chapter 1

Question 1

What is insurance?

Answer 1

The transfer of risk

Question 2

Types of risk: pure vs speculative

Answer 2

pure - Only loss could be had

speculative - could have a loss, but could have a gain. (Could never be insured)

Question 3

Hazards: physical hazard, moral hazards, morale hazards

Answer 3

Physical - ex. been smoking since age 16.
Moral hazard - Someone is lying on the application
Morale hazard - someone not taking caution because they know that if something happens they can just say “whatever I have insurance”

Question 4

What is a peril?

Answer 4

The cause of a loss.

Question 5

Property claim vs casualty claim

Answer 5

Property - A claim I am making for my own car, house, etc etc
Casualty - A claim that I am making to pay for someone elses stuff

Question 6

Indemnity

Answer 6

This is the action of being reimbursed. It replaces what was lost, not give them more than what they previously had

Question 7

5 elements that make up insurable risk

Answer 7

1. ) Risk has to be due to chance (not intentional)
2. ) Risk needs to be defintite and measurable
3. ) Statistically predictable
4. ) Risk cannot be catastrophic
5. ) randomly selected

Question 8

Law of large numbers

Answer 8

The larger the number of people in a group, the more predictable an outcome can be

Question 9

direct loss vs indirect loss

Answer 9

Direct loss - you have lost your home

Indirect loss - you now have no where to go (new expenses and stuff)

Question 10

vacant vs unoccupied

Answer 10

vacant - nothing is there. no people or possessions (most policies will say that if the dwelling is vacant for over 60 days it will void the contract)
unoccupancy - The property is still in the house. But the human isn’t

Question 11

Underwriting

Answer 11

Basically decides how risky you are which determines what your rates are

Question 12

Loss ratio

Answer 12

(incurred losses + Adjusting expenses) / Earned premium = Loss ratio

Question 13

Subrogation

Answer 13

Insurer’s legal right to go out and find a third party that wrecked our noobs vehicle. They did something wrong to our noob and then they ran away (hit and run). Subrogation is saying that we can go find that fucker and sue them

Question 14

Loss valuation methods (5)

Answer 14

1. ) Replacement cost
2. ) Actual cash Value
3. ) Functional replacement - Super rare fire place example
4. ) Market Value
5. ) Agreed Value (artwork or stuff that fluxuates in value or is difficult to determine value of)
6. ) State value (Whatever is stated on policy)

Question 15

Elements of Negligence (4)

Answer 15

Legal duty
Standard of Care
Proximate cause
Actual loss or damage

Question 16

Legal duty

Answer 16

The duty to act or not to act (If it snows you gotta shovel da damn driveway)

Question 17

Standard of Care

Answer 17

Defendant used standard of care that breached legal duty

Question 18

Proximate causee

Answer 18

Unbroken chain of events that caused damage

Question 19

Actual loss or damage

Answer 19

The physical loss or damage

Question 20

2 types of negligence

Answer 20

1. contributory (The defendant nothing wrong and is free of fault)
2. Comparative (The fault is shared between each party)

Question 21

Absolute liability

Answer 21

Obviously hazardess activites - The defendant does not need to prove negligence

Question 22

Strict liability

Answer 22

Product liability. liable for defective parts regardless of fault or negligence

Question 23

Vicarious liability

Answer 23

If you have kids and your kid F’s up. You are responsible

Question 24

3 limits of liability (max amount Farmers would pay)

Answer 24

1. ) Single (usually on homes)
2. ) Split (more common for cars)
3. ) Aggregate