Principles of Insurable Risks and Insurance Characteristics Quiz

Insurable risks must be measurable to determine the extent of coverage and potential losses.

Indemnity in insurance refers to compensating the insured for actual damages or loss suffered.

Speculative risks, which involve the potential for gain or loss, are not insurable due to the unpredictability of outcomes.

A deductible is designed to lower the insured's financial burden by having them contribute a specified amount before the insurer covers the rest.

A moral hazard occurs when the insured's behavior increases the risk, such as intentionally causing damage to make an insurance claim.

Underinsured refers to a situation where the insurance coverage is insufficient to fully compensate for the losses or damages.

Speculative risks involve both the potential for gain and loss, making them different from insurable risks.

Insurable interest mandates that the insured must have a financial interest in the insured property to obtain insurance coverage.

Pure risks involve the possibility of loss without the potential for gain, making them suitable for insurance coverage.

The principle of indemnity ensures that insurance compensates for actual financial loss and prevents profiting from a loss.

Subrogation grants the insurer the right to recover losses by pursuing legal action against the responsible third party.

Insurable risks involve uncertainty; a certain loss is not insurable because it lacks unpredictability.

Coinsurance ensures that both the insured and insurer share the financial risk, promoting a balanced responsibility.

The principle of indemnity prevents the insured from gaining a profit from an insurance loss, ensuring fair compensation.

Underwriting involves assessing risks, determining coverage terms, and establishing appropriate premiums for insurance policies.

An actuary is a professional in insurance responsible for evaluating and managing risks, including setting premium rates.

Legal Capacity is the principle that ensures the parties involved in an insurance contract have the legal ability to enter into a binding agreement.

Reinsurance is a risk management strategy where insurers purchase insurance to cover a part of their own risk.

Adverse selection occurs when individuals with higher risk are more inclined to purchase insurance, potentially leading to imbalanced risk pools.

Moral hazard refers to the increased risk-taking behavior of individuals when they are protected by insurance.

Exclusion is a provision in insurance policies that specifies risks or conditions not covered, limiting the scope of the policy.

Catastrophic risks pose the potential for substantial financial losses, often requiring specialized insurance coverage.

A premium is the payment made by the insured to the insurer in exchange for insurance coverage.

Endorsement in insurance refers to a modification or addition to the terms and conditions of an existing insurance policy.

The insured, under the principle of utmost good faith, is obligated to provide full and honest information about the risk.