TX General Lines Property and Casualty Agent Exam Prep
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questions with accurate detailed answers || || || ||
risk - ✔✔"chance of loss" to insured person, property, or activity
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this uncertainty of loss is the basic reason for insurance's existence
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loss - ✔✔unwelcomed/ unplanned reduction in economic value
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role of insurance is to indemnify the insured for the financial value of an insured loss
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direct loss- immediate result of event caused by covered peril
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indirect loss- remote ramification than direct loss, but still results of loss from covered peril
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ex) If a home is severely damaged by fire, the damage to the building is considered a direct
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loss. Because the home is temporarily uninhabitable the home owner will incur additional
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living expenses, over and above the home owner's normal expenses, until the house has
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been repaired. These additional living expenses are an indirect loss that follows the direct
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loss of the home.
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exposure - ✔✔state of being subject to possible loss|| || || || || || || ||
ex) motorist exposed to risk of being involved in auto accident that could result in damage
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to the car, serious injury, lawsuits, or even death
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,- measured by assigning exposure units (influenced by insured item's market value and risk
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factors facing it) || ||
- more exposure units, higher premium
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- exposure: total extent of risk an insurer faces with an insured
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ex) insurance company that sells workers compensation insurance faces increased exposure
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as an insured business's workforce increases
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peril - ✔✔destructive event that insurance guards against
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ex) covered perils: fire, explosion, windstorm, flood, theft, collision (insurance policy
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provides financial protection against these losses) || || || || ||
insurance policy provides financial protection against losses caused by specified perils -->
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covered perils ||
hazard - ✔✔increases likely occurrence of peril or severity of a loss
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moral hazard: traits of individual that increase chance of loss
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- ex) alcoholism, smoking, bad credit
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morale hazard: individual tendencies that arise from state of mind, attitude, or indifference
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to loss
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-ex) driving recklessly
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,physical hazard: physical conditions that increase chance of loss
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-ex) dangerous conditions/activities, diseases, unsanitary conditions, congested traffic,
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unguarded premises, etc. || ||
legal hazards: legal or regulatory environment characteristics that affect an insurer's ability
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to provide insurance at a premium that fairly reflects loss exposures
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risk management - ✔✔process of dealing with risk
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- risk avoidance
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- risk control
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- risk sharing
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- risk retention
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- risk transfer
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risk avoidance - ✔✔avoid risk
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ex) not owning car avoids risk of car being stolen or damaged
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risk control - ✔✔if risk can't be avoided, it can be controlled
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risk prevention: reduce likelihood loss will occur
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ex) shoveling snow prevents slip and fall
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risk reduction: reduce severity of loss that does occur
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ex) fire extinguishers doesn't prevent fire from starting, but limits fire damage if it does
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occur
, risk sharing - ✔✔groups share financial burden of loss suffered by members of group
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ex) pooling: groups organize formal arrangement by which they share one another's losses
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through pooled resources || ||
risk retention - ✔✔accepting risk and dealing with a loss using personal funds
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- better for small risks
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ex) deductibles: shift small losses to policyowner --. insurance covers more serious losses
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involved when a business sets up a formal self-insurance program, which puts aside funds
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to pay for any losses that occur
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risk transfer - ✔✔in exchange for paying a premium, individual/business transfer risk of
|| || || || || || || || || || || || ||
loss to insurance company through insurance policy --> loss occurs, insurer will
|| || || || || || || || || || || ||
compensate insured ||
basis for modern insurance
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insurable risk - ✔✔1. must be definite (time, cause, location)
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2. value of insured item must be measurable
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3. must be accidental
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4. not covered due to catastrophic events (war, earthquake, etc.)
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5. risk must be part of large group of similar risks that insurance company can use to
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predict future losses || ||
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questions with accurate detailed answers || || || ||
risk - ✔✔"chance of loss" to insured person, property, or activity
|| || || || || || || || || ||
this uncertainty of loss is the basic reason for insurance's existence
|| || || || || || || || || ||
loss - ✔✔unwelcomed/ unplanned reduction in economic value
|| || || || || || ||
role of insurance is to indemnify the insured for the financial value of an insured loss
|| || || || || || || || || || || || || || ||
direct loss- immediate result of event caused by covered peril
|| || || || || || || || ||
indirect loss- remote ramification than direct loss, but still results of loss from covered peril
|| || || || || || || || || || || || || ||
ex) If a home is severely damaged by fire, the damage to the building is considered a direct
|| || || || || || || || || || || || || || || || || ||
loss. Because the home is temporarily uninhabitable the home owner will incur additional
|| || || || || || || || || || || || ||
living expenses, over and above the home owner's normal expenses, until the house has
|| || || || || || || || || || || || || ||
been repaired. These additional living expenses are an indirect loss that follows the direct
|| || || || || || || || || || || || || ||
loss of the home.
|| || ||
exposure - ✔✔state of being subject to possible loss|| || || || || || || ||
ex) motorist exposed to risk of being involved in auto accident that could result in damage
|| || || || || || || || || || || || || || || ||
to the car, serious injury, lawsuits, or even death
|| || || || || || || ||
,- measured by assigning exposure units (influenced by insured item's market value and risk
|| || || || || || || || || || || || || ||
factors facing it) || ||
- more exposure units, higher premium
|| || || || ||
- exposure: total extent of risk an insurer faces with an insured
|| || || || || || || || || || || ||
ex) insurance company that sells workers compensation insurance faces increased exposure
|| || || || || || || || || || ||
as an insured business's workforce increases
|| || || || ||
peril - ✔✔destructive event that insurance guards against
|| || || || || || ||
ex) covered perils: fire, explosion, windstorm, flood, theft, collision (insurance policy
|| || || || || || || || || || ||
provides financial protection against these losses) || || || || ||
insurance policy provides financial protection against losses caused by specified perils -->
|| || || || || || || || || || || ||
covered perils ||
hazard - ✔✔increases likely occurrence of peril or severity of a loss
|| || || || || || || || || || ||
moral hazard: traits of individual that increase chance of loss
|| || || || || || || || || ||
- ex) alcoholism, smoking, bad credit
|| || || || ||
morale hazard: individual tendencies that arise from state of mind, attitude, or indifference
|| || || || || || || || || || || || ||
to loss
|| ||
-ex) driving recklessly
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,physical hazard: physical conditions that increase chance of loss
|| || || || || || || ||
-ex) dangerous conditions/activities, diseases, unsanitary conditions, congested traffic,
|| || || || || || || ||
unguarded premises, etc. || ||
legal hazards: legal or regulatory environment characteristics that affect an insurer's ability
|| || || || || || || || || || || ||
to provide insurance at a premium that fairly reflects loss exposures
|| || || || || || || || || ||
risk management - ✔✔process of dealing with risk
|| || || || || || ||
- risk avoidance
|| ||
- risk control
|| ||
- risk sharing
|| ||
- risk retention
|| ||
- risk transfer
|| ||
risk avoidance - ✔✔avoid risk
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ex) not owning car avoids risk of car being stolen or damaged
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risk control - ✔✔if risk can't be avoided, it can be controlled
|| || || || || || || || || || ||
risk prevention: reduce likelihood loss will occur
|| || || || || ||
ex) shoveling snow prevents slip and fall
|| || || || || ||
risk reduction: reduce severity of loss that does occur
|| || || || || || || ||
ex) fire extinguishers doesn't prevent fire from starting, but limits fire damage if it does
|| || || || || || || || || || || || || || ||
occur
, risk sharing - ✔✔groups share financial burden of loss suffered by members of group
|| || || || || || || || || || || || ||
ex) pooling: groups organize formal arrangement by which they share one another's losses
|| || || || || || || || || || || || ||
through pooled resources || ||
risk retention - ✔✔accepting risk and dealing with a loss using personal funds
|| || || || || || || || || || || || ||
- better for small risks
|| || || ||
ex) deductibles: shift small losses to policyowner --. insurance covers more serious losses
|| || || || || || || || || || || ||
involved when a business sets up a formal self-insurance program, which puts aside funds
|| || || || || || || || || || || || || ||
to pay for any losses that occur
|| || || || || ||
risk transfer - ✔✔in exchange for paying a premium, individual/business transfer risk of
|| || || || || || || || || || || || ||
loss to insurance company through insurance policy --> loss occurs, insurer will
|| || || || || || || || || || || ||
compensate insured ||
basis for modern insurance
|| || ||
insurable risk - ✔✔1. must be definite (time, cause, location)
|| || || || || || || || ||
2. value of insured item must be measurable
|| || || || || || ||
3. must be accidental
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4. not covered due to catastrophic events (war, earthquake, etc.)
|| || || || || || || || ||
5. risk must be part of large group of similar risks that insurance company can use to
|| || || || || || || || || || || || || || || || ||
predict future losses || ||
