What is insurance? ✔✔It's a transfer system, business, and contract.
What is a transfer system in insurance? ✔✔One party (the insured), transfers
... [Show More] the risk of financial
loss to another party (the insurer). [Essentially, I'm giving the risk of financial loss to someone
else so that I can keep my financial standing.]
What are covered losses? ✔✔These are costs that insurers pay for and are in the contract that
both parties agree to in the beginning (wind damage, car accident, etc). The costs vary on what
coverage one purchases.
What are premiums? ✔✔Periodic payments from the insured to the insurer to protect them from
potential costs.
What does transferring the risk allow? ✔✔This allows the insured to give periodic payments
(premiums) to the insurer to protect them from those potential costs and remain in good financial
standing.What is "sharing the premiums?" ✔✔This technique allows the insurer to put all their premiums
into a pool paid by their insured customers. This allows them to dip into this pool of paid
premiums to cover a single claim (thus, the more paying customers, the better).
What is a loss exposure? ✔✔This is any condition or situation that presents the *possibility* of a
loss.
What is a common loss exposure that every home has? ✔✔Fire exposure, because every home
has electricity in it (unless there is an exception).
What is the law of large numbers? ✔✔The law states: as long as the number of similar but
independent exposure units increases, the relative accuracy of predictions about future losses
based on these exposure units also increases.
How is the law of large numbers applied to insurance? ✔✔Houses and cars are similar exposure
units (things that are insured), but are independent because they are not subject to the same
event. For example: a homeowner is uncertain whether a fire will damage his or her home and
transfers this uncertainty to an insurance company. The insurance company insures thousands of
homes whose owners face the same uncertainty! Because they insure such a large number of
homes like this one, they can predict with a better deal of accuracy the number of homes thatactually will be damaged by fire! That will allow them to determine the amount of premiums that
it needs to pay for the fire losses during that period.
What are the three major types of loss exposures? ✔✔1) Property 2) Liability 3)
Human/Personal and personnel.
What is a property loss exposure? ✔✔This is a possibility of some property being lost in an
accident.
What is real property? ✔✔Land or any property attached to it.
What is an example of real property? ✔✔A home owner purchases a lot and then builds a house
and a pool on that said lot. Anything permanen [Show Less]