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NC Life and Health Insurance Key Terms Questions and Answers 100% Solved
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NC Life and Health Insurance Key Terms
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NC Life and Health Insurance Key TermsPure Risk - answer Defined as the chance of loss or no loss, but no gain. Only Pure risk
is insurable
insurable interest - answer denotes that a person must have a valid reason to insure
either themselves or another beneficiary and speculative risks are not insurable
exposure unit - answer someone subject to loss
Peril - answerIs the cause of loss. In life insurance death is the peril insured against. In
health insurance accident or sickness are the perils.
Physical Hazard - answer Arises from the inherent characteristic of the exposure unit.
Ex: underweight, diabetes, coronary artery disease.
Moral hazards - answer Arises from the lifestyle of the insured person. Ex: someone
who drinks or smokes 12 packs a day
ARRTS - answer Risk avoidance- if you have a fear of drowning, avoid any water.
Risk Retention- practicing self insurance through saving money in case of an
emergency.
Risk Reduction- means efforts to reduce the extent of damage but not the chance of
loss (regular check ups at the doctor)
The most effective way to manage risk is to SHARE it or TRANSFER it to a large group
by buying insurance
Adverse selection - answerDenotes the notion that people will go years without
insurance until they are certain of an imminent claim
Actuary - answerA specially trained mathematician who calculates insurance premiums
Underwriter - answerchecks out the medical history of the proposed insured and other
factors to eliminate adverse selection against the insurance company. The insurer will
issue the policy, the policy premium, and any policy restrictions.
Adverse underwriting decision: (90,21,30 rule)
Anything worse than applied for. If the applicant wants an explanation within 90 days,
the insurer must furnish an explanation within 21 days. A dispute must begin within 30
days
Reinsurance agreements - answerWhen insurance companies share their risks with
each other. These agreements enable an insurance company, the CEDING company to
transfer risk to the REINSURER.
,Assessment* - answerinsurers charge additional premiums at the end of a specified
time period. (few in number)
Fraternal* - answerbenefits societies are similar to mutual companies. Only MEMBERS
are eligible to buy insurance policies from fraternals. Agents of fraternals are limited to
selling life, health, and annuity policies, but NOT liability insurance.
FRATERNAL IS NOT EQUAL TO LIABILITY
Reciprocal* - answerManaged by the Attorney in Fact, exchanges are designed to allow
the members of the reciprocal to insure each other. Membership fluctuates from year to
year, and members are assessed when claims are made.
Social Security* - answerIs not funded by the Federal Government, just administered.
Intermediary - answerAgents are not a part of contract. They represent the interest of
only the insurer. They bring together the PRINCIPALS (the insurer and the
applicant/owner)
Captive Agent - answerRepresents only one company and if he leaves, all of his
commissions and renewals are usually retained by the insurer.
Independent Agent - answerrepresents at least one, but multiple companies, and if he
wishes to move a client to another company he doesn't lose the commissions and
renewals.
Broker - answerbuyer
Express Agent Authority - answerauthority given the agent through oral or written
contracts.
Implied Agent Authority - answerTaking in premiums from an out of town policyowner
and sending it is within the implied authority of the agent
Apparent Authority - answerSometimes the company inadvertently puts an agent in a
position of authority. Even though the company didn't intend it, the company is still liable
for the actions of the agent.
Fiduciary (trust on confidence) - answerWhen an agent is expected to act with utmost
good faith for the benefit for all contract parties. If an agent makes an honest mistake,
errors and omissions insurance would be available to pay the damages incurred.
However, dishonest mistakes are not covered by E&C.
The four required elements of a contract are: - answer1. Offer and Acceptance-
Agreement
2. Consideration- Values exchanged
, 3. Competent parties
4. Legal purpose
Legally competent - answermust be presumed to be competent in the specific state.
Cannot be underage, legally incompetent, or intoxicated at the time of contract.
However, a minor at age 15 can buy life insurance for themselves.
Adhesion* - answerBecause the insurance contract is written by the insurer, without any
consultation with the applicant, an insurance policy is a contract on adhesion. The
applicant must accept the policy on a TAKE IT OR LEAVE IT basis, and once accepted
the policy owner is "stuck" with the contract. Can only be overturned if there are
misunderstanding or ambiguities.
Aleatory contract - answerCannot change the person insured. Denotes that insurance is
unequal because of chance, some people need claims right away, others take years to
have a claim.
Personal Contract - answerlife insurance is for one person and one person only.
Unilateral insurance contracts - answerHappens after a person buys a policy and pays
premiums and expects to have a claim paid but it isnt. The policy owner can discontinue
the policy and the insurer cannot take legal action. Only one side can make the
enforceable promise.
Conditional Contract - answerpayment of a claim on an insurance policy depends upon
certain acts by the owner and the insurer. For example, the insurer must give proper
notice of non renewal, and the policy owner must furnish proper proof of a loss to get a
claim paid.
To indemnify - answerTo restore to the condition enjoyed before the loss, no more and
no less.
How do insurance policies indemnify? - answer1. valued contract- know in advance
what will be paid, pays a fixed amount (life insurance, disability income)
2. Reimbursement contract- Pays actual expenses (medical expense)
Representation - answerBest of knowledge or belief. Use representations over
warranties.
Misrepresentation - answertelling a lie or a partial truth. If the misrepresentation would
have affected the issuing of the policy, it is a MATERIAL REPRESENTATION and it
would result in the policy becoming VOID, meaning it never happened.
Concealment - answerwhen the applicant withholds material information from the
insurer would also result in a void contract (meaning it never happened)
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