Insurance

Homogeneous?

A large number of units having the same or similar exposure to loss is known as homogeneous.

As defined by cic 22 insurance is a contract......

As defined by CIC 22, "insurance is a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event."

Be able to identify risk situations that present the possibility of a loss.

Critical risks include all exposures in which the possible losses are of the magnitude that would result in financial ruin to the insured, his or her family, and/or to his or her business; Important risks include those exposures in which the losses would lead to major changes in the person's desired lifestyle or profession; and Unimportant risks include those exposures in which the possible losses could be met out of current assets or current income without imposing undue financial strain or lifestyle changes. Common sense principles for establishing insurance program: Consider the odds; Don't risk more than you can afford to lose; and Don't risk a lot for a little.

Example of law of large numbers

Example: When an insurance company issues a policy on a 35-year-old male, the company really has no way of knowing or accurately predicting when he will die. However, the Law of Large Numbers looks at a large group of similar risks - 35-year-old males of similar lifestyles and health conditions - and makes some conclusions based on statistics of past losses. This allows the insurance company to have a general idea about the predicted time of death for this type of insured and to set the premiums accordingly.

Be able to identify a definition or the correct usage of the term loss exposure.

Exposure is a unit of measure used to determine rates charged for insurance coverage. In life insurance, all of the following factors are considered in determining rates: The age of the insured; Medical history; Occupation; and Sex.

Risk situations examples

For example, an individual who uses power tools to work on avocational woodworking projects is exposed to the possibility of hand injuries. If the individual is a brain surgeon, this would be considered a critical risk of financial loss, since the injury could prevent the person from doing his or her job. If the individual is, however, a radio announcer, the loss of hand function may be deemed a less "important" risk.

Explain insurance in broader terms.("insurance is the legal....")

In broader terms, insurance is the legal agreement, or contract, whereby the two parties involved agree to the limits of the indemnification, the circumstances under which it will occur and what things of value (consideration) will be exchanged by the parties to the contract.

In the law, what is a person?

In the law, a person is a legal entity which acts on behalf of itself, accepting legal and civil responsibility for the actions it performs and making contracts in its own name. Persons include individual human beings, associations, organizations, corporations, partnerships, and trusts.

Be able to identify the meaning of adverse selection and profitable distribution of exposures.

Insurance companies strive to protect themselves from adverse selection, the insuring of risks that are more prone to losses than the average risk. Poorer risks tend to seek insurance or file claims to a greater extent than better risks. To protect themselves from adverse selection, insurance companies have an option to refuse or restrict coverage for bad risks, or charge them a higher rate for insurance coverage.

Identify the definition of insurance

Insurance is a transfer of risk of loss from an individual or a business entity to an insurance company, which, in turn, spreads the costs of unexpected losses to many individuals. If there were no insurance mechanism, the cost of a loss would have to be borne solely by the individual who suffered the loss.

Insurance

Insurance is a transfer of risk of loss from an individual or a business entity to an insurance company, which, in turn, spreads the costs of unexpected losses to many individuals. If there were no insurance mechanism, the cost of a loss would have to be borne solely by the individual who suffered the loss. Know This! Insurance is the transfer of risk of loss. The cost of an insured's loss is transferred over to the insurer and spread among other insureds.

Know This! A risk is a that a chance......; a hazard increases.....; a peril is the...... of loss.

Know This! A risk is a chance that a loss will occur; a hazard increases the probability of loss; a peril is the cause of loss.

Know this : "as the number of ppl in a risk pool increases...."

Know This! As the number of people in a risk pool increases, future losses become more predictable.

What kind of risks are insurable?

Know This! Only pure risks are insurable.

Perils and Hazards. Where are they

Perils are the causes of loss insured against in an insurance policy. Life insurance insures against the financial loss caused by the premature death of the insured; Health insurance insures against the medical expenses and/or loss of income caused by the insured's sickness or accidental injury; Property insurance insures against the loss of physical property or the loss of its income-producing abilities; Casualty insurance insures against the loss and/or damage of property and resulting liabilities. Hazards are conditions or situations that increase the probability of an insured loss occurring. Hazards are classified as physical hazards, moral hazards, or morale 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. Physical hazards are individual characteristics that increase the chances of the cause of loss. Physical hazards exist because of a physical condition, past medical history, or a condition at birth, such as blindness. Moral hazards are tendencies towards increased risk. Moral hazards involve evaluating the character and reputation of the proposed insured. Moral hazards refer to those applicants who may lie on an application for insurance, or in the past, have submitted fraudulent claims against an insurer. Morale hazards are similar to moral hazards, except that they arise from a state of mind that causes indifference to loss, such as carelessness. Actions taken without forethought may cause physical injuries. A legal hazard describes a set of legal or regulatory conditions that affect an insurer's ability to collect premiums that are commensurate with (equal to in value) the exposure to loss that the insurer must bear.

Recognize the definition of risk

Risk is the uncertainty or chance of a loss occurring. The two types of risks are pure and speculative, only one of which is insurable. Know This! Insurance is the transfer of risk of loss. The cost of an insured's loss is transferred over to the insurer and spread among other insureds.

Differentiate between a pure risk and a speculative risk;

Risk is the uncertainty or chance of a loss occurring. The two types of risks are pure and speculative, only one of which is insurable. Pure risk refers to situations that can only result in a loss or no change. There is no opportunity for financial gain. Pure risk is the only type of risk that insurance companies are willing to accept. Speculative risk involves the opportunity for either loss or gain. An example of speculative risk is gambling. These types of risks are not insurable.

What are the different types of risks?

Risk is the uncertainty or chance of a loss occurring. The two types of risks are pure and speculative, only one of which is insurable. Pure risk refers to situations that can only result in a loss or no change. There is no opportunity for financial gain. Pure risk is the only type of risk that insurance companies are willing to accept. Speculative risk involves the opportunity for either loss or gain. An example of speculative risk is gambling. These types of risks are not insurable.

Be able to identify risk management techniques.

Sharing Sharing is a method of dealing with risk for a group of individual persons or businesses with the same or similar exposure to loss to share the losses that occur within that group. A reciprocal insurance exchange is a formal risk-sharing arrangement. 2. Transfer The most effective way to handle risk is to transfer it so that the loss is borne by another party. Insurance is the most common method of transferring risk from an individual or group to an insurance company. Though the purchasing of insurance will not eliminate the risk of death or illness, it relieves the insured of the financial losses these risks bring. There are several ways to transfer risk, such as hold harmless agreements and other contractual agreements, but the safest and most common method is to purchase insurance coverage. 3. Avoidance One of the methods of dealing with risk is avoidance, which means eliminating exposure to a loss. For example, if a person wanted to avoid the risk of being killed in an airplane crash, he/she might choose never to fly in an airplane. Risk avoidance is effective, but seldom practical. 4. Retention Risk retention is the planned assumption of risk by an insured through the use of deductibles, co-payments, or self-insurance. It is also known as self-insurance when the insured accepts the responsibility for the loss before the insurance company pays. The purpose of retention is To reduce expenses and improve cash flow; To increase control of claim reserving and claims settlements; and To fund for losses that cannot be insured. 5. Reduction Since we usually cannot avoid risk entirely, we often attempt to lessen the possibility or severity of a loss. Reduction would include actions such as installing smoke detectors in our homes, having an annual physical to detect health problems early, or perhaps making a change in our lifestyles.

Tell me about the law of large numbers?

The basis of insurance is sharing risk among a large pool of people with a similar exposure to loss (a homogeneous group). The law of large numbers states that the larger the number of people with a similar exposure to loss, the more predictable actual losses will be. This law forms the basis for statistical prediction of loss upon which insurance rates are calculated.

What is risk?

Uncertainty or chance of loss

Agent/Producer

a legal representative of an insurance company; the classification of producer usually includes agents and brokers; agents are the agents of the insurer