d. change financial risks and reduce losses. The insured makes regular payments. ________ is a factor in rising health care costs. Insurance concepts .pdf - Module 7: INSURANCE CONCEPTS AND LIFE INSURANCE Objectives To learn about the basics of insurance To gain, risk, speculative risk, perils and hazards, If you risk nothing, then you risk everything., One of the basic tenets of financial planning is the accumulation of assets. The basic purpose of insurance is to provide: loans. It's similar for a business. Which is always a cost when buying insurance? Workers' compensation is a state program that provides benefits for, Workers suffering injury or illness on the job. Yet most of us dont stop to think too much about what insurance is or how it works. e. An arbitration clause. technological improvements To make up for the compensation paid, your insurer can claim the (insured) right over that third party. The probability of a loss occurring can be reduced by The primary function of insurance is to maintain your existing level of wealth by protecting you against potential financial losses or liability as a result of unexpected events. Risks come in two basic forms, pure risk and speculative risk. So finding the price that is right for you requires some legwork. \text{EBT} &(\$ 266,960) &\$ 146,600\\ prevention. It reduces consumers' co-payments. d. $66,666 each to Jack, Mimi, and Ann The basic purpose of all types of insurance is to protect you and your dependents from the financial consequences of losing assets or income when an accident, illness, or death occurs. Fire insurance covers damage and losses caused by fire and is often purchased in addition to standard homeowners insurance. The proxy contains an abundance of information the SEC believes to be necessary for stockholders to make an informed vote on the items the company presents for their voting consideration. You surrender your rights over the third party to the insurer. Journalize the write-offs and the year-end adjusting entry for 201020102010 under the allowance method, assuming that the allowance account had a beginning balance of $22,500\$22,500$22,500 on January 111, 201020102010, and the company uses the analysis of receivables method. \text{Net cash provided by operating activities}& (\$ 164,176)\\ Many types of life insurance are available. Long before it celebrated its three hundredth anniversary in 1988, Lloyds had grown into a major force on the global insurance scene. Variable life insurance, for example, allows you to choose among investment options, offering the potential to build value but usually at a higher cost and, like all investments, with risk. It adds to the company's pool of funds. Over the years, property/casualty insurers have expanded their horizons to provide coverage against many perils, ranging from the violence of hurricane winds and tornadoes to identity theft to the consequences of one persons negligence resulting in harm to another. \text { August } & 300,000 Which of the following companies does not rate the financial strength of life insurance companies? Do federal employees get healthcare for life? You want to pay premiums for 20 years and have your insurance premium obligations finished at that time, but you feel you will need life insurance for the rest of your life. They would state the portion of the financial risk assumed. Put simply, insurance is a contract, represented by a policy, in which a policyholder receives financial protection or reimbursement against losses from an insurance company. The basic purpose of insurance is to provide protection If two people are invited to invest and become partners in a business, the business owners will then___ the risk Share Under which circumstance would someone need disability insurance? d. income. d. non-convertibility. protection. c. an increasing premium. The premium is the consideration paid by the insuredusually annually or semiannuallyfor the insurer's promise to reimburse. Can unmarried couples be on the same car insurance? Flexible premiums \text{Sinking fund payments} & 0 & 0\\ new drug therapies Some investment professionals sell life insurance alongside other investments such asstocks,bonds,mutual funds,exchange-traded funds,annuitiesand more, and these individuals must be FINRA registered representatives as well as licensed insurance agents. The need was made plain when some 14,000 buildings were destroyed and 200,000 persons left homeless in a fire which raged through London in 1666. b. semiannual The insured party must file a claim. \text{Cost of goods sold} &5,528,000 &2,864,000\\ AssetsCashAccountsreceivableInventoriesTotalcurrentassetsGrossfixedassetsLessaccumulateddepreciationNetfixedassetsTotalassetsLiabilitiesandEquityAccountspayableAccrualsNotespayableTotalcurrentliabilitiesLong-termdebtCommonstock(100,000shares)RetainedearningsTotalequityTotalliabilitiesandequity2016$7,282632,1601,287,360$1,926,8021,202,950263,160$939,790$2,866,592$524,160489,600636,808$1,650,568723,432460,00032,592$492,592$2,866,5922015$57,600351,200715,200$1,124,000491,000146,200$344,800$1,468,800$145,600136,000200,000$481,600323,432460,000203,768$663,768$1,468,800. Learn how coverage works. Consumer Financial Protection Bureau. \text{Interest expense}& 136,012 &43,828\\ Essentially, insurance provides protection against the risk of asset losses or a decline in asset value due to some event. d. the chance of loss. Explain. \text{Total operating costs excluding depreciation and amortization}& \$6,047,988 &\$3,222,672\\ What percentage of your income should you spend on life insurance? b. whole The policy limit is the maximum amount that an insurer will pay under a policy for a covered loss. Risk is uncertainty regarding economic loss. Insurance is a contract in which an insurer indemnifies another against losses from specific contingencies or perils. Repair: This is also another way of providing compensation. c. quarterly When choosing a policy, it is important to understand how insurance works. Insurance is a tool that can lessen ____ risk. a. annual Life insurance policies with small face amounts where the premium may be collected weekly by agents is A person's house was seriously damaged during a natural disaster. The company doubled its plant capacity, opened new sales offices outside its home territory, and launched an expensive advertising campaign. Report a concern about FINRA at 888-700-0028, Securities Industry Essentials Exam (SIE), Financial Industry Networking Directory (FIND), National Association of Insurance Commissions (NAIC) Consumer Information, Understanding Structured Notes With Principal Protection, Are You Staying Cyber Safe? Donna Jamison, a 201120112011 graduate of the University of Florida, with 444 years of banking experience, was recently brought in as assistant to the chairperson of the board of D'Leon Inc, a small food producer that operates in north Florida and whose specialty is high-quality pecan and other nut products sold in the snack foods market. Insurance underwriting is best described as: The process used by insurers to decide who can be insured and to determine applicable rates that will be charged for premiums 4. \end{array} Insurance products often are developed to meet specific objectives. Be sure your investment professional fully understands your financial situation and goals before you purchase an insurance policy. \text{Increase in notes payable}& \$ 436,808\\ \text{Notes payable}& 636,808 &200,000\\ Because loss incidence may change, insurers are in a constant process of collecting loss experience as a basis for periodic reviews of premium needs. Major downturns in the economy The basic purpose of insurance is to protect you from losses protect your health protect your income shield you from bad decisions Question 2 (1 point) Spreading risk among a large number of people is a major principle of insurance. Let's dig into Insurance 202: the basic types of insurance. b. assume risk. After this payment, the insurance company covered the rest of the costs. e. loan value only. The insurance company changes its policies after property damage occurs. Interest only Insurance is a financial service that allows a: Consumer to share liability with a company. b. a level premium. The primary purpose of life insurance is to protect family members financially after one's death. It Can Help to Financially Protect Your Family. What type of life insurance will give them the most protection for their money? veterans benefits. Variable life insurance if most often the best plan for most people's primary insurance needs. e. Trait. d. all of the above. \text{Lance Landau} & 11,200\\ \text{Taxes (40\\\%)} &(106,784) &58,640\\ high-yield investments. \text{Balances, December 31}, 2016& 100,000& \$460,000 &\$ 32,592& \$ 492,592\\ $200,000 to Jack ____ is a common provision in many term policies. \text{Increase in accounts payable}& 378,560\\ A successful subrogation means a refund for you and your insurer. There also are variations on thesevariable life insurance, variable universal life insurance and indexed universal life insurancewhich are considered securities and must be registered with the SEC. d. variable &&&\textbf{Retained} &\textbf{Total Stockholders}\\ d. 120 days \begin{array}{lr} \text { Sales returns } & 12,000 & 10,000 \\ \end{array} A policyholder 's health insurance claim can get settled by an insurer in two ways: third-party administrators ( TPA ) and through the insurer's in-house claims processing department. The purpose of property insurance is to protect policyholders against losses to their and due to catastrophe and calamity. \text { Retained earnings } & 47,000 & 16,000 \\ \text{Common stock (100,000 shares)}& 460,000& 460,000\\ Insurance plans are beneficial to anyone looking to protect their family, assets/property and themselves from financial risk/losses: Insurance plans will help you pay for medical emergencies, hospitalisation, contraction of any illnesses and treatment, and medical care required in the future. e. contains no tax benefits. It provides financial security, helps to pay off debts, helps to pay living expenses, and helps to pay any medical or final expenses. Viewed as a form of mutual aid, risk-sharing can be seen not only as sound business practice, but as enlightened social behavior rooted in accepted principles of ethics. Short-term shocks in the investment markets 31 days liability Protection. The life insurance needs of beneficiaries are secondary since most proceeds are paid to living policyholders. PercentcollectedinthemonthofsalePercentcollectedinthemonthafterthesalePercentcollectedinthesecondmonthafterthesale25685. Okay, so now that we've covered those definitionsInsurance 101you're well on your way to becoming an insurance expert. A person was in a car accident and cannot work for several months. Step 1: Gather Information Needed For Your Claim. The premium is determined by the insurer based on your or your businesssrisk profile, which may include creditworthiness. , eus For example, if you own several expensive automobiles and have a history of reckless driving, you will likely pay more for an auto policy than someone with a single midrange sedan and a perfect driving record. Typically, higher limits carry higher premiums. Risk. c. limited payment. Technically, the basic function of property/ casualty insurance is the transfer of risk. Travel insurance is a type ofinsurance thatcovers the costs and losses associated with traveling. These include white papers, government data, original reporting, and interviews with industry experts. An insurance policy is a contract in which an individual or an organization gets financial protection and compensation for any damages by the insurer of the insurance company. Annual term insurance premiums increase as you get older while whole life insurance premiums remain constant. b. savings only. \text { May } & 290,000 \\ \textbf{Aging Class (Number} & \textbf{Receivables Balance} & \textbf{ Estimated Percent of}\\ \text { Percent collected in the month of sale } &25 \\ the value of something lost or damaged ____ can be both an advantage and a disadvantage of universal life insurance. Although the theoretical purpose of insurance may be protection from catastrophic events, a more common function of health insurance in the United States is far more akin to a club membership than car insurance. Using the ___ method is the most accurate approach for assessing life insurance needs. \text{Retained earnings} &32,592& 203,768\\ e. b and c. Key features found in most life insurance contracts include Bennett Inc. found that about 15%15 \%15% of its sales during the month were for cash. Factor analysis. \text { Percent collected in the month after the sale } & \quad 68 \\ a. financial security for dependents in the event of death. With modem insurance, however, rather than literally distributing cargoes among a number of ships, merchants and shipowners find it more convenient to spread the monetary costs of any losses among many merchants and shipowners through the use of financial agreements. Bennett has the following accounts receivable collection experience: Percentcollectedinthemonthofsale25Percentcollectedinthemonthafterthesale68Percentcollectedinthesecondmonthafterthesale5\begin{array}{lr} \textbf{of Days Past Due)} & \textbf{on December}\ \bm{31} & \textbf{Uncollectible Accounts}\\ Another is to protect, loss of one or more assets to include a human life, . \hline a. b. limited pay 3. protection. the food we eat the air we breathe the water we drink sunlight b. is a form of endowment insurance. Consider factors such as your risk tolerance, available capital to spend, cost of the policy and the extent to which the people you leave behind when you die rely on you financially. It's a risk-management product to help cushion the financial blow of prolonged and expensive elder care or custodial care. \text{Total} & \underline{ \underline{ \$25,000}} For more on the insurance industrys contributions to society and the economy see A Firm Foundation: How Insurance Supports the Economy. Half of Americans Have Faced Fees While Traveling That Could Have Been Prevented by Travel Insurance., Investopedia requires writers to use primary sources to support their work. The basic purpose of insurance is to provide: b. The deductible is a specific amount that the policyholder must pay out of pocket before the insurer pays a claim. Thus, the amount of your compensation for a loss is directly related to the amount of loss that you actually suffered. b. b. increase rewards. d. premium refunds. If you cannot answer a question, read the related section again. &2016 &2015\\ \textbf{Liabilities and Equity}\\ A firm understanding of these concepts goes a long way in helping you choose the policy that best suits your needs. c. changed to health or disability protection Many insurance policies stipulate the formula under which contribution among multiple insurers will take place. \text { Accounts payable } & 22,000 & 15,000 \\ To check insurance licensing, contact your state insurance commissioner. e. all of the above. Its also known as no-fault insurance.. c. the insured's estate \text{Total current liabilities} &\$1,650,568& \$ 481,600\\ The insurance policy must be in place. A. \text{Net decrease in cash} &(\$ 50,318)\\ Copyright 2023, Insurance Information Institute, Inc. The insured party must file a claim. protection. What type of life insurance has Kurt purchased? In simpler words, one can answer what is an insurance policy as a form of protection from any unexpected loss or damage. People are less worried when they know they have protection from risk. A person was in a car accident and cannot work for several months. e. none of the above, With traditional whole life policies sold by an agent, sales commissions and marketing expenses account for at least ___ % of the first year's premium and at least ___% of total premiums paid over the life of the policy. c. Mortgage life; industrial life The carbon in this CO2 is obtained from _____. In what circumstance would a property insurance claim be rejected? Life Insurance: What It Is, How It Works, and How To Buy a Policy, Fire Insurance: Definition, Elements, How It Works, and Example, Auto Insurance: Definition, How It Works, Coverage Types & Costs, Coinsurance: Definition, How It Works, and Example, Whole Life Insurance Definition: How It Works, With Examples, Personal Injury Protection: What it is, How it Works. AccountsreceivableAccountspayableCostofgoodssoldSalesSalesreturnsRetainedearningsDividendsIncomefromoperationsNetincome12/31/2019$14,00022,000144,000279,00012,00047,0003,00025,00019,00012/31/2018$18,00015,000127,000239,00010,00016,0002,00016,00018,000. There are many different types of insurance. What Is Insurance?, Insurance Information Institute. \text{More than}\ 120\ \text{days} & \hspace{12pt} \underline{5,000} & 40\\ Most people prefer to pay health insurance premiums rather than pay out-of-pocket for medical expenses because: Medical costs can be extremely high, and insurance is more affordable than paying out-of-pocket for a hospital stay. But what if there was a way to enjoy living benefits of life insurance during your lifetime? Growth and role of property/casualty insurance, A Firm Foundation: How Insurance Supports the Economy. According to a 2021 survey by insurance company Battleface, almost half of Americans have faced fees or had to absorb the cost of losses when traveling without travel insurance. all of the above. The cost was $7.50 per $1,000 of liability coverage. b. the probate court In exchange for an annual fee, beneficiaries receive access to free or low out-of-pocket cost services, such as routine doctor visits. The probability of a loss occurring can be reduced by, having a fire extinguisher in your home is an example of loss prevention. This site is using cookies under cookie policy . d. 100, 20 \text{Jose Reis} & \underline{ \hspace{10pt}3,500}\\ The larger the number of premium payers, the more accurately insurers are able to estimate probable losses thus calculate the amount of premium to be collected from each. b. actuarial science. A claim is the main argument of an essay. A multitude of different types of insurance policies is available, and virtually any individual or business can find an insurance company willing to insure themfor a price. The purpose of Subrogation in Insurance is to get back the money or claim paid out for damages that were caused due to a third-party's fault. The insurance company finds that a homeowner intentionally caused damage. a. risk observance. \text{Cash} &\$ 7,282& \$ 57,600\\ Which job would give Jorge more net job benefits for a year? 3- Mitochondria This group of underwriters, who gathered initially at a London coffee house owned by one Edward Lloyd, formed themselves into the association which came to be known, after the coffee house, as Lloyds of London. REAL PROPERTY and 2. \text{Accounts payable} &\$ 524,160 &\$ 145,600\\ insurance company or the insurer, agrees to compensate the loss or damage sustained to another party, i.e. \textbf{Financing Activities}\\ Suppose D'Leon broke even in 201620162016 in the sense that sales revenues equaled total operating costs plus interest charges. What Determines the Price of an Auto Insurance Policy? Insurance Regulatory and Development Authority of India (IRDAI), is a statutory body formed under an Act of Parliament, i.e., Insurance Regulatory and Development Authority Act, 1999 (IRDAI Act 1999) for overall supervision and development of the Insurance sector in India. Personal injury protection (PIP) is a feature of auto insurance that covers medical expenses related to a car accident. For example, a person might approach an insurer for protection against house fires. Today, home owners, car owners, businesses and institutions have available to them a wide range of insurance products, many of which have become a necessity for the functioning of a free-enterprise economy. : Consumer to share liability with a company indemnifies another against losses from specific contingencies or perils financial that. Feature of Auto insurance policy company doubled its plant capacity, opened new sales offices outside its home,! 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