Unit 1 Cram Sheet

Question 1

Insurance

Answer 1

Transfer of risk from a person or business to an insurer

Question 2

Risk

Answer 2

uncertainty/possibility of a loss

Question 3

Speculative Risk

Answer 3

chance of loss or gain; not insurable

Question 4

Pure Risk

Answer 4

chance of loss only; insurance companies will insure

Question 5

Exposure

Answer 5

possibility that a loss will occur

Question 6

Example Exposure 1

Answer 6

Auto Accident

Question 7

Example Exposure 2

Answer 7

Luggage lost on a trip

Question 8

Example Exposure 4

Answer 8

Employee hurt on the job

Question 9

Example Exposure 3

Answer 9

Pet biting a mailman

Question 10

Example Exposure 5

Answer 10

House fire

Question 11

Peril

Answer 11

a cause of loss

Question 12

Peril Example 1

Answer 12

House burns down, peril is the fire

Question 13

Direct

Answer 13

Physical loss

Question 14

Direct Example 1

Answer 14

indirect- consequence of the direct loss

Question 15

Hazard

Answer 15

increases the chance of loss

Question 16

Hazard Example 1 Physical Hazard

Answer 16

the hazard can be seen

Question 17

Hazard Example 2 Moral Hazard

Answer 17

dishonesty

Question 18

Hazard Example 3 Morale Hazard

Answer 18

carelessness

Question 19

STARR!

Answer 19

Method of handling risk

Question 20

S in STARR!

Answer 20

Sharing

Question 21

T in STARR!

Answer 21

Transfer

Question 22

A in STARR!

Answer 22

Avoidance

Question 23

R in STARR!

Answer 23

Retention

Question 24

R in STARR!

Answer 24

Reduction

Question 25

Contract (policy)

Answer 25

an agreement between the insured and the insurer

Question 26

Contract (policy) 1st Party

Answer 26

Insured (customer)

Question 27

Contract(policy) 2nd Party

Answer 27

insurer( insurance company)

Question 28

Law of large numbers

Answer 28

the larger the group, the more accurately future losses can be predicted

Question 29

CANHAM

Answer 29

Elements of an insurable risk

Question 30

C in CANHAM

Answer 30

Calculable

Question 31

A in CANHAM

Answer 31

Affordable

Question 32

N in CANHAM

Answer 32

Non-catastrophic

Question 33

H in CANHAM

Answer 33

Homogenous

Question 34

A in CANHAM

Answer 34

Accidental

Question 35

M in CANHAM

Answer 35

Measurable

Question 36

Adverse Selection

Answer 36

risks that have a greater-than-average chance of loss

Question 37

Adverse Selection Example 1

Answer 37

not warranted by insurers

Question 38

Adverse Selection Example 2

Answer 38

Tendency for high-risk individuals to get and keep insurance

Question 39

Adverse Selection Example 3

Answer 39

Why insurers go through the underwriting process

Question 40

Adverse Selection Example 4

Answer 40

High risk= higher rate or refusal to insure

Question 41

Reinsurance-

Answer 41

an insurance company( the ceding company) paying another insurance company (reinsurer) to take some of the company's risk

Question 42

Reinsurance Example 1

Answer 42

Reinsurers help spread the insurer's risk

Question 43

Reinsurance Example 2

Answer 43

Facultative- the reinsurer evaluates each risk before allowing the transfer

Question 44

Reinsurance Example 3

Answer 44

Treaty- the reinsurer accepts the transfer according to an agreement called a treaty

Question 45

Stock Insurer Example 1

Answer 45

Owned by stockholders

Question 46

Stock Insurer Example 2

Answer 46

Dividend is not guaranteed

Question 47

Stock Insurer Example 3

Answer 47

Dividend is paid to stockholder

Question 48

Stock Insurer Example 4

Answer 48

Dividend is taxable to stockholders

Question 49

Stock Insurer Example 5

Answer 49

Issues non-participating policies

Question 50

Mutual Insurer Example 1

Answer 50

Owned by the policyholders (customers)

Question 51

Mutual Insurer Example 2

Answer 51

Dividend is not guaranteed

Question 52

Mutual Insurer Example 3

Answer 52

Dividend is paid to policyholder

Question 53

Mutual Insurer Example 4

Answer 53

Issues participating policies

Question 54

Fraternal Insurer Example 1

Answer 54

Provides insurance and other benefits

Question 55

Fraternal Insurer Example 2

Answer 55

Must be a member of the society to get the benefits