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40 Cards in this Set
- Front
- Back
Insurance
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a public device for distributing the risk of a financial loss among a large number of people, thereby reducing the financial impact of an individual loss
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Premium
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The amount of money paid by the insured in exchange for insurance coverage
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RIsk
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the possibility or uncertainty of loss -- NOT the ACTUAL loss
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What are the 2 types of risk
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Speculative and Pure risk
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What is speculative risk?
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offers the chance for loss as well as the opportunity to gain -- not generally insurable
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What is pure risk?
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involves only the possibilty for loss -- the is the types of risk that ER will accept
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What is a peril?
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the cause of a loss
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Examples of perils.
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Fire - a house burns down --fire is the peril
Accidents - a person runs a red light and hits another person -- the collision was the peril |
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hazard
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the condition or source that increases the severity of the peril
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What are the 3 types of hazards?
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Physical
Moral Morale |
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What is a physical hazard?
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physical source that causes accident
Examples - slippery floor |
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What is a moral hazard?
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occur as a result of an individuals decision to do something wrong
Example - faking an accident to claim insurance money |
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What is a morale hazard?
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individuals careless actions
Example - someone talking on a cellphone while driving |
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Risk Management
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methods used to deal with uncertainty of loss
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HOw can a individual / business manage risk?
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risk avoidance , risk reduction, risk retention, risk sharing, risk transfer
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risk avoidance
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do not take the risk
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risk reduction
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use risk control techniques to leesen severity of possible risk
Example - installing a fire alarn system |
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risk retention
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choosing to be financially responsible for risk
Example - purchasing insurance |
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risk transfer
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purchasing insurance --you are trnasferring the risk
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Law of Large Numbers
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a method used by the insurance company to derive risk statistics to more accurately predict future losses
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Insurable interest
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before an individual can directly benefit from life insurance the person must be subject to economic loss as the result of the death of the insured
**for life insurance, this must exist at the time of application |
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To be insurable, the risk must be a :
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1. predictable loss
2. Chance occurrence 3. CANT be catastrophic 4. Measurable and definitive 5. financial hardship 6. Affordable premiums |
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Principle of Indemnity
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insurance should help restore the individual to the financial condition that existed prior to the loss
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Limit of Liabilty
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places a value on the max amount an insurer will pay for a claim under an insurance policy
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coinsurance
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sharing of claims expenses between the ED and ER
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Deductibles
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initial amount that an ED must pay for a covered loss (typically range between 250-1000)
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Adverse Selection
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insuring of risks that ar emore prone to losses than the average risks
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Four basic lines of insurance
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1. property
2. casualty 3. life 4.health & disability |
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Mono line v. multi line company
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mono write one line of life insurance and multi writes more than one
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Types of Insurere include:
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Stock insurer
mutual insurer fraternal benefit society reciprocal assessment risk retention groups Lloyds |
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Reinsurers
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form of risk sharing whereby one insurance company is paid a premium by another and agrees to share in the risks of the ceding company
** protects ER's from catastrophic losses |
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Two types of reinsurance agreement:
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facultative - insurance is purchased case by case as new applicants are submitted
automatic - referred to as "treaty agreements" because terms are negotiated in advance |
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Service Groups
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BCBS
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Domicile
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domestic, foreign or alien companies must always be licensed in each state in which they transcat business
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Domestic Insurer
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company that is incorporated in the same state where it is doing business
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Foriegn Insurer
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company that is incorporated in a state other than where it is doing business
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alien insurers
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compnay that is incorporated in a country other then where it does business
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Certificate of Authority
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ER must apply for this in order to do business in a certain state
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Managing General Agency System (MGA)
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personal producing general agency system recruits, trains, hires, supervises other producers though a contractual agreement with an ER
primary responsibilities: 1. to sell insurnace 2. to build and supervise a sales force of producers in which the MGA recieves and ovveride commission |
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brokers
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independent producers who sell insuranc through many different insurance companies
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