RMI 374 Test 1 - ch. 1-4
A system of compulsory contribution to provide government assistance in sickness, unemployment, etc.
Social Insurance
Costs insurers incur for the "service" insurance provides.
Acquisition
Insurance company gets enough money
Adequate
c.
Administration
10.
BTID: What is this? See Babbel article posted on Bb.
10 pay - pay premiums for 10 years Ordinary life - pay premiums for whole life 65 life- pay premiums until 65P
Be able to distinguish between Ordinary Life, Limited Payment WL, 10 Pay, 65Life, etc. See chart on page 97.
10.
Be able to draw and label the annuity graphline.
7.
Be able to explain the significance of MIX-P - why do we call them non-guaranteed elements?
4.
Be able to explain why a term policy is a complete risk transfer.
Basis premiums on the following -Mortality/Morbidity - Number of people going to die/Number or people going to become ill. - Income - Investments and interest. How much they'll make on policy. - X - Expenses - Persistency - How many polices in a given year do not lapse and go into the next year.
Be able to name and define each item in MIX-P.
a.
Can you draw and label the diagram?
b.
Can you draw and label the money bucket?
Business (workers comp), business income loss
Commercial Lines
The person that offers loses if there is an ambiguity in the contract. Insurance company loses and other wins.
Contra Proferentum
A contract in which you stick to it. One party writes all of the words and the other party accepts or declines.
Contracts of Adhesion
When paid to the beneficiary is TAX FREE
Death Benefit
7.
Define Convertibility
6.
Define Renewability
Guaranteed: Premium and Death benefit Non-guaranteed: MIX-P
Distinguish between Guaranteed cash values and Non-guaranteed cash values
Premium has to be low enough so people will pay it.
Economically feasible
3.
Elements of a term policy:
Fair, older, and higher mortality risk pay more.
Equitable (NOT equal)
6.
Explain stock dividends and insurance Dividends
b.
Exposure (aka "loss exposure"):
Creates a risk that did not exist.
Gambling
A condition that increases the likelihood of a loss. (sky diving)
Hazard:
4.
How does a life insurer reduce risk and diminish uncertainty?
11.
How does a universal life policy work?
Information to help you gain something in the future.
Human Capital
9.
If the annual dividends exceed the annual premium, is it a paid up policy?
Getting what is worth from the insured plan. "filling in the hole" Ex.) Auto insurance
Indemnification Policy
Reduces the cost of an existing risk.
Insurance
Financial intermediation function under which insureds each contribute to a insurance pool from which payments are made to them or on their behalf is specified contingencies occur; a contingent claim on the pool's assets
Insurance Economic Answer:
An agreement (insurance policy or contract) by which one party (policyowner) pays a stipulated consideration (premium) to the other party (insurance company) in return for which the insurance company agrees to pay a defined amount or provide a specific service if specified contingencies occur during the policy term.
Insurance Legal Answer:
c.
Insurance Marketing Answer:
Money accumulation for you.
Invested Capital
Invest in stock and cheap term policy
Investment management
4.
Know that life insurance enables people to leverage up the transfer of property during life and at death.
8.
Know the difference between par policies and non-par policies
Surplus - Money left over Divisible Surplus (Dividend) - Surplus divided among shareholders.
Know the difference between surplus and divisible surplus
1. Promotes Financial Stability 2. Substitutes for and complements government security programs. 3. Facilitates and motivates savings 4. Fosters more efficient capital allocation
Know the four fundamental contributions of insurance to economic prosperity listed at the top of page 10 in your text.
40%
Know the relative amount of term insurance to other forms of insurance on page 59 of your text. And note that less than 5% of all individual term policies mature as a death benefit.
5.
Know this: If properly underwritten, the risk assumed by an insurer is NOT whether losses will occur. It is whether the actual losses will deviate from expected losses by a greater amount than planned for.
Living too long to outlive your money (social security)
Longevity Risk:
a.
Moral (dishonesty re insurability or the loss) Hazards
b.
Morale (carelessness/indifference to risk) Hazards
Whether or not you will become ill so you can't go to work. (Disability, Long term care insurance)
Morbidity Risk
You will die before you wanted (life insurance)
Mortality Risk:
c.
Odds:
The cause of loss (fire, flood, etc.)
Peril:
Stuff we own
Personal Lines
Life Insurance Pricing
Premiums must be:
Any health insurance policy purchased by an employer or by an individual from a private insurance company.
Private Insurance
12.
Review and understand Appendix 4A. This is important (pp111-116)
11.
See page 49. What are the 4 requisites for Private Insurance?
Month 1 Plus: Premium, less loading Less: Expense Charge Less: Mortality charge Plus: Interest Credits Equals: Account Value Month 2 Account value from month 1 repeat about steps (plus & less)
See the UL illustration on page 72. Know how this chart works.
beats me
Service
Accumulated interest of INSIDE BUILD UP
Tax Differed
Promise
Term Insurance
The exchange for a small certain loss (premium) for a large uncertain loss (the event insured).
The Insurance Principle
The more time you repeat an event in an unchanging environment the smaller the deviation from what you expected and actual.
The Law of Large Numbers,
Underwriting is there to make sure you pay the correct and appropriate premium.
Understand why you must have underwriting to avoid a death spiral.
13.
Understanding interest crediting: New $ Rate v Portfolio Rate. See in class diagram.
Uncertainty about outcomes that can positive or negative.
The definition of Risk.
5.
Understand why life insurers must set the price (premium) of the policy before knowing the cost of goods sold.
3.
The two Income Tax advantages given to life insurance under IRC Section 101(a)
11.
Understand "actuarial equity" (aka an "actuarially fair price.")
10.
Understand "risk pooling"
1. Contributory (employee & employer pay premium) v non-contributory (employer pays all) 2. Group exists for purposes other than getting insurance 3. Probationary period 4. Termination of coverage 5. Conversion
Understand each of the elements of Group Term Insurance
5.
Understand that some other types of insurance (UL, VUL, VL) shift some risk back to the policy owner.
13.
Understand the basics of how VUL works
The set amount you will get for something. Written in declaration. Ex.) Life insurance
Valued Policy
Any arrangement under which amounts are paid into a fund by participants who receive payments from the fund only for as long as they live, with a portion of the forfeited funds of deceased participants being used to augment payments for survivors. They're illegal because it is promoting murder to receive the money put in.
What are Tontines and why are they illegal?
1. Cash 2. Reduce Premiums 3. Accumulate Interest 4. One year term policy 5. Paid-up Policy
What are the 5 dividend options?
3.
What does the WL money bucket look like?
All Wl policies sold in the U.S. and many other markets are required to have cash values, and the cash value must build to the policy face amount by the terminal age.
What does this phrase mean? "All WL policies involve prefunding of future mortality costs." Text page 90.
The use by an applicant of undisclosed material information about the risk to obtain insurance coverage that would not be offered if the information were disclosed to the insurer.
What is "adverse section" (aka "antiselection")?
1.
What is WL Insurance?
Promises protection
What is the role of the insurance industry in the economic growth of a country.
8.
What's a "paid-up" policy?
Select is a specific group of people while ultimate is all.
What's e difference between select and ultimate mortality?
Precept holding that divisible surplus should be distributed under participating parties in the same proportions as the policies are considered to have contributed to surplus.
What's the contribution principle?
4.
Where do Cash Values come from?
2.
You should be able to give me a short definition of how the term insurance money bucket works.