Texas Property and Casualty Insurance Exam Questions And Answers

Texas Property and Casualty Insurance Exam Questions And Answers Insurance - ANS The transfer of the possibility of a loss (risk) from an individual or business to an insurance company, which in turn spreads the costs of unexpected losses to many individuals Law of Large Numbers - ANS The larger the number of people with a similar exposure to loss, the more predictable actual losses will be Law of Large Numbers Example - ANS When issuing a policy on a 35 year old male, the insurance company has no way of knowing or accurately predicting when he will die. Instead, they will look at a large group of similar risks - 35 year old males of similar lifestyles/health - and make some conclusions based on statistics of past losses to create a general idea of the predicted time of death and set premiums accordingly Insurable Interest - ANS When the insured would incur a financial or other type of benefit loss if the insured object was damaged/lost 3 Elements of Insurable Risk - ANS 1. Financial (monetary interest) 2. Blood (relative) 3. Business (a business partner) Risk - ANS The uncertainty or chance of a loss occurring Two Types of Risk - ANS 1. Pure risk 2. Speculative risk Pure Risk - ANS Situations that can only result in a loss or no change, there is no opportunity for financial gain Speculative Risk - ANS Situations that have the opportunity for either loss or gain Which type of risk are insurance companie