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CA L&H Chap 1

Basic Insurance Concepts and Principles

TermDefinition
Insurance Transfer of loss or risk from a business entity or a person to a provider, which then spreads the costs of unexpected losses to many people.
Insurance A contract in which one individual undertakes to indemnify another.
Speculative and Pure The two types of risk (the uncertainty or likelihood that a loss occurs)
Speculative Risk Involves the chance for gain and is not insurable
Pure Risk Only involves the chance of loss with no chance for financial gain
Perils The insured against causes of loss that insurance providers will cover.
Hazards Circumstances or settings that increate the likelihood of an insured loss
Law of Large Numbers The actual losses will be more predictable among a larger group of people having similar loss exposure. Forms the basis for the statistical prediction of loss which insurers use to calculate insurance rates.
Loss Exposure Unit of measure used in calculating insurance coverage rates. Any situation that presents the possibility of a loss.
Factors considered in calculating rates Age, sex, occupation, medical history
Adverse Selection Insuring risks more prone to losses than the average risk
Indemnity Often referred to as reimbursement. Insureds or beneficiaries are allowed to collect to the extent of financial loss. Cannot gain financially from a loss.
Utmost Good Faith Principle that implies there will be no concealment, misrepresentation, or fraud between the parties.
Created by: jo710al
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