Basics/Coverage Concepts

Question 1

What is insurance?

Answer 1

A contract where by one undertake to indemnify another against loss, damage or liability arising from a contingent or unknown event.
Substitution of a small certain loss for a large uncertain loss.

Question 2

What is risk?

Answer 2

Possibility or uncertainty of loss occurring

Question 3

What are the 2 types of risk? Define them.

Answer 3

Pure risk- involves two possible outcomes: loss or no loss.

Speculative risk- involves the possible opportunity for loss or gain.

Question 4

What are the methods of handling risk?

Answer 4

S T A R R

Sharing, transfer, avoid, reduce, retain

Question 5

What is indemnity?

Answer 5

The insurer restoring the insured back to the condition they were in before the loss occured

Question 6

What is a contract?

Answer 6

An agreement between two or more parties enforceable by law.

Question 7

What is estoppel?

Answer 7

Prevents reasserting a right previously waived

Question 8

What are two types of tort?

Answer 8

Intentional (deliberate act) and unintentional (negligence)

Question 9

What element of a contract is the binding force?

Answer 9

Consideration

Question 10

What is the actual cause of the loss?

Answer 10

Peril

Question 11

What is anything that increases the chance/likelihood that loss will occur…

Answer 11

Hazard

Question 12

Name the 4 types of hazard.

Answer 12

Moral (dishonest) , morale (irresponsible), physical (location/material/value), and legal (court).

Question 13

What are the 3 major types of loss exposure?

Answer 13

Property loss
Liability loss
Personal and personnel loss

Question 14

What are the 4 elements of an enforceable contract?

Answer 14

Competent parties
Legal purpose
Offer and acceptance
Consideration

Question 15

What are the benefits of insurance?

Answer 15

Allows individuals/society to recover from unexpected loss; promotes loss control; reduces uncertainty

Question 16

What is loss and loss exposure?

Answer 16

Loss - any reduction in quality, quantity, or value of something

Loss exposure- possibility of loss

Question 17

What are the 3 dimensions of loss exposure?

Answer 17

1 - type of value exposed to loss

2- the peril causing loss

3- extent of the potential financial consequences

Question 18

What is an insurable event?

Answer 18

Any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest or create a lability against him may be insured against

Question 19

Type of agreement that restores someone to the same condition as prior to the loss -

Answer 19

Indemnity

Question 20

An agreement in which an insurer contracts with a 3rd party to insure itself against losses from insurance policies it issues is known as -

Answer 20

Reinsurance

Question 21

Self funding is…

Answer 21

= risk retention; the owner/employer pays for claims

Question 22

Two characteristics must be present for a risk to successfully self-insure…

Answer 22

I- the loss must be predictable/known

2- sufficient liquid assets to pay claims and other costs of retaining the risk

Question 23

(Blank) is a legal abandonment/relinquishment of a known right.

Answer 23

Waiver

Question 24

A person seeking recovery.

Answer 24

Claimant

Question 25

Define California Code of Regulations (CCR)

Answer 25

CCRs = Rules and procedures written by the commissioner to carry out the intent of the code (law).

Question 26

Define California Insurance Code (CIC)

Answer 26

Statutes = State insurance laws = proposed, written, enacted and changed only by state legislature