Nature Of Insurance-2

Question 1

Hazard

Answer 1

Condition or situation that creates or increases the chance of loss

Question 2

Types of hazards include

Answer 2

Physical 
Moral 
Morale 
Loss
Peril
Risk 
Speculative risk
Pure risk

Question 3

Physical

Answer 3

Poor health, overweight, blind

Question 4

Moral

Answer 4

Dishonesty, drugs, alcohol abuse

Question 5

Morale

Answer 5

Careless attitude, reckless driving, jumping off a cliff, stealing, racing motorcycles, carefree, careless lifestyle

Question 6

Loss

Answer 6

Is the Unintentional decrease in the value of an asset due to a peril

Question 7

Peril

Answer 7

An immediate specific event which causes loss such as an earthquake or tornado

Question 8

Risk

Answer 8

The potential for loss

Question 9

Speculative risk

Answer 9

Is a risk that present both the chance for loss or gain

Question 10

Pure risk

Answer 10

Is the only insurable risk and presents a potential for loss only

Question 11

Elements of insurable risk

Answer 11

• Lost must be due to chance
• Loss must be definite and measurable
• Loss must be predictable
• Loss cannot be catastrophic
• Loss exposure to be insured must be large
• Loss must be randomly selected

Question 12

Loss must be due to chance

Answer 12

Cause less, outside the insureds control

Question 13

Lost must be definite and measurable

Answer 13

Time, place, amount, and when payable

Question 14

Loss must be predictable

Answer 14

Statistically able to estimate the average frequency and severity

Question 15

Loss cannot be catastrophic

Answer 15

Must be reasonable

Question 16

Loss exposure to be insured must be large

Answer 16

Ideally, common enough that the insurer can pull many homogeneous, or similar, exposure units

Question 17

Loss must be randomly selected

Answer 17

Fair proportion of good and poor risks

Question 18

Law of large numbers

Answer 18

The larger the amount of exposures that are combined into a group the more certainty there is to the amount of loss incurred in any given period

Question 19

Law of large numbers allows

Answer 19

• Prediction of individual and group losses based on past experience
• an increased degree of accuracy in predicting losses in large groups

Question 20

Loss exposure

Answer 20

Is any situation that presents at the possibility of a loss

Question 21

Homogeneous exposure units

Answer 21

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

Question 22

Adverse selection

Answer 22

is defined as the tendency for poorer than average risks to seek out insurance

Question 23

Risk management

Answer 23

Is the process of analyzing exposures that create risk and designing programs to handle them

Question 24

Treatment of risk

Answer 24

How people deal with risk

Question 25

Avoidance

Answer 25

Avoid the risk all together

Question 26

Reduction

Answer 26

Take precautions; minimizing severity of a potential loss

Question 27

Retention

Answer 27

Accepting a risk and confronting it if it occurs

Question 28

Transfer

Answer 28

Make someone else responsible for a loss

Question 29

Risk pooling

Answer 29

When a large group of people spread a risk for a small certain cost

Question 30

Reinsurance

Answer 30

A contractual arrangement that transfers exposure from one insurer to another insurer

Question 31

Principle of indemnity

Answer 31

Involves making an insured whole by restoring them to the same condition as before a loss

Question 32

Human life value approach

Answer 32

Determining the financial value of a persons life based on a persons future earnings

Question 33

Needs based value approach

Answer 33

Determining a persons financial value based on the amount of money needed for future expenses