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CFP > Insurance Ch 1 > Flashcards

Insurance Ch 1 Flashcards

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1
Q

_______ is defined as a condition with a possibility of loss or a situation with an exposure to loss.

A

Risk

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2
Q

Examples of _______:

Exposure to germs or viruses
Activity that may result in injury
Losing a job
Owning real estate
Starting a business

A

Risk

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3
Q

A ______ is the cause of a loss

A

Peril

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4
Q

Examples of _______________ include:
Fire
Windstorm
Liability
Collision
Theft
Sickness or Injury

A

Peril

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5
Q

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.

A

Hazard

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6
Q

Examples of ____________ include the following:
Building on an earthquake fault
Poor maintenance of a car’s brakes
Working in a contagious disease lab

A

Hazards

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7
Q

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.

A

Law of Large Numbers

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8
Q

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.

A

Adverse selection

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9
Q

The incidence and severity of sickness and accidents in a well-defined class or classes of persons

A

Morbidity

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10
Q

A statistical table showing the probable rate of death at each age, usually expressed as so many per thousand.

A

Mortality table

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11
Q

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.

A

Insurable risks

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12
Q

Risk avoidance
Risk diversification
Risk reduction

A

Risk control

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13
Q

Risk retention
Risk transfer

A

Risk financing

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14
Q

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.

A

first

probability

Probability

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15
Q

Examples:

Rent instead of purchase home.

Avoid buying a house with a pool

A

Avoidance of risk

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16
Q

Example:

Store assets at different locations.

A

Diversification of risk

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17
Q

Example:
Install sprinkler system, smoke detectors, burglar alarm.

Create safety programs for businesses.

A

Reduction of risk

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18
Q

Example:

Insurance deductible

Coinsurance

Self-insurance

A

Retention of risk

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19
Q

Examples:
Insurance,
hold harmless agreements/hedging contracts
Incorporating your business

A

Transfer of risk

20
Q

High loss severity and low loss frequency

A

Risk Transfer (Insurance)

21
Q

High loss severity and high low frequencey

A

Risk avoidance

22
Q

Low loss severity and high loss frequency

A

Risk retention and risk reduction

23
Q

Low loss severity and low loss frequency

A

Retention.

24
Q

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.

A

Principle of indemnity

25
Q

The 4 principles supporting ________ include:
1. insurable interest
2. concept of actual cash value
3. other insurance
4. subrogation

A

indemnity

26
Q

Insurable interest must operate at the issuance of an insurance policy and at the time of loss in ____________ insurance

A

Property and casualty

27
Q

With __________ insurance, insurable interest must operate at the time of issue but need not be present at the time of death.

A

Life

28
Q

In an insurance contract, only the insurer makes a binding promise that breaches the contract if broken.

A

Unilateral

29
Q

Contract is accept “as is” or not at all.

A

Adhesion

30
Q

Only the president, VP, secretary, etc. may alter a contract; It must be accepted as is. Agents cannot change the contract terms.

A

Waiver provision

31
Q

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.

A

aleatory

32
Q

The contract is deemed null from its beginning due to fraud, misrepresentation, concealment or mutual mistakes as to material fact.

A

Rescission

33
Q

When the contract between the parties fails to express the original intent of the parties, the contract can be amended.

A

Reformation

34
Q
A
35
Q

The plaintiff’s measure of damage should not be mitigated by payments received from sources, other than the negligent party or tortfeasor

A

Collateral source rule

36
Q

When an insurer pays a claim, it takes over the legal rights it’s insured had against the negligent third-party.

A

Subrogation

37
Q

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.

A

Declarations

38
Q

Part of the insurance contract that explains key policy terms

A

Definitions

39
Q

Part of the insurance contract that spells out the basic promises of the insurance company

A

Insuring agreements

40
Q

This part of the insurance contract spells out in detail the duties and rights of both parties.

A

Conditions

41
Q

The part of the insurance contract spells out the circumstances when the insurer will not pay.

A

Exclusions

42
Q

Name the six methods to control losses.

A

Diversify the loss
Retain the losses
Transfer the losses
Avoid the losses
Reduce the losses

43
Q

What type of company is most likely to use stop-loss coverage to partially self insure its employee medical insurance program?

A

Companies with as few as 100 employees

44
Q

In an insurance contract, what term refers to the legally binding arrangement that explains the basic promise of the insurance company?

A

The insuring agreement

45
Q

In an insurance contract, where are the factual statements, identifying the specific person, property or activity being insured?

A

The declarations

CFP (26 decks)

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