Ch 1 Basic Insurance Concepts and Principles

Risk in Insurance terminology refers to the

• Uncertainty of loss

• Cause of a peril

• Certainty of a loss

• Hazard that causes a claim

Events or conditions that increase the probability of a loss occurring are referred to as

• Perils

• Hazards

• Exposures

• Risks

What type of risk allows for both gains and losses?

• Pure

• Exposure

• Speculative

• Hazardous

The principle that states that larger the number of exposure units, the more predictable the number of future losses is known as

• The law of large numbers

• Adverse selection

• Predictable loss factor

• Future loss equation

All of the following statements about insurable interest are true EXCEPT

• A husband and wife have insurable interest in each other

• A creditor can have an insurable interest in a debtor limited to the amount of indebtedness

• An insurable interest must exist at the time of the claim between the beneficiary and the

  insured

• People are considered to have an insurable interest in themselves

The tendency of less favorable insurance risks to seek or continue coverage to a

greater extent than average risks is called

• Adverse selection

• Reciprocal

• Reinsurance

• Adverse speculation

For an insurance contract, utmost good faith means

• The policyowner will be indemnified in case of loss

• Each party relies upon the truthfulness of the other

• The contract just involves the policyowner and the insurer

• Each party is equally responsible for the value of the policy

When debt, income, mortgage, and expenses are used to determine the amount of

insurance an insured should purchase it is known as the

• Debt to income approach

• Human life value approach

• Ordinary life approach

• Needs approach

When the business is the owner, pays the premium, and is the beneficiary of a life

insurance policy, this is an example of what kind of business insurance?

• Key person

• Buy-sell agreement

• Group life

• Executive bonus

Which method of handling risk is considered to be self-insurance?

• Avoidance

• Sharing

• Retention

• Transfer