Fundamentals of Insurance FINAL

The major function of insurance is to achieve a spread of risk. Explain what is meant by spread of risk. - the major function of insurance is to share the losses of the few among the many What are the five functions of insurance? - 1. spread of risk (major function) 2. basis of credit system 3. eliminates worry and encourages entrepreneurship 4. loss prevention and loss reduction 5. source of employment and investment capital An analysis of the definition of insurance reveals five important points. Identify them and provide a brief explanation for each. - 1. insurance provides a means of shifting one's financial responsibility for a loss to another party 2. payment will be made only in the event of the happening of a certain risk or peril 3. the amount of payment is restricted to the amount required to indemnify the insured 4. insurance covers losses to which the object of insurance *may* be exposed 5. the indemnity provided can be in the form of a sum of money or other thing of value Define risk. - the chance of financial loss to which the object of insurance may be exposed Define peril. - the cause of loss What are the three types of property and casualty insurance in Canada? What is another name for this type of insurance? - automobile insurance