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OR Property and Casualty License > Intro to Insurance Unit 1 > Flashcards

Intro to Insurance Unit 1 Flashcards

1
Q

What is Risk?

A
  • The possibility that a loss will occur.

- Uncertainty, possibility of loss.

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2
Q

What is Insurance?

A

A contract that transfers the risk of financial loss from an individual or business to an insurance company.

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3
Q

Insurance is designed to cover only losses that involve ____?

A

Risk

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4
Q

It is the ____ of a risk from a person or a business to an insurer.

A

Transfer

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5
Q

Name the Two Types of Risk:

A

1) Speculative

2) Pure

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6
Q

What is Speculative Risk?

A

Risks that have a possibility of a loss and also the possibility of a gain.

Ex: Gambling, Investing.

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7
Q

What is Pure Risk?

A

Risks only involve the possibility of experiencing a loss, not a gain.

Ex:Chance of being in a car accident.

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8
Q

What type of risk can be covered by insurance?

A

Pure

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9
Q

What is Exposure?

A
  • The potential for accidents and other losses.

- Risks for which the insurance company would be liable.

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10
Q

What is a Peril?

A

-The cause of loss

Ex: House burns down - peril is the fire.

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11
Q

What is Loss?

A
  • The unintended, unforeseen damage to property
  • Injury
  • Amount Paid
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12
Q

Name the Two Types if Loss:

A

1) Direct loss

2) Indirect Loss

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13
Q

What is Direct Loss?

A
  • Is physical loss to property with no intervening cause.
  • Physical loss

Ex: Lightning striking a house and an automobile hitting tree

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14
Q

what is Indirect loss?

A
  • Is a Consequential loss as the result from a direct loss.
  • Consequence of physical loss.

Ex: loss of rental income due to a house fire, which cause a loss of profit for the landlord.

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15
Q

What is a Hazard?

A
  • Anything that increases the chance that a loss will occur.

- Increases the chance of loss.

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16
Q

Name the Three Types of Hazards:

A

1) Physical
2) Moral
3) Morale

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17
Q

What is a Physical Hazard?

A
  • The hazard can be seen

Ex: A dead tree increases the possibility of a tree falling on the house.

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18
Q

What is a Moral Hazard?

A
  • Dishonesty that intentionally causing a loss is acceptable.
  • Arise from individuals Character.
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19
Q

What is a Morale Hazard?

A

-A state of mind or careless attitude, Carelessness

20
Q

Methods of handling Risk?

-S.T.A.R.R

A
  • Sharing
  • Transfer
  • Avoidance
  • Retention
  • Reduction
21
Q

Methods of handling Risk explain Sharing?

A

Two or more individuals or businesses agree to pay a portion of any loss incurred by any member of the group.

22
Q

Methods of handling Risk explain Transfer?

A

The insurer (Ins. comp) agrees to pay if an insured (customer) has loss-the insured no longer bears the risk.

23
Q

Methods of handling Risk explain Avoidance?

A

-eliminating a particular risk by not engaging in a certain activity.
Ex: doesn’t drive avoids the risk of injuring someone in an automobile accident.

24
Q

Methods of handling Risk explain Retention?

A

-The individual or business will pay for the loss it it occurs, or a portion of the loss via deductible.

25
Q

Methods of handling Risk explain Reduction?

A

-Refers to lessening the chance that a loss will occur, or lessening the extent of a loss if it occurs.

26
Q

Insurance uses the risk management method of _____ to spread the risk of loss among thousands.

A

Transfer

27
Q

What are the Two Parties to an Insurance Contract?

A

1) The 1st party is the insured

2) Second Party is the company, or insurer.

28
Q

What does a legally enforceable contract define?

A

-The limits of coverage provided to the insured and the risk of loss being transferred, and identifies under what circumstances the insurer will pay for a loss.

29
Q

What is a Contract?

A

-An agreement between the insured and the insurer.

30
Q

What is Law of Large Numbers?

A
  • The principal that makes insurance possible.

- The larger the group, the more accurately losses can be predicted.

31
Q

Elements of Insurable Risk:

C.A.N.H.A.M

A
  • Calculable
  • Affordable
  • Non-catastrophic
  • Homogeneous
  • Accidental
  • Measurable
32
Q

Elements of Insurable Risk explain Calculable?

A

-Premiums must be calculable based upon prior loss statistics for that particular risk in order to predict future losses.

33
Q

Elements of Insurable Risk explain Affordable?

A

-The premium for transferring the risk should be affordable for the average consumer.

34
Q

Elements of Insurable Risk explain Non-Catastrophic?

A

-The risk must not be non-catastrophic for the insurance company.

Ex: floods, earthquakes have limited coverage, war is excluded from most policies.

35
Q

Elements of Insurable Risk explain Homogeneous?

A
  • The risk must be similar in nature so the same factors affect the chance of loss.

Ex: The actuary predicts the likelihood of a wood house burning in Cali, the actuary would not include brick houses in the sample.

36
Q

Elements of Insurable Risk explain Accidental?

A

-The loss must have been caused due to chance (accident). Intentional losses lost by the insured are not covered by the insurer.

37
Q

Elements of Insurable Risk explain Measurable?

A

-A definite ( time and place) and a measurable loss means that proof of loss must be established w/ numbers and dollar amounts, not just casual references.

38
Q

What is Adverse Selection?

A

-Is the Tendency for higher-risk individuals to get and keep insurance as compared to individuals that represent an average level risk.

  • Risks that have a greater-than-average chance of loss
  • Not wanted by insurers
  • Tendency for higher-risk individuals to get and keep insurance.
  • Why insurer go through the underwriting process.
  • High Risk= Higher rate to insure or refusal.
39
Q

What is Underwriting?

A

The process when Insurers make an extensive evaluation of information related to a particular risk.

40
Q

What is Reinsurance?

A
  • An insurance company’s insurance company.
  • Transfers risk from one insurer to another insurer.
  • Helps insurers spread their risk.
41
Q

Ceding Insurer

A

-The company reducing its risk

42
Q

What is Facultative Reinsurance?

A

-When the reinsurer considers each risk before allowing the transfer from the ceding company.

43
Q

What is the Reinsurer?

A

-The company assuming the risk

44
Q

What is Stock Insurer?

A
  • Owned by stockholders
  • Dividend is not guaranteed
  • Dividend is paid to policyholder
  • Dividend is non taxable; considered refund of premium
  • Issue participating policies.
45
Q

What is Fraternal Benefit Societies?

A
  • Provides insurance and other benefits

- Must be a member to get the benefits

46
Q

what is Reciprocal Insurers?

A
  • Unincorporated
  • Members are assessed if a loss occurs to any member of the group
  • Managed by an attorney-in-fact
47
Q

What does a Attorney-in-Fact do ?

A

-Handles Administration , underwriting, sales promotion, and claims handling for the reciprocal insurance.

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