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FIN 3204 Exam 2
| Term | Definition |
|---|---|
| Paul v. Virginia (1868) | |
| the Supreme Court ruled that insurance was not interstate commerce, and that the states rather than the federal government had the right to regulate the insurance industry. | |
| U.S. v. South-Eastern Underwriters Association (1944) | |
| the Court ruled that insurance was interstate commerce when conducted across state lines and was subject to federal antitrust laws | |
| McCarran-Ferguson Act (1945) | |
| states that continued regulation and taxation of the insurance industry by the states are in the public interest | |
| Financial Modernization Act (1999) | |
| changed federal law that earlier prevented banks, insurers, and investment firms from competing outside their core area | |
| National Association of Insurance Commissioners | |
| meets periodically to discuss industry problems and draft model laws | |
| domestic insurer | |
| domiciled in the state | |
| foreign insurer | |
| an out-of-state insurer that is chartered by another state, but licensed to operate in the state | |
| alien insurer | |
| an insurer that is chartered by a foreign country, but is licensed to operate in the state | |
| Admitted assets | |
| assets that an insurer can show on its statutory balance sheet in determining its financial condition | |
| risk-based capital (RBC) | |
| standard means that insurers must have a certain amount of capital, depending on the riskiness of their investments and insurance operations | |
| guaranty funds, guaranty laws and guaranty associations | |
| State-established funds that provide for payment of unpaid claims of insolvent insurers licensed in that state. | |
| assessment method | |
| the major method used to raise the necessary funds to pay unpaid claims | |
| Twisting | |
| the inducement of a policyowner to drop an existing policy and replace it with a new one that provides little or no economic benefit to the client | |
| Rebating | |
| the practice of giving an individual a premium reduction or some other financial advantage not stated in the policy as an inducement to purchase the policy | |
| optional federal charter | |
| -Proposals would allow insurers to choose either a federal or state charter. | |
| -Proponents argue that national insurers are at a competitive disadvantage under the present system. | |
| -Opponents suggest this creates a dual system of insurance regulation which will increase the cost of insurance regulation | |
| Market conduct | |
| refers to the marketing practices of insurers and agents that involve interaction with insureds, claimants, or consumers | |
| actual cash value (ACV) | |
| The required amount to pay damages or for property loss | |
| Fair market value | |
| the price a willing buyer would pay a willing seller in a free market | |
| Broad evidence rule | |
| the determination of ACV should include all relevant factors an expert would use to determine the value of the property | |
| valued policy | |
| pays the face amount of insurance if a total loss occurs | |
| Replacement cost insurance | |
| there is no deduction for depreciation in determining the amount paid for a loss (boat loss) | |
| Principle of Insurable Interest | |
| The insured must be in a position to lose financially if a covered loss occurs | |
| Principle of Subrogation | |
| substitution of the insurer in place of the insured for the purpose of claiming indemnity from a third party for a loss covered by insurance | |
| Principle of Utmost Good Faith | |
| A higher degree of honesty is imposed on both parties to an insurance contract than is imposed on parties to other contracts | |
| Representations | |
| statements made by the applicant for insurance | |
| Material | |
| if the insurer knew the true facts, the policy would not have been issued, or would have been issued on different terms | |
| Reliance | |
| the insurer relies on the misrepresentation in issuing the policy at a specified premium | |
| innocent misrepresentation | |
| misrepresentation made without knowledge of its falsity but with due care; renders contract voidable | |
| concealment | |
| intentional failure of the applicant for insurance to reveal a material fact to the insurer | |
| warranty | |
| a statement that becomes part of the insurance contract and is guaranteed by the maker to be true in all respects | |
| Requirements of an Insurance Contract | |
| 1. offer and acceptance | |
| 2. consideration | |
| 3. competent parties | |
| 4. legal purpose | |
| Aleatory Contract | |
| The exchange of value is unequal. | |
| Unilateral Contract | |
| only the insurer makes a legally enforceable promise | |
| Conditional Contract | |
| policyowner must comply with all policy provisions to collect for a covered loss | |
| Personal Contract | |
| property insurance policy cannot be validly assigned to another party without the insurer's consent | |
| contract of adhesion | |
| the insured must accept the entire contract with all of its terms and conditions | |
| principle of reasonable expectations | |
| states that an insured is entitled to coverage under a policy that he or she reasonably expects it to provide, regardless of policy provisions. | |
| nonwaiver clause | |
| Insurers can place limitations on the power of agents | |
| Waiver | |
| the voluntary relinquishment of a known legal right | |
| Estoppel | |
| the loss of a legal defense because of previous actions that are now inconsistent with that defense | |
| Declarations | |
| statements that provide information about the particular property or activity to be insured | |
| insuring agreement | summarizes the major promises of the insurer- Named perils coverage, where only those perils specifically named in the policy are covered- Open-perils, or special coverage, where all losses are covered except those losses specifically excluded |
| exclusions | - Excluded perils- Excluded losses- Excluded property |
| Conditions | provisions in the policy that qualify or place limitations on the insurer's promise to perform |
| endorsement | a written provision that adds to, deletes from, or modifies the provisions in the original contract |
| rider | is a provision that amends or changes the original policy |
| deductible | provision by which a specified amount is subtracted from the total loss payment that otherwise would be payable |
| straight deductible | the insured must pay a certain number of dollars of loss before the insurer is required to make a payment |
| aggregate deductible | means that all losses that occur during a specified time period, usually a year, are accumulated to satisfy the deductible amount |
| calendar-year deductible | a type of aggregate deductible that is found in basic medical expense and major medical insurance contracts |
| elimination (waiting) period | a stated period of time at the beginning of a loss during which no insurance benefits are paid |
| coinsurance clause | encourages the insured to insure the property to a stated percentage of its insurable value |
| fundamental purpose of coinsurance | achieve equity in rating |
| pro rata liability provision | each insurer's share of the loss is based on the proportion that its insurance bears to the total amount of insurance on the property |
| contribution by equal shares | each insurer shares equally in the loss until the share paid by each insurer equals the lowest limit of liability under any policy, or until the full amount of the loss is paid |
| primary and excess insurance provision | the primary insurer pays first, and the excess insurer pays only after the policy limits under the primary policy are exhausted |
| coordination of benefits provision | in group health insurance is designed to prevent overinsurance and the duplication of benefits if one person is covered under more than one group health insurance plan |
| human life value | the present value of the family's share of the deceased breadwinner's future earnings |
| Term insurance | Insurance that provides protection for a specific period of time. |
| Cash-value life insurance | has a savings component and builds cash values |
| attained-age method | the premium charged for the new policy is based on the insured's attained age at the time of conversion |
| original-age method | the premium charged for the new policy is based on the insured's original age when the term insurance was first purchased |
| reentry term insurance | renewal premiums are based on select (lower) mortality rates if the insured can periodically demonstrate acceptable evidence of insurability |
| Return of premium term insurance | a product that returns the premiums at the end of the term period provided the insurance is still in force |
| Whole life insurance | a cash-value policy that provides lifetime protection |
| Ordinary life insurance | a level-premium policy that accumulates cash values and provides lifetime protection to age 121 |
| net amount at risk | the difference between the legal reserve and face amount of insurance |
| legal reserve | a liability that must be offset by sufficient financial assets |
| cash surrender values | the amount paid to a policyholder who surrenders the policy |
| limited-payment life insurance | the insured has lifetime protection, and premiums are level, but they are paid only for a certain period |
| single-premium whole life | provides lifetime protection with a single premium |
| Endowment insurance | pays the face amount of insurance if the insured dies within a specified period. If the insured is still alive at the end of the period, the face amount is paid to the policyholder |
| Variable life insurance | a fixed-premium policy in which the death benefit and cash values vary according to the investment experience of a separate account, which is similar to a mutual fund maintained by the insurer |
| Universal life insurance | a flexible premium policy that provides lifetime protection |
| Universal life insurance limitation | A policy may lapse because some policyholders do not have a firm commitment to pay premiums |
| modified life policy | a whole life policy in which premiums are lower for the first three to five years and higher thereafter |
| Preferred risk policies | sold at lower rates to individuals whose mortality experience is expected to be lower than average |
| Joint life insurance | a policy written on the lives of two or more people and is payable at the time of death of the first person to die |
| Second-to-Die life insurance | insures two or more lives and pays the death benefit upon the death of the second or last insured |
| Savings Bank Life Insurance (SBLI) | a type of life insurance that is sold by savings banks |
| Industrial life insurance | a type of insurance in which the policies are sold in small amounts and an agent of the company collects the premiums at the insured's home |
| Group life insurance | provides life insurance on a group of people in a single master contract |
| calendar-year deductible | |
| a type of aggregate deductible that is found in basic medical expense and major medical insurance contracts | |
| elimination (waiting) period | |
| a stated period of time at the beginning of a loss during which no insurance benefits are paid | |
| coinsurance clause | |
| encourages the insured to insure the property to a stated percentage of its insurable value | |
| fundamental purpose of coinsurance | |
| achieve equity in rating | |
| pro rata liability provision | |
| each insurer's share of the loss is based on the proportion that its insurance bears to the total amount of insurance on the property | |
| contribution by equal shares | |
| each insurer shares equally in the loss until the share paid by each insurer equals the lowest limit of liability under any policy, or until the full amount of the loss is paid | |
| primary and excess insurance provision | |
| the primary insurer pays first, and the excess insurer pays only after the policy limits under the primary policy are exhausted | |
| coordination of benefits provision | |
| in group health insurance is designed to prevent overinsurance and the duplication of benefits if one person is covered under more than one group health insurance plan | |
| human life value | |
| the present value of the family's share of the deceased breadwinner's future earnings | |
| Term insurance | |
| Insurance that provides protection for a specific period of time. | |
| Cash-value life insurance | |
| has a savings component and builds cash values | |
| attained-age method | |
| the premium charged for the new policy is based on the insured's attained age at the time of conversion | |
| original-age method | |
| the premium charged for the new policy is based on the insured's original age when the term insurance was first purchased | |
| reentry term insurance | |
| renewal premiums are based on select (lower) mortality rates if the insured can periodically demonstrate acceptable evidence of insurability | |
| Return of premium term insurance | |
| a product that returns the premiums at the end of the term period provided the insurance is still in force | |
| Whole life insurance | |
| a cash-value policy that provides lifetime protection | |
| Ordinary life insurance | |
| a level-premium policy that accumulates cash values and provides lifetime protection to age 121 | |
| net amount at risk | |
| the difference between the legal reserve and face amount of insurance | |
| legal reserve | |
| a liability that must be offset by sufficient financial assets | |
| cash surrender values | |
| the amount paid to a policyholder who surrenders the policy | |
| limited-payment life insurance | |
| the insured has lifetime protection, and premiums are level, but they are paid only for a certain period | |
| single-premium whole life | |
| provides lifetime protection with a single premium | |
| Endowment insurance | |
| pays the face amount of insurance if the insured dies within a specified period. If the insured is still alive at the end of the period, the face amount is paid to the policyholder | |
| Variable life insurance | |
| a fixed-premium policy in which the death benefit and cash values vary according to the investment experience of a separate account, which is similar to a mutual fund maintained by the insurer | |
| Universal life insurance | |
| a flexible premium policy that provides lifetime protection | |
| Universal life insurance limitation | |
| A policy may lapse because some policyholders do not have a firm commitment to pay premiums | |
| modified life policy | |
| a whole life policy in which premiums are lower for the first three to five years and higher thereafter | |
| Preferred risk policies | |
| sold at lower rates to individuals whose mortality experience is expected to be lower than average | |
| Joint life insurance | |
| a policy written on the lives of two or more people and is payable at the time of death of the first person to die | |
| Second-to-Die life insurance | |
| insures two or more lives and pays the death benefit upon the death of the second or last insured | |
| Savings Bank Life Insurance (SBLI) | |
| a type of life insurance that is sold by savings banks | |
| Industrial life insurance | |
| a type of insurance in which the policies are sold in small amounts and an agent of the company collects the premiums at the insured's home |
Created by:
Mrich4700
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