CAIB 1 - Chapter 1 Questions and Answers Rated A+

CAIB 1 - Chapter 1 Questions and Answers Rated A+ Define "Risk" The chance of a financial loss to which the object of insurance may be exposed to List 3 Categories of Risk 1) Personal 2) Property 3) Liability List 4 Types of Risk Management Techniques 1) Risk Avoidance 2) Risk Retention 3) Risk Control 4) Risk Transfer Define "Risk Avoidance" To avoid doing something in order to eliminate the chance of risk Define "Risk Retention" To self-insure or to pay for losses themselves Define "Risk Control" To reduce the frequency or severity of the loss Define "Risk Transfer" To shift the financial obligation to someone better equipped to handle it (an insurance company) List 2 Types of Risks 1) Speculative Risk 2) Pure Risk Define "Speculative Risk" Chance of Financial Loss or Financial Gain Define "Pure Risk" Chance of Financial Loss only What type of risk is insurable? Pure Risk What is a Contract? An agreement between 2 or more parties that creates an obligation or do or not to do a specific thing List the 5 components of a contract 1) Agreement 2) Consideration 3) Legality of Object 4) Legal Capacity 5) Genuine Intention Define "Agreement" a meeting of the minds where an offer has been made and accepted unconditionally Define "Consideration" the exchange of something of value Define "Legality of Object" must be legal and cannot violate the public good Define "Legal Capacity" all parties must be competent and of sound mind Define "Genuine Intention" basic level of honesty Who cannot enter into contracts? Minors, people with mental illness' or under the influence of drugs or alcohol, business who operate under a trade name List 3 additional components of a contract specific to Insurance Contracts 1) Insurable Interest 2) Utmost Good Faith 3) Indemnity