hello it's melissa the insurance exam queen here and i have this delicious audio for you this is the general insurance terms definition and memorization audio as you listen to this audio you're going to be hearing the concepts and the definitions that you need to know from the general insurance terms chapter in an easy to understand way while also allowing the definitions to sink into your mind as you hear me repeat them listen to this audio as many times as you need to secure the knowledge so that you can recall it while you're taking your exam and pass your exam with ease and flow this audio will go into 40 different topics that come from the general insurance terms chapter what we're going to do for each one is you're going to hear the term or the concept name and definition then i'm going to provide a brief explanation of the topic in an easy to understand way then i'm going to repeat the definition and concept again after the explanation and then we will move into repeating it three times so that you can sync that information into your brain in addition to simply listening you can also boost your study and memorization skills by writing down what you're hearing the first time that you listen to it then the second time that you listen to this recording read the definitions that you wrote down while listening both of these things will help install the information into your brain so that you can quickly recall it on the exam and pass easily risk is the uncertainty or chance of loss occurring what this means is that we have uncertainties that could happen in our life our car could crash our house could burn down these are all the certain things or chances of loss that we can have within our life so risk is the uncertainty or chance of loss occurring and now repeat with me three times risk is the uncertainty or chance of loss occurring risk is the uncertainty or chance of loss occurring risk is the uncertainty or chance of loss occurring the two types of risks are pure risk and speculative risk in the next few slides we'll define pure risk and speculative risk but right now it's important that you do remember these two types and that you can easily recall the two types of risk on the insurance exam so we're going to repeat three times the two types of risk are pure risk and speculative risk the two types of risk are pure risk and speculative risk the two types of risk are pure risk and speculative risk pure risk is loss or nothing no chance of gain and only pure risks are insurable what this means is that there's all types of risks and pure risks are the one where basically either nothing happens or something bad happens either you crash your car or you don't either the house burns down or it doesn't so in a pure risk there is nothing to gain you're only losing or nothing happens insurance companies will only cover pure risks so the other risk speculative they will not cover you cannot get insurance on a speculative risk you can only get insurance on a pure risk so a pure risk is loss or nothing no chance of gain and only pure risks are insurable and now we will repeat that three times pure risk is loss or nothing no chance of gain only pure risks are insurable pure risk is loss or nothing no chance of gain only pure risks are insurable pure risk is loss or nothing no chance of gain only pure risks are insurable speculative risk is lose or gain like gambling what this means is that in speculative risk you have the risk of winning but you also have the risk of losing insurance companies do not want to cover something where you could win because if you lose they pay out and you win and if you win you win you always walk away with something so insurance companies do not cover speculative risks you cannot get insurance for gambling going to like there's no las vegas insurance there's no horse races insurance so speculative risks are ones where you could lose or where you can gain and the most common example they're going to talk about is gambling which is why we put it in the definition so speculative risk is lose or gain like gambling and now repeat with me three times speculative risk is lose or gain like gambling speculative risk is lose or gain like gambling speculative risk is lose or gain like gambling i am a star at handling risk i share i transfer i avoid i retain i reduce risk so these are the methods of handling risk and what's most important is remembering the names and that's this is why we came up with the acronym i am a star at handling risk if you can remember share transfer avoid retain and reduce that's most important it's not necessarily important to remember what each one is although i will give you a brief explanation share is a way of like doing insurance among people you know or your friends as opposed to like doing it with a company all of your friends pitch in 100 a month it's in an emergency fund you guys take a vote if one of you has an emergency you can take the money out that everyone is putting in and there are formal ways of doing that um with people you know with groups of people that you're familiar with etc transfer is actually insurance when you insurance is the transfer of risk so the risk of you crashing your car the risk of your house burning down you transfer that to the insurance company and let them deal with it and that will actually be our next definition that we go into avoid is avoidance this is where you just avoid any potential claim you never leave your house you don't buy a car so that you can't crash a car but avoidance is almost impossible to do in its entirety because you have to go out you have to live the world it's impossible to potentially avoid every possible thing retain is self-insurance this is either like a deductible where you retain the first five hundred dollars of the risk or you retain all of the risk by self-insuring and not getting insurance so retain is to like keep when you think of a retaining wall it keeps back the water you are keeping the risk to yourself either some of it or all of it the last one is reduce risk and this is where you simply take steps to try to avoid a risk from happening you wash your hands so you don't get sick you wear a mask so you don't breathe in germs you exercise so that you can be healthy you eat good food so that you can be healthy so these are all things that you do to reduce the chance of a risk happening so handling risk i am a star at handling risk i share i transfer i avoid i retain and i reduce risk and now we're going to repeat that with me three times i am a star at handling risk i share i transfer i avoid i retain and i reduce risk i am a star at handling risk i share i transfer i avoid i retain and i reduce risk i am a star at handling risk i share i transfer i avoid i retain and i reduce risk insurance is the transfer of risk so as we talked about with risk before you have the risk of crashing your car the risk of your house burning down and instead of bearing the full cost of that yourself you can transfer it to the insurance company and let them deal with it so that if you do crash your car you pay a small deductible they will pay the rest to take care of it your house burns down you pay a small deductible they will pay the rest to take care of it so you're transferring the risk to the insurance company so insurance is the transfer of risk now repeat with me three times insurance is the transfer of risk insurance is the transfer of risk insurance is the transfer of risk the law of large numbers says the more data you have to look at the more predictable losses will be so we just talked about how insurance is a transfer of risk and we are going to transfer the risk of our house burning down or our car crashing or dying too soon to the insurance company they are going to charge us a premium how do they determine what premium they are going to charge us they use the law of large numbers the law of large numbers is like if you want to know what are the chances of an 18 year old crashing their car and getting into an accident you don't want to look at just one 18 year old and see how they behave you want to look at a million 18 year olds to see how they behave and the more people you have to look at the more predictable you will get at what actually happens so insurance companies use the law of large numbers to analyze our behavior see what it is that we do what are our what are our chances of us actually crashing our car what are the chances of our houses actually burning down and then you will pay a premium based on how much risk you bring to the table so the law of large numbers says the more data you have to look at the more predictable losses will be and now repeat with me three times the law of large numbers says the more data you have to look at the more predictable losses will be the law of large numbers says the more data you have to look at the more predictable losses will be the law of large numbers says the more data you have to look at the more predictable losses will be exposure is a unit of measurement to determine rates for an insured based on how risky they are so when we talk about the law of large numbers and they're predicting our chances of getting into an accident what they're looking at is our exposure like what are all the things that we bring to the table that would make us either more or less risky so a healthy person would have less exposure to the insurance company than an unhealthy person a bad driver would have more exposure to the insurance company than a good driver so the more risky you are the more exposure you have the more premium you will have to pay the less risky you are the less exposure you'll have the less premium that you'll need to pay so exposure is the unit of measurement to determine rates for an insured based on how risky they are and repeat with me three times exposure is the unit of measurement to determine rates for an insured based on how risky they are exposure is the unit of measurement to determine rates for the insured based on how risky they are exposure is the unit of measurement to determine rates for an insured based on how risky they are hazards increase the chance of a risk occurring so in addition to knowing your exposure we also need to know hazards which are things that could increase the chance of a claim so the risk is like crashing your car your house is burning down the hazards are things that make it way more likely for that to happen and there's a few different types of hazards which we'll learn in the next few slides but our main purpose here is knowing that in hazards increase the chance of the risk occurring so let's say that three times hazards increase the chance of the risk occurring hazards increase the chance of the risk occurring hazards increase the chance of the risk occurring physical hazards are material and structural things you can see and touch so what this means is that physical and hazards are things within your environment or things that you do to your physical body that are more likely to lead to a claim so for instance if you have gas cans in the garage next to a pile of rags that could lead to a fire and that increases the chance of a claim so the physical hazard of gas cans next to rags in the garage increases the chance of the garage burning down and that would be a physical hazard a tree branch sticking out of the sidewalk would make it more likely that you would trip and fall and sprain your ankle than if the tree branch weren't sticking out of the sidewalk so physical hazards are material and structural things you can see and touch now repeat that with me three times physical hazards are material and structural things you can see and touch physical hazards are material and structural things you can see and touch physical hazards are material and structural things you can see and touch moral hazard is lying on purpose like lying on an insurance application so it would be a moral hazard to the insurance company if you are lying to them about your risks or things about your health or your life whatever if you're lying to them they cannot accurately assess your risk and so you're more likely to file a claim than they anticipated because you have more risk than they were aware of so moral hazard is lying on purpose like lying on your insurance application and by the way that will be the most common thing they talk about with the moral hazard is talking about someone lying on their insurance application so let's repeat that definition three times moral hazard is lying on purpose like lying on an insurance application moral hazard is lying on purpose like lying on an insurance application moral hazard is lying on purpose like lying on an insurance application morale hazards is a sense of carelessness so we had moral which was lying on purpose and now we have morale which adds a little e at the end and when i think of the e i think of teenagers since teenagers has the two e's in there teen agers the morale hazard is like i just don't care yolo do what i want have a good time i love speeding because it's fun and it makes the wind blow through my hair and i don't care if i crash my car because the insurance will pay for it anyway so like whatever that's a morale hazard a sense of carelessness it's an attitude of i don't care and whatever and you'll take care of it that's a morale hazard and it can get a little bit tricky with the physical and a morale hazard if they ask you a question that says something like bob decided to smoke and drink because he knew that he was going to die anyway so it was like whatever man he's smoking and drinking to have a good time what type of hazard is this now you might think physical because of the smoking and the drinking but the key in that question was he didn't care he was going to die anyway it was more of a attitude than it was about the physical harm to his body so that would make it a morale hazard so a morale hazard is a sense of carelessness and now repeat that with me three times morale hazards is a sense of carelessness morale hazards is a sense of carelessness morale hazards is a sense of carelessness peril is the cause of loss like fire or hail so perils are the things that we are either covered for or not covered for but they are the things the events the activities the circumstances the weather that happens to us that would lead to a loss that would lead to a claim so if you your house suffers the peril of fire you have now lost the value of your house and you would then file a claim for it and perils are mother nature when you when you think fire lightning wind hail these are all perils in health insurance peril was perils would be sickness or accidental injury in life insurance the peril would be death so peril is the event the activity the thing that happens that causes you to file a claim and not every peril is covered like the peril of flood is always excluded on homeowners policies so you're not necessarily covered for every single peril but peril is the cause of loss like a fire or hail now repeat that with me three times peril is a cause of loss like a fire or hail peril is a cause of loss like a fire or hail peril is the cause of loss like fire or hail loss is the reduction or disappearance of value so when we're talking about loss here we're talking about the claim basically if you your house burns down you have lost your house you have the value of your house has disappeared because it is now a burned down pile of wood so loss is that reduction or disappearance of value and now we're going to repeat that three times loss is the reduction or disappearance of value loss is the reduction or disappearance of value loss is the reduction or disappearance of value indemnity means to restore the insurer to their previous financial condition so this is what insurance companies do when we transfer the risk to them and then the risk happens they indemnify us so after the peril which leads to the loss and you file a claim indemnity is the insurance company trying to fix us and make us whole again so if you had for instance a ten thousand dollar car and it was crashed and destroyed the insurance company is going to indemnify you by giving you ten thousand dollars for your car you know minus your deductible but they're gonna restore where you were before you're not gonna have a ten thousand dollar car and then the insurance company gives you a mercedes benz for you know twenty thousand dollars you're not going to get more than what you had before if you have a three bedroom two bathroom house and it burns down they're gonna rebuild you a three bedroom two-bathroom house they're not going to rebuild you a mansion their own their job is to simply restore you to where you were before the loss happened so indemnity means to restore the insured to their previous financial condition and now we're going to repeat that three times indemnity means to restore the insurer to their previous financial condition indemnity means to restore the insured to their previous financial condition indemnity means to restore the insurer to their previous financial condition certificate of authority allows insurers to sell in the state making them admitted and authorized so what this means is if an insurance company wants to be able to sell in the state they have to go to the department of insurance in that state and ask permission to be allowed to sell if the department says yes they are going to give that company a certificate of authority which means that they are now admitted and authorized and they are able to transact cells within the state so a certificate of authority allows insurers to sell in the state making them admitted and authorized and now let's go ahead and repeat that three times certificate of authority allows insurers to sell in the state making them admitted and authorized certificate of authority allows insurers to sell in the state making them admitted and authorized certificate of authority allows insurers to sell in the state making them admitted and authorized stock companies are owned by shareholders issue non-participating policies and dividends are taxed so there are two main types of insurance companies stock versus mutual and ultimately if you remember everything here in this definition you should be solid to be able to answer the questions on the exam but i do make a youtube video that goes into further detail about stock and mutual companies but for right now we're just going to focus on memorizing this definition so stock companies are owned by shareholders issue non-participating policies and dividends are taxed and now we're going to repeat that three times stock companies are owned by shareholders issue non-participating policies and dividends are taxed stock companies are owned by shareholders issue non-participating policies and dividends are taxed stock companies are owned by shareholders issue non-participating policies and dividends are taxed mutual companies are owned by policy owners issue participating policies and dividends are not taxed so again stock versus mutual are the main two types you can watch the full video on my youtube channel so let's just focus on the definition here mutual companies are owned by policy owners issue participating policies and dividends are not taxed and now repeat with me three times mutual companies are owned by policy owners issue participating policies and dividends are not taxed mutual companies are owned by policy owners issue participating policies and dividends are not taxed mutual companies are owned by policy owners issue participating policies and dividends are not taxed domestic means the insurer is corporated and selling in this state so in addition to being stock and mutual insurance companies are categorized according to where they are located and or headquartered so an insurance company wherever they get started they are started under the laws of that state and every state has different laws so an insurance company that has started in texas is going to look different than an insurance company that i started in like arizona so we need to know which state they got started in so that we can understand what laws they were used when they wrote up their business so we categorized insurance companies based on where they were incorporated where they got started where they're headquartered where they were founded and domestic is where they are incorporated headquartered and then also selling so we would say that a domestic insurer is incorporated in this state and selling in this state and for the state exam when you're answering a question about this you one state is typically the hint for domestic if they say an insurance agent is selling in illinois and the company is headquartered in illinois what type of insurer is this we would go domestic they only mentioned one state illinois so domestic means the insurer is corporated and selling in this state and now we're going to repeat it three times domestic means the insurer is incorporated and selling in this state domestic means the insurer is incorporated and selling in this state domestic means the insurer is corporated and selling in this state foreign means the insurer is selling in this state but they are incorporated in a different state so where domestic was incorporated in this state and selling in this state foreign is saying they are selling here but they are not headquartered here so like one insurance company is going to be only domestic to one state the state that they got started in they're founded in and then they're going to be foreign to every other state that they are selling in so foreign is when they are selling here but they are not incorporated here and the memory trick with this one is two states whereas domestic only mentions one state foreign is usually going to mention two states that the insurance is incorporated in wisconsin but the agent is selling for them in new york so that would mean they they were foreign in new york so foreign means the insurer is selling in this state but they are incorporated in a different state and now we are going to repeat that three times foreign means the insurer is selling in this state but they are incorporated in a different state foreign means the insurer is selling in this state but they are incorporated in a different state foreign means the insurer is selling in this state but they are incorporated in a different state alien means the insurer is headquartered in another country so this one is easy as soon as you see the word country you know that they're talking about an alien insurer so alien is another country it's the insurance company that started in another country they started in england they started in mexico they started in canada they started somewhere else outside of the united states so they are an alien insurer to the united states so alien means the insurer is headquartered in another country and we're going to repeat that three times alien means the insurer is headquartered in another country alien means the insurer is headquartered in another country alien means the insurer is headquartered in another country reinsurance is when one company indemnifies another so insurance companies can take on big risks they can either ensure really big risks like jeff bezos's 30 million dollar yacht or they can just insure 30 million people in case their homes burn down so insurance companies are taking on all of these risks and they may not be able to pay out a claim if every person filed a claim at the same time or if there was one big huge hit like the the yacht so reinsurance is where one company will ask another company to back all or some of its losses and there are specific companies with this is all they do is they just back and support other insurance companies they don't even sell to the public so that would be a reinsurer so reinsurance is when one company indemnifies another and now we're going to repeat that three times reinsurance is when one company identifies another reinsurance is when one company indemnifies another reinsurance is when one company indemnifies another law of agency says the agent represents the insurer and the knowledge of the agent is knowledge of the insurer so law of agency describes the relationship between the insurance company and the agent who is selling for them and there's a few different rules about the law of agency but the biggest ones are the ones i put here which is that the agent represents the insurer so whatever the agent is doing it all falls back on the insurer good or bad because the agent represents the insurer that they work for and the other part is that the knowledge of the agent is knowledge of the insurer and this one is kind of weird but what they're saying here is when a customer is talking to you about a policy they don't feel like they're talking to you they feel like they're talking to the insurance company because you represent the insurance company and whatever you say they believe is coming from the insurance company and is true and valid because you're the one saying it so you as the agent have to be careful about you know all the things that you're saying because the customer believes they're talking to the company when they're talking to you and that's a much bigger responsibility than simply talking to you as a person so the law of agency says the agent represents the insurer and the knowledge of the agent is knowledge of the insurer and now we're going to repeat that three times the law of agency says the agent represents the insurer and the knowledge of the agent is knowledge of the insurer law of agency says the agent represents the insurer and the knowledge of the agent is knowledge of the insurer law of agency says the agent represents the insurer and the knowledge of the agent is knowledge of the insurer express authority is written in the contract so as a licensed agent you will have three different types of authority and express is the one that is written in the contract so you know you're allowed to do it because there's a piece of paper typed up with a bullet pointed list of things that you are allowed to do so express is expressly written in the contract sometimes they will say that express authority is written sometimes they say express authority is in the contract but a contract is a written document so either way it works express authority is written in the contract and now we're going to repeat that three times express authority is written in the contract express authority is written in the contract express authority is written in the contract implied authority is assumed by the insurer so where express authority was written in the contract implied authority is all the things that they didn't have time to necessarily write down on a document but they assume that you can handle these things so as working for them there's going to be things that you need to do that may not be typed up in your contract but because you're working for them they just expect you to do them they assume that you can do them so applied authority is assumed by the insurer but it's not expressly written in your contract so applied authority is assumed by the insurer and we're going to repeat that three times implied authority is assumed by the insurer implied authority is assumed by the insurer implied authority is assumed by the insurer apparent authority is assumed by the customer also known as perceived authority so this is an authority that's not actually real it's a perception of authority that the customer has of you that they believe you can do something because you're wearing the uniform of the insurance company and you say you can do that thing so this is where you have to be careful making sure that you don't overstate your power as an insurance agent because the customer can perceive anything as power if you say that you have the power and ability to do that the most common examples on the insurance exam for this one will be business cards that are like circulated too soon so like let's say you tell your grandma hey grandma i'm going to be an insurance agent and she's so proud of you she goes and makes business cards and puts your name on them and it says melissa licensed agent and then she passes it out to all her friends but you haven't even taken the test yet you're still studying you're not a licensed agent but all the people that she passed out that business card to they're going to perceive you to be an authority as a licensed agent because they're looking at a business card that says that also any late letterhead or stationery that is from the company can be perceived authority so if you were to write a handwritten note to the customer on a letterhead they don't really see that as coming from you they see it as coming from the company and anything that you say on that could be you know seen as authority so you have to be cautious with that so apparent authority is assumed by the customer also known as perceived authority and now we will repeat that three times a parent authority is assumed by the customer also known as perceived authority apparent authority is assumed by the customer also known as perceived authority apparent authority is assumed by the customer also known as perceived authority fiduciary responsibility means the agent submits premium collected to the insurance company so technically fiduciary responsibility is a person of trust but when it comes to being a licensed agent the main thing that the insurance company is trusting you with is collecting the premium from the customer and then submitting it to the insurance company and while you have the money you're not allowed to co-mingle it which means mix it with your own personal money you need to keep that money separate but the biggest thing about you collecting that premium is that you need to then submit it to the insurer to make sure that they get it and that is your fiduciary responsibility is to submit those premium funds again fiduciary is a person of trust but the number one thing they ask you about is that your job as a fiduciary is to submit the premiums to the insurance company so a memory trick i like to say is it funds fiduciary funds fiduciary funds fiduciary funds they're talking about funds they're talking about money they're talking about you collecting premium so if they ever ask about fiduciary you're looking for an answer that talks about money premium collecting premiums submitting premium those are the the things they tend to ask you about so fiduciary funds fiduciary funds federationary funds and now we're going to say our definition fiduciary responsibility means the agent submits premium collected to the insurance company now we're going to repeat that three times fiduciary responsibility means the agent submits premium collected to the insurance company judiciary responsibility means the agent submits premium collected to the insurance company fiduciary responsibility means the agent submits premium collected to the insurance company agreement is known as offer and acceptance offer is when the customer submits an application acceptance is when the insurer issues a policy so agreement is one of the first elements of a legal contract so a legal contract is any contract that is legal and insurance policies are all legal contracts or they should be legal contracts anyway in order for a contract to be legal it must have the four elements and agreement is the first one now with the state exam they want you to not only know the definition of agreement which is offer and acceptance they want you to be able to define offer and acceptance so offer if insurance company if insurance is a transfer of risk the offer is when you are offering your risks to the insurance company and if they accept those risks then they will issue a policy so the offer is when the customer submits an application and the acceptance is when the insurer issues the policy so again agreement is known as offer and acceptance the offer is when the customer submits an application acceptance is when the insurer issues a policy and we're going to state that three times agreement is known as offer and acceptance offer is when the customer submits an application acceptance is when the insurer issues a policy agreement is known as offer and acceptance offer is when the customer submits an application acceptance is when the insurer issues a policy agreement is known as offer and acceptance the offer is when the customer submits an application acceptance is when the insurer issues a policy consideration means both parties bring something of value consideration on the side of the insured is application plus premium consideration on the side of the insurer is promised to pay a claim so just like agreement is one of the four elements of a legal contract consideration is the next element and every insurance policy is a contract just like a rental agreement a job agreement they all have to have these four elements in them and consideration is one of the elements that says both parties have to bring value to the other party so you have to consider what do they want they consider what you want and then you bring those values to each other they're not the same value but both parties have to bring value to the other party now they're gonna ask you what is the definition of consideration on the exam and that's both parties bring something of value then they're going to ask you what is consideration on the side of the insured and what is consideration on the side of the insurer which is why both of those are included in the memorization here they will not say what value does the company bring what value does the customer bring the time the only time they use the word value is in the definition of consideration but when they ask you what value does the insurance company bring they word it by saying what is consideration on the side of the insured so consideration on the side of the insured is app plus premium consideration on the side of the insurer is promised to pay the claim so now we're going to repeat this three times consideration means both parties bring something of value consideration on the side of the insured is app plus premium consideration on the side of the insurer is promised to pay a claim consideration means both parties bring something of value consideration on the side of the insured is app plus premium consideration on the side of the insurer is promised to pay a claim consideration means both parties bring something of value consideration on the side of the insured is app plus premium consideration on the side of the insurer is promised to pay a claim competent parties are of sound mind old enough and not under the influence of drugs and alcohol so as an insurance agent when you're selling policies you're only allowed to sell two competent parties which is someone who knows what they're doing they're able to make a decision they are old enough and they are not under the influence of drugs and alcohol now they do like to trick you with this one and throw in a felon felons are totally fine you can sell insurance to a felon as long as they are of sound mind old enough and not under the influence of drugs and alcohol so competent parties are of sound mind old enough and not under the influence of drugs and alcohol and we're going to repeat that three times competent parties are of sound mind old enough and not under the influence of drugs and alcohol competent parties are of sound mind old enough and not under the influence of drugs and alcohol competent parties are of sound mind old enough and not under the influence of drugs and alcohol legal purposes cannot be against public policy or break the law so legal purpose is like joe exotic all day long joe exotic isn't if you know that story he's in jail because he attempted to hire someone to murder someone else he had a contract that was murder for hire which is not allowed you are not allowed to kill people that is against the law so legal purpose says that any contract that is established has to fit within the laws of the land in order to be a legal contract and could be upheld in court so legal purpose is cannot be against public policy or break the law and we're going to repeat that three times legal purpose is cannot be against public policy or break the law legal purposes cannot be against public policy or break the law legal purpose is cannot be against public policy or break the law adhesion says the insurer writes the policy and the customer either takes it or leaves it so we're out of the elements of a legal contract we're done with those that was just agreement consideration competent parties and legal purpose and now we're just talking about unique things about an insurance contract in general and adhesion is is the word adhere means to stick to so the insurer is the one who wrote the policy and they have to stick to what they said so if they said they were going to cover you if x y z happens then they need to cover you if x y z happens they wrote it they need to stick to it that is adhesion for the insurer then adhesion for the customer is is that you pretty much have to stick to the whole policy or none of the policy you can't pick and choose parts that you like and that you don't like you're going to get all of it like think of an insurance policy as double-sided sticky tape both sides stick to it the ins the customer has to stick to the entire policy and the insurer has to stick to what they said so adhesion says the insurer writes the policy and the customer either takes it or leaves it and now we will repeat that three time science adhesion says the insurer writes the policy and the customer either takes it or leaves it adhesion says the insurer writes the policy and the customer either takes it or leaves it adhesion says the insurer writes the policy and the customer either takes it or leaves it alleatory is an unequal exchange so alleatory is a describing the contract where the customer will pay a teeny tiny premium and the insurer will pay very large claims that is a very unequal exchange teeny tiny premium big claims payout that is alliatory and this one will usually come in the form of a scenario question where they will say bob paid his insurance premium for a hundred dollars a month for two months and then he died and he his beneficiary got a two hundred thousand dollar payout what does this represent alliatory it's an unequal exchange two hundred dollars for 200 000 is a very unequal exchange so you do want to remember that it's a scenario question if they ever talk about how you're paying a tiny premium in exchange for a big claims payout that is alliatory aliatory however you want to say it so alliatory is an unequal exchange and now we're going to repeat that three times alleatory is an unequal exchange alleatory is an unequal exchange alliatory is an unequal exchange personal means the policy is between the customer and the insurer so this is just letting you know that when you buy a policy it's between you and the insurance company and other people are not involved in most policies it stays that way only in life insurance can you actually sell your policies and so those ones are not quite so personal but generally speaking personal just means it's between you and the company and only you and the company can deal with your policy so personal means the policy is between the customer and the insurer and we will repeat that three times personal means the policy is between the customer and the insurer personal means the policy is between the customer and the insurer personal means the policy is between the customer and the insurer unilateral is a one-sided promise only the insurer is legally bound to do anything so when we say when you set up a policy the customer pays the premium but they're not promising to pay the premium and if they fail to pay the premium the policy is simply canceled everyone moves on but the insurer though they are legally bound to pay the claim they have to legally pay a valid claim and if they don't you can take them to jail you can sue them you can take them to court and a judge will make them pay they are legally bound to fulfill the promise they have made to you whereas the customer is not legally bound to do anything if they don't want to pay the premium they simply cancel walk away leave no one is coming after them if the insurer attempted to cancel and leave in the middle of paying a claim you are going to sue them you are going to take them to court and a judge will make them pay and that is because unilateral is a one-sided promise only the insurer is legally bound to do anything and now we will repeat that three times unilateral is a one-sided promise only the insurer is legally bound to do anything unilateral is a one-sided promise only the insurer is legally bound to do anything unilateral is a one-sided promise only the insurer is legally bound to do anything conditional means both parties have rules duties they must follow or do so conditional every insurance policy is conditional there's always a rule involved in the policy if you want us to pay the claim you have to submit the claim within a certain amount of time we have to then pay you within a certain amount of time like everybody has rules the customer has rules the company has rules the insured has rules the insurer has rules everyone has rules that they have to follow and those rules are found in the conditions of a policy but conditional means both parties have rules and duties they must follow and do now we will repeat that three times conditional means both parties have rules and duties they must follow or do conditional means both parties have rules and duties they must follow and do conditional means both parties have rules and duties they must follow and do reasonable expectations says a customer can expect the coverage if an agent implied it during the sale so this is exactly like how you're going to see it presented is they will ask a question that says a customer was told by the agent that they could expect this what does that mean and the answer is they can expect that coverage so reasonable expectation says the customer can expect the coverage if an agent implied it during the sale so let's repeat that three times reasonable expectations says a customer can expect the coverage if an agent implied it during the sale reasonable expectations says a customer can expect the coverage if an agent implied it during the sale reasonable expectations says a customer can expect the coverage if an agent implied it during the sale representations are statements that are believed to be true but not guaranteed to be true so what we're talking about here with representations is when a customer is filling out an insurance application they are making statements sometimes those statements are i believe it's true i think it's true to the best of my knowledge is true like do you have cancer well as far as i know no is it possible there's a tumor in my body yes so that is a believed to be true think it's true to the best of my knowledge is true but it might not be true and that is what we call a representation so representation is i think it's true i believe it's true to the best of my knowledge is true but it might not be true and that is a representation or the customer is making what we call warranties on the application and warranties are absolutely true statements which we'll talk about in a few slides with representations they're typically used for life and health insurance and warranties are used for car insurance where the car is the car there's no wiggle room for that to be wrong there's no tumor in the car that we don't know about so warranties are absolutely true statements whereas representations are i think it's true believe it's true but not guaranteed to be true so you want to know that know the definition and then you also want to attach the word statement to representations some questions that you might see would be a applicant made statements on the application what is that known as and the answer is representations if a customer makes statements on the application those are representations they may or may not say is it true or not or should be true or absolutely true they just say the customer made statements and the act the answer that they are expecting is representations so attach the word statements to representations and with warranties it will be is true has to be like absolutely true must be true and if it's not true it will avoid the policy that's a warranty we're talking about representations which i think is true believe to be true not guaranteed to be true and those are for statements like do you have cancer yes or no and you will have coverage because you're it's not guaranteed to be true so you're not lying you are saying what you know to be true at that time if you are lying that would be a misrepresentation which we'll talk about next but a simple representation is simply a statement that they're making on the policy whereas a warranty is absolutely true so now we're going to repeat representations are statements that are believed to be true but not guaranteed to be true we're going to repeat that three times representations are statements that are believed to be true but not guaranteed to be true representations are statements that are believed to be true but are not guaranteed to be true representations are statements that are believed to be true but not guaranteed to be true misrepresentations are untrue statements so a misrepresentation is a statement that i believe to be true to the best of my knowledge is true a misrepresentation is where that's not true that didn't panic misrepresentations are untrue statements so a misrepresentation is where a customer wrote down an answer to the question on an application and it ended up not being true it doesn't necessarily mean that they lied now if the test said intentional misrepresentation then that is a definite lie but a misrepresentation all by itself doesn't imply that someone lied it just means that whatever was written down whatever was stated ultimately was an untrue statement so misrepresentations are untrue statements and we're going to repeat that three times misrepresentations are untrue statements misrepresentations are untrue statements misrepresentations are untrue statements a warranty is an absolutely true statement so we talked about representations which are i believe it's true i think it's true to the best of my knowledge is true and those are for life and health insurance for home and auto we have warranties and warranties are absolutely true statements where there is no wiggle room for the answer to be wrong i drive a 2009 toyota prius that is what i have that is what i drive there is no wiggle room for that to be wrong so warranties are an absolutely true statement if you lied on a warranty then that voids the policy that is considered fraud so if you lie about a warranty you have you can get the policy canceled voided claim not covered so warranty is an absolutely true statement and now we're going to repeat that three times warranty is an absolutely true statement warranty is an absolutely true statement warranty is an absolutely true statement concealment means withholding or hiding information on the application so concealment is simply withholding or hiding those are the words you want to attach so this is where they ask a question and you attempt to hide or withhold the information from the insurance company and it is as soon as you see withholding or hiding you know the answer is concealment and if you don't see the words withholding or hiding you're not choosing concealment because concealment and fraud sounds similar concealment is a form of fraud you are attempting to deceive the insurance company yes that is fraud but concealment is a type of fraud that is specific to withholding and hiding which is why when the answer or the question is concealment you need to see withholding or hiding in the question or the answer so concealment means withholding or hiding information on the application and we're going to repeat that three times concealment means withholding or hiding information on the application concealment means withholding or hiding information on the application concealment means withholding or hiding information on the application fraud is deceiving or lying to cheat the insurance company so fraud is anytime someone's deceiving or lying but we want to focus on you know the exam so a lot of times when they ask this question they'll ask about why is someone committing fraud and it's to cheat the insurance company so fraud is deceiving or lying to cheat the insurance company and we're going to repeat that three times fraud is deceiving or lying to cheat the insurance company fraud is deceiving or lying to cheat the insurance company fraud is deceiving or lying to cheat the insurance company and we are done with the general insurance terms memorization and definition audio if you have any questions make sure to email me at insuranceexam queen gmail.com and i am sending you all the love and all the vibes that you will pass this exam you