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Understanding the Insurance Business INSURANCE CONTINUING EDUCATION Understanding the Insurance Business STATE-APPROVED CONTINUING EDUCATION for CALIFORNIA INSURANCE LICENSEES BookmarkEducation.com (800) 716-4113 UNDERSTANDING THE INSURANCE BUSINESS Continuing Education for California Insurance Professionals www.BookmarkEducation.com UNDERSTANDING THE INSURANCE BUSINESS California Approved Course License Number 349113 COPYRIGHT © 2017 BY BOOKMARK EDUCATION All rights reserved. No part of this book may be reproduced, stored in any retrieval system or transcribed in any form or by any means (electronic, mechanical, photocopy, recording or otherwise) without the prior written permission of Bookmark Education A considerable amount of care has been taken to provide accurate and timely information. However, any ideas, suggestions, opinions, or general knowledge presented in this text are those of the authors and other contributors, and are subject to local, state and federal laws and regulations, court cases, and any revisions of the same. The reader is encouraged to consult legal counsel concerning any points of law. This book should not be used as an alternative to competent legal counsel. Printed in the United States of America. .P1. All inquiries should be addressed to: Bookmark Education 6203 W. Howard Street Niles, IL 60714 (800) 716-4113 www.BookmarkEducation.com TABLE OF CONTENTS CHAPTER 1: INSURANCE FUNDAMENTALS .............................................................. 1 Introduction .................................................................................................................. 1 What Is Insurance? ...................................................................................................... 1 Pure Risks and Speculative Risks ............................................................................... 1 Perils ............................................................................................................................ 1 Hazards ....................................................................................................................... 2 Physical Hazards ..................................................................................................... 2 Moral Hazards .......................................................................................................... 2 Morale Hazards ........................................................................................................ 3 Evaluating and Calculating Risk .................................................................................. 3 Law of Large Numbers ............................................................................................. 3 Adverse Selection .................................................................................................... 4 Insurance Contracts ..................................................................................................... 4 Unilateral vs. Bilateral Contracts .............................................................................. 5 Aleatory Contracts .................................................................................................... 5 Contracts of Adhesion .............................................................................................. 5 Warranties and Representations .............................................................................. 6 Concealment ............................................................................................................ 7 Principle of Indemnity ............................................................................................... 7 Valued Policies......................................................................................................... 7 Concurrent Causation .............................................................................................. 7 Insurable Interest ..................................................................................................... 8 Damages .................................................................................................................. 9 Parts of Insurance Contracts .................................................................................... 9 Guaranteed Renewable vs. Non-Cancellable ........................................................ 11 The Role of Insurance Producers .............................................................................. 11 Insurance Brokers .................................................................................................. 11 Insurance Agents ................................................................................................... 12 Binders ................................................................................................................... 13 Certificates of Insurance ........................................................................................ 13 Post-Loss Issues ....................................................................................................... 14 Proof of Loss .......................................................................................................... 14 Arbitration and Mediation ....................................................................................... 14 Subrogation ............................................................................................................ 14 Conclusion ................................................................................................................. 15 CHAPTER 2: ERRORS, OMISSIONS AND INSURANCE PRODUCERS ................... 16 Introduction ................................................................................................................ 16 The Professional Liability Market ............................................................................... 16 Who Needs E & O? ................................................................................................... 17 Mandatory E & O Insurance ...................................................................................... 18 Common E & O Scenarios for Insurance Producers ................................................. 18 E & O Risks With Carriers ...................................................................................... 19 Problems With Other Types of Liability Insurance ..................................................... 19 Problems With “Going Bare” ...................................................................................... 20 Obtaining E & O Insurance Through an Employer ..................................................... 20 Obtaining E & O Insurance on Your Own .................................................................. 21 Underwriting for E & O ............................................................................................... 21 Common Policy Issues .............................................................................................. 23 Who Is the Insured? ............................................................................................... 23 Covered Professional Services .............................................................................. 23 Coverage Limits ..................................................................................................... 24 Defense Costs........................................................................................................ 25 Deductibles ............................................................................................................ 25 Exclusions .............................................................................................................. 26 Policy Periods ........................................................................................................ 26 Claims-Made Policies vs. Occurrence Policies ...................................................... 27 Retroactive Dates and Prior Acts ........................................................................... 27 Tail Coverage and Extended Reporting Periods .................................................... 28 Reporting a Claim .................................................................................................. 28 E & O Settlements .................................................................................................. 29 Hammer Clauses ................................................................................................... 29 Conclusion ................................................................................................................. 29 CHAPTER 3: APPLYING LIFE INSURANCE CONCEPTS .......................................... 30 Introduction ................................................................................................................ 30 Purposes of Life Insurance ........................................................................................ 30 Determining Life Insurance Needs............................................................................. 31 Is Life Insurance for Everyone? ................................................................................. 32 Understanding Life Insurance Companies ................................................................. 33 Insurer Solvency ........................................................................................................ 33 Life Insurance Agents ................................................................................................ 34 Duties
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