Basic Insurance Concepts and Principles

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

Speculative risk

Which insurance principle states that if a policy allows for greater compensation than the financial loss incurred, the insured may only receive benefits for the amount lost?

Indemnity

Which of the following insurance providers would be considered a risk sharing arrangement?

Recriprocal

All of the following are insurable events as defined in the Insurance Code EXCEPT

an insured looses a large sum in a poker game

Which of the following is the term for the person who seeks insurance from the insurer?

applicant

If a loss occurs, insurance policies pay the proceeds to

beneficiary

All of the following are examples of risk retention

deductibles co-payments self-insurance

What is the term for a fee the policy owner must pay the insurance company to maintain coverage?

premium

What is the most common way to transfer risk?

purchase insurance

Which of the following are characteristics of pure risk?

-loss must be large -due to chance -measurable in dollars

which statements involving insurable risks are correct

-must involve a loss that is definite -cannot be mandatory -needs to be statistically predictable -must not be catastrophic -must be a sufficient number of homogeneous exposure units to make losses reasonably predictable

Which describes a situation when poor risks are balanced with preferred risks, and average risks are in the middle?

profitable distribution of exposures

A situation in which a person can only loose or have no change represents

pure risk

Which of the following is NOT considered by an underwriter when determining the premium rates for an individual seeking insurance?

race

The insurer must be able to rely on the statements in the application, and the insured must be able to rely on the insurer to pay valid claims. In the forming of an insurance contract, this is referred to as

utmost good faith