Exam FX

Question 1

Depreciation

Answer 1

Reduction in value particularly due to wear and tear

Question 2

Exposure

Answer 2

Susceptibility to risk

Question 3

Implied Warranty

Answer 3

A legal term meaning that a product is suitable for its intended purposes and to fit an ordinary buyer’s expectations.

Question 4

Insurance Policy

Answer 4

A contract between a policy owner and an insurance company which agrees to pay the insured for loss caused by specific events.

Question 5

Insurer (principal)

Answer 5

The company who issues an insurance policy

Question 6

Obsolescence

Answer 6

Depreciation in value due to becoming outdated

Question 7

Premium

Answer 7

The money paid to the insurance company for the insurance policy

Question 8

Insurance

Answer 8

The transfer of risk of loss.

The cost of an insured’s loss is transferred over to the insurer and spread among other insureds.

Question 9

The law of large numbers

Answer 9

The larger the number of people with similar exposure to loss, the more predictable loss will be.

Question 10

As the number of people in a risk pool increases, future losses become more _____________.

Answer 10

Predictable

Question 11

What do individuals use to transfer their risk of loss to a larger group?

Answer 11

Insurance

Question 12

Insurable interest

Answer 12

A type of investment that protects a person or property that is subject to financial loss.

Question 13

In property and casualty, when should an Insurable interest must exist?

Answer 13

At the time of a loss.

Question 14

Insurable risk

Answer 14

A risk that an insurance will cover

Question 15

What are three elements of insurable risks?

Answer 15

1. Financial ( a monetary interest)
2. Blood (a relative)
3. Business ( a business partner)

Question 16

Risk

Answer 16

The chance of of loss occurring.

Question 17

What are the two types of risks?

Answer 17

1. Pure risk

2. Speculative risk

Question 18

Pure risk

Answer 18

A situation that can only result in a loss or no change. No opportunity for financial gain.

Question 19

Speculative risk

Answer 19

Involves the opportunity for either loss or gain. Not an insurable risk.

Question 20

What is the ONLY type of risk that is insurable?

Answer 20

Pure risks

Question 21

Peril

Answer 21

A specific cause of loss.

Question 22

Hazards

Answer 22

Conditions or situations that increase the probability of loss occurring.

Question 23

What are the 3 types of classified hazards?

Answer 23

Physical hazards

Moral hazards

Morale hazards

Question 24

Physical Hazard

Answer 24

Hazards arising from the material, structural, or operational features of the risks.

Question 25

Moral Hazards

Answer 25

Hazards that refer to applicants who may lie on on an application for insurance. Or the submission of fraudulent claims against an insurer.

Question 26

Morale Hazards

Answer 26

Hazards that increase by a risk, arising from an insured’s indifference to loss because of the existence of insurance.

Question 27

Loss

Answer 27

The reduction, decrease, or disappearance of value of the insured or property in a policy, caused by a peril.

Question 28

Indemnity is also know as ____________________.

Answer 28

Reimbursement

Question 29

Indemnity

Answer 29

A provision in an insurance policy that states in the case of loss, an insured is permitted to collect only to the extent of the financial loss, and its not allowed to gain financially because of the existence of an insurance contract.

Question 30

Subrogation

Answer 30

The insurer’s legal right to seek damages from third parties, prevents the person insured from collecting on the loss twice.

Question 31

Subrogation is based on the principle of __________________.

Answer 31

Indemnity

Question 32

Accident

Answer 32

Sudden, unplanned, and unexpected event not in control of the insured. Results in injury or damage that is not expected or intended.

Question 33

Occurrence

Answer 33

Broad definition of loss because it includes those losses caused by continuous or repeated exposure to conditions resulting in injury or person or damage to property that is neither intended or expected.

Question 34

What are the two types of property losses a business or individual can suffer?

Answer 34

1. Direct Loss

2. Indirect Loss

Question 35

Direct loss

Answer 35

Direct physical damage to buildings and /or personal property .

Question 36

Property insurance only covers ________________ losses.

Answer 36

Direct

Question 37

Proximate cause

Answer 37

Other damage(s) caused by a specific peril that are covered because they are the proximate cause of loss.

Question 38

Indirect causes are also known as ___________________?

Answer 38

Consequential losses

Question 39

Indirect losses (aka consequential losses)

Answer 39

Losses caused by as a result of a direct loss.

Question 40

Named peril

Answer 40

provides coverage only for those perils listed in an insurance policy.

Question 41

Open perils

Answer 41

Provides insurance coverage for any reason risk of loss that is not specifically excluded

Question 42

What are the two forms of damage?

Answer 42

1) Property damage

2) Bodily injury

Question 43

How is extent of loss, determined in property damage?

Answer 43

It is determined by the the actual monetary loss in the injured party suffered, which is measured by the value of the damaged property and the loss of use of that asset.