chapter 2: risk

Question 1

specified/named perils

Answer 1

insurance contracts that individually cover specified perils. if loss is caused by a peril that’s not listed, then the loss is not covered

Question 2

special/open peril

Answer 2

don’t specify all causes, but list the perils they exclude

Question 3

accident

Answer 3

sudden event that occurs at a specific place and time. example: individual needs a knee replacement because of a car accident that happened at a specific place and time

Question 4

occurence

Answer 4

any event that causes a loss such as accidents, injuries, or illnesses. example: individual needs a knee replacement because of years of intense physical activity

Question 5

physical hazards

Answer 5

physical conditions that made a loss more likely. example: poor health or ice on roads

Question 6

moral hazards

Answer 6

make a loss more likely to occur because of the dishonest character of the insured. involves dishonesty or intentional acts

Question 7

morale hazards

Answer 7

arise from a state of mind that is indifferent to whatever loss may occur because they are insured and is unintentional. example: homeowner rarely changing smoke detector batteries because they are insured

Question 8

speculative risks

Answer 8

presents chance for both a loss or a gain, like gambling. not insurable

Question 9

pure risk

Answer 9

change of loss only. the insurable type of risk

Question 10

types of risk

Answer 10

substandard: higher risk, higher premiums
standard: average
preferred: lower risk, lower premiums

Question 11

risk-handling methods

Answer 11

STARR: sharing, transfer, avoidance, reduction, retention

Question 12

risk sharing

Answer 12

spreads risk among multiple parties. example: reciprocal insurance

Question 13

risk transfer

Answer 13

transfers risk from one party to another via legal contract. example: buying insurance

Question 14

risk avoidance

Answer 14

eliminating an activity that exposes to loss. example: stopping skydiving

Question 15

risk reduction

Answer 15

deliberate actions to reduce likelihood of loss. example: safety systems

Question 16

risk retention

Answer 16

maintaining personal preserves to cover the cost of loss. example: self-insurance and no insurance

Question 17

expense factor/loading charge

Answer 17

derived from operating expenses or funds that the insurer pays out

Question 18

gross (annual) premium

Answer 18

premium that’s charged by an insurer which is comprised of the mortality, interest, and expenses

Question 19

premium mode

Answer 19

how often the policy owner pays the premiums

Question 20

modified premium funding

Answer 20

an initial premiums that’s lower during an introductory period

Question 21

what is a viatical settlement

Answer 21

allows a person with a chronic or terminal illness to sell their existing life insurance policy to a third party for a percentage of the face value

Question 22

chronically ill

Answer 22

someone who needs considerable supervision or cannot perform at least two activities of daily living

Question 23

terminally ill

Answer 23

person is not expected to survive for more than 24 months

Question 24

section 1035 exchange

Answer 24

enables a life policy to be replaced with another life policy and results in the postponement of the tax consequence

Question 25

tertiary beneficiary

Answer 25

the beneficiary after the contingent beneficiary

Question 26

who requests an attending physician's statement

Answer 26

the insurer, not the producer