1-A What Is Insurance?

Question 1

Insurance

Answer 1

Transfers risk from insured to insurer

Question 2

Insured

Answer 2

Purchases premium from insurer

Question 3

Insurer

Answer 3

Provides financial protection to insured

Question 4

Premiums

Answer 4

Go into a pool or reserve; a fee paid in exchange for a policy

Question 5

How does insurer pay out claims?

Answer 5

Uses pooled premiums; pooled premiums should ALWAYS be enough to cover losses

Question 6

Principle of Indemnity

Answer 6

Restoration to approximate previous financial condition; no more, no less

Question 7

What’s a violation of indemnity?

Answer 7

Taking $ from an additional source for any losses already covered by insurance

Question 8

Reserve

Answer 8

A pool of collected premiums that insurer sets aside to pay for claims

Question 9

Purpose of principle of indemnity

Answer 9

Prevents insured from profiting on a loss

Question 10

Indemnification may include:

Answer 10

• repairs to property
• reimbursement for additional living expenses
• rental cars/hotels
• costs associated with loss

Question 11

Insurance policy

Answer 11

A contract which provides financial protection for a fee

Question 12

4 requirements of a legally binding contract:

Answer 12

1. ) Agreement (offer and acceptance)
2. ) Consideration
3. ) Competent Parties
4. ) Legal Purpose

Question 13

Example of an AGREEMENT within a legal contract

Answer 13

Mutual consent

Ex: handshake & bill of sale

Question 14

Example of CONSIDERATION within a legal contract

Answer 14

All parties bring something of value

Example: $1200 offered in exchange for title

Question 15

Example of a COMPETENT PARTY within a legal contract

Answer 15

18yrs old, Sober, & Sane

Question 16

Example of a LEGAL PURPOSE within a legal contract

Answer 16

It’s legal to buy a car for cash

Question 17

Acceptance Criteria

Answer 17

1. ) offeree communicates intent to enter contact with offeror
2. ) must be unconditional (offeree accepts terms of offeror)
3. ) original offeree is only person who can legally accept offer

Question 18

Ways an offer may be terminated:

Answer 18

• revocation by offeror
• rejection by offeree
• time lapse
• termination by operation of law
  (~either party dies/disabled)
  (~subject matter is destroyed)

Question 19

Ways an offer may be rejected:

Answer 19

• explicit rejection
• proposal of new offer
• counter offer; accepting offer on one condition

**asking for more information/clarification is NOT a legal rejection