Insurance Terminology Quiz

Study Notes

Insurance Terminology Overview

Risk refers to the chance or uncertainty of experiencing a loss.
Exposure signifies a condition or situation that opens the door to potential loss.
Hold Harmless Agreement is a contract whereby one party accepts all liability, freeing the other from responsibility.
Four methods of risk management:
- Avoid risk
- Control risk
- Retain risk
- Transfer risk

Core Insurance Concepts

Insurance is a contract that transfers risk from an entity to an insurance company, which, for a premium, agrees to cover losses through a pool of collected premiums.
Law of Large Numbers asserts that a larger sample size leads to more reliable statistics, enhancing predictive accuracy.
Speculative Risk involves both the potential for gain and the potential for loss.
Pure Risk solely involves the possibility of loss, with no chance for gain.

Fundamental Insurance Principles

Insurable Interest mandates that one must have a financial stake in the property to benefit from insurance, ensuring there is a genuine risk of financial loss.
Peril is identified as the specific cause of a loss.
Hazard encompasses factors that elevate the chances of a loss occurring.

Types of Hazards

Spread of Risk indicates that a broader distribution of risk diminishes the likelihood of catastrophic losses for an insurance company.
Physical Hazard arises from the condition, occupancy, or use of the property itself.
Morale Hazard occurs when an individual’s negligence or irresponsible behavior increases the risk of loss.
Moral Hazard arises when someone intentionally creates a situation leading to a loss to profit from insurance claims.

Description

Test your knowledge on essential insurance terminology and concepts. This quiz covers key terms such as risk, exposure, and hold harmless agreements, along with ways to manage risks effectively. Perfect for students or professionals in the insurance field.