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Question 1

A(n) ___ is a certain loss that is accepted from insurance in exchange for an uncertain loss.

Answer 1

Premium

Question 2

___ is the pooling of fortuitous losses by transfer of such risks to insurers, who agree to indemnify the insured for such losses, to provide other pecuniary benefits on their occurrence, or to render services connected with the risk.

Answer 2

Insurance

Question 3

What does the Law of Large Numbers state?

Answer 3

The greater the number of exposures, the more closely the actual results will approach the probable results that are expected from an infinite number of exposures.

Question 4

A(n) ___ is a loss that’s unforeseen, unexpected, and the result of chance.

Answer 4

fortuitous loss

Question 5

___ refers to when the insured is restored to his/her approximate financial position prior to the occurrence of the loss.

Answer 5

Indemnification

Question 6

Name the 6 aspects of an ideally insurable risk.

Answer 6

• Large number of exposure units
• Accidental and unintentional loss
• Determinable and measurable loss
• No catastrophic loss
• Economically feasible premium
• Calculable chance of loss

Question 7

___ is an arrangement by which the primary insurer that initially writes the insurance transfers to another insurer part or all of the potential losses associated with such insurance.

Answer 7

Reinsurance

Question 8

In terms of reinsurance, the primary insurer is called the ___.

Answer 8

ceding company

Question 9

___ means that the primary insurer has agreed to cede insurance to the reinsurer, and the reinsurer has agreed to accept the business.

Answer 9

Treaty reinsurance

Question 10

___ is the tendency of persons with a higher-than-average chance of loss to seek insurance at standard rates.

Answer 10

Adverse selection

Question 11

Adverse selection can result in higher-than-expected loss levels if it isn’t controlled by ___, or the selection and classification of applicants for insurance.

Answer 11

Underwriting

Question 12

Name the five main types of private insurance.

Answer 12

• Life insurance
• Property insurance
• Liability insurance
• Casualty insurance
• Health insurance

Question 13

___ insurance pays death benefits to beneficiaries when the insurer dies.

Answer 13

Life

Question 14

___ insurance covers the insured’s legal liability arising out of property damage or bodily injury to others.

Answer 14

Liability

Question 15

___ insurance indemnifies property owners against loss or damage of real/personal property.

Answer 15

Property

Question 16

___ insurance refers to insurance that covers whatever isn’t covered by fire, marine, and life insurance.

Answer 16

Casualty

Question 17

___ insurance covers medical expenses because of sickness or injury.

Answer 17

Health

Question 18

Private insurance can be divided into two major categories. ___ lines are coverages that insure the real estate and personal property of individuals and families or provide protection against legal liability. ___ lines are coverages for business firms, nonprofit organizations, and government agencies.

Answer 18

Personal; Commercial