Insurance study guide
Insurer
(principal) the company who issues an insurance policy
Morale
A person who does not lock the doors to his or her house shows an indifferent attitude. This person presents what type of hazard?
Commingling
A producer who fails to separate premium monies from his own personal funds is guilty of
Pure risk
A situation in which a person can only experience a loss and no gain presents what type of risk?
A level annual premium for life of the insured
A straight life policy has what type of premium
Agent or Producer
According to the Law of Agency , a principal is represented by whom?
Guaranteed surrender value
According to the nonforfeiture law, if the owner decides to surrender a deferred annuity prior to annuitization , the owner is entitled to which of the following
30 days
Agents who change their state of residence must notify the Director within how many days of any chance in address
30 days
Agents who change their state of residence must notify the Director within how many days of any change in address
Obtaining an insurance license
All of the following would be considered an insurance transaction except
The interest will continue to accumulate tax deferred
An annuitant dies before the effective date of a purchased annuity. Assuming that the annuitant's wife is the beneficiary , what will occur
Retirement plans
Annuities can be used to fund which of the following
Yes, but not unfairly
Are insurance company underwriters allowed to discriminate
By the last day of their birth month
By what date in each licensing period are agents required to renew their license
Hazards
Conditions that increase the chance of a loss are known as what?
Underwriting
During which stage in the insurance process do insurers evaluate information that identifies adverse selection risks?
2 years
Each person licensed as an agent or solicitor is required to complete continuing education instruction every
Speculative risk
Events in which a person has both the chance of winning or losing are classified as
Uncertainty of loss
For the purpose of insurance , what is risk?
90 days
How many days after being licensed to place business transactions in Ohio must an insurer have antifraud program in place
trustee to trustee
In a direct transfer , how is money transferred from one retirement plan to a traditional IRA
Peril
In insurance , what is the term used for cause of loss
Insurer
In the agent/insurer relationship who is considered the principal?
Loss
Insurance is a contract that protects the insured from what?
domestic, foreign, alien
Insurers are classified according to their domicile. What are the three types of insurers?
Generally not taxed as income
Life insurance death proceeds are
NAIC
National Association of Insurance Commissioners , an organization composed of insurance commissioners from all 50 states
Types of Risk
Pure and Speculative
Must allow the policy owner to return the policy for a full refund
Regarding the free look provision , the insurance company
Insurance Transactions
Solicitation , Negotiations, Sale, Advising individual concerning coverage or claims
The insurer
The director may examine books and records of all authorized insurers in Ohio . Who is responsible for paying for the examination
The insurer
The director may examine books and records of all authorized insurers in Ohio. Who is responsible for paying for the examination
15
The hearing for a cease and desist order must occur within how many days of the order date
180 days
The maximum duration of a temporary license in this state is
Speculative
Waggering on a sport event is known as what type of risk?
Agent's contract with the principal
What documentation grants express authority to an agent?
Cash values can be borrowed at any time
What does "liquidity " refer to in the life insurance
Reinsurance
What method do insurers use to protect themselves against catastrophic losses?
Section 1035 policy exchange
What part of the Internal revenue code allows an owner of a life insurance policy or annuity to exchange or replace their current contract without creating adverse tax consequences
The cost the company is paying for monthly premiums
What type of information is NOT included in a certificate of insurance
Pure
What type of risk is insurable?
December 31 of the year that contains the fifth anniversary of the owners death
When an IRA be completely distributed when a beneficiary is nat named
When the premium was paid upon policy delivery and not at the time of application
When should an agent obtain a Statement of Good health from the insured ?
The insurer can increase the policy premium on an individual basis
Which of the following is NOT a feature of a guaranteed renewable provision ?
To create an estate
Which of the following is the best reason to purchase life insurance rather than annuities
A denied license in another state
Which of the following would be sufficient violation to warrant rejection, revocation , or suspension of an insurance agent license
Insurer
Who is responsible for paying the cost of medical examination required in the process of underwriting
Stockholders
Who owns stock companies?
insurance company
Whom does an insurance agent represent?
Material fact
a fact would lead to a different underwriting decision the insurer known about it
Benefit period
a period of time during which benefits are paid under the policy
Waiting period
a period of time that must pass after a loss occurs before the insurer starts paying policy benefits
Beneficiary
a person who receives the benefits of an insurance policy
Claim
a request filed with an insurance company asking for payment according to the terms of an insurance policy
Copayment
an arrangement in which an insured must pay a specified amount for services "up front" and the provider pays the reminder of the cost.
Solicitation
an attempt to persuade a person to buy an insurance policy : it can be done orally or in writing
Captive Agent
an insurance producer who by contract is bound to write insurance for only one company is classified as a/an
Perils to Loss
hazards (conditions that increase the probability of an insured loss), perils (causes of loss), loss(reduction of value / basis for a claim), insurance ( transfer of loss / protection )
Higher deductible
lower premium
Guaranteed Renewable policy
requires the insurer to continue coverage, as long as premiums are paid
Dependent
someone relying on the insured for support
Cancellation
termination of an in force insurance policy , by either the insured or the insurer , prior to the expiration date shown in the policy
Deductible
the portion of the loss that is to be paid by the insured before any claim may be paid by the insurer
insurance
transfer of risk
insolvent
unable to meet financial obligations
When the agent receiving the commission is licensed for that same line of business
under what circumstances may be an agent appointed with the issuing insurance company pay a commission to another agent
Aleatory
unequal values
Material Misrepresentation
untrue statements on the application unintentionally made by insureds that, if discovered , would alter the underwriting decision of the insurance company, are called
That its polices are covered by a state Guaranty Association
which of the following may NOT be included in an insurance company's advertisement
Fiduciary
The requirements that agents must account for and promptly remit all insurance funds collected is knows as what type of agent responsibility?
Mutual Company
The type of insurance company organized to return any surplus money to it's policyholders is known as what ?
Insurers
What entities make up the Medical Information Bureau?
An absolutely true statement upon which the validity of the insurance is based
What is a warranty in an insurance contract
Insurable interest and consent
What two elements are necessary for a life insurance contract to have a legal purpose?
Alien
What type of insurer is formed under the laws of another country?
Insurer
When agents act within the scope of their contract, their actions will be assumed to be the acts of whom?
Insurance policy
a contract between a policy owner (and/ or insured) and an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events
Stock Companies
are owned by stockholders who provide the capital necessary to establish and operate the insurance company and who share in any profits or losses
Mutual Companies
are owned by the policy owners and issue participating policies
Law of Agency
defines the relationship between the principal and the agent/producer: the acts of the agent/producer within the scope of authority are deemed to be the acts of the insurer
Elements of Insurable Risk
due to change, definite and measurable and statically predictable , not catastrophic, randomly selected/ loss exposure
Agent Authority
express -written in the contract implied -not written into the contract, but is assumed apparent -based on the principal's actions or words
Three types of producer authority
express, implied, apparent
Domestic insurer
is an insurance company that is incorporated in this state
fraternal benefit society
is an organization formed to provide insurance benefits for members of an affiliated lodge, religious organization, or fraternal organization with a representative form of government
Implied Authority
is authority that is not expressed or written into the contract, but which the agent is assumed to have in order to transact the business
Personal contract
is between the insurance company and an individual.
Fraud
is the intentional misrepresentation or intentional concealment of a material fact used to induce another party to make or refrain from making a contract
Concealment
is the legal term for the intentional withholding of information of a material fact that is crucial in making a decisions
Risk retention
is the planned assumption of risk by an insured through the use of deductibles , co payments or self insurance
Risk
is the uncertainity or chance of a loss occurring
Waiver
is the voluntary act of relinquishing a legal right, claim or privilege
Unilateral Contract
only one of the parties to the contract is legally bound to do anything
Adhesion
only one party (insurer) prepares a contract, and the other party (insured) accepts it as is
Risk is insurable
only pure risk that results in a loss or no charge
Transfer
so that the loss is borne by another party
Acceptance
takes place when an insurers underwriter approves the application and issues a policy
Foreign Insurer
that has a home office in any other state but your state
Alien Insurer
that is headquarters in another country
Insured
the person covered by the insurance policy. This person may or may not be the policy owner
Policyowner
the person entitled to exercise the rights and privileges in the policy
Legal Purpose
the purpose of the contract must be legal and not against public policy . To ensure legal purpose of a Life Insurance , for example , it must have both: insurable interest and consent
Aleatory
there is an exchange of unequal amounts or values. The premium paid by the insured is small in relation to the amount that will be paid by the insurer in the event of loss
Purpose of Retention
to reduce expenses and improve cash flow, to increase control of claim reserving and claims settlements , and to fund for losses that cannot be insured
Offer
when submitting the application
Avoidance
which means eliminating exposure to a loss. For example if a person wanted to avoid the risk of being killed in an airplane crash he/she might choose to never fly in an airplane
Nonparticipating policy
which policy owners do not share in profits or losses
Essential Elements of a Contract
Agreement (offer and acceptance), Consideration, Competent parties , and legal purpose
Dividends from a mutual insurer
All of the following could be considered rebates if offered to an insured in the sale of insurance EXCEPT
The coverage period
An adjustable life policy owner can change which of the following policy features
30 days
An agent changes his residential address . Within how many days must the Director be notified ?
Concealment
An applicant knowingly fails to communicate information that would help an underwriter make a sound decision regarding coverage. This is an example of
Guaranteed insurability option
An individual is purchasing a permanent life insurance policy with a face value of $25,000 . While this is all the insurance that he can afford at this time, he wants to be sure that additional coverage will be available in the future. Which of the following options should be included in the policy
3 years
An insolvent insurer is one who is unable pay its obligations when they are due or has fewer assets than liabilities for a period of
Foreign
An insurance company is domiciled in California and transacts insurance in Nevada.What is this insurers classification in Nevada?
Foreign
An insurance company that is formed under the laws of another state is known as what type of insurer?
Mutual
An insurance policy paid a nontaxable dividend to the insured one year , and nothing the next. From what type of insurer did the insured purchase the policy ?
Pay a lower renewal premium by proving insurability
An insured has a level term life insurance policy that is guaranteed renewable and also includes a re- entry provision . The re-entry provision would allow the insured to renew the policy and
Industrial life
An insured has a life insurance policy with a face amount of $500. He pays a premium each week to the agent who sold him the policy . What kind of policy does the insured have?
The policy will terminate when the loan amount with interest equals or exceeds the cash value
An insured stops making payments on a loan taken from his cash value policy . What will most likely happen
Adjustable Life
At age 30, an applicant wants to start an insurance program , but realizing that his insurance needs will likely change , he wants a policy that can be modified to accommodate those changes as they occur. Which of the following policies would most likely fit his needs
30
How an agent's appointment has been terminated , the insurer must notify the Director within how many days
15 calendar days
How many days does the Viator have to rescind a contract after receiving the vatical settlement proceeds
The producer responds to an applicant wishing to replace existing life insurance
How must a replacing producer respond to an applicant wishing to replace existing life insurance
Every two years
How often are agents required to renew their insurance license
Reasonable Expectations
If a court ordered payment for a loss that was not covered in the policy even if it was clearly worded, it would be an example of which legal concept?
Modified endowment contract
If a life insurance policy develops cash value faster than a seven pay whole life contract , it becomes a / an
Guaranteed Insurability Rider
If a life policy allows the policy owner to make a periodic additions to the face amount at standard rates , without providing insurability , the policy includes a
Send application back to the applicant for signature
If an agent fails to obtain the applicant's signature on the insurance application , what must the insurer do?
Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount
If an annuitant dies before annuitization occurs , what will the beneficiary receive
Agent
If an applicant does not receive his or her insurance policy , who would be held responsible
The agent
If an applicant does not receive his or her insurance policy , who would be held responsible?
Require evidence of insurability
If an employee wants to enter the group outside of the open enrollment period , to reduce adverse selection , the insurer may
insolvent
If an insurer has fewer assets than liabilities and is unable to pay its financial obligations for at least 3 years , the insurer is considered
Grow tax deferred
If life insurance policies , cash value increases
The individual insured
In a group policy , who is issued a certificate of insurance
When the insurer approves a prepaid application
In forming an insurance contract , when does an acceptance usually occur?
Handling insurer funds in a trust capacity
In insurance transactions , fiduciary responsibility means
When the insurance application is submitted
In insurance, when is the offer usually made on a contract ?
45 days
In the event a policy lapses due to nonpayment of premium , within how many days would the policy be automatically reinstated the outstanding premium is paid ?
Rent
In the event of a loss, business overhead insurance will pay
Stock company
The insurer organized to return a profit to the stockholders is what type of insurer ?
2 years
The limit of certain defenses provisions prohibits insurers from denying a claim due to misrepresentation, as long as the policy has been in force for at least
The director
To whom does the insurer certify that an appointee is competent , financially , responsible , and suitable to represent them
Joint life
Twin brothers are starting a new business. They know it will take several years to build the business to the point that they can pay off the debt incurred in the starting the business. What type of insurance would be the most affordable and still provide a death benefit should one of them die
Loss must be 1)due to chance 2)definite and measurable 3)statistically predicatble 4)not catastrophic , and 5) coverage cannot be mandatory.
What are the five characteristics of an ideally insurable risk?
Agreement (offer and acceptance), consideration , competent parties, and legal purpose
What are the four elements of an insurance contract?
Restriction of coverage, refusal to accept a risk, and accepting a risk at a higher rate
What are the strategies used by underwriters to prevent adverse selection ?
Physical , moral and morale
What are the three types of hazards ?
insurance
What do individuals use to transfer risk of loss to larger group
Insurance
What do individuals use to transfer their risk of loss to a larger group?
People who are more likely to submit insurance claims are seeking insurance more often than preferred risk
What is adverse selection
Return the application to the applicant for completion
What is the best way to handle incomplete insurance applications?
$10,000
What is the maximum penalty for violating the Diector's cease and desist order
18
What is the minimum age for obtaining an insurance agent license in this state
Viator
What is the name for the owner of a life insurance policy who enters into a vatical settlement contract
minimize risk of financial loss caused by death
What is the purpose of key person insurance
Income tax on distributions and no penalty.
What is the tax consequence of amounts received from a Traditional IRA after the money was left in the tax deferred account by the beneficiary
principal
What is the term for the entity that an agent represents regarding contractual agreements with third parties ?
Application
What is the term used for a written request for an insurer to issue an insurance contract based on the provided information ?
30 days
What is the waiting period for rate filling before each rate may become effective
6 months
What is the waiting period on a wavier of premium rider in life insurance
6 months
What is the waiting period on a wavier of premium rider in life insurance policies
Complete a new application or ask the applicant to initial the correction on the original application
When a change needs to be made on the application for insurance , which is the best method for correcting the information?
Distributions are taxable
When contribution to an immediate annuity are made with before tax dollars, which of the following is true of the distributions
When the policy is delivered and the premium is paid
When does an insurance policy go into effect?
Foreign
When doing business in this state , an insurance company that is formed under the laws of another state is known as which type of insurer?
Adverse selection
When risks with the higher probability of loss are seeking insurance more often than other risks, this is know as what?
When it is intentional and material
When would a misrepresentation on an insurance application be considered fraud?
The recommended amount to keep the policy in force throughout its lifetime
Which of the following best defines target premium in a universal life policy
It is level term insurance
Which of the following best describes annually renewable term
Net premium plus expenses
Which of the following best describes gross annual premium
Taxes are deferred
Which of the following best describes taxation during the accumulation period of an annuity
Exchange of unequal values
Which of the following best describes the aleatory nature of an insurance contact?
A policy summary
Which of the following documents delivered to the policy owner includes information about premium amounts , cash values, surrender values and death benefits for specific policy years
Insurer's executive officer
Which of the following entities has the authority to make changes to an insurance policy
Department of Insurance
Which of the following has the authority to issue a cease and desist order
Creditor requiring that a debtor buys insurance from a certain insurer
Which of the following is NOT allowed in credit life insurance
It is a period during which the payments into the annuity grow tax deferred
Which of the following is TRUE regarding the accumulation period of annuity
Life Paid Up at 65
Which of the following is an example of limited pay life policy
Survivorship life
Which of the following is called a "second to die " policy
It pays dividends to policy owners
Which of the following is usually true of a participating life insurance policy
That its policies are covered by a state Guaranty Association
Which of the following may NOT be included in an insurance company's advertisement
Human life value approach (HLVA)
Which of the following methods of calculating the amount of life insurance needed takes into account the insured's wages, years until retirement , and inflation
Straight life
Which of the following policies would be classified as a traditional level premium contract
They can be changed only with the written consent of that beneficiary
Which of the following statements is TRUE concerning irrevocable beneficiaries
Face Amount
Which policy component decreases in decreasing term insurance
Optionally Renewable
Which renewability provision allows an insurer to terminate a policy for any reason , and to increase the premiums for any class of insureds
Department of Insurance
Who assumes control over an insurance company's funds and management if they become insolvent
Any person licensed to sell , solicit , or negotiate insurance
Who is an insurance agent
The agent's
Whose responsibility is it to determine that all the questions on an insurance application are answered?
The agent's
Whose responsibility is it to determine that all the questions on insurance application are answered ?
Agent/Producer
a legal representative of an insurance company; the classification of producer usually includes agents and brokers; agents are the agents of the insurer
Due to chance
a loss is outside the insured's control
Definite and measurable
a loss that is specific as to the cause , time , place and amount. An insurer must be able to determine how much the benefit will be and when it becomes payable
Reciprocity/ Reciprocal
a metal interchange of rights and privileges
Reduction
actions such as installing smoke detectors in our homes, having an annual physical to detect health problems early, or perhaps making a change in our lifestyles
Riders
added to the basic insurance policy to add, modify , or delete policy provisions
Types of Insurers - Authority
admitted/ authorized -certificate of authority -approved to transact insurance in a state non admitted /unauthorized -no certificate of authority -prohibited from transacting insurance in a state
Law of Agency
agents represent the insurer payments to the agents= payment to the insurer
elements of legal contract
agreement -insurance company ,and insured or policy owner offer-application acceptance consideration -applicant representation competent parties -legal age -mentally competent - not under influence of drugs or alcohol legal purpose -not against public policy
Four elements of an insurance contract
agreement, consideration, competent parties, and legal purpose
Insurance contract
aleatory -unequal exchange of values personal -between insurer and insured adhesion -"take it or leave it" unilateral -one sided promise conditional -certain conditions must be met
Domestic Insurer
any insurance company that has headquarters in state
Hazard
are conditions or situations that increases the probability of an insured loss occurring
Physical hazards
are individual characteristics that increase the chances of the cause of loss Ex: I've been a smoker since I was 16
Morale hazards
are similar to moral hazards , excepts that they arise from a state of mind that causes indifference to loss, such as carelessness mindset
representations
are statements believed to be true to the best of one's knowledge , but they are not guaranteed to be true.
Moral hazard
are tendencies toward increased risk Ex: I lied on my insurance application
Peril
as a cause of a loss is the reason you lost something Ex: Life insurance the cause of the loss is death
Handling Risk
avoidance, retention , sharing , and reduction, transfer
Fraud & Concealment
fraud -intentional misrepresentation of a material fact, made with intent to deceive : an act of deceit or cheating concealment -intentional withholding of information of a material fact that is crucial in making an underwriting decision
Authorized or admitted
if an insurer meets state's financial requirements and is approved to transact business in the state, it is considered what type of insurer?
utmost good faith
implies that there will be no fraud , misrepresentation or concealment between the parties .
Law of Large Numbers
insurance is spreading risk among a large pool of people with similar exposure to loss. The larger the number of people with a similar exposure to loss, the more predictable actual losses will be.
Statistically predictable
insurers must be able to estimate the average frequency and severity of future losses and set appropriate premium rates
Not catastrophic
insurers need to be reasonably certain their losses will not exceed specific limits
Life insurance
insures against the financial loss caused by the premature death of the insured
Adverse selection
insuring risk that are more prone to losses than the average risk
Speculative risk
involves the opportunity for either loss or gain. An example of speculative risk is gambling
Excess or Surplus Lines
is a company that insures things risk that other insurance companies find to catastrophic or to large to take on responsibility. They cover exrtra ordinary things
Reinsurance
is a contract under which one insurance company (the reinsurer) indemnifies another insurance company for part or all of its liabilities
Estoppel
is a legal process that can be used to prevent a party to a contract from re asserting a right or privilege after that right or privilege has been waived. Estoppel is a legal consequence of a waiver
Risk retention group
is a liability insurance company owned by its members. The members are exposed to similar liability risks by virtue of being in the same business or industry
Sharing
is a method of dealing with risk for a group of individual persons or businesses with the same or similar exposure to loss to share the losses that occur within that group
Indemnity
is a provision in an insurance policy that states that in the event of loss, an insured or a beneficiary is permitted to collect only to the extent of the financial loss, and is not allowed to gain financially because of the existence of an insurance contract. Indemnity means insureds cannot recover more than their loss.
Exposure
is a unit of measure used to determine rates charged for insurance coverage
Warranty
is an absolutely true statement upon which the validity of the insurance policy depends
Contract
is an agreement between two or more parties enforceable by law
Foreign Insurer
is an insurance company that is incorporated in another state
Loss
is defined as the reduction , decrease , or disappearance of value of the person or property insured in a policy, caused by a named peril . Insurance provides a means to transfer loss
Reciprocal
is insurance resulting from an interchange of reciprocal agreements of indemnity among persons known as subscribers
Apparent Authority
is the appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created
Lapse
policy termination due to nonpayment of premium
Pure Risk
refers to situations that only result in a loss or no change. There is no opportunity for financial gain. Only insurable
Conditional Contract
requires that certain conditions must be met by the policy owner and the company in order for the contract to be executed , and before each party fulfills it's obligations
Law of Large Numbers
states that the larger the number of people with a similar exposure to loss, the more predictable actual losses will be
Types of Insurers - Ownership
stock - issuing nonparticipating policies owned by stockholders Run by board of directors, in charge of dividends quarterly mutual- issue participating policies owned by policy owners pay dividends (return of unused premiums) Difference is when dividend is declared by the board of directors IRS says that is income to the shareholder and is taxable to them in the year they get dividend for stock Not taxable for mutual and no income tax because is refund of overpayment of premium
Determining Rates
the age of the insured, medical history, occupation , and sex
Adverse Selection
the insuring of risks that are more prone to losses than the average risk
Premium
the money paid to the insurance company for the insurance policy
Randomly selected and large loss exposure
there must be a sufficiently large pool of the insured that represents a random selection of risks in terms of age, gender, occupation ,health and economic status, and geographic location.
Surplus lines
type of coverage that is not readily available on admitted market
Application statements
warranties - absolutely true statements breach of warranties can void the policy representations -statement that are true to the best of you knowledge
Aleatory
which of the following best describes the concept that the insured pays a small amount of premium for a large amount of risk on the part of the insurance company
