PERSONAL LINES UPDATED STUDY GUIDE QUESTIONS AND
SOLUTIONS GUARANTEE A+
✔✔Financial Loss - ✔✔IS NOT a loss exposure, it is a consequence of all of the
exposures
✔✔Personnel Loss Exposure - ✔✔Death, resignation, termination, disability
✔✔Peril - ✔✔Cause of loss or reason for loss
✔✔Named Peril - ✔✔Fire, lightening, etc. the perils are named/listed/stated in the
contract. Not listed claim is not paid. The burden is on the insured to prove the damage
was caused by listed peril. (Basic form: dp1, ho8 Broad Form: dp2, ho2, ho4, ho6)
✔✔Open Peril/All Risk - ✔✔Lists exclusions and does not name/state/list the perils but
states it covers all or any peril except those specifically excluded. This type of policy
shifts the burden of proof to the insurer (company). The insurer must pay unless they
can show the cause of loss was an exclusion under the policy/contract. (Special: dp3,
ho3 Comprehensive: ho5 Inland/Ocean Marine)
✔✔Hazard - ✔✔(Key phrases: increases or leads to) Chance/likelihood/severity of loss.
Types of Hazards: Moral, Morale, Physical, and Court
✔✔Moral Hazard - ✔✔Dishonest, ethics/habits/fraud, liar, exaggerating a loss, felony,
alcoholism, drug addiction, judgements
✔✔Morale Hazard - ✔✔Irresponsibility/carelessness, reckless driving, leaving keys in
car, not exercising, splurging, paying bills late
✔✔Physical Hazard - ✔✔Location, materials, value, operations, height, weight,
occupation, next to a dynamite factory, kerosene, blindness, avocation (hobbies)
✔✔Court Hazard - ✔✔Legal decisions, lawsuit, mold
✔✔Risk - ✔✔Chance, uncertainty, possibility of loss occurring (uncertainty not certain)
There are 2 types of risks: Pure and Speculative.
✔✔Pure Risk - ✔✔Loss, no loss, not a chance of gain. Insurable
✔✔Speculative Risk - ✔✔Loss or gain. Not insurable (gambling, lottery, new business,
market value of home)
✔✔Risk Management - ✔✔Identify and handle. Remember STARR
, ✔✔STARR - ✔✔S: Risk sharing
T: Risk transfer
A: risk avoidance
R: Risk Retention
R: Risk reductions
✔✔Risk sharing - ✔✔Reinsurance, more than one primary. Too large (share risk)
✔✔Risk transfer - ✔✔Insurance, means purchasing insurance. Shift (transfer risk)
✔✔Risk avoidance - ✔✔Elimination, not installing swimming pool or not purchasing a
motorboat. Removing hazard
✔✔Risk Retention - ✔✔Self insure. Self insure portion of risk = deductible. Choosing
not to insure something
✔✔Risk Reduction - ✔✔Control loss/severity. Example: burglar alarms, sprinkler
systems installed.
✔✔Risk/Hazard/Peril - ✔✔Risk equals chance, Hazard equals increases
chances/severity and Peril equals Cause
✔✔Law of Large Numbers - ✔✔The greater the number of exposure units (cars/homes),
the more predictable the loss. Used to establish appropriate rates that benefits the
insured.
✔✔exposure unit - ✔✔Measure used to establish rates. In property it's the number of
cars
✔✔Elements of insurability - ✔✔Insurance is not an appropriate mechanism for
protection against all risks. There are certain rules that establish a practical basis
regarding who can be insured and for what exposure. These rules determine a risks
insurability (the ability of an individual to obtain an insurance policy to cover the risk)
✔✔Insurable Events - ✔✔Is any contingent (may or may not happen) or unknown
event, whether past or future, which may damnify a person having an insurable interest
or create a liability against him may be insured against, except gambling and lotteries.
✔✔Insurable interest - ✔✔Policyholder has a legitimate financial interest in preserving
the property or life insured. It requires a person to face personal risk of loss; has a
legitimate finance interest; no potential for gain due to the insurance.
SOLUTIONS GUARANTEE A+
✔✔Financial Loss - ✔✔IS NOT a loss exposure, it is a consequence of all of the
exposures
✔✔Personnel Loss Exposure - ✔✔Death, resignation, termination, disability
✔✔Peril - ✔✔Cause of loss or reason for loss
✔✔Named Peril - ✔✔Fire, lightening, etc. the perils are named/listed/stated in the
contract. Not listed claim is not paid. The burden is on the insured to prove the damage
was caused by listed peril. (Basic form: dp1, ho8 Broad Form: dp2, ho2, ho4, ho6)
✔✔Open Peril/All Risk - ✔✔Lists exclusions and does not name/state/list the perils but
states it covers all or any peril except those specifically excluded. This type of policy
shifts the burden of proof to the insurer (company). The insurer must pay unless they
can show the cause of loss was an exclusion under the policy/contract. (Special: dp3,
ho3 Comprehensive: ho5 Inland/Ocean Marine)
✔✔Hazard - ✔✔(Key phrases: increases or leads to) Chance/likelihood/severity of loss.
Types of Hazards: Moral, Morale, Physical, and Court
✔✔Moral Hazard - ✔✔Dishonest, ethics/habits/fraud, liar, exaggerating a loss, felony,
alcoholism, drug addiction, judgements
✔✔Morale Hazard - ✔✔Irresponsibility/carelessness, reckless driving, leaving keys in
car, not exercising, splurging, paying bills late
✔✔Physical Hazard - ✔✔Location, materials, value, operations, height, weight,
occupation, next to a dynamite factory, kerosene, blindness, avocation (hobbies)
✔✔Court Hazard - ✔✔Legal decisions, lawsuit, mold
✔✔Risk - ✔✔Chance, uncertainty, possibility of loss occurring (uncertainty not certain)
There are 2 types of risks: Pure and Speculative.
✔✔Pure Risk - ✔✔Loss, no loss, not a chance of gain. Insurable
✔✔Speculative Risk - ✔✔Loss or gain. Not insurable (gambling, lottery, new business,
market value of home)
✔✔Risk Management - ✔✔Identify and handle. Remember STARR
, ✔✔STARR - ✔✔S: Risk sharing
T: Risk transfer
A: risk avoidance
R: Risk Retention
R: Risk reductions
✔✔Risk sharing - ✔✔Reinsurance, more than one primary. Too large (share risk)
✔✔Risk transfer - ✔✔Insurance, means purchasing insurance. Shift (transfer risk)
✔✔Risk avoidance - ✔✔Elimination, not installing swimming pool or not purchasing a
motorboat. Removing hazard
✔✔Risk Retention - ✔✔Self insure. Self insure portion of risk = deductible. Choosing
not to insure something
✔✔Risk Reduction - ✔✔Control loss/severity. Example: burglar alarms, sprinkler
systems installed.
✔✔Risk/Hazard/Peril - ✔✔Risk equals chance, Hazard equals increases
chances/severity and Peril equals Cause
✔✔Law of Large Numbers - ✔✔The greater the number of exposure units (cars/homes),
the more predictable the loss. Used to establish appropriate rates that benefits the
insured.
✔✔exposure unit - ✔✔Measure used to establish rates. In property it's the number of
cars
✔✔Elements of insurability - ✔✔Insurance is not an appropriate mechanism for
protection against all risks. There are certain rules that establish a practical basis
regarding who can be insured and for what exposure. These rules determine a risks
insurability (the ability of an individual to obtain an insurance policy to cover the risk)
✔✔Insurable Events - ✔✔Is any contingent (may or may not happen) or unknown
event, whether past or future, which may damnify a person having an insurable interest
or create a liability against him may be insured against, except gambling and lotteries.
✔✔Insurable interest - ✔✔Policyholder has a legitimate financial interest in preserving
the property or life insured. It requires a person to face personal risk of loss; has a
legitimate finance interest; no potential for gain due to the insurance.
