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Questions and Answers
Which type of risk is characterized by potential outcomes of loss, no change, or gain?
Which type of risk is characterized by potential outcomes of loss, no change, or gain?
Which of the following is NOT considered a pure risk?
Which of the following is NOT considered a pure risk?
What term describes an act or condition that increases the probability of a peril occurring?
What term describes an act or condition that increases the probability of a peril occurring?
Which type of hazard pertains to a person's attitudes or carelessness impacting the probability of a loss?
Which type of hazard pertains to a person's attitudes or carelessness impacting the probability of a loss?
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Which of the following risks typically involves both emotional and financial losses?
Which of the following risks typically involves both emotional and financial losses?
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What are the three types of pure risks mentioned?
What are the three types of pure risks mentioned?
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What defines a peril in the context of risk management?
What defines a peril in the context of risk management?
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Which type of risk is associated with negligence that might cause harm to others?
Which type of risk is associated with negligence that might cause harm to others?
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What is the primary function of personal liability insurance for agents?
What is the primary function of personal liability insurance for agents?
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Which of the following is an example of Actual Authority for an insurance agent?
Which of the following is an example of Actual Authority for an insurance agent?
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What does Apparent Authority refer to in the context of an agent's role?
What does Apparent Authority refer to in the context of an agent's role?
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Which of the following actions is within the scope of Actual Authority?
Which of the following actions is within the scope of Actual Authority?
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What is the significance of setting clear limits on an agent's Apparent Authority?
What is the significance of setting clear limits on an agent's Apparent Authority?
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What can be a potential consequence of Apparent Authority for the principal?
What can be a potential consequence of Apparent Authority for the principal?
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In what situation would an agent NOT have Actual Authority?
In what situation would an agent NOT have Actual Authority?
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Which of the following types of insurance can agents sell?
Which of the following types of insurance can agents sell?
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What is the primary purpose of risk avoidance in risk management?
What is the primary purpose of risk avoidance in risk management?
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Which strategy is used when the severity of risk is minor but must be retained?
Which strategy is used when the severity of risk is minor but must be retained?
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What is the role of actuaries in the insurance underwriting process?
What is the role of actuaries in the insurance underwriting process?
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How does risk transfer protect against financial implications?
How does risk transfer protect against financial implications?
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What is meant by sub-standard risk in risk classification?
What is meant by sub-standard risk in risk classification?
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What might an exclusion rider in an insurance policy indicate?
What might an exclusion rider in an insurance policy indicate?
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Which of the following is a characteristic of risk reduction?
Which of the following is a characteristic of risk reduction?
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What does transferring risk primarily involve?
What does transferring risk primarily involve?
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Why do insurers charge different premiums based on the risk posed by insured individuals?
Why do insurers charge different premiums based on the risk posed by insured individuals?
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What is a common method used by insurers to predict potential payouts?
What is a common method used by insurers to predict potential payouts?
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What action requires written consent from an irrevocable beneficiary?
What action requires written consent from an irrevocable beneficiary?
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Which of the following individuals generally do NOT have rights under insurance legislation?
Which of the following individuals generally do NOT have rights under insurance legislation?
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In what situation do creditors have a claim on the insurance policy proceeds?
In what situation do creditors have a claim on the insurance policy proceeds?
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Which proof is NOT required when making a claim for insurance benefits?
Which proof is NOT required when making a claim for insurance benefits?
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Which of the following actions does NOT require consent from an irrevocable beneficiary?
Which of the following actions does NOT require consent from an irrevocable beneficiary?
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What primarily differentiates severe risks from less severe risks?
What primarily differentiates severe risks from less severe risks?
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Which of the following is a consequence of permanent loss of income due to premature death?
Which of the following is a consequence of permanent loss of income due to premature death?
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How are risks usually categorized regarding their impact on individuals?
How are risks usually categorized regarding their impact on individuals?
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Which type of insurance benefits comes from employer-sponsored plans?
Which type of insurance benefits comes from employer-sponsored plans?
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What is a common reason for the temporary loss of income?
What is a common reason for the temporary loss of income?
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Which of the following can lead to a loss of wealth?
Which of the following can lead to a loss of wealth?
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What are private insurance coverages primarily characterized by?
What are private insurance coverages primarily characterized by?
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Which of the following best describes the impact of severe risks on standard of living?
Which of the following best describes the impact of severe risks on standard of living?
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Study Notes
Risk Management & Insurance
- Risk is the probability of harm, injury, loss, danger or destruction occurring in the future. Losses can be emotional, physical or financial.
- Speculative Risk has three possible outcomes: loss, no change, gain.
- Pure Risk has two possible outcomes: loss, no change.
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Pure Risk Types include:
- Personal risk - death, disability & unemployment
- Property risk - direct and indirect losses due to material possessions
- Liability risk – due to carelessness or negligence
- Failure of others – performance of service(s)
- Peril is the source of risk, such as death, disability, illness, accident, lawsuit & dishonesty.
- Hazard is an act or condition that increase the probability of a peril or the severity of a loss.
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Hazard Types include:
- Physical -
- Morale - a persons’ attitude /carelessness that increase probability of a loss
- Moral - dishonest behaviour i.e.falsifying insurance application
- Risk is measured by severity and frequency - more severe risks occur less frequently.
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Severity of Risk determines financial implications:
- Most severe can cause financial ruin
- Less severe may require financial adjustments that result in a lower standard of living
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Risks faced by individuals include:
- Loss of income during the period of family obligations (premature death, disability)
- Loss of wealth (medical expenses, travel medical, long-term care)
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Loss of Income can occur permanently or temporarily:
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Permanent loss (death of an income earner):
- Expenses experienced by family: final expenses, continuing expenses
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Temporary loss (sickness or accident creating disability):
- Living expenses and obligations continue while income is reduced or eliminated
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Permanent loss (death of an income earner):
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Risk Management Strategies include:
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Primary Strategies:
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Risk Control
- Risk Reduction
- Risk Avoidance
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Risk Control
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Risk Financing
- Risk Retention
- Risk Transference
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Primary Strategies:
- Risk Avoidance is used when high frequency of risk and severity are critical. Avoiding the activity is the preferred alternative to expensive coverage.
- Risk Reduction is used when low to high frequency of risk and severity are minor, material or critical. It is practiced daily (e.g. hard hats, vehicle maintenance, vaccinations) and may not eliminate risk but reduces it.
- Risk Transfer is used when low or medium frequency of risk and severity are critical or major. It transfers the financial implication to a third party.
- Risk Retention is used when low or medium frequency of risk and severity are minor. It uses deductibles.
- Insurance companies transfer risk from policy owner to insurer.
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Insurers control risk by charging premiums based on the risk the insured represents, classifying risk as:
- Preferred Risk
- Standard Risk
- Sub-standard Risk/Special Risks
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Rated Policies:
- Permanent or temporary basis
- Flat-dollar or % increase (table ratings)
- Exclusion Riders or Waivers
Insurance Basics
- Insurance can be purchased by individuals, groups, and businesses.
- Insurance agents sell life, disability, health, and investment insurance.
- Coverage is the face amount of a life insurance contract, the benefit from a disability income contract, or the reimbursement amount from a health insurance contract.
- Agents need to carry personal liability insurance (Errors and Omissions Insurance).
- Actual Authority is the authority given to an agent to perform certain tasks.
- Apparent Authority is the implied or suggested authority granted to an agent, even if it wasn't the intention of the principal. Contracts often limit an agent's apparent authority.
- The Principal is bound by the agent's apparent authority because apparent authority can create a misconception that the insurer has approved the action.
- Actual Authority defines what the principal has instructed the agent to do.
- Apparent Authority implies or suggests that the agent has been authorized to do tasks not specifically defined.
Policyowner & Beneficiary
- Irrevocable beneficiary requires written consent to change the beneficiary designation, assign the policy, surrender the policy, or take out a policy loan (except automatic premium loans).
- The life insured, if not the policyowner, has no automatic rights under legislation but may have certain rights in the contract or a separate agreement.
- Beneficiary receives the death benefit, which is not part of the insured's estate and is not subject to creditors' claims.
- Creditors may have a claim on insurance monies to the extent of an outstanding loan.
Claims & Payment
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Claims generally require the following documentation:
- Proof of the event upon which insurance benefits are payable (e.g. a death certificate)
- Proof of the age of the person whose life is insured
- Proof of the claimant's right to receive payment (e.g. a beneficiary designation)
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Description
Test your knowledge about risk management concepts and insurance principles in this quiz. It covers various types of risks, hazards, and their implications. Explore pure and speculative risks to enhance your understanding of this critical field.
