General Insurance

Question 1

Define Insurance:

Answer 1

A contract in which one party (the insurance company) agrees to indemnify (make whole) the insured party against loss, damage, or liability arising from an unknown event.

Question 2

Define Risk:

Answer 2

The uncertainty or chance of a loss occurring.

Question 3

Two types of risk?

Answer 3

Pure and Speculative

Question 4

Define Pure Risk:

Answer 4

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

Question 5

What type of insurance are companies willing to accept?

Answer 5

Pure Risk

Question 6

Define Speculative Risk:

Answer 6

Involves the opportunity for either loss or gain. These types of risks are not insurable.

Question 7

Example of Speculative Risk

Answer 7

Gambling

Question 8

What type of risk is not insurable?

Answer 8

Speculative Risk

Question 9

What is a Peril?

Answer 9

Causes of loss insured against in an insurance policy.

Question 10

Life Insurance insures against:

Answer 10

The finance loss caused by the premature death of the insured.

Question 11

Health Insurance insures against:

Answer 11

The medical expenses and/or loss of income caused by the insured’s sickness or accidental injury.

Question 12

Property Insurance insures against:

Answer 12

The loss of physical property or the loss of its income-producing abilities.

Question 13

Casualty Insurance insures against:

Answer 13

The loss and/or damage of property and resulting liabilities.

Question 14

Due to Chance:

Answer 14

A loss that is outside the insured’s control.

Question 15

Definite and Measurable:

Answer 15

A loss that is specific as to the cause, time, place, and amount. An insurer must be able to determine how much the benefit will be and when it becomes payable

Question 16

Statistically Predictable:

Answer 16

Insurers must be able to estimate the average frequency and severity of future losses and set appropriate premium rates. (In life and health insurance, the use of mortality tables and morbidity tables allows the insurer to project losses based on statistics.)

Question 17

Not Catastrophic:

Answer 17

Insures need to be reasonably certain their losses will not exceed specific limits. That is why insurance policies usually exclude coverage for loss caused by war or nuclear events: There is no statistical date that allows for the development of rates that would be necessary to cover losses from events of this nature.

Question 18

Randomly selected and large loss exposure:

Answer 18

There must be a sufficiently large pool of the insured that represents a random selection of risks in terms of age, gender, occupation, health, and economic status, and geographic location.

Question 19

Major difference between government and private insurance?

Answer 19

Government programs are funded with taxes and serve national and state social purposes, while private policies are funded by premiums.

Question 20

Most common types of ownership:

Answer 20

Stock Companies, Mutual Companies, and Fraternal Benefit Societies.

Question 21

Stock Companies:

Answer 21

Owned by stockholders who provide the capital necessary to establish and operate the insurance company and who share in any profits or losses.

Traditionally, stock companies issue nonparticipating policies, in which policyowners do not share in profits or losses.

**A nonparticipating (stock) policy does not pay dividends to policyowners; however, taxable dividends are paid to stockholders.

Question 22

Mutual Companies:

Answer 22

Owned by policyowners and issue participating policies. Policyowners are entitles to dividends, which, in the case of mutual companies, are a return of excess premiums and are therefore nontaxable. Dividends are generated when the premiums and the earnings combined exceed the actual costs of providing coverage, creating a surplus. Dividends are not guaranteed.

Question 23

Fraternal Benefit Societies:

Answer 23

Organization formed to provide insurance benefits for members of affiliated lodge, religious organization, or fraternal organization with a representative form of government.

Fraternals sell only to their members are considered charitable institutions, and not insurers.

**They are not subject to all of the regulations that apply to the insurers that offer coverage to the public at large.

Question 24

Ended on 2. Admitted vs. Non-admitted Insurers

Answer 24

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