Illinois Property Insurance Exam - Basic
Principles
An Insurance Policy correct answersA social device (legal contact or
policy) for
transfer of the
risk. Cover only pure
risks
Pure Risk correct answersA risk when a person can only stand to lose should
an event
occu
r
Speculative Risk correct answersa risk where the person stands to profit.
Insurance
policies do not cover speculative
risks
Pooling of risks correct answersWhen a large group of people contributes
money
fund outtoofa which their losses can be
paid.
The Insured correct answersThe person or organization who is
protected by
insurance the and for whom the insurance company accepts
policy
financial risk
The Premium correct answersThe money paid by the insured to the
insurance
in exchange company
for the insurance policy. Must be enough to pay commissions,
marketing
cost, administrative costs, and provide a loss
reserve
A Lapse correct answersWhen a policy is terminated due to nonpayment of
premiums
An Endorsement correct answersA form added to an insurance policy. It
is usually
added for an additional premium charge to add additional
coverage.
A Peril correct answersAn actual cause of loss than can be insured
against. Most
Common =
fire
A Hazard correct answersA condition or operation in property which either
creates or the change of loss by a covered peril. Example =
increases
frayed wiring
Risk correct answersThe likelihood, probability or degree of uncertainty
that awill
peril covered
cause a
loss
Actuarial Tables correct answersStatistical tables used in calculating
tables.
premium They
ratetell the insurance companies how many people are likely to
havehow
and claimsmuch the losses are likely
to be.
, Loss reserves correct answersMoney set aside to pay claims in
accordance with the
actuarial
tables
Actuary correct answersAn insurance company representative who keeps
track of loss
statistics and calculates premium rate tables and loss
reserves
Law of large numbers correct answersThe more people the insurance
company
the more accurate
insures, the actuarial tables
will be
Insurable Interest correct answers-A financial interest (risk) which the
insured at
posses must
the time of the
loss.
-Is the person in the position to lose
money?
-Ex. property owner, mortgagee, lien
holder
Indemnity correct answersThe legal concept of one party (insurance
in the place
company) of or making good for another (the
standing
insured)
Indemnify correct answersMeans the same as
reimburse
The principles of indemnity (reimbursement) and insurable interest
(financial
correct interest)...
answers-Prohibit the insurance company from reimbursing
(indemnifying)
insured for more anthan the actual amount
of loss.
-Can't profit in a
loss!
Deductible correct answers-An initial amount of loss which the insured must
suffer (pay)
before the insurance company begins to
indemnify
-The purpose of the deductible is to eliminate small claims that the insured
can afford
and which would cost the insurance company to
administer
Limits of Liability correct answers-The maximum amounts which the
insurance
will company
pay under each
coverage
-Referred to as Face Amount or Amount
Carried
Limits of liability terms correct answersMaximum amount the insurance
pay can be
company expressed
will
as...
-Each person = per
occurrence
-All persons = aggregate limit or
total limit
Principles
An Insurance Policy correct answersA social device (legal contact or
policy) for
transfer of the
risk. Cover only pure
risks
Pure Risk correct answersA risk when a person can only stand to lose should
an event
occu
r
Speculative Risk correct answersa risk where the person stands to profit.
Insurance
policies do not cover speculative
risks
Pooling of risks correct answersWhen a large group of people contributes
money
fund outtoofa which their losses can be
paid.
The Insured correct answersThe person or organization who is
protected by
insurance the and for whom the insurance company accepts
policy
financial risk
The Premium correct answersThe money paid by the insured to the
insurance
in exchange company
for the insurance policy. Must be enough to pay commissions,
marketing
cost, administrative costs, and provide a loss
reserve
A Lapse correct answersWhen a policy is terminated due to nonpayment of
premiums
An Endorsement correct answersA form added to an insurance policy. It
is usually
added for an additional premium charge to add additional
coverage.
A Peril correct answersAn actual cause of loss than can be insured
against. Most
Common =
fire
A Hazard correct answersA condition or operation in property which either
creates or the change of loss by a covered peril. Example =
increases
frayed wiring
Risk correct answersThe likelihood, probability or degree of uncertainty
that awill
peril covered
cause a
loss
Actuarial Tables correct answersStatistical tables used in calculating
tables.
premium They
ratetell the insurance companies how many people are likely to
havehow
and claimsmuch the losses are likely
to be.
, Loss reserves correct answersMoney set aside to pay claims in
accordance with the
actuarial
tables
Actuary correct answersAn insurance company representative who keeps
track of loss
statistics and calculates premium rate tables and loss
reserves
Law of large numbers correct answersThe more people the insurance
company
the more accurate
insures, the actuarial tables
will be
Insurable Interest correct answers-A financial interest (risk) which the
insured at
posses must
the time of the
loss.
-Is the person in the position to lose
money?
-Ex. property owner, mortgagee, lien
holder
Indemnity correct answersThe legal concept of one party (insurance
in the place
company) of or making good for another (the
standing
insured)
Indemnify correct answersMeans the same as
reimburse
The principles of indemnity (reimbursement) and insurable interest
(financial
correct interest)...
answers-Prohibit the insurance company from reimbursing
(indemnifying)
insured for more anthan the actual amount
of loss.
-Can't profit in a
loss!
Deductible correct answers-An initial amount of loss which the insured must
suffer (pay)
before the insurance company begins to
indemnify
-The purpose of the deductible is to eliminate small claims that the insured
can afford
and which would cost the insurance company to
administer
Limits of Liability correct answers-The maximum amounts which the
insurance
will company
pay under each
coverage
-Referred to as Face Amount or Amount
Carried
Limits of liability terms correct answersMaximum amount the insurance
pay can be
company expressed
will
as...
-Each person = per
occurrence
-All persons = aggregate limit or
total limit
