Chapter 1

Question 1

What is a Producer/Agent?

Answer 1

A legal representative of an insurance company. Producer = agents and brokers; agents = agent of insurer

Question 2

What is Proposed Insured?

Answer 2

Person applying for insurance. The applicant.

Question 3

What is a Beneficiary?

Answer 3

A person who receives the benefits of an insurance policy

Question 4

What is a Broker?

Answer 4

An insurance producer that represents a client, not an insurance company

Question 5

What does Indemnity mean?

Answer 5

Insured can’t recover more than their loss

Question 6

What is an Insurance Policy?

Answer 6

Contract between policy owner (&/or) insured & insurance company agreed to pay insured or beneficiary for loss

Question 7

What does Insured mean?

Answer 7

Person covered by insurance

Question 8

What does Insurer/Principal mean?

Answer 8

Company who issues an insurance policy

Question 9

What does Law of large numbers mean?

Answer 9

The larger the number of people with similar exposure (AMOS) to loss , the more predictable actual loss will be

Question 10

What is a Policyowner?

Answer 10

The person entitled to exercise the rights and privileges in the policy

Question 11

What is Premium?

Answer 11

The money paid to the insurance company for the insurance company

Question 12

What is Reciprocity/Reciprocal?

Answer 12

A mutual interchange of rights and privileges

Question 13

What is insurance?

Answer 13

A transfer of risk loss from an individual or a business entity to an insurance company (spreads the loss to many Individuals)

Question 14

What is Risk?

Answer 14

The uncertainty or chance of loss occurring

Question 15

What are the two types of risk?

Answer 15

Pure risk or speculative risk

Question 16

What is a Pure risk?

Answer 16

Situations that can only result in a loss or no change (only type of risk that is incurable)

Question 17

What is a Speculative risk?

Answer 17

Opportunity for either loss or gain (a gamble, not insurable)

Question 18

What are hazards?

Answer 18

Conditions or situations that increase the probability of an insured loss (death)

Question 19

What are the 3 kinds of hazards?

Answer 19

Physical hazards, moral hazards, morale hazards

Question 20

What are physical hazards?

Answer 20

Characteristics that increase chance of loss. (Sickness, illness, injuries, smoking, slippery floors, etc)

Question 21

What are moral hazards?

Answer 21

Tendencies towards increased risk. (Lie on application, past insurance frauds, etc)

Question 22

What are morale hazards?

Answer 22

Arise from a state of mind that causes indifference to loss, like carelessness. (Don’t care about their lives or others)

Question 23

What are perils?

Answer 23

Causes of loss

Question 24

What is loss?

Answer 24

The reduction, decrease, or disappearance of value of the insured caused by a named peril

Question 25

Exposure

Answer 25

Unit of measure used to determine rates charged (AMOS)

Question 26

What is sharing?

Answer 26

Sharing is a method for dealing with risk for a group with same or similar exposure to loss to share those losses that occur

Question 27

What is the most effective way to handle risk?

Answer 27

Transfer it so it can be borne by another party

Question 28

What are the different classifications of insurers?

Answer 28

Ownership, mutual companies, fraternal associations, and risk purchasing groups

Question 29

What is a domestic insurer?

Answer 29

Insurance company that is incorporated in this state

Question 30

What is a foreign insurer?

Answer 30

An insurance company that is incorporated in another state

Question 31

What is an alien insurer?

Answer 31

An insurance company that is incorporated outside the United States

Question 33

What are the 2 ways of handling risks?

Answer 33

Transfer and avoidance

Question 34

What is avoidance?

Answer 34

eliminating exposure to a loss

Question 35

What is risk retention?

Answer 35

The planned assumption of risk by an insured through use of deductibles, co-payments, or self-insurance (taking action against risk)

Question 36

What is the purpose of retention?

Answer 36

Reduce expenses & improve cash flow. Increase control of claim reserving and settlements. To have funds for losses that can’t be insured.

Question 37

All are risks insurable?

Answer 37

No. Only pure risks are insurable. Speculative risks are not.

Question 38

What are adverse selections?

Answer 38

“Bad” selection. The insuring of risks that are more prone to losses.

Question 39

Who are stock companies owned by?

Answer 39

Stockholders

Question 40

What type of policies do stock companies issue?

Answer 40

Nonparticipating policies

Question 41

What are nonparticipating polices?

Answer 41

Policies in which policy owners do not share in profits or losses.