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Policy Owner
Has the right to make changes to a policy
Agent
Also known as "producer" acts as a legal rep for the insurance company.  Agent's fiduciary duty is owed to the company, not the insured.
Broker
A representative of the insured.  Fiduciary duty is to the insured, not to the insurance company
Pure Risk
Experiencing loss without possibility of gain. Insurance companies insure pure risk.
Speculative Risk
Chance of loss accepted in the hope of realizing gain. Insurance companies do not insure speculative risk.
Risk Retention
Self-insuring
Definition of Insurance (4)
  • contract
  • transfer of risk
  • social device where risk is transferred to insurance company
  • Mechanism of sharing risk
Indemnification
Concept where insurance companies are not willing to pay to have the insured come about better than before after a claim
Valued policies
Policies like life insurance that pay on the value of the policy not the "worth" of the deceased
Indemnity policies
Reimburses Insured for medical bills already paid by the insured
Reimbursement policies
Same as indemnity policies
Subrogation
Transfer to the Insurer of the Insured's rights to recover damages from a responsible third party
Peril
Cause of the loss
Law of Large Numbers
Mathematical concept that makes it easier to predict losses if we have a large number of insured.
Types of insurable losses (5)
  • Economic
  • Predictable
  • Accidental
  • Measurable
  • Non-Catastrophic
Non-participating companies
Policy holders do not share in the company profits, only shareholders do.
Mutual company
The company is owned by policyholders. There are no shares of stock or shareholders.
Participating company
Another word for mutual company becuause policyholders can receive a dividend.
Name of the act created during the Depression to create America's safety net.
Social Security Act
OASDI
  • Old
  • Age
  • Survivors
  • Disability
  • Insurance
What agency manages Social Security?
Social Security Administration
What pays for social security?
FICA
What does FICA stand for?
  • Federal
  • Insurance
  • Contributions
  • Act
What part of FICA do self-employed persons have to pay
Both the employer and employee portion ... around 15%
Who is not covered by Social Security
  • federal Railroad Retirement system
  • federal employees covered by Civil Service Retirement
  • various state and local government employees who choose to participate in other programs.
Fully Insured - Social Security
After working and paying FICA for 10 years.
Currently Insured - Social Security
A worker who has not met the Fully Insured requirement
Name of the retirement benefit that a worker will be entitled at age 65
Primary Insurance Amount (PIA)
Three main OASDI benefits
  • Retirement
  • Disability
  • Survivor Benefits
What percentage of PIA will a worker receive at age 62?
80%
What happens if you wait until after 65 to retire?
You will receive a monthly amount greater than 100% of PIA
Can Currently Insured persons receive Social Security disability benefits? Retirement benefits? Survivor benefits?
No
No
Yes but only the $255 lump sum amount
What is the amount of Soc. Sec. disability payments
100% of the PIA at the time the disability occurs
How long must a disability be expected to last in order to receive Soc. Sec. benefits?
12 months
Elimination Period
5 months from the time of a disability.  A person must be disable for 5 months before receiving Social Security disability benefits.
When can a disabled person become automatically eligible for Medicare?
After receiving disability payments for 2 years (disabled for 29 months).
What are the two Survivor Benefits of Social Security
  • $255 lump sum to cover funeral costs paid to Fully or Currently Insured workers
  • percentage of PIA paid to survivors of a Fully Insured worker
Is Workers Compensation managed by the federal government or state governments?
State governments
Definition of Underwriting
"The selection and classification of risks"
Actuary
A mathematician who tracks information for insurance companies.
2 types of actuarial data for Life and Health Insurance
  • Mortality Tables - predict age which people are likely to die
  • Morbidity Tables - predict how likely people are to get sick or get in an accident
10 factors in underwriting process
  • Age
  • Gender
  • Occupation
  • Health
  • Tobacco Use
  • Drugs and Alcohol
  • Aviation
  • Military
  • Hobbies
  • Reputation
Agent's Report Section of an insurance application
Includes the agent's assessment of whether the applicant is a good insurance risk.
Are there laws regarding whether a medical exam can or will be required for insurance?
No, only regarding confidentiality
Three classification groups of those accepted by insurance companies
  • Substandard risk - highest premiums
  • Standard risk
  • Preferred risk - lowest premiums
Adverse Selection
The tendency for high risk people to be more likely to apply for insurance than low risk people.  Adverse selection is a problem for the insurance companies and they try to avoid it.
Formula for calculating premiums
Premium = Risk + Expenses - Interest
Premium mode
How often the Insured will pay the premium
3 characteristics of group policies
  • Reduced Cost
  • Reduced Adverse Selection
  • Fixed Benefits
Cafeteria Plans
Allows members of a group policy to have some picking and choosing of their benefits
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