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RMIN 4000: Test 2
Stock Insurer
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a corporation owned by stockholders
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Mutual Insurer
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a corporation owned by the policyowners
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3 Types of Mutual Insurers
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Advance premium mutual, assessment mutual, and fraternal insurer
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Advance Premium Mutual
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owned by the policyowners; there are no stockholders, and the insurer does not issue assessable policies
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Assessment Mutual
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has the right to assess policyowners an additional amount if the insurer's financial operations are unfavorable
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Fraternal Insurer
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a mutual insurer that provides life and health insurance to members of a social or religious organization
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Demutualization
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means that a mutual insurer is converted into a stock insurer
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Pure Conversion
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a mutual insurer incorporates into a stock insurer
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Merger
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mutual insurer is joined with a stock insurer, stock insurer is the surviving company
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Bulk Reinsurance
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when a mutual insurer cedes all of its assets and liabilities to a stock company, and the mutual insurer is then dissolved
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Holding Company
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a company that directly or indirectly controls an authorized insurer
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Lloyd's of London
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a society of members (corporations and individuals) who underwrite insurance in syndicates
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Captive Insurer
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an insurer owned by a parent firm for the purposes of insuring the parent firms loss exposures
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Pure Captive
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an insurer owned by a single parent company
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Association Captive
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an insurer owned by several parent companies
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Agent
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someone who legally represents the principal and has the authority to act on the principal's behalf
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Express Authority
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the specific powers that the agent receives from the insurer
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Implied Authority
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the agent has the authority to perform all incidental acts necessary to exercise the powers that are expressly given
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Apparent Authority
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the authority the public reasonably believes the agent possesses based on the actions of the principal
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Binder
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temporary insurance until the policy is actually written
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Broker
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someone who legally represents the insured
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Nonadmitted Insurer
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an insurer not licensed to do business in the state
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Surplus Lines Broker
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a special type of broker who is licensed to place business with a nonadmitted insurer
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Independent Agency System
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a business firm that usually represents several unrelated insurers, owns the expirations or renewal rights to the business, and is compensated by commissions that vary by line of insurance
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Exclusive Agency System
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the agent represents only one insurer or group of insurers under common ownership
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Direct Writer
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an insurer in which the salesperson is an employee of the insurer, not an independent contractor
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Principle of Indemnity
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states that the insurer agrees to pay no more than the actual amount of the loss; stated differently, the insured should not profit from a loss
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Actual Cash Value
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replacement cost less depreciation
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Fair Market Value
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the price a willing buyer would pay a willing seller in a free market
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Broad Evidence Rule
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the determination of actual cash value should include all relevant factors an expert would use to determine the value of the property
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Valued Policy
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a policy that pays the face amount of insurance if a total loss occurs
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Valued Policy Laws
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a law that exists in some states that requires payment of the face amount of insurance to the insured if a total loss to real property occurs from a peril specified in the law
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Replacement Cost Insurance
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means there is no deduction for physical depreciation in determining the amount paid for a loss
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Principle of Insurable Interest
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states that the insured must be in a position to lose financially if a covered loss occurs; prevents gambling, reduces moral hazard, measures the amount of the insured's loss in property insurance
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Pecuniary (Financial) Interest
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when one person may be financially harmed by the death of another, usually a business partner
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Subrogation
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substitution of the insurer in place of the insured for the purpose of claiming indemnity from a third party for a loss covered by insurance; stated differently, the insurer is entitled to recover from a negligent third party any loss payments made to the insured
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Principle of Utmost Good Faith
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a higher degree of honesty is imposed on both parties to an insurance contract than is imposed on parties to other contracts
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Representations
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statements made by the applicant for insurance
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Material
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if the insurer knew the true facts, the policy would not have been issued, or it would have been issued on different terms
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Concealment
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intentional failure of the applicant for insurance to reveal a material fact to the insurer
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Warranty
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a statement that becomes part of the insurance contract and is guaranteed by the maker to be true in all respects
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Conditional Premium Receipt
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given to applicant when application is submitted and approval is to be determined
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Consideration
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the value that each party gives to the other
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Legally Competent
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parties must have legal capacity to enter into a binding contract
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Legal Purpose
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contracts that encourage or promotes something illegal or immoral cannot be enforced
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Aleatory Contract
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a contract where the values exchanged may not be equal but depend on an uncertain event
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Commutative Contract
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a contract in which the values exchanged by both parties are theoretically equal
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Unilateral Contract
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only one party makes a legally enforceable promise
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Conditional Contract
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the insurer's obligation to pay a claim depends on whether the insured or the beneficiary has complied with all policy conditions
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Conditions
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provisions inserted in the policy that qualify or place limitations on the insurer's promise to perform
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Personal Contract
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the contract is between the insured and the insurer
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Contract of Adhesion
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the insured must accept the entire contract, with all of its terms and conditions; insured gets benefit of doubt with ambiguities
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Principle of Reasonable Expectations
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an insured is entitled to coverage under a policy that he or she reasonably expects it to provide, and that to be effective, exclusions or qualifications must be conspicuous, plain, and clear
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Agency Agreement
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agreement between agent and the principal
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Waiver
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voluntary relinquishment of a known legal right
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Estoppel
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occurs when a representation of fact made by one person to another person is reasonably relied on by that person to such an extent that it would be inequitable to allow the first person to deny the truth of the representation
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Declarations
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statements that provide information about the particular property or activity to be insured
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Insuring Agreement
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summarizes the major promises of the insurer
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Named-Perils Policy
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only those perils specifically named in the policy are covered
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All-Risks Policy (Open-Perils/ Special Coverage)
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all losses are covered except those losses specifically excluded
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Named Insured
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the person or party named on the declarations page of the policy
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First Named Insured
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the first name that appears on the declarations page of the policy as an insured
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Other Insureds
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persons or parties who are insured under the named insured's policy even though they are not specifically named in the policy
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Additional Insured
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a person or party who is added to the named insured's policy by an endorsement
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Endorsements
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a written provision that adds to, deletes from, or modifies the provisions in the original contract; in property and casualty insurance
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Riders
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a provision that amends or changes the original policy; in life and health insurance
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Deductible
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a provision by which a specified amount is subtracted from the total loss payment that otherwise would be payable
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Straight Deductible
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the insured must pay a certain number of dollars of loss before the insurer is required to make a payment
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Aggregate Deductible
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all losses that occur during a specified time period, usually a policy year, are accumulated to satisfy the deductible amount
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Calendar-Year Deductible
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a type of aggregate deductible that is found in basic medical expense and major medical insurance contracts
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Corridor Deductible
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a deductible that can be used to integrate a basic medical expense plan with a supplemental major medical expense plan
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Elimination (Waiting) Period
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a stated period of time at the beginning of a loss during which no insurance benefits are paid
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Coinsurance Clause
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a property insurance contact encourages the insured to insure the property to a stated percentage of its insurable value; if the coinsurance requirement is not met at the time of loss, the insured must share in the loss as a coinsurer
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Pro Rate Liability
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each insurer's share of the loss is based on the proportion that its insurance covers the total amount of insurance held on the propety
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Contribution by Equal Shares
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equal contribution up to each insurer's limit
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Primary Excess Insurance
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the normal rule is that liability insurance on the borrowed car is primary and any other insurance is excess
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