Insurance Principles: A Comprehensive Guide to Key Concepts and Terminology, Exams of Nursing

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Insurance agencies - correct answers Are captive or independent organizations that recruit, contract with, train, and support insurance producers. Owner - correct answers Is not necessarily the insured under the policy but is responsible for paying the policy's premium and has various rights as specified in the contract The ___________ branch writes and passes state insurance laws, or statutes, to protect the insuring public. A - correct answers Legislative The _____ branch is responsible for interpreting and determining the constitutionality of the statutes. - correct answers Judicial The highest authority for insurance regulation is: - correct answers The individual states Residual markets - correct answers A private coverage source of last resort for businesses and individuals who have been rejected by voluntary market insurers. Joint Underwriting Association - correct answers Requires insurers writing specific coverage lines in a given state to assume their share of profits/losses of the total voluntary market premiums written in that state Risk Sharing plan - correct answers Insurers agree to apportion among themselves those risks that are unable to obtain insurance through normal channels Reinsurance companies - correct answers Insurance companies that operate to accept all or a portion of the financial risk of loss from the primary (or ceding) insurance company. Reinsurance (Ceding comapny) - correct answers To sell part or cede part of risk ONTO another company

Treaty - correct answers Reinsurance agreement that automatically accepts all new risks presented by the ceding insurer Risk is... - correct answers uncertainty of loss Facultative - correct answers allows the reinsurance company an opportunity to REJECT coverage for individual risks, or price them higher due to their substandard (higher risk) nature. Reciprocal Insurance Company - correct answers A group-owned insurer whose main activity is RISK sharing. Members are subscribers Stock insurance - correct answers Owned by stockholder Mutual insurance - correct answers Owned by policyholders Admitted - correct answers Authorized to do insurance in said state Non-admitted - correct answers Has either applied for authorization to do business in this State and was declined or they have not applied. They are not authorized to transact insurance in this State Excess line insurance - correct answers Type of insurance that can be placed through NON-admitted carriers Surplus lines insurance - correct answers Type of insurance that finds coverage when insurance cannot be obtained from admitted insurers. However, it cannot be utilized solely to receive lower cost coverage than would be available from an admitted carrier When does coverage begin for applicant? - correct answers Day application is submitted

Execuatives - correct answers Oversee operation of the business Underwriting Department - correct answers Responsible for the selection of risks (person or property to insure) and rating that determines actual policy premium. --> ACCEPTS RISK Claims Department - correct answers Assists the policyholder, insured, or beneficiary in the event of a loss and processes, and pays the amount of the claim in a timely manner based upon the contractual provisions and amount insured. Function of Department of Insurance - correct answers Regulates all insurers doing business in this state. Protection against insolvency of an insurer is its major concern Producer - correct answers Represents the INSURANCE (insurer), does NOT issue policies Express Authority - correct answers Authority that is written into the producer's contract. May be expressed orally or in writing. Implied Authority - correct answers Authority the public assumes the producer has, not spelled out in contract Apparent authority - correct answers Authority created when the producer exceeds the authority expressed in the agency contract. Ex:producer using business cards and letterheads that feature an insurance company's logo Agents - correct answers ALWAYS represent the insurer Broker - correct answers ALWAYS represents the insured Principal - correct answers Another name for an insurance company Fair Credit Reporting Act - correct answers Protects the privacy and protects the public from overly intrusive collection practices

Credit reporting agency must reinvestigate within ____ months if the applicant challenges accuracy. - correct answers 6 months Agencies must forward to applicant inaccurate information given out within previous ___ year(s) - correct answers 2 years Report must not include lawsuits over _____year(s) old or bankruptcies more than _____year(s) old - correct answers 7 years, 10 years Fraudelent acts include - correct answers A misstatement of material fact by a person who knows or believes that statement to be false Who does the state fraudulent insurance act protect? - correct answers Producers, brokers, and insurers Gramm-Leach-Bliley Act (The Financial Services modernization Act of 1999) - correct answers This repealed parts of the Glass-Steagall Act of 1933 to allow the merger of banks, securities companies, and insurance companies. It also established the Financial Privacy Rule and Safeguards Rule for the protection of consumers' privacy. What must the privacy notice explai? - correct answers 1. Information collected about the consumer

2. Where information is shared, used, protected Reciprocity - correct answers If consent granted by any state other states must allow the applicant to work in their states as well, this is: Condition where the chance, likelihood, probability or potential for a LOSS exists - correct answers Risk Situations where there is a CHANCE for loss, gain, or neither is what type of risk? - correct answers Speculative

Situations where this is NO chance for gain, only outcome is for a loss or nothing is what type of risk? - correct answers Pure Reduction, decrease, of value --> basis of a claim under the terms of an insurance policy - correct answers Loss Cause or source of loss (fire, windstorm,embezzlement) - correct answers Peril SPECIFIC condition that increases probability, likelihood, or severity of loss from a peril - correct answers Hazard An insured burns down his/her own house to collect the insurance payout. This is an example of what type of hazard - correct answers Moral Driving too fast for conditions, not wearing a seat belt, ignoring stop signs at familiar intersections are all what type of hazard - correct answers Morale Dishonest tendencies that increase probability of loss are what type of hazard? - correct answers Moral Condition of being AT RISK of loss simply by existing, property and people are subject to many different risks - correct answers Loss exposure An imbalance created when risks that are more prone to losses than the average risk seeking insurance w/in specific market - correct answers Adverse selection What are the 5 ways of managing risk? - correct answers STARR Sharing Transfer Avoidance Reduction (sprinker system) Retention (self insurance)

Insurable risks must include what 5 things? - correct answers 1. Law of large numbers

2. Chance of loss measurable
3. Premiums must be affordable
4. Loss must be accidental in nature
5. Catastrophic perils are excluded Ability of an applicant to meet an insurer's underwriting requirements - correct answers Insurability (principle of indemnity) What is underwriting? (principle of Indemnity) - correct answers The process of selecting, classifying, and rating a risk for the purpose of issuing or not issuing insurance coverage What is an insurable event? - correct answers An event, past OR present, which may cause loss or damage, or create legal liability on the part of the insured. In life and Health policies, insurable interest must exist at what time? - correct answers At time of application, but NOT at time of loss Restores the insured to the same economic condition that existed before the loss? - correct answers Indemnity Contract Law - correct answers Pertains to the formation and enforcement of contracts Tort Law - correct answers Civil wrongs, NOT breaches of contract. Result in the injuries or harm that constitute the basis of a claim by a third party Hold Harmless agreement - correct answers Contractual agreement that transfers the liability of one party to another party (used by landlords, contractors)

Reasonable expectations doctrine - correct answers What a reasonable and prudent policy owner would expect; the reasonable expectations of policyowners are honored by the Courts although the strict terms of the policy may not support these expectations. 4 Elements of a legal contract - correct answers Competent parties legal purpose agreement (offer and acceptance) Consideration Indemnity contract - correct answers Pays SPECIFIED dollar amount for a loss (ex: Hospital must pay $100/day as stated in policy) Parol evidence rule - correct answers Written contract that may NOT by altered w/out WRITTEN consent of BOTH parties Valued contract - correct answers Pays stated amount in the event of a loss (ex: life insurance policy) Subrogation - correct answers Occurs when claim is paid by the insurer who then acquires the right to take legal action against any negligent third party who may have caused the loss Life policies have no right of what? - correct answers Subrogation Contract of Adhesion - correct answers One party writes contract without input from other party, "take it or leave it" basis. Any doubt or ambiguity found in the document is construed in favor of party that did not write it (insured) Aleatory contract - correct answers The exchange of value is unequal Personal contract - correct answers Owner cannot transfer or assign ownership of an insurance policy (property & casualty) to another person

Unilateral contract - correct answers Only one party is legally bound to the contractual obligations after premium is paid to the insurer Conditional contract - correct answers Both parties must perform certain duties and follow rules of conduct to make the contract enforceable Utmost good faith - correct answers The two parties rely upon the statements and promises of the other and assume no attempt to conceal or device has been made Misrepresentations - correct answers A false statement contained in the application; usually does not void coverage or the policy, if it is immaterial Warranties - correct answers Statements in the application or stipulants in the policy Concealment - correct answers Intentional withholding of material facts pertinent to policy issue or rating, and may result in denial of coverage or void the policy. Fraud - correct answers Intentional deception of the truth in order to induce another to part with something of value or to surrender a legal right Waiver - correct answers Voluntary surrender of a known right, claim or privilege; example: insurer's failure to obtain an answer to an unanswered question in its application for insurance prior to issuing the policy, thus waiving right to contest a claim based on the information it failed to obtain. Estoppel - correct answers Judicial denial of contractual right based on prior actions contrary to what the contract requires Factors included in underwriting - correct answers Age Tobacco Gender Medical Hx/preeexisiting Hazardous hobbies and occupations

Rate - correct answers Dollar amount charged for a particular unit of insurance (ex:$5 per $ insurance) Premium - correct answers Total cost for the amount of insurance purchased (ex: $50,000 coverage= $ rate x 50 (per $1000 of insurance) for a $250 premium Insurable interest - correct answers The relationship that must exist between the applicant and insured, at the time of application and policy issuance, in order for the contract to be valid. (Ex: of insurable interest include a policy taken out on a family member, business partner, or debtor of the policyowner.z)