Unit 1 Review- Role of Insurance, Private & Stock Companies

Question 1

The role of Insurance- How does insurance spread risk?

Answer 1

• Insurance spreads the risk of loss from one person to a large number of persons through the pooling of premiums.
• Insurance is the transfer of risk from one party to another through a legal contract; or the transfer of risk through pooling funds.
  o

Question 2

The role of Insurance- Who assumes the risk?

Answer 2

The policyowner is transferring the chance of a possible financial loss to another party (i.e., the insurer)
o The insurer assumes the risk since it receives a premium.

Question 3

The role of Insurance- What happens to the policy owner when the transfer of risk is accomplished?

Answer 3

• When the transfer of risk is accomplished by purchasing an insurance policy, the policyowner obtains a large quantity of coverage in return for a small fee (i.e., premium).

Question 4

Benefits and Costs of Insurance to Society:
Most contracts are contracts of _________________ designed to ______________________ and ___________________

Answer 4

Most contracts of insurance are contracts of indemnity designed to pay off financial losses and reimburse the insured.
*

Question 5

Benefits and Costs of Insurance to Society:
How can the premium cost be reduced?

Answer 5

When the insured implements loss control measures (for example, smoke alarms or a sprinkler system) to lower the chance of a loss occurring in the first place.

Question 6

Benefits and Costs of Insurance to Society:
What do insurers do with some of their revenue?

Answer 6

Insurers take some of their revenue and invest it back into local and national economies to benefit all society.

Question 7

What is considered a Private (Commercial) Insurance Companies?

Answer 7

• Anything not owned by the federal or state government

Question 8

What is a monoline insurer?

Answer 8

• A company that only sells one line of insurance (for example, only health insurance)

Question 9

What is a multi-line insurer?

Answer 9

• Companies that sell more than one line of insurance

Question 10

What is a stock company?
(Incorporated where and what is the purpose?)

Answer 10

a private organization, organized and incorporated under state laws for the purpose of making a profit for its stockholders (shareholders).

Question 11

In a stock company what is paid to stockholders?

Answer 11

• Stock dividends are paid to stockholders.

Question 12

How is a stock company structured?

Answer 12

It is structured the same as any corporation.

Question 13

In a stock company who are the directors and officers responsible to?

Answer 13

Directors and officers are responsible to the stockholders.

Question 14

Why is a stock company referred to as nonparticpating?

Answer 14

because policyholders do not participate in dividends.

Question 15

What do stock companies look to grow?

Answer 15

Their earned surplus or post-tax earnings not paid in dividends.

Question 16

What are earnings retained by a stock company considered and who owns them?

Answer 16

They are considered equity and are owned by the shareholders.