Life & Health Insurance Exam

participating plan

A participating plan is an insurance policy under which the policyowners share in the company's earnings through receipt of dividends and also elect the company's board of directors.

Reinsurer

A reinsurer is a company that provides financial protection to insurance companies. Reinsurers handle risks that are too large for insurance companies to handle on their own and make it possible for insurers to obtain more business than they would otherwise be able to.

Speculative Risk

A type of risk that involves the chance of both loss and gain; not insurable.

Reinsurance

Acceptance by one or more insurers, called reinsurers, of a portion of the risk underwritten by another insurer who has contracted for the entire coverage.

Adverse Selection

Adverse selection is broadly defined as selection against the company. It includes the tendency of people with higher risks to seek or continue insurance to a greater extent than those with little or less risk. Adverse selection also includes the tendency of policyowners to take advantage of favorable options in insurance contracts.

Alien Insurer

An Alien Insurer in the United States is an insurer whose principal office and domiciled location is outside the country.

Admitted Insurer

An admitted or authorized insurer is an insurer who has received a certificate of authority from a state's department of insurance authorizing them to conduct insurance business in that state.

Risk Retention

takes place when the chances of analyzing the loss exposure presented by a risk and determining that the potential loss is acceptable. Risk retention is often associated w/ self- insurance

Underwriting Department

the department within an insurance company responsible for reviewing applications, approving or declining applications, and assigning risk classifications.

peril

the immediate cause of loss

Insured

the insured is the customer receiving insurance protection under an insurance policy.

Law of Large Numbers

the larger the number of individuals that are randomly drawn from a population, the more representative the resulting group will be of the entire population at any given time.

Risk Management

the process of analyzing exposures that create risk and designing programs to handle them.

Risk Transfer

The act of shifting the responsibility of risk to another in the form of an insurance contract.

Actuarial Department

The actuarial department calculates policy rates, reserves, and dividends.

claims department

The claims department is responsible for processing, investigating, and paying claims.

risk

The uncertainty or chance of a loss occurring for an insured or prospect

hazard

a hazard is any factor, condition, or situation that creates an increase possibility that a peril(cause of a loss) will actually occur

Pure Risk

a type of risk that involves the chance of loss only; there is no opportunity for gain; it is insurable.

Insurer

an insurance company

Multi-line insurer

an insurance company or independent agent that provides a one-stop shop for businesses or individuals seeking coverage for all their insurance needs. For example, many large insurers offer individual policies for automobile, homeowner, long-term care, life and health insurance needs.

Stock Insurance Company

an insurance company owned and controlled by a group of stockholders (or shareholders) whose investment in the company provides the safety margin necessary in the issuance of guaranteed, fixed premium, nonparticipating policies

Morale Hazard

carelessness or indifference to a loss because of the existence of insurance

dividends payable to a policy-owner are

declared by the insurance company

Self-Insurers

establishes a self-funded plan to cover potential losses instead of transferring the risk to an insurance company

Homogenous exposure units

homogenous exposure units are similar objects of insurance that are exposed to the same group of perils

loss

loss exposure is the unintentional decrease in the value of an asset due to a peril

Risk Avoidance

occurs when individuals evade risk entirely. It is the act of not doing something that could possibly cause a loss or the inactivity of participation in an event that may potentially cause a loss situation.

Physical Hazard

physical or tangible conditions existing in a manner that makes a loss more likely to occur

Risk Reduction

takes place when the chances of a loss are lessened, or the severity of a potential loss is minimized.

Broker

A Broker represents themselves and the insured (i.e., the client or customer).

Certificate Authority

A Certificate of Authority is a license issued to an insurer by a department of insurance (or equivalent state agency), which authorizes that company to conduct insurance business in that particular state.

Domestic Insurer

A Domestic Insurer is an insurer with its principal or home office in a state where it is authorized.

Foreign Insurer

A Foreign Insurer is an insurer with its principal office or domicile location in a state different from the state it is transacting insurance business.

Reciprocal Insurer

A Reciprocal Insurer is an unincorporated organization in which all members insure one another.

Risk Retention Group

A Risk Retention Group is a group-owned liability insurer which assumes and spread product liability and other forms of commercial liability risks among its members.

Non-admitted Insurer

A non-admitted or unauthorized insurer is an insurer who has not received a certificate of authority from a state's department of insurance authorizing them to conduct insurance business in that state.

nonparticipating policy

A nonparticipating insurance policy, typically issued by stock companies, do not allow policyowners to participate in dividends or electing the board of directors.

Idemnity Contract

Attempt to return the insured to their original financial position

Divisible Surplus

Divisible surplus is the amount of earnings paid to policyowners as dividends after the insurance company sets aside funds required to cover reserves, operating expenses, and general business purposes.

Fraternal Benefit Society

Fraternal Benefit Societies are nonprofit benevolent organizations that provide insurance to its members.

Industrial Insurer

Industrial Insurers make up a specialized branch of the industry, primarily providing policies with small face amounts with weekly premiums. Other names for industrial insurers include home service or debit insurers.

Loss Exposure

Loss exposure is the risk of a possible loss.

Mutual Insurance Company

Mutual Insurance Companies are insurance companies characterized by having no capital stock, being owned by its policy owners, and usually issue participating insurance.

Llyod's of London

NOT an insurer, but a group of individuals and companies that underwrite unusual insurance

Surplus Lines Insurance

Nontraditional insurance only available from a surplus lines insurer. They offer coverage for substandard or unusual risks not available through private or commercial carriers.

Private(Commercial) Insurer

Private or commercial insurance companies are companies owned by private citizens or groups that offer one or more insurance lines. Commercial insurers are NOT government-owned.

Reinsurance

Reinsurance is the acceptance by one or more insurers, called reinsurers, of a portion of the risk underwritten by another insurer who has contracted for the entire coverage.

1970 Fair Credit Reporting Act

Requires insurers to disclose when an applicant's consumer or credit history is being investigated

Risk Pooling (Loss Sharing)

Spread risk by sharing the possibility of loss over a large number of people. It transfers risk from an individual to a group.