Basic Insurance Concepts and Principles

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

Avoidance

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

Self-funded

All of the following are examples of risk retention EXCEPT

Premiums

Peril is most easily defined as

The cause of loss insured against

Which type of insurance guarantees or indemnifies owners of real or personal property or the holders of liens or other interested parties against loss or damage suffered to said property

Title insurance

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

A peril

With respect to the business of insurance, a hazard is

Any condition or exposure that increases the possibility of loss.

In property and casualty insurance, insurable interest must exist

At the time of loss

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

Incurred losses + loss adjusting expense/earned premium

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

Insurance

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

Investing in the stock market

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

Legal hazard

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

Legal hazard

The risk of loss may be classified as

Pure risk and speculative risk

According to California Insurance Code, which of the following can be classified as an insurable event?

Pure risks

Events or conditions that increase the chances of an insured loss occurring are referred to as

Hazards

A set of legal or regulatory conditions that affect an insurer'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

Following a career change, an insured is no longer required to perform many physical activities, so he has implemented a program where he walks and jogs for 45 minutes each morning. The insured has also eliminated most fatty foods from his diet. Which method of dealing with risk does this scenario describe?

Reduction

Which of the following is an insurable risk?

Hail damage to the roof of a car