Lesson 1

Question 1

any condition or situation that presents a possibility of loss, whether or not an actual loss occurs

Answer 1

loss exposure

Question 2

the process of making and implementing decisions that will minimize the adverse effects of accidental losses on an organization.

Answer 2

risk management

Question 3

a risk control technique that reduces the frequency of a particular loss.

Answer 3

loss prevention

Question 4

a risk control technique that reduces the severity of a particular loss

Answer 4

loss reduction

Question 5

a fundamental measure of the loss exposure assumed by an insurer

Answer 5

exposure unit

Question 6

one of the two main sectors of the insurance industry, encompassing numerous types of insurance, most of which cover the financial consequences of damage to one’s own property or legal liability to others

Answer 6

property-casualty insurance

Question 7

one of the two main sectors of the insurance industry, encompassing numerous types of insurance that cover the financial consequences of death, injury, or sickness

Answer 7

life-health insurance

Question 8

an obligation to act in complete honesty and to disclose all relevant facts

Answer 8

utmost good faith

Question 9

any contract in which one party must either accept the agreement as written by the other party or reject it

Answer 9

contract of adhesion

Question 10

a contract in which the insurer agrees, in the event of a covered loss, to pay an amount directly related to the amount of the loss

Answer 10

contract of indemnity

Question 11

a single document that contains all the agreements b/w the insured and the insurer and that forms a complete insurance policy

Answer 11

self-contained policy

Question 12

an insurance policy that consists of several different documents, none of which by itself forms a complete policy

Answer 12

modular policy

Question 13

any type of insurance that indemnifies an insured who suffers a financial loss b/c property has been lost, stolen, damaged, or destroyed

Answer 13

property insurance

Question 14

insurance that covers losses resulting from the insured’s liability to others

Answer 14

liability insurance

Question 15

policy that covers most of the property and liability loss exposures that arise out of residential property ownership and occupancy, as well as property and liability loss exposures that individuals and families may have while they are away from their residences

Answer 15

homeowners policy

Question 16

coverage for damages, plus costs of any defense, related to a claim or suit brought against the insured that resulted from bodily injury or property damage caused by an occurrence covered under the policy

Answer 16

personal liability coverage

Question 17

an insurance policy that covers an individual or a family against loss exposures arising out of the ownership, maintenance, or use of automobiles

Answer 17

personal auto policy (PAP)

Question 18

coverage for direct and accidental loss or damage to a covered auto by any peril except collision or overturn or a peril specifically excluded

Answer 18

comprehensive coverage

Question 19

an insurance policy that covers an individual’s or a family’s loss exposures arising out of the ownership, maintenance, or use of watercraft used principally for recreational or personal transportation purposes

Answer 19

personal watercraft policy

Question 20

a liability policy that provides excess coverage above underlying policies and may also provide coverage not available in the underlying policies, subject to a self-insured retention

Answer 20

umbrella liability policy

Question 21

coverage that protects the insured from damages owed b/c of legal liability to another party. For auto policies, it protects insureds against liability arising out of the ownership or operation of automobiles

Answer 21

liability coverage

Question 22

life insurance that provides coverage for a specified period, such as ten or twenty years, with no cash value

Answer 22

term life insurance

Question 23

life insurance designed to remain in force for an insured’s entire life and provide a death benefit at death, characterized by the presence of a cash value

Answer 23

permanent life insurance

Question 24

insurance that pays for extended medical care or custodial care received in a nursing home, hospital, or home

Answer 24

long-term care insurance

Question 25

a type of life insurance policy or contract that makes periodic payments to the recipient for a fixed period or for life in exchange for a specified premium

Answer 25

annuity

Question 26

policy that covers two or more lines of business by combining ISO’s commercial lines coverage parts

Answer 26

commercial package policy (CPP)

Question 27

insurance that covers a business or a not-for-profit organization against loss exposures arising out of the ownership, maintenance, or use of automobiles

Answer 27

commercial auto insurance

Question 28

a package policy that combines most of the property and liability coverages needed by small and medium-size businesses

Answer 28

businessowners policy (BOP)

Question 29

coverage for damage to or theft of a covered auto that can include both collision coverage and other than collision (comprehensive) coverage

Answer 29

auto physical damage coverage

Question 30

insurance that covers commercial buildings and their contents against various types of property loss

Answer 30

commercial property insurance

Question 31

insurance that covers vessels and their cargoes, including various vessel-related liability exposures

Answer 31

ocean marine insurance

Question 32

insurance that covers many different classes of property that typically involve an element of transportation

Answer 32

inland marine insurance

Question 33

insurance that covers (1) money and securities against numerous perils (not limited to crime perils) and (2) property other than money and securities against crime perils, such as employee theft, robbery, theft by outsiders, and extortion

Answer 33

commercial crime insurance

Question 34

insurance that covers many of the common liability loss exposures faced by an organization, including its premises, operations, and products

Answer 34

commercial general liability (CGL) insurance

Question 35

insurance that covers persons engaged in various occupations against liability resulting from their rendering or failing to render professional services

Answer 35

professional liability insurance

Question 36

insurance that provides coverage for benefits an employer is obligated to pay under workers compensation laws

Answer 36

workers compensation insurance

Question 37

1. Pure risk - involves pure risk, not speculative
2. Fortuitous losses - subject to fortuitous loss from the insured’s standpoint
3. Definite and measurable - subject to losses that are definite in time, cause, and location and that are measurable
4. Large number of similar exposure units - one of a large number of similar exposure units
5. Independent and not catastrophic - not subject to a loss that would simultaneously affect many other similar loss exposures; not catastrophic
6. Affordable - premiums are economically feasible

Answer 37

Characteristics of an ideally Insurable Loss Exposure