Chapter 2

Question 1

Define Indemnify

Answer 1

To provide compensation for loss or expenses incurred

Question 2

Define CONTRACT

Answer 2

An agreement or promise between two parties that is I tended to be legally enforceable and is constituted by the acceptance by one party of an offer made by another party, to do or to abstain from doing a specific act.
The offer and acceptance may either be expressed or inferred through the conduct of the parties

Question 3

Define AGENT

Answer 3

A person licensed and authorized or employed to act on behalf of another

Question 4

Define BROKER

Answer 4

A licensed independent person or firm who acts on behalf of an insured in placing business with insurance companies

Question 5

Define ADJUSTER

Answer 5

One who investigates insurance claims, makes recommendations regarding payment of benefits from insurance policies and negotiates payments and settlements

Question 6

Define INDEPENDENT ADJUSTER

Answer 6

One who adjusts losses on behalf of the insurance companies but is not employed by any one insurance company

Question 7

Define PUBLIC ADJUSTER

Answer 7

An insurance claims adjuster representing an insured on a fee basis in a claims settlement

Question 8

Give 3 examples of how an insurance company achieves spread of risk

Answer 8

Volume- insuring a large number of risks - the premiums of the many are pooled to pay for the losses of the few

Diversity of type of risk: if several types of risks are insured, the chance for underwriting profit increases because loss in one class of business may be offset by better than average profit in other classes

Diversity of location: the opposite profit increases with the greater number of locations insured

Question 9

Define aid to security

Answer 9

Insurance gives peace of mind by substituting a certain premium in place of an unknown loss payment.
Enhancing the feeling of security removing uncertainty allows for many actions that are critical to society- like property ownership or entrepreneurship

Question 10

What is aid to credit

Answer 10

Granters of credit want to protect their investment - it is virtually impossible to obtain credit without having insurance on the item concerned.
Mortgage- house insurance
New car- proof of insurance

Question 11

Define telematics

Answer 11

An interdisciplinary girl with telecommunications, vehicular tech, road safety, road transportation and electrical engineering like gps internet - provides safe driving discounts

Question 12

Define unearned premium

Answer 12

The part of the premium that has not been used or earned or premium representing the unexpired portion of the policy

Question 13

Define earned premium

Answer 13

The portion of premium earned or charged for the period of time a policy remained effective.
An amount calculated by taking earned premium reserve at the beginning of the period plus the premium written during the period minus the unearned premium reserve at the of the period
Premium actually exposed to loss

Question 14

Define unearned premium reserve

Answer 14

A reserve fund of an insurance company or reinsurance company representing the unearned premiums

Question 15

Insurance business is divided into two basic categories- what are they?

Answer 15

Life/Health Insurance

General Insurance

Question 16

General Insurance is also known as:

Answer 16

Property and casualty insurance

Question 17

What is property insurance

Answer 17

First party insurance that indemnifies the owner or user for its loss or it’s loss of income producing ability when the loss is caused by a coveted peril (such as fire or explosion)

Question 18

Define casualty insurance

Answer 18

The area of insurance not particularly or directly concerned with life insurance or automobile insurance.
Most frequently refers to liability, burglary and plate glass insurance but also fidelity and surety

Question 19

List 5 types of general insurance

Answer 19

Accident- provides benefits for loss as a result if bodily injury

Auto- combining liability to 3rd parties, bodily injury benefits to insureds as defined by the policy and damage to the insured auto

Aviation- covers aircrafts of all types as well as liability associated with operation of aircraft, airstrips and airfields.

Business interruption/ covers loss of income while insured property is being rebuilt or business is being restored after a loss

Casualty- not particularly or directly concerned with life or fire insurance. Particularly bodily and personal injury, crime insurance, robbery, burglary, surety bonding

Cyber- covers liability for damages arising from a cyber attack

Fire- covers losses resulting from fire, lightning and limited explosions

Question 20

What does real property I suranné cover?

Answer 20

Covers instrumentalities of transportation and communication

Dams, wharves, power transmission lines, pipelines, bridges

Question 21

What does personal articles and personal effects floaters cover?

Answer 21

Jewelry, fine art, silverware, computer equipment, sports equipment, firearms

Question 22

What does liability coverage include?

Answer 22

Entire spectrum from personal liability to liability resulting from ownership of premises, operations, products, rendering of professional services, libel, slander.
Virtually any situation where one individual might hold another person responsible for their action or lack of action that resulted in an injury or damage to that individual or that person’s property

Question 23

What are the five secondary functions of insurance

Answer 23

Aiding security
Aiding credit 
Promoting loss prevention
Providing capital
Providing employment

Question 24

What is source of capital?

Answer 24

Capital is money or assets of value- the resource an organization uses to accomplish its goals.
For insurers capital is the value of the company (its shares), the physical property and the premiums it collects
Insurance companies invest large amounts of this money in to the Canadian economy in bonds, stocks, properties (for their own use)

Question 25

What is the primary function of insurance

Answer 25

It is to spread risk by sharing the losses of the few among the policy holders who pay premiums.

Question 26

How do components of insurance model work to spread the risk

Answer 26

Insurance works by collecting financial contributions (premiums) from all members and then using that pool of money to pay funds to the few who suffer certain identified losses. The pool is managed by the insurer.
This approach makes affordable protection available to everyone in the group and allows for exchange of unpredictable and potentially devastating financial loss for a known manageable premium payment