Exam (elaborations)
HS 311 Fundamentals of Insurance Planning 2024/2025
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HS 311 Fundamentals of Insurance Planning HS 311 Fundamentals of Insurance Planning HS 311 Fundamentals of Insurance Planning
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HS 311 Fundamentals of InsurancePlanning
Pure Risk - ANS Chance of loss or no loss (Death, Auto accident, fire)
Speculative Risk - ANS Chance of profit, loss or no loss
- Generally by entrepreneurs and investors
- Generally voluntary and not insurable
Subjective Risk - ANS Risk that an individual perceives based on that person's prior experiences.
Objective Risk - ANS Does NOT depend on an individuals perception
- Measures difference between actual loss and expected loss
Fundamental Risk - ANS Risks will impact a large group of individuals simultaneously
(Earthquakes/floods)
- Difficult to insure
- Sometimes uninsurable (war, nuclear hazard)
Particular Risk - ANS Risk that impacts a particular individual (Death or the inability to work because of
sickness or accident)
Non-financial Risk - ANS Risk that would result in a loss other than a monetary loss (Emotional distress a
family experiences when loved one dies)
Financial Risk - ANS A loss of financial value, such as the premature death of a family's primary wage
earner (Life insurance can help)
,Probability of Loss - ANS Measures the long-run frequency of an event (How many car accidents will be
filed out of the pool of insured drivers)
Law of Large Numbers - ANS More frequently an event occurs, the more likely that the true probability
will reveal itself (Helps reduce objective risk)
Insurable Risk - ANS Insurable risk is merely a risk for which an insurance company is able to offer
protection.
- Amount of loss must be important
- Loss must be of an accident nature
- Future losses must be calculable
- Loss must be definite
- Loss cannot be excessively catastrophic
Hazard - ANS Condition that increases the likelihood of a loss occurring (Moral, morale and physical
hazards)
Moral Hazard - ANS Potential for loss due to a person's character flaw
Morale Hazard - ANS Indifference created because the person is insured (leaving car door unlocked)
Physical Hazard - ANS Tangible condition that increases the probability of a peril occurring (Icy roads,
poor lighting, defective equipment, poor eyesight)
Reinsurance - ANS - Means by which an insurance company transfers some or all risk to other insurance
companies
- Ceding Company (Company that transfers the risk)
, - Reinsurer (Company accepting the risk)
Warranty - ANS Promise made by the insured to the insurer, breach of warranty is grounds for
avoidance
Concealment - ANS When an insured is silent about a fact that is material to the risk being considered
Adhesion - ANS Contracts of adhesion are take it or leave it
Unilateral - ANS Only one promise is made by the insurer, and that is that the insurer will pay in the
event of a loss
Aleatory - ANS Money exchanged may be unequal
Express Authority - ANS Authority is given to the agent through agency agreements
Express authority is the agency agreement between the insurance agent and insurance company.
Implied Authority - ANS Reasonable, necessary or customary authority granted by the insurer to agent
even if not in writing
Implied authority includes visual aids: business cards, letterhead, and signs on the door.
The key difference between apparent and implied authority is that with apparent authority, none
actually exists.
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