Risk Mgmt + Ins : Exam 2

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214 Terms

1
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What is insurable interest in life insurance required?

At the time the policy is purchased.

2
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When is insurable interest required in property insurance?

At the time of loss.

3
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What does insurable interest require?

The insured must be financially affected by a covered loss.

4
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How can insurable interest be evidenced?

Close family ties, marriage, financial interest, or secured creditor status.

5
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What is the principle of utmost good faith?

Both parties must disclose material facts honestly.

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What are the three doctrines supporting utmost good faith?

Representations, concealment, and warranty.

7
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What is misrepresentation in insurance?

A false statement of a material fact relied upon by the insurer.

8
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What is concealment in insurance?

Intentional failure to disclose a material fact.

9
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What is a warranty in insurance?

A statement that becomes an enforceable part of the contract.

10
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What is an aleatory contract?

A contract where values exchanged may be unequal and depend on an uncertain event.

11
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What is waiver?

Intentional relinquishment of a known legal right.

12
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What is estoppel?

Prevents a party from exercising a right because of previous actions.

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What is the difference between waiver and estoppel?

Waiver is intentional relinquishment; estoppel prevents exercising a right due to prior actions.

14
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What rights does the first named insured have?

Authority to change the policy, pay premiums, and receive insurer notices.

15
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What is open-perils coverage?

Covers all losses except those specifically excluded.

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What is named-perils coverage?

Covers only losses specifically listed in the policy.

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What does DICE stand for in insurance?

Declarations, Insuring agreement, Conditions, Exclusions.

18
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What are insurance exclusions?

Perils or situations specifically not covered by the policy.

19
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Where are insured duties after a loss described?

Conditions section.

20
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What is an elimination or waiting period?

A form of deductible.

21
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What is a straight deductible?

An amount subtracted from every covered claim.

22
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What is an aggregate deductible?

Claims accumulate until the deductible amount is reached.

23
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What are three purposes of deductibles?

Eliminate small claims, reduce premiums, and reduce moral/attitudinal hazard.

24
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What is subrogation?

Insurer takes the insured's rights to recover from a responsible third party.

25
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What are three purposes of subrogation?

Prevent double recovery, hold negligent parties responsible, and reduce insurance rates.

26
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What are the requirements of an insurance contract?

Offer and acceptance, consideration, competent parties, and legal purpose.

27
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What are the three categories of torts?

Intentional torts, negligence, and strict liability.

28
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What are the four elements of negligence?

Duty, breach, injury/damage, and proximate cause.

29
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What is duty in negligence?

Legal obligation to use reasonable care.

30
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What is breach of duty?

Failure to perform the duty of reasonable care.

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What is proximate cause?

An unbroken chain of events linking negligence to injury.

32
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What is Res Ipsa Loquitur?

The thing speaks for itself; negligence may be inferred.

33
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What are the three requirements for Res Ipsa Loquitur?

Normally wouldn't occur without negligence, defendant had exclusive control, and claimant did not contribute.

34
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What is contributory negligence?

Any negligence by the claimant prevents recovery.

35
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Under contributory negligence, what if the claimant is 10% at fault?

They cannot recover from the other party.

36
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Under comparative negligence, how are damages determined?

Reduced by the claimant's percentage of fault.

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What is the 50% comparative negligence rule?

Claimant cannot recover if 50% or more at fault.

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What is the 51% comparative negligence rule?

Claimant cannot recover if 51% or more at fault.

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What is pure comparative negligence?

Claimant can recover damages reduced by their percentage of fault, regardless of fault percentage.

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Under pure comparative negligence, what if claimant is 48% at fault on $100,000 damages?

$52,000.

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Under a 50% rule, what if claimant is 50% at fault?

$0 recovery.

42
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Under contributory negligence, what if claimant is 48% at fault?

$0 recovery.

43
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What are compensatory damages?

General and special damages.

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What are general damages?

Non-economic damages such as pain and suffering.

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What are special damages?

Economic damages such as medical bills and lost wages.

46
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What is a dram shop?

A bar, tavern, or restaurant selling alcohol.

47
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What does the CANDOR law promote?

Candid communication and meaningful resolutions after patient injury.

48
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What is strict liability?

Liability without proving negligence, often involving abnormally dangerous activities.

49
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What law applies when a tiger mauls a neighbor?

Strict liability.

50
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What are alternative dispute resolution methods?

Arbitration and mediation.

51
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What is premature death?

The risk of dying with outstanding financial obligations.

52
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What is the needs-based approach to life insurance?

Estimates life insurance needs based on survivors' financial needs.

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What are the components of the needs-based approach?

Estate clearance, readjustment period, dependency period, mortgage, education, emergency fund, minus assets and insurance.

54
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What is an estate clearance fund?

Money for funeral expenses, medical bills, taxes, and debts.

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What is the dependency period?

The period until the youngest child reaches age 18.

56
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What is the readjustment period?

One or two years for survivors to adjust financially.

57
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When is term life insurance appropriate?

Limited income, temporary protection needs, or future insurability guarantees.

58
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What are renewable term policies?

Policies that allow renewal without proving insurability.

59
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What are convertible term policies?

Policies that allow conversion to permanent insurance without proving insurability.

60
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When is ordinary whole life insurance appropriate?

When lifetime protection and a savings vehicle are desired.

61
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What is second-to-die life insurance?

Insures two or more lives and pays after the last insured dies.

62
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What is group life insurance usually?

Less expensive, term insurance, and partly employer-paid.

63
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What is universal life insurance?

Permanent life insurance with flexible premiums and a cash value component.

64
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What is a common monthly deduction in universal life?

Administrative expenses.

65
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What is a limitation of universal life insurance?

Some insurers advertise misleading rates of return.

66
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What is an annuity?

A tax-deferred investment issued by an insurance company that can provide lifetime income.

67
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What risk do annuities protect against?

Longevity risk: outliving financial assets.

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What is the key difference between life insurance and annuities?

Life insurance protects against premature death; annuities protect against outliving assets.

69
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What funds annuity payouts?

Premiums, investment earnings, and unliquidated principal of early deaths.

70
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What is an exclusion ratio?

The percentage of annuity payments that is not taxable.

71
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What is the exclusion ratio formula?

Investment in contract ÷ expected return.

72
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What is investment in an annuity contract?

Premiums paid to purchase the annuity.

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What is expected return for an annuity?

Expected total payments over the annuitant's life expectancy.

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Jenny invests $200,000; receives $1,500 monthly; life expectancy 20 years. Exclusion ratio?

$200,000 ÷ $360,000 = 55.6%.

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What is a life annuity with period certain?

Lifetime payments plus guaranteed payments for a specified period.

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What happens if an annuitant dies during period certain?

Beneficiary receives remaining guaranteed payments.

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What is a joint life annuity?

Payments terminate when the first covered person dies.

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What is a joint-and-survivor annuity?

Payments continue to a surviving annuitant at a selected percentage.

79
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Are monthly annuity payments equal across payout options?

No; payments differ based on expected payout periods.

80
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What is a longevity annuity?

An annuity that begins payments at an advanced age, such as 85.

81
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What does an annuity beneficiary receive if death occurs during accumulation?

Cash value or premiums paid.

82
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What is Social Security OASDI?

Old Age, Survivors, and Disability Insurance.

83
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What is PBGC?

Pension Benefit Guaranty Corporation.

84
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What does PBGC do?

Guarantees vested pension benefits up to limits if certain private pension plans terminate.

85
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What is a defined benefit pension plan?

Employer-funded plan providing benefits based on a predetermined formula.

86
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What is a defined contribution pension plan?

Retirement plan where contributions are specified and account value depends on investments.

87
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What is the defined benefit pension formula?

Benefit percentage × years of service × final salary.

88
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Karen earns $100,000, works 36 years, formula 1%. Monthly pension?

$3,000.

89
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Which pension plans have minimum vesting standards?

Defined benefit and defined contribution plans.

90
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What is vesting?

Earning the right to employer retirement contributions.

91
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What are the three retirement ages in pension plans?

Normal, early, and deferred retirement ages.

92
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What happens to early retirement benefits?

Benefits are generally reduced.

93
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What happens to deferred retirement benefits?

Benefits are generally increased.

94
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Are most employees in defined benefit plans?

No; fewer employees participate over time.

95
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What is a defined benefit plan funded entirely by employers?

A pension plan based on a predetermined benefit formula.

96
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What is an IRA?

Individual Retirement Account.

97
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Where can IRAs be established?

Banks, mutual funds, stock brokerages, and insurers.

98
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What is a traditional IRA?

Retirement account with potentially deductible contributions and taxable withdrawals.

99
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What is a Roth IRA?

Retirement account funded with after-tax contributions and qualified tax-free withdrawals.

100
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Which IRA provides an immediate tax benefit?

Traditional IRA, if contributions are deductible.