Chapter 1

Question 1

The action of compensating an insured following a loss under the insurance policy

Answer 1

Indemnify

Question 2

The danger or chance or financial loss ocurring

Answer 2

Risk

Question 3

The cause of loss. Fire, burglary, and wind

Answer 3

Peril

Question 4

The item that is insured or covered in insurance policy.

Automobiles, buildings, contractor’s equipment are all examples

Answer 4

Object of Insurance

Question 5

The contractual obligation by one party (the insurer) to make good the losses suffered by another (the insured) by putting the insured back in the same financial position they were in at the time the loss occurred.

Answer 5

Imdemnity

Question 6

The person who purchased an insurance policy and who compensates or indemnifies a policyholder in the event of a loss. Noted as the second party. —— doouble check this

Answer 6

Insured or Policy Holder

Question 7

The insurance company who issues the insurance policy and who compensated or imdemnifies a policyholder in the event of a loss. Noted as the second party

Answer 7

Insurer

Question 8

The sum of money paid by a person to an insurance company in exchange for an insurance policy

Answer 8

Premium

Question 9

The basic rule of insurance. It states that policyholders receive the actual amount of their loss — no more and no less. To pay more than the loss would enable to people to profit; to pay less would result in an incomplete indemnity

Answer 9

Principle of Indemnity

Question 10

• Independent Insurance in Ontario
  -governed by the RIB act
• provide independent advice and sell general insurance products from a variety of insurance companies.
• represent their client’s best interest when negotiating a contract between the client and the insurance company.
• has two or more insurance companies contracted with their brokerage, can offer more insurance choices to the public.

Answer 10

Registered Insurance Broker

Question 11

Involves any insurance product other than life or health insurance

also referred to as property and casualty (P&C) insurance.

Answer 11

General insurance

Question 12

includes coverage for homes, condominiums, business assets, farms, automobiles, contractor’s equipment, watercraft and more.

Answer 12

Property Insurance

Question 13

refers to third-party liability coverage for a loss, where a policyholder is legally responsible for having caused injury to another or damage to the other person’s property.

Answer 13

Casualty Insurance

Question 14

People are their own greatest asset. Financial loss will almost always accompany the loss of one’s health or life

Answer 14

Personal risk

Question 15

Financial loss occurs when owned property is lost or damaged.

For example, if someone’s business severely damaged in a fire, the financial impact is twofold: They would be faced with (1) The cost of repairing or replacing the property and (2) the loss of business incomes resulting from the interruption to the business

Answer 15

Property risk

Question 16

when a person’s negligent actions result in injury to others are damage to another’s property, the law generally provides that they be held financially responsible

Answer 16

Liability Risk

Question 17

The possibility of either financial loss or gain.

example : gambling, a person gambling could either win a lot of money or lose the money, neither of which are foreseeable nor within their control.

new business - potential success or failure.

Answer 17

Speculative Risk

Question 18

This is the chance of financial loss with no chance of financial gain.

When there is no chance for a person or business to profit from a loss. The risk is pure. Therefore, it is in the interest of society to offer support, in the form of insurance, to protect this venture or item.

Answer 18

Pure Risk

Question 19

Is any condition the increases the risk or amount of damage

Answer 19

Hazard

Question 20

These are observable conditions relating to the object of insurance.

example: Machine shop.

this hazard would include the building itself, as well as its construction, age, and condition.

Answer 20

Physical Hazards

Question 21

Characteristics of an insured. or an applicant for insurance, that increase the likelihood of a loss to occur.

for instance, people experiencing financial difficulty are viewed as more likely to commit insurance fraud than those who are not. also, people who are dishonest and intentionally provide false or incomplete information about the property or activity they wish to insure.

Answer 21

Moral hazards

Question 22

The only way to totally prevent a loss from happening is to avoid the risk completely.

Answer 22

Eliminating Risk

Question 23

Taking measures to decrease the chance of loss occurring, or to reduce the severity of any losses that do happen.

ex. taking a new-driver training course
installing a security alarm

Answer 23

Controlling Risk

Question 24

Self-insurance.

example. companies may request a very high deductible or simply not purchase insurance on some or all buildings, stock or equipment. Instead, there organizations self-insurance any losses that occur. The cost of doing so is factored into their budget and amortized over several years.

Answer 24

Retaining Risk

Question 25

is the most common and practical means of dealing with risk. In exchange of the premium paid by the insured, the insurer will pay the cost of losses incurred. subject to the terms of the policy.

another method of this is by contractual agreement. For instance, in a lease agreement, a building owner may make its tenants legally responsible for damage to the building caused by the tenant.

Answer 25

Transferring Risk

Question 26

is a form of an insurance that can be purchased by an insurance company to limit the amount of loss it might experience at any one time.

Purchase of this is a part of the process of sharing or spreading risks.

Answer 26

Reinsurance

Question 27

Used when the primary insurer contracts individuals risk separately to a reinsurer.

Example : to be able to write a policy for a large manufacturing plant, the underwriter can ceded the portion of the risk to reinsurer

Answer 27

Facultative Reinsurance

Question 28

Five Functions of Insurance

Answer 28

Spread of Risk
Basis Of Credit System
Eliminating Worry, Encouraing of Entrepeneurship
Loss of Prevention and Reduction
Source of Investiment Capital and Employment

Question 29

Primary Insurer contracts annually to move risks a portion or percentage to its portfolio to a reinsurance

example: a portion all homeowners policies it writes

Answer 29

Treaty Insurance

Question 30

The amount of money a policyholder pays out of a pocket to cover the first portion of a loss before the insurance begins to cover the balance

Answer 30

Deductible