FIN 470 Exam 3 Questions and Answers

FIN 470 Exam 3 Questions and Answers Premium - Ans:-A specific sum of money paid by the insured to the insurance company in exchange for financial protection against loss. 7 basic principles all insurance companies are subject to - Ans:-1.There must be a relationship between the insured and the beneficiary. Further, the beneficiary must be someone who would suffer if it weren't for the insurance. 2.The insured must provide full and accurate information to the insurance company. 3.The insured is not to profit as a result of insurance coverage. 4.If a third party compensates the insured for the loss, the insurance company's obligation is reduced by the amount of the compensation. 5.The insurance company must have a large number of insured so that the risk can be spread out among many different policies. 6.The loss must be quantifiable. For example, an oil company could not buy a policy on an unexplored oil field. 7.The insurance company must be able to compute the probability of the loss's occurring. ©GRACEAMELIA 2024/2025 ACADEMIC YEAR. ALL RIGHTS RESERVED FIRST PUBLISH OCTOBER 2024 Page 2/14 How insurance companies deal with adverse selection - Ans:--Health insurance polices require physical exam -Preexisting conditions may be excluded from policy How insurance companies deal with moral hazard - Ans:-deductibles Independent agents - Ans:-Agents that sell the insurance products of several companies and work for themselves or other agents. Exclusive agents - Ans:-Agents that work for only one insurance company Underwriter (insurance) - Ans:-reviews each policy prior to its acceptance to determine if the risk is acceptable Term Life Insurance - Ans:-Insurance that provides financial protection from losses resulting from a death during a definite period, or term. (10-30 years) whole life insurance - Ans:-Similar to term life, but allows the policyholder to borrow against the policies cash value. When the term of policy expires, the insured can get the cash value of the policy universal life insurance - Ans:-includes both a term life portion and a savings portion annuities - Ans:-pays a benefit to the insured until death, to cover retirement years (instead of a lump sum of cash, monthly payments) ©GRACEAMELIA 2024/2025 ACADEMIC YEAR. ALL RIGHTS RESERVED FIRST PUBLISH OCTOBER 2024 Page 3/14 Two primary liabilities of insurance companies - Ans:--life insurance payouts -Pension fund payouts Property insurance - Ans:-protects businesses and owners from the risk associated with ownership Named-peril policy (property & Casualty insurance) - Ans:-Insurance against any losses only from perils specifically named in the policy Open-Peril Policy (Property & Casualty insurance) - Ans:-Insures against any losses except from perils specifically named in the policy Casualty Insurance - Ans:-Also called "Liability Insurance". Covers bodily injury or property damage to a third party due to negligence of the insured. Reinsurance - Ans:-allocates a portion of the risk to another company in exchange for a portion of the premium Terrorism Risk Insurance Act of 2002 - Ans:-Federal Law designed to ens