Chapter 1 Flashcards
Another term which means the same as insurance policy
Insurance Contract
Which of the following correctly identifies the most important principle(s) of insurance
Risk Pooling, Insurable Interest, and The Law of Large Numbers
Risk Pooling is best described by
Combining similar losses from many people so the average loss over the entire group remains relatively constant
In life and health insurance, a person’s greatest asset is
The law of large numbers
All of the following correctly describe risk pooling, except
Loss sharing spreads risk by sharing the possibility of loss over a small number of people
Which of the following terms means risk is spread by sharing the possibility of loss over a large number of people
Risk Pooling
Which of the following correctly describes the law of large numbers
It states that as a group’s size increases, it is easier to predict the number of future losses over a specific time period
Actuaries are characterized by all of the following, except
They are underwriters
Insurance is
A transfer of the uncertainty of loss from the insured to the insurance company
All of the following are classifications of pure risk, except
Speculative risks
What type of risk is flood
Fundamental
(fundamental risks involve an entire population or group of people and include risks that everyone may be susceptible to such as natural disasters)
Harry is a 45 year old widower and father of three children. He decides it is time to purchase life insurance to protect the financial livelihood of his children, especially during the child-rearing years. How would you characterize Harry’s risk of permature death?
Particular and financial
Which of the following statements is not false regarding exposure?
Exposure is the condition of being prone to loss because of an uncertain event
Insurable risks include
Pure
Only pure risks are insurable. Speculative and nonfinancial are not insurable
A premature death is a cause of loss, which is also known as a/an
Peril
A peril is the cause of loss
A peril is defined as
The cause of the loss and the event insured against
What is the difference between risk and loss
Risk is the potential of loss, whereas loss is the unintentional decrease in value of an asset due to peril.
Neil is a generally individual but worries about being hospitalized for a severe accident or injury, especially the costs associated with such a catastrophic medical loss. What is the best way for Neil to manage risk.
Purchase an insurance policy
Insurance is intended to…
Offset financial damage caused by loss
Mathematicians who analyze statistical risk information for insurance companies are called
Actuaries
List elements of insurable risk
Loss must occur by chance or accident
Large number of homogenous units
Loss must be predictable
What is not an example of an element of insurable risk
Exposure must not be chosen randomly
list legal hazards
suing a person without evidence of damage suffered
Health insurance policies with mandatory coverage for alcoholism
Health insurance policies with mandatory maternity coverage
What is not a legal hazard
Improperly stored toxic water7\4
