Principles Of Insurance Flashcards
What is exposure?
An exposure is a condition or situation that presents a possibility of loss
What is risk?
Risk is the chance or uncertainty of loss
What are the methods of managing risk?
- Avoiding risk
- Controlling risk
- Retaining a risk
What is loss prevention?
A risk control technique that curtails loss frequency
What is risk reduction?
A risk control technique that limits the loss severity
What does it mean to retain a risk?
If any loss occurs the person retaining the risk will pay for it themselves
What does it mean to transfer a risk?
Transferring risk includes but is not limited to, insurance. A hold harmless agreement may. Shift liability from an owner or contractor to a tenant or subcontractor.
What is a hold harmless agreement?
A hold harmless agreement is a contractual arrangement where one party assumes the liability of a situation and relieves the other party of responsibility.
What is the purpose of insurance?
To transfer risk
Formal definition of insurance?
A contract or device for transferring risk from a person, business, or organization to an insurance company that agrees, in exchange for a premium, to pay for losses through an accumulation of premiums.
What is the Law of Large Numbers?
The Law of Large Numbers says that the more examples used to develop any statistic, the more reliable the statistic will be.
What type of risk is insurance not used to handle?
Speculative risks
What are speculative risks?
Speculative risks are risks in which there exists both the possibility of gain and the possibility of loss.
Insurance is only used to handle what kind of risk?
Pure risk
What is pure risk?
Risks that involve only the possibility of loss.
What is insurable interest?
Before you can benefit from insurance, you must have a chance of financial loss or a financial interest in the property.
Risk of loss must be ____ as to ___ and ___ and difficult to ______ or falsify.
Risk of loss must be definite as to time and place and difficult to counterfeit or falsify.
Risk must be (expected/unexpected)?
Risk must be unexpected.
The risk must be (large/small) enough to create a financial _______ for the individual involved.
The risk must be large enough to create a financial hardship for the individual involved.
The loss must be (calculable/indefinite)?
The loss must be calculable
The _____ of insurance must be _________ to the insured.
The cost of insurance must be affordable to the insured.
There must be a (large/small) number of persons with a similar _______ loss available for the insurance so that overall, losses become _________.
There must be a large number of persons with a similar potential loss available for the insurance so that overall loss become predictable.
The loss must not happen to a (large/small) number of insureds at the same time.
The loss must not happen to a large number of insureds at the same time.
What is spread of risk?
The insurance company insured multiple people from multiple locations to avoid a catastrophic loss for the company.
What is a peril?
The cause of loss
What is a hazard?
Anything that increases the chance of loss.
What is a physical hazard?
A hazard that arises from the condition, occupancy, or use of the property itself.
What is a morale hazard?
A moral hazard is when an individual through carelessness or by irresponsible action can increase the possibly for a loss.
What is a moral hazard?
A moral hazard is when a person might create a loss situation on purpose just to collect from the insurance company.
