MIDTERM

Question 1

premium

Answer 1

The price of insurance protection for a specified risk for a specified period of time.

Question 2

hold-harmless agreement

Answer 2

An agreement that allows one party to protect another party against any future losses or claims that may result from a particular activity. Also known as an indemnity agreement.

Question 3

avoidance

Answer 3

A risk management technique whereby the risk of loss is prevented by not engaging in activities that present the risk.

Question 4

fire

Answer 4

Combustion manifested in light, flame, and heat for useful purposes (friendly fire) or destructive purposes (hostile fire).

Question 5

hazard

Answer 5

(1) A risk or probability that the event insured against might occur. (2) A condition that engenders or increases the chances of a loss.

Question 6

captive insurance company

Answer 6

An insurance company that provides insurance to, and is controlled by, its owners.

Question 7

morale hazard

Answer 7

A hazard that is based on the insured’s attitude toward the insured belongings. This hazard exists when the insured no longer cares about the possessions because they are insured.

Question 8

physical hazard

Answer 8

A hazard arising from the physical condition or characteristics of the object that is insured.

Question 9

pure risk

Answer 9

Change of loss

Question 10

moral hazard

Answer 10

A hazard arising from the character, interest, habits, and lack of integrity of the insured or person concerned.

Question 11

self-insurance

Answer 11

A means of assuming and managing risk by setting aside a pool of money that will be used for compensation in the event of a loss occurring.

Question 12

insurance

Answer 12

Pooling the premiums of the many to pay the losses of the few. Spreading the risk.

Question 13

remote cause

Answer 13

A cause that is not the proximate cause of loss and is separate from the proximate cause in a chain of events leading to a loss.

Question 14

risk transfer

Answer 14

For a non-insurance company, the risk insured. For an insurance company, the risk reinsured.

Question 15

theft

Answer 15

The wrongful taking of the property of another. It is a broad term and includes larceny, pilfering, holdup, robbery, and pickpocketing.

Question 16

life insurance

Answer 16

A contract between an insurer and a policyholder whereby a death benefit is paid to named beneficiaries, provided the premiums have been paid by the policyholder at the time of death.

Question 17

robbery

Answer 17

Unlawfully taking another’s property, in the person’s presence, by violence or the threat of violence.

Question 18

immediate cause

Answer 18

A cause that is not the proximate cause of loss but is the last link in a chain of events leading to a loss.

Question 19

speculative risk

Answer 19

An insurance term for a situation where the possibility of either a financial loss or a financial gain exists, such as in purchasing shares, or betting on horses. Speculative risk is usually not insurable, unlike pure risk.

Question 20

risk retention

Answer 20

For a non-insurance company, the risk not insured or self-insured. For an insurance company, the risk not reinsured.

Question 21

risk

Answer 21

The chance of loss. Specifically, the possible loss or destruction of property or the possible incurring of a liability. Sometimes referred to as the subject of an insurance contract.

Question 22

pure risk

Answer 22

A situation involving a chance of loss with no chance of gain

Question 23

3 Types of insurable risk

Answer 23

Personal risks
Property risks
Liability risks

Question 24

3 Types of insurable risk

Answer 24

Personal risks
Property risks
Liability risks

Question 25

direct loss

Answer 25

Loss involving damage to or destruction of the property insured.

Question 26

indirect loss

Answer 26

Loss that occurs because of a direct loss (ex. Loss of use, loss of rental income, etc)

Question 27

indirect loss

Answer 27

Loss that occurs because of a direct loss (ex. Loss of use, loss of rental income, etc)

Question 28

life insurance

Answer 28

A contract between insurer and policyholder whereby a death benefit is paid to a named beneficiary, provided the premiums have been paid by the policyholder at time of death.

Question 29

The 3 classes of general insurance

Answer 29

Personal lines Commercial lines Specialty risks

Question 30

The 3 classes of general insurance

Answer 30

Personal lines Commercial lines Specialty risks

Question 31

insurer

Answer 31

The insurance company that undertakes to indemnify for losses and perform other insurance related operations

Question 32

peril

Answer 32

The event that caused a loss covered by the policy

Question 33

burglary

Answer 33

Unlawful removal of property from premises involving visible forced entry

Question 34

paid-up capital

Answer 34

Represents that part of subscribed capital that has been paid in full by shareholders

Question 35

outstanding loss reserves

Answer 35

Funds set aside to pay for losses that have been incurred but not yet paid

Question 36

mutual insurance company

Answer 36

An insurance company that is owned and operated by its policyholders, who assume the risks of profit and loss and establish a corporation for the purpose of insuring one another against the possibility of fortuitous loss. Each policyholder pays a premium for their own insurance policy. If at the end of the fiscal year the mutual insurance company declares a profit, the profit is shared among all policyholders. If the company declares a loss, there is also a provision for the policyholders to assessed a levy to make up for the shortfall.

Question 37

factory mutuals

Answer 37

Insurance companies of the mutual type (as distinct from stock companies) that specialize in industrial risks and loss and prevention

Question 38

What is Lloyd’s

Answer 38

A London-based insurance and reinsurance market, structured as a corporation, that provides the facilities, including physical location, policy issuance, and accounting, for multiple financial backers grouped in syndicates to pool and spread risk.

Question 39

Capacity

Answer 39

The measure of an insurer’s ability to issue contracts of insurance. Measured usually by the largest amount it will accept on a given risk, or, in certain situations, by the maximum volume of business that the company is prepared to accept

Question 40

syndicates

Answer 40

A group of companies or underwriters organized to insure risk in the Lloyd’s market

Question 41

coverholder

Answer 41

An individual or company that has the authority to bind coverage for a specific line of business as outlined in a contract with an insurer.

Question 42

Subscribed capital

Answer 42

The amount of stock sold by a corporation