Chapter 1

Question 1

This is a type of legal contract?

Answer 1

Insurance Policy

Question 2

Uncertainty, possibility of loss

Answer 2

Risk

Question 3

This is a contract that transfers the risk of financial loss from an individual or business to an insurance company

Answer 3

Insurance

Question 4

T/F - Insurance is designed to cover only losses that involve risk?

Answer 4

T

Question 5

This type of risk has a possibility of a loss and also the possibility of a gain, not insurable. Gambling is an example.

Answer 5

Speculative Risk

Question 6

This type of risk only involves the possibility of experiencing a loss, not gain. A car accident is an example. Insurance companies will insure.

Answer 6

Pure Risk

Question 7

The potential for accidents and other losses is called?

Answer 7

Exposure

Question 8

The cause of a loss is called a ?

For example House Burns down…____ is the fire

Answer 8

Peril

Question 9

The unintended, unforeseen damage to property, injury, or amount paid is?

Answer 9

Loss

Question 10

This type of loss is physical loss to property with no intervening cause. i.e…Lighning striking a house or car hitting a tree

Answer 10

Direct Loss

Question 11

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.

Answer 11

Indirect Loss

Question 12

This is anything that increases the chance that a loss will occur.

Answer 12

Hazard

Question 13

3 Types of Hazard

Answer 13

physical, moral, morale

Question 14

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

Answer 14

Physical

Question 15

This hazard arises from an individuals character

Answer 15

Moral

Question 16

This type of hazard is a state of mind or careless attitude

Answer 16

Morale

Question 17

5 Methods of Handling Risk - STARR

Answer 17

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.

Question 18

Parties to an Insurance Contract

Answer 18

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.