UNIT 1 TEST: Principles of Insurance Terms Flashcards
What is peril?
The cause of loss. Fire and collision are both examples of perils
What is a hazard?
A Hazard is anything that increases the chance of loss
What are the three types of hazards?
Physical hazard hazard that arises from the condition occupancy or use of property itself and example of a physical hazard is a skateboard left on porch steps.
Morale hazard that means an individual through carelessness were irresponsible actions can increase the possibility for a loss and example of a Morale hazard is a person who drives a car carelessly because he knows it will be insured if an accident occurs
Moral hazard means that a person might create a loss situation on purpose just to collect from the insurance company
What is risk?
The uncertainty of loss
What is insurance?
Insurance is a contract or device for transferring the risk of loss from a person, business, organization to an insurance company that agrees, in exchange for a premium, to pay losses through an accumulation of premiums.
Which of the following represents pure risks?
A dog is temperamental the owner he’s afraid it will bite a neighbor and she will be held responsible.
A pure risk is one that involves only the possibility of loss.
What is the law of large numbers…?
The law of large numbers says that the more examples used to develop a statistic the more reliable the statistics will be
insurers use the large numbers to predict the number of losses that will occur so they can charge the correct premium
Blank purchases a house from blank person one, borrows $75,000 from bank which along with her $25,000 down payment equals $100,000 purchase price of the home. Who has an insurable interest in this home?
Both the home purchaser and the bank have an insurable interest in the home.
The home purchaser because they own it
The bank because they carry the mortgage
Insurable interest exists when there is an actual economic interest in the safety or preservation of the subject of the insurance from loss or destruction or financial damage or impairment.
Describe four of the criteria a risk must need to be insurable…
Insurable interest: pure risk, not speculative: loss must not happen to a large number of insured at the same time:
risk of loss must be definite:
loss would cause financial hardship
cost of loss is calculable:
cost of insurance covering the risk is affordable:
large numbers of persons with similar potential for loss
Blank pharmaceutical company decides not to manufacture a new drug after determining that has a serious potential side effects. This is an example of which risk management method?
Avoidance: by not producing the drug pharmaceutical company avoid the risk of being sued by consumers who are injured by the drug
Blank industries has an automatic sprinkler system installed in his office building. This is an example of which risk management method?
Reduction: a sprinkler system can reduce the severity of the fires. But it does not prevent them altogether or reduce the number of that occur
Since she is always been in good health lady decides to cancel her health insurance policy. This is an example of which risk management method?
Retention: by not caring health insurance lady is retaining the risk of financial loss from unexpected medical expenses.
Determine the peril involved in each of our losses… Mrs. Reed’s home was destroyed in a fire… Suzanne’s house was damaged in the flood… Jim’s automobile collided with series…
A peril is the cause of loss. In this case a)fire b)flood c)collision
Veronica forgets to lock the front door when she leaves for work. Later that day and steals her television. What is the peril/what is the hazard?
The peril is the theft, the hazard is leaving the door unlocked
