Intro To Insurance

Question 0

What is a risk?

Answer 0

The uncertainty of financial loss

Question 1

What is insurance

Answer 1

A contract that indemnities against loss, damage, or liability from an unknown event

Question 2

What is pure risk

Answer 2

• Chance of loss ONLY

- Insurable

Question 3

What is speculative risk?

Answer 3

• Chance of loss or gain

- NOT INSURABLE

Question 4

What is a loss?

Answer 4

An unintentional decline in or disappearance in value

Question 5

What is an exposure?

Answer 5

A condition or situation that presents a possibility of loss

Question 6

What is a peril?

Answer 6

Actual cause of loss

Question 7

What are common causes of loss?

Answer 7

Fire, wind, and lightning

Question 8

Named peril

Answer 8

Covers perils listed in the policy

- basic and broad form contracts

Question 9

Open peril

Answer 9

Covers all perils except those excluded by the policy

- special form contract

Question 10

What is indemnity?

Answer 10

Restoring the insured to pre-loss condition

Question 11

Hazard

Answer 11

A condition that increases the potential chance of loss or seriousness of the loss

Question 12

Physical hazard

Answer 12

Arises from the condition, occupancy, or use of property

Question 13

Morale hazard

Answer 13

By being careless, increase possibility of loss

Question 14

Moral hazard

Answer 14

Might create a loss situation on purpose to collect

Question 15

Adverse selection

Answer 15

The tendency for people with a greater- then- average exposure to loss to purchase insurance

Question 16

Law of large numbers

Answer 16

Insurance companies need to have an idea of how many losses will actually occur
- the larger the loss exposure, the more predictable future losses will be

Question 17

Managing risk

Answer 17

The dollar amount of potential risk is determined by statistics of prior losses

Question 18

Methods of handling risk- ARRTS

Answer 18

A- avoidance 
R- reduction
R- retention
T- transfer
S- sharing

Question 19

Elements of an Insurable risk- CANHAM

Answer 19

C- calculable 
A- affordable
N- non catastrophic ( earthquakes, was, terrorism)
H- homogenous exposures 
A- accidental 
M- measurable

Question 20

Reinsurance

Answer 20

” the insurance company’s insurance company “

Question 21

Stock insurer

Answer 21

Owned by stockholders
- pays taxable dividends to shareholders if a profit is made

• issues nonparticipating policies (non-PAR)

Question 22

Mutual insurer (participating company)

Answer 22

Owned by policy holders
- pays dividends to policyholders ( considered an overpayment of premiums, not taxable, not guaranteed)

• issues participating policies (PAR policies)

Question 23

Reciprocal insurer

Answer 23

• IC made up of policyholders who insure other policy holders
• managed by an attorney- in- fact

Question 24

Fraternal insurer

Answer 24

Must have existence of membership criteria (religious or social club)

Question 25

Lloyd’s Association

Answer 25

Insurers unique, one - of - kind risks

Ex. J lo’s butt

Question 26

Foreign insurer

Answer 26

Insurer that is incorporated, organized, or domiciled in another state

Question 27

Alien insurer

Answer 27

Insurer outside the U.S.

Question 28

Admitted carriers

Answer 28

Carriers that have been issued a “certificate of authority” to transact business in the state

Question 29

Non-admitted carriers

Answer 29

Carriers that do not qualify for a “certificate of authority” in the state or have not applied

• surplus lines producer

Question 30

Marketing systems - 4 basic distribution systems used to market insurance

Answer 30

• captive or exclusive agent/producer
• direct writer
• direct response
• independent agent/producer