Chapter 1 – Insurance Documents and Processes Summary Notes Download
More definations
Terms | Definitions |
|---|---|
 Define risk. | risk is the uncertainty of the outcome with several possibilities. |
| Differentiate between risk and chance. | chance is associated with a positive outcome such as winning a bet whereas risk is associated with the possibility of loss. |
| Explain how uncertainty is related to risk. | uncertainty implies doubt about the future. It is a component of risk. |
| Define peril and give at least TWO (2) examples of perils. | is an event that will give rise to a loss. examples are flooding and wild fires. |
| Define hazard and give at least TWO (2) examples of hazards. | is a factor which may increase the likelihood of a peril happening or make an event more serious. e.g. slippery floors, malfunctioning fire alarm. |
| Give examples of the following types of risks to which individuals are exposed: i. Personal | injury resulting in loss of work income |
| Give examples of the following types of risks to which individuals are exposed:ii. Property | theft of vehicle or household break-in. |
| Give examples of the following types of risks to which individuals are exposed iii. Liability | injury to others due to careless driving. |
| Give examples of the following types of risks to which businesses are exposed:iv. Personal | injury to owner - loss of income |
| Give examples of the following types of risks to which businesses are exposed:v. Property | damage to equipment of business |
| Give examples of the following types of risks to which businesses are exposed:vi. Liability | working injury to employees |
| Define risk management. | Risk management is the minimization of the detrimental effects of risk by identifying the risk, measuring the risk and controlling the risk |
| What does a risk manager do? | a risk manager looks at the risks involved and tries to control and minimize the negative outcomes. |
| How might risk be identified? | can be identified by determining which perils could occur and result in a loss. |
| How is risk measured? | to determine the likelihood of each identified peril occurring. |
| What are some methods for controlling risk? | to deal with it in the most cost effective manner. 3 ways 1. reduce or eliminate 2. assume or retain it 3. self-insure or transfer through means of insurance |
| Explain THREE (3) ways of assuming or retaining risk. | 1. you can ignore the risk and hope for the best 2. you can self-insure 3. you can transfer risk to insurance |
| How does purchasing insurance enable an individual or business to control risk? | by paying a small premium, it allows the ind/bus. to cover the cost of a peril in the event that it occurs. |
| Provide a definition of insurance. | it is the method of sharing the losses of the few individuals in a group who suffer them among the many members of that group who do not. |
| Explain what it means to be indemnified. | it means to put back in the same financial position as just prior to the loss. |
| What are reserves? | are funds required by law, to be set aside to pay for losses reported but not yet paid or not yet reported and to cover unearned premiums. |
| What are unearned premiums? | consist of that portion of the premium that has not get been earned on a given policy. |
| What is the main objective of insurance? | it is to spread the losses of a small number of individuals over as great a population as possible |
Terms | Definitions |
|---|---|
| Which is the correct definition of Peril? a)Is an event that gives rise to a loss b)Is a factor which may increase the likelihood of the loss c)a & b | a) Peril is an event that gives rise to a loss |
| Slippery Floors Flammable Debris are examples of a)Risk b)Hazard c)Peril | b) Hazard |
| Which are the 2 types of Risk?Explain in detail | Risk is classified into Speculative Risk and Pure Risk Speculative risk exist where there is a chance of loss or a chance of profit Pure Risk entails a chance of loss but no chance of profit |
| Define Risk? | Is the Chance of Loss |
| Legal obiligation to other falls under which type of risk a) Personal b)Property c)Liability | c) Liability |
| Give to examples for each of the following types of risk to which business are exposed: a)Personal b)Property c) Liability | a)Personal-Sole owner of the business serious Injury or sudden death b) Property-Equipment c)Liability-Safety of employees |
| Define Risk management? | Risk management is the minimization of the detrimental effects of risk by identifying the risk, measuring the risk & Controlling the risk |
| Risk can be identified by a)Site Inspection b)Financial Analysis c)Historical Records d)Employee Interview e)All of the above | e)All of the above |
| What are 3 ways of controlling Risk? | Risk can be controlled in three ways Reduce or eliminate it by prevetive effort Assume or retain it in other words self-insure Transfer |
| How is risk measured? | Risk can be measured by determining the likelihood of each identified peril its frequency & severity of loss |
| Define Insurance? | Insurance is the method of sharing the losses of the few individuals in a group who suffer them among the many members of that group who do not. |
| Name three general types of Risk and give two examples for each? | Three general types of risk Personal examples-Premature Death,Physical disability Property examples- Clothes, Sports Equipment Liability risk examples- Injury to others, Damages the property of others |
| Define reserves? | Reserves are funds required by law to be set aside to pay for losses reported but not yet paid or not yet reported and to cover unearned premiums |
| What is the definition for Unearned premiums? | Unearned premiums consist of that portion of the premium that has not yet been earned on a given policy. |
| Insurance is peace of mind.True or False?Explain why? | True,Insurance provides security by indemnifying loss. Insurance provides security because insureds do not have to worry about facing financial hardship. Insurance provides security by allowing insureds to make monthly premium payments |
| Very large corporations may set up their own insurance company offshore to deal with their risks and put them in a better tax position What are such companies called? | Captive Insurance |
| What is main objective of Insurance? | Basic objective of insurance is to spread the losses of a small number of individuals over a greater population. In this way insurance becomes affordable to all. |
| To indemnify means to a)put back in the same financial position as just prior to the loss. b)put aside funds to pay for the losses c)transfer risk to someone who has better financial resources and can withstand loss. | a)put back in the same financial position as just prior to the loss. |
| Differentiate between risk & chance? | Chance tends to have positive outcome in a given situation where as risk has a negative outcome |
| What is the role of Risk Manager? | To manage risk which can be done by the following steps.-Identify risk by doing regular inspection.-Measuring risk.-Control risk by preventive efforts,assuming or retaining it, have funds setup or self insuring,Transferring it to insurance companies. |