INSR 310 REVIEW EXAMS UPDATED QUESTIONS
AND ANSWERS SURE A+
✔✔adverse selection policy provision example - ✔✔Suicide clause in life INSR policy;
Excludes payment of policy proceeds if insured commits suicide w/ in 1 or 2 years after
purchasing INSR; Prevents applicant from purchasing life INSR w/ intention of
committing suicide and the insurer is unaware
✔✔"adversely selected against" - ✔✔person w/ HTA chance of loss succeed in getting
coverage at standard/preferred rates.
✔✔Underwriting - ✔✔the selection and classification of applicants for insurance through
a clearly stated company policy consistent w/ company objectives;
> Controls adverse selection
> Coverage offered--> more limited or denied
> Insurers frequently sell INSR to applicants who have HTA chance of loss; applicants
must pay higher premium
✔✔underwriting standards met - ✔✔insureds at standard or preferred rates
✔✔gambling - ✔✔INSR mistaken w/
, ✔✔1. Gambling creates a new speculative risk, whereas INSR is a technique for
handling an already existing pure risk
2. Gambling can be socially unproductive because of the winner's gain comes at the
expense of the loser - ✔✔2 differences b/w insurance and gambling:
✔✔Gambling - ✔✔never restores losers to former financial position
✔✔insurance contracts - ✔✔restore insureds financially in whole or part if loss occurs
✔✔ Attitudinal hazard - ✔✔carelessness/indifference to a loss; increases
frequency/severity of loss
✔✔Avoidance - ✔✔risk control technique, certain loss exposure never acquired
abandoned
✔✔Chance of loss - ✔✔probability that a loss will occur.
✔✔Diversification - ✔✔a risk-control technique that reduces the chance of loss by
spreading the loss exposure across different parties, securities, or transactions
✔✔Diversifiable risk - ✔✔affects only individuals/small groups and not the entire
economy, can be reduced or eliminated by diversification
✔✔Enterprise risk - ✔✔encompasses all major risks faced by a business firm; include
pure, speculative, strategic, operational, and financial risk.
✔✔Enterprise risk management - ✔✔combines into a single unified treatment program
all major risks faced by the firm
✔✔Financial risk - ✔✔uncertainty of loss b/c of adverse changes in the commodity
prices, interest rates, foreign exchange rates, and the value of money
✔✔Hazard - ✔✔condition that creates or increases the chance of loss; Frequency or
Severity of loss
✔✔Physical, Moral, Attitudinal; morale, Legal - ✔✔4 types of hazards
✔✔Hedging - ✔✔technique used for transferring the risk of unfavorable price
fluctuations to a speculator by purchasing and selling options and futures contracts on
an organized exchange
✔✔Human life value - ✔✔LIFE INSR purposes, present value of family's share of
deceased breadwinner's future earnings.
AND ANSWERS SURE A+
✔✔adverse selection policy provision example - ✔✔Suicide clause in life INSR policy;
Excludes payment of policy proceeds if insured commits suicide w/ in 1 or 2 years after
purchasing INSR; Prevents applicant from purchasing life INSR w/ intention of
committing suicide and the insurer is unaware
✔✔"adversely selected against" - ✔✔person w/ HTA chance of loss succeed in getting
coverage at standard/preferred rates.
✔✔Underwriting - ✔✔the selection and classification of applicants for insurance through
a clearly stated company policy consistent w/ company objectives;
> Controls adverse selection
> Coverage offered--> more limited or denied
> Insurers frequently sell INSR to applicants who have HTA chance of loss; applicants
must pay higher premium
✔✔underwriting standards met - ✔✔insureds at standard or preferred rates
✔✔gambling - ✔✔INSR mistaken w/
, ✔✔1. Gambling creates a new speculative risk, whereas INSR is a technique for
handling an already existing pure risk
2. Gambling can be socially unproductive because of the winner's gain comes at the
expense of the loser - ✔✔2 differences b/w insurance and gambling:
✔✔Gambling - ✔✔never restores losers to former financial position
✔✔insurance contracts - ✔✔restore insureds financially in whole or part if loss occurs
✔✔ Attitudinal hazard - ✔✔carelessness/indifference to a loss; increases
frequency/severity of loss
✔✔Avoidance - ✔✔risk control technique, certain loss exposure never acquired
abandoned
✔✔Chance of loss - ✔✔probability that a loss will occur.
✔✔Diversification - ✔✔a risk-control technique that reduces the chance of loss by
spreading the loss exposure across different parties, securities, or transactions
✔✔Diversifiable risk - ✔✔affects only individuals/small groups and not the entire
economy, can be reduced or eliminated by diversification
✔✔Enterprise risk - ✔✔encompasses all major risks faced by a business firm; include
pure, speculative, strategic, operational, and financial risk.
✔✔Enterprise risk management - ✔✔combines into a single unified treatment program
all major risks faced by the firm
✔✔Financial risk - ✔✔uncertainty of loss b/c of adverse changes in the commodity
prices, interest rates, foreign exchange rates, and the value of money
✔✔Hazard - ✔✔condition that creates or increases the chance of loss; Frequency or
Severity of loss
✔✔Physical, Moral, Attitudinal; morale, Legal - ✔✔4 types of hazards
✔✔Hedging - ✔✔technique used for transferring the risk of unfavorable price
fluctuations to a speculator by purchasing and selling options and futures contracts on
an organized exchange
✔✔Human life value - ✔✔LIFE INSR purposes, present value of family's share of
deceased breadwinner's future earnings.
