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
- insurance provides a means of shifting one’s financial responsibility for a loss to another party
- payment will be made only in the event of the happening of a certain risk or peril
- the amount of the payment is restricted to the amount required to indemnify the insured
- insurance pays only for accidental losses that happen after the agreement starts
- 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
- automobile
- property
- liability
7
Q
Identify 2 types of major insurers. Provide examples of organizational differences.
A
- Private
- stock companies: owned by shareholders and profit oriented
- mutual companies: owned by policy holders and not profit oriented - Government
- usually compulsory
8
Q
Identify 2 methods used by insurers to sell their products
A
- direct writing system: insurer has own sales force for its own products
- 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