ExamFx Basic Insurance Concepts and Principles
Morale Hazard
Arise from a state of mind that causes indifference to loss, such as carelessness. Actions taken without forethought may cause physical injuries.
Pure Risk
Refers to situations that can only result in a loss or no change. No opportunity for financial gain. Only type of risk insurance companies are willing to accept.
Physical Hazards
individual characteristics that increases 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.
Speculative Risk
involve the opportunity for either loss or gain. EX. Gambling. These types of risks aren't insurable.
Health insurance insures against
medical expenses and/or loss of income caused by the insured's sickness or accidental injury
Property Insurance insures against
Property Insurance insures against
Person
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. Includes individual human beings, associations, organizations, corporations, partnerships, and trusts.
Legal Hazard
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.
Casualty Insurance insures against
Casualty Insurance insures against
Hazards
Conditions or situations that increase the probability of an insured loss occurring. Hazards are as Physical, moral or morale. Lifestyle , existing health, or activities such as scuba diving are all conditions that are hazards and may increase the chance of loss occurring.
Moral Hazard
Tendencies towards increased risk. Involve evaluating the character and reputation of the proposed insured. Moral hazards refer to those applicants who may lie on the application for insurance, or in the past, have submitted fraudulent claims against an insurer.
perils
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
Risk
The uncertainty or chance of a loss occurring
Insurance
Transfers the risk of loss from individual or business entity to an insurance company, in turn spreads the cost of unexpected losses to many individuals.
Homogeneous group
a large pool of people with a similar exposure to loss.
Exposure
a unit of measure used to determine rated charged for insurance coverage.
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. Forms the basic for statistical prediction of loss upon which insurance rates are calculated.
