Fundamentals Of Insurance: Chapter 2 - Insurance Contracts Questions and Answers.

Identify three major categories of insurance needs. - Answer 1. Personal Risk. e.g. Health or Life. 2. Property Risk. e.g. Loss of owned property. 3. Liability Risk. e.g. Action leading to others loss. Identify four options an insured may use in dealing with risk. (Which is least practical?) - Answer 1. Avoidance of Risk. e.g. Selling your store. Least practical. 2. Controlling of Risk. e.g. Installing alarms. 3. Retention of Risk. e.g. Opting out of Employee Dishonesty coverage. 4. Transfer of Risk. e.g. Through insurance. What are the two types of risk? Which is insurable? - Answer 1. Speculative Risk - Possibility of financial loss or gain. e.g. Gambling, Opening a store... Can fail or succeed. ***NOT INSURABLE*** 2. Pure Risk - Chance of financial loss with NO chance of financial gain. ***INSURABLE*** Define "contract". - Answer Contract: An agreement between two or more parties which is enforceable by law. (i) Identify the five elements required to be present in all contracts. - Answer 1. Agreement. 2. Consideration. 3. Legality of Object. 4. Legal Capacity of the Parties To Contract. 5. Genuine Intention. (ii) Identify the three additional elements which are unique to insurance contracts. - Answer 1. Insurable Interest - So ppl can't benefit from a loss which they have no financial stake. 2. Utmost Good Faith - honesty between the insured and the insurer. 3. Indemnity - Ensures ppl receive the actual amount of their loss. (i) What does it mean for brokers to "bind" an insurer on a risk? - Answer It means that the broker has committed the insurer to provide a contract of insurance on the subject matter under discussion.