(A) General Insurance Principles

Question 1

HAZARDS

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Answer 1

Hazards are conditions or situations that increase the probability of an insured loss occuring.

Question 2

SPECULATIVE RISK

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Answer 2

Speculative Risk involves the opportunity for either loss or gain.

An example of speculative risk is gambling. These types of risks are not insurable.

Question 3

SUBROGATION

Answer 3

Subrogation is the insurer’s legal right to seek damages from third parties, after it has reimbursed the insured for the loss. Subrogation is based in the principle of indemnity by preventing the insured from collecting in the loss twice: once from the insurer and a second time from the party that caused the damage.

Question 4

WHAT ARE HAZARDS CLASSIFIED AS?

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Answer 4

1) Physical Hazards
2) Moral Hazards
3) Morale Hazards

Question 5

WHAT ARE MORALE HAZARDS?

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Answer 5

Morale hazard refers to an increased the hazard presented by a risk, arising from the insured’s indifference to loss because of the existence of insurance

(I’m not going to bother fixing this. If it breaks my insurance will pay to replace it)

Question 6

INSURANCE TRANSFERS

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Answer 6

The risk of loss from an individual or business entity to an insurance company.

Question 7

WHAT RISK INVOLVES THE OPPORTUNITY FOR LOSS OR GAIN?

CAN IT BE INSURED?
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Answer 7

Speculative Risk

No, this risk cannot be insured. Only Pure Risk can be insured which refers to situations that can only result in a loss or no change.

Question 8

PURE RISK

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Answer 8

Pure Risk refers to situations that can only result in a loss or no change.

There is no opportunity for financial gain.

Pure risk is the only type insurance companies are willing to accept.

Question 9

PERILS

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Answer 9

Perils are the causes of loss insured against in an insurance policy.

Question 10

WHAT IS THE ONLY TYPE OF RISK INSURANCE COMPANIES WILL ACCEPT?
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Answer 10

Pure Risk

Question 11

INSURABLE INTEREST

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Answer 11

In property and casualty insurance, insurable interest must exist at the time of the loss.

Question 12

WHAT ARE MORAL HAZARDS?

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Answer 12

Moral hazards refer to those applicants that may lie in an application for insurance, or in the past, have submitted fraudulent claims against an insurer.

Question 13

HOW MANY TYPES OF RISKS ARE THERE?

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Answer 13

Two types:

1) Pure Risk
2) Speculative Risk

Question 14

INDEMNITY

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Answer 14

Indemnity is a provision in an insurance policy that states that in he bent of a loss, an insured of a beneficiary is permitted to collect only to the extent of the financial loss and is not allowed to gain financially because of the existence of an insurance contract. The purpose of insurance is to restore, but not let an insured or a beneficiary profit from the loss.

(Example on Page 6)

Question 15

RISK

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Answer 15

Risk is the uncertainty or chance of a loss occurring.

Question 16

WHAT ARE PHYSICAL HAZARDS?

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Answer 16

Physical hazards are those arising from the material, structural, or operational features of the risk, apart from the persons owning or managing it.

Question 17

WHAT IN INDEMNITY SOMETIMES REFERRED AS?

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Answer 17

Reimbursement

Question 18

WHAT DO THESE INSURE AGAINST?

1) LIFE
2) HEALTH
3) PROPERTY
4) CASUALTY

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Answer 18

1) LIFE
- insures against the financial loss caused by the premature death of the insured.

2) HEALTH
- insures against the medical expenses and/or loss of income caused by the insured’ sickness or accidental injury

3) PROPERTY
- insures against the loss of physical property or the loss of its income producing abilities

4) CASUALTY
- insures against the loss and/or damage of property and resulting liabilities