Chapter 1 - Fundamentals of Insurance QUESTIONS
WITH COMPLETE SOLUTIONS
Spread of Risk Correct Answer: - "The losses of few are shared among the many"
- A large pot into which all insureds place their premiums
- This pot provides for payment for the losses of those who have claims
Basis of Credit System Correct Answer: Consumer access to insurance frees up credit
Eliminates Worry - Encourages Entrepreneurship Correct Answer: - Allows people to engage in
many ventures w/o having to set money aside (for future losses)
- Premium (defined expenditure)
- Covers large but uncertain losses - making you _________.
Loss Prevention and Loss Reduction Correct Answer: - Nation-wide campaign to fight
Insurance Fraud
- Industry works hard to prevent and reduce severity
Source of Employment and Investment Capital Correct Answer: - Insurers are major employers
and investors
- Insurers employ or contract services from more than 100,000 people, including: independent
brokers, adjusters, and actuaries.
- Car repair, construction, medicine, law, and accounting derive income from the settlement of
insurance claims.
- Claims total billions annually.
Definition of Insurance Correct Answer: - "The undertaking by one person to indemnify another
person against loss or liability for loss in respect of certain risk or peril to which the object of
insurance may be exposed ... or to pay a sum of money or other thing of value upon the
happening of a certain event."
Insurance ... Correct Answer: - Provides a means of shifting ones financial responsibility for a
loss to another party.
Payment will be made only in the ... Correct Answer: - Event of the happening of a certain risk
or peril.
Risk Correct Answer: - "The chance of financial loss to which the object of insurance may be
exposed."
Insurance is purchased to .. Correct Answer: - Cover the chances of financial loss
Risk has also come to mean the ... Correct Answer: - "The object of insurance."
Peril Correct Answer: - "The cause of loss"
, - i.e. fire, wind, or hail
Amount of Payment is restricted to the amount required to indemnify the insured Correct
Answer: - purpose is to indemnify or compensate the victim of loss
Principle of Indemnity Correct Answer: - Ensures that people receive the actual amount of their
loss, no more, no less.
- More than loss would enable people to profit
- To pay them less would result in incomplete indemnity
Insurance covers losses to which the object of insurance may be exposed Correct Answer: - Pay
for losses which are both accidental and future.
- Not deliberate or already occurred.
The indemnity provided can be in the form of ... Correct Answer: - a sum of money
- a thing of value
- the Insurance company always has the right to settle a claim on the basis of repair as opposed to
payment
Property and Casualty Insurance in Canada Correct Answer: - Automobile insurance
- Property insurance
- Liability insurance
Automobile Insurance Correct Answer: - Largest single class of property and casualty insurance
with premiums exceeding those for all other classes combined.
Property Insurance Correct Answer: - Habitational and business properties represent the second
largest source of premiums to insurers.
Liability Insurance Correct Answer: - Provides protection when insureds are financially
responsible for injury or damage they cause to others.
- Third major source of income to insurers
Organizations of Insurance Correct Answer: - Private insurance companies
- Government insurers
Private Insurers Correct Answer: (a) Stock Companies
(b) Mutual Companies
Stock Companies Correct Answer: - Most insurance written today = stock
- Operates through private funds or through public sale of stock
- Ownership is with the company's shareholders
- Their main purpose? "to derive a profit from their investment."
Mutual Companies Correct Answer: - Corporation owned by policyholders.
- Creation of Profit = Not primary incentive
WITH COMPLETE SOLUTIONS
Spread of Risk Correct Answer: - "The losses of few are shared among the many"
- A large pot into which all insureds place their premiums
- This pot provides for payment for the losses of those who have claims
Basis of Credit System Correct Answer: Consumer access to insurance frees up credit
Eliminates Worry - Encourages Entrepreneurship Correct Answer: - Allows people to engage in
many ventures w/o having to set money aside (for future losses)
- Premium (defined expenditure)
- Covers large but uncertain losses - making you _________.
Loss Prevention and Loss Reduction Correct Answer: - Nation-wide campaign to fight
Insurance Fraud
- Industry works hard to prevent and reduce severity
Source of Employment and Investment Capital Correct Answer: - Insurers are major employers
and investors
- Insurers employ or contract services from more than 100,000 people, including: independent
brokers, adjusters, and actuaries.
- Car repair, construction, medicine, law, and accounting derive income from the settlement of
insurance claims.
- Claims total billions annually.
Definition of Insurance Correct Answer: - "The undertaking by one person to indemnify another
person against loss or liability for loss in respect of certain risk or peril to which the object of
insurance may be exposed ... or to pay a sum of money or other thing of value upon the
happening of a certain event."
Insurance ... Correct Answer: - Provides a means of shifting ones financial responsibility for a
loss to another party.
Payment will be made only in the ... Correct Answer: - Event of the happening of a certain risk
or peril.
Risk Correct Answer: - "The chance of financial loss to which the object of insurance may be
exposed."
Insurance is purchased to .. Correct Answer: - Cover the chances of financial loss
Risk has also come to mean the ... Correct Answer: - "The object of insurance."
Peril Correct Answer: - "The cause of loss"
, - i.e. fire, wind, or hail
Amount of Payment is restricted to the amount required to indemnify the insured Correct
Answer: - purpose is to indemnify or compensate the victim of loss
Principle of Indemnity Correct Answer: - Ensures that people receive the actual amount of their
loss, no more, no less.
- More than loss would enable people to profit
- To pay them less would result in incomplete indemnity
Insurance covers losses to which the object of insurance may be exposed Correct Answer: - Pay
for losses which are both accidental and future.
- Not deliberate or already occurred.
The indemnity provided can be in the form of ... Correct Answer: - a sum of money
- a thing of value
- the Insurance company always has the right to settle a claim on the basis of repair as opposed to
payment
Property and Casualty Insurance in Canada Correct Answer: - Automobile insurance
- Property insurance
- Liability insurance
Automobile Insurance Correct Answer: - Largest single class of property and casualty insurance
with premiums exceeding those for all other classes combined.
Property Insurance Correct Answer: - Habitational and business properties represent the second
largest source of premiums to insurers.
Liability Insurance Correct Answer: - Provides protection when insureds are financially
responsible for injury or damage they cause to others.
- Third major source of income to insurers
Organizations of Insurance Correct Answer: - Private insurance companies
- Government insurers
Private Insurers Correct Answer: (a) Stock Companies
(b) Mutual Companies
Stock Companies Correct Answer: - Most insurance written today = stock
- Operates through private funds or through public sale of stock
- Ownership is with the company's shareholders
- Their main purpose? "to derive a profit from their investment."
Mutual Companies Correct Answer: - Corporation owned by policyholders.
- Creation of Profit = Not primary incentive
