LOMA 281 COURSE FINAL QUESTIONS AND
ACCURATE ANSWERS PREMIUM STUDY
PACK
●● Speculative risk
Answer: Risk that can result in a loss, gain or no change
●● Insurance
Answer: A method for transferring risk from an individual to an
insurance company
●● Premium
Answer: The amount that the insured pays in exchange for a promise of
money
●● Risk pooling
Answer: Insurers collect premiums from all insured people and spread
the cost of the relatively few anticipated losses among all insureds
●● Annuity
Answer: A financial product under which an insurer promises to make a
series of periodic payments to a named person or entity in exchange for
a premium or series of premiums
,●● Policy benefit
Answer: The amount of money that an insurer promises to pay if a
covered loss occurs
●● Third Party Policy
Answer: An insurance policy that one person purchases on the life of
another person
●● Contract of indemnity
Answer: An insurance policy under which the amount of the policy
benefit payable for a covered loss is based on the actual amount of
financial loss that results from the covered event, as determined at the
time of the event
●● Valued contracts
Answer: An insurance policy that specifies the amount of the policy
benefit that will be payable when a covered loss occurs, regardless of the
actual amount of the loss that was incurred
●● Face amount (face value)
Answer: The amount of the policy benefit that is payable if the insured
dies while the policy is in force
,●● Law of large numbers
Answer: Mathematical theory which states that typically the more times
we observe a particular event, the more likely it is that our observed
results will approximate the true probability that the event will occur
●● Reinsurance
Answer: Insurance that one insurance company (the direct writer)
purchases from another insurance company (the reinsurer) to transfer all
or part of the risk on insurance policies that the direct writer has insured
●● Retention limit
Answer: The maximum amount of insurance that an insurer is willing to
carry at its own risk without transferring some of the risk to a reinsurer.
The direct writer cedes anything above that limit to a reinsurer in a
reinsurance transaction of other risk transfer mechanisms
●● Direct writer
Answer: The insurance company that purchases reinsurance to transfer
all or part of the risks on insurance policies the company issued
●● Retrocessionaire
Answer: A reinsurance company that accepts risks transferred from
another reinsurer in a reinsurance transaction
, ●● Medical risk factor
Answer: A physical or psychological characteristic that may increase the
likelihood of loss
●● Moral hazard
Answer: A characteristic that exists when the reputation, financial
position, or criminal record of an application or a proposed insured
indicates that the person may act dishonestly in the insurance transaction
●● Antiselection
Answer: The tendency of individuals who believe they have a greater
than average likelihood of loss to seek insurance protection to a greater
extent than do other individuals
●● Risk class
Answer: A grouping of insureds who represent a similar level of risk to
the insurer
●● Preferred Risks
Answer: A proposed insured who presents a significantly lower than
average likelihood of loss
●● Substandard risk
ACCURATE ANSWERS PREMIUM STUDY
PACK
●● Speculative risk
Answer: Risk that can result in a loss, gain or no change
●● Insurance
Answer: A method for transferring risk from an individual to an
insurance company
●● Premium
Answer: The amount that the insured pays in exchange for a promise of
money
●● Risk pooling
Answer: Insurers collect premiums from all insured people and spread
the cost of the relatively few anticipated losses among all insureds
●● Annuity
Answer: A financial product under which an insurer promises to make a
series of periodic payments to a named person or entity in exchange for
a premium or series of premiums
,●● Policy benefit
Answer: The amount of money that an insurer promises to pay if a
covered loss occurs
●● Third Party Policy
Answer: An insurance policy that one person purchases on the life of
another person
●● Contract of indemnity
Answer: An insurance policy under which the amount of the policy
benefit payable for a covered loss is based on the actual amount of
financial loss that results from the covered event, as determined at the
time of the event
●● Valued contracts
Answer: An insurance policy that specifies the amount of the policy
benefit that will be payable when a covered loss occurs, regardless of the
actual amount of the loss that was incurred
●● Face amount (face value)
Answer: The amount of the policy benefit that is payable if the insured
dies while the policy is in force
,●● Law of large numbers
Answer: Mathematical theory which states that typically the more times
we observe a particular event, the more likely it is that our observed
results will approximate the true probability that the event will occur
●● Reinsurance
Answer: Insurance that one insurance company (the direct writer)
purchases from another insurance company (the reinsurer) to transfer all
or part of the risk on insurance policies that the direct writer has insured
●● Retention limit
Answer: The maximum amount of insurance that an insurer is willing to
carry at its own risk without transferring some of the risk to a reinsurer.
The direct writer cedes anything above that limit to a reinsurer in a
reinsurance transaction of other risk transfer mechanisms
●● Direct writer
Answer: The insurance company that purchases reinsurance to transfer
all or part of the risks on insurance policies the company issued
●● Retrocessionaire
Answer: A reinsurance company that accepts risks transferred from
another reinsurer in a reinsurance transaction
, ●● Medical risk factor
Answer: A physical or psychological characteristic that may increase the
likelihood of loss
●● Moral hazard
Answer: A characteristic that exists when the reputation, financial
position, or criminal record of an application or a proposed insured
indicates that the person may act dishonestly in the insurance transaction
●● Antiselection
Answer: The tendency of individuals who believe they have a greater
than average likelihood of loss to seek insurance protection to a greater
extent than do other individuals
●● Risk class
Answer: A grouping of insureds who represent a similar level of risk to
the insurer
●● Preferred Risks
Answer: A proposed insured who presents a significantly lower than
average likelihood of loss
●● Substandard risk
