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Questions and Answers
Which of the following best describes the role of insurance intermediaries?
Which of the following best describes the role of insurance intermediaries?
- They define the terms of insurance contracts.
- They bear the financial risks directly.
- They facilitate the process between insurers and policyholders. (correct)
- They are responsible for underwriting insurance policies.
According to J.B. Maclean, insurance is solely for individuals bearing their own financial risks.
According to J.B. Maclean, insurance is solely for individuals bearing their own financial risks.
False (B)
What is the agreed consideration paid by the insured to the insurer called?
What is the agreed consideration paid by the insured to the insurer called?
premium
The concept of insurance allows the ______ of risks among many individuals.
The concept of insurance allows the ______ of risks among many individuals.
Match the insurance definitions with their corresponding authors:
Match the insurance definitions with their corresponding authors:
Which statement describes insurance as defined by Riegel & Miller?
Which statement describes insurance as defined by Riegel & Miller?
An insurance contract must involve some uncertainty regarding an event occurring.
An insurance contract must involve some uncertainty regarding an event occurring.
What is the main purpose of an insurance contract as stated by Hardy Ivamy?
What is the main purpose of an insurance contract as stated by Hardy Ivamy?
What is one of the primary functions of insurance?
What is one of the primary functions of insurance?
Insurance does not encourage the development of larger industries.
Insurance does not encourage the development of larger industries.
Name one secondary function of insurance.
Name one secondary function of insurance.
Insurance serves as a _____ way of savings and investment.
Insurance serves as a _____ way of savings and investment.
How does insurance benefit businessmen?
How does insurance benefit businessmen?
Match the functions of insurance with their descriptions:
Match the functions of insurance with their descriptions:
Small capital investment through insurance provides coverage for larger risks.
Small capital investment through insurance provides coverage for larger risks.
Insurance acts as a source of earning _____ exchange.
Insurance acts as a source of earning _____ exchange.
What is the primary purpose of an insurance company?
What is the primary purpose of an insurance company?
The term 'aleatory' refers to something certain and predictable.
The term 'aleatory' refers to something certain and predictable.
What are the primary functions of insurance?
What are the primary functions of insurance?
Insurance contracts are characterized as __________ because they depend on uncertain events.
Insurance contracts are characterized as __________ because they depend on uncertain events.
Match the following functions of insurance with their descriptions:
Match the following functions of insurance with their descriptions:
What is the small contribution made by the insured called?
What is the small contribution made by the insured called?
Insurance serves only the purpose of protecting the insured from losses.
Insurance serves only the purpose of protecting the insured from losses.
What does insurance primarily shift?
What does insurance primarily shift?
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Study Notes
Nature of Insurance
- Insurance operates as a profit-driven business, not a charity.
- The essence of insurance is risk-sharing among participants.
- Insured individuals receive financial relief for their losses through pooled resources.
Contract Characteristics
- Insurance contracts are termed 'aleatory,' meaning outcomes depend on uncertain events.
- These contracts involve speculation on potential profits and losses.
Functions of Insurance
- Functions are divided into Primary, Secondary, and Other functions.
Primary Functions
- Provide Protection: Shields against future risks and economic loss through shared risk.
- Collective Risk: Distributes financial burdens of few among a larger group, pooling premiums into a fund for payouts.
- Evaluation of Risk: Assesses and determines premium rates based on potential risks.
- Provide Assurance: Transforms uncertain risks into more certain outcomes.
Secondary Functions
- Avoidance of Losses: Alerts individuals to preventive measures, thereby reducing claims and encouraging savings.
- Small Capital for Larger Risks: Allows businesses to mitigate high risks by paying minimal premiums.
- Encouragement for Industrial Development: Supports larger industries by enabling access to financing against risks through insurance.
Other Functions
- Savings and Investment: Insurance fosters a compulsive savings structure and limits unnecessary spending while providing tax benefits.
- Foreign Exchange Earnings: Insurance contributes to the global financial landscape.
Key Personalities in Insurance
- Insurers: Insurance companies managing the risk pool.
- Assured/Public/Policyholder: Individuals or entities purchasing insurance.
- Intermediaries: Insurance agents, brokers facilitating transactions between insurers and insured.
Definitions
- Collective risk-bearing is a foundational concept of insurance (W. Beveridges).
- Insurance spreads financial risk across many individuals to alleviate burdens on individuals (J.B. Maclean).
- Social purpose serves to group uncertain risks together for better stability and assurance (Riegel & Miller).
- An insurance contract involves an agreement where the insurer promises compensation for specified events in exchange for premiums (Hardy Ivamy).
- There must be uncertainty regarding the occurrence or timing of insured events (Prudential Insurance Company case).
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