1-A What is Insurance

How can insurance companies afford to pay for an individual's catastrophic loss?

The insurer collects premiums from all policyholders and pools them to pay the claims of the few

Which of the following best defines "insurer"? - An individual or organization that pays premiums in exchange for protection. - A legally binding contract in which the insurance company agrees to pay for specified losses in exchange for premiums. - A company, group, or government agency offering financial protection. - Transfer of the risk of financial loss from one party to another.

- A company, group, or government agency offering financial protection.

Which of the following best describes insurance? - Restoration of the previous financial condition, no more, no less - An economic device used to protect against the risk of unforeseen and extraordinary financial loss -Transfer of right to collect a debt from on entity to another -A legally enforceable agreement between parties

- An economic device used to protect against the risk of unforeseen and extraordinary financial loss

A legally binding contract where the risk of financial loss is transferred in exchange for premiums is called:

-an insurance policy

If covered by an insurance policy, an insured may be indemnified for all of the following except: -rental cars. -home remodels. -property repairs. -hotel bills.

home remodels.

The purpose of the principle of indemnity is: to transfer the right to collect a debt from one party to another -to transfer the risk of financial loss from one party to another. -to prevent an insured from making a profit on a loss. -to prevent an insurer from making a profit on a loss.

to prevent an insured from making a profit on a loss.

An offeree may legally reject a contract offer by any of the following means, EXCEPT: - Explicitly rejecting the offer. - Asking for clarification or additional information. - Proposing a new offer. - Accepting the offer on one condition.

- Asking for clarification or additional information.

Bobby just purchased an insurance policy for his home from XYZ Insurance. Which of the following would be a reason this policy may not be legally binding? - Bobby paid his first premium when he and his agent agreed on a policy, but he is waiting for the policy documents to be prepared so he can sign them. - Bobby has been diagnosed as mentally incompetent. - Bobby has an outstanding warrant for selling marijuana. - Bobby is only 19 years old.

- Bobby has been diagnosed as mentally incompetent.

Which of the following is NOT a requirement for a legally binding contract? - Both parties must bring something of value. - There must be a legal purpose. - There must be mutual consent. - It must be a notarized document.

- It must be a notarized document.

best defines premium? - The fee paid by the insured in exchange for an insurance policy - The transfer of risk of financial loss from one party to another - A legally enforceable agreement between parties - A legal agreement providing temporary evidence of insurance until a policy is issued

- The fee paid by the insured in exchange for an insurance policy

What is a reserve, in insurance terms?

A pool of collected premiums that the insurer sets aside to pay claims