Exam Fx (PROPERTY & CASUALTY) QUESTIONS WITH COMPLETE SOLUTIONS

Law of Large Numbers correct answer: The larger the number of people with a similar exposure to loss, the more predictable actual losses will be. Insurance correct answer: Transfers the risk of loss from an individual or business entity to an insurance company The three elements of insurable risk are correct answer: 1) Financial 2) Blood (relative) 3) Business Risk correct answer: The uncertainty or chance of a loss occurring Types of risks are correct answer: 1) Pure risk 2) Speculative risk What type of risk does insurance cover? correct answer: Pure risk What is pure risk? correct answer: It can only result in a loss or no change What type of risk is not insurable? correct answer: speculative risk What is speculative risk? correct answer: Opportunity for loss or gain. For example, gambling. What is a peril? correct answer: a specific cause of loss What is a hazard? correct answer: conditions or situations that increase the probability of a loss occurring What is a loss? correct answer: reduction, decrease or disappearance of value of the person or property insured. What is indemnity? correct answer: provision in an insurance policy that states that in the event of loss, an insured can only collect to the extent of the financial loss. The insured is not allowed to gain financially. Subrogation correct answer: insurer's legal right to seek damages from third parties after it has reimbursed the insured. Accident correct answer: The sudden, unplanned and unexpected event not under the control of the insured. Neither expected or intended. Occurrence correct answer: losses caused by continuous or repeated exposure to conditions neither intended or expected. Direct loss correct answer: direct, physical damage to buildings and/or personal property Indirect Loss (consequential) correct answer: results of a direct loss What is the most prevalent indirect loss for homeowners?