Ch.1 basic insurance concepts and principles
If an applicant for a life insurance policy and person to be insured by the policy are two different people, the underwriter would be concerned about
Whether an insurance interest exists between the individuals
For the reported losses of an insured group to become more likely to equal the statistical probability of loss for the particular class, the insured group must become
Larger
A set of legal or regulatory conditions that affect an insurers ability to collect premiums commensurate with the level of risk incurred would be considered a(n)
Legal hazard
What describes a situation when poor risks are balanced with preferred risks and average risks are in the middle
Profitable distribution of exposure
Which of the following is the most common way to transfer risks
Purchase insurance
What is true about insurable risk
Insurance must not be mandatory, needs to be statistically predictable, and must involve loss that is definite as to cause, time, place and amount
The insurer may suspect that a moral hazard exists if the policyholder
Is not honest about his health on an application for insurance
A tornado that destroys property would be an example of?
A peril
Which of the following is a term for a person who seeks insurance from an insurer?
Applicant
When must insurable interest exist in a life insurance policy?
At the time of application
A person who doesn't lock the doors or doesn't repair leaks shows an indifferent attitude. This person presents what type of hazard?
Morale
Which of the following is considered to be a morale hazard
Driving recklessly
Units with the same or similar exposure to loss are referred to as
Homogeneous
Which of the follow individuals must have insurable interest in the insured
Policyowner
To achieve the profitable distribution of exposure
Preferred risks and poor risks are balanced, with average risks in the middle
The cause of loss insured against in an insurance policy are known as
Perils
Peril is most easily defined as
The cause of loss insured against
When an individual purchases insurance, what risk management technique is he or she practicing
Transfer
What are the three goals of risk retention
Reduce expenses and improve cash flow, increase control of claim reserving and claims settlements, and to fund losses that cannot be insured
Following a career change, an insured is no longer required to perform many physical activities, so he has implemented a program where he walks and jogs for 45 mins each morning. The insured has also eliminated most fatty foods from his diet. Which method of dealing with risk does this scenario describe?
Reduction
In case of a loss, the indemnity provision in insurance policies
Restores an insured person to the same financial state as before the loss
Insurance is the transfer of
Risk
For the purpose of insurance, risk is defined as
The uncertainty or chance of loss
An individual's tendency to be dishonest would be indicative of a
Moral hazard
What is the term for the fee a policyowner must pay to the insurance company to maintain coverage
Premium
Profitable distribution of exposures serves the purpose of
Protecting the insurer against adverse selection
A situation in which a person can only lose or have no change represents
Pure risk
The risk of loss may be classified as
Pure risk and speculative risk
The growing tendency of individuals to file lawsuits and to claim tremendous amounts of alleged damages is known as
Legal hazard
What are characteristics of pure risk
Loss must be measured in dollars, must be large and must be due to chance
The protection of the insurer from adverse selection is provided in part by
A profitable distribution of exposure
A contract which one party undertakes to indemnify another against loss is called
Insurance
Which of the following insurance options would be considered a risk-sharing arrangement
Reciprocal
adverse selection is a concept best described as
Risks with higher probability of loss seeking insurance more often than other risks
Insurance is a contract by which one seeks to protect another from
Loss
Does a debtor have insurable interest in the life of the lender
No
Which of the following insurance options would be considered a risk-sharing arrangement?
Reciprocal