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38 Cards in this Set

  • Front
  • Back
  • 3rd side (hint)
Assumption of a risk (1 of 4)
taking no action in advance and suffering the loss if it occurs
take the hit (1-1)
Elimination of a risk (2 of 4)
avoid its cause
give up skiing so you don't have an accident/physical injury (1-1)
Reduction of a risk (3 of 4)
taking steps that minimize (but do not eliminate) the likelihood that the hazard will occur
minimize the risk of burglary by installing an alarm system (1-1)
Transfer all or a part of the risk (4 of 4)
to another entity, such as an insurance company, in return for payment of a premium
what the whole book is about (1-1)
Insurer (term)
Usually an insurance company, sells a coverge to a person or org (the insured).
A coverage (term)
a contractual arrangement that states that the insurer will make a payment to the insured of a certain event occurs.
i.e., an insured with fire coverage would be paid in the event of fire. (1-2)
A payment by the insurer to the insured.
a demand by the insured for payment of a benefit
In exchange for coverage, the insured makes payments (usually at regular interals) to the insurer
Policy (or contract)
The legal document that sets the terms of this arrangement
Policy holder
The insured is sometimes called this too
Fine distinctions twx insurance policy and insurance contract. Also twx policy holder and insured. (1-2)
Principles of Insurance
1 - uncertaintly of loss
2 - measurability of loss
3 - large naumer of insured
4 - significant size of potential loss
5 - equitable method of sharing the risk
there are 5 (1-3)
Uncertainty of loss
(1 of 5 Principles of Insurance) Insured event must be unpredictable, and beyond the control of the insured.
Measurablilty of loss
(2 of 5 Principles of Insurance) Insurer must be able to place an exact ddollar value on the loss.
(1-3) Cost or repair car, or cost of surgery, both are known. Life insurance: $$ must be agreed upon in advance.
Large number of insureds
(3 of 5 Principles of Insurance) to spread risk across large numbers of people.
Also allows accurate prediction of occurrence of losses, so the insurer knows how much to charge for premiums.
Significant size of potential loss
(4 of 5 Principles of Insurance) must be large enough to make a significant impact on the financial well-being of the insured.
It is against catastrophic losses that insurance is most necessary. (1-4)
Equitable sharing
(5 of 5 Principles of Insurance) Risk must be shared in a fair way, thus the expense of the cost of the losses for a few people is not a huge burden on everybody.
Those with a greater potential loss must pay more than those with a smaller potential loss. (1-4)
Speculative risk
An investor accepts speculative risk in return for a sizable gain.
NOT part of health insurance. (1-5)
Pure risk
no possibility of gain. Only the possibility of no loss, or or loss due to unforeseen hazards beyond the control of the one for whom the risk exists.
This is the kind of risk that insurance is designed to recover. (1-5)
How many types of Insurance?
4 major types:
Life and Health
Property and Casualty
(usually grouped together like this)
These can be bought on on an individual or group basis. (1-5)
individual or group insurance
individual: a person buys coverage and is the policy holder. For group, an association or a union buys insurance for its members, or a business buys for its employees. The mebers of the group receive coverage, but the policyholder is the goup or business. members or employees may pay premiums, but they do so thru the policyholder.
life and health insurance
usually grouped together cuz both are personal insurance.
Ordinary life insurance
Most widely purchased, 2 sub types:
permanent and term
Permanent life insurance
(aka whole life insurance) offers protection for the entire life of the insured
(1-6) Build up cash value and used by many as a way to save money
Term life insurance
generally offer protection for a specified period of time
most do not build up cash value (1-6)
Credit life insurance
may be used to pay down the balance of loans that may be outstanding if a borrower dies
Annuity contract
guarantees payments to a designated party for a specific time period or for life.
Often used to provide retirement income or income for a surviving spouse. (1-6)
Health Insurance
pays benefits in the event of sickness or injury. aka accident and health insurane, or sickness and accident ins.
Covers medical, hospital, surgical, and dental. May also compensate for loss of income if sick person is unable to work. (1-6)
Property and Casualty insurance
grouped together cuz they are NOT personal insurance. They cover property and events, not people.
Bought by both business and people.
Property and Casualty insurance: PROPERTY
pays benefits to compensate for loss and damage to homes and contents, commercial and industrial bldgs, equipment, furniture, fixtures, inventories, business records, supplies, autos, other physical items.
2 types: direct and indirect
Direct Property insurance
the lost value of stolen, damaged, lost or destroyed property
Indirect Property insurance
expenses incurred cuz of the loss, such as temporary housing after a fire, loss of rental income, and loss of profits
Casualty insurance
protects the insured against costs arising from legal liabilities. Costs to another person who suffers injury or damage cuz of the insured's actions.
auto liability insuance: if you are liable for the accident, your insurance pays for the repair to the other person's car. (1-7)
Needs Met by Health Insurance (3)
1 - reimbursing for medical expenses
2 - providing a set amount of income replacement
3 - providing a lump-sum payment for losses
Medical Expense insurance
medical care can be substantial, easily in the 10's of thousands.
(1-7) more in chap 3
Supplemental insurance
many costs of hospitalization and medical care are not covered by Medical Expense insurance. Supplemental helps cover these costs.
(1-7) also supplemental coverage for other types of care (like dental and vision). More in chap 4
Disability Income insurance
protects adults against the possibility of not being able to earn a full salary cuz of sickness or injury.
Injured guy 30 years old, makes $3000 per month. Loses $1.2 million by age 65. More in chap 5.(1-8)
Long-Term Care insurance
Charges for skilled care in a nursing home or care provided by nurses at home.
1 in 5 Americans over 50 will need this care in the next year! More in chap 5. (1-8)