Download Florida Insurance 2-14 Exam Terms 2025: Questions and Verified Solutions and more Exams Insurance law in PDF only on Docsity!
FLORIDA INSURANCE 2-14 EXAM TERMS 2025
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Insurance - correct answer - Financial protection against loss or harm - An arrangement by which company gives customers financial protection against loss or harm such as theft or illness in return for premium payments. Life Insurance - correct answer - Is based on actuarial or mathematical principles and guarantees a specified sum of money upon the death of the person who is insured. Annuities - correct answer - 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. Risk - correct answer - Uncertainty regarding loss; the probability of loss occurring for an insured or prospect Speculative Risks - correct answer - Involve the possibility of loss and gain. (Not Insurable)
Pure Risks - correct answer - Involve the possibility of loss only. (Insurable) Peril - correct answer - Cause of risk (when a building burns, fire is the peril) Hazards - correct answer - The source of danger Physical Hazard - correct answer - A hazard being of physical nature. A person being treated of cancer, the disease is the physical endangerment. (Blindness & deafness) Risk Avoidance - correct answer - Occurs when individuals evade risk entirely. "If you don't drive, then you avoid getting in an auto accident." Risk Reduction - correct answer - Takes place when the chances of loss are lessened. Changing a lifestyle to minimize a known risk. Risk Retention - correct answer - Being aware of the risks involved and taking precautions for financial protection. Auto policy's deductible is an illustration of risk retention
Assessment Mutual Insurers - correct answer - Prohibited in Florida Pure Assessment Mutual Company - correct answer - Don't pay premium and total loss is divided among members Lloyds of London - correct answer - NOT considered an insurance company
- An association of individuals and companies that individually underwriter insurance. Fraternal Benefit Societies - correct answer - Must be nonprofit, have a lodge system, and offer insurance to its members only Home Service Insurer - correct answer - Insurer that offers relatively small policies with premiums payable on a weekly basis. Captive Agents - correct answer - A.k.a. Career agents Works for only one insurer and sells only that insurers products Independent Agents - correct answer - Is self-governing and actually works for himself. This affords him the versatility to represent several insurers and their different insurance products.
Special Agents - correct answer - Usually not license and don't sell insurance. Assist insurance companies field representatives. Career Agency System - correct answer - (GA) - Build sales staffs and agents are treated as employees. They are recruited and trained. A principal of the company supervises agents. Personal Producing General Agency System - correct answer - (PPGA) - The agent supplies his own working environment. Agents hired by a PPGA are considered employees of the PPGA, not the insurance company, and are supervised by the regional salary. Independent Agency System - correct answer - Agents represent several insurers through signed contracts and are paid on commission or fee basis, not through salary. Regulating the business of insurance - correct answer - Legislation The Court System State Insurance Departments
- Insurers must inform them about any investigations being made
- Then insurers must let the applicants know the name of the reporting agency Financial Services Modernization Act - correct answer - - Revoking the Glass-Steagall Act
- This changed the industry so commercial banks, investment banks, retail brokerages, and insurance companies can now enter each other's lines of business Admitted insurance company - correct answer - - Office of Insurance Regulation has licensed them to carry out business in Florida Nonadmitted Insurance Company - correct answer - - Have not been licensed by the the Florida Office of Insurance Regulation Policy Replacement - correct answer - - An action which eliminates the original policy or diminishes its benefits or values Bad policy remplacement issues - correct answer - - Most the first year's premium is consumed by the commission
- The premium is higher due to the insured's advanced age
- Waiting periods begin anew
Misuse of Premiums - correct answer - - Improper use of premiums collected by an insurance producer
- Depositing a client's premium in own personal account Rebating - correct answer - - Florida and California are the only two states that allow rebating
- When any part of commission or anything else of value is given to the insured as a incentive to buy a policy
- Agent must keep copies of rebating schedules for five years NAIC - correct answer - - National Association of Insurance Commissioners
- No legal power of its own
- Encourages uniformity in state insurance laws and regulations Florida Insurance Guaranty Association - correct answer - - Funded by insurance companies through assessments
- FIGA is part of a non-profit,
- Guaranty associations protect policyholders and claimants.
- Holds three separate accounts:
- Health Insurance
- Life Insurance
- Annuity Accounts
Weiss Ratings, Inc. - correct answer - - Strength and safety of financial institutions and rates risk adjusted mutual funds and stocks
- A to F Elements of Contract - correct answer - Offer & Acceptance + Consideration + Legal Purpose + Competent Parties = Legally Binding Contract Offer & Acceptance - correct answer - Completed when a premium payment accompanies the offer made by the proposed insured Legal Purpose - correct answer - The policy owner must have an insurable interest in the insured Competent - correct answer - Just like " innocent until proven guilty" Aleatory - correct answer - (1) There is an element of chance for both parties (2) The dollar values exchanged may not be equal
Adhesion - correct answer - The contract has been prepared by one party (the insurer), rather than by negotiation between the contracting parties. Unilateral - correct answer - Promise for Performance Valued Contracts - correct answer - Pay a predetermined amount with no way to assess loss Indemnity Contracts - correct answer - Pay the amount of the loss only (up to the policy limit) STOLI - correct answer - - Stranger-Orignated Life Insurance
Brokers - correct answer - - Florida does not issue separate licenses for brokers
- Cannot bind the contract Agents - correct answer - - The acts of the agent are considered the acts of the company
Parol Evidence Rule - correct answer - When parties put their agreement in writing, all previous verbal statements come together in that writing, and a written contract cannot be changed or modified. Void Contract - correct answer - Fraud + Prior Knowledge
- Have two years from the date of the contract purchase to dispute the validity of a contract Voidable - correct answer - One of the parties has a legal reason to reject or cancel the contract Categories of Life Insurance - correct answer - Ordinary Industrial Group Ordinary Life Insurance - correct answer - - Term, Whole Life, Universal Life, Endowment
- The most common Industrial Life Insurance - correct answer - - Sold by home service insurers
- Over the years has been used less
- Mainly, to cover funeral expense
Agent in charge - correct answer - A insurance agency must have one, but the agent does not have any specific duties or responisbilities Term Life Insurance - correct answer - - Most common. Policy premiums are based on mortality and loading.
- Premiums stay level, and there are no cash values Mortality - correct answer - The relative incidence of death within a group. Loading - correct answer - Amount added to net premiums to cover the company's operation expenses and contingencies Decreasing Term - correct answer - - Face value declines over time
- Usually purchases to cover debts whose balances decrease over time Increasing Term - correct answer - - Commonly used as a hedge against inflation.
- Used to ward of decreased purchasing power.
- Death benefit increases with time.
- Depends on CPI
Disadvantages of Whole Life - correct answer - - Disadvantages o The required premium levels may make it hard to buy enough protection o Could prove more costly than term insurance over time o Make sure the client knows all the facts of the policy and is aware of everything they are applying for. Straight Whole Life - correct answer - Premium level protection; level premiums, until insured's death or age 100. Limited Pay Whole Life - correct answer - Level premiums limited to certain time period, less than life. Single Premium Whole Life - correct answer - Paid up for life with one large premium payment Modified Whole Life - correct answer - Level premiums for designated timeframe (typically 5 years); higher premiums thereafter Graded Premium Whole Life - correct answer - Lower premiums for designated timeframe (typically 5-10 years); payments rise annually thereafter until leveling off
Traditional Whole Life - correct answer - Funds invested in general accounts Minimum Deposit Whole Life - correct answer - Cash values begin immediately and are use to pay future premiums (partially or on full). Indexed Whole Life - correct answer - (Indexed means to follo shadow or mirror) Face amount increases with the Consumer Price Index. Indeterminate Premium Whole Life - correct answer - Lower premium rate initially (2-3 years) and adjusted (up or down) according to the insurers mortality, expense and investment projections. Enhanced ('Economatic') Whole Life - correct answer - Mutual insurers issue policy with lower premium and face amount that diminishes after a few years. Dividends are used to purchase paid-up additions Whole Life - correct answer - - Death Benefit is Fixed
- Only one death benefit option
- Premium is fixed
- Mortality Rates are fixed & guaranteed
- Premium is Flexible
- Mortality Rates are current & guaranteed maximum
- Cash Value is variable, and no Guarantee
- Yes, investment options
- Yes, partial surrenders Endowment Policies - correct answer - - To endow is to "furnish with an income"
- A type of life insurance that is payable to the insured if she/he is still living on the policy's maturity date.
- Can provide a death benefit to the beneficiary or a living benefit to the policyowner. Endowment Premiums - correct answer - - Are always the most expensive and build cash values the fastest.
- Could be considered investment policies rather than insurance Modified Endowment Contracts - correct answer - - A Modified Endowment Contract (MEC) makes different tax considerations to a policy
- It must pass the "7-pay test" o If the total amount a policyowner pays into the contract during its first seven years exceeds the sum of the net level premiums that would have been payable to provide paid-up future benefits.
Family Income Policies - correct answer - Whole Life + Decreasing Term
- This policy pays the beneficiary a monthly income for the balance of the family income coverage period.
- The insurer must die prior to the time the selected family income coverage period ends. Starts when policy is issued. Family Maintenance Policies - correct answer - Whole Life + Level Term
- The policy will pay the beneficiary a monthly income for a preselected number of years.
- Must die prior to a selected date
- The specified income period begins on the date of death. Family Plan Policies - correct answer - o All family members are covered under one plan. Multiple Protection Policies - correct answer - Pays a benefit of double or triple the face amount if death occurs during a specified period. Joint Life Policies - correct answer - Covers two or more people. Using some type of permanent insurance, it pays the death benefit when one of the insured's dies. Premiums are less than MPP's
