Arizona Health Insurance Exam | Questions and answers with 100% correct solutions | Graded A+

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Insurance ✔✔a contract in which one party (the insurance company) agrees to "make whole" the insured party against loss, damage or liability arising from an unlikely event In ___________ insuran... ce, the policy protects survivors from losses suffered after the insured's death ✔✔Life Insurance __________ the risk of loss from an individual or business to an insurance company ✔✔Transfers Risk ✔✔the uncertainty or chance of a loss occurring Pure Risk ✔✔situations that can only result in a loss or no change In __________ risk, there is no opportunity for financial gain ✔✔Pure __________ risk is the only type of risk that insurance companies are willing to accept ✔✔Pure Speculative Risk ✔✔involves the opportunity for loss or gain __________ risk is not insurable ✔✔SpeculativeExposure ✔✔unit of measurement used to determine rates charged for insurance coverage 4 Determining Factors in Life Insurance ✔✔- Age of insured - Medical history - Occupation - Sex of insured Homogeneous ✔✔a large number of units having the same or similar exposure to loss What is the basis of insurance? ✔✔Sharing the risk among members of a large homogeneous group with similar exposure to loss Hazards ✔✔conditions or situations that increase the probability of an insured loss occurring Physical Hazards ✔✔individual characteristics that increase the chances of the cause of loss __________ hazards exist because of physical condition, past medical history, or a condition at birth. ✔✔Physical Moral Hazards ✔✔tendencies towards increased risk__________ hazards involve evaluationg the character and reputation of the proposed insured. ✔✔Moral __________ refer to those applicants who may life on an application for insurance, or in the past, have submitted fraudulent claims against an insurer. ✔✔Moral Morale Hazards ✔✔arise from a state of mind that causes indifference to loss, such as carelessness and result from actions taken without forethought. Peril ✔✔the causes of loss insured against an insurance policy. __________ insures against the financial loss caused by premature death of the insured. ✔✔Life __________ insures against the medical expenses and/or loss of income caused by the insured's sickness or accidental injury. ✔✔Health __________ insurance insures against the loss of physical property of the loss of income producing abilities. ✔✔Property __________ insurance insures against the loss and/or damage of property resulting in liabilities. ✔✔Casualty Loss ✔✔the reduction, decrease, or disappearance of value of the person or property insured in a policy, caused by a named peril.Risk Avoidance ✔✔eliminating exposure to a loss Risk avoidance is __________ but seldom __________. ✔✔Effective/Practical Risk Retention ✔✔the planned assumption of risk by an insured throughthe use of deductibles, copayments or self-insurance. Risk retention is also known as __________ when the insured accepts the responsibility for the loss before the insurance company pays. ✔✔Self-insurance The purpose of retention is: ✔✔1. to reduce expenses and improve cash flow 2. to increase control of claim reserving and claims settlements 3. to fund for losses that cannot be insured Risk Sharing ✔✔a method of dealing with risk for a group of individual persons or businesses with the same or similar exposure to loss to share the losses that occur within that group. A __________ is a formal risk-sharing agreement. ✔✔Reciprocal insurance exchange Risk Reduction ✔✔actions taken to attempt to lessen the possibility or severity of a loss (ex: installing smoke detectors, annual physicals, making lifestyle changes)The most effective way to handle risk is to __________ it so that the loss is borne by another party. ✔✔Transfer Insurance is the most common method of __________ risk from an individual or group to an insurance company. Though the purchasing of insuranc will not eliminate the risk of death or illness, it relieves the insured of the financial losses these risks bring. ✔✔Transferring Elements of Insurable Risks ✔✔- Due to chance - Definite and measurable - Statistically predictable - Not catastrophic - Randomly selected and large loss exposure Insurable Risks Due to Chance ✔✔a loss that is outside of the insured's control Insurable Risks that are Definite and Measurable ✔✔a loss that is specific as to the cause, time, place and amount. An insurer must be able to determine how much the benefit will be when it becomes payable. Insurable Risks that are Statistically Predictable ✔✔insurers must be able to estimate the average frequency and severity of future losses and set appropriate premium rates Insurable Risks that are Not Catastrophic ✔✔insurers need to be reasonably certain their losses will not exceed specific limits because there is no statistical data that allows for the development of rates that would be necessary to cover losses from these events.Insurable Risks that are Randomly Selected and have Large Loss Exposure ✔✔there must be a sufficiently large pool of the insured that represents a random selection of risks in terms of age, gender, occupation, health and economic status, and geographic location. Adverse Selection ✔✔the insuring of risks that are more prone to losses than the average risk __________ risks tend to seen insurance or file claims to a greater extent than __________ risks. ✔✔Poorer/Better To protect themselves from __________, insurance companies have an option to refuse or restrict coverage for bad risks, or charge them a higher rate for insurance coverage. ✔✔Adverse selection Law of Large Numbers ✔✔states that the larger the number of people with a similar exposure to loss, the more predictable actual losses will be. Which law forms the basis for statistical prediction of loss upon which insurance rates are calculated? ✔✔The Law of Large Numbers When an insurance company issues a policy of a 35 y/o male, the company really has no way of kning or accurately predicting when he will die. So they use the __________ to look at people who are the same age, sex and have similar health and lifestyle conditions to make conclusions based on the statistics of past losses. This allows the insurance company yo have a general idea about the predicted time of death for this type of insured and to set the premiums accordingly. ✔✔Law of Large NumbersWhat is the major difference between government and private insurance? ✔✔The government programs are funded with taxes and serve national and state social purposes, while private policies are funded by premiums. What are the 5 ways that private insurance companies can be classified? ✔✔- Ownership - Authority to transact busniess - Location - Marketing and distribution systems - Rating (financial strength) Stock Companies ✔✔insurance companies that are owned by the stockholders who provide the capital necessary to establish and operate the insurance company and who share in any profits or losses What is a nonparticipating policy? ✔✔A policy issued by a stock company in which policy owners do not share in profits or losses that does not pay dividends to policy owners, but does pay taxable dividends to stock holders. Mutual Companies ✔✔insurance companies that are owned by the policy owners and issue participating policies What is a participating policy? ✔✔A policy in which policy owners are entitled to dividends, which, in the case of mutual companies, are a return of excess premiums and are nontaxable.In a mutual company, __________ are generated when the premiums and the earnings combined exceed the actual costs of providing coverage, creating a surplus. They are not guaranteed. ✔✔Dividends A __________ is an organization formed to povide insurance benefits for members of an affiliated lodge, religious organization, or fraternal organization with a representative form of government. They sell only t their members are are considered charitible institutions, not insurers. They are not subject ot all of the regulations that apply to the insurers that offer coverage to the public at large. ✔✔Fraternal Benefit Society Lloyd's Associations ✔✔provide support facilities for underwriters or groups of individuals that accept insurance risk __________ are a group of individuals who operate an insurance mechanism using the same principles of individual liability insurers in which each individual underwriter assumes part of each risk. ✔✔Lloyd's Associations In __________, each individual promises to pay a specified amount in the event that the contingency insured against occurs. Members are liable for only their portion of the risk and are not bound to assume any portion of a defaulting member. ✔✔Lloyd's Associations __________ operate almost exclusively in the property insurance field. ✔✔Llyod's A __________ is a liability insurance company owned by its members. The members are exposed to similar liability risks by virtue of being in the same business or industry. ✔✔Risk Retention GroupThe purpose of a __________ is to assure and spread all or part of the liability of its group members. ✔✔Risk Retention Group A __________ may reinsure another group's liability as long as the members of the second group are engaged in the same or similar business industry. ✔✔Risk Retention Group _________ are organized and owned by a corporation or firm to serve the parent organization;s insurance needs at lower rates than other insurers and without the uncertainties of commercial insurance. ✔✔Captive Insurers What is a nonadmitted or nonauthorized insurer? ✔✔An insurance company that has not applied, or has applied and been denied, for a Certificate of Authority and may not transact insurance. Before an insurer may transact business in a specific state, they must apply for a license or ___________ from the state Department of Insurance and meet any financial (capital and surplus) requirements set down by the state. A __________ is issued by the state Department of Insurance and shows that the insurer has power to write insurance contracts in that state. ✔✔Certificate of Authority How are insurance companies classified? ✔✔According to the location of incorporation (domicile). Regardless of where an insurance company is incorporated, it must obtain a __________ before transacting insurance within the state. ✔✔Certificate of Authority Domestic Insurer ✔✔an insurance company this is incorporated in this state, most often the state in which it was formedForeign Insurer ✔✔an insurance company that is incorporated in another state or territorial possession Alien Insurer ✔✔an insurance company that is incorporated outside of the United States Marketing Characteristics of an Independent Agency System/American Agency System ✔✔- 1 independent agent represents several companies - nonexclusive - commissions on personal sales - business renewal with any company Marketing Characteristics of an Exclusive Agency System/Captive Agents ✔✔- 1 agent represents 1 company - exclusive - commissions on personal sales - renewals can only be placed with the appointing insurer Marketing Characteristics of a General Agency System ✔✔- general agent/entrepreneur represents 1 company - exclusive - compensation and commissions - appoints subagentsMarketing Characteristics of a Managerial System ✔✔- branch manager (supervises agents) - salaried - agents can be insurer's employees or independent contractors Marketing Characteristics of a Direct Response Marketing System ✔✔- no agens - company advertises directly to consumers through mail, internet, television, etc. - consumers apply directly to the company Social Insurance Programs ✔✔insurance that is provided by federal an state governments in areas where private insurance is not available (Social Security, Medicare, Medicaid, Federal Crop Insurance and National Flood Insurance) What is the major difference between government programs and private insurance programs? ✔✔Government programs are funded with taxes and serve national and state social purposes, while private policies are funded by premiums. Reinsurance ✔✔a contract under which one insurance company indemnifies another insurance copany for part of all of its liabilities. What is the purpose of reinsurance? ✔✔To protect insurers against catastrophic losses. What is the originating company that procures insurance on itself from another insurer called? ✔✔The ceding insurer (because itcedes, or gives, the risk to the reinsurer)What is another term for reinsurer? ✔✔The assuming insurer Facultative Reinsurance ✔✔reinsurance purchased on a specific policy and underwritten separately for each policy What is a reinsurance treaty? ✔✔When an insurer has an automatic reinsurance agreement between itself and the reinsurer in which the reinsurer is bound to accept all risks ceded to it. Usually negotiated for a period of a year or longer. What is an agent/producer? ✔✔an individual licensed to sell, solicit or negotiate insurance contracts on behalf of the insurer What is the Law of Agency? ✔✔A law that defines the relationship between the principal and the agent/producer. The acts of the agent/producer within the scope of authority are deemed to be acts of the insurer. What is given in the relationship between the agent/producer and the insurer? ✔✔- an agent represents the insurer, not the insured - any knowledge of the agent is presumed to be knowledge of the insurer - if the agent is working within the conditions of their contract, the insurer is fully responsible - when the insured submits payment to the agent, it is the same as submitting a payment to the insurer Express Authority ✔✔the authority a principal intends to grant to an agent by means of the agent's contract; the authority that is written in the contractImplied Authority ✔✔authority that is not expressed or written in the contract, but which the agent is assumed to have in order to transact the business of insurance for the principal insurer; incidental to and derives from express authority since not every single detail of an agent's authority can be spelled out in the written contract Apparent/Perceived Authority ✔✔the appearance or the assumption of authority based on the actions, words, or deeds of the principal insurer or because of circumstances the principal insurer created Fiduciary Responsibility ✔✔a position of trust that an agent has when they have access to the funds of the insured and the insurer What are the 4 elements of a legal contract? ✔✔1. Agreement 2. Consideration 3. Competent Parties 4. Legal Purpose In insurance, who makes the offer and who accepts it? ✔✔The applicant usually makes the offer when submitting the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy. Consideration ✔✔something of value that each party gives to the other (a premium payment and the promise to pay in the event of loss) What determines if someone is considered competent enough to enter into a contract? ✔✔Both parties must be:- of legal age - mentally competent to understand the contract - not under the influence of drugs or alcohol Contract of Adhesion ✔✔a contract that is prepared by the insurer and accepted or rejected by the insured on a "take it or leave it" basis that is not open to negotiation Personal Contract ✔✔a contract between the insurance company and an individual that can't be changed to another individual without the written consent of the insurer What is the exception to a personal contract? ✔✔Life Insurance; a policy owner can transfer or assign ownership of the policy to another person, but the insurer must still be notified in writing Unilateral Contract ✔✔a contract that only requires one of the parties of the contract to be legally bound to do anything; the insured makes no legally binding promises, however an insurer is legally bound to pay losses covered by a policy in force. Conditional Contract ✔✔a contract that requires hat certain conditions must be met by the policy owner and the company in order for the contract to be executed, and before each party fulfills its obligations (ex: the insured must pay the premium and provide proof of loss in order for the insurer to cover a claim) How are ambiguities in a contract dealt with in court? Why? ✔✔In favor of the insured, because only the insurance company has the right to draw up a contract and the insured has to adhere to the contract as issued.In which situations could the insured reasonably expect coverage? Why? ✔✔If an agent implies through advertising, sales literature or statements that provisions to the policy exist, the insured could reasonably expect coverage because it is not always practical or necessary to state every direct and indirect provision or coverage offered by an insurance policy. What is indemnity? ✔✔Reimbursement; a provision in an insurance policy that states that in the event of loss an insured or a beneficiary is permitted to collect only to the extent of the financial loss and is not allowed to gain financially because of the existence of an insurance contract. What is the purpose of insurance? ✔✔To restore loss but not let an insured or a beneficiary profit from the loss. What is the principle of utmost good faith? ✔✔the implication that there will be no fraud, misrepresentation or concealment between the parties because both the insurer and the insured must be able to rely on the other for relevant information Representations ✔✔statements believed to be true to the best of one's knowledge, but they are not guaranteed to be true; the answers the insured gives to the questions on the insurance application Misrepresentations ✔✔untrue statements on the application that could potentially voidthe contract Material Misrepresentation ✔✔a statement that, if discovered, would alter the underwriting decision of the insurance company; if intentional, they are considered insurance fraudWarranty ✔✔an absolutely true statement upon which the validity of the insurance policy depends; a breach can be considered grounds for voidign the poli [Show More]

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