CAIB 1 / CH 1 / SEC 1 / STUDY GUIDE LATEST UPDATE GRADED A+

CAIB 1 / CH 1 / SEC 1 / STUDY GUIDE LATEST UPDATE GRADED A+ Define in pure insurance terms "risk" The chance of financial loss to which an object of insurance is exposed List the 3 categories of risk generally faced by people Personal Risk; Property Risk; Liability Risk State 4 possible options people can choose to deal with risk Avoidance of Risk; Controlling Risk; Retention of Risk; Transfer of Risk Give a brief explanation and example of Avoidance of Risk When chance of financial loss is eliminated. (Ex. People who rent rather than purchase their own business premises avoid the chance of financial loss from the ownership of that property) Give a brief explanation and example of Controlling Risk Taking measures to reduce the frequency and severity of losses. (Ex. Intrusion Detection Alarms, Fire Alarms) Give a brief explanation and example of Retention of Risk Large corporations such as Canadian Pacific, Canadian National Railways, assume financial responsibility for their own losses. This is generally less expensive than other options available to them Give a brief explanation and example of Transfer of Risk A person unable to withstand the financial consequences of a potential loss "transfer all" or a portion of their risk. Insurance companies usually agree to assume the financial responsibility of persons for their losses Give 2 examples of loss control measures that can be taken to reduce frequency and severity of losses Intrusion Detection Alarms; Fire Detection Alarms State 2 reasons why loss control measures are not a total solution in eliminating financial loss Equipment may not work 100% of the time; losses such as wind, hail and lightning cannot be controlled Which of the 4 possible options is generally not an effective means of dealing with risk Avoidance of Risk. In most cases, exposure to financial loss is simply replaced with another Which of the 4 possible options is the most popular and practical means of dealing with risk Transfer of Risk Explain, using an example, "speculative risk" The chance of financial loss or gain (placing a bet at a Black Jack table) Explain, using an example, "pure risk" The chance of financial loss with no chance of financial gain (hail damage to your roof) Which type of risk will insurers not provide an insurance policy for Speculative Risk A contract is an agreement between 2 or more persons which creates an obligation to do or not do a certain particular thing. All contracts contain 5 elements. What are they? Agreement; Consideration; Legality of Object; Legal Capacity of the Parties to Contract; Genuine Intention Explain "Agreement" A meeting of the minds Explain "Legality of Object" A contract intended for a purpose which is contrary to public policy is not enforceable by law Explain "Legal Capacity of the Parties to Contract" The law only enforces contracts of competent persons who have the legal capacity to contract Explain "Genuine Intention" A contract is only enforceable when it can be shown that the parties actually intended to enter into a contract List the 2 items that are required for a proper agreement, or meeting of the minds, to be valid An offer must be made; There must be an unequivocal and unconditional acceptance of the terms of that offer Identify 4 persons, or incompetents, who generally do not have the legal capacity to contract Minors; Mental Incompetents; Persons Under the Influence of Alcohol or Drugs; Trade Names Identify 3 "necessities" of life for which minors are permitted to contract Food; Clothing; Lodging Identify 4 items that might affect the presence of genuine intention Fraud; Duress; Concealment; Mistake