P&C Chapter 1 - Insurance Terms and
Related Concepts ACTUAL QUESTIONS
AND CORRECT ANSWERS
Law of large numbers - Correct answers✔✔States that the larger number of people with similar
exposure to loss, the more predictable actual losses will be. It is the basic statistical prediction of
loss upon which insurance rates are calculated
Insurable Interest - Correct answers✔✔Three elements: Financial (monetary interest), blood (a
relative), and business (business partner). In property and casualty insurance, this must exist at
the time of loss
Risk - Correct answers✔✔The uncertainty or change of a loss occuring
Pure and Speculative - Correct answers✔✔two types of risk. The first deals with situations that
can only result in a loss or no change, with no financial gain. The only type of risk insurance
companies are willing to accept. The second deals with opportunities for loss or gain. An
example would be gambling, is uninsurable
Peril - Correct answers✔✔Cause of loss insured against an insurance policy.
Life, Health, Property, and Casualty - Correct answers✔✔Four kinds of perils
Hazard - Correct answers✔✔Conditions that increase the probability of an insured loss occuring.
Physical Hazard - Correct answers✔✔Type of hazard that arises from mutual structural or
operational features of the risk, apart from the person owning or managing it.
, Moral Hazard - Correct answers✔✔Type of hazard that refers to those who may lie on an
application or have committed fraud
Morale Hazard - Correct answers✔✔Type of hazard that refers ti an increase in hazards
presented by a risk, arising from the insured's indifference to loss because of the existence of
insurance. (I'm not going to bother to fix this, if it breaks, my insurance will cover it.)
Indemnity (reimbursement) - Correct answers✔✔A provision in a policy that states the in the
event of loss, the insured can collect only the extent of the financial loss, and cannot gain
financially because of the policy
Subrogation - Correct answers✔✔The insurer's legal right to seek damages from third parties,
after it has reimbursed the insured. Based on indemnity by preventing the insured from collect on
the loss twice.
Accident - Correct answers✔✔An unplanned event resulting in injury or damage that is not
planned or expected
Occurence - Correct answers✔✔Losses caused by the repeated exposure to conditions that cause
injury or damage that is unplanned and unexpected
Direct Loss - Correct answers✔✔direct physical damage to buildings and/or property. Property
insurance only covers this type of loss
Indirect loss - Correct answers✔✔Also called consequential loss. Losses considered a result of
direct loss. (extra living expenses caused by repairs or loss of profit in a business because a
building is being repaired.)
Related Concepts ACTUAL QUESTIONS
AND CORRECT ANSWERS
Law of large numbers - Correct answers✔✔States that the larger number of people with similar
exposure to loss, the more predictable actual losses will be. It is the basic statistical prediction of
loss upon which insurance rates are calculated
Insurable Interest - Correct answers✔✔Three elements: Financial (monetary interest), blood (a
relative), and business (business partner). In property and casualty insurance, this must exist at
the time of loss
Risk - Correct answers✔✔The uncertainty or change of a loss occuring
Pure and Speculative - Correct answers✔✔two types of risk. The first deals with situations that
can only result in a loss or no change, with no financial gain. The only type of risk insurance
companies are willing to accept. The second deals with opportunities for loss or gain. An
example would be gambling, is uninsurable
Peril - Correct answers✔✔Cause of loss insured against an insurance policy.
Life, Health, Property, and Casualty - Correct answers✔✔Four kinds of perils
Hazard - Correct answers✔✔Conditions that increase the probability of an insured loss occuring.
Physical Hazard - Correct answers✔✔Type of hazard that arises from mutual structural or
operational features of the risk, apart from the person owning or managing it.
, Moral Hazard - Correct answers✔✔Type of hazard that refers to those who may lie on an
application or have committed fraud
Morale Hazard - Correct answers✔✔Type of hazard that refers ti an increase in hazards
presented by a risk, arising from the insured's indifference to loss because of the existence of
insurance. (I'm not going to bother to fix this, if it breaks, my insurance will cover it.)
Indemnity (reimbursement) - Correct answers✔✔A provision in a policy that states the in the
event of loss, the insured can collect only the extent of the financial loss, and cannot gain
financially because of the policy
Subrogation - Correct answers✔✔The insurer's legal right to seek damages from third parties,
after it has reimbursed the insured. Based on indemnity by preventing the insured from collect on
the loss twice.
Accident - Correct answers✔✔An unplanned event resulting in injury or damage that is not
planned or expected
Occurence - Correct answers✔✔Losses caused by the repeated exposure to conditions that cause
injury or damage that is unplanned and unexpected
Direct Loss - Correct answers✔✔direct physical damage to buildings and/or property. Property
insurance only covers this type of loss
Indirect loss - Correct answers✔✔Also called consequential loss. Losses considered a result of
direct loss. (extra living expenses caused by repairs or loss of profit in a business because a
building is being repaired.)
