Study 1 - Introduction to Risk and Insurance - What is Risk?

Question 1

Insurance

Answer 1

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

Question 2

Risk

Answer 2

The chance of loss. Specifically, the possible loss or destruction of property or the possible incurring of liability. Sometimes referred to as the subject of an insurance contract

Question 3

Speculative Risk

Answer 3

An insurance term for a situation where the possibility of either a financial loss or gain exists, such as in purchasing shares, or betting on horses. Speculative risk is usually not insurable, unlike pure risk.

Question 4

Pure Risk

Answer 4

A situation involving a chance of a loss, or no loss but no chance of gain

Question 5

Insurable Risk - What two questions to ask

Answer 5

Is there a chance of loss?

Is there a chance of profit?

Question 6

What are the types of insurable risks?

Answer 6

1. Personal risks
2. Property risks
3. Liability risks

Question 7

Personal Risks

Answer 7

Personal risks encompass the chance of loss arising from a person’s own bodily injury, loss of life, or loss of income because of any of the following:

Death, physical disability (resulting from accident or sickness), old age, unemployment

Question 8

Property Risks

Answer 8

Property risks encompass the chance of loss arising from the destruction of or damage to property. Losses are of two types:

Direct Losses are those involving damage to or destruction of the property insured
Indirect Losses occur because of direct losses

Question 9

Examples of Direct Losses

Answer 9

1. The cost of repairing a collision-damaged automobile
2. The cost of replacing a stolen gaming console
3. the cost of rebuilding a house if it burns down

Question 10

Examples of Indirect Losses

Answer 10

1. If you rent a suite in the basement of the house and your house burns down, you will lose the rental income from his tenant
2. If you operate a retail store and it closes because of substantial damage caused by fire, you will lose income during rebuilding

Question 11

Liability Risks

Answer 11

Encompass the chance of loss arising from an individuals legal obligation to pay damages because of the injury or death of another’s property. This obligation is based primarily on the individuals negligent acts or legal liability in relation to

1. His or her conduct;
2. The operation of automobiles, aircraft, boats, snowmobiles, trains, trucks, and other vehicles;
3. the ownership or occupancy (o both) of property;
4. The manufacture of products; or
5. The rendering of professional services

Question 12

General Insurance

Answer 12

Includes personal lines, commercial lines, and special risks

Question 13

Life Insurance

Answer 13

Includes specific policies covering life, health, accident and sickness

Question 14

Personal Lines

Answer 14

Insurance relating to individuals in their private capacity

Private dwelling, dwelling contents, automobiles, seasonal dwellings, boats, jewelry, furs, vacation travel insurance, major medical and surgery costs, etc.

Sometimes split into personal automobile and personal property

Question 15

Commercial Lines

Answer 15

Insurance relating to commercial operations, such as stores, professional offices, trucking operations, construction vehicles and contractors, large commercial operators, and many other similar businesses

Question 16

Special Risks

Answer 16

insurance relating to marine exposures, aviation, and high-risk industrial operations