Property and Casualty Principles Exam Questions With Verified Answers

Property and Casualty Principles Exam Questions With Verified Answers. Loss Control Specialist/Engineer - answerinspect a business's premises and make appropriate recommendations for improving workplace safety and for preventing crime, fire, or other perils peril - answeranything that causes a loss financial interest - answerownership interest in an equity or a debt security issued by an entity, including rights and obligations to acquire such an interest and derivatives directly related to such interest. purpose of insurance - answerhelp people manage risk (uncertainty about financial loss) probability - answerrisk is the probability of loss -potential losses rated zero to one, according to likelihood they will occur risk - answersubject of insurance 3 types of risk - answer1. personal risk 2. property risk 3. liability risk personal risk - answerpossibility that something will happen to you personally that would create a financial loss for you property risk - answerrisk that something will happen to your property that will result in a financial loss to you liability risk - answerthe risk that you will be found legally responsible for paying for losses incurred by someone else 4 methods of managing risk - answer1. avoid the risk 2. control the risk to some extent 3. retain a risk (if a loss occurs, pay for it yourself) 4. transfer the risk (insurance) risk reduction - answerrisk control techniques that limit the severity of losses insurance - answerdevice that allows the losses that occur to a relatively small number of people to be shared among the members of a large group -contract or device for transferring risk from a person, business, or organization to an insurance company that agrees, in exchange for a premium, to pay for losses through an accumulation of premiums Explain insurance. - answer-instead of paying each other, people pay insurance companies, thus transferring the risk and responsibility for paying for any losses that occur to the company in exchange for a premium -insurance company accumulates premiums to provide the funds to pay for losses -even though people don't pay each other directly, they still share in the cost of each other's losses premium - answerprice people pay for insurance law of large numbers - answerprinciple of obtaining enough examples to develop or confirm a given statistic spread of risk - answerthe extent to which an insurance company by selecting diversified and independent risks that are fairly uniform in size and sufficiently large in number can predict the losses thereon with reasonable accuracy by the law of averages. 8 Insurability rules - answer1. Large number of insureds - there must be a lot of people sharing risk of loss in order for the law of large numbers to work. 2. No counterfeits - A loss must be real and difficult to counterfeit. 3. A loss must be accidental in nature. It must generally be unexpected and beyond the insured's control. 4. the loss must be large enough to create a financial burden for the individual involved 5. Must be affordable - The cost of insurance must generally be relatively small compared to the value of the item insured. 6. Must be calculable - the loss must be expressed as a monetary amount. 7. No catastrophes - The loss must not be so large that it would bankrupt a company. 8. The risk must be a pure risk - possibility of loss only. speculative risk - answerrisk that involves the possibility of either loss or gain, such as gambling pure risk - answerrisk that involves the possibility of loss only insurable interest - answerfinancial interest in the subject of insurance; a relationship or condition that loss or destruction of life or property would cause a financial loss joint insurable interest - answerwhen two or more parties stand to lose financially if a loss occurs indemnity - answerthe insured should be paid no more and no less than the cost of a loss (current value) 4 major branches or lines of insurance - answer1. life insurance 2. health and disability insurance 3. property insurance 4. casualty insurance life insurance - answerdesigned to handle the risks of dying too soon and leaving a surviving family in financial difficulty or of living too long and not having enough money in retirement health and disability insurance - answerdesigned to handle the risks of incurring medical expenses or not being able to earn a living due to illness or injury property insurance - answerdesigned to cover property losses, the risks that we will suffer financial losses because things we own are damaged or destroyed 3 types of property loss - answer1. loss of or damage to the article itself 2. loss of income from the use of the article 3. the extra expense incurred due to the loss of the article 7 Types of property insurance - answer1. dwelling 2. homeowners 3. commercial property 4. crime 5. equipment breakdown protection (also known as boiler and machinery) 6. inland marine 7. ocean marine casualty insurance - answerInsurance that provides monetary benefits to a business that has experienced an unforeseen peril such as flood, fire, etc. liability insurance - answerliability losses - losses that occur as a result of the insured's interactions with others or their property (ex: auto accident)