Kentucky Health & Life - Flashcards PT 1

Questions and Answers

What is the term that refers to spreading the result of financial loss among many persons so the cost to any one person is small?

Insurance

What is exchanged for a certain cost when a person pays money into a fund based on their age, which will pay their family a specified amount upon their death?

Uncertainty about living long enough to provide for the family's financial security

Why do many pay for the actual losses of a few under the principle of life insurance?

It is impossible to know in advance which few among the many will sustain losses.

How does life insurance affect the financial loss resulting from an individual's death?

It spreads the cost among many individuals. Signup and view all the answers

What is a legal agreement between two or more parties promising a certain performance in exchange for valuable consideration?

Contract Signup and view all the answers

Why are life and health insurance policies considered unilateral contracts?

Because only the insurance company is obligated to perform. Signup and view all the answers

In a valid insurance contract, what represents the insurance company's consideration?

A promise to pay benefits in the event of a loss. Signup and view all the answers

What are the characteristics of a legally enforceable contract?

Competent parties, legal purpose, offer and acceptance, consideration. Signup and view all the answers

Who could generally be a party to a valid contract?

A competent adult Signup and view all the answers

Which type of contract is valid if formed for a legal purpose?

Valid contract Signup and view all the answers

In an insurance transaction, who makes the offer and who accepts?

The potential insured makes the offer and the company accepts by issuing the policy. Signup and view all the answers

What best describes the thing of value exchanged for the performance promised in a contract?

Consideration Signup and view all the answers

What is the term for the voluntary giving up of a known right or privilege?

Waiver Signup and view all the answers

What does it mean when an insurance contract is referred to as aleatory?

Equal value is not given by both parties. Signup and view all the answers

What is a contract that is not completed immediately called?

Executory Signup and view all the answers

Who is the recipient of Life Insurance proceeds?

Beneficiary Signup and view all the answers

What must XYZ Insurance Company rely on to predict mortality among its insureds?

Statistical probabilities of death in a large population. Signup and view all the answers

What statement best represents the reliability of predictions about mortality at a specific age in the insured population?

The larger the number of people and deaths recorded, the more reliable the prediction. Signup and view all the answers

For predicting mortality, insurance companies typically ignore those over which age?

100 Signup and view all the answers

What statements support the definition of insurance?

The result of financial loss is spread among many persons; the cost to any one person is small; the cost is certain regardless of the circumstances of the loss. Signup and view all the answers

What best describes the primary function of life insurance?

Create an estate Signup and view all the answers

What are typically included in a deceased's final expenses?

Funeral expenses, current credit card bills, debts owed to family members. Signup and view all the answers

What are the primary goals of life insurance?

Paying burial expenses; providing for survivors' future living expenses; paying for education expenses for children. Signup and view all the answers

What are components of so-called death taxes?

Income tax, estate tax, inheritance tax. Signup and view all the answers

What is considered a living benefit of life insurance?

Loan values, retirement income, cash withdrawals, dividends. Signup and view all the answers

Study Notes

Insurance Basics

Insurance spreads financial loss among a large group, minimizing individual costs.
Life insurance secures family financial support by exchanging uncertainty about longevity for a predictable cost.

Life Insurance Principles

The principle of life insurance relies on many contributing to cover the losses of few, as it's unpredictable who will incur losses.
Life insurance makes individual death costs manageable by distributing them among all policyholders.

Contracts in Insurance

A contract is a legal agreement where performance is promised in exchange for valuable consideration.
Life and health insurance policies are classified as unilateral contracts since only the insurance company must perform obligations.

Characteristics of Valid Contracts

Key elements for legally enforceable contracts include competent parties, legal purpose, offer and acceptance, and consideration.
Competent adults can act as parties in valid contracts; contracts must have a legal purpose to be considered valid.

Offer and Acceptance in Insurance

In the insurance context, the potential insured submits an application (offer) and premium; the insurance company accepts by issuing a policy.

Consideration and Waivers

Consideration refers to the value exchanged for contract performance.
A waiver is the voluntary surrender of a known right or privilege.

Types of Contracts

Aleatory contracts involve unequal values exchanged between parties.
An executory contract is one that remains uncompleted at the time of formation.

Life Insurance Beneficiary

The beneficiary is the individual who receives life insurance proceeds upon the insured's death.

Mortality Predictions

Insurance relies on statistical probabilities of mortality within a large population, calculating average deaths by age.
Reliable mortality predictions increase with larger recorded populations and deaths.
Insurance companies statistically disregard individuals over the age of 100 in mortality calculations.

Defining Insurance

Insurance is designed to spread financial loss across many, ensuring costs for each individual are low and predictable, regardless of loss circumstances.

Life Insurance Functions and Goals

The primary function of life insurance is to create an estate for beneficiaries.
Final expenses for the deceased typically include funeral costs, credit card debts, and family member obligations.
Key life insurance goals involve covering burial costs, future living expenses for survivors, and educational expenses for children.

Death-related taxes may involve income tax, estate tax, and inheritance tax.

Living Benefits of Life Insurance

Living benefits may consist of loan values, retirement income, cash withdrawals, and dividends.

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Description

Test your knowledge of health and life insurance concepts through these flashcards from the Commonwealth Schools of Insurance. Learn key terms and definitions to prepare for your examination effectively.