Exam (elaborations)
Life and Health Agent Exam (1)
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Life and Health Agent Exam (1)
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Life and Health Agent ExamLife insurance policy - ANS-Written contract to transfer risk of premature death from one party to
another; pays stated sum upon death; creates instant estate.
Valid life insurance contracts must identify: - ANS-1: parties to contract; 2: insured party or life;
3: insurable interest, if 3rd party; 4: risks insured against; 5: policy period (term); 6: premium &
mode.
Insurable interest - ANS-Financial interest in insured party that must exist @ time of application
OR policy issuance. Requires consent (except minors).
Indemnify - ANS-To "make whole again" w/out benefit or detriment; neither monetary profit nor
loss.
Adverse selection - ANS-Tendency of poorer risks to seek insurance.
Peril vs. Hazard - ANS-Peril is the CAUSE of loss. Hazard is a condition that increases
LIKELIHOOD of loss.
Pure risk vs. Speculative risk - ANS-Pure risk involves chance of loss ONLY (accident or
misfortune). Speculative risk involves chance of loss OR gain (gambling, stock investment).
Risk management - ANS-Treating or mitigating loss exposures through 1: avoidance; 2:
retention (deductibles); 3: sharing; 4: reduction; or 5: transfer.
Mortality vs. Morbidity tables - ANS-Mortality is the statistical possibility of death @ each age.
Morbidity is the statistical possibility & extent of disability @ each age.
Loss exposure - ANS-Potential circumstance that could cause a loss; measured in dollars.
Law of Large Numbers - ANS-Mathematical law stating the larger # of occurrences, the more
predictable the losses; used to calculate premiums.
Types of hazards - ANS-Physical - slippery floor; Moral - dishonest acts; Morale - carelessness
or recklessness.
Factors that determine premium - ANS-1: mortality probability charge; 2: Insurer's investment
return; 3: expenses (admin costs, commissions). 1 - 2 = net; 1 - 2 + 3 = gross.
Rate (as defined by CIC) - ANS-Price of insurance per exposure unit.
,Premium modes - ANS-Monthly; Quarterly; Semi-annually; Annually (cheapest due to less
admin cost).
Earned vs. Unearned premium - ANS-Earned premium is $ paid for coverage to date. Unearned
premium is $ paid & returnable due to coverage not provided.
Insurer (as defined by CIC) - ANS-Any person, assoc., org., partnership, business trust, LLC, or
corp. capable of making an insurance contract.
Departments of an Insurer - ANS-Underwriting - determines insurability; Marketing/Sales -
determines products; Actuarial - determines rates; Claims - investigates/pays claims.
Types of Insurers (by domicile) - ANS-Domestic - within home state; Foreign - outside home
state; Alien - outside home country.
Types of Insurers (by ownership) - ANS-Policyholders - Mutual (participating) co., may pay
dividends; Stockholders - Stock (non-participating) co., no dividends.
Types of Insurers (by authorization) - ANS-Authorized (admitted) - can conduct business in
state; Unauthorized (non-admitted) - cannot conduct business in state (w/ one exception).
Types of Insurers (by sector) - ANS-Private sector (Commercial) - provides LA&H, P&C, & LTC;
Public sector (Gov't) - provides flood, work. comp., Medicare/Medicaid, Group Life
(SGLI/FEGLI).
Types of Insurers (miscellaneous) - ANS-Fraternal - non-profit, members only; Reciprocal -
unincorp'd org., members insure each other; Lloyd's Assoc. - groups sharing risks; Surplus lines
- special market risks.
Types of Licensed Producers - ANS-Agents - represent Insurer; Brokers - represent themselves
& Insured; Solicitors - represent one agent to solicit leads.
Errors & Omissions (E&O) - ANS-An unintentional mistake committed by an insurance
representative; may be covered by E&O insurance.
Types of Agency Authority - ANS-Actual/Expressed - written powers; Implied - unwritten but
customary practices; Apparent - perceived powers.
Elements to contract - ANS-Agreement - Offer & acceptance; Consideration - application +
premium; Legal capacity - licensed &/or competent; Legal purpose - public good.
Insurance contract characteristics (1 of 2) - ANS-Unilateral - Insurer provides contract; Adhesion
- parties must adhere to terms; Aleatory - benefits may not inure equally.
, Insurance contract characteristics (2 of 2) - ANS-Conditional - coverage is conditional; Personal
- parties are people; Good faith - honesty/integrity; Fiduciary - req's financial trust.
Applicant Representations vs. Warranties - ANS-Representation - oral or written statement
made to best of knowledge or belief; Warranty - statement guaranteed/presumed/understood to
be true.
Concealment - ANS-Intentional OR unintentional failure to disclose material underwriting facts
that should have been disclosed; grounds for policy rescission.
Concealment exceptions - ANS-Info already known; Info that should have been known; Waived
info; Irrelevant info.
Rescission - ANS-Voiding an insurance contract based on fraud, concealment or material
misrepresentation; premiums returned; policy treated as never existing.
Fraud - ANS-Intentional deception; grounds for rescission.
Estoppel - ANS-Process which prevents claim denial as a result of false statement or promise
(made by Insurer), which was relied upon by Insured.
Parole Pardon Rule - ANS-Written policy terms supersede oral statements made prior to policy
issue.
Reinsurance - ANS-Insurance purchased by other Insurer(s) to spread or diversify risk;
promotes industry stability.
Types of reinsurance - ANS-Facultative - case by case agreements; Automatic/Treaty -
automatic acceptance of risk percentage per previous agreement.
Retrocession - ANS-Process whereby a reinsurer reinsures w/ another reinsurer.
Trial Application (aka Request for Offer) - ANS-Application submitted w/out premium; no
coverage until submission of full consideration & completed Statement of Continued Good
Health.
Insurability Type Conditional receipt - ANS-Receipt whereby coverage incepts conditionally
upon submission of full consideration and that all underwriting reqs. are met.
Approval Type Conditional receipt - ANS-Receipt whereby coverage incepts ONLY after
underwriting approval.
Binding receipt (aka Temporary Insurance Agreement) - ANS-Receipt whereby coverage incepts
immediately upon submission of full consideration, unless declined & premium refunded.
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