Risky Business Flashcards
Insurance
A method for transferring risk from an individual to an insurance company.
Policy Benefit
The amount of money an insurer promises to pay if a covered loss occurs.
Premium
A specified amount of money an insurer charges in exchange for agreeing to pay a policy benefit when a specific loss occurs.
Life Insurance
Insurance that pays a benefit upon the death of a named person.
It protects against the financial consequences of dying, especially dying earlier than expected.
- Lost future income
- Funeral expenses
- Final medical expenses
- Unpaid debts
Risk Pooling
Insurers collect premiums from all insured people and spread the cost of the relatively few anticipated losses among all insureds.
Annuity
A financial product under which an insurer promises to make a series of periodic payments to a named person or entity in exchange for a premium or series of premiums.
Insurable Loss
Must be definite in terms of time and amount.
The insurer must be able to determine when to pay policy benefits and how much those benefits should be.
The policy language controls how the insurer will determine the benefit amount, and whether the policy is considered a contract of indemnity or a valued contract.
Contract of Indemnity
An insurance policy under which the amount of the policy benefit payable for a covered loss is based on the actual amount of financial loss that results from the covered event, as determined at the time of the event.
Valued Contract
An insurance policy that specifies the amount of the policy benefit that will be payable when a covered loss occurs, regardless of the actual amount of the loss that was incurred.
Face Amount
The amount of the policy benefit that is payable if the insured dies while the policy is in force. Also known as face value.
Loss Rate
The frequency of losses insureds are likely to experience.
Law of Large Numbers
A mathematical theory which states that, typically, the more times we observe a particular event, the more likely it is that our observed results will approximate the true probability that the event will occur.
Probability
The likelihood that a given event will occur in the future.
Reinsurance
Insurance that one insurance company, known as the direct writer, purchases from another insurance company, known as the reinsurer, to transfer all or part of the risk on insurance policies that the direct writer has issued.
Retention Limit
A maximum amount of insurance that an insurer is willing to carry at its own risk without transferring some of the risk to a reinsurer. The direct writer cedes anything above that limit to a reinsurer in a reinsurance transaction or through other risk transfer mechanisms.
Direct Writer
In a reinsurance transaction, the insurance company that purchases reinsurance to transfer all or part of the risks on insurance policies the company issued.
Reinsurer
An insurance company that accepts risks transferred from another insurer in a reinsurance transaction.
Retrocessionaire
A reinsurance company that accepts risks transferred from another reinsurer in a reinsurance transaction.
Underwriting
The process of identifying and classifying the degree of risk represented by a proposed insured.
Underwriter
An insurance company employee who is responsible for evaluating proposed risks.
Medical Risk Factor
A physical or psychological characteristic that may increase the likelihood of loss.
Moral Hazard
A characteristic that exists when the reputation, financial position, or criminal record of an applicant or a proposed insured indicates that the person may act dishonestly in the insurance transaction.
Antiselection
The tendency of individuals who believe they have a greater-than-average likelihood of loss to seek insurance protection to a greater extent than do other individuals.
Risk Class
A grouping of insureds who represent a similar level of risk to an insurer.
Standard Risk
A proposed insured who has a likelihood of loss that is not significantly greater than average.
Standard Premium Rates
A premium rate charged insureds who are classified as standard risks.
