Exam (elaborations)
LOMA 281 MODULE 1 QUESTIONS AND ANSWERS
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LOMA 281 MODULE 1 QUESTIONS AND ANSWERS
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LOMA 281 MODULE 1 QUESTIONS AND ANSWERSRisk - Answers- the possibility of an unexpected result.
Premium - Answers- A specified amount of money an insurer charges in exchange for
its agreement to pay a policy benefit when a specific loss occurs.
Insurance company - Answers- A company that provides protection against the risk of
financial loss caused by specific events.
Life insurance - Answers- A type of insurance under which the insurer promises to pay
a death benefit upon the death of a named person.
Speculative risks - Answers- A risk that involves three possible outcomes: loss, gain, or
no change.
Pure risk - Answers- A risk that involves no possibility of gain; either a loss occurs or no
loss occurs.
Contracts of indemnity - Answers- Health insurance; An insurance policy under which
the amount of the policy benefit payable for a covered loss is based on the actual
amount of financial loss that results from the loss, as determined at the time of the loss.
Valued contract - Answers- Life insurance; An insurance policy that specifies the
amount of the policy benefit that will be payable when a covered loss occurs, regardless
of the actual amount of the loss the was incurred.
Face amount - Answers- the amount of the policy benefit listed on the first page of a life
insurance policy.
Law of large numbers - Answers- A theory of probability which states that, typically, the
more times we observe a particular event, the more likely it is that our observed results
will approximate the 'true' probability that the event will occur.
Reinsurance - Answers- Insurance that one insurance company, known as the direct
writer, purchases from another insurance company, known as the reinsurer, to transfer
risk on insurance policies that the direct writer has issued.
Retention limit - Answers- The maximum amount of insurance that an insurer is willing
to carry at its own risk on any one life. The direct writer cedes anything above that limit
to a reinsurer in a reinsurance transaction or through other risk transfer mechanisms.
Direct writer - Answers- AKA ceding company; In a reinsurance transaction, the
insurance company that purchases reinsurance.
, Reinsurer - Answers- In a reinsurance transaction, the company that provides
reinsurance to the direct writer.
Retrocessionaire - Answers- A reinsurance company that accepts risk ceded to it by
another reinsurance company.
Underwriter - Answers- An insurance employee who is responsible for evaluating
proposed risks.
Physical hazard - Answers- A physical characteristic that might increase the likelihood
of loss.
Annuity - Answers- A financial product by which an insurer, in return for receiving a
premium, promises to make periodic payments to a named person or entity.
Applicant - Answers- The person or entity that applies for an insurance policy.
Policyowner - Answers- The person or entity that owns the issued policy.
Insured - Answers- The person whose life or health the policy insures.
Beneficiary - Answers- The person named to receive the policy benefit if the insured
event occurs.
Third party policy - Answers- A policy one person purchases that insures the life of
another person.
Moral hazard - Answers- A characteristic that exists when the reputation, financial
position, or criminal record of an applicant for insurance or a proposed insured indicates
that the person may act dishonestly in the insurance transaction.
Antiselection - Answers- AKA adverse selection; The tendency of individuals who
believe they have a greater-than-average likelihood of loss to seek insurance protection
to a greater extent than those who believe they have an average or less-than-average
likelihood of loss.
Risk class - Answers- A grouping of insureds who represent a similar level of risk to an
insurer.
Insurable interest - Answers- The interest that an insurance policyowner has in the risk
that is insured. A policyowner has an insurable interest if she is likely to suffer a genuine
loss or detriment should the event insured against occur.
Financial services industry - Answers- The industry made up of various kinds of
financial institutions that help people, businesses, and governments save, borrow,
invest, and otherwise manage money.
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