California Life-Only Study Guide with 100% Complete Solutions

California Life-Only Study Guide with 100% Complete Solutions What does insurance do? - Correct Answer ️️ -transfers the risk of loss from an individual/ business entity to an insurance company, which then spreads the costs of unexpected losses to many individuals What is insurance? - Correct Answer ️️ -the legal agreement/ contract whereby the 2 parties involved agree to the limits of the indemnification, the circumstances under which it will occur and what things of value (consideration) will be exchanged Risk - Correct Answer ️️ -the uncertainty/ chance of a loss occuring What types of risk are there? - Correct Answer ️️ -- pure risk - speculative risk Pure risk - Correct Answer ️️ -situations that can only result in a loss or no change - no financial gain - only type of risk insurance companies are willing to accept Speculative risk - Correct Answer ️️ -involves the opportunity for either loss or gain - ex. = gambling - not insurable Perils - Correct Answer ️️ -causes of loss insured against in an insurance policy Hazards - Correct Answer ️️ -conditions or situations that increase the probability of an insured loss occurring. Types of hazards: - physical - moral - morale Physical Hazards - Correct Answer ️️ -individual characteristics that increase the chances of the cause of loss - physical condition - past medical history - condition at birth Moral Hazards - Correct Answer ️️ -tendencies towards increased risk - evaluate the character and reputation of the proposed insured - refers to those who lie/ submit fraudulent claims Morale Hazards - Correct Answer ️️ -arise from state of mind that causes indifference to loss - carelessness Legal Hazard - Correct Answer ️️ -set of legal/ regulatory conditions that affect an insurer's ability to collect premiums that are equal in value to the exposure to loss that the insurer must bear Law of Large Numbers - Correct Answer ️️ -the larger amount of people with similar exposure to loss = the more likely actual losses will occur. - forms basis for statistical prediction of loss - used to calculate insurance rates Exposure - Correct Answer ️️ -a unit of measure used to determine rates charged for insurance coverage What factors of exposure are considered when determining insurance rates? - Correct Answer ️️ -- age - medical history - occupation - sex Critical risks - Correct Answer ️️ -all exposures in which the possible los