Insurance Terms and Definitions, Quizzes of Introduction to Business Management

Download Insurance Terms and Definitions and more Quizzes Introduction to Business Management in PDF only on Docsity! TERM 1 insurance DEFINITION 1 The pooling of fortuitous losses by transfer of such risks to insurers, who agree to idemnify insureds for such losses, to provide other benefits on their occurence, or to render services connected to the risk. TERM 2 pooling of losses DEFINITION 2 grouping of larger numbers of exposure units so that the law of larger numbers can operate to provide a substantially accurate prediction of future losses. TERM 3 fortuitous loss DEFINITION 3 unforeseen and unexpected by the insured and occurs as a result of chance loss must be accidental insurance does not cover intentional losses TERM 4 idemnification DEFINITION 4 insured is restored to his or her approximate financial position prior to the occurrence of the loss TERM 5 risk transfer DEFINITION 5 pure risk is transferred from the insured to the insurer who is typically in a stronger financial position to pay the loss than the insured. TERM 6 characteristics of ideally insurable risk DEFINITION 6 large number exposure units accidental unintentional determinable measurable should not be catastrophic (shouldn't occur losses at the same time ) chance of loss must be calculable premium must be economically feasible(insured must be able to afford premium ) TERM 7 adverse selection DEFINITION 7 people with higher than average chance of loss seek insurance at average rates/ results in higher than expected loss ex. high-risk drivers who seek auto insurance at standard rates business regularly gets robbed seeks crime insurance standard rate TERM 8 underwriting DEFINITION 8 controlling adverse selection/ process of selecting and classifying applicants for insurance if do not meet standards are not insured or have to pay extra premium TERM 9 gambling vs. insurance DEFINITION 9 gambling/ creates new speculative risk insurance a technique handling already existing pure risks gambling winners expense comes at expense of the loser insurance always socially productive never placed in position where gain comes from expense of loser TERM 10 hedging vs. insurance DEFINITION 10 insurance transaction invovles transfer of insurable risks because can generally be met hedging tech for handling risks that are typically uninsurable such as protection in the decline of agricultural products and raw material insurance can reduce the objective risk of an insurer by application of the law of large numbers hedging not based on law or large numbers