Introducing Insurance Flashcards
Is a risk sharing pool. Sharing losses of a few people among many
Insurance
1st party
Insured, purchaser of insurance
2nd party
Insurer; insurance company
3rd party
anyone who claims against the insured’s policy
When we set up a policy is the third party involved?
No, only after a claim
A principle of insurance, by which the insureds, up to the limit of the policy, are fully compensated for the actual cash value of what they have lost, so that they neither gain nor lose as a result of a loss
Indemnity
The current cost of replacing an article with a similar one in the same condition
Actual Cash Value
How to calculate actual cash value
Replacement cost - depreciation = ACV
loss of value over time
Depreciation
What provinces: Common law
every province - Quebec
Anything of value
Consideration
Two elements of an insurance contract
- Must be a future event
2. The future event must be fortuitous
What does fortuitous means?
Accidental
a chance of loss
Risk
two types of risk
Speculative risk,
Pure risk
Either a chance of loss or chance of profit
Speculative risk
Chance of loss and no chance of profit
Pure risk
3 categories of insurable risk
Personal risk,
Property risk,
Liability risk
The damage done to the property that’s insured
Direct loss
A consequence of a direct loss
Indirect loss
3 classes of insurance/risk
Personal lines insurance,
Commercial lines,
Special risks
Ways of dealing with risks
Eliminate or reduce risk
Assume or retain risk
Transfer risk
Determining a chance of loss
principals of probability. # of times an event happened/# of times an event could happen
Event which may cause a loss to occur
Peril
Extended coverage of perils
Lightning Impact by aircraft or land vehicle Vandalism Explosion Riot Smoke Windstorm or hail Water/rupture/freezing Falling object
What peril is always included
Fire
Types of hazards
Physical hazard,
Moral hazard
Relates to the condition of the property
Physical hazard
Relates to the character of the person - the “human element” of the risk
Moral hazard
Price per unit of insurance
Rate
The amount of money an insurance company charges to provide coverage for a specific item or policy
Premium
Components in choosing the correct premium
Size,
Time period,
Conditions
The premium required to meet the losses that occur
Pure premium
When you make money off the premium you collect
Underwriting gain
Function of insurance
Spread of risk Aid in credit Loss prevention activities Spread of employment Aid in security Source of capital
3 considerations in spread of risk
- Volume
- Diversity of risk
- Diversity of location
Aid in security
It gives people peace of mind
Loss prevention activities
Although the purpose of insurance is to take on risk and pay losses as they arise; ultimately insurers are primarily interested in preventing loss
Source of capital
Invest large amounts into Canadian economy - bonds, stocks, and other securities
Aid in credit
Must have insurance to get credit on items
Source of employment
The insurance industry is a source of employment for many Canadians
