Insurance Ch 1 Flashcards
_______ is defined as a condition with a possibility of loss or a situation with an exposure to loss.
Risk
Examples of _______:
Exposure to germs or viruses
Activity that may result in injury
Losing a job
Owning real estate
Starting a business
Risk
A ______ is the cause of a loss
Peril
Examples of _______________ include:
Fire
Windstorm
Liability
Collision
Theft
Sickness or Injury
Peril
A condition that may create or increase the chance of a loss arising from a given peril and may also increase frequency or severity of the loss.
Hazard
Examples of ____________ include the following:
Building on an earthquake fault
Poor maintenance of a car’s brakes
Working in a contagious disease lab
Hazards
As the number of independent events increases, the likelihood grows that the actual results will be close to the expected results. The insurer needs a big number of similar (homogenous) exposure units.
Law of Large Numbers
The tendency of the poorer-than-average risks to seek insurance to a greater extent than the average or better-than-average risks must be reduced.
Adverse selection
The incidence and severity of sickness and accidents in a well-defined class or classes of persons
Morbidity
A statistical table showing the probable rate of death at each age, usually expressed as so many per thousand.
Mortality table
Sufficiently large number of homogenous exposure units to make losses reasonably predictable
The loss produced must be definite and measurable.
The loss produced must be fortuitous or accidental.
The loss must not be catastrophic to the insurance company.
Insurable risks
Risk avoidance
Risk diversification
Risk reduction
Risk control
Risk retention
Risk transfer
Risk financing
BASIC RULES OF RISK MANAGEMENT
Coverage for for potential catastrophes should be purchased ________ (life, disability, health, homeowners, and auto).
Severity is more important than _________________.
High ___________ will mean high premiums or a decline of coverage by the carrier.
first
probability
Probability
Examples:
Rent instead of purchase home.
Avoid buying a house with a pool
Avoidance of risk
Example:
Store assets at different locations.
Diversification of risk
Example:
Install sprinkler system, smoke detectors, burglar alarm.
Create safety programs for businesses.
Reduction of risk
Example:
Insurance deductible
Coinsurance
Self-insurance
Retention of risk
Examples:
Insurance,
hold harmless agreements/hedging contracts
Incorporating your business
Transfer of risk
High loss severity and low loss frequency
Risk Transfer (Insurance)
High loss severity and high low frequencey
Risk avoidance
Low loss severity and high loss frequency
Risk retention and risk reduction
Low loss severity and low loss frequency
Retention.
A principle underlying insurance contracts (other than life insurance) under which the insurer seeks to reimburse the insured for approximately the amount lost - no more, no less.
Principle of indemnity
The 4 principles supporting ________ include:
1. insurable interest
2. concept of actual cash value
3. other insurance
4. subrogation
indemnity
Insurable interest must operate at the issuance of an insurance policy and at the time of loss in ____________ insurance
Property and casualty
With __________ insurance, insurable interest must operate at the time of issue but need not be present at the time of death.
Life
In an insurance contract, only the insurer makes a binding promise that breaches the contract if broken.
Unilateral
Contract is accept “as is” or not at all.
Adhesion
Only the president, VP, secretary, etc. may alter a contract; It must be accepted as is. Agents cannot change the contract terms.
Waiver provision
Insurance is an ________ contract because an insured may pay large premiums and receive no proceeds from the policy or pay only a small premium and receive a large benefit from the insurer.
aleatory
The contract is deemed null from its beginning due to fraud, misrepresentation, concealment or mutual mistakes as to material fact.
Rescission
When the contract between the parties fails to express the original intent of the parties, the contract can be amended.
Reformation
The plaintiff’s measure of damage should not be mitigated by payments received from sources, other than the negligent party or tortfeasor
Collateral source rule
When an insurer pays a claim, it takes over the legal rights it’s insured had against the negligent third-party.
Subrogation
Factual statements that identify the specific person, property, or activity, being insured and the parties to the transaction. They are specifically printed for the individual contract and are not pre-printed.
Declarations
Part of the insurance contract that explains key policy terms
Definitions
Part of the insurance contract that spells out the basic promises of the insurance company
Insuring agreements
This part of the insurance contract spells out in detail the duties and rights of both parties.
Conditions
The part of the insurance contract spells out the circumstances when the insurer will not pay.
Exclusions
Name the six methods to control losses.
Diversify the loss
Retain the losses
Transfer the losses
Avoid the losses
Reduce the losses
What type of company is most likely to use stop-loss coverage to partially self insure its employee medical insurance program?
Companies with as few as 100 employees
In an insurance contract, what term refers to the legally binding arrangement that explains the basic promise of the insurance company?
The insuring agreement
In an insurance contract, where are the factual statements, identifying the specific person, property or activity being insured?
The declarations
