Core Principles of Insurance - Ch. 2

Question 1

The Law of Large Numbers

Answer 1

The larger the group, the more
certain the prediction of loss becomes.

Question 2

Risk

Answer 2

The probability that a loss might happen to an insured individual.

Question 3

Peril

Answer 3

The direct and specific event that causes a loss.

Question 4

Speculative Risk

Answer 4

Risk involving the possibility of gain or loss, therefore not covered by insurance.

Question 5

Pure Risk

Answer 5

Risk involving the chance of loss, with no opportunity for gain, therefore can be covered by insurance.

Question 6

Risk Retention

Answer 6

Involves being aware of risks and taking steps to protect yourself financially

Question 7

Adverse Selection

Answer 7

When individuals or entities with higher-than-average risks are more likely to try to acquire insurance.

Question 8

Loss Exposure

Answer 8

The risk of potential loss

Question 9

Preferred Risks

Answer 9

These have a reduced probability of loss and may qualify for lower premiums due to their favorable risk profile

Question 10

Occurence

Answer 10

Any event causing a loss, including accidents and ongoing conditions

Question 11

Moral Hazard

Answer 11

Increased risk due to the insured’s dishonest or unethical behavior

Question 12

Morale Hazard

Answer 12

Increased risk due to the insured’s careless attitude towards loss prevention

Question 13

Named Perils

Answer 13

Specify exactly what is covered