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FIN 331 > Exam 1 > Flashcards

Exam 1 Flashcards

(54 cards)

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1
Q

Pure risk

A

Something that will only generate a loss

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2
Q

Speculative risk

A

There can be either a gain or a loss (betting/stocks)

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3
Q

Static risk

A

Low change in the rate of the risk (cold/flu season)

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4
Q

Dynamic risk

A

High fluctuation in the rate of the risk (California fires)

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5
Q

Objective risk

A

Risk that can be quantified (Rebuilding of a house)

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6
Q

Subjective risk

A

Risk that cannot be quantified (Stress)

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7
Q

Fundamental risk

A

Risks that affect a large part of the population

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8
Q

Particular risk

A

Risks that affect an individual/organization (Car accident)

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9
Q

Peril

A

Something that may cause a loss (fire, wind, floods, etc . )

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10
Q

Hazard

A

Something that makes a peril more likely to occur (ice on the roads)

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11
Q

Moral hazard

A

A person who purposefully wishes to cause a loss through dishonesty (lighting a house on fire)

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12
Q

Morale hazard

A

A person who is indifferent about a loss or careless about a loss (driving like Andreas)

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13
Q

How do you manage risks?

A

Identify the risks then develop a risk management plan

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14
Q

Risk management plan steps

A

Step 1: Identifying risks (most important step) – Figuring out what risks there are
Step 2: Evaluating for loss – Figuring out loss likelihood and loss severity
Step 3: Develop a risk management plan – Assign specific actions to each risk
Step 4: Implement the risk management plan – Carry out risk management plan
Step 5: Administering the plan and revising as necessary – Make sure the steps are carried out correctly

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15
Q

Loss avoidance

A

Completely avoiding a loss (don’t go bungee jumping if you don’t want to die from bungee jumping)

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16
Q

Loss control/prevention/reduction

A

Prior to the loss - wearing seatbelts or driving safely

During the loss - During a disaster, how do you handle it best

After the loss - Making sure the property is preserved

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17
Q

Retaining the risk

A

Planned risk, unplanned risk, total risk, and partial risk

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18
Q

Planned risk

A

Understand and accept the risk (driving)

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19
Q

Unplanned risk

A

Liable for a risk, but don’t know you are incurring the risk (someone falling on ice on the sidewalk outside of your house)

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20
Q

Total risk

A

Take on all the risk

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21
Q

Partial risk

A

Take on part of the risk (having insurance with a deductible)

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22
Q

Transferring the risk

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A

Taking something of risk and transferring it to someone else (Insurance, waivers, hold harmless agreements, and stop losses)

23
Q

Implementing the plan

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A

Carry out the plan

24
Q

Administer the plan

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A

Risks change, so you must adapt to the new risks that are presented

25
The law of large numbers
the principle holds that the average of a large number of independent identically distributed random variables tends to fall close to the expected value. This result can be used to show that the entry of additional risks to an insured pool tends to reduce the variation of the average loss per policyholder around the expected value.
26
Insurer
Company, policy issuer, or seller
27
Insured
Owner, policy holder, or the buyer
28
Intentional tort
Injury/wrong against another party. Must be on purpose (threat, assault, fraud, or trespassing)
29
Unintentional tort
Injury/wrong against another party. NOT on purpose (Someone falling on GVSU's campus)
30
ORPMAN
What would an ordinary, responsible, and prudent person do in a situation
31
Subrogation
Allows insurance companies to sue to recover their damages (in a car accident, the at fault insurance company gets sued by the non-at fault insurance company)
32
Liability damages
Monetary, physical, emotional
33
Real property
Any land and anything permanently attached to the land (house)
34
Physical property
Anything that would not be real property (phone, car, watch)
35
Expenses at death
Direct (funeral costs, debts, or probate costs - mostly legal fees) JTWROS - Joint Tenants With Rights of Survivorship TIC - Tenants In Common POD - Payable on Death
36
Most frequent causes of death
Heart disease and cancer
37
When does insurance work best?
When the potential losses are huge
38
Principle of indemnity
When you have a loss, you cannot collect more than what the loss is worth Valued insurance - You get whatever the property is valued at (life insurance)
39
Utmost good faith
There is a higher degree of honesty in a life/health insurance contract than a regular business contract
40
Valued insurance policies
You get whatever the property is valued at (life insurance)
41
Aleatory contracts
Two parts of the contract are not equal (a $10 insurance policy paying out $1,000,000)
42
Unilateral contracts
Only the insurance company has to keep its promises, you don't (you can back out of the contract whenever you want, they cannot)
43
Burdens of risk on society
Expenditures to reduce risk (flood insurance, higher retention walls) Conforming to the government (following OSHA) Lost opportunities (worry about risk) Expenditures of future losses Cost of the losses
44
How much of each paycheck goes to Social Security?
7.65% total
45
RMIS stands for
Risk Management Information Systems
46
Percent of pre-retirement income needed in retirement
80-85% of income
47
CSO mortality tables
Show when most people are going to die by, based on their habits and tendencies
48
Insurable losses
I can collect on the insured loss if I have insurance. Someone steals my computer, I cannot collect on it because I don't have insurance, but if I did, I could
49
When does an insurance application become valid?
When there is offer and acceptance, when money is paid, and the policy is returned to the insurer when it is postmarked
50
Common things in business contracts
Exchange of consideration
51
Uncertainty
The inability to make a defensible estimate of a future outcome. If the probability of a loss cannot be estimated, it is uncertain
52
Enterprise risk management
An integrated, uniform approach to risk management, Its purpose is to help ensure a uniform approach to identifying risks, measuring them, prioritizing them, and implementing them
53
Lifestyle in retirement
Most have two homes, want to travel more, eat out more, give away more, and have much higher medical expenses
54
Who does not have the legal capacity to enter into a contract
Cannot be minors, cannot be drunk or under the influence, cannot be mentally handicapped, and individuals who don't have the authority to act on behalf of someone else

FIN 331 (4 decks)

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