Fundamentals of Insurance - Chapter 1- 2 Practice Questions With Correct Answers

Three Main Categories Of Risk - Answer1) Personal Risk 2)Property Risk 3)Liability Risk What is "Spread of Risk"? - AnswerInsurance provides a mechanism in which the losses of few are shared among many Property and Casualty Insurance includes...(3 types of insurance) - Answer1) Automobile Insurance 2) Property Insurance 3) Liability Insurance What are the 4 common options for dealing with risk? - Answer1) Avoidance of Risk 2) Controlling of Risk 3) Retention of Risk 4) Transfer of Risk What is "Avoidance of Risk"? - AnswerAll chances of financial loss has been eliminated. *Note*- not practical method of dealing with risk What is "Controlling of Risk"? - AnswerLoss control measures taken to reduce or mitigrate risk. (eg. Burglar/Fire alarms - not a total solution in eliminating risk but will reduce the potential for loss) What is "Retention of Risk"? - AnswerLarge corporations and government often assume financial responsibility for their own losses; Self- Insurance. this is generally less expensive than other option available to them. What is "Transfer of Risk"? - AnswerWhen someone is unable to withstand the financial consequences of a potential loss, they may choose to transfer risk to an insurer *Note*- this is the most practical means of dealing with risk What are the TWO types of Risk? - Answer1) Speculative Risk 2) Pure Risk What is "Speculative Risk"? - AnswerThis category of risk involves the possibility of either financial loss OR gain (e.g - When starting a business there is a chance of failure OR success) *Note*- NOT INSURABLE What is "Pure Risk"? - AnswerInvolves the chance of financial loss with NO chance of gain (e.g - no opportunity for a person to profit from a loss) *Note*- Only pure risk is Insurable What is a Contract? - Answeran agreement between two or more parties that can be enforced by law What are the FIVE elements of a contract? A) Agreement, Risk, Loss, Consideration, Legality B) Legal Capacity, Legality of Object, Consideration, Agreement, Genuine Intention C) Agreement, Legal Capacity, Risk, Loss, Consideration. D) None of the above - AnswerB) Legal Capacity, Legality of Object, Consideration, Agreement, Genuine Intention What is needed for an agreement to exist? - AnswerAn offer made; AND an unconditional acceptance of the terms of that offer