Study one

Question 1

Define consideration.

Answer 1

• a requirement of all contracts in common law provinces

- is it what one party gives or promises to give in exchange for the act/promise of the other party to the contract.

Question 2

Define indemnity.

Answer 2

• is a principle of insurance by which insureds, up to the limit of the policy, are fully compensated for the actual cash value of what they have lost, so that they neither gain or lose as a result of a loss.

Question 3

Define actual cash value.

Answer 3

• is the current cost of replacing an article with a smiliar one in the same condition

Question 4

What are examples of insurable risk?

Answer 4

1) personal risk
- premature death
- physical disability
- old age
- unemployment
2) property risk
direct - damage or destruction to property insured
indirect - occur as a consequence of direct losses
3) liability risks - based on your responsibility
-his/her conduct
- operation of vehicles
- manufacture of products
- rendering professional services
-ownership/occupancy of property

Question 5

Direct loss VS. indirect loss.

Answer 5

direct
- the result of an event (fire, flood, theft) you had a loss
indirect loss
- a result of direct loss such as business interruption

Question 6

What are the classes for insurable business

Answer 6

1) personal lines
- being the insurance relating to individuals in their private capacity
2) commercial lines
- being the insurances relating to commercial operations such as stores, professional offices, and trucking operations.
3) special lines
- being the insurance relating to large industrial firms such as factories, multi-location stores, and highrise properties
(- unique or new businesses
- such as Uber, CN Tower, concerts, movie industry, mines)

Question 7

How to deal with risk.

Answer 7

1) Reduce/eliminate
- analysing risk and doing everything possible to prevent mishaps from occurring.
2) Assume or retain risk (deductibles)
i) bear cost from your own pocket
ii) captive insurance company
3) Transfer risk
- buy insurance and receive financial protection

Question 8

How to determine chance of loss.

Answer 8

1) principles of probablity
- based on past experiences
- if statistics are kept onthe losses suffered by a large group of people, the number of losses suffered by a similar group can be predicted with reasonable accuracy, although one cannot tell which individuals will suffer the loss.

2) law of large numbers aka law of averages
- the larger the #, the more accurate prediction of losses
- reliance to be placed upon a given probability is increased when the number of trials or cases is increased

Question 9

Define perils.

Answer 9

• the event that may cause a loss to occur

ex) fire, flood, explosion, falling object, vandalism, windstorm, smoke, riot

Question 10

Define hazard.

Answer 10

• a condition that may cause the peril to occur or make a loss more severe.

Question 11

What is a physical hazard?

Answer 11

• subject matter of insurance
  includes:
• mats, property location, slippery floors, wiring

Question 12

What is a moral hazard?

Answer 12

• relates to conditions attributable to the human element of risk.
  ex) insured is uncooperative with insurer, integrity and honesty of the insured

Question 13

Who is the insured?

Answer 13

• first party

- individual who is insured

Question 14

Who is the insurer?

Answer 14

• second party

- insurance company

Question 15

Who is the third party?

Answer 15

• person claiming against policy, but is not a part of the contract
  ex) car accident occurs, other person who is involved

Question 16

What is written evidence of a contract?

Answer 16

• insurance policy

Question 17

What is an agent?

Answer 17

• sells insurance
• acts as intermediary between insured and insurer
• works for only one insurance company

Question 18

What is a broker?

Answer 18

• sells insurance
• acts as intermediary between insured and insurer
• works for more than one insurance company

Question 19

What is a staff adjuster?

Answer 19

• works for insurance company

- when a loss occurs, the insured and insurer may deal with eachother directly

Question 20

What is an independent adjuster?

Answer 20

• representative of the insurer

- appointed by insurer

Question 21

What is a public adjuster?

Answer 21

• independent businessperson who may be engaged by insurance company to help with a claim, usually if there is a dispute
• works for the insured, not the insurer
• receives a % of damage $

Question 22

What is a direct writer?

Answer 22

• employee of insurance company

- contacted by phone, skips broker and goes directly to insurance company

Question 23

What are examples of risk reducing measures?

Answer 23

• fire alarms, smoke detectors, sprinkler systems
• seat belts in autos to reduce possible injury
• nonslip wax on floors
• safety devices on machinery
• tamperproof locks, burglar alarms, installing a safe
• storing flammables outside

Question 24

Define contract.

Answer 24

• the agreement enforceable at law, which sets out in detail the arrangements between insurer and insured concerning
• premiums
• contingency insured against
• manner and method of settling losses

Question 25

Define income.

Answer 25

• the fund must be sufficient to meet the losses paid out

- the premium for each risk must be commensurate with that risk

Question 26

Define outgo.

Answer 26

• proper settlement of losses made

Question 27

Define pure risk.

Answer 27

• entails a chance of loss but no chance of profit

Question 28

Define speculative risk.

Answer 28

• exists where there is either a chance of loss or a chance of profit.

Question 29

Define insurance.

Answer 29

• the undertaking of one person to indemnify another person against loss or liability for loss in respect to a certain risk or peril to which the object of insurance may be exposed, or to pay a sum of money or other thing of value upon the happening of a certain event.