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Reinsurance
Legal Principles
Insurance Contracts
Liability Risk
Life Insurance
100

What is reinsurance?

Reinsurance is an arrangement where a primary insurer (ceding company) transfers part or all of the potential losses from an insurance policy to another insurer (reinsurer).

100

Define the principle of indemnity. What are its purposes?

Insurer pays no more than the actual loss amount.

Purposes: Prevent profit from loss; reduce moral hazard.

100

List the basic parts of an insurance contract.

  • Declarations, definitions, insuring agreement, exclusions, conditions.
100

What are the elements of negligence?

  • Legal duty owed.
  • Breach of duty.
  • Damages/injury.
  • Proximate cause.
100

What is the tax treatment of life insurance death benefits?

  • Generally tax-free if paid as a lump sum.
200

List three reasons insurers use reinsurance.

  • Increase underwriting capacity.
  • Stabilize profits.
  • Protect against catastrophic losses
200

What is the difference between ACV and RC?

  • ACV: Replacement cost minus depreciation.
  • RC: Cost to replace with new materials (no depreciation).
200

What is the difference between named perils and open perils coverage?

  • Named perils: Only listed perils are covered.
  • Open perils: All perils covered unless excluded.
200

Compare contributory negligence vs. comparative negligence.

  • Contributory: Barred from recovery if partially at fault.
  • Comparative: Damages reduced by plaintiff’s fault percentage (e.g., 50% rule).
200

Compare term vs. whole life insurance.

  • Term: Temporary, no cash value, lower premiums.
  • Whole life: Lifetime coverage + cash value, higher premiums.
300

What are the objectives of claims adjustment?

  • Ensure prompt, fair payment of legitimate claims.

300

When must insurable interest exist for (a) property and (b) life insurance?

  • Property: At the time of loss.
  • Life: At policy inception.
300

Why do policies include exclusions? Provide two reasons.

  • Perils are uninsurable (e.g., war).
  • Coverage provided by other contracts (e.g., auto liability in home owners policies).
300

What is res ipsa loquitur? What are its requirements?

  • "The thing speaks for itself"; negligence presumed if:
    • Event normally doesn’t occur without negligence.
    • Defendant had exclusive control.
    • Plaintiff didn’t contribute.
300

What are the limitations of term life insurance?

  • Premiums increase with age.
  • No savings component.
400

List the steps in the claims process.

  • Validate proof of loss.

  • Investigate the loss scene.

  • Estimate the loss amount.

  • Interpret policy language.

  • Approve or deny the claim

400

What is subrogation? Why is it used?

  • Insurer’s right to recover payments from a negligent third party.
  • Purposes: Prevent double recovery; hold negligent parties accountable.
400

What is the purpose of coinsurance in (a) property and (b) health insurance?

  • Property: Ensure adequate coverage (penalty if underinsured).
  • Health: Reduce premiums and prevent over-utilization (e.g., 80/20 split).
400

What is the attractive nuisance doctrine?

  • Property owners liable for injuries to children attracted to dangerous features (e.g., swimming pools).
400

What is the purpose of the cash value in whole life insurance?

  • Can be borrowed against, withdrawn, or received upon policy surrender.
500

How is the combined ratio interpreted?

< 100%: Underwriting profit.

> 100%: Underwriting loss.

500

What is a material misrepresentation? How does it affect the contract?

  • A false statement that influences the insurer’s decision.
  • Effect: Voidable contract if material, false, and relied upon.
500

Explain primary vs. excess other-insurance provisions.

  • Primary: Pays first up to its limits.
  • Excess: Pays only after primary is exhausted.
500

In a pure comparative negligence state, Plaintiff is 30% at fault for a $100,000 accident. What can they recover?

70,000(100K – 30% fault).

500

BONUS 

What does the operating ratio measure?

  • It evaluates overall profitability by subtracting the investment income ratio from the combined ratio. A ratio < 100% indicates a profit.