introduction to insurance

Question 1

What is an insurance policy

Answer 1

it is a legal contract

Question 2

define (risk) in insurance

Answer 2

possibility that a loss will occur

Question 3

define (insurance)

Answer 3

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

Question 4

define (speculative) risks

Answer 4

a possibility of a loss and also the possibility of a gain. EXPAMPLE : Insurance companies will not insure you to go to Las Vegas to gamble in case you loose money

Question 5

define (pure) risk

Answer 5

involve the possibility of experiencing a loss, not a gain. EXAMPLE: the chance of being in a car accident is a pure risk. Pure risks can be covered by insurance.

Question 6

define (exposer)

Answer 6

the potential for accidents and other losses also which the insurance company would be held liable.
the higher exposer to risk, the higher the premium

Question 7

define (peril)

Answer 7

the cause of a loss
Example: hail storm, house burns down, lightning
A peril id basically what causes the loss.

Question 8

direct loss

Answer 8

physical loss to property with no intervening cause.
Example: lightning striking a house and and automobile hitting a tree

Question 9

indirect loss

Answer 9

is a consequential loss as the result from a direct loss.
Example: loss of rental income due to a house fire which cause a loss of profits for the landlord. indirect loss is always consequential of the direct loss.

NEEDS TO HAVE DIRECT LOSS

Question 10

define hazard

Answer 10

is anything that increases the chance that a loss will occur

Question 11

What are the 3 types of hazards

Answer 11

physical,moral,morale

Question 12

Physical hazard

Answer 12

are physically identifiable factors that increase the chance of loss. tires on a car are slick with little to no tread. Possibility of a tree falling. The wet floor is a physical hazard

Question 13

Moral hazard

Answer 13

arise from individual character. Dishonesty is a moral hazard because it may increase the chance that an individual lies on an insurance application or fakes a loss.

Question 14

Morale hazard

Answer 14

are a state of mind or careless behavior. carelessly leaving the doors and windows unlocked when not home, leaving a car running and unlocked while running into a store for a quick item.

Question 15

STARR

Answer 15

S(sharing)-Share Cost
T(transfer)-Insurance co pays
A(avoidance)-get rid of risk- sell car
R(retention)- business pays loss
R(reduction)-lessening the extent of loss

Question 16

Sharing

Answer 16

two or more individuals or businesses agree to pay a portion of any loss incurred by any member of the group. stockholders in a corporation share the risk.

Question 17

Transfer

Answer 17

the insurer(insurance company) agrees to pay if an insured (customer) has a loss.

Question 18

Avoidance

Answer 18

eliminating a particular risk by not engaging in a certain activity. Example: an individual who does not drive avoids the risk of injuring someone in and automobile collision and being held liable for those damages

Question 19

Retention

Answer 19

the individual or business will pay for the loss if it occurs. If you do not have car insurance to pay for the damages you cause to another person in an accident, you have retained that risk.

Question 20

Reduction

Answer 20

refers to lessening the chance that a loss will occur. Example : sprinkler system in a building to eliminate the damage caused by a fire.

Question 21

Parties to an insurance contract

Answer 21

1st party is the insured
2nd is the insurance company, or insurer

Question 22

contract(policy)

Answer 22

an agreement between the insurer and the insured

Question 23

Quiz question #1: An individual applied for auto insurance and obtained coverage from ABC insurance company. Who is the first party in the contract?
a. the insured
b. the insurer
c. the agent
d. the insured and the agent

Answer 23

A. The insured(customer)

Question 24

Quiz question #2: Which statement describes a peril?
a. gas cans in the insured’s garage are leaking and increasing the likelihood of a fire
b. a tornado damaged the insured home
c. commuting to work exposes the insured to loss
d. smoking caused the insured to pay a higher premium for life insurance.

Answer 24

B. a tornado damaged the insured home

Question 25

Quiz question #3: the best example of reduction as a risk management technique is? a. choosing to to go sky diving b. buying an insurance policy c. wearing a seatbelt in a car d. increasing a deductible

Answer 25

C. wearing a seatbelt in a car

Question 26

Quiz question #4: Tiffany leaves her car unlocked when she goes shopping. She figures her car and its contents are insured, so there is no reason to worry. which type of hazard is this an example of? a. morale b. careless c. moral

Answer 26

A. morale

Question 27

Quiz question #5: A flood is an example of ? a. peril b. a moral hazard c. a speculative risk d. a physical hazard

Answer 27

A. peril

Question 28

The Law of Large Numbers

Answer 28

is the principle that makes insurance possible. The larger the group the more accurately the losses can be predicted.

Question 29

30|60|25

Answer 29

30-person 60-accurancy 25-property

Question 30

CANHAM

Answer 30

Calculable Affordable Non-catastrophic Homogeneous Accidental Measurable

Question 31

Calculatable

Answer 31

particular risk in order to predict future losses

Question 32

Affordable

Answer 32

affordable for the average consumer

Question 33

non catastrophic

Answer 33

floods, riots, wars, and earthquakes. The peril for war is excluded from most policies

Question 34

Homogeneous

Answer 34

a wood frame house would suffer a fire in California, the actuary would not include brick houses in the sample

Question 35

Accidental

Answer 35

intentional losses caused by the insured are not covered by insurance.

Question 36

Measurable

Answer 36

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

Question 37

define Adverse Selection

Answer 37

tendency for higher risk individuals to get and keep insurance as compared to individuals that represent the average level of risk.

Question 38

how to avoid adverse selection

Answer 38

insurers make an extensive evaluation of information related to particular risk. Process is called underwriting. The insurer will charge a higher rate to insure the risk, refuse the application for insurance altogether.

Question 39

Reinsurance

Answer 39

insurance for insurers. The company assuming the risk is called the reinsurer.

Question 40

facultative reinsurance

Answer 40

transfer from the ceding company

Question 41

treaty reinsurance

Answer 41

accepts all risks of a certain type from the ceding company

Question 42

Stock insurer