LOMA 280 Principles Of Insurance
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Risk - ✔✔chance of an unexpected gain or loss
Speculative risk - ✔✔3 possible outcomes: gain, loss, or no change
Pure risk - ✔✔No gain; either loss or no loss. Only type of risk than can be insured
4 methods for managing financial risk - ✔✔Avoiding, controlling, transferring,
accepting
Personal Risk - ✔✔Risk of economic loss associated with death, poor health, injury, and
outliving economic resources
Liability risk - ✔✔Risk of economic loss resulting from a person being held legally
responsible for harming others or their property
5 characteristics of insurable risks - ✔✔Loss must occur by chance
Loss must be definite
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,Loss must be significant
Loss rate must be predictable
Loss must not be catastrophic to the insurer
Contract of indemnity - ✔✔Policy in which the amount of benefit is based on actual
amount of financial loss that results from covered event
Valued contract - ✔✔Specifies amount payable when loss occurs (face value)
Loss rate - ✔✔Frequency of losses insureds are likely to experience
Law of large numbers - ✔✔The more events that occur the more likely results will
approximate true probability p
Mortality tables - ✔✔Number of people in a large group that are likely to die at a given
age
Mortality rate - ✔✔Rate at which death occurs among a group of people during a
specific time period
Morbidity table - ✔✔Charts that display morbidity rates
Morbidity rates - ✔✔Amount of incidents of sickness or accidents by age of people over
a given time period
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, Reinsurance - ✔✔Insurance the direct writer purchases from the reinsurer to transfer
risk on policies that the direct writer issued
Underwriting - ✔✔Process of identifying and classifying degree of risk by a proposed
insured
Anti-selection - ✔✔Tendency to believe you have greater likelihood of loss than others
2 stages of underwriting - ✔✔Identifying risk that an insured presents
Classifying the degree of risk that an insured presents
Physical hazard - ✔✔Physical characteristic that may increase the likelihood of loss
Moral hazard - ✔✔Reputation financial position or criminal record of an applicant
indicates they may act dishonestly
4 risk classes - ✔✔Standard risks
Preferred risks
Substandard risks
Declined risk
Insurable interest - ✔✔Must be likely to suffer genuine loss should the event insured
against occurs
Profit - ✔✔Revenue - cost
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Exam Questions and Answers 100%
Pass
Risk - ✔✔chance of an unexpected gain or loss
Speculative risk - ✔✔3 possible outcomes: gain, loss, or no change
Pure risk - ✔✔No gain; either loss or no loss. Only type of risk than can be insured
4 methods for managing financial risk - ✔✔Avoiding, controlling, transferring,
accepting
Personal Risk - ✔✔Risk of economic loss associated with death, poor health, injury, and
outliving economic resources
Liability risk - ✔✔Risk of economic loss resulting from a person being held legally
responsible for harming others or their property
5 characteristics of insurable risks - ✔✔Loss must occur by chance
Loss must be definite
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,Loss must be significant
Loss rate must be predictable
Loss must not be catastrophic to the insurer
Contract of indemnity - ✔✔Policy in which the amount of benefit is based on actual
amount of financial loss that results from covered event
Valued contract - ✔✔Specifies amount payable when loss occurs (face value)
Loss rate - ✔✔Frequency of losses insureds are likely to experience
Law of large numbers - ✔✔The more events that occur the more likely results will
approximate true probability p
Mortality tables - ✔✔Number of people in a large group that are likely to die at a given
age
Mortality rate - ✔✔Rate at which death occurs among a group of people during a
specific time period
Morbidity table - ✔✔Charts that display morbidity rates
Morbidity rates - ✔✔Amount of incidents of sickness or accidents by age of people over
a given time period
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, Reinsurance - ✔✔Insurance the direct writer purchases from the reinsurer to transfer
risk on policies that the direct writer issued
Underwriting - ✔✔Process of identifying and classifying degree of risk by a proposed
insured
Anti-selection - ✔✔Tendency to believe you have greater likelihood of loss than others
2 stages of underwriting - ✔✔Identifying risk that an insured presents
Classifying the degree of risk that an insured presents
Physical hazard - ✔✔Physical characteristic that may increase the likelihood of loss
Moral hazard - ✔✔Reputation financial position or criminal record of an applicant
indicates they may act dishonestly
4 risk classes - ✔✔Standard risks
Preferred risks
Substandard risks
Declined risk
Insurable interest - ✔✔Must be likely to suffer genuine loss should the event insured
against occurs
Profit - ✔✔Revenue - cost
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