Insurance Terms and Related Concepts

Question 1

ISO

Answer 1

Insurance Services Office

Question 2

what is the purpose of ISO?

Answer 2

is an important factor in Property and Casualty or Personal Lines insurance licensing exams. One of —- many functions is to create standardized property and casualty insurance policies that are then approved by individual states and used as a standard policy form for insurers. The basic —- policy forms are modified to comply with each state’s regulations, and may be modified to a degree by each insurance company to create its own insurance form.

Question 3

Depreciation

Answer 3

reduction in value. particularly due to wear and tear

Question 4

Exposure

Answer 4

susceptibility to risk

Question 5

Implied warranty

Answer 5

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

Question 6

Insurance Policy

Answer 6

a contract between a policyowner (and/or insured) and an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events.

Question 7

Insurer (principal)

Answer 7

the company who issues an insurance policy

Question 8

Obsolescence

Answer 8

depreciation in the value of a property due to becoming outdated

Question 9

Premium

Answer 9

the money paid to the insurance company for the insurance policy

Question 10

Tort

Answer 10

a wrongful act or the violation of someone’s rights that leads to legal liability

Question 11

What is insurable interest and when must it exist?

Question 12

What are the two types of property losses?

Question 13

What are the various methods of loss valuation?

Question 14

Risk

Answer 14

the uncertainty or chance of a loss occurring. The two types of risk are pure and speculative, only one of which is insurable.

Question 15

Peril

Question 16

Hazard

Question 17

Indemnity

Question 18

What is the difference between a named peril and an open peril policy?

Question 19

Describe the different methods of loss valuation:

Question 20

How do deductibles and coinsurance affect the amount of coverage and policy premiums?

Question 21

What is Insurance?

Answer 21

It is the transfer of risk of loss. The cost of an insured’s loss is transferred over to the insurer and spread among other insureds.

Question 22

Law of large numbers

Answer 22

the larger the number of people with a similar exposure to loss, the more predictable actual losses will be. This law forms the basis for statistical prediction of loss upon which insurance rates are calculated.

Question 23

What happens if the number of people in a risk pool increases?

Answer 23

As the number of people in a risk pool increases, future losses become more predictable.

Question 24

Insurable Interest

Question 25

The 3 elements of insurable risk are:

Answer 25

Financial (a monetary interest) Blood (a relative) Business (a business partner)

Question 26

What is insurable risk and insurable interest?

Question 27

What are the two types of risk?

Answer 27

pure and speculative

Question 28

Pure risk

Answer 28

refers to situations that can only result in a loss or no change. There is no opportunity for financial gain. Pure risk is the only type of risk that insurance companies are willing to accept.

Question 29

Which of the two types of risk is the only one that is insurable?

Answer 29

Pure risk