Chapter 2 Vocab (Text) Flashcards Preview

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Flashcards in Chapter 2 Vocab (Text) Deck (23):
1

Adverse Selection

the tendency of persons with a higher-than-average chance of loss to seek insurance at standard (average) rates, which if not controlled by underwriting, results in higher-than-expected loss levels

2

Casualty Insurance

broad field of insurance that covers whatever is not covered by fire, marine, and life insurance

3

Commercial Lines

Refer to property and casualty coverages for business firms, nonprofit organizations, and government agencies

4

Expense Loading

The amount needed to pay all expenses, including commissions, general administrative expenses, state premium taxes, acquisition expenses, and an allowance for contingencies and profit.

5

Fidelity Bonds

cover loss caused by the dishonest or fraudulent acts of employees, such as embezzlement and the theft of money

6

Fortuitous Loss

A loss that is unforseen and unexpected by the insured and occurs as a result of chance

7

Indemnification

The insured is restored to his or her approximate financial position prior to the occurrence of the loss

8

Inland Marine Insurance

covers goods being shipped on land, which includes imports, exports, domestic shipments, and instrumentalities of transportation

9

Insurance

The pooling of fortuitous losses by transfer of such risks to insurers, who agree to indemnify insureds for such losses, to provide other pecuniary benefits on their occurrence, or to render services connected with the risk

10

Law of Large Numbers

The greater the number of exposures, the more closely will the actual results approach the probable results that are expected from an infinite number of exposures

11

Liability Insurance

covers the insured's legal liability arising out of property damage or bodily injury to others; legal defense costs are also paid.

12

Life Insurance

pays death benefits to designated beneficiaries when the insured dies.

13

Ocean Marine Insurance

covers ocean-going vessels and their cargo from loss or damage because of perils of the sea

14

Personal Lines

refers to coverages that insure the real estate and personal property of individuals and families or provide them with protection against legal liability

15

Pooling

The spreading of losses incurred by the few over the entire group, so that in the process, average loss is substituted for actual loss

16

Property Insurance

indemnifies property owners against the loss or damage of real or personal property caused by various perils, such as fire, lightning, windstorm, or tornado

17

Reinsurance

an arrangement by which the primary insurer that initially writes the insurance transfers to another insurer part or all of the potential losses associated with such insurance

18

Requirements of an Insurable Risk

includes pooling of losses, payment of fortuitous losses, risk transfer, indemnification

19

Risk transfer

A pure risk is transferred from the insured to an insurer, who typically is in a stronger financial position to pay the loss than the insured.

20

Social Insurance

government insurance programs with certain characteristics that distinguish them from other government insurance plans

21

Surety Bonds

provide for monetary compensation in the case of failure by bonded persons to perform certain acts, such as failure of a contractor to construct a building on time

22

Underwriting

refers to the process of selecting and classifying applicants for insurance

23

Personal Lines

Coverages that insure the real estate and personal property of individuals and families to provide them with protection against legal liability