Fundamentals of Insurance - Self Exam Q & A with Complete Solutions(RATED A+)

Main purpose of Insurance - ANSWER-Allow the spread of risk Definition of Insurance - ANSWER--Payment's made only when a certain peril has damaged the insured object -Payment's limited to actual amount of loss, no more and no less -There's no payment for losses that are deliberately caused by an insured. Five important points to the definition of insurance: - ANSWER--Spread of Risk -Basis of Credit System -Eliminates Worry/Encourages Entrepreneurship -Loss Prevention and Loss Reduction -Source of Employment and Investment Capital Five important points as they relate to the definition of insurance: - ANSWER--Provides a means of shifting one's financial responsibility for loss to another party -Payment made only in the event of the happening of a certain risk or peril -Payment restricted to amount required to indemnify insured -Covers losses to which the object of insurance 'may' be exposed -Indemnity can be in the form of money or other thing of value Three types of insurance included within the broad area of 'Property and Casualty Insurance': - ANSWER--Auto Insurance -Property Insurance -Liability Insurance Two major types of insurers: Private Insurers - ANSWER-Stock Companies -operate via private funds or public sale of stock -main goal to generate profit for shareholders (owners) Mutual Companies -owned by its policy holders -main goal to provide insurance to its policy holders at as low a cost as possible -profits returned to policy via dividends or rate adjustments Two major types of insurers: Government Insurers - ANSWER--Medical insurance -employment insurance -workers' compensation -mandatory auto insurance (Sask, BC, MB and QC) Three methods used by insurers to sell their products: Direct Writing System - ANSWER--Salary or commission from employer (insurer) -Insurer owns all business -Insurer performs administrative functions Three methods used by insurers to sell their products: Independent Brokerage System - ANSWER--Earn commissions from insurers -Brokerage owns all business -Provides client services for policy holders Three methods used by insurers to sell their products: Agency System - ANSWER--Paid commissions/bonuses by insurers -Agents own their business Most common insurance distribution method in Canada: - ANSWER--Independent Brokerage System Three major categories of insurance needs: - ANSWER--Personal -Property -Liability Risk Four options an insured may use in dealing with risk: - ANSWER--Avoidance -Controlling -Retention -Transfer of Risk Five elements required to be present in all contracts: - ANSWER--Agreement -Consideration -Legality of Object -Legal Capacity of the Parties to Contract -Genuine Intention Three additional elements unique to insurance contracts and must be present if an insurance contract is to be enforceable at law: - ANSWER--Insurable Interest -Utmost Good Faith -Indemnity Three types of insurance forms used by insurers to make changes to an existing policy: Endorsements/Riders - ANSWER--acknowledge a change in the terms of the contracts Three types of insurance forms used by insurers to make changes to an existing policy: Floaters - ANSWER--provide coverage for property having a high degree of mobility Three types of insurance forms used by insurers to make changes to an existing policy: Separate Policies - ANSWER--Provide additional coverages needed by insureds PCICC role when an insurer becomes insolvent: - ANSWER--Pays all valid claims