Fundamentals of Insurance - Chapter 1 Exam Questions With Correct Answers

- Answer The major function of insurance is to achieve a spread of risk. Explain what is meant by "spread of risk" - AnswerTo share the losses of a few among the many An analysis of the definition of insurance reveals five important points. Identify these five important points - Answer- Shifting one's financial responsibility for loss to another party - Payment made only in event of certain risk or peril - Payment restricted to the amount required to indemnify the insured - Insurance covers losses to which the object of insurance may be exposed - Indemnity provided can be in form of money or thing of value Explain "Shifting one's financial responsibility for loss to another party" - AnswerIn exchange for money (premium), an insurance company will enter into a contract to assume financial responsibility of your loss Explain "Payment made only in event of certain risk or peril" - AnswerPayment will only be made if a named peril (such as fire, wind, or hail) occurs and is the cause of loss Explain "Payment restricted to the amount required to indemnify the insured" - AnswerPeople receive the actual amount of their loss, no more and no less Explain "Insurance covers losses to which the object of insurance may be exposed" - AnswerThe purpose of insurance is to pay for losses which are both accidental and future Explain "Indemnity provided can be in form of money or thing of value" - AnswerSettling a claim can be done either by repairing or replacing the damaged item, OR paying money for the damaged item