The BEST General Insurance Life & Health Study Guide

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1. Defining Insurance & Risk

  • Definition: Insurance is defined as the transfer of risk.

  • Risk: The potential for loss (loss of life, health, or property).

  • 5 Ways to Handle Risk:

    1. Avoid: Not practical (life has inherent risks).

    2. Reduce: Taking precautions (e.g., driving safely, healthy lifestyle).

    3. Retain: Self-insuring (paying for losses out of pocket).

    4. Transfer: The core of insurance. Moving the risk to an insurance company.

    5. Share/Pool: A group pooling resources to cover each other (e.g., small business groups).

2. Hazards (Conditions increasing loss chance)

  • Physical Hazard: Physical conditions increasing risk (e.g., smoking, obesity, blindness).

  • Moral Hazard: Risks from dishonesty (e.g., lying on an application, illegal acts). Remember: “Moral = Morals/Lying.”

  • Morale Hazard: Risks from carelessness or indifference (e.g., reckless driving because “I have insurance”).

3. Loss, Peril, & Types of Risk

  • Peril: The cause of loss (e.g., a storm, a heart attack, death).

  • Speculative Risk: Chance of loss OR gain (e.g., gambling). Not insurable.

  • Pure Risk: Chance of loss ONLY (e.g., death, injury). Insurable.

4. Elements of Insurable Risk

To be insurable, a risk must be:

  • Due to Chance: Outside the insured’s control.

  • Definite & Measurable: Specific time, place, and amount.

  • Predictable: Insurers must be able to calculate statistics (frequency/severity).

  • Not Catastrophic: Insurers avoid risks that would bankrupt them (war, nuclear) or use Reinsurance (insurance for insurers) to handle them.

  • Large in Number (Law of Large Numbers): There must be enough similar exposure units to make statistics accurate.

  • Randomly Selected: Must have a balance of good and poor risks (avoiding adverse selection).

5. Adverse Selection

  • The tendency for people in high-risk situations to seek insurance more than those in low-risk situations (e.g., wanting dental insurance only when your tooth hurts). Insurers try to avoid this.

6. Insurance Contract Features

  • 4 Required Elements:

    1. Consideration: Exchange of value (Insured = Premium + Application; Insurer = Promise to pay).

    2. Legal Purpose: Cannot violate laws (no insuring illegal acts).

    3. Offer & Acceptance: Applicant makes offer; Insurer accepts.

    4. Competent Parties: Legal age, sound mind, not intoxicated.

  • Contract Characteristics:

    • Adhesion: “Take it or leave it.” Written by the insurer; the insured must “stick” to it. Ambiguities are interpreted in favor of the insured.

    • Aleatory: Unequal exchange. Small premium for a large potential payout.

    • Unilateral: One-sided. Only the insurer is legally bound to pay; the insured can stop paying premiums anytime.

    • Conditional: Benefits depend on specific conditions being met (e.g., staying in-network).

    • Indemnity: Restores the insured to their prior financial state (no profit/gain).

    • Valued Contract: Pays a stated amount (common in Life Insurance).

    • Utmost Good Faith: Both parties are assumed to be honest.

7. Legal Concepts

  • Warranties: Statements guaranteed to be true (e.g., name, DOB).

  • Representations: Statements believed to be true (e.g., “I am healthy”) but not guaranteed.

  • Concealment: Intentionally hiding material facts.

  • Fraud: Intentional misrepresentation or concealment of a Material Fact (a fact that would have changed the insurer’s decision).

  • Fiduciary Responsibility: The agent’s duty to handle money (premiums) responsibly.

  • Waiver & Estoppel:

    • Waiver: Voluntarily giving up a legal right (e.g., issuing a policy without a required medical exam).

    • Estoppel: Legal principle preventing a party from reclaiming a waived right.

  • Subrogation: The insurer’s right to pursue a third party that caused a loss to recover payments made to the insured.

8. Agent Authority

  • Express Authority: Written in the contract (e.g., right to collect premiums).

  • Implied Authority: Not written but assumed necessary to do the job (e.g., scheduling appointments).

  • Apparent Authority: The customer’s perception that the agent has authority based on actions/materials (e.g., using company branded forms/logos).

A helpful tip from someone who’s only ever been on the end of consumer before my recent passed exam. Two chapters a day (watch chapter videos), watch an instructive video atleast once, take as much time as you need on your states laws as this is the largest part of the exam. I did minimum 400 practice questions before the exam. Took notes of each question missed, the morning of I re-reviewed those missed questions. Another big point of learning. Take notes, however you note each point how you just read it, not copying from the material. This was helpful on retaining something that was just words for me.

I completed the Excel course received my certificate which is good indefinitely but no longer have access to the study materials or the course! I then had to stop for awhile due to family circumstances. I no longer have access to the program without paying either for the study bundle, or doing the course over again!

I was advised to check utube and found you I don’t mind in reinvesting in some type of study guide but it’s nice to have explanations to listen to along with watching the connection of the two together gives better content. I will continue your videos and purchase anything that’s necessary to get through this! i am in nj their license requires life & health even though i have no intention to do health i have no option!

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