Podcast
Questions and Answers
Risk pooling is best described by which of the following?
Risk pooling is best described by which of the following?
- Transferring risk entirely to the insurer
- Minimizing the chances of an event occurring
- Insuring only high-risk individuals
- Combining similar losses from many people so the average loss over the entire group remains relatively constant (correct)
What is another term which means the same as insurance policy?
What is another term which means the same as insurance policy?
Insurance Contract
Which of the following correctly describes risk pooling?
Which of the following correctly describes risk pooling?
- Each member of the group shares in the losses of the group
- Risk pooling allows a large number of people to be insured for a small amount of money
- Risk pooling transfers risk from an individual to a group
- All of the above (correct)
What is the law of large numbers?
What is the law of large numbers?
What are the most important principles of insurance?
What are the most important principles of insurance?
What is the definition of insurance?
What is the definition of insurance?
Who are mathematicians who analyze statistical risk information for insurance companies?
Who are mathematicians who analyze statistical risk information for insurance companies?
What is considered a person's greatest asset in life and health insurance?
What is considered a person's greatest asset in life and health insurance?
What is cost-sharing expressed as the percent for insurer and insured called?
What is cost-sharing expressed as the percent for insurer and insured called?
What is the term for the insured's demand for payment of benefits?
What is the term for the insured's demand for payment of benefits?
What is re-insurance?
What is re-insurance?
What term best describes a maximum payout of $3 million for insurance claims?
What term best describes a maximum payout of $3 million for insurance claims?
What does the term deductible refer to?
What does the term deductible refer to?
What is the definition of adverse selection?
What is the definition of adverse selection?
Which type of insurance covers a debt?
Which type of insurance covers a debt?
What protects against the risk of living too long?
What protects against the risk of living too long?
What is the consideration an insured pays for insurance coverage?
What is the consideration an insured pays for insurance coverage?
What distinguishes mutual insurers from stock insurers?
What distinguishes mutual insurers from stock insurers?
PQR can operate on a not-for-profit basis and only sells accident and health insurance policies. What type of insurer can PQR NOT be?
PQR can operate on a not-for-profit basis and only sells accident and health insurance policies. What type of insurer can PQR NOT be?
Which of the following statements is true regarding fraternal benefit societies?
Which of the following statements is true regarding fraternal benefit societies?
Who receives dividends from mutual companies to return overcharged premiums?
Who receives dividends from mutual companies to return overcharged premiums?
Which type of insurer is in business to make a profit?
Which type of insurer is in business to make a profit?
What does BlueShield pay for?
What does BlueShield pay for?
What does mutualization refer to?
What does mutualization refer to?
Which of the following is an example of a government insurance program?
Which of the following is an example of a government insurance program?
What may not be included in a consumer report, unless the consumer credit report is requested for a life insurance policy with a face amount of $150,000 or more?
What may not be included in a consumer report, unless the consumer credit report is requested for a life insurance policy with a face amount of $150,000 or more?
Which of the following policies is typically covered by state insurance guaranty associations?
Which of the following policies is typically covered by state insurance guaranty associations?
Which information generally cannot be included in consumer reports?
Which information generally cannot be included in consumer reports?
What is the purpose of the Fair Credit Reporting Act?
What is the purpose of the Fair Credit Reporting Act?
What are agents prohibited from doing with respect to life and health insurance guaranty associations?
What are agents prohibited from doing with respect to life and health insurance guaranty associations?
When an insurer requests an investigative consumer report on an applicant, what is true?
When an insurer requests an investigative consumer report on an applicant, what is true?
What must a person obtain to transact insurance if guilty of committing fraud?
What must a person obtain to transact insurance if guilty of committing fraud?
What penalties may a person guilty of a fraudulent act face?
What penalties may a person guilty of a fraudulent act face?
With respect to an investigative consumer report, consumers must be informed that they have the right to request additional information about the report; such information must be provided to consumers within ___ day(s) if requested.
With respect to an investigative consumer report, consumers must be informed that they have the right to request additional information about the report; such information must be provided to consumers within ___ day(s) if requested.
What is an example of an unfair claim settlement practice?
What is an example of an unfair claim settlement practice?
What occurs when false, derogatory statements about an insurer's financial condition are made?
What occurs when false, derogatory statements about an insurer's financial condition are made?
How soon must the company pay a claim according to the time-of-payment-of-claims provision?
How soon must the company pay a claim according to the time-of-payment-of-claims provision?
Which of the following, if performed frequently enough, indicates unfair claims settlement practices?
Which of the following, if performed frequently enough, indicates unfair claims settlement practices?
What is misrepresentation in insurance?
What is misrepresentation in insurance?
Which of the following acts are NOT considered unfair trade practices?
Which of the following acts are NOT considered unfair trade practices?
Is some amount of discrimination present in underwriting insurance policies?
Is some amount of discrimination present in underwriting insurance policies?
What is the term for making a misleading statement to induce a person to lapse, surrender, or convert an insurance policy?
What is the term for making a misleading statement to induce a person to lapse, surrender, or convert an insurance policy?
What practice occurs when a local insurance company colludes with real estate firms?
What practice occurs when a local insurance company colludes with real estate firms?
Study Notes
Risk Pooling and Insurance Basics
- Risk pooling involves combining similar losses from a group to maintain a stable average loss.
- An insurance policy is also referred to as an insurance contract.
- Members of a risk pool share losses and are promised future benefits, making it cost-effective for insuring a large number of people.
- The law of large numbers states that larger groups enable more accurate predictions of future losses.
Key Insurance Principles
- Essential principles of insurance include risk pooling, the law of large numbers, and the insurable interest.
- Insurance acts as a transfer mechanism for the uncertainty of loss from the insured to the insurer.
Claims and Coverage
- A claim is the insured's request for payment of policy benefits.
- The insured's deductible is the amount they must pay before the insurer covers further losses.
- The limit of liability on a policy indicates the maximum amount the insurance will pay for claims.
Adverse Selection and Insurance Types
- Adverse selection occurs when individuals with higher risk are more likely to purchase insurance.
- Different types of insurance include credit insurance, which covers debt, and annuities, which protect against the risk of outliving one’s resources.
Insurer Types and Regulations
- Mutual insurers distribute profits to policyholders and lack capital stock, while commercial insurers are profit-driven.
- State insurance guaranty associations often cover various types of policies; however, not all policies are included.
Fair Credit Reporting and Claims Practices
- The Fair Credit Reporting Act regulates credit information collection and mandates that consumers be informed of their rights.
- Unfair claims settlement practices include delays in confirming coverage and misleading claimants about settlement offers.
Misrepresentation and Unfair Trade Practices
- Misrepresentation happens when critical information is omitted or misleading statements are made to induce the sale or replacement of a policy.
- Twisting refers to misleading statements aimed at convincing a policyholder to lapse or surrender their insurance.
Consequences of Misconduct
- Acts of fraud in insurance can lead to civil fines and potential imprisonment.
- The use of unfair marketing or claims practices can result in cease and desist orders from state insurance departments.
Consumer Rights and Protections
- Consumers have the right to request information regarding investigative consumer reports; this must be provided within specified time frames.
- Defamation occurs when false statements are made about an insurer’s financial condition, aimed to harm their reputation.
Regulatory Acts and Enforcement
- The Gramm-Leach-Bliley Act facilitates mergers of financial entities to promote competition.
- The Unfair Trade Practices Act delineates unfair marketing and claims practices to protect consumers.
Industry Collaboration and Practices
- Collaborations between insurers and businesses can impact competition in the market, and practices such as boycotting can arise in small communities.
Key Terms
- Coinsurance: Cost-sharing expressed as a percentage between the insurer and the insured.
- Claim: A request for insurance benefits from the policyholder.
- Premium: The consideration paid by the insured for insurance coverage.
- Limit of Liability: The maximum amount an insurer will pay under a policy.
- Deductible: The amount payable by the insured before insurance coverage takes effect.
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Description
Dive into the foundational concepts of insurance with these flashcards focused on Chapter One. You'll explore essential terms like risk pooling and insurance contracts, helping you grasp the key principles that underpin the insurance industry. Perfect for students and professionals alike.
