Insurance Basics- Chapter 1

Question 1

What is insurance? (List 3 definitions)

Answer 1

1.) A written, legal contract
2.) A form of risk management
3.) Protects an individual/company’s financial well-being in the event of an unexpected loss

Question 2

What is risk?

Answer 2

possibility of a loss

Question 3

Age, sex, weight, current health, medical history, height, tobacco use, and occupation are examples of __________?

Answer 3

risk

Question 4

In what 4 main ways do underwriters categorize risk?

Answer 4

-Preferred risk
-Standard risk
-Substandard risk
-Declined risk

Question 5

What are the 4 forms of risk management?

Answer 5

1.) Transferring
2.) Avoiding
3.) Reducing
4.) Retaining

Question 6

Risk scenario: refraining from skydiving

Answer 6

avoiding

Question 7

Risk scenario: wearing a helmet

Answer 7

reducing

Question 8

Risk scenario: having reserve funds available in the event of an accident or loss.

Answer 8

retaining: (self-insurance)

Question 9

Risk scenario: purchasing life insurance.

Answer 9

transferring

Question 10

Name the type of risk for the given example: gambling

Answer 10

speculative risk

Question 11

Name the type of risk for the given example: the chance of dying, the chance of getting into an accident

Answer 11

pure risk

Question 12

What word describes anything that increases the likelihood of a loss?

Answer 12

Hazard

Question 13

Name the 3 types of hazards:

Answer 13

1.) physical hazard
2.) moral hazard
3.) morale hazard

Question 14

The actual cause/event of a loss is called

Answer 14

peril

Question 15

Fire, tornado, and death are examples of ________

Answer 15

peril

Question 16

Spreading risk across many individuals

Answer 16

Risk pooling

Question 17

__________ is the idea that the larger the number of individual risks, the more predictable the loss.

Answer 17

The Law of Large Numbers

Question 18

The tendency of less healthy people to seek insurance more than healthy people is called ____________

Answer 18

adverse selection

Question 19

Certificate of authority allows an insurance company to conduct business in a particular _________
a.) carrier
b.) jurisdiction
c.) format

Answer 19

b.) jurisdiction

Question 20

An insurer that has a certificate of authority and can do business in a particular state is called a(n) admitted insurer or non-admitted insurer.

Answer 20

admitted insurer

Question 21

An insurer that does NOT have a certificate of authority to do business in a particular state is called a(n) admitted insurer or non-admitted insurer.

Answer 21

non-admitted insurer

Question 22

Name the 3 types of insurers:

Answer 22

1.) domestic
2.) foreign
3.) alien

Question 23

Policyholders are NOT necessarily the company’s stockholders in a participating company/non-participating company:

Answer 23

non-participating company

Question 24

Policyholders are the company’s stockholders and share in the profits/receive dividends in a participating company/non-participating company:

Answer 24

participating company

Question 25

What is reinsurance?

Answer 25

insurance between two insurers

Question 26

The company seeking insurance to protect against catastrophic loss is called ___________.

Answer 26

ceding insurer

Question 27

A group of subscribers that exchange insurance on each other is called ____________.

Answer 27

reciprocal insurers

Question 28

What is Lloyd’s of London?

Answer 28

a meeting place to form syndicates and write insurance

Question 29

________ only offer insurance to their members and have some sort of philanthropic organising principle.

Answer 29

fraternal insurer