Unit 1 - Personal Lines Insurance Exam
Prep - Arizona
Insurance correct answerstransfer of risk from a person or business to an
insurer
Risk correct answersis the uncertainty or possibility of a loss
Describe Both Type of Risk correct answersSpeculative risk has a chance
for gain or loss and pure risk is 100% risk (making it insurable).
Exposure correct answersIs the possibility that risk will occur.
List Examples of Exposure correct answersAuto Accident, Lost Luggage (on a
trip), Pet Bites Mailman, House Fire, etc.
Peril correct answersThe cause of loss, for example when a house burns
down the peril is fire.
Direct Loss vs. Indirect Loss correct answersDirect loss is a physical loss (a
rental home that burns down) and the indirect loss is a consequence of the
direct loss (loss of rent during the repairs, if loss made the rental
uninhabitable).
Hazard correct answerssomething that increases the chances of a loss.
List and Describe the 3 Hazard Types correct answersPhysical hazards, are
visible hazard like wet floors. A moral hazard is an intentional act of
dishonesty that causes a loss, for example the employee lied to their boss
and said they put up the wet floor sign but did not. While a morale hazard is
an act of carelessness that could cause loss, for example someone who
decides to forgo wearing their seatbelt.
STARR Method for Handling Risk correct answersSharing, Transfer,
Avoidance, Retention, Reduction
Law of Large Numbers correct answersThe larger the number of people in a
group then the more accurately the company can predict future loss.
Contract (Policy) correct answersAn agreement between the insured and
the insurer. Property insurance the contact is a 1st party contract where the
1st party is the insured and the 2nd party is the insurer. For Casualty
insurance the contract is a 3rd party contract where the previous two
parties are the same and the 3rd party is the "other guy" suing you for their
loss.
Prep - Arizona
Insurance correct answerstransfer of risk from a person or business to an
insurer
Risk correct answersis the uncertainty or possibility of a loss
Describe Both Type of Risk correct answersSpeculative risk has a chance
for gain or loss and pure risk is 100% risk (making it insurable).
Exposure correct answersIs the possibility that risk will occur.
List Examples of Exposure correct answersAuto Accident, Lost Luggage (on a
trip), Pet Bites Mailman, House Fire, etc.
Peril correct answersThe cause of loss, for example when a house burns
down the peril is fire.
Direct Loss vs. Indirect Loss correct answersDirect loss is a physical loss (a
rental home that burns down) and the indirect loss is a consequence of the
direct loss (loss of rent during the repairs, if loss made the rental
uninhabitable).
Hazard correct answerssomething that increases the chances of a loss.
List and Describe the 3 Hazard Types correct answersPhysical hazards, are
visible hazard like wet floors. A moral hazard is an intentional act of
dishonesty that causes a loss, for example the employee lied to their boss
and said they put up the wet floor sign but did not. While a morale hazard is
an act of carelessness that could cause loss, for example someone who
decides to forgo wearing their seatbelt.
STARR Method for Handling Risk correct answersSharing, Transfer,
Avoidance, Retention, Reduction
Law of Large Numbers correct answersThe larger the number of people in a
group then the more accurately the company can predict future loss.
Contract (Policy) correct answersAn agreement between the insured and
the insurer. Property insurance the contact is a 1st party contract where the
1st party is the insured and the 2nd party is the insurer. For Casualty
insurance the contract is a 3rd party contract where the previous two
parties are the same and the 3rd party is the "other guy" suing you for their
loss.
