Chapter 2 - Insurance And Risk Flashcards

1
Q

Adverse Selection

A

The tendency of persons with a higher chance of loss to seek insurance at standard rates, which if not controlled by underwriting, results in higher-than-expected loss levels.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Casualty Insurance

A

A broad field of insurance that covers whatever is not covered by fire, marine, and life insurance; casualty lines include auto, liability, burglary and theft, workers compensation, and health insurance.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Commercial Lines

A

Property and Casualty coverage for business firms, non-profit organizations, and government agencies.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Expense Loading

A

The cost of doing business that’s added to the pure premium.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What expenses are commonly covered by Expense Loading? (5)

A
Commissions
General administrative 
State Premium Taxes
Acquisition expenses
Contingency and Profit allowance
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Fidelity Bonds

A

Cover loss caused by dishonest or fraudulent acts of employees.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Fortuitous Loss

A

A loss that is unforeseen and unexpected by the insured and occurs as a result of chance.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Indemnification

A

The insured is restored to their approximate financial position prior to the loss occurring.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Inland Marine Insurance

A

Coverage for goods being shipped on land, including commercial and personal property.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What are the commercial products covered by inland marine insurance?

A

Imports
Exports
Domestic shipments
Instrumentalities of transportation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Insurance

A

The pooling of fortuitous losses by transferring risks to insurers.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

The three agreements of insurance companies are:

From Insurance definition

A

Indemnify insured for loss
Provide pecuniary benefits
Render services connected with the risk insured against

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Law of Large Numbers

A

The greater the number of exposures, the more closely the actual results approach the probable results (using an infinite number of exposures)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Liability Insurance

A

Coverage of the insured’s legal liability arising out of property damage or bodily injury to others.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Life Insurance

A

Insurance to pay death benefits to designated beneficiaries when the insured dies.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Ocean Marine Insurance

A

Coverage for ocean-going vessels and their cargo from loss or damage because of perils of the sea. Also covers legal liability.

17
Q

Personal Lines

A

Coverages that insure the real estate and personal property of individuals and families or provide them with protection against legal liability.

18
Q

Pooling

A

The spreading of losses incurred by the few over the entire group, so that in the process, average loss is substituted for actual loss.

19
Q

Property Insurance

A

Indemnifies property owners against the loss or damage of real or personal property caused by various perils.

20
Q

Reinsurance

A

An arrangement when the primary insurer that initially writes the insurance transfers to another insurer part or all of the potential losses associated with such insurance.

21
Q

What are the six requirements of an insurable risk?

A
Large number of exposure units
Accidental and unintentional loss
Determinable and measurable loss
No catastrophic loss (for the insurer)
Statistically significant (calculate the chance of loss)
Economically feasible premium
22
Q

Risk transfer

A

A pure risk is transferred from the insured to the insurer, who is typically is in a strong financial position to pay the loss of the insured.

23
Q

Social Insurance

A

Government insurance programs with certain characteristics that distinguish them from other government insurance plans

24
Q

The seven major social insurance programs in the United States are:

A
Social security
Medicare
Unemployment Insurance 
Workers Comp
Temporary Disability 
Railroad retirement act
Railroad unemployment insurance act
25
Surety Bonds
Bonds that provide monetary compensation in the case of failure by bonded persons to perform certain acts
26
Underwriting
The process of selecting and classifying applicants for insurance