Questions and Answers
What is a contract or device for transferring risk from a person, business, or organization to an insurance company?
Insurance
Which of the following represents a pure risk?
What is the type of hazard in the example where a burglar breaks into Suzanne's house because she leaves her side door unlocked?
Morale
What type of risk management method is Jeff using by canceling his fire insurance because he lives next to a fire station?
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What may someone call when they have a large and unique risk that no authorized insurance will cover?
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What is called when insurance companies purchase insurance to cover their own exposure to loss?
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Who primarily insures insurance programs designed to cover catastrophic risks?
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What is a person in a position of financial trust called?
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What is the term for the failure to disclose known facts?
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If an insurance company is incorporated in Mexico and does business in Texas, what type of insurer is it?
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What is a risk that bears the same health, habits, and occupational characteristics as the persons on whose mortality table it was based called?
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What type of report is usually completed by interviewing friends and associates regarding an applicant's finances, health, character, and habits?
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How far back do most states allow backdating to be done on an insurance application?
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All of the following statements about completing the insurance application are correct EXCEPT?
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What is the section of the application that includes information regarding the proposed insured's physical condition and medical history?
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Under which type of receipt is coverage effective as of the date of the application if the applicant is found insurable?
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Which act imposes a requirement for insurers to keep all medical information confidential?
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What is a risk that represents a chance of experiencing a loss that is below average?
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Which reports are used to determine a consumer's eligibility for personal credit, insurance, or employment?
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What document must the producer obtain that states the insured's health is unchanged at the time of policy delivery?
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Wearing a seatbelt is an example of which method of managing risk?
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If a fire causes damage to a building, what is the fire considered?
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What do states require from companies to sell insurance in the state?
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What do insurance companies use to help predict how many losses will occur in a group or class of individuals?
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Study Notes
Insurance Basics
- Insurance is a contract that transfers risk from individuals or businesses to an insurance company.
- A pure risk example is the potential for your house to catch fire; this represents a risk with no opportunity for gain.
Types of Hazards and Risks
- Morale hazard is illustrated by an individual who neglects security measures (e.g., leaving a door unlocked).
- Risk retention occurs when a person opts to assume a risk themselves, such as canceling fire insurance due to proximity to a fire station.
Insurance Entities and Policies
- Surplus Lines Insurance Companies provide coverage for unique risks that standard insurers do not cover.
- Reinsurance is when insurance companies buy insurance to protect against their own potential losses.
- The Federal Government primarily insures catastrophic risks, including war, flood, and crop losses.
Trust and Disclosure
- A fiduciary is someone in a position of financial trust, responsible for managing funds on behalf of others.
- Concealment refers to the failure to disclose known facts during the insurance application process.
Insurance Company Types
- An Alien Insurer is an insurance company that is incorporated outside the state where it operates (e.g., a company incorporated in Mexico doing business in Texas).
Types of Risk
- Standard Risk refers to individuals that align with the characteristics used to create mortality tables.
- Investigative Consumer Reports are comprehensive assessments of an applicant's financial and personal history, usually gathered through interviews.
Application and Underwriting
- Backdating on insurance applications is permitted for up to 6 months in most states.
- Correct application procedures include initialing changes by the applicant and obtaining necessary signatures, including the applicant's and the agent's.
- The Second Part of the application addresses the proposed insured's health and medical history.
Receipts and Privacy
- A Conditional Receipt provides coverage effective on the application date if the applicant meets underwriting criteria.
- HIPAA mandates confidentiality of medical information and protects applicants' privacy.
Risk Assessment
- Preferred Risk is a favorable risk category for insurance companies, representing a lower-than-average chance of loss.
- Consumer Reports assess an individual's eligibility for credit, insurance, or employment based on personal data.
Policy Delivery and Risk Management
- A Statement of Good Health must be obtained upon policy delivery to confirm the insured's health status remains unchanged.
- Risk management techniques include reduction methods like wearing seatbelts to prevent injury or loss.
Perils and Licensing
- A peril is a specific risk that can cause loss, such as fire damage to property.
- Companies need a Certificate of Authority to legally sell insurance within a state.
Predictive Models
- The Law of Large Numbers is an essential statistical principle utilized by insurance companies to forecast and predict potential losses in groups or classes of insured individuals.
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Description
Test your knowledge with flashcards from the Kaplan Life & Health Course specific to the state of Texas. This quiz covers fundamental insurance concepts and risk management themes. Perfect for students preparing for their insurance certification exams.
