Insurance Terms

Question 1

A legal representative of an insurance company (one company)

Answer 1

Producer/Agent

Question 2

A legal representative of multiple insurance companies

Answer 2

Broker

Question 3

Individual human being, associations, organizations, corporations, partnerships, and trusts. (These are allowed to enter an agreement or contract)

Answer 3

Person

Question 4

“Person” covered by an insurance policy

Answer 4

Insured

Question 5

“Company” who issues the insurance policy

Answer 5

Insurer/Principal

Question 6

Person applying for insurance

Answer 6

Applicant (Proposed Insured)

Question 7

Transfer of risk. (You’re passing the risk to someone/something else)

Answer 7

Insurance

Question 8

The uncertainty, possibility, or chance of a loss

Answer 8

Risk

Question 9

Two types of Risk

Answer 9

Pure Risk

Speculative Risk

Question 10

Loss only (It is the only type of risk that is insurable)

Answer 10

Pure Risk

Question 11

A loss or gain. (Gambling)

Answer 11

Speculative Risk

Question 12

The cause of a Peril. (Events/Conditions that cause a loss)

Answer 12

Hazard

Question 13

The cause of a Loss.

Answer 13

Peril

Question 14

Reduction in quality, quantity, or value. Basis for a claim.

Answer 14

Loss

Question 15

Four Types of Hazards

Answer 15

Physical Hazard
Moral Hazard
Morale Hazard
Legal Hazard

Question 16

Condition (blind, deaf, overweight, etc.)

Answer 16

Physical Hazard

Question 17

A lie.

Answer 17

Moral Hazard

Question 18

Indifference to loss. (Speed). You just don’t care.

Answer 18

Morale Hazard

Question 19

Affect an insurer’s ability to collect premiums. (Think money)

Answer 19

Legal Hazard

Question 20

Unit of measure to determine the rate charge. (Age, Gender, Medical History, Occupation)

Answer 20

Exposure

Question 21

“Statical predictions” Large pool of people with similar exposure to loss; more predictable to loss.

Answer 21

Law of Large Numbers

Question 22

“Same or Similar exposures”

Answer 22

Homogeneous

Question 23

“Poor health/risk”; risks that are more prone to losses. (i.e. Preexisting Conditions)

Answer 23

Adverse Selection

Question 24

Poor risks are balanced with preferred risks, and “average/standard” risks in the middle.

Answer 24

Profitable Distributions of Exposure

Question 25

S.T.A.R.R
Sharing
Transfer; purchase insurance
Avoidance; Choose NOT to do it
Reduction; Lifestyle change, smoke detectors, alarm system
Retention (Self-Insured: 1) Reduce expenses and improve cash flow 2) Control claim reserving/settlement 3) Fund losses that cannot be insured

Answer 25

Risk Management Techniques/Methods of Handling Risk (S.T.A.R.R)

Question 26

• The loss must be due chance (accidental)
• The loss must be definite and measurable
• The loss must be statically predictable
• The loss cannot be catastrophic
• The insurance must not be mandatory
• The loss exposure to the insured must involve large homogenous exposure units

Answer 26

Ideally Insurable Risk: (6 things companies hope will happen before having to pay a claim to the insured or beneficiary)

Question 27

Entering a contract with good intentions; no fraud; misrepresentation; or concealment.
(i.e Giving correct DOB, Gender, Occupation, Medical History)

Answer 27

Utmost Good Faith

Question 28

Something that exists between the policyowner and the insured. If this person passes away, it is going to affect me financially!

*Own life, family (including spouse), business partner, key employee, debtor/creditor
Must exist at the TIME of the application

Answer 28

Insurable Interest

Question 29

To make whole; “Refund/Reimbursement”

(ie): You have an Auto Insurance policy of $30k. Your car gets damaged, and it costs you $10k to repair the car. The insurance company will only give you enough money ($10k) to return the something to its original value.

Answer 29

Indemnity/Indemnify

Question 30

Sharing
Transfer
Avoidance
Reduction
Retention

Answer 30

Risk Management Techniques/Method of Handling Risk: (S.T.A.R.R)