1A

Question 1

Risk

Answer 1

chance or uncertainty of loss

Question 2

Exposure

Answer 2

term used to identify risk

ie. someone’s poor driving habits, Acts of God, wind, lightning

Question 3

Pure Risk

Answer 3

provides the potential for loss only. Only PURE RISK can be insured

Question 4

Speculative Risk

Answer 4

may involve the potential for gain as well as loss, i.e. insuring against gambling or business profits

Question 5

Indemnification

Answer 5

to restore to the same financial condition after a loss

Question 6

Elements of an Insurable Risk

Answer 6

1. must be nexpected and unintended
2. definite as to time and place (to prevent fraud)
3. calculable
4. create financial hardship
5. cost of insurance must be affordable

Question 7

Methods of handling risk

Answer 7

1. avoidance (don’t ride in vehicle)
2. retention (deductible)
3. sharing (health insurance)
4. reduction (healthy lifestyle)
5. transfer (insurance policy)

Question 8

Law of Large Numbers

Answer 8

the larger the group in the study, the more accurate the prediction of future losses

Question 9

Actuary

Answer 9

perform statistical analysis of historical data

Question 10

Homogenous

Answer 10

like in nature, similar exposure to los

Question 11

Insurance

Answer 11

is a social device for spreading the chance for financial loss among large groups

Question 12

Peril

Answer 12

cause of a loss (ie. fire and lighting)

Question 13

Hazard

Answer 13

hazards increase the likelihood that a peril will occur (driving recklessly, skydiving)

Question 14

3 Types of Hazards

Answer 14

Physical
Morale
Moral

Question 15

Physical Hazard

Answer 15

exists bc of your relationship w an object (loose stair rail, untied shoelace)

Question 16

Morale Hazard

Answer 16

individual’s indifference or carelessness (more-ale = stupidity)

Question 17

Moral Hazard

Answer 17

deliberately causing a loss to collect (character flaw, knowlingly)

Question 18

Adverse Selection

Answer 18

tendency of more poor risks to seek insurance than good risks resulting in higher claims experience

Question 19

Property Insurance

Answer 19

covers the risk of loss to property, real and personal

Question 20

Casualty Insurance

Answer 20

protection against liability claims (auto, general liability, crime)

Question 21

Domicile

Answer 21

state under the laws of which the insurer was formed

Question 22

Domestic

Answer 22

in the state

Question 23

Foreign

Answer 23

another state

Question 24

Alien

Answer 24

another country

Question 25

Insurance Producer

Answer 25

licensed to negotiate, sell or solicit insurance

Question 26

Insurance Producer License

Answer 26

owned by the state

Question 27

Reinsurance

Answer 27

ceding insurer (originating insurer) procures insurance for itself from another insurer, called the “assuming”

Question 28

Limited Class Insurance

Answer 28

credit, mortgage, auto dealer physical damage (ie. car rental, trip cancellation)