Lesson 1 Review
The true significance of insurance is its promise to substitute future economic certainty for uncertainty and to replace the unknown with a sense of security. The true value of insurance lies in its ability to protect human life values.
Life insurance is based on actuarial or mathematical principles and guarantees a specified sum of money upon the death of the person who is insured. Health insurance evolved from scientific principles to provide funds for medical expenses due to sickness or injury and to cover loss of income during a disability. Annuities provide a stream of income by making a series of payments to the annuitant for the annuitant's lifetime or for a specifically designated period of time.
The two basic reasons for insurance are: (1) Protection against financial loss, and (2) restores the insured back to the same condition as before the loss.
The pooling of risks is considered the primary principle of insurance. The law of large numbers is based on the science of probability and the experience of mortality and morbidity statistics and is categorically fundamental to the process of establishing insurance guidelines.
Morbidity refers to sickness or illness and mortality refers to the history of death.
Speculative risks involve the possibility of loss and gain. Pure risks involve the possibility of loss only. Only pure risks are insurable. To be insurable, a risk must involve the chance of loss that is unexpected and outside the insured's control.
A peril is the cause of a risk. A hazard is the source of danger. Physical hazards are of a physical nature; moral hazards are predicated on habits or lifestyles; morale hazards are mental tendencies.
There are four ways to deter insurance risk levels: (1) Risk avoidance, (2) risk reduction, (3) risk retention, and (4) risk transference. Purchasing insurance is one of the most effective ways of transferring risk.
Adverse selection refers to the tendency for those individuals who present less favorable insurance risk to seek or continue insurance to a greater extent than other risks.
There are two main classifications of insurance providers: (1) Private insurers, and (2) government insurers.
Stock insurance companies are owned by the stockholders in the company. When a stock life insurance company issues both participating and nonparticipating policies, it is referred to as a company doing business as a mixed plan.
Mutual insurers are owned by the policyholders in the company and issue only participating policies. The operating objective of a mutual life insurance company is to provide insurance to its owners at the lowest possible net cost.
Lloyd's of London is an association that underwrites insurance; Lloyd's of London is not an insurance company.
Fraternal benefit societies must be nonprofit, have a lodge system, and offer insurance to its members only.
Service providers contract for and sell medical and hospital care services. Participants are known as subscribers. HMOs are known for stressing preventive health care and early treatment programs.
There are two main classifications of agents: (1) Captive agents, who work for only one insurer and sell only that insurer's products, and (2) independent agents, who represent several insurers and offer their different insurance products.
There are three types of agency systems: (1) Career agency system, (2) personal producing general agency system, and (3) independent agency system.
The McCarran-Ferguson Act exempted the insurance industry from federal antitrust legislation and determined that insurance regulated by state law "is in the public's interest."
The Fair Credit Reporting Act determined that consumers have a fundamental right to be informed when their credit will be checked. Noncompliance with the Act could result in actual as well as punitive damages. The insurer must notify the consumer if a credit report has been requested.
A domestic insurer is a company practicing within the state in which it is incorporated. A foreign insurer is one licensed and practicing in a state other than the one in which it is incorporated. An alien insurer is one that is licensed and incorporated in another country other than the U.S. and is practicing insurance within the U.S.
Certain standards and ethical behavior is expected of those who are licensed to conduct insurance business. There are two approaches to consider: (1) Selling to needs, and (2) suitability of recommended products.
Agent records are subject to scrutiny by the Commissioner of Insurance Regulation at anytime deemed appropriate by the Commissioner.
Twisting is external policy replacement. Churning is internal policy replacement. The agent bears the burden of proving a policy replacement is in the client's best interest.
Agents must keep copies of rebate schedules for five years.
The information contained in Units 1 and 2 of the Florida study manual have been presented in Lesson 1 of this online course.
