Module 4: Insurance Basics and Property Insurance

Question 1

What are types of personal risk?

Answer 1

Loss of income
disability
death
divorce

Question 2

what is most common catastrophic expenses?

Answer 2

Medical expenses

Question 3

What are the 4 components to negligence that an injured person must prove to collect damages?

Answer 3

1. existence of a legal duty
2. failure to perform legal duty
3. actual damage is caused
4. proximate cause is established

Question 4

What are the 4 essential techniques for managing risk?

Answer 4

1. risk avoidance
2. risk retention
3. risk transfer
4. risk reduction

Question 5

What are the 2 techniques that fall under risk control

Answer 5

risk avoidance

risk reduction

Question 6

What are the 2 techniques that fall under risk financing?

Answer 6

Risk transfer

Risk retention

Question 7

What are the 3 rules of risk management?

Answer 7

1. Don’t risk more than you can afford to lose.
2. Don’t risk a lot for a little.
3. Consider the odds.

Question 8

What is self insurance?

Answer 8

funds set aside that would cover any losses.

Question 9

What are the 4 types of pure risk?

Answer 9

1. personal risk
2. liability risk
3. property risk
4. failure of others

Question 10

An insurable risk must meet the four requirements:

Answer 10

1. law of large numbers must apply
2. loss must be accidental or fortuitous
3. loss must be definite and measurable
4. loss must NOT be catastrophic.

Question 11

What are the legal requirements of an insurance contract to be considered valid?

Answer 11

1. Must deal with a legal activity or legal object to be enforceable
2. must consist of an offer and an acceptance.
3. Must provide some sort of consideration (i.e. payment or performance)

Question 12

What is consideration?

Answer 12

An act or the payment for the act

Question 13

What is idemnity?

Answer 13

When a person suffers a loss, they should be made whole. Policyholders should NOT profit from loss- should merely be reimbursed.

Question 14

What is a subrogation clause?

Answer 14

the insurance company gets paid back before you get more money.

Question 15

What are the 4 sections of a life insurance policy?

Answer 15

1. Declarations
2. Insuring agreement
3. Exclusions
4. Conditions

Question 16

What does the declarations section of a life insurance policy contain?

Answer 16

consists of information provided by the insured/applicant
contain all of the basic information that defines the policy. These declarations include the name of the insured, the amount of coverage and the name, description and location of the item or items being covered.

Question 17

What does the insuring agreement section of a life insurance policy contain?

Answer 17

states the insurer’s intention to cover losses resulting from certain specified perils or from all perils not specifically excluded from the contract.

Question 18

What does the exclusions section of a life insurance policy contain?

Answer 18

States the perils, losses, and/or property for which the insurer will NOT provide coverage under the policy.

Question 19

What does the conditions section of a life insurance policy contain?

Answer 19

describe responsibilities of the insured and insurer that must be accepted if the insured is to be liable for a covered loss. Typically include the insured’s responsibilities in the event of a loss, the insurer’s rights with regard to fraud/concealment by insured, policy cancellation procedures, and policy assignment procedures.

Question 20

What is a rider?

Answer 20

A rider applies to health and life insurance. Typical riders are waiver for premium due to disability, accidental death benefit, or a guaranteed purchase option,

Question 21

What is a mutual company with respect to life insurance?

Answer 21

Owned solely by policyholders. Policyholders may be entitled to refund of premium if company’s expenses are less than anticipated. The dividend is NOT taxable as income. can ONLY sell participating policies.

Question 22

What is a stock company with respect to life insurance?

Answer 22

Insurance company owned by stockholders. dividends are taxed as ordinary income. Can sell both participating and nonparticipating policies

Question 23

What is CLUE?

Answer 23

Comprehensive Loss Underwriting Exchanges - a report that provides up to 7 yrs worth of claims information to underwriters.

Question 24

How much home insurance is needed?

Answer 24

At least 80% of replacement cost.

Question 25

What are the 4 areas of coverage for auto insurance?

Answer 25

Liability, medical payments, physical damage, and uninsured motorists

Question 26

What are split limits?

Answer 26

e.g. 25/50/15
first # is amount of bodily injury liability coverage
second # is amount for all people injured in common accident
third # is amount of coverage provided for property damage per accident

Question 27

What are the 4 primary factors for cost of insurance?

Answer 27

age & sex of driver
use of vehicle
type of vehicle
driver’s record

Question 28

What are the 3 main categories of a PAP?

Answer 28

Personal Auto Policy

1. Legal liability
2. Injury to insured or other family members
3. Damage to or loss of auto

Question 29

what is a deductible?

Answer 29

It is a cost-sharing device
amount an insured must pay before insurer’s responsibility for payment begins
means of retaining small, predictable amounts of risk

Question 30

What is an endorsement?

Answer 30

A provision that is added to an insurance policy to supplement or modify a standard policy to meet the special needs of the insured.

Question 31

What is excess liability insurance?

Answer 31

An umbrella policy

higher liability limits and broader protection than homeowners and auto insurance

Question 32

What is an inland marine policy and what does it cover?

Answer 32

Coverage for personal property that is moved from one location to another of for which there isn’t enough coverage under homeowners insurance
Examples of property covered - Jewelry, furs, art, stamp collection, ski equipment

Question 33

What are internal sublimits?

Answer 33

Pertains to homeowner’s policy
Limits of coverage apply to certain kinds of property. EX. you may have $50k limit on personal property but an internal limit on firearms at $1,000.

Question 34

What is liability insurance?

Answer 34

covers legal obligation of insured to compensate others for bodily injury or property damage cause by acts/negligence of insured.

Question 35

What are medical payments to others?

Answer 35

Pertains to liability coverage under homeowner & auto insurance
homeowner -pays reasonable medical expenses up to a specified amount for injuries incurred on insured’s property or caused by insured away from premises (dog bite)
Auto -pays up to specified amount for medical expenses per person involved and injured in auto accident including insured and passengers regardless of liability

Question 36

What is the no-fault endorsement?

Answer 36

in auto insurance - pertains to certain statutory benefits for covered person injured in auto accident regardless of who is liable.

Question 37

What is the Policyholder’s surplus ratio?

Answer 37

It is a measure of financial soundness for insurer (Insurance Company). Compares company’s net worth to liabilities.

Question 38

What is the replacement cost provision?

Answer 38

pertains to homeowner’s insurance. If insured has enough insurance that is equal to at least 80% of replacement cost new, policy will cover all costs up to policy limits to repair or replace damage without deducting depreciation.

Question 39

What is risk management?

Answer 39

Identification, analysis, and management of personal risks. Involves using strategies to reduce probability of loss and financial impact of loss.

Question 40

What is the stop-loss provision?

Answer 40

Requires insurance company to pay 100% of covered charges after the insured has paid so much out of pocket.