Exam (elaborations)
FOUNDATIONS OF INSURANCE REGULATION (APIR)
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FOUNDATIONS OF INSURANCE REGULATION (APIR)
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FOUNDATIONS OF INSURANCE REGULATION (APIR)Insurance - Answers- A legal binding promise of compensation for specific potential
future losses in exchange for a periodic payment.
Insurance Contract - Answers- Has four elements to be enforceable:
1. Agreement - offer and acceptance.
2. Capacity to contract - ability to make legally binding agreements.
3. Consideration - promisor must receive a legal benefit such as money.
4. Legal purpose
Purpose of Insurance (4 items) - Answers- 1. Transfer of risk
2. Guard against the unknown
3. Safety net...lessen financial burden
4. Spread woes among many...
Purpose of Insurance - Answers- To share the risk of financial loss by transferring a
possible loss (risk) to an insurance company. The insurance company in turn spreads
out the cost of possible losses to many individuals through premium.
McCarran-Fergurson Act of 1945 - Answers- Exempts the "business of insurance" from
most federal regulation. Federal regulation isn't eliminated, just provides the states with
broad authority.
Business of Insurance - Analyzing factors - Answers- 1. Transferring or spreading a
policy-holder's risk.
2. Integral part of the policy relationship between the insurer and the insured.
3. Limited to entities within the insurance industry.
Property Insurance - Answers- Provides coverage to a person or a business whose
property is stolen, damaged, or destroyed.
Property Insurance (Common Risks) - Answers- Fire, theft, earthquake, lightening, and
explosions.
Example of Property Insurance - Answers- Homeowners or rental policy
Casualty Insurance/Liability Insurance - Answers- Provides coverage to a person or a
business for negligent acts and omissions that cause bodily injury or property damage
to others.
, Casualty Insurance (Common Types) - Answers- Errors and omissions, fidelity, and
various types of malpractice insurance.
Health Insurance - Answers- Provides coverage to a person for medical expenses.
These medical expenses can include emergencies, hospital stays, physician visits,
medications, and other related medical expenses.
Common Health Insurance Plans - Answers- Health Maintenance Organization (HMO),
Preferred Provider Organization (PPO), Indemnity, and other company sponsored major
medical plans. Supplemental or Limited Benefit plans include coverage such as dental,
vision, or specified disease/illness.
Life Insurance - Answers- Provides a sum of money to a beneficiary when the insured
dies. The owner of the policy must suffer a genuine loss if the insured dies. (Can't open
policy on a stranger)
Whole Life Policy - Answers- Pay the death benefit whenever the insured dies no
matter what age.
Term Life Policy - Answers- Pays a death benefit only if the insured dies within the
"term" or time window of the policy. The premiums for a term policy are much lower than
whole life.
Universal Life and Variable Life Policy - Answers- Provide management and investment
opportunities for whole life policies.
Annuity - Answers- Systematically liquidate a certain sum. The insurer agrees to pay
the annuitant a certain sum of money for a specified period of time. The objective is to
protect the annuitant against outliving other sources of income. Annuities with Life
contingencies only pay as long as the annuitant is alive.
Admitted - Answers- An insurer that is licensed to do business in a state is considered
admitted in that state. Admitted insurers can be domestic or foreign. Admitted insurers
are often referred to as authorized insurers because they are authorized to do business
in the state.
Nonadmitted - Answers- An insurer that is not licensed in the state in which they are
transacting insurance business. Often referred to as unauthorized insurers. May or may
not be legally able to offer coverage.
How to legally offer coverage as a nonadmitted insurer? - Answers- An nonadmitted
insurer may be able to offer the coverage on a surplus lines basis.
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