Life & Health Insurance Exam 3
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What is an Insurer?
The insurance company
What are premiums?
The insurance company receives relatively small amounts of money, referred to as premiums. Premius are from each of a large number of people buying insurance
What is the industry's term for "the bill that must be paid to purchase the policy"?
- 1. The consideration for the Insurance.
- 2. A periodic payment made to keep a policy in force.
What is a Contract of Insurance, or Policy?
The agreement between the insurer and the policy owner (the person who owns the insurance)is established in a legal document.
How is Loss defined?
Loss is defined as the reduction in the value of an asset.
How to be paid for a Loss?
The insured must notify the insurer by making a claim.
What is a claim?
A demand for payment under the insurance policy.
What is insurable interest in reference to Life Insurance?
An insurable interest must exist when one person or a business owns a policy on the life of another.
What does it mean to be insurable?
A risk must involve the possibility of only loss , not gain.
How can an insurable interest be based on a financial loss?
If a person dies that is in business with a partner, the business could fail, resulting in a loss for the surviving partner.
Life insurance for insurable interest must exist at the time of application, but it need not exist at the time of the insureds death.Why?
- Because a table is used for Life Insurance,e.g. the age.
- The "Factual Expectancy Test" and "Legal Interest" are the two major concepts applied to policy.
What is another form of insurable interest?
- 1. Individuals who are related by law or blood, which includes relationships that are based on love, affection and/or economic dependency.
- 2. Employers have an insurable interest in their employees, as well as any other person whose disability or death could cause finacial hardship to the employee or business
- 3. Creditors and lenders have insurable interest in debtors and borrowers (to the extenty of the amount of debt).
An insurance company must be able to accurately predict future losses. Only deal with insurable risks. List 6.
- 1. There must be a large number of homogeneous , similiar units.
- 2. A loss must be ascertainable (or measurable).
- 3. The timing of the loss must be uncertain.
- 4. A loss must include an economic hardship.
- 5. The loss must exclude catastrophic perils.
- 6. There must be protection against adverse selection: adverse selection occurs when a potential client can take advantage of the insurance.
In Life Insurance, monetary value is placed on the insureds income-earning capacity. How is Health Insurance risk calculated?
Health Insurance is difficult to determine econimic loss, so economic loss is measured by lost wages or actual medical expenses.
Define Principle of Indemnity.
It restores insured person in whole or in part to the conditions enjoyed prior to loss.
Principle of Indemnity differs with Life, Medical, and Disability Income Insurance. Explain.
- Life Insurance, the "value" is assigned not to person life but potential earning income.
- Medical Insurance , the value is assigned is based on actual bills submitted by doctors and hospital.
- Disability Income Insurance issues policy that is limited to a set percentage of a person's gross income.
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