Insurance Basics- Chapter 1 Flashcards
Intro into insurance terms, scenarios, and general insurance ideas
What is insurance? (List 3 definitions)
1.) A written, legal contract
2.) A form of risk management
3.) Protects an individual/company’s financial well-being in the event of an unexpected loss
What is risk?
possibility of a loss
Age, sex, weight, current health, medical history, height, tobacco use, and occupation are examples of __________?
risk
In what 4 main ways do underwriters categorize risk?
-Preferred risk
-Standard risk
-Substandard risk
-Declined risk
What are the 4 forms of risk management?
1.) Transferring
2.) Avoiding
3.) Reducing
4.) Retaining
Risk scenario: refraining from skydiving
avoiding
Risk scenario: wearing a helmet
reducing
Risk scenario: having reserve funds available in the event of an accident or loss.
retaining: (self-insurance)
Risk scenario: purchasing life insurance.
transferring
Name the type of risk for the given example: gambling
speculative risk
Name the type of risk for the given example: the chance of dying, the chance of getting into an accident
pure risk
What word describes anything that increases the likelihood of a loss?
Hazard
Name the 3 types of hazards:
1.) physical hazard
2.) moral hazard
3.) morale hazard
The actual cause/event of a loss is called
peril
Fire, tornado, and death are examples of ________
peril
Spreading risk across many individuals
Risk pooling
__________ is the idea that the larger the number of individual risks, the more predictable the loss.
The Law of Large Numbers
The tendency of less healthy people to seek insurance more than healthy people is called ____________
adverse selection
Certificate of authority allows an insurance company to conduct business in a particular _________
a.) carrier
b.) jurisdiction
c.) format
b.) jurisdiction
An insurer that has a certificate of authority and can do business in a particular state is called a(n) admitted insurer or non-admitted insurer.
admitted insurer
An insurer that does NOT have a certificate of authority to do business in a particular state is called a(n) admitted insurer or non-admitted insurer.
non-admitted insurer
Name the 3 types of insurers:
1.) domestic
2.) foreign
3.) alien
Policyholders are NOT necessarily the company’s stockholders in a participating company/non-participating company:
non-participating company
Policyholders are the company’s stockholders and share in the profits/receive dividends in a participating company/non-participating company:
participating company
