ExamFX - CH 2 - Principles of Insurance/General Insurance Questions With Complete Solutions

Insurance correct answer: A social device for transferring risks and funds known as the premium. The insured becomes part of a group. The funds from all the insured's are accumulated for future losses. Insurer = ? correct answer: Principal Pure Risk correct answer: Only chance of loss - insurable Speculative Risk correct answer: Chance of loss or gain - not insurable Exposure correct answer: Unit of measure used to determine rates (age, health) Hazard correct answer: Increase the chance of loss Physical Hazard correct answer: Tangible (exposed wire) Moral Hazard correct answer: Tendencies toward increase risk (Insured interested in defrauding insurer to collect $) Morale Hazard correct answer: Carelessness (Insured feels like since they have insurance, it doesn't matter what happens to insured items) Peril correct answer: Cause of loss (What did the damage - wind/hail/smoke) Loss correct answer: Financial hurt Risk Management correct answer: Help determine premium (increase / decrease) Avoid correct answer: Eliminate exposure to a loss Reduce correct answer: Lessen the possibility or severity of a loss Retain correct answer: Planned assumption of risk by an insured through the use of deductibles, co-pays, self-insurance Transfer correct answer: Loss borne by another party (transfer risk from an individual or group to an insurance company) Share correct answer: Method of dealing with risk for a group of individuals or businesses with same or similar exposure to loss to share the losses (Risk-sharing)