Texas Property and Casualty Insurance (Well-enlightened)

Insurance correct answers The transfer of the possibility of a loss (risk) from an individual or business to an insurance company, which in turn spreads the costs of unexpected losses to many individuals Law of Large Numbers correct answers The larger the number of people with a similar exposure to loss, the more predictable actual losses will be Law of Large Numbers Example correct answers When issuing a policy on a 35 year old male, the insurance company has no way of knowing or accurately predicting when he will die. Instead, they will look at a large group of similar risks - 35 year old males of similar lifestyles/health - and make some conclusions based on statistics of past losses to create a general idea of the predicted time of death and set premiums accordingly Insurable Interest correct answers When the insured would incur a financial or other type of benefit loss if the insured object was damaged/lost 3 Elements of Insurable Risk correct answers 1. Financial (monetary interest) 2. Blood (relative) 3. Business (a business partner) Risk correct answers The uncertainty or chance of a loss occurring Two Types of Risk correct answers 1. Pure risk 2. Speculative risk Pure Risk correct answers Situations that can only result in a loss or no change, there is no opportunity for financial gain Speculative Risk correct answers Situations that have the opportunity for either loss or gain Which type of risk are insurance companies willing to accept? correct answers Pure risk situations Peril correct answers The causes of loss insured against in an insurance policy Perils of Life Insurance correct answers The financial loss caused by the premature death of the insured Perils of Health Insurance correct answers The medical expenses and/or loss of income caused by the insured's sickness or accidental injury Perils of Property Insurance correct answers The loss of physical property or the loss of its income-producing abilities