Personal Lines Insurance

An individual was involved in a head-on collision while driving home one day. His injuries were not serious, and he recovered. However, he decided that in order to never be involved in another accident, he would not drive or ride in a car ever again. Which method of risk management does this describe?

avoidance Avoidance is a method of risk management by which a person tries to eliminate risk of loss by avoiding any exposure to an event that could give rise to such loss. Risk avoidance is effective but seldom practical.

Which of the following is the basis for a claim against an insurance policy?

Loss Claims result from losses by a peril insured against in an insurance policy.

Events in which a person has both the chance of winning or losing are classified as

Speculative risk involves the chance of gain or loss and is not insurable.

Which of the following is a unit of measurement an underwriter uses when determining the premium rates for insurance?

Exposure is a unit of measurement used to determine rates charged for insurance coverage.

The insurer may suspect that a moral hazard exists if the policyholder

Is not honest about his health on an application for insurance Moral hazards refer to those applicants that may lie on an application for insurance, or in the past, have submitted fraudulent claims against an insurer.

Insurance is a contract by which one seeks to protect another from

Loss. Insurance will protect a person, business or entity from loss.

The reduction, decrease, or disappearance of value of the person or property insured in a policy by a peril insured against is known as

Loss Loss is the reduction, decrease, or disappearance of value of the person or property insured in a policy by a peril insured against.

The risk of loss may be classified as

Pure risk and speculative risk Pure risks involve the probability or possibility of loss with no chance for gain. Pure risks are generally insurance. Speculative risks involve uncertainty as to whether the final outcome will be gain or loss. Speculative risks are generally uninsurable.

Peril is most easily defined as

Perils are the causes of loss insured against in an insurance policy

Insurance is the transfer of

Risk. Insurance is the transfer of financial responsibility associated with a potential of a loss (risk) to an insurance company.

A hazard is best defined as

Something that increases the risk of loss Hazards are conditions or situations that increase the probability of an insured loss occurring.

Which of the following is NOT a goal of risk retention?

To minimize the insured's level of liability in the event of loss Retention usually results from three basic desires of the insured: to reduce expenses and improve cash flow, to increase control of claim reserving and claims settlements, and to fund losses that cannot be insured

What do individuals use to transfer their risk of loss to a larger group?

Insurance Insurance is the mechanism whereby an insured is protected against loss by a specified future contingency or peril in return for the present payment of premium. Because many other individuals with the same or similar risk of loss are paying premiums, funds are available to indemnify those who actually suffer that loss.

Events or conditions that increase the chances of an insured loss occurring are referred to as

Hazards conditions such as lifestyle and existing health, or activities such as scuba diving are hazards and may increase the chance of a loss occurring.

A tornado that destroys property would be an example of which of the following?

A peril A peril is the cause of loss insured against in an insurance policy.

A person who does not lock the doors or does not repair leaks shows an indifferent attitude. This person presents what type of hazard

morale A morale hazard is someone who has an indifferent attitude towards an insurance company. He is careless or irresponsible because he knows his loss will be covered by insurance.

An individual's tendency to be dishonest would be indicative of a

Moral hazard. An applicant that is dishonest in completing an application for insurance or submitting fraudulent claims would be deemed a moral hazard and could be uninsurable from an underwriting standpoint

Which of the following is considered to be a morale hazard

Driving recklessly Morale hazards arise from a state of mind that causes indifference to loss, such as carelessness

an individual's tendency to be dishonest would be indicative of a

Moral Hazard An applicant that is dishonest in completing an application for insurance or submitting fraudulent claims would be deemed a moral hazard and could be uninsurable form an underwriting Standpoint

The causes of loss insured against in an insurance policy are known as

perils Perils are the causes of loss insured against in an insurance policy