Exam FX Study Guide Questions With Complete Solutions

Insurance Terms To make whole again correct answer: Purpose of insurance Basic principle of insurance which the financial loss is assigned to another party. correct answer: Transfer A principle stating that the larger number of similar exposure units considered, the more closely the losses reported will equal the underlying probability of loss. correct answer: Law of large numbers What you pay a month. correct answer: Premium The chance of a loss occurring that involves the opportunity for loss or gain. NOT INSURABLE correct answer: Speculative Risk Chance of a loss in a situation that can only result in a loss or no change. correct answer: Pure Risk Any interest an insured may have in property that is the subject of insurance, so that damage of that property would cause the insured financial loss. 3 elements: Financial (monetary interest) Blood (relative) Business (a business partner) correct answer: Insurable Interest Conditions that increase probability of an insured loss occurring. Examples: Smoking, Slippery floor, congested traffic. correct answer: Hazards The causes of loss. Examples: Death or cancer. correct answer: Peril Cause of loss specifically covered on policy that has to be listed. correct answer: Non-Peril Any risk of loss not specifically excluded. correct answer: Open Peril Reduction in value caused by a named peril. correct answer: Loss Compensation to insured that restores them to the same financial position that they enjoyed prior to loss. correct answer: Indemnity (Referred to as reimbursement)