Insurance 1

Question 1

Elements of insurance

Answer 1

1. Large number of homogeneous exposure units
2. Loss must be definite and measurable
3. Must be fortuitous or accidental
4. Must not be catastrophic (for the insurance company)

Question 2

Methods to avoid/reduce loss

Answer 2

1. Avoidance: (do not drive, do not purchase property but rent it)
2. Diversification: duplication of assets or activities at different locations
3. Transference: insurance
4. Retention: voluntary - recognizes that the risk exists and assumes losses (deductible, coinsurance)
5. Risk reduction: (sprinkler system, safety programs)

Question 3

Insurable interest

Answer 3

Property/casually: at inception and at time of claim

Life: inception but need not be at time of claim

Question 4

Parts of the insurance contract

Answer 4

DICE: Declarations page, definitions, insuring agreements, conditions, exclusions

Question 5

Declarations page

Answer 5

Factual statements that identify the specific person, property or activity being insured

Question 6

Definitions

Answer 6

Explanation of key policy terms

Question 7

Insuring agreements

Answer 7

Spells out the basic promise of the insurance company

Question 8

Conditions

Answer 8

Spells out in detail the duties and rights of both parties

Question 9

Exclusions

Answer 9

Circumstances when the insurer will not pay

Question 10

Negligences

Answer 10

- Attractive nuisances (swimming pool/vacant lot)

• Negligence per se (violate a statute)
• Strict liability (product liability)
• Absolute liability (workers compensation)
• Vicarious liability - respondent superior (principles responsible for their agents)

Question 11

Defenses

Answer 11

• Assumption of risk (skiing, stock car races)
• Contributory (jaywalking, being drunk)
• Comparative (A is 20% negligent, B is 80% negligent)
• Last clear chance (road rage)

Question 12

Calculating life insurance needs (2 methods)

Answer 12

1. Capital utilization approach: uses annuitization to provide needed income but leaves no money at the end of planned for period
2. Capital needs approach: uses interest only, so the original capital is still left at the end of the income period (also called capital retention or interest only)

Question 13

Insurance rating service/category (most comprehensive service)

Answer 13

-A.M. Best / A++ to F

- Standard & Poor / AAA to CCC