insurance
the transfer of PURE risk to the insurance company in
consideration for a premium.
pure risk
The chance of loss without any chance of gain
speculative risk
risk with the possibility for gain or loss and is not insurable
risk
the chance of loss.
exposure
A condition that could result in a loss
hazard
something that increases the chance of loss
peril
cause of loss
T/F To be insurable, losses must be calculable.
T
The law of large numbers allows insurers to _______ claims more ________.
predict/accurately
The law of large numbers applies to _____, not to ______.
groups of people / individuals
Most insurers buy _______ to protect themselves in the event of a
catastrophic loss
reinsurance
T/F Insurance laws are required to be uniform from one state to another.
F
Insurers ________ enforce a contract that they enter into with a minor, but the
minor _______ enforce the contract against the insurer.
cannot / can
A _________ may pay dividends to its shareholders (stockholders), but they
may not be guaranteed.
stock insurer
A _____________ insurance company is managed by an attorney-in-fact.
reciprocal
An unincorporated association of individuals who insure each other is known as
a ________________
reciprocal insurer
A _________ company has their home office in another state.
foreign
An insurer incorporated outside of the U.S. who sells in the U.S. is an ________ company
alien
A ___________ may be personally liable when violating the producer's contract.
producer
Producers represent the _______, not the ______.
insurance company / insured
Producers have _______, ________ and ________ authority.
express / implied / apparent
The authority a producer has that is written in his or her contract is known as
_________ authority.
express
The authority not expressly (written) granted, but is actual authority the
producer has to transact normal business activities, is known as _______
authority.
implied
The elements of a legal contract may be remembered by the acronym C-O-A-L
Consideration, offer, acceptance, legal purpose and legal capacity
A requirement for a valid contract is ________, or mutual
agreement
offer and acceptance
Advertising the availability of insurance is _______ to be an offer.
not considered
A specific and definite proposal to enter into a contract is known as an ______
offer
The __________ on a policy need not be equal.
consideration
A policy ________ be voided due to unequal consideration.
may not
Under the _________ clause, something of value must be exchanged.
consideration
Insurance policies are considered to be ________, in that only one
party makes an enforceable promise the insurer
unilateral contracts
The principle of ________ states the purpose of insurance is to restore the
insured to the same position as before the loss occurred.
indemnity
The principle of _________ states that all parties to an insurance
transaction are honest.
utmost good faith
A representation is defined as ____________
the truth to the best of one's knowledge.
A warranty is defined as _________
a sworn statement of truth, guaranteed to be true.
Concealment is defined as
the failure to disclose a material fact.
When an insurer voluntarily gives up the right to obtain information that they
are entitled to, they have made a ________.
waiver
what does the term "unilateral contract" mean
A one -sided contract. Only one party makes an enforceable promise
What type of authority is based on the agents actions, or words?
Apparent
A state issued document empowering an insurance company to become an admitted insurer is called?
Certificate of Authority
What is consideration on the part of the insurer?
A promise to pay in the event of a loss
Self-insuring is typically used for what type of insurance?
workers compensation
what are the 5 characteristics of an ideally insurable risk?
1. due to change
2. definite & measurable
3. statistically predictable
4. not catastrophic
5. coverage cannot be mandatory
What are the methods of managing risk?
Avoidance, transfer, sharing, retention, and reduction
The three types of hazards are
Physical, moral and morale
Insurance is used to transfer what to an insurance company?
Financial responsibility for loss
What law protects consumers from the circulation of inaccurate or obsolete information?
The Fair Credit Reporting Act
What is the difference between cancellation and nonrenewal
Cancellation is termination by either party prior to expiration date.
Nonrenewal is termination at its expiration date by not offering a continuation of existing policy
What does the term "reasonable expectations" mean in insurance?
Certain expectations for coverage that a reasonable person would have based on sources other than just the policy language.
For the purpose of insurance, what is risk
Uncertainty of loss
What is called when risks with a higher probability of loss are seeking insurance more often than other risks?
Adverse selection
What are the four elements of an insurance contract?
1. Agreement (offer and acceptance)
2. Consideration
3. Competent parties
4. Legal purpose
Insurance contracts are aleatory in nature. What does that mean?
Unequal values are exchanged between the parties to a contract
What does indemnify mean in insurance?
To restore an insured to the same financial status as before a loss
What law is the foundation of the statistical prediction of loss upon which rates for insurance are calculated?
Law of large numbers
Broker
an insurance producer not appointed by an insurer and is deemed to represent the client
Agent/Producer
a legal representative of an insurance company; the classification of producer usually includes agents and brokers; agents are the agents of the insurer