insurance license study guide

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Insurance License Study Guide

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3

Insurance License Study Guide/Notes

Katherine Hsu

I. General Insurance (31%) A. Basic Principles Insurance contract by which one undertakes to indemnify another against loss, damage, or liability arising from a contingent event Transfers risk from individual to a group Risk uncertainty about loss Types of Risk:Pure risk involves loss/no loss; no possible gain/profit; i.e. you wreck car or not --only type insurance companies will accept Speculative risk possible opportunity for loss/gain, i.e. lotto, real estate investment (dont use insurance to make a profit)

Risk Management Strategies: S(haring), Transfer, Avoidance (not pariticpanting), Reduce (ie sprinklers), Retain (self-insuring, has money to cover)

Peril cause of a loss Open peril Special form/policy Named peril requires peril causing loss to be named in policy for insurer to pay the claim

Hazard anything that increases the chance/likelihood of something occurring but does not actually cause the damage Types: 1. Moral hazard client is a liar 2. Morale hazard state of mind, human carelessness 3. Physical hazard 4. Legal hazard chance something ends up in court

Law of Large Numbers more reliable w/ more numbers

Loss = reduction in quantity/value of something Loss exposure possibility of a loss Type of value exposed to loss Peril that caused loss Extent of potential financial consequences

Underwriting selecting and classifying risk by reviewing applications for insurance B. Contract Law Legal agreements = contracts Torts = wrongful acts except for crime, contract breaches Intentional, unintentional negligence, strict/absolute liability (inherent risk, i.e. owning rattlesnake)

Elements of a Contract: Offer and acceptance (mutual consent) Competent parties (legal capacity) capable, willing Legal purpose activity cant be illegal Consideration what each party considers valuable

Insurance Contract: Contract of adhesion not drawn up by negotiation, insured little to say about policys provisions; take-it-or-leave-it Aleatory performance depends on an uncertain future event (claim); unequal exchange; one party will receive much more in value Unilateral contains the exchange of premium for a promise Conditional - company pays only on condition of loss, does not return premiums Personal insured cant transfer contracts (other than life+marine) w/o written consent; individual Utmost good faith both parties reasonable expectation rely on representations/statements made Indemnity compensate and restore to same position Prevent insured from profiting from loss Reduce moral hazards Policy written instrument setting forth of insurance Bad of Contract: Fraud (false info), Concealment (does not say what needs to be said) materiality Warranty (pledge) 6 policy specifications: parties involved, risk to be insured, interest in the property, risk insured against, policy period, premium Rescission = voiding = requires material concealment, misrepresentation, or breach of warranty C. Insurance Marketplace a. Distribution Systems Independent agency systems ownership of agency expiration list, cannot legally sell client list, Exclusive agency self-employed agent of company Direct writing system licensed person is simply an employee of insurance company Direct mail company sends out ads

b. Producers Agent and Principle

Principle gives agent: Express authority specific (in contract) Implied authority not in writing; i.e. collect premiums on companys behalf Apparent authority c. Insurers d. Market Regulation McCarran-Ferguson Act of 1945 exempted insurance industry from federal regulations for most interstate commerce industries; antitrust laws to insurance business by federal gove. Excess and Surplus Lines

II. Property and Casualty Insurance A. Legal Concepts: Tort Law B. Basics Insurance Services Office (ISO) is the advisory organization that develops forms for the standard market C. Policies III. Personal Lines Insurance IV. Homeowners Insurance Valuations (2%)