Insurance Test #1 Property Insurance

ABRC

An insurance policy

Is a social device (legal contract or policy) for the transfer of risks

Transfer of risk

Risk

Pure risk

When a person can only stand to lose should an event occur. What insurance policies usually cover

Speculative risk

When there is also an opportunity to gain (to profit) should an event occur as well as the risk of losing

Pooling of risks

Is when a large group of people contributes money to a fund out of which their losses can be paid. The larger the group the better it works financially

The premium

Is the money paid by the insured to the insurance company in exchange for the insurance policy. The premium must be sufficient to pay commisiions and marketing costs; pay administrative costs, and provide a loss reserve

A lapse

Is when a policy is terminated due to a nonpayment of premiums

The insured

Is the person or organization who is protected by the insurance policy and for whom the insurance policy accepts financial risk

An endorsement

Is a form added to an insurance policy. It is usually added for an additional premium to add additional coverage. Sometimes, however, it can be added to limit (or, restrict) coverage

A Peril

Is an actual cause of loss that can be insured against. (Ex. fire)

A Hazard

Is a condition or operation in property which either creates or increases the chance of loss by a covered peril (Ex. frayed wiring)

Risk (might be called exposure)

Is the likelihood, probability, or degree of uncertainty that a covered peril will cause a loss

Actuarial tables

Are statistical tables used in calculating premium rate tables. They tell the insurance companies how many people are likely to have claims and how much the losses are likely to be

Loss reserves

Are moneys set aside to pay claims in accordance with the actuarial tables

Actuary

Is an insurance company representative who keeps track of the loss statistics and calculates premium rate tables and loss reserves

Law of large numbers

Says that the more people the insurance company insures, the more accurate the actuarial tables will be

Insurable intrest