Insurance Chapter One Flashcards

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Questions and Answers

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?

Insurance Contract

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?

It states that as a group's size increases, it is easier to predict the number of future losses over a specific time period. Signup and view all the answers

What are the most important principles of insurance?

Risk pooling, the law of large numbers, and insurable interest. Signup and view all the answers

What is the definition of insurance?

A transfer of uncertainty of loss from the insured to the insurance company. Signup and view all the answers

Who are mathematicians who analyze statistical risk information for insurance companies?

Actuaries Signup and view all the answers

What is considered a person's greatest asset in life and health insurance?

Their earning power Signup and view all the answers

What is cost-sharing expressed as the percent for insurer and insured called?

Coinsurance Signup and view all the answers

What is the term for the insured's demand for payment of benefits?

Claim Signup and view all the answers

What is re-insurance?

Spreading risk from one insurer to another. Signup and view all the answers

What term best describes a maximum payout of $3 million for insurance claims?

Limit of liability Signup and view all the answers

What does the term deductible refer to?

The amount the insured must pay before coverage begins. Signup and view all the answers

What is the definition of adverse selection?

The tendency for poorer than average risks to seek out insurance. Signup and view all the answers

Which type of insurance covers a debt?

Credit Signup and view all the answers

What protects against the risk of living too long?

Annuities Signup and view all the answers

What is the consideration an insured pays for insurance coverage?

Premium Signup and view all the answers

What distinguishes mutual insurers from stock insurers?

Mutual insurers lack capital stock and profits are distributed among the members. Signup and view all the answers

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?

Stock Insurer Signup and view all the answers

Which of the following statements is true regarding fraternal benefit societies?

All of the above. Signup and view all the answers

Who receives dividends from mutual companies to return overcharged premiums?

Policyholders Signup and view all the answers

Which type of insurer is in business to make a profit?

Commercial Insurer Signup and view all the answers

What does BlueShield pay for?

Medical and Surgical costs Signup and view all the answers

What does mutualization refer to?

When a stock insurer becomes a mutual insurer. Signup and view all the answers

Which of the following is an example of a government insurance program?

All of the above Signup and view all the answers

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?

Adverse information dating back more than three years Signup and view all the answers

Which of the following policies is typically covered by state insurance guaranty associations?

Health insurance Signup and view all the answers

Which information generally cannot be included in consumer reports?

An individual's character. Signup and view all the answers

What is the purpose of the Fair Credit Reporting Act?

To regulate the way credit information is collected and used. Signup and view all the answers

What are agents prohibited from doing with respect to life and health insurance guaranty associations?

Using the existence of the life and health guaranty association as an inducement to sell an insurance contract. Signup and view all the answers

When an insurer requests an investigative consumer report on an applicant, what is true?

The report includes information regarding the applicant's general reputation and personal characteristics. Signup and view all the answers

What must a person obtain to transact insurance if guilty of committing fraud?

Waiver of consent from the state insurance department. Signup and view all the answers

What penalties may a person guilty of a fraudulent act face?

Civil fine up to $50,000 and imprisonment up to 10 years. Signup and view all the answers

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.

5 Signup and view all the answers

What is an example of an unfair claim settlement practice?

Advising a claimant of the possibility that, should the claimant reject a settlement offer, an arbitration award might be less than the offer. Signup and view all the answers

What occurs when false, derogatory statements about an insurer's financial condition are made?

Defamation Signup and view all the answers

How soon must the company pay a claim according to the time-of-payment-of-claims provision?

Immediately Signup and view all the answers

Which of the following, if performed frequently enough, indicates unfair claims settlement practices?

Failing to acknowledge with reasonable promptness communications regarding claims. Signup and view all the answers

What is misrepresentation in insurance?

The practice of using misrepresentation to induce a policyholder to replace a policy issued by the insurer the producer represents. Signup and view all the answers

Which of the following acts are NOT considered unfair trade practices?

Replacement Signup and view all the answers

Is some amount of discrimination present in underwriting insurance policies?

Yes, because of differing levels of risk. Signup and view all the answers

What is the term for making a misleading statement to induce a person to lapse, surrender, or convert an insurance policy?

Twisting Signup and view all the answers

What practice occurs when a local insurance company colludes with real estate firms?

Boycott Signup and view all the answers

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.