Study 1 Flashcards
(23 cards)
What is insurance?
- A contract where the insurer compensates for specific losses in exchange for a premium.
- Insurance is what you buy.
No risk = no insurance.
What is risk?
The chance of loss or uncertainty.
Example: Risk of failing an exam if you don’t study.
What is speculative risk?
Risk with a chance of loss and profit. Not usually insurable.
Example: investing in stocks.
What is pure risk?
Risk with a chance of loss or no loss—no chance of profit. It is insurable. Example: house fire.
What is an insurable risk?
Risk with possible loss but no profit.
Example: personal, property, or liability risks.
How to determine if something is insurable
- Is there a chance of loss?
- Is there a chance of profit?
Answer must be yes to first question and no for second
3 Types of Insurable risks (PPL)
- Personal risks
- Property risks
- Liability risks
What are personal risks?
Risk of losing income or life due to death, illness, disability, old age, or unemployment.
What are property risks?
Risk of loss or damage to property. Includes:
Direct loss: Physical damage (e.g., house fire).
Indirect loss: Financial loss from a direct loss (e.g., lost rental income).
What are liability risks?
Risk of being held legally responsible for harm or damage to others.
Examples: accidents, property ownership, faulty products, or professional errors.
What is an insurer?
- A company that provides insurance and pays for covered losses.
- The insurer is who you buy it from.
Example: Intact Insurance sells car insurance and pays if a customer has an accident.
What are the categories of insurance sold in Canada?
- General Insurance (needs general license):
Personal lines: Homes, cars, travel, valuables.
Commercial lines: Businesses, stores, trucks.
Special risks: Marine, aviation, high-risk industries.
- Life Insurance (needs life license):
Covers life, health, accident, and sickness.
What is a peril?
A cause of loss like fire, theft, flood, explosion, or vandalism.
What’s the difference between burglary, robbery, and theft?
Burglary: Breaking in to steal.
Robbery: Theft with force or threat.
Theft: Taking something without permission.
What is negligence?
Failing to act with reasonable care, causing harm.
–> Key risk covered by liability insurance.
What is a hazard in insurance?
Something that increases the chance or severity of a loss but doesn’t cause it directly.
What is a physical hazard?
A visible danger that makes something riskier, of the insured object.
Examples: Slippery floor, loose wires, poor maintenance.
What is a moral hazard?
A risk from dishonesty or bad behavior.
Example: Faking or exaggerating a claim.
What is a morale hazard?
Careless attitude because insurance will cover it.
Example: Leaving doors unlocked.
What does an underwriter do?
Decides whether to accept a risk and checks for signs of poor maintenance or fraud.
What is proximate cause?
The main cause of a loss that starts a chain of events. It must be a covered peril.
Example: Fire causes collapse—fire is the proximate cause.
What is an immediate cause?
The last event before the loss, but not the main one.
What is a remote cause?
A distant event in the chain that isn’t the main reason for the loss.
