Texas Property and Casualty Exam Texas CHAPTER 1. Questions With Correct Answers

INSURANCE - Answer The method of spreading the risk of a financial loss among a large number of people. When spreading the risk reduces the financial impact of an individual loss. INSURANCE COMPANY - Answer entity that agrees to indemnify (make financially whole again) Insureds against covered losses PROPERTY - Answer Various types of insurance designed to insure property from financial loss. D.H.C.I.O.C 1.Dwelling 2.Homeowners 3.Commerical Property 4.Inland marine 5.Ocean marine 6.Crime Actuaries - Answer ance statistician: a statistician who calculates insurance premiums, risks, dividends, and annuity rates CASULTY INSURANCE - Answer Protects you against liabilty for BODILY INJURY (BI) and PROPERTY DAMAGE (PD) LIABILITY OR CASUALTY COVERAGE - Answer Will pay for accidental damage you cause to another person or their property. There are three parties to Liability insurance contract. insurance company injured party PERSONAL LINES INSURANCE - Answer Property and casualty insurance for an individual. Policies include Property and Casualty coverages. COMMERCIAL LINES INSURANCE - Answer Refers to property and casualty insurance to cover a BUSINESS as opposed to personal lines PURCHASING INSURANCE - Answer The money you pay in exchange for insurance coverage is known as the CONSIDERATION. It is also the PREMIUM, and the statements you make in the application along with the payment of the initial premium are part of the consideration. DEDUCTIBLE - Answer Portion of covered loss that is not paid by the insurance company.The company will pay for the remaining portion up to the policy limits. The higher the deductible, the lower premium. BINDER - Answer An ORAL or WRITTEN agreement that provides TEMPORARY evidence of insurance until a policy can be issued. It does not guarantee that a policy will be issued, but it is temporary until a contract can be underwritten from home or office. Insured on a policy - Answer Person or entity that is listed first on the declarations page is referred to as the first named insured. The first named insured is the primary and holds the highest rank and has broader rights and obligations under the contract. RISK - Answer Possibility or Uncertainty of loss. It is not actual loss. It is the possibility (risk) that an accident may occur. SPECULATIVE RISK VS PURE RISK - Answer SPECULATIVE RISK offers the chance of loss as well as the oppurtunity for gain. PURE RISK offers only the chance of loss no gain. Only PURE RISKS are insurable. CHARACTERISTICS (ELEMENTS) OF INSURABLE RISKS - Answer To be Insurable, the risk must: 1.Be PREDICTABLE-an insurer must be capable of statistically predicting the possibility of loss. 2.Be a CHANCE OCCURRENCE- the risk must be outside the insureds control. It must be unexpected, accidental, or uncertain. 3.Not be CATASTROPHIC-Insurers typically will not insure risks that will expose them to losses that may occur to large number of insureds at the same time. 4.Be MEASURABLE and DEFINITIVE- an insurable risk is a loss that has a definite monetary value. The insurer must be able to measure or value a potential loss. 5.Be AFFORDABLE- Loss must cause a financial or economic hardship to the insured or to the insureds family. INDIRECT LOSS - Answer (or consequential) loss occurs as the result of a direct loss. For example your home burns down and you have to stay in a temporary place until it is fixed. LAW OF LARGE NUMBERS - Answer To accurately predict what will happen to a large group of similiar risks. The larger the group becomes, the more accurate the predictions become. PERIL - Answer a PERIL is the cause of a LOSS some examples Fire Accidents Explosions Flood Disease Death HAZARDS - Answer is a condition or the source that increases the chance and/or severity of a peril. It will be present before a peril occurs, but it is the PERIL that acutually causes the loss. MORAL HAZARD - Answer results from a decision to do something wrong or to be less conscious of your actions since you know your insurance will pay for the loss. MORALE HAZARD - Answer is created when your careless and/or reckless actions or attitudes cause a loss to occur. i.e. texting while driving/failing to wear seatbelt PHYSICAL HAZARD - Answer The physical sources that cause or increase the chances of a loss. ACCIDENT - Answer A sudden and unexpected event OCCURRENCE - Answer continous or repeated exposure which results in bodily injury or property damage which is not expected or intended by the insured. VACANCY AND UNOCCUPANCY - Answer VACANCY-both the ABSENCE of people and personal property from the insured premises UNOCCUPANCY- is ONLY the absence of people. most insurance policies will exclude or limit coverage for losses when property is vacant or unoccupied. BLANKET VS SPECIFIC - Answer BLANKET COVERAGE-provides coverage for different classes of property under one policy. SPECIFIC INSURANCE-is when you insure a specific item or specific kind of property. BURGLARY - Answer The taking of property from a premise that is closed and locked tight. There must be evidence of forced entry or exit. It also includes forcing a security guard/employee to open a locked store. ROBBERY - Answer The taking of property from a person by VIOLENCE or threat of VIOLENCE THEFT - Answer The UNLAWFUL TAKING OF PROPERTY...typically, the peril of theft covers loss by burglary, robbery, and larceny