Podcast
Questions and Answers
What is the definition of insurance?
What is the definition of insurance?
- It is a form of savings.
- It is a guarantee of profit.
- It eliminates all risks associated with loss.
- It involves transferring the risk of loss to an insurance company. (correct)
What does the law of large numbers state?
What does the law of large numbers state?
- Insurance companies cannot predict loss.
- Larger numbers of similar exposure to loss make actual loss more predictable. (correct)
- Smaller groups have more predictable outcomes.
- Loss prediction is always inaccurate.
Insurance is a contract by which one seeks to protect another from a ______.
Insurance is a contract by which one seeks to protect another from a ______.
Loss
What happens to the insured if they violate the contract without the mortgage holder's knowledge?
What happens to the insured if they violate the contract without the mortgage holder's knowledge?
What must be proven at the time of loss?
What must be proven at the time of loss?
What are the two classifications of risk?
What are the two classifications of risk?
What does insurable interest mean?
What does insurable interest mean?
What are the three elements of insurable risk?
What are the three elements of insurable risk?
For the reported losses of an insured group to become more likely to equal the statistical probability of loss for that particular class, the insured group must become ______.
For the reported losses of an insured group to become more likely to equal the statistical probability of loss for that particular class, the insured group must become ______.
What do individuals use to transfer their risk of loss to a larger group?
What do individuals use to transfer their risk of loss to a larger group?
What is the definition of risk in insurance?
What is the definition of risk in insurance?
What does pure risk refer to?
What does pure risk refer to?
What does speculative risk involve?
What does speculative risk involve?
What are perils in insurance?
What are perils in insurance?
Which law is foundational for statistical prediction of loss in insurance?
Which law is foundational for statistical prediction of loss in insurance?
What is a peril in the context of insurance?
What is a peril in the context of insurance?
If an insured's property policy is $250,000 and the mortgage is paid off, what will the bank receive in the event of a covered loss?
If an insured's property policy is $250,000 and the mortgage is paid off, what will the bank receive in the event of a covered loss?
What are hazards in insurance?
What are hazards in insurance?
What are conditions in relation to hazards?
What are conditions in relation to hazards?
How are hazards classified?
How are hazards classified?
What is a physical hazard?
What is a physical hazard?
What does moral hazard refer to?
What does moral hazard refer to?
What is a morale hazard?
What is a morale hazard?
What characterizes speculative risk?
What characterizes speculative risk?
What does pure risk entail?
What does pure risk entail?
What is a hazard in the context of business insurance?
What is a hazard in the context of business insurance?
What is indemnity in insurance?
What is indemnity in insurance?
What is peril generally defined as?
What is peril generally defined as?
What is subrogation?
What is subrogation?
What is an accident in the insurance context?
What is an accident in the insurance context?
What does occurrence mean in insurance?
What does occurrence mean in insurance?
What does direct loss include?
What does direct loss include?
In which clause is the transfer of an insured's rights to seek damages to the insurer found?
In which clause is the transfer of an insured's rights to seek damages to the insurer found?
What does the indemnity provision do in case of a loss?
What does the indemnity provision do in case of a loss?
Study Notes
Key Concepts of Insurance
- Insurance transfers risk from individuals or businesses to an insurance company, enabling cost sharing for unexpected losses.
- The law of large numbers states that larger groups will yield more predictable loss outcomes, aiding in the calculation of insurance rates.
Types of Risks
- Loss refers to the financial harm targeted for protection through insurance contracts.
- Pure risk involves situations that can only result in loss or no change, while speculative risk includes scenarios with potential for loss or gain.
- Insurable interest exists when the insured would suffer financially from damage to the insured property.
Insurance Policy Terms
- Conditions must be proven at the time of loss, establishing the insured’s financial involvement with the property.
- Perils are the specific causes of loss that are covered in an insurance policy, e.g., tornadoes.
- Insurers cannot collect if the insured violates the contract, but the mortgage holder may still receive payment post-loss.
Types of Hazards
- Hazards increase the chance of loss and can be classified as physical, moral, and morale:
- Physical hazards stem from tangible characteristics of the risk itself.
- Moral hazards arise from dishonest intentions or past fraudulent behavior of the applicant.
- Morale hazards relate to carelessness resulting from the presence of insurance.
Claims and Legal Terms
- Indemnity ensures that insured parties cannot profit from their losses; they are reimbursed only up to the financial loss incurred.
- Subrogation allows insurers to pursue third parties for damages after compensating the insured.
- An occurrence refers to repeated exposure leading to damage or injury, which is not intentional.
Overall Insurance Principles
- The core purpose of insurance is to mitigate financial losses for individuals and businesses.
- Effectively managing insurable risks involves understanding and categorizing risk types and hazards.
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Description
Test your knowledge of key insurance terms and concepts with these flashcards. This quiz covers fundamental terms such as 'Insurance', 'Law of Large Numbers', and 'Loss' to help deepen your understanding of risk management. Perfect for students and professionals alike!
