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INDIANA LIFE AND HEALTH INSURANCE FINAL STUDY GUIDE TEST QUESTIONS WITH COMPLETE ANSWERS
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INDIANA LIFE AND HEALTH INSURANCE FINAL STUDY GUIDE TEST QUESTIONS WITH COMPLETE ANSWERS
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INDIANA LIFE AND HEALTH INSURANCEFINAL STUDY GUIDE TEST QUESTIONS
WITH COMPLETE ANSWERS
Insurance - Answer-A contract that transfers the risk of financial loss from an individual
or business to an insurer
Risk - Answer-Uncertainty about whether a loss will occur
Speculative Risk - Answer-Possibility of a loss or gain. Not insured.
Pure Risk - Answer-Possibility of experiencing loss. Covered by insurance.
Loss - Answer-The reduction in the value of an asset
Exposure - Answer-Risk assumed by an insurer and the amount that the insurer is
responsible to pay out at any given time. Expressed in units
Peril - Answer-Cause of loss
Hazard - Answer-Anything that increases the chance that loss will occur
Physical Hazard - Answer-A physically identifiable hazard
Moral Hazard - Answer-Hazard that arises from someone's character
Morale Hazard - Answer-Hazard that arise from a state of mind or careless attitude
Acronym of Methods for Handling Risk - Answer-STARR
S in STARR - Answer-Risk Sharing - Two or more individuals agree to pay a portion of
loss occurred by someone in the group
T in STARR - Answer-Transfer of Risk - What happens with insurance. Insurer agrees
to pay if individual or business has a loss
A in STARR - Answer-Risk Avoidance - Eliminating a particular risk by not engaging in a
certain activity
1st R in STARR - Answer-Risk Reduction - Lessening the chance that loss will occur, or
lessening the extent of a loss that does occur
2nd R in STARR - Answer-Risk Retention - The individual pays for the loss
, Law of Large Numbers - Answer-The larger the group - the more accurate losses can
be predicted
Acronym for Risks that can be Insured - Answer-CANHAM
C in CANHAM - Answer-Calculable - Premiums must be calculable based upon prior
loss statistics for that particular risk
1st A in CANHAM - Answer-Affordable - The premium for transferring risk should be
affordable to the average consumer
N in CANHAM - Answer-Non-catastrophic - Insurance cannot cover events that cause
widespread losses to large numbers of insureds at the same time
H in CANHAM - Answer-Homogeneous - The individual risks that an insurer covers
must be similar, homogeneous, in regard to factors that affect the chance of loss
2nd A in CANHAM - Answer-Accidental - Insurance must involve risk
M in CANHAM - Answer-Measurable - It must be possible to estimate loss as a dollar
amount
Adverse Selection - Answer-Tendency for higher-risk individuals to get and keep
insurance more than individuals who represent an average level of risk
Underwriting - Answer-The extensive evaluation of information related to a particular
risk
Reinsurance - Answer-An insurance company pays another insurance company to take
some of the company's risk of catastrophic loss
Ceding Insurer - Answer-Company reducing its risk in reinsurance
Reinsurer - Answer-Company assuming risk in reinsurance
Facultative Insurance - Answer-The reinsurer evaluates each risk before allowing the
transfer to be made from the ceding company
Treaty Reinsurance - Answer-The reinsurer accepts all risks of a certain type from the
ceding company
Stock Insurer - Answer-Business formed as a public or private corporation and owned
by its stockholders, also known as shareholders. Profits issues by dividends
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