chapter 1 pt1

Insurance Basics

• Insurance: A contract between the insurer (company) and the insured (person covered).
• Indemnify: To be learned later, but related to insurance.
• Insurer: The insurance company (circle the "-er").
• Insured: The person covered by the insurance (circle the "-ed").
• Premium: Another term for payment.

Face Amount

• Face Amount: The amount paid upon the death of the insured (draw a money bag).
• Synonyms: Face value, death benefit, policy proceeds, coverage, stated amount, indemnity amount, proceeds to the beneficiary, principal.
• Example: Sabrina is insured for 300,000, which is the face amount payable to her beneficiary upon her death.

Risk

• Risk: The uncertainty of a loss (underline "uncertainty").
• Types of Risk:
  • Pure Risk: Insurable, chance of only loss.
  • Speculative Risk: Not insurable, chance of loss or gain (related to gambling).

Hazards

• Hazards: Events or conditions that increase the chance of a loss (like warning signs).
• Types of Hazards:
  • Physical Hazard: Preexisting physical condition (e.g., deafness, blindness, diabetes, cancer).
  • Moral Hazard: A lie or red flags about morals.
  • Morale Hazard: Doing really unsafe things, like speeding or reckless driving.

Risk Management Techniques

• Methods to manage risk (spell out the word "STAR"):
  • Sharing: Sharing losses within a group (e.g., pension plans through an employer).
  • Transfer: Transferring the risk to another party (most effective; buying insurance).
  • Avoidance: Eliminating exposure to a loss (e.g., not flying to avoid a plane crash).
  • Retention: Self-insuring (covering the loss yourself).
  • Reduction: Lessening the possibility or severity of a loss (e.g., installing smoke detectors).

Other Vocabulary

• Exposure: A unit of measure used to determine rates charged for insurance coverage. *Tort: A private, civil, non-contractual wrong with legal consequences.
  • Two Types:
    • Unintentional: Not a breach of contract.
    • Intentional: Negligence.
• Peril: The cause of a loss (often related to fire on the exam, also natural disasters).
• Law of Large Numbers: Predicts the number of deaths in a similar group (statistics); the larger the number, the more accurate.

Agents

• Agent / Producer: Aids in selling insurance and legally represents a company.
  • Captive Agent / Career Agent / Exclusive Agent: Works for one company and sells only that company's products.
  • Independent Agent: Works for themself and can sell for many companies.
  • Domestic Agent: Licensed in the same state where they conduct business.
  • Foreign Agent: Licensed in a different state from where they conduct business (nonresident agent).
  • Alien Agent: Licensed in a different country from where they conduct business.
  • Fiduciary: A person of financial trust who handles money and collects/submits premiums.

Appointments and Authorization

• Appointment: When a company appoints an agent to represent them.
• Authorized / Admitted: Companies must have a license to conduct business in a state; an authorized company has a certificate of authority.
• Certificate of Authority: License granted by the state's insurance authority allowing a company to conduct business in that state.

Expressed vs. Implied

• Expressed: Written.
• Implied: Assumed.

Commissioner

*The main regulator of the state's department of insurance.

• Every state, make sure you check yours.
  • California: People elect, every four years, no more than two terms (8 years total).
  • Texas: Governor elects, every two years, no more than two terms (4 years total).

Receipts

• Conditional Receipt: Receipt given with conditions; coverage effective upon application or medical exam completion (whichever is later).
• Binding Receipt: Coverage starts immediately; no medical exam needed.