Fundamentals of Insurance | 301 Questions and Answers with complete

Chapter 1 - Introduction to General Insurance 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 property insuranceliability insurance There are two major types of insurers. Identify them and provide examples of organizational differences. - private insurers government insurers What are the two most common types of private insurers? Provide a brief explanation of them both. (money and main goal) - (a) stock companies -money to operate a stock company may come from private funds or through public sale of stock -ownership rests in the hands of the company's shareholders whose main purpose is to derive a profit from their investment (b) mutual companies -money made is refunded to policyholders directly through dividends or through subsequent rate adjustments -main goal is to provide policyholders with insurance at as low of a cost as possible Which types of insurance are government insurers most often involved with? - medical insurance, employment insurance, workers' compensation, compulsory automobile insurance