SECTION 1: INTRODUCTION TO INSURANCE

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Author:
sirinvictus
ID:
305569
Filename:
SECTION 1: INTRODUCTION TO INSURANCE
Updated:
2015-07-22 23:06:28
Tags:
insurance
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INTRO
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  1. Risk
    uncertainty or possibility 

    2 Kinds of Risk 

    Speculative Risk: possibility of gain or loss.  ie gambling and NOT insurable. 

    Pure Risk: no possibility of gain
  2. Elements of an Insurable Risk
    Pure risks are the subject of insurance, but not all pure risks are insurable.

    Elements MUST exist for risk to be insurable

    • Accidental 
    • Ascertainable in case, time and amount
    • Economically feasible premium
    • Insurance must exclude catastrophic loss exposure such as war or nuclear
    • Predict the chance of loss using the "Law of Large Numbers"

    NOT PREDICTABLE = NOT INSURABLE
  3. Law of Large Numbers
    Statistically predict future losses

    Law of Large numbers does not predict individual losses
  4. Risk Management
    Process of Identifying exposure to risk and deciding how to handle the risk

    4 Management Techniques 

    1. Reduce - Lowering the hazard

    2. Retain - Assume financial risk self-insure, deductible or co-pay

    3. Avoid - Eliminate the financial risk

    4. Transfer - Purchase insurance
  5. Life and Health Insurance Concepts
    Insurance Policy- a legally binding contact between the two parties 

    Insurer: Insurance Company 

    Insured: The person whose life, health is insured by the insurance policy
  6. Morality
    The likelihood of dying during a given year.  

    Morality tables assume everyone is statistically dead at age 100
  7. Rate
    The price (cost) of life insurance quoted in thousands

    i.e. cost per unit of exposure
  8. Prospective Loss Cost (aka Loss Ratio)
    Portion of the rate which is projected to be paid out in insurance benefits
  9. Attained Age
    Age at the time of application
  10. Who's Who?
    Actuary: Mathematician who develops the rates for the insurer. 

    Underwriter (aka Home Office Underwriter)- employee of the insurer selects risk for insurer to avoid adverse selection.  

    Producer (Agent) (aka Field Underwriter)(aka Agent Underwriter)- licensed to solicit, negotiate, or sell insurance

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