Exam (elaborations)
Michigan Credit Insurance Test-solved
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Michigan Credit Insurance Test
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Michigan Credit Insurance TestInsurance - Answer -Practice/Arrangement where a comp./govt. agency gives a
guarantee of compensation for specified loss, damage, illness, or death in return for
payment of a premium. "transfers risks" doesn't eliminate
Law of Large numbers - Answer -as # of similar risk exposures increases the accuracy
of insurers loss projection increases
Pooling of risk - Answer -sharing of losses on some fair basis by all members of the
group
Adverse Selection - Answer -an instance in which those in high risk situations try to buy
more insurance than those w/ avg or below avg risk
Risk - Answer -Uncertainty of loss
Pure risk - Answer -only a chance of loss, never of a gain
Speculative risk - Answer -chance of either loss or gain
loss - Answer -unintentional decline or disappearance of value
peril - Answer -causes a loss. there are 3 kinds
human peril - Answer -bodily harm
economic peril - Answer -financial harm
natural peril - Answer -damage caused by natural elements such as rain, ice, snow,
typhoon, hurricane, volcano, wave action, wind, earthquake, or flood
hazard - Answer -a condition that increases the severity or frequency of loss. also 3
kinds
physical hazard - Answer -i.e. ice on sidewalk
moral hazard - Answer -i.e dishonest or fraudulent acts
, morale hazard - Answer -ie acting with indifference and false confidence because one
has insurance
exposure - Answer -measures an insurers susceptibility to loss
class - Answer -a similar group of loss exposures
reinsurance - Answer -contract that allows an ins comp to transfer some of its risk to
another ins comp.
indemnity - Answer -restoring insured cust to approx. the same position they were in
before the loss
Sharing (Insurance) - Answer -used to transfer risk from an individual or entity to a large
group w the same or similar risks. (through ins, reins, partnerships, etc.)
Transfering (other than insurance) - Answer -finding other parties willing to take risk. eg
by entering into a hold harmless agreement or incorporating a business
avoidance - Answer -avoid engaging in risky behavior whenever possisble
retention - Answer -to retain all or part of risk and be willing to endure partial or total loss
(eg ddeductions, co-ins, reserving, losing weight)
reduction - Answer -to reduce the likelihood of loss (eg seatbelts and fire alarms)
Insurance Policy - Answer -a legally binding contract that sets forth the ins companies
promise to pay. a device to provide funds to meet a specified uncertain loss
Insurable Risk - Answer -There must be a sufficiently large number of similar exposure
units to make the losses reasonably predictable - law of large numbers
Elements of Insurable Risk - Answer -due to CHANCE
PREDICTABLE
MEASURABLE
loss exposures must be LARGE
RANDOMLY SELECTED
cannot be CATASTROPHIC
Insurance contract Agreement - Answer -offer made when applying
acceptance when policy is issued
Insurance contract Consideration - Answer -an exchange of promises or money by both
parties
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