PI_Unit 3

Insurance is a risk transfer mechanism where an individual transfer the risk that it faces to another organisation in exchange for a __________________.

The insurer uses the model of Law of large numbers and __________________.

In risk pooling, the insurer collects premiums from a large number of people, which are given insurance cover for different types of risk.

• True

• False

The law of large numbers states that the greater the number of persons insured against a type of risk, the more predictable it will be to calculate the likely losses for the group as a whole.

• True

• False

Jay wants to buy an insurance on his girlfriend's branded watch. However, his application would have breached the

• Principle of Utmost Good Faith

• Principle of Insurable Interest

When buying an insurance policy, the insured will have to declare all information truthfully to the insurer. If not the insured would have breached the

• Principle of Utmost Good Faith.

• Principle of Insurable Interest.

One difference between gambling and insurance is that gambling creates new speculative risk while insurance handles an existing pure risk.

• True

• False

Gambling is socially _____________________ while insurance is socially productive.

Both the insurer and the insured have a common interest in the prevention of a loss

• True

• False

Risk is defined as the possibility of loss.

• True

• False