Ch 1: Insurance Basics Flashcards
(34 cards)
Pure Risk
Chance of loss
Absolutely no chance of gain
Speculative Risk
Involves uncertainty of a loss
Chance of a gain
What does S.T.A.R.R. Stand for?
Share Transfer Avoid Retain Reduce
The five ways of managing risk
Give an example of AVOIDING risk
If you’re concerned of being in a car accident, do not own, operate, or ride in an automobile.
Eliminates a loss exposure and reduces chance of loss to ZERO
Give an example of REDUCING risk
You can reduce the chance of being in an auto accident by not driving during rush hour and not driving when it’s raining.
Give an example of RETAINING risk
A company is able to predict its health insurance liability (which had been low for the last few years) so they decided to self insure their employee health insurance.
Give an example of TRANSFERING risk
Auto insurance. The insurer (the company) gets the risk of accodent transferred to them in exchange of premium payments.
Give an example of risk SHARING
Closely related to transferring.
Insurers are part of a pool of other insureds. They make premium payments to insurer (the company), who then has adequate funds to pay for lossss incurred by the insureds.
What is a peril?
The potential or actual CAUSE of loss
What is a hazard?
Anything that increases the chance of loss
What are the four types of hazards?
Physical
Moral
Morale
Legal
What is a physical hazard?
Things that we can touch, see, hear, feel, or smell. Example, a slippery flooor caused a slip and fall accident.
What is a moral hazard?
Results from individuals’ values and character traits. Examples: lying on an application, drug abuse.
What is morale hazard?
Arise due to person’s indifference or carelessness. Example: person always drives fast and recklessly
What is a legal hazard?
Court actions that increase likelihood of people filing a claim and being awarded large amounts. Think: lawsuit
What does indemnify mean?
To restore the victim of a loss, in whole or in part, to the financial position prior to loss. (No profit or gain involved)
What’s an exposure unit?
Each insured individual or item of property that is exposed to or has a potential for suffering a loss
Mortality tables are used for what kind of insurance?
Life insurance
Morbidity tables are used for what kind of insurance?
Disability & health insurance
The 2001 commissioners standard ordinary (CSO) mortality table ends at what age?
Age 120
What age do whole life policies mature or endow?
Age 100
What is an insurable interest?
A financial interest in having the life of the person insured live.
In life insurance, who must have an insurance interest at the time of application for the insurance?
The policy owner.
In life insurance, what must exist when the insurance e takes effect (in the beginning) but big needed at the time of death?
An insurable interest
