Fundamentals of Insurance - Chapter 1 Actual Questions and Answer 2024 Complete

The major function of insurance is to achieve a spread of risk. Explain what is meant by "spread of risk" - To 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 - - 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" - In 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" - Payment 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" - People 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" - The 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" - Settling a claim can be done either by repairing or replacing the damaged item, OR paying money for the damaged item Define Risk - The object of insurance (such as a building)Define Peril - The cause of loss (fire, wind, hail) Identify three types of insurance included within the broad area of "property and casualty insurance" - Automobile insurance, Property insurance, Liability insurance What other name is given to broad area of "property and casualty insurance" - General Insurance Identify the two major types of insurers - Private insurers, Government insurers Provide an example of Private Insurers - Stock companies or Mutual companies Provide an example of Government Insurers - MPI Identify two methods used by insurers to sell their products - Direct Writing System, Independent Brokerage System How does the Direct Writing System deal with Remuneration - Salary or commission basis, or a combination of both How does the Independent Brokerage System deal with Remuneration - Commission How does the Direct Writing System deal with Ownership of client files - The insurer owns all of the business written and performs all administrative functions How does the Direct Writing System deal with administrative functions - They perform all of their own administrative functions How does the Independent Brokerage System deal with administrative functions - Uses commissions to pay for administrative functionsIs Direct Writing System or Independent Brokerage System more common? - Independent Brokerage System What is the major function of insurance - Risk sharing