Basic Insurance Concepts and Principles

The risk of loss may be classified as _______________.

Pure Risk and Speculative Risk

Insurance is the transfer of ________.

Risk

Adverse selection is a concept best described as

Risk with higher probability of loss seeking insurance more often than other risk

___________ _______ involve uncertainty as to whether the final outcome will be gain or loss and are generally uninsurable.

Speculative Risk

Legal hazard

The growing tendency of individuals to file lawsuits and to claim tremendous amounts for alleged damages is known as _________.

Premium income to losses

The loss ratio compares _______ to _______.

Underwriting

The process and ensure uses to evaluate applications and determine if a policy should be issued and on what terms, conditions, and rates is known as _____________.

A profit or distribution of exposures

The protection of the insurer from adverse selection is provided in part by _________.

A profitable distribution of exposures

The protection of the insurer from adverse selection is provided in part by ____________.

Avoidance

The risk management technique that is used to prevent a specific laws by not exposing oneself to that activity is called ____________.

Preferred risk and poor risks are balanced, with average risk in the middle

To achieve the profitable distribution of exposures,__________.

Profit distribution of exposures

What describes a situation when poor risk are balance with preferred risk, and average risk are in the middle?

Neighbor

Which of the following individuals would probably NOT have insurable interest in insured property?

To minimize the insured's level of liability in the event of loss

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

Hail damage to the roof of a car

Which of the following is an insurable risk?

(Incurred losses + loss adjusting expense)/earned premium

Which of the following is the correct formula for computing a loss ratio?

Risk of loss is speculative

Which one of the following is NOT an element of insurability?

Loss costs rating

Which rating method provides an insurer with that portion of a rate that does not include provisions of expenses(other than I Justine expense) or profit and is based on historical aggregate loss and loss adjustment expenses projected through development to their ultimate value and through trending to a future point in time?

The legal definition of "person" would NOT include which of the following?

A Family

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

A peril

Investing in the stock market

All of the following actions by a person could be described as risk avoidance EXCEPT

And insured loses a large sum in a poker game

All of the following are insurable events as defined in the insurance code EXCEPT

Avoidance

An individual was involved in a head on collision while driving home one day. His injuries were not serious, 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?

Administrative service only

And employer has decided to implement a self-funded plan. The company will pay the claims, but an insurer will administer the actual plan. What kind of contract is this?

At the time of loss

And property and casualty insurance, insurable interest must exist __________.

With the respect to the business of insurance, a hazard is ______________.

Any condition or exposure that increases the possibility of loss.

With respect to the business of insurance, a hazard is _________________.

Anycondition or exposure that increases the possibility of loss.

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

Exposure

Larger

For the reported or losses oven insured group to become more likely to equal the statistical probability of loss for that particular class, the insured group must become ____________.

Deductible

In property and casualty insurance, what is the term for the amount of a loss that the insured must cover out of pocket, and the insurer will only pay for the additional amount of the loss about this limit?

Self funded

In what type of plan with the employer pay all of the claims?

Reduction

Installing deadbolt locks on the doors of a home is an example of which method of handling risk?

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

Insurance is the mechanism whereby an insured is protected against a 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.

Which law is the foundation of the statistical prediction of loss upon which rates for insurance are calculated?

Law of large numbers

A set of legal or regulatory conditions that affect an insure's ability to collect premiums commensurate with the level of risk incurred would be considered a(n) _____________.

Legal Hazard

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

Loss

Loss potentials that are the basis for setting rates are __________.

Loss Exposures

Loss exposures

Loss potential's that are the basis for setting rates are ___________.

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

Perils

Protecting the insurer against adverse selection

Profitable distribution of exposures serves the purpose of ____________________.

A situation in which a person can only lose or have no change represents _____________________.

Pure Risk

______ _______ involve the probability or possibility of loss with no chance for gain and are generally insurable.

Pure Risk