Unit 1 - Principles Of Insurance

Question 1

Risk

Answer 1

The chance or uncertainty of loss

Question 2

Exposure

Answer 2

Condition or situation that presents a possibility of loss.

Example: home that is built on the flood plain is exposed to the possibility of flood damage

Question 3

Avoid Risk

Answer 3

Example you can avoid the risk of being in an auto collision by never getting into a car

Question 4

Control Risk

Answer 4

Example: training workers in the safe use of welding tools can curtail the frequency of fires on the job. Risk control techniques that limit loss severity come under the heading of risk reduction

Question 5

Retain a Risk

Answer 5

If any loss occurs they will pay for it themselves. If people are not aware of a risk, they may retain it unintentionally, and they may be surprised if a loss occurs.

Question 6

Hold Harmless Agreement

Answer 6

Shifts liability from an owner or contractor to a tenant or subcontractor. It is a contractual arrangement where one party assumes the liability of a situation and relieves the other party of responsibility

Question 7

Insurance

Answer 7

A contract or device for transferring risk from a person, business, or organization to an insurance company that agrees, in exchange for a premium, to pay for losses through an accumulation of premiums

Question 8

The law of large numbers

Answer 8

The more examples used to develop any statistic, the more reliable the statistic will be

Question 9

Speculative Risk

Answer 9

Risks in which there exists both the possibility of gain and the possibility of loss. Example: poker game

Question 10

Pure Risks

Answer 10

Involves only the possibility of loss. Example: A person can buy insurance to protect against loss if a fur coat is stolen

Question 11

Insurable Interest

Answer 11

You must have a chance of financial loss or a financial interest in the property in order to considered for insurance

Question 12

Peril

Answer 12

It is the cause of loss. Fire and collision are both examples of perils

Question 13

Hazard

Answer 13

Anything that increases the chance of loss.

Question 14

Physical Hazard

Answer 14

A hazard that arises from the condition, occupancy, or use of the property itself. Example, a skateboard left on the porch steps.

Question 15

Morale Hazard

Answer 15

Is an individual, through carelessness or by irresponsible actions, can increase the possibility for a loss. For example driving carelessly

Question 16

Moral Hazard

Answer 16

Means that a person might create a loss situation on purpose just to collect from the insurance company.

Question 17

Criteria a risk must meet to be insurable

Answer 17

Insurable interest;
Pure risk, not speculative;
Loss must not happen to a large number of insureds at the same time;
Risk of loss must be definite;
Loss would cause financial hardships;
Cost of loss is calculable;
Cost of insurance covering the risk is affordable;
Large number of persons with similar potential for loss