Risks, Perils, and Hazards Flashcards
law of large numbers
principle of insurance that the larger the # of individual risks combined into a group, the more certainty there is predicting the degree or amt of loss that will be incurred in any given period.
peril
specific event causing the loss
pure risk
risk that involves the chance of loss only ; no opportunity for gain; insurable (illnesses, injuries, etc)
speculative risk
chance of both loss and gain, NOT insurable (ie invest in stocks)
risk retention
being aware of the risks but taking precautions for financail protection. (ie auto policy)
risk transfer
shift responsibility of risk to another in form of an insurance contract.
adverse selection
selection “against the company”. tendency of less favorable insurance risks to seek or continue insurance to a greater extend than others. Also, tendency of policy owners to take advantage of favorable options in insurance contracts.
moral hazard
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
morale hazard
hazard rising from indifference to loss because of the existence of insurance.
risk pooling
aka loss sharing. spreads risk by sharing the possibility of loss over a large number of people. from individual to group.
principle of indemnity
making an issued whole, restore to same condition before a loss
loss exposure
any situation that presents the possibility of a loss
homogeneous exposure units
similar objects of insurance that are exposed to the same group of perils
hazard
condition/situation creates/increase a chance of loss
types of hazard
physical - poor health, overweight, blind
moral-dishonestly, drugs, alcohol abuse
morale-careless attitude, recklss driving, jumping off a cliff
