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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 (don’t 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

Concealment (does not say what needs to be said) materiality Warranty (pledge) 6 policy specifications: parties involved. Distribution Systems Independent agency systems – ownership of agency expiration list. take-it-or-leave-it  Aleatory – performance depends on an uncertain future event (claim). misrepresentation. interest in the property. Insurance Marketplace a. policy period. one party will receive much more in value  Unilateral – contains the exchange of premium for a promise  Conditional . unequal exchange. risk to be insured. cannot legally sell client list. does not return premiums  Personal – insured can’t transfer contracts (other than life+marine) w/o written consent.e.2 Intentional. risk insured against. collect premiums on company’s behalf Apparent authority c. strict/absolute liability (inherent risk. owning rattlesnake) Elements of a Contract:  Offer and acceptance (mutual consent)  Competent parties (legal capacity) – capable. i. unintentional  negligence. premium Rescission = voiding = requires material concealment. Insurers . i. 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.e. insured little to say about policy’s provisions.company pays only on condition of loss. individual  Utmost good faith – both parties reasonable expectation rely on representations/statements made  Indemnity – compensate and restore to same position o Prevent insured from profiting from loss o Reduce moral hazards Policy – written instrument setting forth of insurance Bad of Contract: Fraud (false info). or breach of warranty C. willing  Legal purpose – activity can’t be illegal  Consideration – what each party considers valuable Insurance Contract:  Contract of adhesion – not drawn up by negotiation. Producers Agent and Principle Principle gives agent: Express authority – specific (in contract) Implied authority – not in writing.

3  d. Homeowners’ Insurance Valuations (2%) . Market Regulation  McCarran-Ferguson Act of 1945 – exempted insurance industry from federal regulations for most interstate commerce industries. Excess and Surplus Lines II. Property and Casualty Insurance A. Personal Lines Insurance IV. Basics  Insurance Services Office (ISO) is the advisory organization that develops forms for the standard market  C. antitrust laws to insurance business by federal gov e. Legal Concepts: Tort Law B. Policies III.