AINS 21 | 164 Question with 100 % correct answers | Verified

What is insurance? - It's a transfer system, business, and contract. What is a transfer system in insurance? - One party (the insured), transfers the risk of financial loss to another party (the insurer). [Essentially, I'm giving the risk of financial loss to someone else so that I can keep my financial standing.] What are covered losses? - These are costs that insurers pay for and are in the contract that both parties agree to in the beginning (wind damage, car accident, etc). The costs vary on what coverage one purchases. What are premiums? - Periodic payments from the insured to the insurer to protect them from potential costs. What does transferring the risk allow? - This allows the insured to give periodic payments (premiums) to the insurer to protect them from those potential costs and remain in good financial standing. What is "sharing the premiums?" - This technique allows the insurer to put all their premiums into a pool paid by their insured customers. This allows them to dip into this pool of paid premiums to cover a single claim (thus, the more paying customers, the better). What is a loss exposure? - This is any condition or situation that presents the *possibility* of a loss. What is a common loss exposure that every home has? - Fire exposure, because every home has electricity in it (unless there is an exception). What is the law of large numbers? - The law states: as long as the number of similar but independent exposure units increases, the relative accuracy of predictions about future losses based on these exposure units also increases.