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waiver
an agreement waving the companies liability for a certain type or types of risk ordinarilly covered in the policy, a voluntary giving up of a legal, given right
void contract
an agreement without legal effect: an invalid contract. fraud: in the event of fraud, insurance contracts are unique in that they run counter to a basic rule of contract law. under most contracts, fraud can be a reason to void a contract. with life insurance contratcs, an insurer has only a limited period of time (usually 2 years from date of issue) to challenge the validity of a contract. after that period, the insurer cannot contest the policy or deny benefits based on material misrepresentations, concealment or fraud. forms: the insurance carrier is responsible for assembling the policy forms for the insured person(s)
national association of insurance commisioners (NAIC)
an association of all of the state insurance commisioners active in insurance regulatory problems and in informing and recommending model legislation and requirements. The NAIC does not directly make laws, as laws are made at state level. they do work on suggesting standards for states to adopt with the goal of standardizing the insurance industry throughout the USA.
buyers guide
an informational consumer guide books that explain insurance policies and insurance concepts; in many states they are required to be give to applicants when certain types of coverages are being considered. buyers guides are often used with life insurance, long term care insurance and annuities.
multi-line insurer
an insurance company or independent agent that provides a one stop shop for businesses or individuals seeking coverage for all of their insurance needs. for ex. many large insurers offer individual policies for automobile, homeowner, long term care, life and health insurance needs.
Entire Contract
an insurance policy provision stating that the application and policy contain all provisions and constiute the entire contract.
offer and acceptance
an offer that may be made by the applicant by signing the application, paying the first premium, and if necessary submitting a physical examination. Policy issuance, as applied for, constitutes acceptance by the company. Or the offer may be made by the company when no premium payment is submitted with application. Premium payment on the offered policy then constitutes acceptance by the applicant.
hazard
any factor that gives rise to a peril
health insurance contracts
are indemnity contracts and will only reimburse the actual cost of the loss. you cannot profit from an indemnity contract
representations
are statements made by applicants on their applications for insurance that they represent as being substantially true to the best of their knowledge and belief , but they are not warranted as exact in every detail
life insurance contracts
are valued contracts, which means it will pay a stated amount
implied authority
authority not specifically granted to the agent in the contract of agency, but which common sense dictates the agent has. it enables the agent to carry out routine responsibilies.
conditional contract
means certain conditions must be met by all parties in the contract. This is needed when a loss occurs in order for the contract to be legally enforceable. All insurance contracts are conditional contracts.
stranger-oriented life insurance
life insurance arrangements where investors persuade consumers (usually seniors) to take out new life insurance policies, with the investors named as beneficiary. Investors loan money to the insured to pay the premiums for a defined period. the insured ultimately assigns ownership of the policy to the investors, who recieve the death benefit when the insured dies. the insured recieves additional financial benefits, such as an upfront payment or loan.
participating plan
of insurance is a plan under which the policy owner recieves shares (commonly called dividends) of the divisible surplus of the company.
risk pooling
also known as loss sharing, spreads risk by sharing the possibility of loss over a large number of people. it transfers risk from an individual to a group.
voidable contract
a contract that can be made void at the option of one or more parties to the agreement
policy rider
a legal attachment ammending a policy. additional benefits or a reduction in benefits are often incorporated in policies by the attachement of either a benefit or an exclusion rider.
proof of loss
a mandatory health insurance provision stating that the insured must provide a completed claim form to the issuer within days of the date of loss. if the insured wants paid, they must prove the loss occured.
fraternal benefit societies
a non profit benevolent organization that provides insurance to its members. producers or agents who only sell within their society, do not recieve commision, and stay under a specific premium threshhold often have less stringent licensing requirements.
unilateral contract
a one sided agreement, where only the insurer is legally bound. in an insurance contract only the insurance company is legally bound to do anything.
policy
a policy is a written contract in which one party promises to idemnify another against loss that arises from an unknown event.
speculative risk
a type of risk that involves the chance of both loss and gain; it is not insurable.
reinsurer
company that provides financial protection to insurance companies. they 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.
legal purpose
means 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 legel purpose. Without legal effect, the contract would be null and void.
apparent authority
deals with the relationship between the insurer, the agent and the customer. It is the appearance of authority based on the agent insurer relationship. 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 principle.
State Guaranty Association
established by each state to support insurers and protect consumers in the case of insurer insolvency. Guaranty associations are funded by insurers through assesments. All authorized insurers are legally required to partifipate in the state guaranty association for any state they are authorized to do business in regardless of where their corporate office is.
law of agency
establishes a relationship in which one person is authorized to represent and act for another person or company. In applying the law of agency, the insurance company (insurer) is the principle. An agent or producer will always be deemed to represent the insurance company and not the applicant. In regard to the insurance contract, any knowledge of the agent is considered to be knowleddge of the insurance company (insurer). if the agent is working within the conditions of his/her contract, the insurnce company is fully responsible.
express authority
explicit authority granted to the agent by the insurer as written in the agency contract
aleatory
feature of insurance contracts in that there is an element of chance for both parties and that the dollar given by the policyholder (premiums) and the insurer (benefits) may not be equal. the premiums paid by the applicant is small in relation to the amount that will be paid by the insurance company in the event of a loss. -consideration may be unequal -the outcome depends on chance or uncertain event -a legal bet is considered an aleatory contract
the fair credit reporting act
federal law requiring an individual to be informed if she is being investigated by an inspection company. the law also outlines the sharing and impact of such info and requires indivuals to be notified prior to being investigated.
disability (income) insurance
form of insurance that insures the beneficiarys earned income against the risk that a disability creates a barrier for a worker to complete the core functions of their work. although disability insurance is designed to help ones income, there are typically rules and regulations in place limiting the benefits of a disability policy to ones income level, and typically only allowing protection for a portion of their income.
reserve
funds held by the company to help fulfill future claims. Minimum reserves are usually set by the state department of insurance
health insurance
general way of describing insurance against loss through sickness or accidental bodily injury. it is also called accident and health, accident and sickness, sickness and accident or disability insurance. it is important to remember the general term "health insurance" applies to many different types of insurance, not just the medical insurance that pays for doctor and hospital visits.
utmost good faith
implies that there will be no attempt by either party to misrepresent, conceal or commit fraud as it pertains to insurance policies.
life insurance
insurance against loss due to the death of a paticular person (the insured) upon whose death the insurance company agrees to pay a stated sum or income to the beneficiary. In its purist form life insurance states "we will pay this amount when this person dies"
mutual companies
insurance companies characterized by having no capital stock, it is owned by its policy owners and usually issues participating insurance
stock companies
insurance companies owned and controlled by a group of stockholders whose investment in the company provides the saftey margin necessary in issuance of guarenteed, fixed premium, nonparticipating policies
property insurance
insurance policy that provides financial reimbursement to the owner or renter of a structure and its contents, in the event of damage or theft. property insurance protects the things you own and rent.
non participating plan
insurance under which the insured is not entitled to share the divisible surplus of the company.
risk retention
is being aware of the risks involved and taking precautions for financial protection. you decide that public transporation cannot get you everywhere you want to go when you want to go there, now you must decide what limits to put on your financial responsibility by choosing your deductible. the auto policys deductible is an illustration of risk retention. through the deductible, the insured remains part of the risk, the part that you are responsible for. One way to handle a retained risk is through self insurance.
morale hazard
is hazard arising from the indifference to loss because of the existence of insurance.
adverse selection
is selection "against the company" tendency of less favorable insurance risks to seek or continue insurance to a greater extent than others. also, tendency of policy owners to take advantage of favorable options in insurnace contracts.
property and casualty insurance
often reffered to collectively as property and casualty insurance because the things you own have the potential to harm people in ways that could cause them to sue you. the main kinds include auto insurance, home owners insurance, renters insurance and umbrella insurance.
competent party
one who is capable of understanding the contract being agreed to. 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.
consideration
part of an insurance contract setting forth the amount of initial and renewal premiums and frequency of future payments. consideration is often said to include the initial premium and completed application for insurance. In other words, the applicant is saying "please consider me for insurance, here is my inital premium, my completed application , and how much/how often i agree to pay in the future, please consider me"
Medical Expense Insurance
pays benefits for non surgical doctors fees commonly rendered in a hospital, sometimes pays for home and office calls.
An insurance declaration page
peice of paper which provides basic information about an insurance policy. typically, the first page (face) of an insurance policy is a declaration page. the declarations page normally specifies the named insured, address, policy period, location of propery, policy limits, and other key information.
whole life insurance
permanent level insurance protection for a persons "whole of life" from policy issue to the death of the insured. characterized by level premiums, level benefits and cash values.
notice of claim
policy provision that describes the policy owners obligtion to provide notification of loss to the insurer within a reasonable period of time. notice of claim only requires the insurance company to be notified of a loss, it does not require proof of the loss is provided .
Term life insurance
protection for a set # of years; expiring without value if the insured survives the stated period, which may be 1 or more years. Term life is designed to provide temporary protection in case a person dies during a set period of time.
fiduciary responsibility
relationship between the agent or producer and client or company funds. because the agent handles money of the inusured and insurer he/she has a fiduciary responsibility. a fiduciary is someone in a position of trust. with insurance for example, it is illegal for agents to mix premiums collected from applicants with their own personal funds, this is called commingling.
insurable interest
requires that an individual have a valid concern for the continuation of the life or well being of the person insured. without insurable interest, an insurance contract is not legally enforceable and would be considered a wagering contract. NOTE: insureable interest only needs to exist at the time of the application (the interception of the contract)
consideration
something of value that each interested party gives to each other. the insured provides consideration with payment of premium. the insurer provides consideration by promising to pay the insurance benefit.
warranties
statements made on an application for insurance that are warranted to be true; that is, they are exact in every detail as opposed to representations. statements on applications for insurance are rarely warrrantied, unless fraud is involved
policy summary
summary of the terms of inusrance policy. including the conditions, coverage limitations, and premiums. policie summaries are often used with life insurance, long term care insurance and annuities.
risk reduction
takes place when the chances of loss are lessened. changing ones lifestyle to minimize a known risk. you decide you cannot stay inside all day to avoid getting in a car accident, so you reduce the risk by using public transportation
Reinsurance
the acceptance by 1 or more insurers, called reinsurers, of a portion of the risk underwritten by another insurer who has contracted for the entire coverage.
reinstatement
the act of putting a lapsed policy back in force by producing satisfactory evidence of insurability and paying any past due premiums required. Most states have reinstatement laws requiring an insurer to allow for a policy to be reinstated upon request of the policy owner within a specfied period of time.
risk transfer
the act of shifting the responsibility of risk to another form of an insurance contract. through the insurance contract, the burden of carrying the risk and idemnifying the financial loss is transfered from the individual to the insurance company. purchasing insurance does not limit risk entirely, however it is one of the most effective ways of transferring risk
deductible
the amount of expense or loss to be paid by the insured before an insurance policy starts paying benefits. deductibles typically apply to property, casualty and health insurance.
law of large #'s
the basic principle of insurance that the larger the # of individual risks combined into a group, the more certainity there is in predicitng the degree or amount of loss that will be in incurred in any given period
moral hazard
the effect of personal reputation, character, associates, personal living habits, financial responsinility, and environment, as distinguished from physical health, upon an individuals general insurability.
concealment
the failure of the insured to disclose to the company a fact material to the acceptance of the risk at the time application is made
peril
the immediate specific event causing loss and giving rise to risk
the insuring agreement (insurance clause, insurance provision)
the portion of the insurance policy in which the insurer promises to make payment to or on behalf of the insured. It states the scope and limits of coverage. the insuring agreement is usually contained in a coverage form from which a policy is instructed. in other words it is the insurance company saying, "we ensure you under these conditions for this amount."
risk
the uncertainity regarding loss, the probability of loss occuring for an insured or prospect
contract of adhesion
there is only one author-the insurance company. if there is an ambiguity in the contract, the court always favor the insured over the insurer. because an insurance contract has been prepared by an insurrance company with no negotiation, it is considered a contract of adhesion.
Group Life Insurance
type of life insurance in which a single contract covers an entire group of people. most often the group is an employer-employee group. Those covered under a group life policy may or may not pay a portion of the premium and can usually choose their beneficiary. However, the insured typically does not own the policy, the group (employer) owns and controlls the policy.
pure risk
type of risk that involves the chance of loss only; there is no opporunity for gain, insurable
Risk Avoidance
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. an example would be driving a car, if you never leave the house you wouldnt have a chance of getting in a car accident.
