Insurance and Risk Financing

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Questions and Answers

Which of the following is a benefit of insurance to individuals and organizations?

Encouraging an insured's loss control activities (correct)

Disabling efficient use of resources

Reducing social burdens by depriving insureds of recovery after a loss

Increasing cash flow uncertainty

Which of the following types of insurance policies cover personal loss exposures?

Property-casualty insurance policies (correct)

Life and health policies

Commercial insurance policies

Reinsurance policies

What is a primary goal of insurance in terms of risk financing?

Managing cash flow uncertainty

Reducing social burdens

Paying for losses (correct)

Disabling efficient use of resources

What is a common feature of commercial insurance policies?

Combining liability and property coverages into a single policy (A) Signup and view all the answers

What is a type of private insurer that provides property and liability coverage to people and businesses?

Stock insurer (C) Signup and view all the answers

What is a primary mechanism of insurance in terms of risk management?

Risk transfer (D) Signup and view all the answers

What is a potential drawback of insurance?

The possibility of increased losses (A) Signup and view all the answers

What type of insurance covers the legal liability of an insured resulting from the ownership, maintenance, or use of an automobile?

Commercial auto insurance (B) Signup and view all the answers

Which type of insurance provides protection for the loss of use of or damage to a vehicle listed on the policy because of a covered cause of loss?

Auto physical damage coverage (A) Signup and view all the answers

What type of insurance covers damage to buildings and/or their contents resulting from tire, vandalism, and other causes of loss?

Commercial property insurance (C) Signup and view all the answers

What is the primary purpose of an insurance contract?

To transfer the risk of financial loss from the insured to the insurer (B) Signup and view all the answers

Which type of insurance covers ships and their cargo against losses like fire, lightning, and 'perils of the sea'?

Ocean marine insurance (C) Signup and view all the answers

What type of insurance offers broad protection against claims alleging that the insured is legally liable for bodily injury or damage to the property of others?

Commercial general liability insurance (B) Signup and view all the answers

Which type of insurance protects the insured against theft of job-site contents, such as cash registers, computers, and inventory?

Commercial crime insurance (D) Signup and view all the answers

What type of insurance covers mobile equipment and property used away from the insured premises by commercial enterprises?

Commercial inland marine insurance (A) Signup and view all the answers

What type of insurance covers goods in domestic transit and property used in transportation and communication, as well as property used on job sites?

Commercial inland marine insurance (B) Signup and view all the answers

What is the primary purpose of life insurance?

To replace the income-earning potential of a family's primary wage earner (C) Signup and view all the answers

Which type of insurance provides periodic income payments to an insured who is unable to work due to sickness or injury?

Disability income insurance (A) Signup and view all the answers

What type of policy combines property, crime, and liability coverages for business owners?

Businessowners policy (BOP) (B), Commercial package policy (CPP) (D) Signup and view all the answers

Which of the following is NOT a type of commercial insurance?

Life insurance (A) Signup and view all the answers

What is the purpose of a commercial umbrella liability policy?

To provide excess liability coverage beyond the limits of other policies (A) Signup and view all the answers

What is the main advantage of purchasing a commercial package policy (CPP) or a businessowners policy (BOP)?

It provides more comprehensive coverage than separate policies (D) Signup and view all the answers

Which type of insurance provides coverage for nursing-home care and home healthcare?

Long-term care insurance (A) Signup and view all the answers

What is the typical limit range for a personal umbrella policy?

$1 million to $2 million (D) Signup and view all the answers

Study Notes

Insurance and Risk Management

Insurance helps individuals and organizations achieve risk financing goals, such as paying for losses, managing cash flow uncertainty, and complying with legal requirements.
Insurance provides several benefits, including encouraging loss control activities, enabling efficient use of resources, providing support for credit, and reducing social burdens.

Types of Insurance

Property-casualty insurance policies cover personal loss exposures, including residences, personal vehicles, and owned watercraft.
Life and health insurance policies protect the health, medical well-being, and lives of families and individuals.
Commercial insurance policies often combine liability and property coverages into a single policy.

Private Insurers

Private insurers can be classified as stock insurers, mutual insurers, reciprocal insurance exchanges, Lloyd's, surplus lines insurers, captive insurers, and reinsurance companies.

Commercial Insurance Policies

Commercial auto insurance covers an insured's legal liability resulting from the ownership, maintenance, or use of an automobile.
Commercial property insurance covers damage to buildings and/or their contents resulting from various causes of loss.
Ocean marine insurance covers ships and their cargo against losses like fire, lightning, and "perils of the sea".
Commercial inland marine insurance covers mobile equipment and property used away from the insured premises by commercial enterprises.
Commercial crime insurance protects the insured against theft of job-site contents, money, and employer property.
Commercial general liability (CGL) insurance offers broad protection against claims alleging that the insured is legally liable for bodily injury or damage to the property of others.

Life and Health Insurance

The main purpose of life insurance is to replace the income-earning potential of a family's primary wage earner who died.
Life insurance can be categorized into two main types: term life insurance and permanent life insurance.
Health insurance can be purchased on an individual or a group basis, covering medical expenses, disability income, and long-term care.

Commercial Insurance Policies (Continued)

Commercial insurance policies can cover various types of loss exposures, including commercial package, business owners, commercial auto, commercial property, commercial inland marine, commercial crime, and commercial general liability.
Many business organizations purchase a commercial package policy (CPP) or a businessowners policy (BOP), which provide property, crime, and liability coverages.

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Description

Learn about the role of insurance in achieving risk financing goals, its benefits to individuals and organizations, and its impact on society. Discover how insurance can manage cash flow uncertainty, provide support for credit, and encourage loss control activities.