Insurance Perils and Hazards Quiz

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Questions and Answers

What is an example of a morale hazard in insurance?

Filing a claim for a car theft without proper evidence

Leaving a car unlocked because it is insured (correct)

Deliberately causing a loss to claim insurance money

Underreporting the value of insured property

Which principle imposes a higher standard of honesty in insurance contracts?

Principle of indemnity

Principle of liability

Principle of insurable interest

Principle of utmost good faith (correct)

What type of insurance is designed to provide protection for loss of income due to death?

Health insurance

Key person insurance

Income protection insurance

Life insurance (correct)

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

Travel insurance Signup and view all the answers

What is one of the limitations of key person insurance?

It cannot protect against job redundancy Signup and view all the answers

How does life insurance help cater to dependents financially?

It compensates for loss of income due to death Signup and view all the answers

Which insurance type covers income loss due to temporary or permanent disablement?

Income protection policies Signup and view all the answers

What does the principle of utmost good faith imply for the parties involved in an insurance agreement?

They should disclose relevant information completely Signup and view all the answers

What is a common issue regarding life insurance in Australia?

Underinsurance among individuals Signup and view all the answers

Which act does NOT regulate the life insurance industry in Australia?

Trade Practices Act Signup and view all the answers

Who is responsible for ensuring life insurance providers hold the necessary licenses?

Australian Securities and Investments Commission (ASIC) Signup and view all the answers

What role does the policy owner play in a life insurance contract?

The guaranteed party in the contract Signup and view all the answers

Which of the following is considered a key provider in the Australian life insurance industry?

AIA Australia Limited Signup and view all the answers

In a life insurance contract, who can be the insured life?

Any individual, including the policy owner Signup and view all the answers

Which of the following is NOT a function of life insurance regulation?

Ensuring enough insurance coverage for all individuals Signup and view all the answers

How many licensed life insurance providers are currently noted in the industry?

24 Signup and view all the answers

What is defined as a condition that increases the chance of a loss?

Hazard Signup and view all the answers

Which of the following is a type of hazard that involves unethical behaviour by the insured?

Moral hazard Signup and view all the answers

In the context of hazards, what differentiates morale hazard from moral hazard?

Morale hazard arises from carelessness due to insurance. Signup and view all the answers

Which of the following is NOT considered a peril?

Moral behaviour Signup and view all the answers

What might lead to a moral hazard situation?

Insurance payoff exceeding insured asset value Signup and view all the answers

Which example best represents a physical hazard?

Owning an aging building with defective wiring Signup and view all the answers

What is a characteristic of morale hazard?

Carelessness resulting from being insured Signup and view all the answers

Which scenario is an example of moral hazard?

Deliberately causing a fire to claim insurance money Signup and view all the answers

What is a common consequence of a moral hazard?

Higher rates of carelessness among insured individuals Signup and view all the answers

Which of the following best describes how a physical hazard operates?

It increases the likelihood of a peril. Signup and view all the answers

What type of insurance would cover ongoing needs such as mortgage and living expenses for dependents?

Life Insurance Signup and view all the answers

Which of the following is NOT a use of life insurance in estate planning?

Accidental Death Coverage Signup and view all the answers

Who typically owns and pays for key person insurance?

The business Signup and view all the answers

What is required for a TPD claim to be valid?

The life insured must be unable to perform any work for six consecutive months. Signup and view all the answers

What is triggered in a Buy-Sell agreement upon the event of a partner's death?

Buyout of the deceased partner's interest Signup and view all the answers

What is one common financial consequence of the loss of a key employee in a business?

Loss of goodwill and customers Signup and view all the answers

Which type of TPD insurance only requires the insured to be unable to perform their current job?

Own Signup and view all the answers

What percentage of trauma insurance claims arise from the four specified conditions: heart attack, stroke, cancer, and heart surgery?

92% Signup and view all the answers

What aspect does varying the level of coverage in life insurance affect?

The insurance premium amount Signup and view all the answers

Which statement is true regarding trauma insurance compared to TPD insurance?

There is no prerequisite of inability to work for trauma insurance claims. Signup and view all the answers

Which of the following could be a specific event triggering a Buy-Sell agreement?

Long-term disability Signup and view all the answers

Which of the following is NOT a type of TPD insurance mentioned?

Temporary Signup and view all the answers

What is an important consideration when determining the beneficiary of a life insurance policy?

Relationship to the policyholder Signup and view all the answers

Study Notes

Peril

Peril is the cause of loss
Some common perils are: fire, cyclone, storm, flood, lightning, earthquakes, malicious damage, theft and burglary
Only these events can be insured against

Hazard

A hazard increases the chance of a peril event
There are three main types of hazards:
- Physical: A physical condition that increases the chance of loss
- Moral: Occurs when an insured person tries to cause a loss to gain from insurance
- Morale: Occurs when an insured person becomes careless because of the existence of insurance

Moral Hazard

It involves unethical or immoral behaviour by an insured person
It arises when both parties have incomplete information about each other
It is present in all types of insurance

Morale Hazard

Morale hazard arises due to carelessness or indifference to a loss because of insurance
The presence of insurance causes an insured to be careless about protecting their property
It differs from moral hazard in that it lacks the intent to gain from insurance

Principle of Utmost Good Faith

This principle applies to all insurance contracts.
It requires that a higher standard of honesty be imposed on parties to an insurance agreement
This principle sets a different light on the interpretation of insurance agreements compared to general business contracts

Types of Insurance

Life and health
Property
Public liability
Business interruption
Fire, burglary and theft insurance
Marine insurance
Motor vehicle insurance
Workers compensation

Life Insurance

It reduces the financial impact of death or serious contingencies that affect income
The level of life insurance is based on the needs of dependents
There is a risk of underinsurance in Australia

Life Insurance Regulation

It is subject to considerable regulation including requirements for providers to hold a licence

Life Insurance Providers

Some key insurance providers are: AIA Australia Limited, Allianz Australia Limited, AMP Limited, Challenger Life Company Limited, MLC Limited, Munich Reinsurance Company of Australasia Limited, The National Mutual Life Association of Australasia Limited, Zurich Australia Limited
The 'big 4' banks (ANZ, CBA, NAB and Westpac) also hold licences

Parties to a Contract of Life Insurance

Policy Owner: Pays for the policy and acts as a guarantor.
Insured Life: The person whose life is insured.
Beneficiary: The person or people who receive the insurance payout.
Life Office: The insurance company.

Income Protection Insurance

Provides protection against loss of income due to permanent or temporary disablement.
It has a trauma insurance 'add-on'

Key Person Insurance

Alleviates financial loss to a business due to the death or disability of a key employee.
It is paid for and owned by the business.

Buy-Sell Agreement

A contract between business partners that compels remaining partners to buy out the other partner's interest in the business upon a specific event.
These events may include death, divorce, long-term disability, retirement or bankruptcy.

Total and Permanent Disability (TPD) Insurance

Provides financial cover in the event that the insured is unable to perform any work for six consecutive months.
There are three occupation definitions: Standard, Own, and Homemaker.

Trauma Insurance

Provides financial cover in the event of a specified medical catastrophe.
92% of all trauma claims arise from heart attack, stroke, cancer and heart surgery.
It can be packaged with TPD or as a stand-alone.

Other Types of Insurance for Individuals

Motor vehicle insurance
Private property (especially real estate) insurance
Landlord's insurance
Recreational insurance

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Description

Test your knowledge on the concepts of peril and hazard in insurance. This quiz covers the definitions, types of hazards, and the differences between moral and morale hazards. Understand how these elements affect insurance coverage and claims.