Fundamentals to Insurance Chapter 1 Intro Questions & Answers(GRADED A+)

List the 5 functions of insurance: - ANSWER-1) Spread of risk 2) Basis of credit system 3) Eliminate worry and develop entrepreneurship 4) Loss reduction and prevention (road safety, alarms, etc.) 5) Employment opportunity Definition of insurance (3 parts) - ANSWER-1) insurance provides a means of shifting ones financial responsibility from a loss to another party ii) payment will be made only in the event of the happening of a certain risk or peril iii) the amount of the payment is restricted to the amount required to indemnify the insured 5 points of insurance - ANSWER-1) Shift financial responsibility for a loss 2) payment made only in the event of a loss 3) Payment restricted to amount to indemnify (no more, no less) 4) Cover loss to which object of insurance may be exposed (accidental and future) 5) Indemnify in form of money or other thing of value (rebuild/repair) 3 types of property and casualty insurance - ANSWER-Auto, property (home and business), and liability (injury or damage to a third party) What are the 2 major types of insurers and provide an example for each - ANSWER-Private (stock profit or mutual policy holder), or government (ICBC, employment insurance) What is the difference between mutual companies and stock companies? - ANSWER-Stock - main purpose is to derive a profit, ownerships in the hand of the company's shareholder. Money to operate comes from private funds and public sales of stock Mutual - main purpose is to provide insurance at the lowest cost possible, corporation owned by policy holders, money made goes to policyholders What is known as the major function of insurance? - ANSWER-Spread of the losses of the few among the many Where is the definition of insurance usually found - ANSWER-The Insurance Act Define peril - ANSWER-Cause of loss Define risk - ANSWER-Chance of loss to which the object of insurance is exposed At what point in time is indemnity calculated? - ANSWER-Moments before the loss What two factors regarding losses must be present for them to be insured? - ANSWER-Future and accidental Who retains the option to repair or replace damaged property rather than pay cash settlements? - ANSWER-Insurer Main purpose of stock companies? - ANSWER-Profit maximization Identify the two main distribution methods used by insurers for their products - ANSWER-Direct writers (work for one insurance company) and independent brokers (work for multiple insurance companies - can offer multiple options for insurance, not limited) Major function of insurance is to: - ANSWER-Share losses of the few among the many Does insurance allow payment to be in another form than money? - ANSWER-Yes, replacement or repair Chapter 2 - Insurance Contracts - ANSWER- There are 4 ways changes can be made to a policy. What are the 4 ways? - ANSWER-1) Rider (adding additional coverage) 2) Floater (provides coverage for items not on the insured premise) 3) Endorsement (acknowledges changes in the actual contract) 4) Separate policy (additional coverage, but no change in the original contract - new policy altogether) 4 ways to deal with risk - ANSWER-1) Avoidance (d