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transfers to a life insurance company the risk of financial loss resulting from the death of an insured person.
The life insurance company guarantees to pay a specified amount of money to a
lessens the financial impact of an insured's illness or disability by transferring the financial risk to a health insurance company
Property and casualty insurance
covers damage to or loss of property, such as a home or automobile, by compensating the insured for the amount of the loss or by providing a specific sum of money according to the terms of the insurance policy.
What is the difference between Risk and Loss
- Risk a chance of loss
- Loss the unwelcomed unplanned reduction in economical value
____________is the natural process we all go through to contend with the perils we face
What are the two types of Risk
- pure risk
- speculative risk
involves only the chance of a loss, and no gain, to the person assuming the risk. Pure risk includes: untimely death or serious illness or disability of a person
which is uninsurable, can result in loss or gain. Examples of speculative risk include gambling and investing in the stock market
- is an immediate result of an event involving an insured peril. An indirect loss is more remote but may still be considered an insured loss.
- For example, the death of a family breadwinner is a direct loss under a life insurance policy.
The loss of some one besides the breadwinner income is an
is the state of being subject to a possible loss
Is How a Insurers assign values to risks and that is how they come up with how much the premium will be
is a condition that raises the chance of encountering a peril or increases the severity of a loss. For example, insufficient light in a high-crime commercial area is a hazard. Potholes along a busy highway are considered road hazards. Similarly, cigarette smoking, poor diet, and excessive alcohol consumption are health hazards that increase the likelihood of illness or early death.
the immediate cause of a loss Examples include: death disability accidental injuries and sickness
Moral hazards are an individual's traits or habits that increase the chance of a loss. Alcoholism, smoking, and drug addiction are examples of moral hazards
Morale hazards are also individual tendencies, but they arise from a state of mind, attitude, or indifference to loss. Driving recklessly is an example of a morale hazard.
Physical hazards are individual physical characteristics that increase the chance of loss. They exist due to a person's physical condition as opposed to arising from his or her character. High cholesterol is an example of a physical hazard
- is a reasonable strategy to deal with especially dangerous (and avoidable) risks.
- refusing to operate a vehicle after drinking alcoholic beverages or taking drugs
Taking measure to reduce certain Risk
Exercising regularly, avoiding poor health habits, and keeping a balanced diet can reduce the risk of many illnesses, including heart disease and cancer.
is simply the acceptance of risk and dealing with it through the use of personal funds should a loss occur
Like paying a deductible for car insurance
which people who share a common risk band together and promise to "chip in" and compensate a member of the group who suffers a covered loss
transferring the loss to a third party—is the basis for most forms of insurance today.
An applicant is an insurable risk to the insurer if he or she meets certain criteria for insurability; if these criteria are met, then the applicant is insurable.
What requirements must the applicant have to be insurable
- loss must be definable
- loss must be measurable
- accidental or outside the insured's control
- part of a large group of similar (or homogeneous) risks
- must not be catastrophic
- not be one of the company's stated exclusions
The process that determines if the risk proposed for insurance should be accepted or rejected. See also field underwriting.
Law of Large numbers
A method of predicting future losses with great accuracy
___________tables are the basis of health insurance premiums
____________ are used in determining life insurance premiums
The tendency of those who most need insurance (most at risk) to buy insurance. Those who don’t have as much of a need for a particular type of insurance (least at risk) are less likely to buy it.
Insurance is regulated primarily at the
State Level by a insurance department
that is responsible for regulating insurance companies domiciled in that state as well as all producers licensed in the state and all insurance transactions occurring in the state
Who is the Head of the state Insurance
insurance commissioner (also called the insurance director in some states).
Stock insurance companies
are owned by stockholders, These companies pay stock dividends, when declared, to their stockholders. Stocks dividends are generally taxable. Stock insurers have minimum capital requirements and are governed by a board of directors elected by their stockholders.
Mutual insurance companies
are owned by their policyowners; they have no stockholders. mutual insurance companies have minimum capital requirements and are governed by a board of directors. But a mutual company’s board of directors is elected by the policyowners. Mutual companies issue participating policies, which pay policy dividends to their policyowners. Policy dividends, which cannot be guaranteed, not taxable and viewed as a return of excess premiums.
Refers to a large company that is willing and financially able to retain certain risks and to self-fund for that purpose.
The individual members that offer insurance services through Lloyd’s of London
__________is an organization of people who share a common ethnic, religious, or vocational affiliation. Fraternal benefit societies are entities that have no capital stock; have a representative form of government; exist not for profit but solely for the benefit of their members and their beneficiaries; and operate on a lodge system with a ritualistic form of work.
fraternal benefit society
Home Service (Industrial Life Insurance)
Traditionally offered as “burial insurance,” industrial life insurance offers individual coverage in small face amounts, usually less than $10,000 (and frequently between $1,000 and $2,500).agent meets with the policyowner at home and weekly or monthly, to collect the premium
Provided by so-called “ordinary” companies, ordinary life insurance generally includes life insurance issued in face amounts greater than $25,000 (in some cases, $1 million or more). Premiums are payable monthly, quarterly, semiannually, or annually
reciprocal insurance exchange
is an unincorporated group of individuals (called subscribers), working together through an attorney-in-fact, who each agree to pay a pro rata share of any loss suffered by any other member. It is essentially a formal risk-sharing arrangement. Amish
Lloyd's of London
An insurance market; it provides: a meeting place for transacting insurance business; underwriting information; a forum for settling disputes and claims, and other regulatory and administrative services.
Risk Retention Groups(RRG)
is an insurance company that provides self-insurance services to owner-members. These members all have a business, occupation, or professional relationship with one another. RRGs give companies the basic infrastructure needed to successfully band together for self-insurance purposes.
surplus lines insurance
specialized insurance coverage that is offered when either of these conditions arises: (1) a risk or a part of a risk is identified for which there is no market available through the original or producing agent; or (2) a state bars the sale of a specific type of coverage or otherwise prevents insurance companies from providing coverage for a particular risk or restricts them from charging adequate rates.
An insurer that sells insurance to the public enters into an agreement with another insurance company to accept some of its risk. The insurer accepting some of the risk being transferred is known as the reinsurance company.
are legally considered representatives of the insurer that employs them.
- is the party on whose behalf the agent acts
- Insuraunce company
Insurers and their producers are bound by_________
common law rules of agency
career (or captive) agency system
the agent is employed by one insurance company. Insurers that support the career agency system are sometimes called captive agency companies
A person holding funds or valuable property for the benefit of another person. A fiduciary is generally held to a higher standard of care with respect to the held property.
The Producer’s Fiduciary Duty
- solicit business that will be profitable to the insurer (this duty places a burden of care on agents not to present unsuitable applicants to insurers);
- carry out authorized activities with reasonable care (for this reason, an agent must not engage in professional activities in which he or she cannot perform at a skill level possessed by others who are similarly engaged);
- fully disclose to the insurer all pertinent information that affects the placement of an insurance policy, including the proposed insured's current health and health history; make full disclosure in the completion of claim forms;
- avoid conflicts of interest;follow through on business transactions within a reasonable time;
- and fully account for premiums and submit them to the insurer on a timely basis (an agent must not mix (commingle) premiums with personal funds or use them for personal expenses).
- In other words, producers must act in good faith and with integrity in their dealings with both their customers and their principals.
The contract between the producer and insurer sets forth certain acts and duties the producer is specifically authorized to perform
example, a producer's express authority would include the solicitation and sale of business for the insurer and the ability to accept contracts of insurance on the insurer's behalf
For the sake of effective business, insurers allow their producers to engage in many sales-related activities not expressly listed in any agreementis intended to be given by the insurer;
Example To seek applications for insurance, the producer is given the implied authority to telephone prospects on the insurer's behalf to arrange sales appointments, even though the authority to call prospects to arrange sales meetings is not expressly stated in the producer's contract.
- the contract does not provide;
- the insurer does not intend;
- yet reasonably appears to the customer to be granted to the agent based on the agent's statements and the actions (or inactions) of the insurer.
explains the general features, benefits, and conditions of the type of insurance being considered.
provides detailed information about the specific policy that is being purchased.
an insurance buyer and an insurance company agree to enter into a legal contract called a___________
Elements of a Legal Contract
- competent parties
- legal purpose
In a contract, the party to whom the promisor makes a promise.
In a contract, the party iwho has the "duty to perform." The promisor is the party who makes the promise.
The first step in the formation of a legal contract is usually the offer. An offer can be written or verbal. Regardless of how it is made, the offeror makes the offer to the offeree.
is anything of value that each party gives to form a contract. It is a required element of any valid contract.
- mentally sound,
- of legal age,
- and not under the influence of drugs or alcohol
Contract must be legal
contract of adhesion
It is a take-it-or-leave-it proposition, and little, if any, bargaining occurs
EXcange of unequal values
One way one party makes enforciable contract
continuation of policy depends on certain actions of the policyowner.
utmost good faith
a principol that applies between two parties
A contract of indemnity is one under which the benefit payable cannot be greater than the actual loss the contract owner incurs or the face amount of the policy, whichever is less.
that guarantee payment of a stated sum regardless of the perceived “worth” of the insured
is a statement that is believed to be true to the best of the maker’s knowledge, even though in fact it may not be true
Ex An applicant's statements on an application
is a statement the maker guarantees to be true in all ways
is the deliberate withholding of material facts when applying for insurance
is when one party to a contract gives up a right that the party knows he or she holds.
When a party to a contract gives up a right without intending to do so.