Basic Principles of Life and Health Insurance Flashcards

Questions and Answers

Which of these describe a participating life insurance policy? (Select all that apply)

Stock companies allow their policyowners to share in any company earnings

Policyowners are not entitled to vote for members of the board of directors

Policyowners pay assessments for company losses

Policyowners are entitled to receive dividends (correct)

What type of reinsurance contract involves two companies automatically sharing their risk exposure?

Treaty (correct)

Excess

Arbitrage

Facultative

Dividends from a mutual insurance company are paid to whom?

Beneficiaries

Policyowners (correct)

Stockholders

Preferred stockholders

The stated amount or percent of liquid assets that an insurer must have on hand to satisfy obligations to its policyholders is called?

Reserves Signup and view all the answers

Which of the following is a syndicate established by a group of insurers to share underwriting duties?

Lloyd's organization Signup and view all the answers

An agent's authority to bind an insurer to an insurance contract may be granted in the?

Agent's contract and the insurance company's appointment Signup and view all the answers

What is reserves?

Accounting measurement of an insurer's future obligations to its policyholders. Signup and view all the answers

What does liquidity indicate?

A company's ability to make unpredictable payouts to policyowners. Signup and view all the answers

What are Multi-line insurers?

Companies that sell more than one line of insurance. Signup and view all the answers

What distinguishes stock companies from mutual companies?

Stock companies are organized for profit for stockholders, while mutual companies are owned by policyholders. Signup and view all the answers

What is mutualization?

The process by which a stock company may be converted into a mutual company. Signup and view all the answers

What is demutualization?

The process through which mutual companies can convert to stock companies. Signup and view all the answers

What are reciprocal insurers?

Insurers organized on the basis of ownership by their policyholders, who share risks among themselves. Signup and view all the answers

What is a captive insurer?

An insurer established and owned by a parent firm for the purpose of insuring the parent firm's loss exposure. Signup and view all the answers

What is a risk retention group (RRG)?

A mutual insurance company formed to insure people in the same business or profession. Signup and view all the answers

What are fraternal benefit societies?

Organizations that provide insurance based on membership derived from social or cultural affiliations. Signup and view all the answers

What type of insurance is characterized by relatively small face amounts paid weekly?

Industrial insurance. Signup and view all the answers

What do service providers offer?

Benefits to subscribers in return for payment of a premium. Signup and view all the answers

What is a Health Maintenance Organization (HMO)?

An organization that offers a wide range of health care services for a fixed periodic premium. Signup and view all the answers

What characterizes Preferred Provider Organizations (PPO)?

Groups obtaining price discounts or special services from selected health care providers. Signup and view all the answers

What are social insurance programs?

Federal and state government programs providing various types of insurance coverage. Signup and view all the answers

What is self-insurance?

A self-funded plan established to cover potential losses without transferring risk to an insurance company. Signup and view all the answers

Study Notes

Participating Life Insurance Policies

Policyowners of participating life insurance are entitled to receive dividends.
Dividends represent a return of excess premium after necessary reserves are set aside.

Reinsurance Contracts

Treaty reinsurance allows two companies to automatically share their risk exposure.

Mutual Insurance Companies

Dividends from mutual insurance companies are paid to policyowners, not stockholders.
Mutual companies allow policyowners the right to vote for board members, distinguishing them from stockholder-owned companies.

Reserves Definition

Reserves are liquid assets that insurers must have available to fulfill obligations to policyholders.

Lloyd's and Syndicates

Lloyd's of London is a syndicate of individuals and companies underwriting insurance, not an insurer itself.
It facilitates insurance transactions and aids in claims settlements.

Role of Reinsurers

Reinsurers insure other insurance companies, enabling them to limit risk exposure from large claims.

Mutualization and Demutualization

Mutualization can convert a stock company into a mutual company allowing policyowner participation.
Demutualization allows mutual companies to transform into stock companies.

Assessment Mutual Companies

Strong assessment mutuals charge premiums based on losses experienced.
Pure assessment mutuals do not charge premiums beforehand; members are assessed based on actual losses.

Reciprocal Insurers

Policyholders share risk with reciprocal insurers, with management by an attorney-in-fact.

Captive Insurers

Captive insurers are owned by parent firms to cover their specific loss exposures.

Risk Retention Groups

RRGs are mutual insurance companies insuring members of the same profession or business.

Fraternal Benefit Societies

Offer insurance while emphasizing social and charitable activities, often funded through a lodge system.

Industrial Insurers

Specialized in providing small face amount policies (typically $1,000-$2,000) with weekly premium payments.

Health Services Providers

Service providers deliver health care services rather than traditional insurance, offering benefits to subscribers.

Health Maintenance Organizations (HMO)

Provide a full range of healthcare services to members for a fixed premium, emphasizing preventive care.

Preferred Provider Organizations (PPO)

Contract with select healthcare providers to offer discounts or special services to members.

Government's Role in Insurance

Federal and state governments provide social insurance programs impacting millions (e.g., Medicare, Social Security).

Examples include OASDI (Social Security), Medicare, and Medicaid.

Self-Insurers

Entities retain risk by establishing self-funded plans to cover potential losses, often looking to insurance for excess coverage.

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Description

Test your knowledge of the basic principles of life and health insurance with these flashcards. Each card covers key concepts and terminology essential for understanding insurance policies. Perfect for students preparing for exams or anyone looking to enhance their knowledge in this field.