Insurance Introduction Flashcards
What is risk?
The uncertainty about whether a loss will occur.
What types of risk are there?
Speculative risk and pure risk.
What type of risks do insurance companies insure?
Pure risk.
What is pure risk?
A risk that only involves the chance of loss, there is no chance for gain.
What is speculative risk?
A risk that has the possibility of a loss AND the possibility of a gain.
Gambling is an example of what type of risk?
This is an example of speculative risk.
The risk of a car accident is what type of risk?
This is an example of pure risk.
What is the insurance definition of a loss?
The reduction in value of an asset.
What is the insurance definition of exposure?
This is the risk assumed by an insurer and the amount that the insurer may be responsible to pay out to the insured if the risk becomes a reality.
What is the insurance definition of a peril?
This is the cause of a loss.
What insurance term describes the cause of a loss?
This is known as a peril.
What is the insurance definition of a hazard?
This is anything that increases the chance that a loss will occur. A slippery floor is an example of a peril. It increases the chance that an employee will slip, and injure their backs resulting in a disability. The slippery floor increased the chances of loss in the form of a disability.
What are the three main types of hazards?
Physical hazards, moral hazards, and morale hazards.
What is a moral hazard?
This is a hazard that stems from an individual’s character.
Dishonesty is considered what type of hazard?
A moral hazard.
What is a morale hazard?
This is a hazard that stems for a state of mind, usually one that is careless or forgetful.
Leaving the door open is what type of hazard?
Morale hazard.
What are the 5 main methods for handling risk?
Sharing, Transfer, Avoidance, Reduction, and Retention. S.T.A.R.R.
Sharing is a method for handling risk, describe it:
This method shares the risk between two or more individuals/parties. Two or more individual agree to pay a portion of any loss incurred by any member of the group.
Transfer is a method for handling risk, describe it:
This method for handling risk involves the transfer of risk from one individual or group to another. The insurer agrees to pay if an individual or business has a loss, the loss is transferred from the insured to the insurance company.
Avoidance is a method for handling risk, describe it:
This method for handling risk eliminates a risk by not engaging in a certain risky activity.
Not getting on an airplane as to not get in a crash is an example of what method for handling risk?
This is an example of avoidance.
Reduction is a method for handling risk, describe it:
This method for handling risk works by lessening the chance that a loss will occur, or by lessening the extent of a loss when it does occur. An example is wearing a seatbelt to reduce the risk of harm to the driver and/or passengers.
Retention is a method for handling risk, describe retention:
This method for handling risk means that the individual will pay for the loss, or part of the loss, if it occurs. Deductibles are an example.
If a fire causes damage to a building, it is a -
peril
Wearing a seat belt in a car is an example of what method for managing risk?
Reduce