Understanding Risk Types and Insurance Concepts

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Questions and Answers

What is Pure Risk?

A chance of gain with a chance of loss
A method for spreading individual risk
A chance of loss with no chance for gain (correct)
A financial interest in life or property

What is Speculative Risk?

A chance of loss with no chance for gain
May result in either gain or loss (correct)
A chance of loss involving personal income
Insurance to protect against claims

What is Economic Risk?

May result in gain or loss because of changing economic conditions.

What is Insurance?

A method for spreading individual risk among a large group of people to make losses more affordable for all. Signup and view all the answers

What is Insurable Risk?

A pure risk that is faced by a large number of people and for which the amount of the loss can be predicted. Signup and view all the answers

What is Insurable Interest?

Any financial interest in life or property such that, if the life or property were lost or harmed, the insured would suffer financially. Signup and view all the answers

What is Personal Risk?

The chance of loss involving your income and standard of living. Signup and view all the answers

What is Property Risk?

The chance of loss or harm to personal or real property. Signup and view all the answers

What is Liability Risk?

Chance of loss that may occur when your errors or actions result in injuries to others or damages to their property. Signup and view all the answers

What is Premium?

The amount paid to an insurance company for coverage. Signup and view all the answers

What is Indemnification?

Putting the policyholder back in the same financial condition he or she was in before the loss occurred. Signup and view all the answers

What is Risk Management?

An organized strategy for controlling financial loss from pure risks and insurable risks. Signup and view all the answers

What is Risk Shifting?

Risk transfer occurs when you buy insurance to cover financial losses caused by damaging events. Signup and view all the answers

What is Risk Avoidance?

Lowers the chance for loss by not doing the activity that could result in the loss. Signup and view all the answers

What is Risk Reduction?

Lowers the chance of loss by taking measures to lessen the frequency or severity of losses that may occur. Signup and view all the answers

What is Risk Assumption?

The process of accepting the consequences of risk. Signup and view all the answers

What is a Deductible?

The specified amount of a loss you must pay before the insurance coverage kicks in. Signup and view all the answers

What are Exclusions?

Items that the policy specifically does not cover. Signup and view all the answers

What is a Renter's Policy?

Insurance that protects renters from property and liability risks. Signup and view all the answers

What is a Homeowner's Policy?

Insurance that protects property owners from property and liability risks. Signup and view all the answers

What is Comprehensive Coverage?

The most complete homeowner's policy coverage. Signup and view all the answers

What is Replacement Value?

The cost of replacing an item regardless of its actual cash value. Signup and view all the answers

What is Liability Coverage?

Insurance to protect against claims for bodily injury to another person or damage to another person's property. Signup and view all the answers

What is an Uninvited Guest?

Presumed to have permission to be on your property, such as door-to-door solicitors or delivery people. Signup and view all the answers

What is an Attractive Nuisance?

A dangerous place, condition, or object that is particularly attractive to children, such as a swimming pool or trampoline. Signup and view all the answers

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Study Notes

Risk Types

Pure risk: Involves a chance of loss without any possibility for gain.
Speculative risk: Can result in either financial gain or loss, often associated with investments.
Economic risk: Linked to changes in economic conditions, may lead to either gain or loss.

Insurance Concepts

Insurance: Method for distributing individual risks among a large group, making losses more manageable.
Insurable risk: Type of pure risk that affects many individuals, with predictable loss amounts.
Insurable interest: Financial stake in a person’s life or property; loss or harm causes financial impact on the insured.

Personal and Property Risks

Personal risk: Involves potential loss affecting income and living standards.
Property risk: Concerns potential loss or damage to tangible property.
Liability risk: Arises from actions that result in injury or damage, affecting others' rights or properties.

Insurance Financial Terms

Premium: Fee paid to an insurance company for assuming specific risks.
Indemnification: Process of restoring the insured to their pre-loss financial state.

Risk Management Strategies

Risk management: Organized approach to minimize financial losses from pure and insurable risks.
Risk shifting: Involves purchasing insurance to transfer potential financial losses to the insurer.
Risk avoidance: Reduces potential loss by avoiding actions that could lead to risks.
Risk reduction: Implements measures to decrease the frequency or severity of potential losses.
Risk assumption: Accepting responsibility for the financial consequences of a risk.

Insurance Policy Details

Deductible: The amount paid by the insured before the insurance coverage takes effect.
Exclusions: Specific items or conditions that are explicitly not covered by an insurance policy.
Renter's policy: Insurance that provides coverage for renters against property loss and liability claims.
Homeowner's policy: Insurance designed to protect property owners from various property and liability risks.

Coverage Types

Comprehensive: The broadest level of coverage available under a homeowner’s policy.
Replacement value: The cost to replace an item, without considering depreciation or actual cash value.
Liability coverage: Protection against claims resulting from bodily injury or property damage to others.

Legal U.S. Terms

Uninvited guest: Individuals presumed to have permission to enter a property, such as solicitors or delivery personnel.
Attractive nuisance: A potentially hazardous condition or object that is appealing to children, necessitating extra caution for property owners.

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