life/health insurance terms
Karen is a producer who has obtained personal information about a client without having a legitimate reason to do so. Under the McCarran-Ferguson Act, what is the minimum penalty for this?
$10,000
Ken is a producer who has obtained Consumer Information Reports under false pretenses. Under the Fair Credit Reporting Act, what is the maximum penalty that may be imposed on Ken?
$5000
Conditional Contract
A contract that requires certain conditions or acts by the insured individual
Offer and Acceptance
An offer is made when the applicant submits an application and money for insurance to the insurance company. The offer is accepted after it has been approved by the insurance company's underwriter and issues a policy. If no money is given, the applicant is making an invitation.
Elements of a Contract
Consideration, legal purpose, offer and acceptance, competent parties
What is the primary purpose of a rating service company such as A.M. best?
Determine financial strength of an insurance company
fraud
Intentional misrepresentation or deceit with the intent to induce a person to part with something of value.
How do insurers predict the increase of individual risks?
Law of large numbers
a nonparticipating policy will
not pay dividends
The cause of a loss is referred to as a
peril
insurance represents the process of risk _________
transference
in an insurance contract, the insurer is the only party legally obligated to perform. Because of this, an insurance contract is considered
unilateral
Concealment
withholding of information or facts by the applicant (smoker, diabetes) can void contract
Needs Based Value Approach
A method of determining a person's financial value based on the amount of money needed for current and future expenses. For Example: final expenses, spouse's income, mortgage, college education, and retirement.
Which of the following is NOT considered advertising?
A rating from a rating service company, such as A.M. best
agent authority
A relationship in which one person is authorized to represent and act for another person or company is established through the law of agency.
The term which describes the fact that both parties of a contract may NOT receive the same value is referred to as
Aleatory
Competent Parties
All parties must be of legal competence, meaning they must be of legal age, mentally capable of understanding the terms, and not influenced by drugs or alcohol.
personal contract
An agreement between an insurance company and an individual that states that insurance policies cover the individual's insurable interest.
legal purpose
An insurance contract must be legal and not in opposition of public policy. If an insurance contract has insurable interest and the insured has provided written consent, it has legal purpose. Without legal effect, the contract would be null and void.
what is implied authority defined as?
Authority that is not specifically given to an agent in the agency contract, but that an agent can reasonably assume to carry out his/her duties
Why are dividends from a mutual insurer not subject to taxation?
Because dividends are considered to be a return of premium
insurable interest does NOT occur in which of the following relationships?
Business owner and business client
an example of risk sharing would be
Doctors pooling their money to cover malpractice exposures
Which of the following is considered to be an event or condition that increases the probability of an insured's loss?
Hazard
Utmost Good Faith
Implies that there will be no fraud, misrepresentation or concealment between the parties.
Types of insurance policies
Industrial life Group life Ordinary life: term and whole
Insurance companies determine risk exposure by which of the following?
Law of large numbers and risk pooling
An insurer's ability to make unpredictable payouts to policyowners is called
Liquidity
When an insured has a major medical plan with first dollar coverage, how does this impact the benefits paid?
No deductible payment is required
What makes an insurance policy a unilateral contract?
Only the insurer is legally bound
Types of hazards
Physical - poor health, overweight; Moral - dishonest acts, drugs; Morale - carelessness or recklessness.
Insurable Interest
Requirement of insurance contracts that loss must be sustained by the applicant upon the death or disability of another and loss must be sufficient to warrant compensation.
An insurer's claim settlement practices are regulated by the
State insurance departments
warranties
Statements made by the applicant guaranteed to be true - (name, DOB)
representations
Statements made by the applicant on the insurance application that are believed to be true, but are not guaranteed to be true. (height, weight)
A nonparticipating company is sometimes called a
Stock insurer
Estoppel
The legal process of preventing one party from reclaiming a right that was waived.
Agent Authority: Implied
The unwritten authority of a producer to perform incidental acts necessary to fulfill the purpose of the agency agreement (otherwise unwritten in the contract).
Bob and Tom start a business. Since each partner contributes an important element to the success of the business, they decide to take life insurance policies out on each other, and name each other as beneficiaries. Eventually, they retire and dissolve the business. Bob dies 12 months later. The policies continue in force with no change. Both partners are still married at the time of Bob's death. In this situation, who will receive Bob's policy proceeds?
Tom
hazard
a condition or situation that creates or increases a chance of loss. For example: icy roads, driving while intoxicated, improperly stored toxic waste
Which of the following BEST describes a conditional insurance contract?
a contract that requires certain conditions or acts by the insured individual
Aleatory Contract
a contract where the values exchanged may not be equal but depend on an uncertain event example: Tory paid one months premium of $50 and died a month later her beneficiary received the whole 50,000 face value of the policy
which of the following is an example of the insured's consideration?
a paid premium
authorized agent
a person who acts for another person or entity and has the power to bind the principal to contracts.
Professional Liability Insurance (errors and omissions)
a professional liability for which producers can be sued for mistakes of putting a policy into effect
A plan in which an employer pays insurance benefits from a fund derived from the employer's current revenues is called
a self-funded plan
Industrial Life Insurance
a type of insurance in which the policies are sold in small amounts and premiums are paid weekly and collected by debit agents
people with higher loss exposure have the tendency to purchase insurance more often than those at average risk. This is called
adverse selection
peril
an immediate, specific event which causes loss and gives rise to risk, such as earth quake or tornado CAN ALSO BE REFERRED TO AS THE ACCIDENT ITSELF
The deeds and actions of a producer indicate what kind of authority?
apparent
mutual companies
are owned by the policy owners and issue participating policies when declared mutual company dividends are paid to the policyholders not subject to taxation only accumulated interest would be taxable
According to life insurance contract law, insurable interest exists
at the time of application
All of the following are elements of an insurance policy EXCEPT
claim forms
Intentional withholding of material facts that would affect an insurance policy's validity is called
concealment
Intentional withholding of material facts that would affect an insurance policy's validity is called a(n)
concealment
In an insurance contract, the element that shows each party is giving something of value is called
consideration
Which type of clause describes the following statement: "We have issued the policy in consideration of the representations in your applications and payment of the first-term premium".
consideration clause
In order for a contract to be valid, it must
contain an offer and acceptance
________ is NOT an element of a valid contract
countersignature
Agent Authority: Apparent
deals with the relationship between the insurer, the agent, and the customer. It is the appearance of authority based on the actions, words, or deeds of the producer Apparent authority is a situation in which the insurer gives the customer reasonable belief that an agent has the power and authority to bind the principal.
Elements of an insurance policy
definitions, other insurance, conditions
A professional liability for which producers can be sued for mistakes of putting a policy into effect is called
errors and omissions
Fraternal Benefit Society has each of the following characteristics EXCEPT
exist for profit
when the principal gives the agent authority in writing, its referred to as
express authority
types of agent authority
express, implied, apparent
The power given to an individual producer that is not specifically addressed in his/her contract is considered what type of authority
implied
which of the following is present when an applicant stands to lose value if the insured dies
insurable interest
Who is responsible for assembling the policy forms for insureds?
insurance carriers
The Do Not Call Registry offers exemptions for calls placed from all of the following except
insurance sales calls
Ambiguities in an insurance policy are always resolved in favor of the
insured
indemnity
involves making an insured whole by restoring them to the same condition as before the loss
The authority granted to a licensed producer is provided via the
law of agency
insurance policies
legal contracts where a promise of benefits is exchanged for valuable consideration (premiums)
Which contract element is insurable interest a component of
legal purpose
Valued vs Indemnity Contracts
life insurance is value contracts which means it will pay a stated amount health insurance contracts are indemnity and will only pay the actual amount of the loss
All of the following are examples of pure risk EXCEPT
losing money at a casino
A type of insurer that is owned by its policy owners is called
mutual
Unilateral Contract
one sided agreement where only the insurer is legally bound
Stock Insurance Company
organized and incorporated under state laws for the purpose of making a profit for its shareholders called nonparticipating insurers because policy holders do not participate in receiving dividends or electing board of directors unless they are a stockholder of the company
What kind of life insurance policy issued by a mutual insurer provides a return of divisible surplus?
participating life insurance policy
What is known as the immediate specific event causing loss and giving rise to risk?
peril
according to the principle of utmost good faith, the insured will answer questions on the application to the best of their knowledge and pay the required premium, while the insurer will deal fairly with the insured and its
promises made
The Fair Credit and Reporting Act's main purpose is to
protect consumers with guidelines regarding credit reporting and distribution
What is considered to be the primary reason for buying life insurance
provide death benefits
A life insurance company has transferred some of its risk to another insurer. The insurer assuming the risk is called the
reinsurer
What are an applicant's statements concerning occupation, hobbies, and personal health history regarded as?
representation
an individual who removes the risk of losing money in the stock market by never purchasing stocks is said to be engaging in
risk avoidance
commericial insurance
sells insurance for profit divided into mutual and stock insurance
consideration
something of value exchanged for something else of value
in an insurance contract, the applicant's consideration is the
statements made in the application and the premium
Adhesion contract
the contract has been prepared by one party (the insurance company) with no negotiation between the applicant and insurer. the applicant "adheres" to the terms of the contract on a "take it or leave it" basis when accepted
agent authority express
the explicit authority granted to the agent by the insurer as written in the agency contract.
who are agents granted authority by?
the insurer through the agency contract to transact insurance or adjust claims on their behalf
Loss
the intentional decrease in the value of an asset due to a peril
Human Life Value Approach
the present value of the family's share of the deceased breadwinner's future earnings
Adverse Selection
the tendency for poorer than average risks to seek out insurance more often than those at average risk
under a contract of adhesion,
the terms must be accepted or rejected in full
waiver
the voluntarily giving up of a known right
Legal purpose is a term used in contract law meaning
there must be legal reasons for entering into the contract
