Primerica

Law of Large Numbers

The basis of sharing risk among a large pool of people with similar exposure to loss (a homogeneous group)

what certain characteristics or elements must be present before a pure risk can be insured

The loss must be due to chance, must be definite and measurable, must be statistically predictable, can not be a catastrophe and must involve large homogenous exposure units

What are the two types of risk?

Pure risk and speculative risk

Risk Management technique: transfer

The most efficient way to handle risk so that the loss is borne by another party.

Risk

The uncertainty or chance of a loss occurring.

Risk management technique: retention

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

which method of dealing with risk is applied when a person purchases insurance?

transfer

Risk management technique: sharing

A method of dealing with risk for a group of individual persons or businesses with the same or similar exposure to loss who share the losses that occur within that group

exposure

A unit of measure used to determine rates charged for insurance coverage.

when must insurable interest exist in life insurance

date of application

Risk management technique: avoidance

eliminating exposure to loss

the insured pays $1,200 annually for her life insurance premium. This year, she has accumulated $175 worth of dividends, which she applies to her next premium, thus reducing it to $1,025. what dividend option has the insured chosen?

reduction of premium

what are examples of risk retention?

self-insurance, deductibles and copayments

Risk management technique: reduction

An attempt to lessen the possibility or severity of a loss (example: having annual physicals to detect health problems early)

which of the following methods of calculating the amount of life insurance needed takes into account the insured's salary and years until retirement

the human life value approach

Risk in insurance terminology refers to...

the uncertainty of financial loss

under what circumstances will the contingent beneficiary receive the death benefit?

If the primary beneficiary dies before the insured.

An annually renewable term policy

Renews each year with an increased premium

Profitable distribution of exposures

exists when poor risks are balanced with preferred risks with average or standard risk in the middle

What does life insurance cover?

financial loss caused by the premature death of the insured

A spouse receives $5,000 a month until the principle and interest on her husband"s life insurance policy have been paid out. Which settlement option did this beneficiary choose?

fixed amount

what are the four types of hazards?

physical hazard, moral hazard, morale hazard, legal hazard

which of the following is true regarding a joint life policy?

premium is based on average age of the insureds

The insurer must be able to rely on the statements in the application, and the insured must be able to rely on the insurer to pay valid claims. In the forming of an insurance contract, this is referred to as

utmost good faith

which provision 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

Legal Hazard

a set of legal or regulatory conditions that affect an insurer's ability to collect premiums that are commensurate with

which of the following terms refers to the transfer of some or all of the the ownership rights of a life insurance policy from one individual to another

assignment

Physical Hazard

individual characteristics that increase the chances of the cause of loss (physical characteristics)

Adverse Selection

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

Speculative Risk

involves the opportunity for either loss or gain example: gambling these risks are not insurable

which of the following is true about the mandatory free-look period in a life insurance policy

it begins when the policy is delivered

In a single employer group plan, what is the name of a document that is issued to the employer?

master contract

The insured is also the policyowner of a whole life policy. What age must the insured attain in order to receive the policy's face amount?

100

Morale Hazard

They arise from a state of mind that causes indifference to loss, such as carelessness (actions taken without forethought)

when the insured purchased a new home he wanted to purchase a life insurance policy that would protect his family against losing the home should he die before the mortgage was paid. The most inexpensive type of policy that would accomplish this need would be

decreasing term

Conditions that increase the chances of an insured loss occurring are referred to as...

hazards

which of the following is an example of a limited-pay life policy?

life paid-up at age 65

In life insurance, what is considered in determining rates?

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

Pure Risk

refers to situations that can only result in a loss or no change no opportunity for financial gain only type of risk insurance companies are willing to accept

With a traditional whole life policy, the death benefit

remains constant over time

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

require evidence of insurability

an insurance policy that only requires a payment of premium at its inception and provides insurance protection for the life of the insured and endows at the insured's age 100, is called

single premium whole life

Moral Hazard

tendencies towards increased risk (evaluating the character and reputation of proposed insured)

When a death claim is submitted, the insurer discovered that the insured understated her age on the application for a life policy. What will the insurer take?

pay a reduced death benefit based on the insured's actual age

an individual owns an adjustable life policy. Sometime in the future he wants to increase the death benefit. which of the following statements is correct regarding this change?

the death benefit can be increased by providing evidence of insurability

Hazards

Conditions or situations that increase the probability of an insured loss occurring.

insurance

A transfer of risk of loss from an individual or a business entity to an insurance company, which, in turn, spreads the cost of unexpected losses to many individuals