Insurance Principles

Question 1

What is insurance

Answer 1

protection against financial loss

Question 2

What are the different types of risk

Answer 2

1. Pure Risk - chance of loss or no loss
2. Speculative - differs based on individuals perception of risk- chance of gain or loss or no loss
3. Objective risk- measurable and quantifiable variation of actual loss vs expected loss

Question 3

What is the probability of loss and Severity

Answer 3

1. chances of loss occurring, high probability may cause decline in coverage, useful to measure cost of claims.
2. actual dollar amount of loss - more important than probability

Question 4

What are the causes of Insured Loss

Answer 4

1. Perils
2. Hazard
   a. Moral, Morale, Physical Hazard

Question 5

What is adverse selection

Answer 5

tendency of persons with high than avg risk to purchase or renew insurance policies - underwriting look at this

Question 6

What are the requisites of insurable losses

Answer 6

1. Large number of similar units
2. loss must be accidental from INSURED viewpoint
3. must be measurable and determinable
4. losses must not post catastrophic risk for INSURER
5. premiums must be affordable
6. cannot insure moral hazards

Question 7

Shortcut to remember Legal Principals of Contracts

Answer 7

COALL!
Competent Parties
Offer and Acceptance
legal consideration,
Lawful Purpose

Question 8

What is the indemnity principle

Answer 8

Insured cannot make profit from insurance contract, can only receive compensation up to financial loss

Question 9

What is the subrogation clause

Answer 9

insured cannot receive payments from both insurer and third party for same claim

Question 10

What is an insurable interest

Answer 10

Insured must have emotional or financial hardship resulting from damage loss or destruction, must have insurable interest at time of policy inception AND time of loss

Life insurance - AT policy inception only

Question 11

What are the following characteristics of insurance contracts?
- Adhesion, Aleatory and Unilateral

Answer 11

1. insurance policies are “take it or leave it”
2. money exchanged may be unequal
3. only one promise to pay at event of loss

Question 12

What are the following contract rights and provisions?
- waiver, estoppel, waiver provisions

Answer 12

1. when a party relinquish a right
2. When a party is denied assertion of a right to which they were entitled to
3. insurer may seek to avoid liability = earthquake

Question 13

What are the 3 terms of dispute remedy

Answer 13

1. parol Evidence rule - once contact is placed in written form , all previous cannot contradict
2. Reformation - contract revised to express original intent from all parties
3. Recission - deems contract void from inception

Question 14

What are the features of an insurance contract?

Answer 14

1. conditions - details duties and rights
2. Declarations- name, description of property, amp of coverage, premiums, inception/termination dates
3. exclusions
4. Riders or endorsements

Question 15

Insurance regulations are provided through the ____level

Answer 15

state

Question 16

what are the 3 valuation costs

Answer 16

1. Replacement value, actual cash value, agreed upon value

Question 17

What is the coinsurance equation

Answer 17

(face value/ coinsurance(80% replacement cost) x LOSS - DEDUCTIBLE

Question 18

What are the 6 Steps of risk management?
* how to remember

Answer 18

D-I-E-D-I-E x2
1. Determine objective risk management program
2. identify risks client is exposed
3. evaluate as probability of occurrence and potential loss
4. determine alternatives
5. implement
6. evaluate, monitor, control

Question 19

What are the policy rating issued from insurance company underwriters

Answer 19

1. Preffered- lowest policy premiums and have above average ratings
2. standard
3. Rated- represents health issues, will accept at greater premiums
4. decline

Question 20

What are some factors that affect premiums

Answer 20

health, family health history, high risk activities, credit rating , driving record