A legal agreement between an insurer and the insured/applicant
What is risk pooling?
Risk pooling combines similar loss from many people to predict future losses
What is the law of large numbers?
The law of large numbers states that the larger the group the easier it is to predict future losses
What is risk?
Risk is the possibility of loss occuring
What is personal risk?
Risks that jeopardize an individuals greats assest, his earning power
What is a peril?
Peril is the cause of loss
What is indemnity?
Indemnity is to "make whole again". Insurance policies agree to provide payment of benefits to restore the insured's economic loss
What are commercial insurers?
Commercial insurers sell insurance to make profit
What are stock companies?
Stock companies are owned by it's stock holders who pay dividens from comapany profits
What are mutual companies?
Mutual comapanies are commercial insueres owned by policyowners
What are noncommercial organizations?
Noncommercial organizations are entities offering strict health coverage paid directly to health providers. Most common are blue cross which pays for hospital expenses and blue shield which pays for medical expenses
U.S. vs South Eastern Underwriters Association
Transactions crossing state lines are interstate commerce and are subject ot federal regulation
McCarran Ferguson Act
Federal government may not exercise rights if the insurance indutry is effectively and adequately regulated on the state level
Fair Credit Reporting Act
Regulates the way consumer credit reporing agencies collect and use an applicant's personal credit information
Gramm-Leach Blily Act
Allows financial entities to merge and accommodate greater competition
National Association of Insurance Commissioners (NAIC)
Promotes standardization of laws between states
Agreement (Offer and Acceptance)
An offer is made when an applicant submits an application to the insurer. The offer is accepted after it has been approved by an underwriter
Is an exchange of values between the insurer and the insured
Where the insurer has no say in the terms and conditions of the contract
An unequal exchange, where one party contributes more than the other
Statements that are guaranteed to be true and are apart of the legal contract
Waiver and Estoppel
Waiver is surrendering a known right.
Estoppel is the legal process of preventing one party from reclaiming a right that was waived
Contract may be voided if one or more parties to the contract commit material misrepresentation or concealment
The right of the insurer to assume the rights of the insured and sue the responsible thirt party for damages
Net single premium
Mortality and interest
Gross single premium
net premium with loading
Gross anual premium
Net premium with loading for one year
What are the three main parts of a contract?
1. Gereral information
2. Medical information
3. Agent's statement
Multiple Employer Trust (MET)
Where multiple employers form a trust fund to reduce the tax effects on providing employee benefits
Multiple Employer Welfare Arrangement (MEWA)
METs and MEWA are used synonmously
The policy is incontestable after being in force for at least two years
- Licensing and regulation
- May suspend or revoke licenses
- May issue cease and desist orders
- Conducts examinations of all domestic insurers at least once every five years