Chapter 1: Introduction to General Insurance Flashcards Preview

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Flashcards in Chapter 1: Introduction to General Insurance Deck (10)
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1
Q

Major function of insurance

A

to achieve a spread of risk

2
Q

Explain what is meant by “spread of risk”

A

to share the losses of the few among the many

3
Q

Meaning of insurance

A

an undertaking by one person to indemnify another if a specific peril damages an object of insurance

4
Q

Definition of insurance: 5 major points

A
  1. insurance provides a means of shifting one’s financial responsibility for a loss to another party
  2. payment will be made only in the event of the happening of a certain risk or peril
  3. the amount of the payment is restricted to the amount required to indemnify the insured
  4. insurance pays only for accidental losses that happen after the agreement starts
  5. payment can be in money or other thing of value
5
Q

Principle of indemnity

A

ensures that people receive the ACTUAL amount of their loss, no more and no less

6
Q

Types of general insurance

A
  1. automobile
  2. property
  3. liability
7
Q

Identify 2 types of major insurers. Provide examples of organizational differences.

A
  1. Private
    - stock companies: owned by shareholders and profit oriented
    - mutual companies: owned by policy holders and not profit oriented
  2. Government
    - usually compulsory
8
Q

Identify 2 methods used by insurers to sell their products

A
  1. direct writing system: insurer has own sales force for its own products
  2. independent brokerage system: represents more than 1 insurer and gets commission. Clients belong to the broker
9
Q

Define risk

A

the chance of financial loss to which the object of insurance may be exposed

10
Q

Define peril

A

the cause of loss