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FIN 331 > Quiz 1 > Flashcards

Quiz 1 Flashcards

1
Q

Names for Insurers/Insured

A

-Insurer: Insurance company, carrier, policy holder, insurance holder

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2
Q

Burdens of Risk on Society

A
  • Expenditures to reduce risk: money spent for airbags
  • Lost Opportunities from avoiding risk: Lost opps from avoiding risk
  • Expenditures to finance potential losses (emergency funds)
  • Cost of Losses
  • Insurance Induced Fraud & Risk Taking
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3
Q

Risk Management Process

A
  1. Identify risks
  2. evaluate for potential losses
  3. select appropriate risk management technique
  4. Implement risk technique
  5. Review and revise the plan
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4
Q

Pure vs. Speculative

A
  • Pure: Risks that result in only losses

- Speculative: Possibility of either gaming or losing

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5
Q

Static vs. Dynamic

A
  • Static: Probability of a loss doesn’t change much over time. ex: Living to 130
  • Dynamic: Probability of a loss changes frequently over time. ex: Dying in an auto crash (has gotten much safer over time)
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6
Q

Objective vs. Subjective

A
  • Objective: Quantifiable risk that is measured. ex: chances of dying at the age of 60 can be measured.
  • Subjective: Opinion based risk. ex: Fear based
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7
Q

Fundamental vs. Particular

A
  • Fundamental: Risks affecting large populations. ex: Warfare, Hurricanes
  • Particular: Risks affecting individuals and individual orgs. ex: house destroyed by fire, company going bankrupt
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8
Q

Uncertainty

A

Inability to make a defensible estimate of a future outcome. ex: estimating the price of googles stock in 5 years

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9
Q

Measure of objective risk

A
  • The degree of objective risk: Likely range of losses/expected losses, Greater # means greater degree of risk
  • Using probabilities to measure objective risk: Taking mean or standard deviation
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10
Q

4 Basic Management Techniques

A
  • Avoidance
  • Loss of Control
  • Retention
  • Risk Transfer
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11
Q

Avoidance

A

Avoid the risk

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12
Q

Loss Control

A
  • Loss Prevention: Prior to losses occurring. ex: alarms and airbags
  • Loss Reduction: After the losses have occurred. ex: Storing damaged vehicle an impound lot to protect against theft.
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13
Q

Retention

A
  • Planned Retention
  • Unplanned Retention
  • Insurance deductible, purchasing state minimum of auto insurance
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14
Q

Risk Transfer

A
  • Insurance: Transferred Risk over to the insurance company

- Non Insurance: Contracts, hold harmless agreements

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15
Q

Enterprise Risk Management

A
  • Purpose: to help ensure a uniform approach to identifying risks, measuring them, prorating them, and implementing them
  • Implemented using software programs and expert consultants
  • Uses Risk maps
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16
Q

Law of Large Numbers

A

By insuring a large sample of risk exposures, and insurance company’s actual insurance claims rate will closely affect the rate for the entire population.

17
Q

Intentional vs. Unintentional Torts

A
  • Intentional: When a defendant intends, or desires to cause harm to another individual. ex: assault, battery
  • Unintentional: Negligence - The failure to exercise the standard of care required by the law.
18
Q

ORPMAN Standard

A

-Ordinary, Reasonable, Prudent man would act

19
Q

Subrogation

A

Requires Insureds to give insurers the right to sue the negligent parties or giving insurers the right to recover their payouts should the injured insured be successful in a tort civil law suit. It also allows for insureds insurance company to collect from the negligent party’s insurance company.

20
Q

Liability Damages

A
  • Bodily Injuries: Can be sued for our negligence causing bodily harm
  • Property Damage: Negligence might result in damages to someone else property
  • Personal Injury: Damage to ones character or reputation
  • Legal Expenses: Can be sued by anyone who says your negligence lead to their loss.
21
Q

Real vs. Personal Property

A
  • Real: Consists of land and anything permanently attached to it
  • Personal: Any other property other than real ex: Jewelry, TV
22
Q

Expenses at Death

A
  • Funeral Costs
  • Debts
  • Probate: everything you own at your death is put into probate where you must go to court to determine who will receive the property
  • Stress, Worry, Mental Anguish
23
Q

Most frequent causes of death

A

Cancer & Heart Disease

24
Q

CSO 2001 Mortality Tables

A

Summaries of death statistics gathered from a specific sample during a specific time period.
Tell us when someone will die based on sex and smoking

25
Q

Unemployment Insurance

A
  • Social Insurance given by the government to those who need insurance but are unemployed
  • Varies per state
26
Q

Lifestyle in Retirement

A
  • Upon Retirement, the amount of money necessary to prevent a decline in one’s living standard is 75%-85% of the pre-retirement earnings.
  • People don’t like cut back on their expenses and lifestyle when they retire, so financial planners put away same dollar amount for retirement.
27
Q

When does Insurance Work Best

A

A potentially Large loss with a small likelihood of occurring is exchanged for a Small loss (premium paid to insurance) with a likelihood of certain to occur.`

28
Q

Utmost Good Faith

A
  • Principle that requires a higher degree of honesty and conduct from both parties to an insurance contract compared to other contracts
  • Party that is lied to can void contracts through misrepresentations, warranties, concealments, and mistakes.
29
Q

Indemnity

A
  • Insureds may not collect more than their losses
  • Can only collect on the predetermined value of their property
  • Some indemnity classes include: Suicide clause, copays/deductibles
30
Q

Valued Policies

A
  • Apply to property whose market value fluctuates, making it difficult to come up with a reasonable estimate of loss. ex: Artwork, Family Heirlooms
  • Submit receipts or appraisals for such items to insurance company
31
Q

Insurable Losses (Insurable Interest)

A
  • Do the policyowners have an insurable interest in who and what they want to ensure to prevent moral hazards, gambling, etc.
  • Collect on insured loss if I have an insurable interest
32
Q

Legal Capacities to enter into Insurance Contracts

A
  • Cannot enter if…
  • –Minors, People who are drunk or under the influence, mentally disabled people, and people acting without the authority to do so on behalf of someone else
33
Q

Aleatory Contacts

A

Contracts in which the value of consideration exchanged has the potential to be greatly unequal. ex: Most insurance contracts

34
Q

Unilateral Contracts

A

Only one of the parties to an insurance contract makes promises that are legally enforceable. That on party is the insurance company. Policyholders can cancel contract at any time.

35
Q

Common things in Business Contracts

A
  1. Must be for a legal purpose
  2. Both parties must have legal capacity to form contracts
  3. There must be agreement - Valid offer and acceptance
  4. Exchange of Consideration
36
Q

When does and insurance application become valid

A

Upon Offer and Acceptance

37
Q

Amount of paycheck that goes towards Social Security

A

7.65%

38
Q

Father of Insurance

A

Benjamin Franklin because houses were being burned down everywhere because they were made of wood

FIN 331 (1 decks)

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