Insurance Exam

Question 1

DEPRECIATION

Answer 1

Reduction in value, particularly due to wear and tear.

Question 2

EXPOSURE

Answer 2

Susceptibility to risk.

Question 3

IMPLIED WARRANTY

Answer 3

A legal term meaning a product is suitable for its intended purpose and that it fits an ordinary buyer’s expectation.

Question 4

INSURANCE POLICY

Answer 4

A contract between an insured and an insurance company that agrees to pay the insured for or the beneficiary for loss caused by specific events.

Question 5

INSURER

Answer 5

The company who issues and insurance policy

Question 6

OBSOLESCENCE

Answer 6

Reduction in value (depreciation) of property due to it becoming outdated

Question 7

PREMIUM

Answer 7

The money paid the insurance company for an insurance policy

Question 8

• • • INSURANCE

Answer 8

The transfer of risk of loss from an individual to an insurance company

Question 9

WHAT WOULD OCCUR IF “INSURANCE” DID NOT EXIST?

Answer 9

The sole cost of the loss would be responsible and paid by the one who suffered the loss.

Question 10

WHAT IS THE BASIS OF INSURANCE?

Answer 10

Sharing risk among a large pool of people with similar exposure to loss.

Question 11

THE LAW OF LARGE NUMBERS

Answer 11

States that the larger the number of people with similar exposure to loss, the more predictable losses can be.

Question 12

• • • AS THE NUMBER OF PEOPLE IN A POOL OF RISK INCREASES, ___________________

Answer 12

Future loses become more predictable.

Question 13

WHAT MUST AN INSURER HAVE IN A PERSON OR PROPERTY COVERED BY AN INSURANCE POLICY?

Answer 13

An insurable interest

Question 14

DEFINE INSURBALE INTEREST

Answer 14

The reasonable concern of an individual to obtain insurance for an individual or property for an unforeseen event (such as death or loss)

Question 15

WHAT ARE THE THREE ELEMENTS OF INSURABLE RISK?

Answer 15

1. Financial (monetary interest)
2. Blood (a relative)
3. Business (business partner)

Question 16

IN PROPERTY AND CASUALTY WHEN MUST AN INSURABLE INTEREST EXIST?

Answer 16

At the time of loss.

Question 17

HOW MANY RISK EXIST IN INSURANCE AND HOW MANY OF THEM ARE INSURABLE?

Answer 17

There are two:
- Pure
- Speculative
Only one of which is insurable

Question 18

DEFINE RISK

Answer 18

The uncertainty or chance of loss occuirng

Question 19

DEFINE PURE AND SPECUALTIVE RISK

Answer 19

Pure risk are situations that can only result in loss or no gain. No financial gain. This is the only type of risk that insurance are willing to take

Speculative Risk are situations that involve either a gain or loss. These types of risk are not insurable.

Question 20

TRUE OR FALSE:

ONLY PURE RISK IS INSURABLE

Answer 20

True

Question 21

DEFINE PERIL

Answer 21

A specific cause of loss

Question 22

PROVIDE EXAMPLES OF PERILS IN STANDARD PROPERTY POLICIES:

Answer 22

Hail
Fire
Explosions
Wind

Question 23

DEFINE HAZARDS

Answer 23

Conditions that increase the probability of an insured loss occurring.

Question 24

WHAT ARE HAZARDS CLASSIFIED INTO?

Answer 24

Physical Hazards
Moral Hazards
Morale Hazards

Question 25

DEFINE PHYSICAL HAZARDS

Answer 25

Those arising from the material, structural, or operational features, not related to the owner or the person managing.

Question 26

DEFINE MORAL HAZARDS

Answer 26

Refer to those applicants that may lie on an application for insurance or in the past submitted fraudulent claims against an insurer.

Question 27

DEFINE MORALE HAZARDS

Answer 27

Refers to an increase in the hazard presented by a risk arising from the insurer’s indifference to loss because of the existence of insurance.

Question 28

DEFINE LOSS

Answer 28

The decrease of value of the individual or property insured in a policy caused by a peril.

Question 29

INSURANCE PROVIDES A MEAN TO ________ LOSS

Answer 29

Transfer

Question 30

______ A CHANCE UNCERTAINTY THAT LOSS WILL OCCUR; A _______ IS THE INCREASE THE PROBABILITY OF LOSS; _______ IS A CAUSE OF LOSS

Answer 30

Risk; Hazard; Peril

Question 31

DECYHPER R.H.P.L.I. AND DEFINE EACH LETTER

Answer 31

R - Risk: The uncertainty or chance of loss occurring.
H - Hazard: Conditions that increase the probability loss.
P - Peril: A specific cause of loss.
L - Loss: Reduction of value caused by a peril (basis of a claim).
I - Insurance: Transfer of loss or protection.

Question 32

DEFINE INDEMNITY

Answer 32

A provision in an insurance policy that states that in the event of loss an insured is permitted to collect only to the extent of the financial loss, and financial gain is not allowed because of the existence of an insurance contract.

Question 33

AN INDEMNITY IS ALSO KNOWN AS

Answer 33

Reimbursement

Question 34

INSURANCE _______ TO THE SAME FINANCIAL POSITION

Answer 34

Restores loss

Question 35

DEFINE SUBROGATION

Answer 35

The insurer’s legal right to seek damages from third parties, after it has reimbursed the insured’s loss.

Question 36

WHAT IS SUBROGATION BASED ON THE PRINCIPLE OF? AND WHY?

Answer 36

Subrogation is based on the principle of indemnity because it prevents the insured from collecting the reimbursement of the loss twice (once from the insure and twice from the party who caused the damage.

Question 37

DEFINE ACCIDENT AND OCCURRENCE IN PROPERTY AND CASUALTY TERMS.

Answer 37

An accident is an unplanned or unexpected event, not under the control of an insured, resulting in injury or damage that is neither expected or intended.

An occurrence is a broader definition of loss than accident because it includes those losses caused by continuous or repeated exposure to conditions resulting in injury or damage that is neither intended or expected.