General Insurance

Question 1

Agent/producer

Answer 1

A legal representative of an insurance company. The classification of producer usually includes agents and brokers. Agents are the agents of the insurer

Question 2

Applicant or proposed insured

Answer 2

A person applying for insurance

Question 3

Beneficiary

Answer 3

A person who receives the benefits of an insurance policy

Question 4

Broker

Answer 4

An insurance producer not appointed by an insurer and is deemed to represent the client

Question 5

Indemnity

Answer 5

The main principle of insurance-meaning that the insured cannot recover more than their loss the purpose of insurance is to restore the insured to the same position as before the loss

Question 6

Insurance policy

Answer 6

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

Question 7

Insured

Answer 7

The person covered by the insurance policy. This person may or may not be the policy owner

Question 8

Insurer (principal)

Answer 8

The company who issues an insurance policy

Question 9

Law of large numbers

Answer 9

The larger the number of people with a similar exposure to loss the more predictable actual losses will be

Question 10

Policy owner

Answer 10

The person entitled to exercise the rights and privileges in the policy

Question 11

Premium

Answer 11

The money paid to the insurance company for the insurance policy

Question 12

Reciprocity/reciprocal

Answer 12

A mutual interchange of Rights and privileges

Question 13

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

Answer 13

Transfer of risk

Question 14

2 types of risks

Answer 14

1. Pure risk- refers to situations that can only result in a loss or no change. There is no opportunity for financial gain. Pure risk is the only type of risk that insurance companies are willing to accept.
2. Speculative risk - involves the opportunity for either loss or gain. An example of speculative risk is gambling. These types of risks are NOT insurable.

Question 15

Exposure

Answer 15

A unit of measurement used to determine rates charged for insurance coverage.

A large number of units having the same or similar exposure to loss are referred to as homogeneous. The basis of insurance is sharing risk between a large homogeneous group with similar exposure to loss.

Question 16

Physical hazards

Answer 16

Individual characteristics that increase the chances of the cause of loss. Physical hazards exist because of a physical condition, past medical history, or a condition at birth, such as blindness.

Question 17

Moral hazards

Answer 17

Tendencies towards increased risk. Moral hazards involve evaluating the character and reputation of the proposed insured. Moral hazards refer to those applicants who may lie on an application for insurance, or in the past have submitted fraudulent claims against an insurer

Question 18

Morale hazards

Answer 18

Similar to moral hazards except that they arise from a
STATE OF MIND THAT CAUSES INDIFFERENCE TO LOSS, SUCH As CARELESSNESS.
Actions taken without a forethought may cause physical injuries

Question 19

Perils

Answer 19

The causes of loss insured against in an insurance policy

Question 20

A risk is a _________ that a loss will occur

Answer 20

Chance

Question 21

A hazard increases the _________ of loss

Answer 21

Probability

Question 22

Apparel is the _________ of loss

Answer 22

Cause

Question 23

Risk retention

Answer 23

The planned assumption of risk by an insured through the use of deductibles, copayments, or self-insurance. It is also known as self Insurance when the insured accepts the responsibility for the loss before the insurance company pays.

Question 24

The purpose of retention is…..(3 parts)

Answer 24

1. To reduce expenses and improve cash flow
2. To increase control of claim reserving and claims settlements
3. To fund for losses that cannot be insured

Question 25

____________ is a method of dealing with risk for a group of individual persons or businesses with the same or similar exposure to loss to share the losses that occur within that group. A reciprocal Insurance exchange is a format risk-sharing arrangement.

Answer 25

Sharing

Question 26

__________would include actions such as installing smoke detectors in our homes, having an annual physical to deter health problems early, or perhaps making a change in our lifestyles.

Answer 26

Reduction

Question 27

The most effective way to handle risk is to __________ it so that the loss is borne by another party.

Answer 27

Transfer

Question 28

True or false : all risks are insurable

Answer 28

False

Question 29

Insurable risks involve the what characteristics?

Answer 29

1. Due to chance - a loss that is outside the insurance control
2. Definite and measurable - 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
3. Statistically predictable - insurers must be able to estimate the average frequency and severity of future losses and set appropriate premium rates.
4. Not catastrophic - insurers 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.
5. Randomly selected and large loss exposure - 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 30

Adverse selection

Answer 30

The insuring of risks that are more prone to losses than the average risk. Poorer risks tend to seek insurance or file claims to a greater extent than better risks.
“High risk”

Question 31

Reinsurance

Answer 31

A contract under which one Insurance company indemnifies another insurance company for part or all of its liabilities.