Exam (elaborations)
Florida Insurance 2-14 Exam Terms Questions and Answers 2024
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Florida Insurance 2-14 Exam Terms
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Florida Insurance 2-14 Exam TermsInsurance - answer financial protection against loss or harm - An arrangement by which
company gives customers financial protection against loss or harm such as theft or
illness in return for premium payments.
Life Insurance - answer Is based on actuarial or mathematical principles and
guarantees a specified sum of money upon the death of the person who is insured.
Annuities - answer Provide a stream of income by making a series of payments to the
annuitant for the annuitant's lifetime or for a specifically designated period of time.
Risk - answer Uncertainty regarding loss; the probability of loss occurring for an insured
or prospect
Speculative Risks - answer Involve the possibility of loss and gain. (Not Insurable)
Pure Risks - answerInvolve the possibility of loss only. (Insurable)
Peril - answerCause of risk (when a building burns, fire is the peril)
Hazards - answerThe source of danger
Physical Hazard - answerA hazard being of physical nature.
A person being treated of cancer, the disease is the physical endangerment. (Blindness
& deafness)
Risk Avoidance - answerOccurs when individuals evade risk entirely. "If you don't drive,
then you avoid getting in an auto accident."
Risk Reduction - answerTakes place when the chances of loss are lessened. Changing
a lifestyle to minimize a known risk.
Risk Retention - answerBeing aware of the risks involved and taking precautions for
financial protection. Auto policy's deductible is an illustration of risk retention
Risk Transference - answerThe act of shifting the responsibility of risk to another in the
form of an insurance contract.
Adverse Selection - answerRefers to the tendency for those individuals who present
less favorable insurance risk to seek or continue insurance to a great extent than other
risks.
,Insuring Pure Risk - answerLoss must be due to chance
Loss must be definite and measurable
Risk must be predictable
Loss must NOT be catastrophic
Exposure to loss must be large
Loss exposures must be randomly selected
Mutual Insurers - answerParticipating policies
Owned by policyholders
Vote for directors and trustees
Directors and management have control
Typically higher rates
Assessment Mutual Insurers - answerProhibited in Florida
Pure Assessment Mutual Company - answerDon't pay premium and total loss is divided
among members
Lloyds of London - answerNOT considered an insurance company
- An association of individuals and companies that individually underwriter insurance.
Fraternal Benefit Societies - answerMust be nonprofit, have a lodge system, and offer
insurance to its members only
Home Service Insurer - answerInsurer that offers relatively small policies with premiums
payable on a weekly basis.
Captive Agents - answerA.k.a. Career agents
Works for only one insurer and sells only that insurers products
Independent Agents - answerIs self-governing and actually works for himself. This
affords him the versatility to represent several insurers and their different insurance
products.
Special Agents - answerUsually not license and don't sell insurance. Assist insurance
companies field representatives.
Career Agency System - answer(GA) - Build sales staffs and agents are treated as
employees. They are recruited and trained. A principal of the company supervises
agents.
Personal Producing General Agency System - answer(PPGA) - The agent supplies his
own working environment. Agents hired by a PPGA are considered employees of the
PPGA, not the insurance company, and are supervised by the regional salary.
,Independent Agency System - answerAgents represent several insurers through signed
contracts and are paid on commission or fee basis, not through salary.
Regulating the business of insurance - answerLegislation
The Court System
State Insurance Departments
Paul v. Virginia - answer- State tried to control insurance domiciled from another state.
- U.S. Supreme Court sided against insurance company
- Upholding the right of sate to regulate insurance
- States WIN
United States v. Southeastern Underwriters Association (SEUA) - answer- Ruling is a
form of interstate commerce
- Should be regulated by the federal government
- Fed Gov. WINS
The McCarran-Ferguson Act - answer- Gave back some regulatory authority to the
states
- Did not provide the states to regulate individually
- Insurance regulated by state law "is in the publics best interest"
Intervention by SEC - answer- Dealing with variable annuities
- Securities and Exchange Commission (SEC) should regulate the variable annuities
(since they're used for investments) & variable life insurance.
- Therefore, agents must obey the rules to both SEC and state regulation.
Fair Credit Reporting Act - answer- Fair and accurate report of information about
consumers
- Insurers must inform them about any investigations being made
- Then insurers must let the applicants know the name of the reporting agency
Financial Services Modernization Act - answer- Revoking the Glass-Steagall Act
- This changed the industry so commercial banks, investment banks, retail brokerages,
and insurance companies can now enter each other's lines of business
Admitted insurance company - answer- Office of Insurance Regulation has licensed
them to carry out business in Florida
Nonadmitted Insurance Company - answer- Have not been licensed by the the Florida
Office of Insurance Regulation
Policy Replacement - answer- An action which eliminates the original policy or
diminishes its benefits or values
, Bad policy remplacement issues - answer- Most the first year's premium is consumed
by the commission
- The premium is higher due to the insured's advanced age
- Waiting periods begin anew
Misuse of Premiums - answer- Improper use of premiums collected by an insurance
producer
- Depositing a client's premium in own personal account
Rebating - answer- Florida and California are the only two states that allow rebating
- When any part of commission or anything else of value is given to the insured as a
incentive to buy a policy
- Agent must keep copies of rebating schedules for five years
NAIC - answer- National Association of Insurance Commissioners
- No legal power of its own
- Encourages uniformity in state insurance laws and regulations
Florida Insurance Guaranty Association - answer- Funded by insurance companies
through assessments
-FIGA is part of a non-profit,
- Guaranty associations protect policyholders and claimants.
- Holds three separate accounts:
- Health Insurance
- Life Insurance
- Annuity Accounts
NAIFA - answer- National Association of Insurance and Financial Advisors (NAIFA)
- Designed to protect agents
- Dedicated to supporting life insurance industry
A.M. Best Rating Agency - answer- Profitability, leverage, & liquidity
- A++ to F and S (suspended)
Standard and Poors (S&P) Rating Agency - answer- Claims and the ability to pay
- AAA to C to R
Moodys Investor Services Rating Agency - answer- Financial strength
- Aaa to C
Fitch IBCA (formerly Duff & Phelps) - answer- Credit worthiness of securities
- AAA to CCC
Weiss Ratings, Inc. - answer- Strength and safety of financial institutions and rates risk
adjusted mutual funds and stocks
- A to F
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