Flashcards
The law of large numbers is a statistical concept that calculates the average number of events or risks in a sample or population to predict something. The larger the population is calculated, the more accurate the predictions. In the field of insurance, the Law of Large Numbers is used to predict the risk of loss or claims of some participants so that the premium can be calculated appropriately.
For an insurance policy to be a legal contract it must include four elements. C – O – A – L. L stands for legal purpose and capacity. The policy must be purchased for a legal purpose and the owner must be the age of majority in the state and of sound mind.
The amount of policy reserves (cash on hand) required under state insurance laws.
Required for an insurance producer (agent) to legally engage in the business of insurance in a state. Issued for a period of time, states will require a fee and many require continuing education to be completed to renew a license.
The probability of an individual living to a certain age according to a particular mortality table. This is the beginning point in calculating the pure cost of life insurance and annuities and is reflected in the basic premium.
The amount an insurance company pays on a claim.
A significant misstatement on an application form. If a company had access to the correct information at the time of application, the company might not have agreed to accept the application.
It is this 1945 Act that exempts insurance from federal law to the extent that it is regulated by state law.
An organization that collects medical data on life and health insurance applicants for member insurance companies.
A false statement of a material fact, accidental or intentional.
The frequency of premium payment is referred to as the mode of payment. The more often the premium is paid the more expensive it will be due to service fees.
Hazard arising out of an insured’s character, habits, financial responsibilities, etc. A liar represents a moral hazard.
Hazard arising out of an indifference to loss because of the existence of insurance. A careless person represents a morale hazard.
An insurance company owned by its policyholders. Mutual insurance companies usually issue participating policies. The policyowners of participating policies may receive dividends.
The association of state insurance Commissioners. They work together to solve insurance regulatory issues and form and recommend model legislation and requirements.
An insurance company that is not licensed to operate within a state.
A life insurance policy that does not grant the policy owner the right to policy dividends. Nonparticipating policies are issued by stock insurers.
A requirement that describes the policyowner’s obligation to provide notification of loss to the insurer within a reasonable period of time.
For an insurance policy to be a legal contract it must include four elements. C – O – A – L. O stands for offer. In general, the applicant makes the offer when they fill out the application and submit the first premium payment.
A life insurance policy under which the company agrees to distribute to policyowners the part of its surplus that its Board of Directors determines is not needed at the end of the business year. The distribution serves to reduce the premium the policyowners had paid.
A peril is a cause of loss. Life insurance covers death due to two perils: accident and sickness.
The printed legal document stating the terms of an insurance contract that is issued to the policyowner by the company.
The terms or conditions of an insurance policy as contained in the policy clauses.
The payment, or one of the periodic payments, a policyowner agrees to make for an insurance policy. Depending on the terms of the policy, the premium may be paid in one payment or a series of regular payments, e.g., annually, semi-annually, quarterly, or monthly. The premium charged reflects the expectation of loss, expenses, and profit contingencies.
A general term applied to an agent, broker, or other person who sells insurance.
Rebating occurs when the agent (producer) returns part of their commission to the insured as an inducement to buy the policy. Rebating is a prohibited trade practice under insurance law.
Reinsurance occurs when the insurance company buys insurance on the risks it insures, done to reduce the insurance company’s risk.
Representations are the truth to the best of your knowledge. Life and health insurance applications ask the applicant to make representations.
Funds held by the insurance company to help fulfill future claims.
Retention of risk is the net amount of any risk that an insurance company does not reinsure but keeps for its own account.
Risk is the chance of loss. Pure risk is insurable. Pure risk involves no chance of gain.
The basic premise of insurance, a large number contribute to cover the losses of a few.
An insurance company owned by its stockholders. Stock insurers issue nonparticipating policies. Dividends, when paid, are paid to the stockholders, not the policyholders.
Unauthorized insurers are those who are nonadmitted, meaning they have not been approved or authorized to sell insurance in the state.
The person who reviews the insurance application and decides if the applicant is acceptable and at what premium rate.
The process by which a life insurance company determines whether it can accept an application for life insurance, and if so, on what basis so that the proper premium is charged.
Most states have adopted similar laws related to unfair claims settlement practices. These practices apply to both the insured and the insurer.
Unfair discrimination happens when similar risks are treated differently and premiums are based not on relative risk but on factors like race. State laws will address unfair discrimination related to insurance. For example, in some states, car insurance premiums cannot be based on gender. In those states to base car insurance premiums on gender would be a form of unfair discrimination.
Most states have adopted similar laws related to unfair trade practices. These include unfair discrimination, misrepresentations related to the benefits, advantages, conditions, or terms of an insurance policy, misrepresentations related to dividends, and misleading statements related to the financial health of the insurer, amongst many others.
Insurance contracts are an example of a unilateral contract. This means they are one-sided. So long as the life insurance premium is paid, the insurance company promises to pay the beneficiary the death benefit if a certain event occurs (the insured dies). With a unilateral contract only the insurer makes a legally enforceable promise to pay covered claims.
A voluntary giving up of a legal, given right.
If the underwriter approves an incomplete application the insurer is waiving their rights to contest a claim related to whatever was left blank (doctrine of waiver and estoppel).
A warranty is a guarantee of truth. Applicants cannot be asked to warranty their health.
A type of life insurance that provides a guaranteed death benefit at a guaranteed flat premium and that accumulates cash value that may be borrowed against.