Basic Insurance concepts

Question 1

Is a condition where the chance likelihood probability or potential for a loss exist or the uncertainty about loss exist whenever more than one outcome is possible

Answer 1

Risk

Question 2

Involves chance of loss gain or no change cannot be insured example is gambling

Answer 2

Speculative risk

Question 3

Involves the chance of loss only; there is no chance for gain. Pure risk is the only type of risk insurance companies are willing to accept

Answer 3

Pure risk

Question 4

Is a Reduction in the quality, quantity or value of something. Loss is the basis of a claim for damages under the terms of an insurance policy. Example is death Theft collision and disability or actual damages

Answer 4

Loss

Question 5

Is a potential cause of loss. Examples are fire, lightning, wind, smoke, soft, accidents

Answer 5

Peril

Question 6

Policy that list specific perils that are covered. If apparel is not needed in the policy no coverage applies. It is a specific risk

Answer 6

Named perils

Question 7

Policy that ensures all perils except those specifically excluded. Exclusions are usually listed More coverage but with a higher premium

Answer 7

All risk/open perils

Question 8

Can increase the likelihood, probability or severity of a loss incurring. Hazards typically can be avoided or removed to bring the risk into a safer position to be covered by insurance

Answer 8

Hazards

Question 9

What are the three types of hazards that can contribute to a loss

Answer 9

Physical, moral, morale

Question 10

A hazard which is material or structural and are easily seen example a broken step

Answer 10

Physical

Question 11

A hazard which arise from peoples habits that increase the possibility of loss example; intentionally setting a fire in order to collect insurance money purposely committing fraud

Answer 11

Moral

Question 12

A hazard which arises from attitudes of carelessness or indifference example failing to lock something containing valuables and not being concerned because the valuables are insured which could be an intentional

Answer 12

Morale

Question 13

Provision in an insurance contract that states the insured should be restored to the same financial or economic condition that existed prior to the loss example; restore to original value

Answer 13

Indemnity

Question 14

Any possibility of financial loss due to loss of use, damage or financial claim against you example; financial loss for self

Answer 14

Loss exposure

Question 15

The tendency to purchase and maintain insurance for risks with higher probability of loss more often than forest that present a lower probability of loss. Examples; flood insurance with the knowledge of it being a possibility

Answer 15

Adverse selection

Question 16

The insured must incurred a financial hardship if the property was damaged. And insurable interest must exist at the time of the loss. The purpose of insurance is to restore, not let an insured profit from the loss. Example; ownership which must exist at the time of loss.

Answer 16

Insurable interest

Question 17

Allows an insurer to recover the amount it has paid for a loss from the responsible third-party. Subrogation also prevents the insured from collecting twice for the same loss. Subrogation supports indemnity by allowing the insurance company the right to take over claims against any wrongful third-party for
Compensatory damages

Answer 17

Subrogation

Question 18

An act or event that is the immediate or actual cause of a loss. It is also known as an interrupt the chain of events. Example; wind blew in from an open window and knocked a candle over which caused a fire what is the cause of loss

Answer 18

Proximate cause

Question 19

What is the acronyms for risk management

Answer 19

R.R.A.T.S

Question 20

What do the acronyms for risk management stand for

Answer 20

Reduction, retention, avoidance, transfer, sharing

Question 21

Reduction

Answer 21

To reduce the probability or severity of loss . Example; sprinkler system

Question 22

Assuming the risk without transferring it to another party

Answer 22

Retention

Question 23

Choosing not to engage in a particular activity or on a particular piece of property to totally remove the risk. Example taking public transportation instead of driving to avoid accidents

Answer 23

Avoidance

Question 24

Shifting the risk to another party. Example; insurance transferring rest to insurance company

Answer 24

Transfer

Question 25

The premium of the money protecting the losses of the few. Example; Pooling 

Answer 25

Sharing

Question 26

That portion of a loss to be paid by the insured before recovery may be made. The purpose is to minimize small nuisance claims and keep premiums down and also encourages the insured’s interest in loss prevention

Answer 26

Deductible

Question 27

What are the key elements for essential elements of insurable risk

Answer 27

Lost must be definite indefinable
Los must be accidental
Insurer should be able to calculate the chance of loss
Law of large numbers should apply
Insurance must be offered at a reasonable price
Loss must not be catastrophic