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Understanding Insurance Definition

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Questions and Answers

What is the definition of insurance according to Alberta’s Insurance Act (2000)?

The process of paying a sum of money to financial institutions for protection of financial investments
The undertaking by one party to indemnify another party against loss or liability for loss in respect of certain risks or perils to which the object of insurance is exposed (correct)
The act of providing financial protection against theft or damage to personal property
The omission or failure to do something which a reasonable person would do

What is the purpose of premiums in insurance?

To generate profit for the insurance company
To increase the financial investment of the insured
To cover the losses of the few using the premiums paid by many insureds (correct)
To provide financial protection against negligence claims

How does insurance provide 'peace of mind' to an insured individual?

By providing a source of profit through insurance claims
By allowing them to use their hard-earned money for significant purchases without fear of financial loss (correct)
By guaranteeing that no damages will ever occur to their property
By exempting them from any liability in case of negligence claims

What is negligence in the context of insurance?

The omission or failure to do something which a reasonable person would do (C) Signup and view all the answers

Why might financial institutions be unwilling to loan money for significant purchases without insurance protection?

Due to the need for protection of the financial investment in case of theft or damage (B) Signup and view all the answers

What is one primary function of insurance?

To spread the losses of the few among the premiums of the many (B) Signup and view all the answers

How does insurance benefit business owners?

By reducing the need to set aside money for potential losses (B) Signup and view all the answers

What is a direct result of businesses having their assets insured?

The need for more insurance as businesses expand (B) Signup and view all the answers

How does insurance benefit society as a whole?

By reducing overall anxiety and worry (B) Signup and view all the answers

What effect does insurance have on funds set aside by insured individuals or businesses?

It reduces the amount needed to be set aside (D) Signup and view all the answers