Nature of Insurance Flashcards

1
Q

Adverse Selection

A

is broadly defined as selection against the company. It includes the tendency of people with higher risks to seek or continue insurance to a greater extent than those with little or less risk. Also includes the tendency of policy owners to take advantage of favorable options in insurance contracts.

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2
Q

Hazard

A

any factor, condition, or situation that creates an increased possibility that a peril (a cause of loss) will actually occur.

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3
Q

Homogeneous Exposure Units

A

are similar objects of insurance that are exposed to the same group of perils.

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4
Q

Indemnity contract

A

attempt to return the insured to their original financial position.

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5
Q

Law of Large Numbers

A

fundamental principle of insurance that the larger the number of individual risks combined into a group, the more certainty there is in predicting the degree or amount of loss that will be incurred in any given period.

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6
Q

Loss

A

is the unintentional decrease in the value of an asset due to a peril.

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7
Q

Loss Exposure

A

is the risk of a possible loss.

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8
Q

Moral Hazard

A

a hazard brought on by the effect of personal reputation, character, associates, personal living habits, financial responsibility, and environment, as distinguished from physical health, upon an individual’s general insurability.

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9
Q

Morale Hazard

A

a hazard arising from indifference to loss because of the existence of insurance. Are often associated with having a careless attitude.

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10
Q

Peril

A

is the immediate, specific event causing loss and giving rise to risk.

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11
Q

Physical Hazard

A

are physical or tangible conditions existing in a manner that makes a loss more likely to occur.

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12
Q

Pure risk

A

is a type of risk that involves the chance of loss only; there is no opportunity for gain; it is insurable.

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13
Q

Reinsurance

A

is the acceptance by one or more insurers, called reinsurers, of a portion of the risk underwritten by another insurer who has contracted for the entire coverage.

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14
Q

Risk

A

is the uncertainty regarding loss, the probability of a loss occurring for an insured or prospect.

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15
Q

Risk Avoidance

A

occurs when individuals evade risk entirely. It is the act of not doing something that could possibly cause a loss or the inactivity of participation in an event that may potentially cause a loss situation.

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16
Q

Risk Management

A

is the process of analyzing exposures that create risk and designing programs to handle them is called risk management.

17
Q

Risk Pooling/Loss sharing

A

spread risk by sharing the possibility of loss over a large number of people. It transfers risk from an individual to a group.

18
Q

Risk Reduction

A

takes place when the chances of a loss are lessened, or the severity of a potential loss is minimized.

19
Q

Risk Retention

A

the act of analyzing the loss exposure presented by a risk and determining that the potential loss is acceptable. Often associated with self-insurance.

20
Q

Risk Transfer

A

is the act of shifting the responsibility of risk to another in the form of an insurance contract

21
Q
A