Code and Ethics Pre Licensing Personal Lines

Insurance

A contract for reducing risk by transferring the risks of several individuals to an insurer.

Insurer

A insurance company.

Insured

The policy owner

Risk

The uncertainty of loss.
Risk can be either pure or speculative

Speculative risk

financial loss, no change, or a financial gain

Pure risk

The chance of only loss, never given a chance of gain or profit.

Perils

Potential cause of loss is called a peril

Hazard (4 Different types)

A Hazard increases the likelihood of severity of loss

Physical Hazards
Moral Hazards
Morale Hazards
Legal Hazards

The Law of Large Numbers

Helps predict the probability of loss
The more insured the easier it is to predict outcomes over time

Loss exposure

The potential for incurring a loss

Ideally Insurable Risk

Presents only a chance of loss with no potential for gain
Risk of a loss must be (uncertain)

Property and Casualty Insurance

Is the uncertainty not when but if something happens.

Life insurance

Is the uncertainty is not if but when it does happen

Accidental

Refers when something happens in accident and not planned.

Due to chance

Refers to very random acts or events

Insurable events

When there may be events that may be insured

Indemnified

Having a legal and financial guarantee that one party will pay for any losses, damages, or legal liabilities you suffer.

Insurable Interest

The inherent or acquired right one has to be indemnified (restored to the condition one was in before the loss,) In the even of a loss to an event, a person, or property

3 components of Insurable interests.

Legitimate financial interest
Potential for economic harship
No possible gain or profit

Life insurance

Not if but when something happens

Insurable Events

Events that may be insured

Indemnity

To help someone restore themselves to the approximate financial condition they were before their loss

Underwriter

Someone who evaluates the risks and make sure theyre in between the Insurers Underwriters Guidelines

Obtaining Reliable Information (Property and Casualty or Personal lines Insurance)

Review of application
Physical inspections of property to see hazards or potential hazards
Dmv Records
Review Credit reports and Background

Obtaining Reliable Information (Life, Health and Disability Insurance)

Medical Exam
Attending physicians statements
MIB Group, Inc. Information
Responses to questionnaires
Telepathy interview with applicant

Adverse Selection

The tendency of those who are most in need of insurance to apply
(underwriters eliminate high risk applicants)

Spread of risk

Companies attempt to distribute its risks in a profitable wayM

Management of Risk

Avoidance (not worth the trouble - carry too much loss exposure)
Reduction (reduce the likelihood of loss exposure)
Retention (retain the risk and the loss themselves, in other words retention is Self-Insurance)
Transfer (An agreement that transfers the risk from one person to another)
Sharing (Assurances share the risk with other companies to reduce the amount of loss)

Field Underwriters

Screening process that every agent goes through with the applicants.

Post-Claim Underwriting

An illegal practice
When the company doesn’t want to pay.

Deductible

What the insured has to pay.