Lesson 1 - General Flashcards

1
Q

What is insurance?

A

Transfer of pure risk from one party to another for a price through a legal contract

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What’s needed for insurance to be used? (Elements of insurable risks)

A

1) Loss must be unexpected and accidental
2) Coverage cost must be affordable to almost everyone
3) Risk must be calculable
4) Risk must be one of larger # of risks

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Law of Large Numbers (Law of Averages)

A

Mathematical principle that states actual results have a tendency to equal expected or probable results.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is risk?

A

Uncertainty of financial loss/chance of loss/probability of loss

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Type of risk that is uninsurable and why?

A

Speculative risk; involves the chance for loss or gain

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Multi step process used to control, prevent, reduce risk?

A

Risk management

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Four step process of risk management?

A

1) Identify possible risks present
2) Determine what action to take to reduce risk
3) Implement specific action
4) Monitoring action taken to make changes as needed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Methods with which to handle risks?

A

1) Avoidance
2) Retention (most common method)
3) Transfer
4) Sharing
5) Reduction

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is hazard?

A

Condition that increases the chance of loss

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Two class hazards?

A

Physical hazard : Gasoline, unsafe car brakes, cracked sidewalks
Moral/Morale hazard : Mental attitudes, carelessness, dishonest acts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Insurance transfer?

A

Risk transfer accomplished by individual purchasing insurance contract

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Perils?

A

Events which cause a loss such as burglary, fire, flood damage etc.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Two ways loss can be classified?

A
Direct Loss
Indirect Loss (Consequential Loss)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Indemnify?

A

Placing an insured in the same financial position following a loss that he existed in before the loss occurred

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Insurable Interest?

A

Where individual may suffer economic loss if property is damaged/destroyed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Insurable Interest Requirements in property being insured?

A

1) Prevents/avoids gambling/wagering
2) Measures insured’s possible economic loss
3) Helps guard against moral hazards

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Two basic loss valuation methods?

A

Replacement Cost & Actual Cash Value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Valued Policy/Form?

A

Contract which establishes value for items insured at the time the contract is written

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Agreed Value/Optional Coverage?

A

Suspends co-insurance provision for 1 year, guaranteeing the insured will not suffer co-insurance penalty

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Stated Amount?

A

Limits of coverage is fixed for certain types of eligible property (mostly auto)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Proximate Cause?

A

Broken chain of events led up to an occurrence. (Original cause of loss or damage)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Aggregate Limit?

A

Maximum amount an insurer will pay for a covered loss on a per location or per project basis

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Restoration/NonReduction of Limits

A

Without aggregate limit, limits are applied to a single loss and restored in event of future occurrence WITHOUT reduction

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Restoration with aggregate limit?

A

Coverage is reduced by amount paid for loss for duration of policy period…Full coverage amount is restored at policy renewal

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Deductible?
Portion of loss that is the responsibility of insured
26
Co-Insurance?
If insured does not carry a specified percentage (80% the most common for property insurance) for value of property, they won't collect entire amount of partial loss
27
Accident?
Event taking place without one's foresight or expectation; fortuitous event
28
Occurence?
Continuous or repeated exposure to conditions
29
Provision found in property contracts that automatically extends to an insured any advantages made in later edition of policy.
Liberalization Clause
30
Open Peril Insurance/All Risk Coverage
Protects against all risks of physical loss except perils specifically excluded or limited in policy
31
Insurers are able to use insured's legal right of recovery against at-fault party for purpose of recovering amount that was paid for the loss
Subrogation/Transfer of Rights of Recovery
32
Two basic cancellation concepts in property and casualty insurance?
Short Rate Cancellation & Pro-Rata Cancellation
33
Aggregate Excess Insurance?
Activated when total losses during specified period reach a specified amount
34
Specific Excess Insurance?
Limits maximum cost of any 1 accident during coverage period.
35
When the insured and insurer do not agree on the existence of coverage for a particular loss...
Arbitration
36
Appraisal
Acknowledges existence of claim but the amount of loss cannot be agreed upon by either party
37
Foreign Insurance Company
Company incorporated under the laws of another state, but licensed and permitted to conduct insurance business in USVI
38
Alien Insurance Company
Company incorporated outside the US, but licensed in the USVI
39
Mutual Insurance Company
Company owned by policy holders
40
Reciprocals
Characteristics of a mutual insurer and Lloyds association (individuals who assume risks); cooperative insurance
41
Special type of insurer providing insurance benefits for its members as well as tax exemptions
Fraternal Benefit Society
42
Authorized/Admitted Insurance Company
Company that received a certificate of authority from USVI and is licensed/authorized to conduct insurance business here
43
Risk Purchasing Group
Members whose business are similar and their purpose is purchasing insurance on a group basis
44
Risk Retention Group
Members whose business are similar and their primary activity is spreading all/any portion of liability exposure. (Only Liability Insurance)
45
Representatives who operate under authority given them by insurers to make legal transactions with consumers of insurance
Agency System
46
The exception to the general rule that insurance is sold mainly through producers
Direct-selling systems
47
How may direct selling be accomplished
1) Utilizing Mail | 2) Telephone without a producer
48
Independent Agency System
Where producer represents several or many insurers
49
Exclusive Agency System
Where producer represents only one company
50
Provides field supervision of sales in a given territory for the insurer
General agents
51
Two areas that consumer should review when choosing an insurer
Solvency & Liquidity
52
Reinsurance (Insurance purchased by insurers)
Transfer of insurance from one insurance company to another and allowing an insurance company to underwrite higher limits of coverage
53
Two principle forms of reinsurance agreements
Specific/Facultative & Treaty/Automatic
54
National Association of Insurance Commissioners (NAIC)
Voluntary organization formed to achieve uniformity in state insurance laws
55
Surplus Lines Company
Common form of unauthorized carrier; when insurance can't be supplied, a surplus lines carrier is utilized
56
Lloyds of London
Voluntary association who agree to share in insurance contracts (not an insurance company)
57
Salvage
Value recoverable by insurance company after paying for loss
58
Short Rate Cancellation
When insured cancels contract & return premium is reduced
59
Pro-Rata Cancellation
When insurer cancels contract with no penalty charge
60
When 2 or more policies provide coverage that is equally specific so share coverage
Contribution by Equal Shares
61
Concurrency
Policies designed to cover identical properties & should be written as alike as possible
62
Another name for residual markets
Shared/Non-Voluntary Markets
63
Three Marketing Systems
1) Independent Agency System 2) Exclusive Agency System 3) Group Insurance