Chapter 1 concepts

Adverse selection

The tendency of risks with higher probability of loss to purchase and maintain insurance more often that the risks who present lower probability.

Agent

An individual who is licensed to sell, negotiate, or effect insurance contracts on behalf of an insurer

Alien insurer

An insurance company that is incorporated outside the united states.

Domestic insurer

Insurer's location of incorporation and the legal ability to write business in a state.

Foreign Insurer

An insurance company that is incorporated in another state

Human Life Value

Approach that is a capitalized value of an individual's net future earnings. It looks at potential lost earnings of a person as a measure of how much insurance to purchase

Insurable interest

An individual may not purchase life insurance covering the life of another person unless he or she possesses an insurable interest in that person. This involves a financial or economic interest in that person.

Insurance

A contract whereby one party (insurer) agrees to indemnify or guarantee another party (insured) against a loss by a specified future contingency or peril I return for payment of a premium

Law of large numbers

A principal sating that the larger the number of similar exposure units considered, the more closely the losses reported will equal the underlying probability of loss

Life insurance

Transfer of risk of premature death from 1 party (policy owner) to another part (insurer).

Mutual insurers

Insurance organizations that have no capital stock, but are owned by the policy holders.

Premium

A periodic payment to the insurance company to keep the policy in force.

Producer

Insurance agent or broker

Risk

The uncertainty or chance of financial loss

Risk management

Avoidance, retention, partnership, transfer of risk, reduction, prevention

Stock insurer

a publicly-traded insurance company that is owned and controlled by a group of stockholders whose investment in the company provides the safety margin necessary for the issuance of guaranteed, fixed premium, nonparticipating policies.