General Insurance

Question 1

What is life insurance?

Answer 1

Life insurance is a contract that Indemnifies (restores value) a party that suffers loss.

Question 2

What is risk?

Answer 2

Risk is the chance of loss

Question 3

What are 2 types of risk

Answer 3

1. Pure: no opportunity for gain (death, car crash, house fire) - insurable
2. Speculative: a risk with a possibility for gain (gambling, stock market) - not insurable

Question 4

Name the methods of handling risk

Answer 4

S.T.A.R.R.

Share, transfer, avoid, retention, reduction

Question 5

What are the elements of insurable risk?

Answer 5

1. Chance (out of your control)
2. Definite and measurable (cause, time, place, amount)
3. Statically predictable (average frequency and severity of loss)
4. Not catastrophic ( not war related)
5. Randomly selected and large loss exposure (spread risk among different types of ppl in different walks of life)

Question 6

What is the law of large numbers?

Answer 6

Loss becomes more predictable when dealing with a larger number of people. THE larger the number, the better the prediction.

Question 7

Adverse selection

Answer 7

People who present a high risk of loss for insurance companies. (Refuse, restrict, charge more)