ASLI cheat sheet

Risk transfer shifts financial consequences of loss from an individual to an insurer; risk retention keeps the exposure with the insured.

Insurable interest requires a financial stake in the subject matter at the time of loss; its timing requirement varies by line (property vs. life).

The law of large numbers holds that as the number of similar independent exposure units increases, actual loss experience converges toward expected loss.

Indemnity restores the insured to approximately the pre-loss financial position, no better and no worse; valued policies are an exception.

Utmost good faith obligates both parties to disclose material facts; materiality is judged by whether the fact would affect the insurer's decision.

Adverse selection is the tendency of higher-risk applicants to seek coverage; underwriting and pricing are designed to counter it.

Moral hazard is a change in behavior caused by the presence of insurance; morale hazard is carelessness or indifference.

Reinsurance transfers risk from a primary insurer (cedent) to a reinsurer; facultative is case-by-case, treaty is automatic under a pre-agreed agreement.

Premium components include expected losses, expenses, profit/contingency margin, and a deduction or addition for investment income.

A contract requires offer, acceptance, consideration, legal purpose, and competent parties; in insurance the application is typically the offer.

Aleatory contracts exchange unequal dollar amounts depending on uncertain events; unilateral contracts bind only the insurer to a conditional promise.

Contracts of adhesion are drafted by the insurer and interpreted against the drafter (contra proferentem) when ambiguous.

A warranty is a statement the insured guarantees to be true; a representation is a belief statement that must be substantially true.

Waiver is voluntary relinquishment of a known right; estoppel prevents a party from asserting a right after the other party relied on its conduct.

The principle of indemnity is enforced by actual cash value, repair/replacement provisions, and other insurance clauses.

Coordination of benefits and pro rata/primary-and-excess clauses determine which policy pays first when coverage overlaps.

The entire contract clause makes the policy and attached endorsements the whole agreement; riders and endorsements modify the base policy.

A deductible is the insured's retained share before benefits apply; coinsurance splits covered costs between insurer and insured after the deductible.

Term life pays a death benefit only if death occurs during the stated term; it builds no cash value.

Whole life provides lifetime coverage with guaranteed level premium, guaranteed cash value, and a death benefit.

Universal life separates the mortality charge and expense charge from the cash value, which earns a declared or indexed interest rate.

Variable life and variable universal life cash values are invested in subaccounts; the owner bears investment risk and a securities license is required to sell them.

An annuity liquidates a sum of money over time; accumulation phase builds value, annuitization phase pays it out, and a deferred annuity may include a surrender charge.

Underwriting classifies applicants as standard, substandard, preferred, or declined based on mortality or morbidity risk.

The Medical Information Bureau is an information exchange among insurers; disclosure and the applicant's right to dispute are required.

Suicide clauses typically exclude payment during a stated period (commonly two years); contestability periods allow the insurer to rescind for material misrepresentation.

MEC status results when a life policy fails the 7-pay test; distributions are taxed gain-first and a 10% penalty may apply before age 59½.

Major medical policies commonly use a calendar-year deductible followed by coinsurance, then a maximum out-of-pocket limit.

An HMO generally requires in-network care coordinated through a primary care physician; a PPO permits out-of-network care at a higher cost share.

Coordination of benefits determines primary versus secondary payer when a person is covered under more than one plan.

Disability income insurance replaces a percentage of earned income, commonly 50–70%, after an elimination period.

Own-occupation disability definitions are generally more favorable to the insured than any-occupation definitions.

A residual or partial disability benefit pays a reduced amount when the insured returns to work at lower income.

Accidental death and dismemberment pays a principal sum for accidental death and a stated fraction for specified losses such as a limb or sight.

Workers' compensation is a no-fault statutory benefit covering work-related injury; it is the exclusive remedy against the employer in most states.

HIPAA limits preexisting-condition exclusions and restricts use of health information; COBRA allows continued group coverage for limited periods after a qualifying event.

Property insurance covers damage to or loss of property; casualty (liability) insurance covers legal liability for injury or damage to others.

Actual cash value equals replacement cost minus depreciation; replacement cost pays the cost to repair or replace without depreciation deduction.

Coinsurance in property insurance requires the insured to carry a stated percentage of value or face a reduced claim payment.

The coinsurance claim formula is (insurance carried ÷ insurance required) × loss, capped at the policy limit.

Named-peril policies cover only listed causes of loss; open-peril (special form) policies cover all risks except those excluded.

Liability policies pay on behalf of the insured up to the limit and generally exclude intentional acts and contractual liability.

The personal auto policy splits into liability, medical payments, uninsured/underinsured motorist, and physical damage (collision and other than collision) coverages.

Business income coverage replaces lost net income and continuing expenses during a period of restoration after a covered property loss.

Subrogation lets the insurer pursue a negligent third party after paying the insured, preventing double recovery.

States regulate insurance primarily through licensing, rate and form filing, market conduct examinations, and solvency monitoring.

The McCarran-Ferguson Act leaves insurance regulation to the states, subject to federal antitrust law where state regulation does not apply.

The National Association of Insurance Commissioners drafts model laws and coordinates multistate regulation but has no direct enforcement power.

State guaranty associations protect policyholders of insolvent insurers up to statutory limits, funded by assessments on insurers.

Twisting is inducing a policyholder to lapse or replace coverage through misrepresentation; churning is replacement by the same insurer or agent for improper gain.

Rebating is offering part of the commission or other inducement not stated in the policy; it is prohibited in most states.

A fiduciary duty requires the producer to hold premiums in trust and remit them promptly to the insurer.

Unfair claim settlement practices include misrepresenting policy provisions, failing to investigate promptly, and offering substantially less than owed.

Continuing education, appointment by the insurer, and licensure in the state where the insured resides are common producer requirements.