Risk and Insurance

Question 1

Insurance

Answer 1

Allows the policyholder to transfer risk to the insurance company who agrees to INDEMNIFY the insured (policyholder) for economic losses

Question 2

Risk

Answer 2

As the chance of loss

Question 3

Pure Risk

Answer 3

Where there is an outcome of loss or no loss. Its not Insurable

Question 4

Speculative Risk

Answer 4

§ Where there may be either loss or profit. Such as betting on a race or buying stocks. Is not insurable

Question 5

Insurance Personal

Answer 5

a. Property is considered in evaluating the risk
i. Location of home
ii. New automobile
iii. Age and gender of the individual
Personal claims history is critical if they had any history of claims before

Question 6

Conditional

Answer 6

ii. Both the insurance company and policy holder has a responsibilities and rights
1) Insurance company must provide legal defense for the insured under liability
2) Policy holder must notify the insurance company of the loss and protect property

Question 7

Indemnify

Answer 7

i. To insured and restore the insured to the same financial position as before the loss

Question 8

Adhesion

Answer 8

i. Contracts are not negotiated, insurance company has the advantage in the actual wording of the policy
ii. If something is unclear, ambiguous in the policy the courts will favor the interests of the policyholder
1) If it is gray, the insurance company pays.

Question 9

Binder

Answer 9

a. Provides evidence that policy is in force before formal policy is in place by company.
b. Can be oral or written

Question 10

Law of Large Numbers

Answer 10

a. There must be a large pool of insureds to be able to predict losses so that outcomes will reflect the statistical probability of results.

Question 11

Pooling of risks

Answer 11

A large group shares the losses of the few consequently, the group must be large enough to easily absorb the losses

Question 12

Liability Risks

Answer 12

a. Responsibility for loss arising out of negligence Third Party claims

Question 13

Third Party

Answer 13

Insurance that compensates for a loss to a party other than the insured for which the insured is liable due to negligence.

Question 14

Negligence

Answer 14

a. Failure to use due care

Speeding or running a red light

Question 15

Strict or absolute liability

Answer 15

a. Liability assigned by statute without regard for negligence - no allowable defense

Question 16

Insurer

Answer 16

Insurance company who underwrites a risk and provides reparation’s upon certain contingencies

Question 17

Insurable interest

Answer 17

Must exist at the time of loss and usually means an economic or other interest in an event or in a particular property.