Insurance Life Cycle:

Application

Renewals Submission

Ajdustments Quote

Policy Proposal

Binder

Insurance

The concept of insurance is really quite simple. Insurance is a method for spreading the risk of a
financial loss among a large number of people. By spreading the risk, we are reducing the financial
impact of an individual loss. So how do we do that? You, along with millions of other people, simply
purchase an insurance policy from an insurance company—although not necessarily at the same
time. In return, this transfers your risk of loss to the insurance company reducing the amount that
you will be financially responsible for in the event of a covered loss.

There are two parties involved with an insurance contract: (1) the insured, and (2) the
insurance company.

Insured - An insured person is the individual or entity whose potential financial losses are covered by an insurance
policy. This person or entity pays premiums to the insurer in exchange for financial protection against specific risks outlined
in the policy. In essence, they are the recipient of the insurance coverage and benefits.

Insurance Company (Insurer or Carrier) - The insurance company is the entity that agrees to indemnify (make
financially whole again) insureds against covered losses. The insurance company writes the policy language and includes the
rights of the company within the guidelines of the insurance statutes (laws). Using actuaries, the company
establishes rates to charge policyholders before making policies available for distribution.

Lines of Insurance

Property Insurance includes various types of insurance designed to insure property from financial
loss. The typical types of property items insured would be your house, auto, furniture, jewelry,
business property or any type of physical property. The perils covered will depend on the type
of property contract that you purchase; however, the basic perils typically covered include fire,
hail, windstorm, etc. The following types of insurance are generally considered to be property insurance:

1. Dwelling 2. Homeowners 3. Commercial Property 4. Inland Marine 5. Ocean Marine 6. Crime

Casualty insurance mainly protects you against legal liability for bodily injury (BI) and/or property
damage (PD) you cause to other people. In other words, liability or casualty coverage will pay for
accidental damage you cause to another person or their property. There are three parties to a
liability insurance contract— 1) the insured (you), 2) the insurer (insurance) company, and 3) the
injured party.

Personal Lines Insurance

Personal lines refer to property and casualty insurance for an individual as opposed to a business.
Coverages would include homeowners, renters, auto, and personal umbrella to name a few. These
policies include both property and casualty coverages. For example, coverage is available in
auto policies to cover damage to your car (property) and accidental damage you cause to another
person's car (casualty or liability).

Commercial Lines Insurance

Commercial lines refer to property and casualty insurance to cover a business as opposed to
personal lines, which cover personal risks. Examples include commercial general liability, workers'
compensation, and commercial property insurance.

Premium - The premium amount is set by the insurance company and is based on a number of factors or loss exposures
related to what is being insured. In return for the premium, the insurance company agrees to pay for losses
according to the terms of the insurance policy.
Deductible - A deductible is the portion of a covered loss that is not paid by the insurance company. Therefore,
the insured is responsible for any deductible amount at the time of loss. The insurance company will
pay the remaining portion of any covered loss up to the policy limits.

The insurance company is accomplishing two objectives by requiring a deductible:

1. Deductibles help minimize frequent claims; and

2. Deductibles help eliminate small claims.

By having a $250, $500, or even a $1,000 deductible or higher, an insured will not usually report any
claims up to the deductible amount.

Binder
After completing the application for insurance, the agent should issue a binder to the applicant. A
binder is an oral or written agreement that provides temporary evidence of insurance until a
policy can be issued. Note, that a binder does not guarantee that a policy will be issued. It only
provides temporary coverage while the application is underwritten at the home office. No
binder can be valid beyond the issue date of the policy or beyond its effective date, whichever
period is shorter.

Insurance underwriting is the process of classification, rating, and selection of risks. In other words, it's the process of
determining whether to accept a risk or not. If the risk is acceptable, the underwriters will determine the amount of
coverage to issue and the premium amount to charge.
Who Are Insured’s
It's important to know who is insured under the policy. The person or entity that is listed first on the declarations page is
referred to as the first named insured. The first named insured is the primary insured and holds the highest rank among all
insureds and has broader rights and obligations under the contract than any other insured.

Examples of additional rights of the first named insured are the right to cancel the policy, the right
to initiate policy changes, and the receipt of any return premiums.

Risk - Risk is defined as the possibility or chance of loss. It is not the actual loss. For example, while
driving to work each day, you may have an automobile accident. Or, you might accidentally slip, fall,
and injure yourself while running on your treadmill. It is uncertain if either of these accidents will
actually occur—but the possibility (risk) does exists.

Risk Exposure - Risk Exposure means almost the same as risk. An exposure can be defined as a condition or situation
that presents the possibility of a loss. For example, Joe takes a part-time job as a window washer for
Skyscraper. He is exposing himself to the possibility of a long fall.

Loss - Loss is the amount of financial damage to your property caused by perils for which you are insured
for. Losses can be total or partial and are stated as a dollar amount.

Peril - A peril is the cause of a loss. Some examples of common perils are:

Fire: If your house burns down—fire is the peril.

Accidents: If you run a red light and hit another car—the collision is the peril.
Explosions: If a gas stove explodes in your home—the explosion is the peril.
Flood: If a river overflows and floods your home—the flood is the peril.
Disease: If you suffer from heart disease—the heart disease is the peril.
Death: If you die from the heart disease—death is the peril.

Hazards
A hazard is a condition or the source that increases the chance and/or severity of a peril. Hazards
typically will be present before a peril occurs; however, it is the peril that actually causes the loss. For
example, driving on icy roads may cause you to slide off the road and hit a telephone pole. In this
situation, what is the hazard and what is the peril? Hazard = ice... peril = collision with pole.

Occurrence
Occurrence is often associated with the term "accident", which is a sudden and unexpected event.
For example, an auto accident (which happens at a specific place and time) is considered a single
occurrence.

Blanket vs. Specific

Blanket coverage provides coverage for different classes of property under one policy. For example,
you may insure several items, such as “all personal property located at 123 Main Street.”

Specific insurance is when you insure a specific item or specific kind of property.

Endorsements
An endorsement, also known as a rider, through which we can adds, deletes, excludes or changes in insurance coverage. An
endorsement/rider can also be used to increase standard limits of coverage and take precedent over the original agreement
or policy.

Reinsurance
Reinsurance is a risk management tool used by most insurance companies to lessen their risk
exposure. Companies (insurers) purchase insurance from another insurance company (reinsurer) to
transfer some risk from the insurer to the reinsurer. The reinsurer has the company's back when
losses occur. Here is how it works...

As an example, assume Large Insurance Company sells 1,000 policies with an average policy limit of
$1 million to American Re (the reinsurer). Theoretically, the insurer could lose $1 billion (1,000 x $1M).
It may make more sense for Large to transfer some of their risk to American Re to help minimize their
risk. So in basic terms, a reinsurer is an insurance company's insurance company.

Domicile
Domestic Company - This is the state where the insurer's home office is located. The insurer is
considered to be a domestic company in their home state.

Foreign Company - This is a state—other than the insurer's home state—where the insurer is
admitted to conduct business. The insurer is considered to be a foreign company in those states.

Alien Company - This is an insurer whose home office is located in a different country. Canada Life
would be an alien company in Colorado, or any other state.

Brokers
Brokers are independent producers who sell insurance through many different insurance companies.

A producer acting as a broker represents the insured in selecting the best coverage available from
the various companies they represent. Brokers do not have binding authority.