Study 1

Question 1

Insurance

Answer 1

A contract in which one party, the insurer, for monetary consideration agrees to reimburce another, the insured, for loss or liability for a loss on a defined subject caused by specified hazards or perils

Question 2

Risk

Answer 2

The chance of loss. Sometimes referred to as the subject of an insurance contract

Question 3

Speculative risk

Answer 3

Where the possibility of either a financial loss or gain exists, such as in purchasing shares, or betting on horses. Speculative risk is not insurable.

Question 4

Pure risk

Answer 4

A situation involving a chance of a loss, or no loss but no chance of gain. Pure risk is insurable.

Question 5

Three broad categories of insurance

Answer 5

Personal risks, property risks and liability risks

Question 6

What does general insurance include

Answer 6

Property and casualty insurance

Question 7

What is casualty insurance

Answer 7

A blanket term used to describe insurance for subjects other than life, fire, or automobile

Question 8

Insurer

Answer 8

The insurance company that undertakes to indemnify for losses and perform other insurance-related operations

Question 9

Peril

Answer 9

The event that caused a loss covered by the policy; for example, fire, windstorm

Question 10

Burglary

Answer 10

Unlawful removal of property from premises involving visible forcible entry

Question 11

Robbery

Answer 11

Unlawfully taking another’s property, in the person’s presence, by violence or the threat of violence

Question 12

Theft

Answer 12

The wrongful taking of the property of another. It is a broad term and includes larceny, pilfering, holdup, robbery, and pickpocketing

Question 13

Negligence

Answer 13

Failure to use the degree of care expected from a reasonable and prudent person. Negligence is the peril insured in liability insurance.

Question 14

Hazard

Answer 14

1. A risk or probability that the event insured against might occur
2. A condition that engenders or increases the chances of a loss

Question 15

Physical hazard

Answer 15

a hazard arising from the physical condition or characteristics of the object that is insured

Question 16

Moral hazard

Answer 16

A hazard arising from the character, interest, habits, and lack of integrity of the insured or person concerned

Question 17

Underwriter

Answer 17

1. The insurance company or group that underwrites or insures a particular risk
2. The individual within an insurance company whose responsibility it is to accept or reject business in the particular line in which she specializes, and, in this way, chooses the risks her principals are prepared to underwrite. They explore the signals of the presence of moral hazards.

Question 18

Morale hazard

Answer 18

A hazard that is based on the insured’s attitude toward the insured’s belongings. This hazard exists when the insured no longer cares about the possessions because they are insured

Question 19

Proximate cause

Answer 19

A cause that, in a natural and continuous sequence unbroken by any new and independent cause, produces an event and without which the event would not have happened

Question 20

Remote cause

Answer 20

A cause that is not the proximate cause of loss and is separate from the proximate cause in a chain of events leading to a loss

Question 21

Immediate cause

Answer 21

A cause that is not the proximate cause of loss but is the last link in a chain of events leading to a loss