax on distributions and no penalty.

What is the tax consequence of amounts received from a Traditional IRA after the money was left in the tax deferred account by the beneficiary

principal

What is the term for the entity that an agent represents regarding contractual agreements with third parties ?

Application

What is the term used for a written request for an insurer to issue an insurance contract based on the provided information ?

30 days

What is the waiting period for rate filling before each rate may become effective

6 months

What is the waiting period on a wavier of premium rider in life insurance

6 months

What is the waiting period on a wavier of premium rider in life insurance policies

Reinsurance

What method do insurers use to protect themselves against catastrophic losses?

Section 1035 policy exchange

What part of the Internal revenue code allows an owner of a life insurance policy or annuity to exchange or replace their current contract without creating adverse tax consequences

Insurable interest and consent

What two elements are necessary for a life insurance contract to have a legal purpose?

The cost the company is paying for monthly premiums

What type of information is NOT included in a certificate of insurance

Alien

What type of insurer is formed under the laws of another country?

Pure

What type of risk is insurable?

Complete a new application or ask the applicant to initial the correction on the original application

When a change needs to be made on the application for insurance , which is the best method for correcting the information?

Insurer

When agents act within the scope of their contract, their actions will be assumed to be the acts of whom?

December 31 of the year that contains the fifth anniversary of the owners death

When an IRA be completely distributed when a beneficiary is nat named

Distributions are taxable

When contribution to an immediate annuity are made with before tax dollars, which of the following is true of the distributions

When the policy is delivered and the premium is paid

When does an insurance policy go into effect?

Foreign

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?

Adverse selection

When risks with the higher probability of loss are seeking insurance more often than other risks, this is know as what?

When the premium was paid upon policy delivery and not at the time of application

When should an agent obtain a Statement of Good health from the insured ?

When it is intentional and material

When would a misrepresentation on an insurance application be considered fraud?

The recommended amount to keep the policy in force throughout its lifetime

Which of the following best defines target premium in a universal life policy

It is level term insurance

Which of the following best describes annually renewable term

Net premium plus expenses

Which of the following best describes gross annual premium

Taxes are deferred

Which of the following best describes taxation during the accumulation period of an annuity

Exchange of unequal values

Which of the following best describes the aleatory nature of an insurance contact?

A policy summary

Which of the following documents delivered to the policy owner includes information about premium amounts , cash values, surrender values and death benefits for specific policy years

Insurer's executive officer

Which of the following entities has the authority to make changes to an insurance policy

Department of Insurance

Which of the following has the authority to issue a cease and desist order

The insurer can increase the policy premium on an individual basis

Which of the following is NOT a feature of a guaranteed renewable provision ?

Creditor requiring that a debtor buys insurance from a certain insurer

Which of the following is NOT allowed in credit life insurance

It is a period during which the payments into the annuity grow tax deferred

Which of the following is TRUE regarding the accumulation period of annuity

Life Paid Up at 65

Which of the following is an example of limited pay life policy

Survivorship life

Which of the following is called a "second to die " policy

To create an estate

Which of the following is the best reason to purchase life insurance rather than annuities

It pays dividends to policy owners

Which of the following is usually true of a participating life insurance policy

That its policies are covered by a state Guaranty Association

Which of the following may NOT be included in an insurance company's advertisement

Human life value approach (HLVA)

Which of the following methods of calculating the amount of life insurance needed takes into account the insured's wages, years until retirement , and inflation

Straight life

Which of the following policies would be classified as a traditional level premium contract

They can be changed only with the written consent of that beneficiary

Which of the following statements is TRUE concerning irrevocable beneficiaries

A denied license in another state

Which of the following would be sufficient violation to warrant rejection, revocation , or suspension of an insurance agent license

Face Amount

Which policy component decreases in decreasing term insurance

Optionally Renewable

Which renewability provision allows an insurer to terminate a policy for any reason , and to increase the premiums for any class of insureds

Department of Insurance

Who assumes control over an insurance company's funds and management if they become insolvent

Any person licensed to sell , solicit , or negotiate insurance

Who is an insurance agent

Insurer

Who is responsible for paying the cost of medical examination required in the process of underwriting

Stockholders

Who owns stock companies?

insurance company

Whom does an insurance agent represent?

The agent's

Whose responsibility is it to determine that all the questions on an insurance application are answered?

The agent's

Whose responsibility is it to determine that all the questions on insurance application are answered ?

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

Material fact

a fact would lead to a different underwriting decision the insurer known about it

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

Due to chance

a loss is outside the insured's control

Definite and measurable

a loss that is specific as to the cause , time , place and amount. An insurer must be able to determine how much the benefit will be and when it becomes payable

Reciprocity/ Reciprocal

a metal interchange of rights and privileges

Benefit period

a period of time during which benefits are paid under the policy

Waiting period

a period of time that must pass after a loss occurs before the insurer starts paying policy benefits

Beneficiary

a person who receives the benefits of an insurance policy

Claim

a request filed with an insurance company asking for payment according to the terms of an insurance policy

Reduction

actions such as installing smoke detectors in our homes, having an annual physical to detect health problems early, or perhaps making a change in our lifestyles

Riders

added to the basic insurance policy to add, modify , or delete policy provisions

Types of Insurers - Authority

admitted/ authorized -certificate of authority -approved to transact insurance in a state non admitted /unauthorized -no certificate of authority -prohibited from transacting insurance in a state

Law of Agency

agents represent the insurer payments to the agents= payment to the insurer

elements of legal contract

agreement -insurance company ,and insured or policy owner offer-application acceptance consideration -applicant representation competent parties -legal age -mentally competent - not under influence of drugs or alcohol legal purpose -not against public policy

Four elements of an insurance contract

agreement, consideration, competent parties, and legal purpose

Insurance contract

aleatory -unequal exchange of values personal -between insurer and insured adhesion -"take it or leave it" unilateral -one sided promise conditional -certain conditions must be met

Copayment

an arrangement in which an insured must pay a specified amount for services "up front" and the provider pays the reminder of the cost.

Solicitation

an attempt to persuade a person to buy an insurance policy : it can be done orally or in writing

Captive Agent

an insurance producer who by contract is bound to write insurance for only one company is classified as a/an

Domestic Insurer

any insurance company that has headquarters in state

Hazard

are conditions or situations that increases the probability of an insured loss occurring

Physical hazards

are individual characteristics that increase the chances of the cause of loss Ex: I've been a smoker since I was 16

Stock Companies

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

Mutual Companies

are owned by the policy owners and issue participating policies

Morale hazards

are similar to moral hazards , excepts that they arise from a state of mind that causes indifference to loss, such as carelessness mindset

representations

are statements believed to be true to the best of one's knowledge , but they are not guaranteed to be true.

Moral hazard

are tendencies toward increased risk Ex: I lied on my insurance application

Peril

as a cause of a loss is the reason you lost something Ex: Life insurance the cause of the loss is death

Handling Risk

avoidance, retention , sharing , and reduction, transfer

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

Elements of Insurable Risk

due to change, definite and measurable and statically predictable , not catastrophic, randomly selected/ loss exposure

Agent Authority

express -written in the contract implied -not written into the contract, but is assumed apparent -based on the principal's actions or words

Three types of producer authority

express, implied, apparent

Fraud & Concealment

fraud -intentional misrepresentation of a material fact, made with intent to deceive : an act of deceit or cheating concealment -intentional withholding of information of a material fact that is crucial in making an underwriting decision

Perils to Loss

hazards (conditions that increase the probability of an insured loss), perils (causes of loss), loss(reduction of value / basis for a claim), insurance ( transfer of loss / protection )

Authorized or admitted

if an insurer meets state's financial requirements and is approved to transact business in the state, it is considered what type of insurer?

utmost good faith

implies that there will be no fraud , misrepresentation or concealment between the parties .

Law of Large Numbers

insurance is spreading risk among a large pool of people with similar exposure to loss. The larger the number of people with a similar exposure to loss, the more predictable actual losses will be.

Statistically predictable

insurers must be able to estimate the average frequency and severity of future losses and set appropriate premium rates

Not catastrophic

insurers need to be reasonably certain their losses will not exceed specific limits

Life insurance

insures against the financial loss caused by the premature death of the insured

Adverse selection

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

Speculative risk

involves the opportunity for either loss or gain. An example of speculative risk is gambling

Excess or Surplus Lines

is a company that insures things risk that other insurance companies find to catastrophic or to large to take on responsibility. They cover exrtra ordinary things

Reinsurance

is a contract under which one insurance company (the reinsurer) indemnifies another insurance company for part or all of its liabilities

Estoppel

is a legal process that can be used to prevent a party to a contract from re asserting a right or privilege after that right or privilege has been waived. Estoppel is a legal consequence of a waiver

Risk retention group

is a liability insurance company owned by its members. The members are exposed to similar liability risks by virtue of being in the same business or industry

Sharing

is a 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

Indemnity

is a provision in an insurance policy that states that in the event of loss, an insured or a 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 contract. Indemnity means insureds cannot recover more than their loss.

Exposure

is a unit of measure used to determine rates charged for insurance coverage

Warranty

is an absolutely true statement upon which the validity of the insurance policy depends

Contract

is an agreement between two or more parties enforceable by law

Foreign Insurer

is an insurance company that is incorporated in another state

Domestic insurer

is an insurance company that is incorporated in this state

fraternal benefit society

is an organization formed to provide insurance benefits for members of an affiliated lodge, religious organization, or fraternal organization with a representative form of government

Implied Authority

is authority that is not expressed or written into the contract, but which the agent is assumed to have in order to transact the business

Personal contract

is between the insurance company and an individual.

Loss

is defined as the reduction , decrease , or disappearance of value of the person or property insured in a policy, caused by a named peril . Insurance provides a means to transfer loss

Reciprocal

is insurance resulting from an interchange of reciprocal agreements of indemnity among persons known as subscribers

Apparent Authority

is the appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created

Fraud

is the intentional misrepresentation or intentional concealment of a material fact used to induce another party to make or refrain from making a contract

Concealment

is the legal term for the intentional withholding of information of a material fact that is crucial in making a decisions

Risk retention

is the planned assumption of risk by an insured through the use of deductibles , co payments or self insurance

Risk

is the uncertainity or chance of a loss occurring

Waiver

is the voluntary act of relinquishing a legal right, claim or privilege

Higher deductible

lower premium

Unilateral Contract

only one of the parties to the contract is legally bound to do anything

Adhesion

only one party (insurer) prepares a contract, and the other party (insured) accepts it as is

Risk is insurable

only pure risk that results in a loss or no charge

Lapse

policy termination due to nonpayment of premium

Pure Risk

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

Conditional Contract

requires that certain conditions must be met by the policy owner and the company in order for the contract to be executed , and before each party fulfills it's obligations

Guaranteed Renewable policy

requires the insurer to continue coverage, as long as premiums are paid

Transfer

so that the loss is borne by another party

Dependent

someone relying on the insured for support

Law of Large Numbers

states that the larger the number of people with a similar exposure to loss, the more predictable actual losses will be

Types of Insurers - Ownership

stock - issuing nonparticipating policies owned by stockholders Run by board of directors, in charge of dividends quarterly mutual- issue participating policies owned by policy owners pay dividends (return of unused premiums) Difference is when dividend is declared by the board of directors IRS says that is income to the shareholder and is taxable to them in the year they get dividend for stock Not taxable for mutual and no income tax because is refund of overpayment of premium

Acceptance

takes place when an insurers underwriter approves the application and issues a policy

Cancellation

termination of an in force insurance policy , by either the insured or the insurer , prior to the expiration date shown in the policy

Foreign Insurer

that has a home office in any other state but your state

Alien Insurer

that is headquarters in another country

Determining Rates

the age of the insured, medical history, occupation , and sex

Adverse Selection

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

Premium

the money paid to the insurance company for the insurance policy

Insured

the person covered by the insurance policy. This person may or may not be the policy owner

Policyowner

the person entitled to exercise the rights and privileges in the policy

Deductible

the portion of the loss that is to be paid by the insured before any claim may be paid by the insurer

Legal Purpose

the purpose of the contract must be legal and not against public policy . To ensure legal purpose of a Life Insurance , for example , it must have both: insurable interest and consent

Aleatory

there is an exchange of unequal amounts or values. The premium paid by the insured is small in relation to the amount that will be paid by the insurer in the event of loss

Randomly selected and large loss exposure

there must be a sufficiently large pool of the insured that represents a random selection of risks in terms of age, gender, occupation ,health and economic status, and geographic location.

Purpose of Retention

to reduce expenses and improve cash flow, to increase control of claim reserving and claims settlements , and to fund for losses that cannot be insured

insurance

transfer of risk

Surplus lines

type of coverage that is not readily available on admitted market

insolvent

unable to meet financial obligations

When the agent receiving the commission is licensed for that same line of business

under what circumstances may be an agent appointed with the issuing insurance company pay a commission to another agent

Aleatory

unequal values

Material Misrepresentation

untrue statements on the application unintentionally made by insureds that, if discovered , would alter the underwriting decision of the insurance company, are called

Application statements

warranties - absolutely true statements breach of warranties can void the policy representations -statement that are true to the best of you knowledge

Offer

when submitting the application

Avoidance

which means eliminating exposure to a loss. For example if a person wanted to avoid the risk of being killed in an airplane crash he/she might choose to never fly in an airplane

Aleatory

which of the following 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

That its polices are covered by a state Guaranty Association

which of the following may NOT be included in an insurance company's advertisement

Nonparticipating policy

which policy owners do not share in profits or losses