Chapter 1 Flashcards
This is a type of legal contract?
Insurance Policy
Uncertainty, possibility of loss
Risk
This is a contract that transfers the risk of financial loss from an individual or business to an insurance company
Insurance
T/F - Insurance is designed to cover only losses that involve risk?
T
This type of risk has a possibility of a loss and also the possibility of a gain, not insurable. Gambling is an example.
Speculative Risk
This type of risk only involves the possibility of experiencing a loss, not gain. A car accident is an example. Insurance companies will insure.
Pure Risk
The potential for accidents and other losses is called?
Exposure
The cause of a loss is called a ?
For example House Burns down…____ is the fire
Peril
The unintended, unforeseen damage to property, injury, or amount paid is?
Loss
This type of loss is physical loss to property with no intervening cause. i.e…Lighning striking a house or car hitting a tree
Direct Loss
This type of loss is a consequential loss as a result from the direct loss. i.e…rental income due to a house fire, which would cause a loss of profits to the landlord.
Indirect Loss
This is anything that increases the chance that a loss will occur.
Hazard
3 Types of Hazard
physical, moral, morale
This type of hazard is physically identifiable factors that increase chance of loss…tires with no tread are slick, a dead tree in a yard possibly falling on a house
Physical
This hazard arises from an individuals character
Moral
This type of hazard is a state of mind or careless attitude
Morale
5 Methods of Handling Risk - STARR
Sharing - 2 or more individuals or businesses agree to pay a portion of any loss incurred by the group. Stockholders share the risk
Transfer - Buying Insurance
Avoidance - eliminating risk…a person that does not drive far
Retention - The individual will pay a portion of the loss via deductible
Reduction - Lessening the chance a loss will occur…installing sprinkler system as an example.
Parties to an Insurance Contract
1st Party - Insured
2nd Party - Insurer
This legally enforceable contract defines the limits of coverage provided to the insured and the risk of loss are transferred, and it identifies under what circumstances the insurer will pay for a loss.
