Ans:the Person Covered By The Policy Of Insurance Who

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Alabama Life & Health Insurance Exam

Questions with Detailed Verified Answers

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Agent/Producer

Ans: A person who acts for another person or entity with regard to contractual arrangements

with third parties; a legal representative of an insurance company.

Agent/Agency Contract

Ans: a contract that is held between an insurer and an agent/producer, containing the

expressed authority given to the agent/producer, outlining the duties and responsibilities to

the principal. If the agent is in violation of the agency contract (or agreement), he or she may

be held personally liable to the insurer for breach of contract.

Applicant or Proposed Insured

Ans: A person who requests or seeks insurance from an insurer.

Beneficiary

Ans: the person who receives the benefits from the policy of insurance

Death Benefit

Ans: The amount paid when a claim is issued against a policy of insurance

Insurance Policy

Ans: a contract between a policyowner (and/or insured) and an insurance company which

agrees to pay the insured or the beneficiary for loss caused by specific events

Insured

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Ans: The person covered by the policy of insurance who may or may not be the applicant or

policy owner.

Insurer (principal)

Ans: a company that issues a policy of insurance

Life Insurance

Ans: a coverage upon a person’s life, and granting, purchasing or disposing of annuities

Policyowner

Ans: the person entitled to exercise the rights and privileges in the policy and who may or

may not be the insured

Premium

Ans: the money paid to the insurance company for the policy of insurance

Insurance is the ________ of risk. Insureds’ losses are transferred over to the

__________

Ans: transfer;insurer

Risk

Ans: The uncertainty or chance of a loss occurring.

Pure Risk

Ans: refers to situations that can only result in a loss or no change. No opportunity for

financial gain. Only type of risk that insurance companies are willing to accept.

Speculative risk

Ans: Involves the opportunity for either loss or gain. An example of speculative risk is

gambling. These types of risks are not insurable.

Only ____ risks are insurable

Ans: pure

Exposure

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Ans: A unit of measure used to determine rates charged for insurance coverage.

Hazards

Ans: Conditions or situations that increase the probability of an insured loss occurring.

Physical Hazard

Ans: individual characteristics that increase the chances of the cause of loss

Moral Hazard

Ans: tendencies towards increased risk. Involve evaluating the character and reputation of

the proposed insured

Morale Hazard

Ans: Similar to moral hazards, except that they arise from a state of mind that causes

indifference to loss, such as carelessness.

Perils

Ans: causes of loss insured against in an insurance policy

Life insurance

Ans: insures against the financial loss caused by the premature death of the insured

Health insurance

Ans: insures against the medical expenses and/or loss of income caused by the insured’s

sickness or accidental injury

Property insurance

Ans: insures against the loss of physical property or the loss of its income-producing abilities

Casualty insurance

Ans: insures against the loss and/or damage of property and resulting liabilities

Loss

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Ans: is defined as the reduction, decrease, or disappearance of value of the person or

property insured in a policy, caused by a named peril. Insurance provides a means to transfer

loss.

A risk is a ________ that a loss will occur; a hazard increases the

___________________; a peril is the _________ of loss

Ans: chance; probability of loss; cause

Avoidance

Ans: eliminating exposure to a loss

Risk Retention

Ans: Planned assumption of risk by an insured through the use of deductibles, co-payments,

or self-insurance.

The purpose of retention is

Ans: 1. To reduce expenses and improve cash flow

2. To increase control of claim reserving and claims settlements

3. To fund for losses that cannot be insured

Sharing

Ans: A method of dealing with risk for a group of individual persons or businesses with the

same or similar exposure to loss who share the losses that occur within that group.

Due to chance

Ans: A loss that is outside the insured’s control

Definite and measurable

Ans: A loss that is specific as to the cause, time, place and amount. An insurer must be able to

determine how much the benefit will be and when it becomes payable.

Statistically Predictable

Ans: Insurers must be able to estimate the average frequency and severity of future losses

and set appropriate premium rates.

Not catastrophic