Learn vocabulary, terms, and more with flashcards, games, and other study tools. Based on this principle, the insured has the right to insure an insured object due to the relationship of financial interest that is legal by law between the insured and the insured object. PR IN CIPL E O F. IN DE MN IT Y. Indemnity means sec urity, pr otection. The Supreme Court ruled that federal securities laws applied to insurers that issued variable annuities and, thus, required these insurers to conform to both SEC and state regulation. policy dividends, mutual insurers allow their policyowners to share in any company earnings. This principle applies to all types of insurance. A pure assessment mutual company operates on the basis of loss-sharing by group members. In this instance, the issue was variable annuities: Are the insurance products to be regulated by the states or securities to be regulated federally by the Securities and Exchange Commission (SEC)? Principal of utmost good faith:. This decision did not affect the power of states to regulate insurance, but it did nullify state laws that were in conflict with federal legislation. It is very important insurance agents understand and obey the insurance laws and regulations. Reciprocals are managed by an attorney-in-fact. Insurance companies can also contract with PPOs to offer services to insureds. Service providers offer benefits to subscribers in return for the payment of a premium. Ownership structure and control: The mutualization of stock life insurance companies, you have to die for the policy’s insurance amount to pay off, I am not advocating you defraud the life insurance company, The ultimate or primary purpose of life insurance is. For cost and coverage details, contact your Principal representative. The ethical agent makes it a practice to inform clients about all aspects of the The National Conference of Insurance Legislators (NCOIL) was formed to help legislators make informed decisions on insurance issues that affect their constituents and to declare opposition to federal encroachment This principle can be debatable, so call a lawyer if you think you are being unfai… Policy dividends can also include a share in the company’s investment, mortality, and operating profits. Question 1: What is the primary purpose of a rating service company such as A.M Best? As we discussed before, insurance is actually a form of contract. A fine of $10,000 or up to one year in jail is the penalty for any person who violates the McCarran-Ferguson Act. contracts. All state insurance commissioners or directors are members of the National Association of Insurance Commissioners (NAIC). If any consumer report is used to deny coverage or charge higher rates, the insurer must furnish to the applicant the name of the reporting agency conducting the investigation. The agent uses fact-finding forms and obtains the client’s written agreement for the needs determined, the products recommended, and the decisions made. Likewise, mutuals Nature of contract is a fundamental principle of an insurance contract. Mutual companies are sometimes referred to as participating companies because the policyowners participate in dividends. AN INDUSTRY OVERVIEW ¶ The insurance industry is regulated by a number of authorities, including some inside the industry itself. Mutual insurance companies are also organized and incorporated under state laws, but they have no stockholders. Question 6: What kind of life insurance policy issued by a mutual insurer provides a return of divisible surplus (可分剩余)? However, it also made possible the application of federal antitrust laws “To the extent that [the insurance business] is not regulated by state law.” This act led each state to revise its insurance laws to conform to the federal laws. AA-: Very strong financial security characteristics. The principle of utmost good faith says that it is the duty of the proposer to make full disclosure of all the relevant facts. The personal producing general agency (PPGA) system is similar to the career agency system. ► 1970-Fair Credit Reporting Act. However, the laws regarding insurance marketing and trade practices vary from state to state. Agents are also classified as captive or career agents and independent agents. Question 2: What is considered to be the primary reason for buying life insurance? The policy summary also contains cost indexes that help the consumer evaluate the suitability of the recommended product. Companies that sell more than one line of insurance are known as multi-line insurers. Question 4: Which of the following is NOT considered advertising? Industry Overview - The Basic Reasons for Insurance; Overall Advantages of Insurance Should an insurer be financially unable to pay its claims, the state guaranty association will step in and cover the consumers’ unpaid claims. In an attempt to protect an individual’s right to privacy, the federal government passed the Fair Credit Reporting Act, which is the authority that requires fair and accurate reporting of information about consumers, including applications for insurance. Instead, each member is assessed an individual portion of losses that actually occur. It is structured the same as any corporation. Term. These state associations are funded by insurance companies through assessments. In a stock company, the directors and officers are responsible to the stockholders. Insurance producers may be agents, who represent a particular company, or brokers, who are not tied to any particular company and can represent many insurers’ products. These programs pay billions of dollars in benefits every year and affect millions of people. If this is not the case, insurance cannot be taken So when a breadwinner takes life insurance for his life, it makes sense because incase the person dies, there will be financial loss to family . They sell medical and hospital care services, not insurance. In case of life insurance, the insured or his dependents can claim the full amount of policy from each insurance company. This principle says that the person who is taking insurance should have some insurable interest in that thing which is getting insured. An insurance contract comes into existence when one party makes a proposal of a contract and the other party accepts the proposal. Any insurance company that fails to comply with this act is liable to the consumer for actual and punitive damages. Retirement may be forced upon them before they have adequately prepared for a non-income earning existence. In most states, however, the agent may represent as many insurers as will appoint him. In the same way, you can get your car, bike, home, gold insured because you have insurable interest in that obj… Commercial insurers offer many lines of insurance. What are the client’s needs? Start studying Basic Principles of Life & Health Insurance. Today, the insurance industry is considered to be state-regulated. Basic (But Obscure) Life Insurance Jargon And What It Really Means Offer and Acceptance. The financial strength and stability of an insurance company are two vitally important factors to potential insurance buyers and to insurance companies. No agent or broker is involved. No premium is payable in advance. This is so because life insurance is a sort of investment; and a person can take any number of insurance policies on his life and claim full amount under each policy. To be characterized as a Independent agent represent any number of insurance companies through contractual agreements. In Bartolo Wood Turners Ltd. v. Middle Sea Insurance Plc (2007) , the insured property (a factory) was damaged by fire. Question 3: An insurer’s ability to make unpredictable payouts to policyowners is called. Millions of people rely on these plans. The NAIC has four broad objectives: A principal problem of states in the past was regulating misleading insurance advertising and direct mail solicitations. A brief overview of the history of insurance regulation will show a seesaw between the authority of the states and the federal government. The SEC also regulates variable life insurance. With the direct selling method, the insurer deals directly with consumers by selling its policies through vending machines, advertisements, or salaried sales representatives. ► 1945-The McCarran-Ferguson Act. 1] Utmost Good Faith. Similar to mutuals, reciprocal insurers are organized on the basis of ownership by their policyholders. HMOs are known for stressing preventive health care and early treatment programs. However, PPGAs do not recruit, train, or supervise career agents. Death may strike anyone prematurely. Some documentation is required by state law. To ensure the proper functioning of an insurance contract, the insurer and the insured have to uphold the 7 principles of Insurances mentioned below: poorer members, funding the benefits on a pure assessment basis. Fraternal societies, noted primarily for their social, charitable, and benevolent activities, have memberships based on religious, national, or ethnic lines. In exchange for premium payments, the insurance company provides a lump-sum payment, known as a death benefit, to beneficiaries upon the insured’s death. Marketing and selling financial products, such as life insurance and annuities, requires a high level of professionalism and ethics. Reserves are the accounting measurement of an insurer’s future obligations to its policyholders. The contract between the employer and the health care professional, whether physician or a hospital, spells out the kind of services to be provided. These services are packaged into various plans, and those who purchase these plans are known as subscribers. An independent agent works for himself and sells the insurance products of many companies. There are three systems that support the sale of insurance through agents and brokers. Some sell primarily life insurance and annuities, while others sell accident and health insurance, or property and casualty insurance. In order to purchase insurance on the life of another person, you must have a personal and economic interest in the other person's life. Nature of contract:. Reinsurers are a specialized branch of the insurance industry because they insure insurers. This organization has committees that work regularly to examine various aspects of the insurance industry and to recommend appropriate insurance laws and regulations. The ethical agent determines the client’s needs and then determines which is best suited to address those needs. Question 9: A life insurance company has transferred some of its risk to another insurer. Career agencies are branches of major stock and mutual insurance companies that are contracted to represent an insurer in a specific area. When clients contact their agents for service or information, these requests are given top priority. When taking out insurance, policyholders often think more about their own needs than the risk the insurer takes on. ► 1868-Paul v. Virginia. Does the client understand the product and its provisions? 2. The insurer assuming the risk is called the, Question 10: A nonparticipating company is sometimes called a(n), Question 11: A type of insurer that is owned by its policyowners is called. Most jurisdictions have also adopted the NAIC’s Unfair Trade Practices Act. The independent agency system, a creation of the property and casualty industry, does not tie a sales staff or agency to any one particular insurance company. However, some people face the unpleasant prospect of outliving their The act also gives officers the authority to seek a court injunction to restrain insurers from using any methods believed to be unfair. By issuing participating policies that pay LESSON 1: BASIC PRINCIPLES OF LIFE AND HEALTH INSURANCE and THE INSURANCE INDUSTRY. In some cases, there is a risk that an insurer will stop paying dividends to whole life policyholders because the company is no longer necessarily owned by its policyholders. Insurance products are highly effective financial planning tools. In 1999 Congress passed the Financial Services Modernization Act, which repealed the Glass Steagall Act. Determine which insurer offers the best rates, Determine which insurer offers the best policies, Determine financial strength of an insurance company <-, A rating from a rating service company, such as A.M. Best <-, Because insurance premiums are tax-deductible, Because dividends are already subject to capital gains, Because dividends are payable directly to the policyholder, Because dividends are considered to be a return of premium <-. Some of these standards are listed below. 4. If the original premiums exceed the operating expenses and losses, the surplus is returned to the policyholders as dividends. ALL RIGHTS RESERVED, to create certainty out of the greatest uncertainty confronting an individual, the more similar those people are to one another, All they need to know is how many people, on average, die within any given year, Speculative risk is a special type of risk in that it measures the risk of loss involved in gambling or investing. However, with reciprocals, it is the policyholders themselves who insure the risks of the other policyholders. Unlike commercial insurers, HMOs provide financing for health care plus the health care itself. 2.0 out of 5 stars principles of principled life insurance selling Reviewed in the United States on October 10, 2005 too basic. However, in the case of life insurance, the principle of indemnity does not apply because the value of human life cannot be measured in terms of money. This is our final principle that creates an insurance contract and the most simple one probably. 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