Fundamentals of Insurance | 61 Questions and Answers with complete

Risk - Uncertainty concerning the occurrence of a loss Loss Exposure - Any situation or circumstance in which a loss is possible, regardless of whether a loss occurs Objective vs Subjective Risk - Objective risk is defined as the relative variation of actual loss from expected loss Subjective risk is defined as uncertainty based on a person's mental condition or state of mind Objective vs Subjective Probability - Objective probability refers to the long-run relative frequency of an event based on the assumptions of an infinite number of observations and of no change in the underlying conditions Subjective probability is the individual's personal estimate of the chance of loss Peril v Hazard - Cause of loss v condition that increases chance of loss Pure vs Speculative Risk - A pure risk is a situation in which there are only the possibilities of loss or no loss (earthquake) A speculative risk is a situation in which either profit or loss is possible (gambling) Diversifiable risk vs Nondiversifiable risk - A diversifiable risk affects only individuals or small groups (car theft). It is also called nonsystematic or particular risk. A nondiversifiable risk affects the entire economy or large numbers of persons or groups within the economy (hurricane). It is also called systematic risk or fundamental risk.