Life insurance Chapter 1

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?

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

What is risk transfer?

Moving the financial risk of a possible loss from an individual to an insurance company.

What is an insurer?

The insurance company that provides coverage and assumes the risk.

What is an insured?

The person who receives protection under an insurance policy.

What is a policyholder?

The person who owns the insurance policy and has rights to make changes, pay premiums, and control the policy.

What is a premium?

The payment made by the policyholder to keep an insurance policy active.

What is the principle of indemnity?

Insurance restores an insured to the same financial position they were in before a loss; it does not allow them to profit from a loss.

What is an indemnity contract?

A contract that reimburses an insured for an actual financial loss.

What is a valued contract?

A contract that pays a stated amount regardless of the actual loss.

What is a stock insurance company?

An insurance company owned by shareholders that usually issues nonparticipating policies.

What is a mutual insurance company?

An insurance company owned by policyholders that may pay dividends to participating policyholders.

What is a participating policy?

A policy that allows policyholders to receive dividends and vote for the board of directors

What is a nonparticipating policy?

A policy that does not pay dividends or give ownership rights to policyholders.

What is a fraternal benefit society?

A nonprofit organization that provides insurance benefits to members while focusing on social or charitable activities.

What is a reciprocal insurer?

An organization where members agree to insure each other and share risks.

What is a captive insurer?

An insurance company created and owned by a business to insure that business's own risks.

What is reinsurance?

Insurance purchased by an insurance company to transfer part of its risk to another insurer.

What is a ceding company?

The insurance company that transfers risk to a reinsurer.

What is a reinsurer?

The company that accepts the risk transferred from another insurance company.

What is a producer?

A licensed person who sells, solicits, or negotiates insurance.

What is an actuary?

A person who uses math and statistics to calculate insurance rates, reserves, and risks.

What is an adjuster?

A person who investigates and settles insurance claims

What does the underwriting department do?

Reviews applications, evaluates risks, and approves or denies coverage

What does the claims department do?

Investigates, processes, and pays claims.

What does the actuarial department do?

Calculates rates, reserves, dividends, and studies risks.

What is an authorized insurer?

An insurer approved by a state to sell insurance and given a certificate of authority.

What is a nonadmitted insurer?

An insurer not licensed in a state but may provide surplus lines coverage.

What is a domestic insurer?

An insurer incorporated in the same state where it conducts business.

What is a foreign insurer?

An insurer incorporated in one U.S. state but doing business in another state.

What is an alien insurer?

An insurer incorporated outside the United States.

What is a career agency system?

A system where agents are recruited, trained, and managed to sell insurance for a company.

What is an independent agency system?

A system where agents sell insurance for multiple companies and own their book of business.

What is direct selling?

When an insurance company sells directly to consumers without traditional agents.

What did the McCarran-Ferguson Act do?

Returned primary insurance regulation to the states while requiring compliance with federal laws.

What does FCRA (Fair Credit Reporting Act) do?

: Protects consumer privacy and requires insurers to disclose information from credit reports.

What does GLBA (Gramm-Leach-Bliley Act) do?

Protects customer financial information and requires privacy notices.

What is an RRG (Risk Retention Group)?

A group-owned insurance company where members with similar risks share liability coverage.

What is a Risk Purchasing Group (RPG)?

A group of individuals or businesses with a common type of risk that joins together to buy liability insurance from an insurance company.