Ch. 5 Flashcards
The personal risk management process involves…3
1 identifying
2 evaluating
3 managing pure risk exposures faced by client
First 3 steps of the 7 step risk management process
1 determine objectives of risk management program
2 identify clients risk exposure
3 evaluate risk for probability of occurrence and severity of loss
Last 4 steps of 7 step risk management process
4 determine alternatives for managing risk
5 select alternatives for each risk
6 implement risk management selected recommendations
7 periodically review risk management program
4 responses for managing risk
1 risk avoidance
2 risk reduction
3 risk retention
4 risk transfer
Risk avoidance
Avoiding an activity
Risk reduction
Implementing activities that result in reduction of frequency and severity of losses
Risk retention
Personally retaining the potential for a loss exposure
Risk transfer
Shifting risk of loss through means such as insurance or warranty
Peril
Proximate or actual cause of loss
Common perils include….3
1 accidental death
2 disability caused by sickness or accident
3 property losses caused by fire, windstorm, tornado, earthquake, burglary or collision
3 main types of hazard
1 physical hazard
2 moral hazard
3 morale hazard
Physical hazard
Tangible condition or circumstance that increases the probability of peril occuring
Moral hazard
Character flaw or level of dishonesty person possesses that increases chance of loss
Morale hazard
Indifference to losses based on existence of insurance
Some unique characteristics of insurance contract include:
Unilateral
Only insurer is making promise
Some unique characteristics of insurance contract include:
Aleatory
What is paid in by insured and paid out by insurer may not be equal amounts
Some unique characteristics of insurance contract include:
Adhesive
Insured had no opportunity to negotiate terms, thus ambiguities are charged to insurer
Some unique characteristics of insurance contract include:
Utmost good faith
The insurance applicant is truthful in disclosure of pertinent material facts and insurer discloses critical contract information
Some unique characteristics of insurance contract include:
It is a contract based on the principal of indemnity
Insured cannot make profit from a claim on insurance
3 methods of determiNing life insurance needs are…
1 human life value method
2 financial needs method
3 capitalization of earnings method
Human life value method
Method uses projected future earnings as the basis for measuring life insurance needs
Financial needs method
Method evaluates income replacement and lump sum needs of the survivors in the event of the insureds untimely death
Capitalization of earnings method
Method measures the client’s gross income divided by the risk less rate of return to arrive at life insurance needed
Term life insurance characteristics….3
1 can be renewed annually
2 cheaper than permanent life insurance
3 premiums increase as person ages
Own occupation disability coverage is determined by whether or not the…
Insured can carry out the duties of employment
If the insured cannot carry out each and every of his usual duties the he may…
Qualify for disability benefits
The any occupation disability coverage is triggered if the insured…
Cannot work in any occupation for which he is qualified by education, training or experience
Homeowners insurance policy is a package that covers…5
1 dwelling 2 dwelling extensions 3 personal property 4 loss of use 5 medical payments for others
Personal automobile policy (PAP)
Protects against loss for liability and for property losses including comprehensive and collision
5 parts of PAP
1 liability coverage 2 medical coverage pmts 3 uninsured motorist coverage 4 collision property damage coverage 5 list of duties of insured
Personal liability insurance PLUP
Provide excess liability for catastrophic loss in the millions
Noncancelable insurance ensures that the insurance will…
Not be canceled and premiums will remain fixed for the term of the policy
Guaranteed renewable insurance obligates the insurer to…
Continue coverage as long as premiums are paid on the policy
Injury to another is considered a…
Liability risk
Selling a jet ski is an example of…
Risk avoidance
Which of the following measures is appropriate for a risk that has a low frequency of occurrence and a high severity?
Transfer/share risk
Risks can be insured even if they are not measurable or determinable…this statement is
False
The dependency method is…
Not a valid method for determining life insurance needs
In a disability policy the time between the disability event and the point at which benefits under the contract begin is known as…
Elimination period
Insurance as a contract is adhesive meaning
The insured had no opportunities to negotiate terms
Slippery roads after a rainstorm are an example of…
Physical hazard
Term life insurance is considered…
Pure insurance
Which part of personal automobile policy PAP addresses uninsured or under insured motorists?
Part C
