General Insurance (concepts)

Question 1

___________ is the transfer of risk of loss from an individual or a business entity to an insurance company which spreads

Answer 1

Insurance

Question 2

An insurance transaction includes what?

Answer 2

1. Solicitation
2. Negotations
3. Sale
4. Advising an individual concerning coverage or claims

Question 3

________ is the uncertainty or chance of loss occuring

Answer 3

Risk

Question 4

What are the two types of risk?

Answer 4

1. Pure risk
2. Speculative risk

Question 5

_________ refers to situations that can only result in a loss or no change (no opportunity for financial gain & is the only type of risk insurance companies are willing to accept)

Answer 5

Pure risk

Question 6

_________ involves the opportunity for either loss or gain (ex. gambling & its not insurable)

Answer 6

Speculative risk

Question 7

Only _________ risk are insurable

Answer 7

Pure

Question 8

___________ is a unit of measurement used to determine rates charged for insurance coverage

Answer 8

Exposure

Question 9

Homogenous exposure

Answer 9

Large number of units having the same or similar expose to loss

Question 10

____________ are conditions or situations that increase the probability of an insured occurring (conditions such as lifestyle & existing health or activities such as scuba diving are hazards & may increase the chances of a loss occurring)

Answer 10

Hazards

Question 11

What are the different types of hazards?

Answer 11

1. Physical hazard
2. Moral hazard
3. Morale hazard

Question 12

__________ are individuals characteristics that increase the chances of the cause of loss (these are due to physical conditions like past medical history, birth conditions, etc)

Answer 12

Physical hazards

Question 13

_________ are tendencies towards increased risk (refers to those who may lie on an application for insurance or submitted fraudulent claims against an insurer)

Answer 13

Moral hazards

Question 14

_______ similar to moral hazards except they arise from a state of mind that cause indifference to loss (like careless)

Answer 14

Morale hazard

Question 15

________ are the causes of loss insured against in an insurance policy (what the insurance will cover, ex health insures against the medical expenses)

Answer 15

Perils

Question 16

_________ is defined as the reduction, decrease, or disappearance of value of the person or property insured in a policy, caused by a named peril

Answer 16

Loss

Question 17

A risk is a chance that a loss will occur, a hazard increases the probability of a _______, a peril is the cause od loss

Answer 17

Loss

Question 18

_____________ eliminating exposure to a loss (ex. if someone wanted to avoid the risk of dying in an airplane crash, they might choose to never fly in an airplane)

Answer 18

Avoidance

Question 19

What are the different methods of handling/dealing with risk?

Answer 19

1. Avoidance
2. Retention
3. Sharing
4. Reduction
5. Transfer

Question 20

__________ means eliminating exposure to a loss (ex. if someone wanted to avoid the risk of dying in an airplane crash, they might choose never to fly on a plane)

Answer 20

Avoidance

Question 21

__________ is the planned assumptions of risk by an insured through the use of deductibles, co-payments, or self-insurance

Answer 21

Retention

Question 22

___________ is a method of dealing with risk for a group of individual persons or business with the same or similar exposure to loss to share the losses that occur within that group

Answer 22

Sharing

Question 23

_________ would include actions such as installing smoke detectors in our homes (the action to attempt to lessen the possibility or severity of a loss)

Answer 23

Reduction

Question 24

_________ is the most effective way to handle risk, so that the loss is borne by another party

Answer 24

Transfer

Question 25

What must insurable risk have?

Answer 25

1. Due to chance 2. Definite & measurable 3. Statistically predictable 4. Not catastrophic 5. Randomly selected & large loss exposure

Question 26

___________ insuring of risk that are more prone to losses than the average risk

Answer 26

Adverse selection

Question 27

___________ states that the larger the number of people with a similar exposure to loss, the more predictable actual losses will be

Question 28

_________ is a contract under which one insurance company indemnifies another insurance company for part or all of its liabilities (made to protect insurers against catastrophic losses)

Answer 28

Reinsurance