LOMA 281 Module 1 questions with answers, Exams of Insurance law

Download LOMA 281 Module 1 questions with answers and more Exams Insurance law in PDF only on Docsity! LOMA 281 Module 1 questions with answers Risk - ANSWER: ✔✔the possibility of an unexpected result. Premium - ANSWER: ✔✔A specified amount of money an insurer charges in exchange for its agreement to pay a policy benefit when a specific loss occurs. Insurance company - ANSWER: ✔✔A company that provides protection against the risk of financial loss caused by specific events. Life insurance - ANSWER: ✔✔A type of insurance under which the insurer promises to pay a death benefit upon the death of a named person. Annuity - ANSWER: ✔✔A financial product by which an insurer, in return for receiving a premium, promises to make periodic payments to a named person or entity. Applicant - ANSWER: ✔✔The person or entity that applies for an insurance policy. Policyowner - ANSWER: ✔✔The person or entity that owns the issued policy. Insured - ANSWER: ✔✔The person whose life or health the policy insures. Beneficiary - ANSWER: ✔✔The person named to receive the policy benefit if the insured event occurs. Third party policy - ANSWER: ✔✔A policy one person purchases that insures the life of another person. Speculative risks - ANSWER: ✔✔A risk that involves three possible outcomes: loss, gain, or no change. Pure risk - ANSWER: ✔✔A risk that involves no possibility of gain; either a loss occurs or no loss occurs. Contracts of indemnity - ANSWER: ✔✔Health insurance; An insurance policy under which the amount of the policy benefit payable for a covered loss is based on the actual amount of financial loss that results from the loss, as determined at the time of the loss. Valued contract - ANSWER: ✔✔Life insurance; An insurance policy that specifies the amount of the policy benefit that will be payable when a covered loss occurs, regardless of the actual amount of the loss the was incurred. Face amount - ANSWER: ✔✔the amount of the policy benefit listed on the first page of a life insurance policy. Law of large numbers - ANSWER: ✔✔A theory of probability which states that, typically, the more times we observe a particular event, the more likely it is that our observed results will approximate the 'true' probability that the event will occur. Reinsurance - ANSWER: ✔✔Insurance that one insurance company, known as the direct writer, purchases from another insurance company, known as the reinsurer, to transfer risk on insurance policies that the direct writer has issued. Retention limit - ANSWER: ✔✔The maximum amount of insurance that an insurer is willing to carry at its own risk on any one life. The direct writer cedes anything above that limit to a reinsurer in a reinsurance transaction or through other risk transfer mechanisms. Direct writer - ANSWER: ✔✔AKA ceding company; In a reinsurance transaction, the insurance company that purchases reinsurance. Reinsurer - ANSWER: ✔✔In a reinsurance transaction, the company that provides reinsurance to the direct writer. Retrocessionaire - ANSWER: ✔✔A reinsurance company that accepts risk ceded to it by another reinsurance company. National conference of insurance legislators - ANSWER: ✔✔Helps state insurance legislators discuss insurance issues and pass model laws. Interstate insurance product regulation commission - ANSWER: ✔✔Enables member states to develop uniform national standards for insurance products. Certificate of authority - ANSWER: ✔✔A license that grants an insurer the right to conduct insurance business in a given state. Market conduct laws - ANSWER: ✔✔A state law that regulates how insurance companies conduct their business within a state. Life and health guaranty association - ANSWER: ✔✔An organization that operates under the supervision of the state insurance commissioner to protect policyowners, insureds, beneficiaries, and specified others against losses that result from the financial impairment of insolvency of a life or health insurer that operates in the state. Contract - ANSWER: ✔✔A legally enforceable agreement between two or more parties. Lapse - ANSWER: ✔✔The termination of coverage under an insurance policy when the renewal premium has not been paid on time. Unilateral contract - ANSWER: ✔✔A contract for which only one party makes legally enforceable promises when entering into the contract. Bilateral contract - ANSWER: ✔✔A contract for which both parties make legally enforceable promises when they enter into the contract. Commutative contract - ANSWER: ✔✔An agreement under which the parties specify in advance the values that they will exchange; moreover, the parties generally exchange items or services that they think are of relatively equal value. Aleatory contract - ANSWER: ✔✔A contract for which one party provides something of value to another party in exchange for a conditional promise. Conditional promise - ANSWER: ✔✔A promise to perform a stated act if a specified, uncertain event occurs. Bargaining contract - ANSWER: ✔✔A contract in which both parties, as equals, set the terms and conditions of the contract. Contract of adhesion - ANSWER: ✔✔A contract that one party prepares and the other party must accept or reject as a whole, generally without any bargaining between the parties to the agreement. Informal contract - ANSWER: ✔✔A contract that is enforceable because the parties to the contract met requirements concerning the substance of the agreement rather than requirements concerning the form of the agreement. Formal contract - ANSWER: ✔✔A contract that is enforceable because the parties to the contract met certain formalities concerning the form of the agreement. Valid contract - ANSWER: ✔✔A contract that satisfies all legal requirements and, thus, is enforceable by law. consideration - ANSWER: ✔✔A requirement for the formation of a valid contract that is met when each party gives or promises to give something of value to the other party. Void contract - ANSWER: ✔✔A contract that does not satisfy one or more of the legal requirements to create a valid contract and, thus, is never enforceable by law. Voidable contract - ANSWER: ✔✔A contract in which one party has the right to avoid her obligations under the contract without incurring legal liability. Actuaries - ANSWER: ✔✔A financial professional with expertise in the mathematics of finance, risk, and insurance. Premium rate - ANSWER: ✔✔A charge per unit (usually $1,000) of life insurance coverage. Standard risk - ANSWER: ✔✔A proposed insured who has a likelihood of loss that is not significantly greater than average. Preferred risk - ANSWER: ✔✔A proposed insured who presents a significantly less-than-average likelihood of loss. Substandard risk - ANSWER: ✔✔A proposed insured who has a significantly greater-than-average likelihood of loss but is still found to be insurable. Declined risk - ANSWER: ✔✔A proposed insured who is considered to present a risk too great for an insurer to cover. Cost of Benefits - ANSWER: ✔✔The value of the benefits guaranteed under in-force policies. For purposes of pricing an insurance product, the cost of benefits equals all of the insurer's potential payments of benefit obligations to customers multiplied by the expected probability that each benefit will be payable. Death benefit - ANSWER: ✔✔The insurance benefit paid when the insured person dies. Surrender benefits - ANSWER: ✔✔A life insurance benefit payable if the owner of a cash value life insurance policy surrenders the policy to the insurer before the insured person dies. Mortality rates - ANSWER: ✔✔The rate at which death occurs among a specified group of people during a specified period, typically one year. To price a life insurance product, an insurer must be able to predict the mortality rate for the given group of insureds. Mortality tables - ANSWER: ✔✔A chart that shows the mortality rates an insurer may reasonable anticipate among a particular group of insured lives at certain ages.