Midterm 1

Question 1

Risk

Answer 1

uncertainty concerning the occurrence of loss

Question 2

Peril

Answer 2

The cause of loss

Question 3

Hazard

Answer 3

The condition that causes or increases the chance of loss

Question 4

Types of hazard

Answer 4

physical - property
moral - dishonest
morale - careless

Question 5

Risk management

Answer 5

The identification or evaluation of risks followed by use of resources to reduce risks

Question 6

Insurance

Answer 6

An arrangement where a company or government agency guarantees compensation for specified risk

Question 7

pure risk

Answer 7

involves loss or no loss

Question 8

speculative risk

Answer 8

involves loss or gain

Question 9

loss frequency

Answer 9

how often losses occur

Question 10

loss severity

Answer 10

the financial value of loss

Question 11

fundamental risk

Answer 11

risk affecting a society or large group

Question 12

particular risk

Answer 12

risk affecting a particular person

Question 13

underwriting cycle

Answer 13

booms and recessions of insurance business. Used in property and casualty not life insurance

Question 14

combined ratio

Answer 14

sum of losses and expenses divided by earned premium

Question 15

enterprise risk management

Answer 15

methods and processes to minimize and manage risk

Question 16

adverse risk selection

Answer 16

methods and processes where buyers and sellers have different information

Question 17

personal risk

Answer 17

anything that exposes you to the risk of losing something of value

Question 18

blackout period

Answer 18

a duration of time when access to something usually available if prohibited

Question 19

dependency period

Answer 19

the time following the readjustment period when children are growing in age and expenses rise

Question 20

maximum possible loss

Answer 20

worst possible loss that could occur

Question 21

probable maximum loss (PML)

Answer 21

worst possible loss you can have

Question 22

law of large number

Answer 22

as sample size grows mean gets closer to entire population

Question 23

Statutory Accounting Principles

Answer 23

used to prepare financial statements of insurance companies

Question 24

loss adjustment expense

Answer 24

cost insurance companies incurs to investigate a claim

Question 25

unearned premium reserve

Answer 25

an account where an insurance company places advance payments

Question 26

non-admitted assets

Answer 26

assets that can not be easily converted to cash

Question 27

examples of pure risk

Answer 27

personal
property
liability

Question 28

desirable elements of insurable risk

Answer 28

1. large # of exposure units
2. definite and measurable loss = cost
3. loss must be accidental
4. loss must be catastrophic
5. randomness
6. economic feasibility

Question 29

human life value approach

Answer 29

calculates the amount of life insurance a family would need if the insured person passed away

Question 30

needs approach

Answer 30

determine life insurance needed based on burial expenses and debt or obligations of the insured person

Question 31

four types of personal risk

Answer 31

death, health, retirement, unemployment