Basic Insurance Concepts & Principles - CA Life Health & Accident Exam Question & Answers Graded A

Pure Risk - ANSWER-Type of insurable risk in which the situation can only result in a loss or no change. No potential for financial gain. Speculative Risk - ANSWER-Type of non-insurable risk which involves a chance of gain. Hazard - ANSWER-Any condition or exposure that increases the possibility of loss occurring Legal Hazard - ANSWER-Set of legal or regulatory conditions that affect an insurer's ability to collect premiums commensurate with the level of risk incurred Morale Hazard - ANSWER-Type of hazard in which there is an indifference to loss. Moral Hazard - ANSWER-Type of hazard involving tendencies toward increased risk. Involves the character and reputation of the proposed insured. Physical Hazard - ANSWER-Material, structural or operational features of a risk. Law of Large Numbers - ANSWER-Principle stating that the larger the number of similar exposure units considered, the more closely the losses will equal the underlying probability of loss. It forms the basis for statistical prediction of loss upon which rates for insurance are calculated. Loss Exposure - ANSWER-A unit of measure used to determine rates charged for insurance coverage. Peril - ANSWER-A cause of loss insured against.