AD Banker Chapter Lightning Facts

General Insurance

• 1. The State Commissioner, Supervisor, or Director of Insurance is the chief insurance regulator and has the power to issue rules and regulations to enforce state insurance statutes.
• 2. A stock insurance company issues non-participating policies and is owned by stockholders who may receive taxable corporate dividends as a share of the company’s profit.
• 3. A mutual insurance company issues participating policies and is owned by the policyholders who may receive non-taxable dividends as a return of any divisible surplus.
• 4. Reinsurance is the transfer of risk between insurance companies. The reinsurer assumes some or all of the risk of the ceding, or primary, insurance company.
• 5. Domicile refers to the state in which an insurer incorporated. A domestic insurer is organized under the laws of the resident state, a foreign insurer is organized under the laws of another state within the United States, and an alien insurer is organized under the laws of a country outside the U.S.
• 6. An admitted insurer is authorized to do insurance business in the state and is issued a Certificate of Authority by the state’s Department of Insurance.
• 7. The underwriting department of an insurance company is responsible for the selection of risks (persons and property) to insure and determines the rate to be charged for the amount of coverage to be issued.
• 8. Under the Direct Writing System, an agent/producer can be the employee of an insurance company that owns the agent’s book of business. Under the Independent Agency, a producer is an independent agent that enters into selling agreements with more than one insurance company. They are appointed by more than one insurer. Independent agent retains ownership of their books of business.
• 9. The Law of Agency is a relationship where a Principal authorizes an Agent to act on its behalf in the business of insurance. An act of the agent is an act of the agent’s principal.
• 10. Express authority is written into the producer’s agency contract; implied authority is that which the public assumes the agent possesses; and apparent authority is created when the agent exceeds express authority and the insurer accepts the agent’s actions.
• 11. The Fair Credit Reporting Act (FCRA) protects consumer privacy by ensuring that any data collected by an insurer remains confidential, and is accurate, relevant, and used for a proper and specific purpose.
• 12. A risk is the condition where the chance, probability or potential for a loss exists.
• 13. A peril is the cause or source of a loss.
• 14. A hazard increases the probability of a loss. The 3 types of hazards are physical, moral, and morale.
• 15. The principle of indemnity means that the insured should not profit from a loss. Instead, it restores the insured to the same financial or economic condition that existed prior to the loss.
• 16. Insurable interest in property and casualty insurance must exist at the time of the loss but for life insurance, it must exist only at the time of application and policy issuance.
• 17. The insurance contract is one of adhesion; one party (the insurer) prepares the contract and presents it to the second party (the insured), who must accept it on a “take-it-or-leave-it” basis.
• 18. The underwriting factors used to determine premium include age, gender, tobacco use, medical history, hazardous hobbies and hazardous occupations.

Life Basics

• 1. The applicant is the person submitting the application for insurance, either for himself or another person. The applicant may be the insured, the owner or both. 2.1
• 2. The insured is the person whose death results in the payment of the policy proceeds. 2.1
• 3. The policy owner is the person who has control of all policy decisions. The policy owner and insured are usually, but not necessarily the same person. 2.1
• 4. The beneficiary is the person(s) who will receive the policy proceeds following the death of the insured. 2.1
• 5. The insured cannot be the beneficiary, but the beneficiary could be the applicant and/or the owner. 2.1
• 6. Third-party ownership occurs when a life insurance policy is owned by anyone other than the insured. 2.1
• 7. The application for life insurance is the primary underwriting document. All questions must be answered on the application. 2.3
• 8. All applications must be signed by the applicant and the producer. If the applicant is a minor, a guardian must sign the application. 2.3
• 9. The producer is responsible for making sure the application is completely filled out. An incomplete application may delay the underwriting process. 2.3
• 10. A conditional insurability receipt provides coverage from the date of the receipt, or the date all underwriting requirements have been completed, whichever is later. There is no coverage under a conditional insurability receipt if the insured is found to be a substandard risk or is declined for insurance. 2.3
• 11. The Fair Credit Reporting Act (FCRA) governs the collection of information about an applicant from a third party. 2.3
• 12. Insurance producers should have Errors & Omissions (E&O) liability insurance. E&O provides protection against acts of negligence or claims of inadequacy. Criminal acts are always excluded from coverage. 2.3
• 13. The application for life insurance consists of two parts. Part 1contains general information about the applicant and Part 2 contains questions of medical background and health history. They are attached to the policy and become part of the entire contract. 2.4
• 14. The Medical Information Bureau (MIB) compiles data supplied by life and health insurance companies obtained through applications and underwriting for individual insurance. 2.4
• 15. An inspection report (or consumer investigative report) is a detailed look at a person for lifestyle matters as well as prior bankruptcies, criminal convictions, and civil judgments. The applicant must be made aware of any information gathering and his rights under the FCRA. 2.4
• 16. Applicants approved for coverage will be rated according to their risk profile as preferred, standard, or substandard. 2.4
• 17. Preferred risks have ideal health, height / weight, and will be charged a lower rate. Substandard risks have poorer health, riskier habits or occupation and will issued ‘rated’ policies. 2.4
• 18. Life insurance premiums are calculated using the formula: Mortality – Interest + Expenses. 2.5
• 19. Gross premium is the total paid to the insurer. Net premium is the Mortality less Interest value (pure cost of insurance), and does not include any loads or other expenses.
• 20. “Mode” is the frequency of scheduled premium payments. There are four standard modes: Annual (1 payment), Semiannual (2 payments), Quarterly (4 payments), and monthly (12 payments). 2.5
• 21. An annual premium is the least expensive mode of premium payment. The more frequently premiums are paid, the more expensive the payment mode is. 2.5
• 22. Once a policy is approved and issued, it must be delivered to the policyowner. Delivery may be made in person, by certified or registered mail, or by any other means approved by the state insurance regulator. The insurer has the burden of proof to show that a policy was delivered. 2.6
• 23. Usually, the policyowner must sign a delivery receipt or statement of good health acknowledging the delivery of the policy. 2.6
• 24. When determining what constitutes a reasonable amount of life insurance for a person, agents typically use one of two common methods: (1) Human Life Value, and (2) Needs Analysis Approach. 2.8
• 25. Human Life Value is the measure of a person’s projected future earnings and services. It is based upon age, gender, occupation, annual wages / benefits and planned retirement age. 2.8
• 26. A Needs Analysis looks in greater depth at the insured’s goals and objectives, family/household size, income, debt, mortgage, education funding requirement, and other cash uses for life insurance. 2.8
• 27. Industrial insurance policies have very small death benefit amounts and were originally sold to pay funeral expenses. 2.9
• 28. Life insurance policies must be identified as either participating or nonparticipating. A participating policy offers policyowners the ability to share in a portion of the insurance company’s profits through dividends. 2.9

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