LIFE AND HEALTH INSURANCE EXAM - CHAPTER 1:

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LIFE AND HEALTH INSURANCE EXAM - CHAPTER 1:

INTRODUCTION TO INSURANCE

Actual Qs and Ans - Expert-Verified Explanation -Guaranteed passing score -40 Questions and Answers

-Format: Multiple-choice / Flashcard

Question 1: avoid risk

Answer:

avoiding an auto accident by never driving a car (not all risk is avoidable)

Question 2: indemnity

Answer:

concept stating insurance should restore the insured, in whole or in part, to the condition he or she enjoyed prior to the loss; restoration may take form of payment for the loss or repair or replacement of the damaged or destroyed property

Question 3: mutual company

Answer:

no stockholders, commercial; formation funds must be contributed by someone or some group; ownership rests with the policyholders; participating companies; policyowners participate in dividends

Question 4: pure risk

Answer:

possibility of loss only, type of risk that insurers accept; ex: possibility of financial loss due to an accident, sickness, premature death, insurance's purpose is to make those who lose whole again, restore the insured to their original financial position

Question 5: peril

Answer:

the cause of a potential loss. ex: fire, accident, explosion, flood

Question 6: transfer risk

Answer:

harmless agreements or lawsuits

Question 7: speculative risk

Answer:

risk that offers the opportunity to gain as well as the possibility of loss, gambling is an example

Question 8: legal hazards

Answer:

arise from court actions that increase the likelihood or size of a loss

Question 9: life insurance

Answer:

coverage on human lives including benefits of endowment and annuities, and may include benefits in the event of death or dismemberment by accident and benefits for disability insurance, designed to protect against the risk of premature death

Question 10: hazard

Answer:

condition that increases the seriousness of a potential loss or increases the likelihood that loss will

occur. ex: slippery floors, improperly stored gasoline

Question 11: stock insurers

Answer:

commercial; consist of stockholders who own shares in the company; nonparticipating company, policyholders do not participate in dividends

Question 12: retain risk

Answer:

happens when someone assumes financial responsibility for certain events (insurance deductible in health plans)

Question 13: casualty insurance

Answer:

protects the insured against the financial consequences of legal liability, including that for death, injury, disability, or damage to real or personal property

Question 14: actuaries

Answer:

mathematicians who study and compile statistical data regarding exposure units and risks

Question 15: why loss must be ascertainable

Answer:

because the purpose of insurance is to reduce or eliminate the uncertainty of economic loss

Question 16: economic hardship and magnitude of loss

Answer:

nature of the loss must be such magnitude that it is worthwhile to incur the premium cost

Question 17: property insurance

Answer:

protects against financial consequences of the direct or consequential loss or damage to property of every kind

Question 18: moral(e) hazards

Answer:

arise out of carelessness/irresponsibilities (no seatbelt)

Question 19: risk

Answer:

the possibility that loss might occur, reason people purchase insurance

Question 20: accident and health or sickness insurance

Answer:

protects against financial loss caused by sickness, bodily injury, accidental death, may include disability income benefits

Question 21: limit of liability

Answer:

not used in life and health; commonly used in property and casualty; means the maximum amount the insurer will pay for he specified insured contingency

Question 22: physical hazards

Answer:

arise from material, structural, operational features of risk situation (slippery floors)

Question 23: loss must be uncertain - how uncertainty arises

Answer:

out of not knowing what is going to happen or being unable to predict what is going to happen to the individual or exposure unit

Question 24: moral hazards

Answer:

arise from people's habits and values (false claim)

Question 25: Four ways of managing risk

Answer:

avoid, reduce, retain, transfer

Question 26: law of large numbers

Answer:

the larger the group, the more predictable the future losses in the group will be for a given period of time

Question 27: insurance

Answer:

business that was developed as a means for spreading the result of financial loss among many persons so the cost to any one person is small

Question 28: catastrophic perils

Answer:

when these perils cause losses, they do not establish a pattern of predictability that can be relied on for future predictions of anticipated loss