Utah Health Insurance Exam Study Guide.
Insurance - answerTransfer of risk.
Types of risk - answerPure and Speculative
Pure Risk - answerA chance of loss or no loss, but no chance of gain. The ONLY type of
insurable risk.
Speculative Risk - answerChance of loss or gain. CANNOT be insured. (Exa...
Pure Risk - answer✔A chance of loss or no loss, but no chance of gain. The ONLY type of
insurable risk.
Speculative Risk - answer✔Chance of loss or gain. CANNOT be insured. (Example: Buying
stock in the stock market)
Types of Hazards - answer✔Physical, Moral and Morale
Physical Hazard - answer✔A physical condition that increases the chance of loss.
Moral Hazard - answer✔Dishonesty or character defects in an individual that increase the
frequency or severity of loss (Example: Applicant lies on insurance application)
Morale Hazard - answer✔Through carlessness or irresponsible actions an increase in the
possibilty of a loss. (Example: Not cutting down a tree branch that might fall on your house
because you have insurance if it does)
Perils - answer✔causes of loss insured against in an insurance policy
Avoidance - answer✔Eliminating exposure to a loss (not driving so you won't get in a car
accident)
retention - answer✔Planned assumption of risk through the use of deductibles, co-payments, or
self-insurance.
reduction - answer✔Actions such as installing smoke detectors to reduce the risk of loss from
fire or getting an annual physical to help prevent/detect health problems early.
Transfer - answer✔Transferring the risk of loss to another company or entity. Insurance is the
most common way to transfer risk.
To be insurable, a risk must be - answer✔-due to chance
-Definite and measurable
-Statistically predictable
-NOT catastrophic
-Large loss exposure (large pool of randomly selected people/risks)
Adverse Selection - answer✔Tendency for poorer than average risks to seek insurance.
Reinsurance - answer✔Insurance purchased by other Insurer(s) to spread or diversify risk;
promotes industry stability.
Ceding Insurer - answer✔The company transferring risk in a reinsurance arrangement.
assuming insurer - answer✔reinsurer or company who is taking over the risk
Stock Companies - answer✔-Owned by stockholders
-nonparticipating (policy holders DO NOT share in profits or losses)
Mutual Companies - answer✔-Owned by the policyowners
-Participating (ploicyowners are entitled to dividends)
-Dividends are NOT guaranteed
Fraternal Benefit Societies - answer✔Must be nonprofit, have a lodge system (ie. religious
organization), representative form of government and offer insurance to its members only.
Certificate of Authority - answer✔License for insurance company to do business. This allows
insurers to be considered ADMITTED or AUTHORIZED.
Domestic Insurer - answer✔An insurance company that conducts business in the state of
incorporation.
Foreign Insurer - answer✔An insurance company that is incorporated in another state.
Alien Insurer - answer✔An insurance company that is incorporated outside the United States.
Who does an agent represent? - answer✔The INSURER (insurance company) not the insured.
Express Authority - answer✔The authority granted to an agent by means of the agent's written
contract..
Implied Authority - answer✔the authority that the agent has that is not specifically listed in their
contract, but is assumed to have to conduct business. (Required to be able to conduct business).
Example: collecting premiums
Apparent Authority - answer✔A third party's reasonable belief that an agent has authority to act
on the principal's behalf. Based on the actions words, etc of the principal. Example: Using
business cards or brochures
Fiduciary Responsibility - answer✔-An ethical and legal obligation to perform a person's duties
in a trustworthy manner.
-Money related
-Must not commingle funds
-Forwarding premiums to the insurer/principal in a timely manner is an example of acting in a
fiduciary capacity
Parts of a contract - answer✔Offer, acceptance, consideration, and legal purpose
Consideration - answer✔Exchanging something of value
Insured's Consideration - answer✔1. A truthful and complete application
2. Premium Payment
Insurer's Consideration - answer✔Promise to pay qualifying claims
Acceptance - answer✔UNDERWRITER approves a prepaid application.
(An agent/producer CANNOT bind coverage, but they can accept an application)
Legal Purpose - answer✔Insurable interest and consent
1. Must be of age (18+)
2. Cannot be high
3. Cannot be drunk
4. Must be mentall competent
Contract of Adhesion - answer✔Take it or leave it agreements, where the insured has no say in
the contract terms and conditions.
Aleatory Contract - answer✔A contract where the values exchanged may not be equal but
depend on an uncertain event
Personal Contract - answer✔A contract between an individual and an insurer.
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