NYLife study life insurance

Agent

• An individual authorized to solicit, sell, and transact coverage for specific insurance providers under an agent contract.

Broker

• A person who represents the insured (client) rather than the insurance company and cannot bind coverage.

Claims Department

• The department responsible for processing, investigating, and paying claims.

Insurance

• The transfer of risk through the pooling or accumulation of funds.

Insured

• The customer who receives insurance protection under an insurance policy.

Insurer

• An insurance company that provides coverage and assumes risk.

Mutual Insurance Company

• An insurer owned by policyholders that typically issues participating insurance policies with potential dividends.

Nonparticipating Policy

• A policy that doesn't provide dividends or voting rights to policy owners.

Participating Policy

• A policy that allows policy owners to receive dividends and elect the board of directors.

Producer

• An individual licensed to sell, solicit, or transact insurance, including both agents and brokers.

Stock Insurance Company

• An insurer owned by stockholders that typically issues nonparticipating policies.

Underwriting Department

• The department responsible for reviewing applications, approving or declining coverage, and assigning risk classifications.

What is insurance?

Insurance is the transfer of risk from one party to another in exchange for the payment of premiums.

What is the main purpose of insurance?

• To provide a practical solution to economic uncertainties and losses by paying off financial losses and reimbursing the insured.

What does the "principle of indemnity" mean?

• It means restoring the insured to the same financial position they were in before the loss, without allowing them to profit from the loss.

Which types of insurance contracts are considered "contracts of indemnity"?

• Accident, health, property, and casualty insurance contracts.

What is the purpose of contracts of indemnity?

• To reimburse the insured for a loss.

How are life insurance policies different from indemnity contracts?

• Life insurance policies are "valued contracts" that pay a predetermined amount regardless of the actual loss.

What happens when a family provider dies and there is life insurance?

• Life insurance pays death benefits and creates an instant estate for surviving family members.

What financial problem do annuities help solve?

• Annuities provide a lifetime income stream to help people who might outlive their income.

What is the primary advantage of insurance contracts?

• Protection against unplanned expenses and reducing the risk of paying for large losses from personal funds.

• The Concept of Insurance

Insurance is the transfer of risk from one party to another through a legal contract. By purchasing insurance, a policy owner pays a small premium to an insurer, who then pools these premiums from many policyholders to spread the risk. This allows the policy owner to reduce financial uncertainty and obtain a large amount of coverage in exchange for a small fee. Insurance is an essential part of financial planning, helping protect against possible future losses.

Importance in Financial Planning

Insurance has been recognized for over a century as an essential part of an individual’s or family’s financial planning program. It helps reduce the financial uncertainty of the policy owner regarding possible future losses.

Role in Financial Goals

A financial planning program should include both general and specific financial goals, along with a plan to achieve those objectives. Insurance supports these goals by providing protection against unexpected losses.

Basic Definition

The concept of insurance is defined as the transfer of risk from one party to another through a legal contract.

How Insurance Works

• When purchasing insurance, the policy owner transfers the risk of large financial losses to the insurer by paying a small premium. The insurer pools these premiums from many policyholders to spread the risk.

Benefit to Policy Owner

By transferring risk through an insurance policy, the policy owner receives a large amount of coverage in return for a small fee (the premium).

Government (Social) Insurance

Insurance coverage offered by federal and state governments, commonly referred to as social insurance. Examples include crop insurance and FDIC insurance on bank deposits

Insurance company / Insurance carrier / Insurer

An entity or organization that provides insurance services.

Private (Commercial) Insurance

Insurance provided by companies owned by private citizens or groups, which may be proprietary (like profit-motivated stock companies) or cooperative. These insurers offer individual, group, industrial, or blanket insurance policies.

Commercial insurers

are private companies that offer insurance.

The company providing the insurance

insurer

the person receiving coverage

insured.

Multiline insurers

sell more than one line of insurance; monoline insurers sell only one line.

Stock and mutual companies

can both be commercial insurers and can write life, health, property, and casualty insurance.

Stock insurance companies

• are owned by stockholders/shareholders.

Stockholders provide

capital and share in profits or losses

The board of directors

Chosen by stockholders, manages the company.

Stock companies

pay cash dividends to stockholders if declared; these dividends are taxed like long-term capital gains.

Retained earnings

• (not paid as dividends) are considered equity and belong to shareholders.

Stock insurance companies

issue nonparticipating policies, which do not pay policy dividends and do not give policy owners ownership privileges.