life insurance

Question 1

Insurance

Answer 1

a contract that transfers the risk of financial loss from and individual or business to an insurer

Question 2

Risk

Answer 2

uncertainty about whether a loss will occur

Question 3

Loss

Answer 3

a reduction in the value of an asset

Question 4

Speculative risk

Answer 4

loss or gain can occur-loss is not insurable

Question 5

Pure risk

Answer 5

only loss can occur-loss is insurable

Question 6

Exposure

Answer 6

is the risk assumed by the insurer

Question 7

The calculation for insurance premiums

Answer 7

is the rate multiplied by the number of exposure units

Question 8

Peril

Answer 8

cause of loss

Question 9

hazard

Answer 9

anything that increases the chance that loss will occur

Question 10

three types of hazards

Answer 10

physical, moral and morale

Question 11

an example of Physical hazard

Answer 11

a heart condition because it is physically identifiable using lab equipment that produces tangible evidence of existence

Question 12

Moral hazards

Answer 12

arise from an individuals character. Dishonesty is a moral hazard because it increases the chance that na individual might lie on an insurance application or fake a loss

Question 13

Morale hazards

Answer 13

state of mind or careless attitude. like leaving doors and windows unlocked when not at home

Question 14

Physical hazard

Answer 14

can be seen or determined

Question 15

moral hazard

Answer 15

intentionally causing a loss

Question 16

morale hazard

Answer 16

carelessness

Question 17

STARR

Answer 17

Methods of Handling Risk

Question 18

Sharing

Answer 18

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

Question 19

Transfer

Answer 19

Transfer of risk is what happens with insurance. The insurer agrees to pay if an individual or business has a loss. The individual or business has a cost in the form of a premium payment. However in cotrasts to the loss, which is large and uncertain, the premium is a much smaller certainty

Question 20

Avoidance

Answer 20

not engaging in a certain activity to avoid risk

Question 21

reduction

Answer 21

wearing seatbelts, installing fire alarms–lessening the chance that a loss will occur

Question 22

retention

Answer 22

individual will pay for the loss if it occurs. Without health insurance a person will have to pay the bill if they need hospitalization. This is an example of intentionally retaining a risk.

Question 23

The law of Large Numbers

Answer 23

The larger the group the more accurately losses can be predicted. This prediction allows them to charge each insured a premium that, pooled together, will cover all the claims and operating costs

Question 24

Calculable

Answer 24

Premiums must be calculable based up on prior loss statistics for that particular risk in order to predict future losses

Question 25

Affordable

Answer 25

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

Question 26

Non-catastrophic

Answer 26

Insurance cannont insure events that casue widespread losses to large numbers of insureds at the same time. That is why peril of war is excluded from most policies becasue the risk is much to large for the insurance company to pay

Question 27

Homogeneous

Answer 27

The individual risks that the insurer covers must all be similaror homogeneous in regard to factors that affect the chance of loss.

Question 28

Accidental

Answer 28

Insurance is a method of handling risk. If a loss is certain to occur, there is no risk

Question 29

Measurable

Answer 29

It must be possible to estimate the loss as a dollar amount. Insurance covers the financial loss of unexpected death or medical bills from sickness

Question 30

CANHAM

Answer 30

Calculable Affordable Non-catastrophic Homogeneous Accidental Measurable

Question 31

Adverse selection

Answer 31

the tendencey for higher-risk individuals to get and keep insurance more than individuals who represent an average level or risk

Question 32

Underwriting

Answer 32

to avoid adverse selection insurers make an extensive evaluation of information related to a particuar risk

Question 33

Reinsurance

Answer 33

insurance for insurers. Transfers risk from one insurer to anothe insurer. The company assuming the risk is called the reinsurer

Question 34

Falculataive reinsurance

Answer 34

The reinsurer considers each risk before allowing the transfer to be made from the ceding company.

Question 35

Treaty reinsurance

Answer 35

The reinsurer accepts all risks of a certain type from the ceding company.

Question 36

Reinsurance

Answer 36

Protect insurance from catastrophic losses in certain geographical areas

Question 37

Stock insurer

Answer 37

owned by stock holders, they do not have to own a policy with the company

Question 38

Mutual insurers

Answer 38

owned by policy holders Policy owners participate in the operating results of the company

Question 39

reciprocal insurers

Answer 39

unincorporated groups of people that agree to insure each others losses under a contract

Question 40

self insurance

Answer 40

retaining rather than transferring risk

Question 41

federal government

Answer 41

provides a wide variety of insurance benefits through social security military federal employee compensation and various retirement benefit programs

Question 42

state

Answer 42

governments are involved in providing unemployment insurance workers compensation diablity and medical for the needy

Question 43

residual market

Answer 43

insurance from the state or federal government

Question 44

Insurers home state

Answer 44

state of domicile

Question 45

insurer that writes business in states other than where it is domiciled is referred to as a foreign insurer

Answer 45

an insurer is located in Texas but is selling insurance in Wisconsin

Question 46

Alien insurer

Answer 46

insurer formed under the laws of any country other than the united states and its territories