Nc Life Insurance State Exam

Front 1

Peril

Back 1

Specific event that causes a loss. For example, fire, flood, earthquake, explosion, wind, death and disability are some notable perils.

Front 2

Hazard

Back 2

This is any factor that increases the chances of a peril occurring. In insurance there are three basic types of hazards.

Front 3

Physical Hazard

Back 3

material, structural or operational features that increase the chances of a peril occurring. For example, improper storage of combustibles is a physical hazard.

Front 4

Moral Hazard

Back 4

tendencies people have that could increase risk such as criminal activity or personal habits.

Front 5

Morale Hazard

Back 5

tendencies to do things that could cause a loss through an indifferent attitude. For example, failing to lock doors and windows before leaving home is a morale hazard.

Front 6

Financial Risk

Back 6

the uncertainty of a financial loss

Front 7

Speculative Risk

Back 7

These types of risks are not insurable because they involve the possibility of both loss and gain

Front 8

Pure Risk

Back 8

These types of risks are insurable. They only involve the possibility of loss. For example, a house fire constitutes a pure risk.o

Front 9

Risk Avoidance

Back 9

This technique involves avoids activities that could lead to loss. For example, if Joe decides not to skydive, he is practicing risk avoidance.

Front 10

Risk Assumption

Back 10

This technique involves retaining the entire risk and paying any expenses incurred from it. For example, if Bob does not include his rowboat on an insurance policy, he is assuming all risk if it gets damaged

Front 11

Risk Transference

Back 11

This technique involves shifting the risk to another party, usually through insurance

Front 12

Risk Sharing

Back 12

This technique involves assuming part of the risk and transferring part of the risk. For example, if Sue makes a co-payment to cover part of the cost for a doctor's visit and her insurance companycovers the rest, she is using the method of risk sharing

Front 13

Risk Reduction

Back 13

This technique involves taking action to lower the possibility of loss. For example, using your seat belt every time you get in the car because it reduces the chance of being killed in an accident

Front 14

What 5 things determine if the risk is insurable?

Back 14

1)There must be a large number of similar exposures.
2)The potential loss must be significant in scope.
3)The potential loss must be measurable.
4) The potential loss must be accidental.
5)The potential loss must be non-catastrophic.

Front 15

Name two types of traditional insurance sources.

Back 15

1)Stock Insurance Company-sells stock and is owned by its stockholders.
2)Mutual Insurance company-it is owned by its policy owners.

Front 16

Name 4 other insurance sources.

Back 16

1)Reciprocal Insurance Exchange
2)Reinsurance
3)Lloyd's of London
4)Self-insurers

Front 17

Reciprocal Insurance Exchange

Back 17

is an unincorporated association of members in which each member insures the other members. In this arrangement, each member is both an insurer and an insured.

Front 18

Reinsurance

Back 18

basicaly insurance that an insurance company buys for its own protection. It allows companies to spread the risk of loss so that a disproportionately large loss under a single policy does not fall on a single company.

Front 19

What are the two basic types of reinsurance?

Back 19

Automatic: in which a ceding company is contractually obligated to give up a % of the risk and a resinsurer is bound to accept the risk

Facultative: form of reinsurance that is negotiated separately for each insurance contract

Front 20

Both Automatic (treaty) and Facultative resinsurance can be written as follows:

Back 20

1)Excess of Loan Reinsurance: method whereby an insurer pays the amount of each claim for each risk up to a limit determined in advance and the reinsurer pays the amount of the claim above that specific limit.

Quota Share: A reinsurance arrangement where the insurers involved will pay claims in direct relationship with the % of the risk that they are insuring.

Front 21

Who is Lloyd's of London?

Back 21

One of the world's largest commerical insurers. Not an insurance company but a society of members who underwrite in syndicates. Lloyd's is famous for insuring unusual and even speculative risks.

Front 22

What are self-insurers?

Back 22

individuals or companies that designate certain monetary reserves to be used to cover potential losses. Usually fund employee group health plans, Workers Comp and pension plans.

Front 23

Name three recognized systems that are used to market insurance products.

Back 23

General Agency, Branch office, and Direct response marketing.

Front 24

What is an agent?

Back 24

An agent is an individual or company that has been authorized by an insurance company to act as its rep and offer its insurance products to the public.

Front 25

What are an agents duties?

Back 25

Solicits policies of insurance on behalf of the insurance company. Explains insurance policies to prospective purchasers. Provides continuing service to policy owners and beneficiaries.

Front 26

Define express authority

Back 26

the authority expressly given to the agent to act on behalf of an insurer. Given in the agent's contract.

Front 27

Define implied authority.

Back 27

authority that is NOT expressly given in the contract, but the insurer endorses the agent's actions as necessary to carry on business on its behalf.

Front 28

Define apparent authority

Back 28

is between the agent and the public and not b/t the agent and insurance company.

Front 29

What three characteristics do all life insurance policies have?

Back 29

1)The death benefit paid in a lump sum is not income taxable.
2)Qualifying for life insurance is primarily based on the health of the proposed insured.
3)Life insurance policies end no later than age 100.