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?

    <p>Travel insurance</p> Signup and view all the answers

    What is one of the limitations of key person insurance?

    <p>It cannot protect against job redundancy</p> Signup and view all the answers

    How does life insurance help cater to dependents financially?

    <p>It compensates for loss of income due to death</p> Signup and view all the answers

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

    <p>Income protection policies</p> Signup and view all the answers

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

    <p>They should disclose relevant information completely</p> Signup and view all the answers

    What is a common issue regarding life insurance in Australia?

    <p>Underinsurance among individuals</p> Signup and view all the answers

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

    <p>Trade Practices Act</p> Signup and view all the answers

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

    <p>Australian Securities and Investments Commission (ASIC)</p> Signup and view all the answers

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

    <p>The guaranteed party in the contract</p> Signup and view all the answers

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

    <p>AIA Australia Limited</p> Signup and view all the answers

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

    <p>Any individual, including the policy owner</p> Signup and view all the answers

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

    <p>Ensuring enough insurance coverage for all individuals</p> Signup and view all the answers

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

    <p>24</p> Signup and view all the answers

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

    <p>Hazard</p> Signup and view all the answers

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

    <p>Moral hazard</p> Signup and view all the answers

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

    <p>Morale hazard arises from carelessness due to insurance.</p> Signup and view all the answers

    Which of the following is NOT considered a peril?

    <p>Moral behaviour</p> Signup and view all the answers

    What might lead to a moral hazard situation?

    <p>Insurance payoff exceeding insured asset value</p> Signup and view all the answers

    Which example best represents a physical hazard?

    <p>Owning an aging building with defective wiring</p> Signup and view all the answers

    What is a characteristic of morale hazard?

    <p>Carelessness resulting from being insured</p> Signup and view all the answers

    Which scenario is an example of moral hazard?

    <p>Deliberately causing a fire to claim insurance money</p> Signup and view all the answers

    What is a common consequence of a moral hazard?

    <p>Higher rates of carelessness among insured individuals</p> Signup and view all the answers

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

    <p>It increases the likelihood of a peril.</p> Signup and view all the answers

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

    <p>Life Insurance</p> Signup and view all the answers

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

    <p>Accidental Death Coverage</p> Signup and view all the answers

    Who typically owns and pays for key person insurance?

    <p>The business</p> Signup and view all the answers

    What is required for a TPD claim to be valid?

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

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

    <p>Buyout of the deceased partner's interest</p> Signup and view all the answers

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

    <p>Loss of goodwill and customers</p> Signup and view all the answers

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

    <p>Own</p> 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?

    <p>92%</p> Signup and view all the answers

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

    <p>The insurance premium amount</p> Signup and view all the answers

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

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

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

    <p>Long-term disability</p> Signup and view all the answers

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

    <p>Temporary</p> Signup and view all the answers

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

    <p>Relationship to the policyholder</p> 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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    Related Documents

    FNCE20003 Introductory Personal Finance Lecture 10 PDF

    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.

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