Chapter 8 Flashcards Preview

hecol finance > Chapter 8 > Flashcards

Flashcards in Chapter 8 Deck (52)
Loading flashcards...
1
Q

Insurance is..

A

protection against possible financial loss

2
Q

definition of insurer or insurance company

A

risk sharing firm that assumes financial responsibility for losses for an insured risk

3
Q

definition of “policy” in relation to insurer

A

a written contract of insurance that is purchased by the insured from the insurer; the insurer agrees to assume the risk for a premium

4
Q

definition of premium

A

the amount of money a policy holder is charged for an insurance policy

5
Q

insured definition

A

a person covered by an insurance policy

6
Q

policy holder definition

A

a person who owns an insurance policy

7
Q

risk definition

A

a risk is a change or uncertainty of loss/ the things that insurance companies offer protection against/

8
Q

peril definition

A

the cause of a possible loss, such as fire, windstorms, robbery, disease or death / the event that causes someone to take out or purchase policies or insurance

9
Q

hazard definition

A

a hazard is something that increases the likelihood of a loss, such as driving drunk, smoking in bed, or defective house wiring

10
Q

personal risks definition

A

risk or chance surrounding loss of income or life due to premature death, illness, disability, old age, or unemployment

11
Q

property risks definition

A

property risks are the uncertainties of direct or indirect losses to property due to fire, windstsorms, accidents, theft, etc.

12
Q

liability risks definition

A

are possibilities due to negligence resulting in bodily harm or property damage to others

13
Q

pure risk definition

A

personal risks, property risks, and liability risks, or insurable risk. These are all pure risk because there is a risk in which there is only a chance of loss only if the specified events occur. These are typically accidental and unintentional risks for financial cost, nature, or loss

14
Q

speculative risk definition

A

the chance of loss or gain and are legally defined as uninsurable, such as starting a small business or gambling

15
Q

4 ways to manage risk

A

risk avoidance
risk reduction
risk assumption
risk shifting

16
Q

risk avoidance definition

A

means to avoid the chance of loss altogether/ high costs by giving up job or trade/
practical at the personal level/ at the business level , locks in stores.

17
Q

risk reduction definition

A

means to reduce the chances of a loss occurring, or reducing the adverse effects of losses that do occur
ex) installing smoke alarms, wearing seatbelts, eating balanced diet and exercising

18
Q

risk assumption definition

A

means taking on the responsibility for the loss or injury/ ex) self insurance

19
Q

self insurance definition

A

example of risk assumption

- the process of establishing a monetary fund to cover the cost of a loss itself (it does not eliminate risk)

20
Q

risk shifting definition

A

most common method of dealing with risk is to shift or transfer it to an insurance company/

21
Q

liability definition

A

a legal responsibility for the financial cost of another person’s losses or injury/ typically caused by negligience

22
Q

negligence definition

A

negligence is the failure to do what a reasonable and prudent person would do in a given situation/ careless manner

23
Q

vicarious liability definition

A

vicarious liability is when you are held responsible for the actions of another person

24
Q

strict liability definition

A

strict liability is present when a person is held responsible for intentional or unintentional actions

25
Q

homeowner’s insurance coverages

A

coverage for a place of redidence and its associated financial risks

26
Q

replacement value of your home

A

not the current market value of your home

appraisal, inspection made by company

27
Q

depreciated value

A

reduction in the value of an object based on age, % it has decreased each year

28
Q

homeowner’s liability coverage

A

protects you and family from financial loss resulting from legal actions against you due to damage to others and property

not all people are covered by liability

minumum of 10000000

29
Q

umbrella policy

A

aka personal catastrophe policy, supplements basic personal liability coverage, protects you from personal injury claims

30
Q

voluntary medical payments

A

home insurance that pays the cost of minor accidental injuries on one’s property

31
Q

home insurance types

A

named perils

all risk

32
Q

named perils policy forms

A

provides protection against only those perils specifically listed in the policy

33
Q

all risk

A

provides protection in which any event that causes loss or damage to the insured property is covered .

34
Q

3 types of insurance policy plans

A

standard
broad
comprehensive

35
Q

standard form policy
broad form policy
comprehensive form policy

A

covers only named perils
broad form covers all risk for building and named perils for contents
comprehensive form covers all risk for building and all risk for contents

36
Q

Deductibles

A

your share of any claim, a fixed amount indicated in your policy

eg) policy of 2000 but deductible is 500, you pay 500 and company gives you 1500
- if insured loss is less than 500, you don’t get any money

37
Q

the higher your deductible… the lower …

A

your premium

38
Q

3 reasons for policies that have low premium and high deductibles

A
  1. premiums are lower and paid less from company , more shared
  2. people are more careful if pay more
  3. higher deductible means the company has fewer claims, saving more administration fees
39
Q

general rule for deductibles and premiums

A

your deductible should total no more than 3% of your net worth. if your networth is 25,000 your acceptable deductible on insurance should be no more than 750

40
Q

how to determine how much coverage is needed

A

determine how much it costs to replace

have sufficient liability coverage

include protection for specific items such as cameras, jewlery

determine the value of the contents of your home

41
Q

factors that affect home insurance costs

A

location of home ( near or far)

replacement costs (size and composition)

electricity (wiring and amp flow)

heating (sources of heat)

pipes (old piping to meet codes)

age of roof (good roof that has been renovated or replaced in last 20 years)

other factors (presence of fire alarms, pools, sheds, guesthouses)

coverage amount and policy type

42
Q

no fault insurance

A

allows you to collect payment from your own insurance company for bodily injury, and to claim for damage to your own automobile no matter who is at fault in an accident

intended to provide faster claims settlements and reduce `the cost associated with taking legal actions against third party

43
Q

risk assumed and coverage available:

assuming risk of injury to or death of yourself or your passengers

A

accident benefits :

automobile insurance that covers medical expenses for people injured in one’s car

44
Q

risk assumed and coverage available:

assuming risk of damage to your vehicle

A

physical damage insurance such as collision or comprehensive coverage

collision insurance = pays for damage to on’e scar when involved in accident
comprehensive coverage = covers claims caused by a risk other than a collision, such as fire, theft, glass

45
Q

risk assumed and coverage available:

liability to others for injury, death or property damage

A

third party liability coverage

covers risk of financial loss due to legal expenses, medical expenses, lost wages and other expenses associated with injuries as well as property for damage cased by an accident for which you were responisble

46
Q

uninsured motorist protection

A

pays for the cost of injuries if your vehicle is hit by an unidentified or uninsured person also covers damage to your vehicle if the other driver is identified but uninsured.

47
Q

towing and emergency coverage

A

covers for the cost of breakdowns and mechanical assistance. This coverage can be especially beneficial on long trips, pays for the cost of getting the vehicle to a service station

sometimes part of automobile club

48
Q

loss of use coverage

A

pays for the replacement tansportation if your vehicle is stolen or is in the shop for repairs after accident

49
Q

waiver of depreciation coverage

A

this is for new vehicles

allows for the waiver of any depreciated value in your new car - up to 24 months after purchase

50
Q

auto insurance premium facotors

A

use of vehicle (pleasure, business, distance to work)

rating territory (place of redisdence, various locations depending on how many claims are made in that area)

driver classification (age, gender, marital status, driving record, habits)

provincial differences (quebec has set premiums for type of car and class)

(manitoba depends on make and model of car, location and use/ record)

(b.c - value of car, its use, geography)

51
Q

high risk pool

A

consists of people who are unable to obtain auto mobile insurance due to poor driving or accident records and must obtain coverage at high rates

52
Q

best way to keep premium rates down for automobile insurance

A

establish good driving record

and installing security devices such as fuel shutoff swithch, second ignition, alarm system