Chapter 8 Flashcards
Insurance is..
protection against possible financial loss
definition of insurer or insurance company
risk sharing firm that assumes financial responsibility for losses for an insured risk
definition of “policy” in relation to insurer
a written contract of insurance that is purchased by the insured from the insurer; the insurer agrees to assume the risk for a premium
definition of premium
the amount of money a policy holder is charged for an insurance policy
insured definition
a person covered by an insurance policy
policy holder definition
a person who owns an insurance policy
risk definition
a risk is a change or uncertainty of loss/ the things that insurance companies offer protection against/
peril definition
the cause of a possible loss, such as fire, windstorms, robbery, disease or death / the event that causes someone to take out or purchase policies or insurance
hazard definition
a hazard is something that increases the likelihood of a loss, such as driving drunk, smoking in bed, or defective house wiring
personal risks definition
risk or chance surrounding loss of income or life due to premature death, illness, disability, old age, or unemployment
property risks definition
property risks are the uncertainties of direct or indirect losses to property due to fire, windstsorms, accidents, theft, etc.
liability risks definition
are possibilities due to negligence resulting in bodily harm or property damage to others
pure risk definition
personal risks, property risks, and liability risks, or insurable risk. These are all pure risk because there is a risk in which there is only a chance of loss only if the specified events occur. These are typically accidental and unintentional risks for financial cost, nature, or loss
speculative risk definition
the chance of loss or gain and are legally defined as uninsurable, such as starting a small business or gambling
4 ways to manage risk
risk avoidance
risk reduction
risk assumption
risk shifting
risk avoidance definition
means to avoid the chance of loss altogether/ high costs by giving up job or trade/
practical at the personal level/ at the business level , locks in stores.
risk reduction definition
means to reduce the chances of a loss occurring, or reducing the adverse effects of losses that do occur
ex) installing smoke alarms, wearing seatbelts, eating balanced diet and exercising
risk assumption definition
means taking on the responsibility for the loss or injury/ ex) self insurance
self insurance definition
example of risk assumption
- the process of establishing a monetary fund to cover the cost of a loss itself (it does not eliminate risk)
risk shifting definition
most common method of dealing with risk is to shift or transfer it to an insurance company/
