Basic Principles of Life and Health Insurance

You have now learned the concepts of life and health insurance and annuities. let's review some of the key areas from this section that will help you prepare to pass the role of insurance is to transfer the risk of financial loss from an individual or business to an insurance company which in turn spreads the cost of the unexpected financial loss to many individuals if there was not an insurance system in place the cost of the loss would have to be covered solely by the individual who suffered the lost for example life insurance guarantees a specific sum of money when someone dies health insurance provides funds to cover medical bills due to sickness or injury and to also cover the lost of money because of a disability annuities provide a stream of income by making a series of payments over a certain period of life insurance in available from both private companies and the government private companies are also known as commercial insurance companies.

They are funded through premiums and sell insurance for a profit while government programs are founded with taxes and serve national and state social purposes the two most popular types of commercial insurance are stock companies and mutual companies stock companies a stock insurance company is organized and incorporated under state law they are owned by the SEO holders who get a paid share of the company's profits through divinders stock companies are also referred to as non-participation or non par because policy holders do not participate in being paid dividends mutual insurers mutual insurance companies are also organized and incorporated under state laws but they have no stock holders instead the policy holders own the company and us owners they get paid a share of the company's profits through dividends mutual companies are also referred to as participating or par companies because the policy owners do participate in being paid dividends mutualization.

If a stock company decides to be converted into a matual company the process in called mutualization d mutualiztion if a mutual company decides to be converted into a stock company the process is called d mutualization Lloyd's of London Lloyd's of London is not actually insurance company but rather on association formed to underwrite an issue insurance like coverage on certain items and areas that might otherwise be un insurable re insures are a specialised branch of the insurance industry they insure other insurance companies risk reinsurance is arrangement by which an insurance company transfer or sells a portain of the risk to reinsurance company the insurance company transferring the risk is called the ceding company and the company assuming the risk is the re-insurer home service ensures home service insurance is industrial insurance sold by home service or debit insurance companies.

The face amounts are very amall usually 1,000 to 2,000 and the premiums is collected weekly door-to-door by agent service providers service providers offer benefits to subscribers in return for the payment of a premiums the most common service providers are health maintenence organizations better known as HMOs and preferred provider organization better known as PPOs government insurance programs are offered through social security medicare and medicaid how insurance is sold most consumers purchase insurance from licensed insurance producers insurance producers may be agent who represent a specific company or brockers who represent several companies an agent can be classifield as captive meaning they work for and represent only one insurance company or independent meaning they can represent several different insurance companies history of insurance regulation 1945 mccarran-ferguson act states that while the government has authority to regulate the insurer industry.

It would not exercise that right if the insurance industry was run effectively and adequately by the atates 1970 fair credit reporting act 1974 credit reporting act provides individuals privacy protection and fair and accurate credit reporting insurance companies are required to notify applicants of the credit check that will be made on them and allow them access and notification on anything that may be found oversight of the insurance industry the national association of insurance commissioners is an organization composed of insurance commissioners from all so states the district Columbia and the four US territories the NAIC is responsible for resolving insurance regulatory problems as they are active in the formation and recommendation of insurance legislation which is designed to bring uniformity from state to state and simplify.

The marketing of insurance state guaranty associations protect policy owners in the event of any insurance company going out of business becoming insolvent or the inability to pay claims independent rating services independent rating services are independent credit rating agencies that rate or grade the financial strength and stability of insurance companies ratings are based on claims reserves and company profits the following companies provide the insurance industry with these rating and best standard and poor's moody's and fetch fully understanding the key topics just discussed is essential as you prepare to pass..