Answers 100% Accurate!!
3 Types of Hazard - ANSWER1. Physical
2. Moral
3. Morale
Advantages of Using Insurance for EE Benefit Plan - ANSWER1. Known premium (control over
budget)
2. Outside administration (disputes handled by insurance company)
3. Financial backing (employees may prefer outside funding)
4. Cost management
5. Economy (insurance company can do the job more efficiently and at a lower cost)
Adverse Selection - ANSWERExists when individuals who have higher than average risks join a group
because of availability of insurance or other benefits. Those with greater probabilities of loss, and
who therefore need insurance more than the average insured, attempt to obtain the coverage.
(Select "against the insurer").
Avoidance - ANSWEROne does not acquire risk and would not be subject to it; only risk handling
method that can't be combined with others
(risk of breaking a leg while skiing by not skiing)
Characteristics of Group Technique - ANSWER1. Only certain groups are eligible
2. Steady flow of lives through the group
3. Minimum number of persons in group to lessen impact of a few
4. Minimum portion of the group must participate
5. Eligibility requirements (waiting period) to prevent adverse selection
6. Maximum benefit limits for any one person
7. Automatic determination of benefits
, Characteristics of Insurance - ANSWERIn a benefit plan the insured (ER/EE) pays money (premiums)
into a fund (insurance co.); upon occurrence of loss, reimbursement is paid to person who suffered
the loss.
Risk of financial loss is reduced or eliminated for insured; all premium payers share financial loss ;
reduces risk by combining enough exposure units to make individual losses collectively predictable;
predictable losses are then shared among all units.
Control - ANSWEROne attempts either to prevent or reduce the probability of a loss taking place or
to reduce the severity if the loss after it has taken place.
(smoke detectors, alarms, safety devices, wellness programs)
Disadvantages of Using Insurance for EE Benefit Plan - ANSWER1. Possible additional costs ("loading"
which covers overhead expenses)
2. Employee satisfaction (claims and problem-solving abilities of the insurer)
Group Technique - ANSWERSpreads losses since based on group, lessens the impact of a few high-
risk people. Individual eligibility requirements are not used for the group insurance underwriting.
Used to control problem of adverse selection
Hazard - ANSWERCondition that increases the probability that a peril will occur, or increase the
severity of the loss when a peril occurs
Ideal Insurable Risk - ANSWER1. Large number of homogeneous risk (law of large numbers)
2. Loss should be verifiable and measurable-cause, time, place & amount
3. Loss should NOT be catastrophic-losses at the same time
4. Chance of loss should be subject to calculations-future losses based on averages
5. Premium should be reasonable (economically) -affordable premiums
6. Loss should be accidental & unintentional -outside of insured's control
Indemnification - ANSWERTo make the victim of losses whole -insurance is structured.
(reimbursement for property damage, medical bills, disability income)