Ch3: Contracts

Question 1

What are the 3 types of risk?

Answer 1

1. Personal
2. Property
3. Liability

Question 2

What are the 4 ways of dealing with risk? (CART)

Answer 2

Control
Avoidance
Retention
Transfer

Question 3

What are the 2 types of financial risk?

Answer 3

1. Pure Risk: you can only lose
2. Speculative Risk: you may win or lose

Question 4

What are the 5 elements of all contracts?

Answer 4

1. Agreement
2. Genuine Intentions
3. Consideration
4. Legality of object
5. Legal capacity of the parties

Question 5

Define “Contract”

Answer 5

a legally enforceable agreement

Question 6

What are the 3 elements special to insurance

Answer 6

1. Insurable Interest
2. Indemnity
3. Utmost Good Faith

Question 7

Define “Insurable Interest”

Answer 7

Only those who actually suffer losses are entitled to benefit from the policy

Question 8

Define “Utmost Good Faith”

Answer 8

Both parties must be open, honest and comply with policy terms and conditions

Question 9

What is the purpose of a “Floater”

Answer 9

Insures mobile property

Question 10

What is the purpose of a “Rider”

Answer 10

Adds coverage

Question 11

Define a “Binder”

Answer 11

Temporary policy issued pending the actual policy

Question 12

Define a “Agency Agreement”

Answer 12

Gives broker authority to commit insurer to a contract