Life & Health Insurance and Annuities Study Notes

Vocabulary flashcards covering fundamentals of life and health insurance, commercial and government insurers, regulation, and market structure.

Insurance

A mechanism that transfers the risk of financial loss from an individual or business to an insurance company, which spreads the cost of covered unexpected losses among many insured people.

Private / Commercial Insurers

Insurers funded by premiums paid by policyholders that sell insurance for profit.

Government Insurance Programs

Programs funded through taxes that serve national or state social purposes, such as Social Security, Medicare, and Medicaid.

Stock Insurance Companies

Insurers owned by stockholders and organized under state law, described as nonparticipating (nonpar) because policyholders do not participate in company profits through dividends.

Mutual Insurance Companies

Insurers owned by policyholders rather than stockholders, described as participating (par) because eligible policyholders may receive dividends from company profits.

Mutualization

The process of converting a stock insurance company into a mutual insurance company.

Demutualization

The process of converting a mutual insurance company into a stock insurance company.

Lloyd's of London

An insurance marketplace, not an insurance company, where members and underwriting businesses arrange insurance and reinsurance, including specialized risks.

Reinsurance

An arrangement in which an insurance company transfers or sells part of its risk to another insurer.

Ceding Company

The original insurer that transfers or gives up part of its risk to a reinsurer.

Reinsurer

The insurance company that accepts transferred risk from a ceding company.

Home Service Insurers

Insurers that sell industrial insurance (also called debit insurance) with small face amounts—about $\$1,000$–$\$2,000$—where premiums may be collected weekly by agents visiting customers' homes.

Health Maintenance Organization (HMO)

A health-plan and provider arrangement offering benefits to subscribers in exchange for premiums.

Preferred Provider Organization (PPO)

A health-plan and provider arrangement that offers benefits to subscribers in exchange for premiums.

Captive Agent

An insurance agent who represents one insurance company.

Independent Agent

An insurance agent who represents several insurance companies.

McCarran–Ferguson Act (1945)

A federal act that recognized the states' primary role in regulating insurance and established a framework for the relationship between state insurance regulation and federal law without eliminating federal authority.

Fair Credit Reporting Act (1970)

Legislation that provides protections concerning consumer credit information, promotes fair and accurate credit reporting, and establishes consumer rights regarding disclosure when insurers obtain reports.

National Association of Insurance Commissioners (NAIC)

An organization of insurance regulators from U.S. states and certain territories and jurisdictions that addresses regulatory issues, develops model laws and regulations, and promotes consistency among states.

State Guarantee Associations

Entities that help protect eligible policyholders, insureds, and beneficiaries when an insurer becomes insolvent and cannot meet its obligations.

Independent Rating Services

Agencies (including AM Best, S&P Global Ratings, Moody's, and Fitch Ratings) that evaluate insurers' financial strength and claims-paying ability using financial metrics like reserves and profits.

Annuity

A contract that generally provides a stream of income or a series of payments over a period of time.