Chapter 23 Packet Notes Flashcards Preview

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Flashcards in Chapter 23 Packet Notes Deck (57):
1

The possibility of suffering harm or loss.

Risk

2

The possibility of losses associated with the assets and the earnings potential of a firm.

Business Risk

3

The uncertainty (gain or loss) associated with an investment decision.

Market Risk

4

  • The uncertainty associated with a situation where only losee or no loss can occur- there is no potential for gain (only downside).
  • Only form of risk that is insurable.

Pure Risk

5

  • Real property
  • Personal property
  • Replacement value of property
  • Actual cash value (ACV)
  • Peril
  • Direct loss
  • Indirect loss

Property Risks

6

Land and anything physically attached to the land, such as buildings.

Real Property

7

Machinery, equipment, furniture, fixtures, stock, and vehicles.

Personal Property

8

The cost to replace or replicate property at today's prices.

Replacement Value of Property

9

An insurance term that refers to the depreciated value of the property.

Actual Cash Value (ACV)

10

A cause of loss, either through natural events or through the acts of people.

Peril

11

A loss in which physical damage to property reduces its value to the property owner.

Direct Loss

12

A loss arising from inability to carry on normal operations due to a direct loss to property.

Indirect Loss

13

  • Workers compensation legislation 
  • Contractual liability 
  • Indemnification clause

Liability Risks: Statutory Liability

14

Laws that obligate the employer to pay the employees for an employment related injury or illness, regardless of fault.

Worker's Compensation Legislation

15

Performance or financial obligations (risks) that firms assume when entering into contracts with other parties.

Contractual Liability

16

A contractual clause that requires one party to assume the financial consequences of another party's legal liabilities.

Indemnification Clause

17

  • Torts
  • Establishing Negligence
  • Reasonable (prudent person) standard
  • Compensatory damages

Liability Risks: Contractual Liability

18

Wrongful acts or omissions for which an injured can take legal action against the wrongdoer for monetary damages.

Torts

19

  • A legal duty between parties to act (or not to act) to cause injury (damage)
  • A failure to provide the appropriate standard of care
  • The presence of actual injury or damages
  • Action that was proximate cause of injury or damage.

Establishing Negligence

20

The typical standard of care, based on what a reasonable or prudent person would have done under similar circumstances.

Reasonable (Prudent Person) Standard

21

Economic or noneconomic damages intended to make the claimant whole, by indemnifying the claimant for any injuries or damage arising from the negligent action.

Compensatory Damages

22

  • Economic damages
  • Noneconomic damages
  • Punitive damages

Torts: Types of Damages

23

Compensatory damages related to an economic loss, such as medical expense, loss of income, or the cost of property replacement/restoration.

  • Easier to quantify than noneconomic damages

Economic Damages

24

Compensatory damages for losses such as pain and suffering, mental anguish, and loss of consortium.

Noneconomic Damages

25

Damages intended to punish wrongdoers for gross negligence or a callous disregard for the interests of others and to have a deterrent effect.

Punitive Damages

26

  • Manufacturing defect
  • Design defect
  • Marketing defect

Product Liability

27

A defect resulting from a problem that occurs during the manufacturing process causing the product to subsequently not be made according to specifications.

Manufacturing Defect

28

A defect resulting from a dangerous design, even though the product was made according to specifications.

Design Defect

29

A defect resulting from failure to convey to the user that hazards are associated with a product or to provide adequate instructions on safe product use.

Marketing Defect

30

Risks that directly affect individual employees, but may have an indirect impact on a business as well.

Personnel Risks

31

  • Ways of coping with risk that are designed to preserve assets and the earning power of a firm.
  • Involves finding the best way possible to reduce the cost fo dealing with risk.
  • Insurance is only one of several approaches to minimizing the pure risks a firm is sure to encounter.

Risk Management

32

  • Small businesses pay insufficient attention to analyzing potential risk.
  • Large firms can assign responsibilities for risk management to a specialized staff manager.
  • Risk management is not something that requires immediate attention- until something happens.

Risk Management Differences From Large Firms:

33

Loss prevention and loss avoidance =

Risk Control and Loss Reduction

34

Making funds available to cover losses that cannot be managed by risk avoidance.

  • Risk transfer
  • Risk retention
  • Self-insurance

Risk Financing

35

Buying insurance or making other agreements with others to transfer risk.

Risk Transfer

36

Choosing- whether consciously or unconsciously, voluntarily or involuntarily- to manage risk.

Risk Retention

37

Designating part of the firm's earnings as a hedge against possible future risks.

Self-Insurance

38

  • Property insurance
  • Business interruption insurance
  • Commercial General Liability (CGL) insurance
  • Automobile insurance
  • Workers' compensation insurance
  • Crime insurance
  • Business owner's policy (BOP)
  • Package policy

Property and Casualty Insurance

39

  • Named-peril approach
  • All-risk approach
  • Coinsurance provision

Property Insurance

40

Identifies the specific perils covered.

Named-Peril Approach

41

Defines the perils covered by stating that all direct damages to property are covered except those caused by perils specifically excluded.

All-Risk Approach

42

Property must be insured for at least 80% of its value or ca penalty will be applied to any covered loss.

Coinsurance Provision

43

Reimburses for loss of (anticipated) income plus continuing expenses due to direct loss impacting business revenues.

Business Interruption Insurance

44

Covers bodily injury and property damage for which the business is liable.

Commercial General Liability (CGL) Coverage

45

Protects against liabilty and physical damage to a vehicle resulting from insured perils such as collision, theft, vandalism, hail, and flood.

Automobile Insurance

46

Provides benefits to employees for medical expenses, loss of wages, and rehabilitation expenses, as well as death benefits for employee's families.

Worker's Compensation Insurance

47

Coverage against employee dishonesty.

Crime Insurance

48

A business version of a homeowner's policy, designed to meet the real and personal property and liability insurance needs of small business owners.

Business Owner's Policy (BOP)

49

  • A lower premium than would otherwise be required to purchase all coverages separately
  • Automatic inclusion fo business interruption insurance.
  • Automatic replacement value protection, as opposed to actual cash value protection.

Advantages of BOP

50

A policy for small businesses that do not qualify for a BOP that combines property insurance and commercial general liability insurance.

Package Policy

51

  • Lower premium than would otherwise be required to purchase all coverages seprately.
  • Ease of adding other coverages more economically.
  • Inclusion of business interruption insurance
  • Inclusion of crime insurance

Advantages of Package Policy

52

  • Health Insurance
  • Health Maintenance Organization (HMO)
  • Preferred Provider Organization (PPO)
  • Key-Person Insurance
  • Disability Insurance

Life and Health Insurance

53

Coverage for medical care at hospitals, doctors' offices, and rehabilitation facilities, that usually includes outpatient services and prescription drugs.

Health Insurance

54

A managed-care network that provides health insurance that is generally less expensive than that of a PPO but limits employees' choices of medical care providers more than a PPO does.

Health Maintenance Organization (HMO)

55

A managed-care network that provides health insurance that is generally more expensive than an HMO but offers a broader choice of medical providers.

Preferred Provider Organization (PPO)

56

Provides benefits upon the death of a firm's key personnel.

Key-Person Insurance

57

Provides benefits upon the disability of a firm's partner of other key employee.

  • Disability buyout insurance
  • Key-person disability insurance

Disability Insurance