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Life and Health Insurance Unit 1
Terms in this set (73)
is a contract that indemnifies another against loss, damage, or liability arising from an unknown event.
to make a person whole by restoring that person to the same financial position that existed before the loss
A specific sum of money paid by the insured to the insurance company in exchange for financial protection against loss.
the person who is covered by the insurance
The agreement or contract between an individual and an insurance company. This is a legal document that is also referred to as a contract of insurance
a reduction in the value of an asset
a demand for payment of the insurance benefit to the person named in the policy
the possibility that a loss might occur; uncertainty of financial loss, or the chance of loss, when more than one outcome is possible.
there is only a chance of loss - it may or may not happen - and there is no possibility for gain
Involves both an uncertainty of loss and gain. these risks are undertaken voluntarily
immediate specific event causing loss and giving rise to risk
Any factor that gives rise to a peril.
arises from material, structural, or operational features of a risk situation
ie: unsanitary conditions slippery floors
arise from people's habits and values
ie: filing a false claim
arises out of human carelessness, irresponsibility or negligence
ie: dont wear seatbelt or failing to take safety precautions
when a risk cannot be avoided and retention would involve too much exposure to loss, we may choose this as a means of handling risk. The individual's individual's own loss may not be as great if it occurs, but the individual may have to pay a portion of the losses experienced by others
the risk of loss goes to another party, usually an insurance company, that is more willing or able to bear the risk.
deals with risk by not undertaking an activity that could involve the chance of loss.
ex. never flying eliminates the risk of ever being in an airplane crash.
lowering the chance that a particular loss will occur or it can lower the amount of a potential loss if it occurs
ex. installing smoke detectors would not lessen the possibility of a fire, but it would reduce the risk of the loss from the fire
doing nothing about the risk. people assume or retain the risk and, in effect, become self insurers.
Sharing, Transfer, Avoidance, Reduction, Retention
Law of Large Numbers
the larger the number of individuals that are randomly drawn from a population, the more representative the resulting group will be of the entire population with some degree of accuracy
Any financial interest in life or property such that, if the life or property were lost or harmed, the insured would suffer financially.
a pure risk that is faced by a large number of people and for which the amount of the loss can be predicted
Large Numbers of Homogeneous Units
a large number of similar exposure units is necessary in order for the pooling and sharing mechanisms of insurance to function.
Loss Must Be Measurable
The insurer must be able to place a specific monetary value on exposures and losses in order to be able to calculate rates and premiums and reach settlements.
Loss must be uncertain
Insurance covers pure risks, which must involve an uncertainty of loss. If insurance policies covered certain losses (such as deliberate acts of destruction and inevitable loss events), insurance companies would lose money or coverage would be unaffordable.
There must be a significant potential for economic loss. You cannot insure your neighbor's house against loss by fire (you do not have an insurable interest and would suffer no loss if the house burned)
Exclusion of Catastrophic Perils
The insurance system would collapse if it covered events that caused widespread losses to large numbers of insureds at the same time. many policies exclude losses resulting from war, nuclear hazards, flood, and earthquake. (Coverages for some of these exposures are available through government programs or specialty insurers.)
insurance should restore the insured, in whole or in part, to the condition the insured enjoyed before the loss. In life and health insurance, the concept has a slightly different meaning in that a person's economic value or human life value is the individual's present and future earning power.
The process by which an insurer can, after it has paid a loss under the policy, recover the amount paid from any party (other than the insured) who caused the loss or is otherwise legally liable for the loss. Right to sue. Never used in life insurance and seldom in health insurance.
the maximum liability of the insurer for a death claim
Amount you must pay before you begin receiving any benefits from your insurance company. initial amount of a covered loss (or losses) that the insured must absorb before the insurer begins to pay for additional loss amounts.
ex. if a basic medical expense policy only pays losses above a $250 deductible and an insured incurs $1,000 of covered medical expenses, the insured would have to pay the first $250, and the insurer would then pay the additional $750 of expenses.
amount of time that lapses after a disabling event before the insurance company begins to pay benefits.
the number of days an insured must be disabled before disability income benefits become payable.
ex.if a policy specifies an elimination period of 7 days and an insured is disabled for 30 days, the policy would pay benefits for only the 23 days following the elimination period.
the sharing of expenses by the policyholder and the insurance company within a specified range. sharing the allowable expenses and is usually expressed in percentages.
This is done to discourage unnecessary or excessive treatments and make the insured ask the doctor about whether proposed treatments are necessary and whether there might be less costly alternatives
insurance policies cover the risk of damage or loss to property, which is defined as building, equipment, stock, or contents.
insurance that covers for losses due to accident, chance, or negligence
insurance paid to named beneficiaries when the insured person dies. It is designed to protect against the risk of premature death, which exposes a family or a business to certain financial risks, such as burial expenses, paying debts, loss of family income, and business profits.
provides guaranteed income for the life of an annuitant. designed to protect against the risk of living too long—that is, outliving one's financial resources during retirement.
Accident and Health Insurance
insurance protects the insured against financial loss caused by sickness, bodily injury, or accidental death and may include benefits for disability income.
Variable life and Variable annuity products
Include insurance coverage provided under variable life insurance contracts and variable annuities
limited line of insurance protecting the insured, who is usually a creditor, against the financial consequences should a debtor be unable to pay debts as a result of illness or death.
Stock Insurance Company
An incorporated insurance company with capital divided into shares and owned by the shareholders. Profits are shared by the stockholders. Policyholders are NOT entitled to share in company profits.
there are no stockholders; ownership rests with the policyholders, also known as policyowners.
Funds not paid out after paying claims and other operating costs are returned to the policyowners
mutual companies are sometime referred to as this because the policyowners participate in dividends
unincorporated groups of people that provide insurance for one another through individual indemnity agreements.
each individual who is a member of the reciprocal is known as this and is allocated a separate account through which his premiums are paid and earned interest is tracked.
Fraternal benefit societies
non-profit, mutual aid organizations that engage primarily in charitable or benevolent activities. They offer their members insurance.
Lloyd's of London
not an insurer, but a society of members who underwrite insurance in syndicates. not an insurance company, but it provides a meeting place and clerical services to its members who actually transact the business of insurance.
A form of insurance whereby one insurance company (the reinsurer) in consideration of a premium paid to it, agrees to indemnify another insurance company (the ceding company) for part or all of its liabilities from insurance policies it has issued.
reinsurance is negotiated on an individual risk basis. The reinsurer retains the right to accept or reject each risk, so there must be an offer and acceptance on each reinsurance contract.
Treaty reinsurance involves an automatic sharing of risks by the ceding company.
Excess and Surplus Lines
Insurers that insure risks that traditional insurers will not insure due to the nature or amount of coverage of the risk. name given to insurance for which there is no market through the original producer or that is not available through authorized carriers in the state where the risk arises or is located.
Risk Retention Group
a group captive that can write any type of liability coverage except employers' liability, workers compensation, and personal lines
a special form of planned retention by which part or all of a given loss exposure is retained by the firm.
A company is this in the state in which it is incorporated.
licensed to conduct business in states other than the one in which it is incorporated
companies incorporated in a country other than the United States, the District of Columbia, or any US territorial possession.
Authorized (Admitted) Insurer
an insurer that is entitled to transact insurance within the state, having complied with the law and satisfying all conditions to transacting insurance.
Unauthorized (Non-admitted) Insurer
an insurer that is not entitled to transact insurance within the state
Independent Insurance Agent
sell the insurance products of several companies and work for themselves or other agents.
Exclusive or Captive Agent
represent only one company. These agents are sometimes referred to as career agents working from career agencies. Most often, these agents are compensated by commissions.
General Agents or Managing GA's (MGA)
hire, train, and supervise other career agents within a specific geographical area. compensated by commissions earned on business sold by themselves as well as an overriding commission (overrides) on the business produced by the other agents. has field underwriting and binding authority only in property and casualty insurance.
Direct Writing Companies
usually pay salaries to employees whose job function is to sell the company's insurance products. Technically, these salaried employees do not function as agents. Commissions are usually not paid and the insurer owns all of the business produced.
conducted through the mail, by advertisements in newspapers and magazines, and on television and radio. Policies sold using this method have limited benefits and low premiums, such as disability only.
provides coverages to employees of small firms or to members of associated receive individual policies that vary according to individual needs. employers can offer employees insurance at a lower premium, possibly deducted from their paycheck
commit their companies by oral or written agreement
independent firms or individuals whose principal function is to bring buyers and sellers together to make sales
a salesperson who works for an agent or a broker
not paid by commission for the sales of insurance policies. Instead, they work strictly for the benefit of insureds and are paid a fee by the insureds they represent.
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