Fundamentals of General Insurance Quiz

A physical hazard refers to anything that can increase the risk of a loss due to the physical characteristics of an object or situation. This includes factors like how an object is used, where it is located, or how it is constructed.

An insurance contract is a legal contract that provides financial protection or reimbursement against losses or liabilities from unexpected events. It is not just a document outlining investment terms, a future purchase agreement, or a mere statement of coverage.

The insured is the person who is covered by the insurance policy, whether or not they are specifically named. This distinction is important as it ensures that individuals who meet the criteria for coverage are protected, even if they were not specifically listed on the policy.

An insurer is an entity, typically an insurance company or the principal, that provides insurance coverage or protection against specified risks in exchange for payment of a premium. It is not related to banking, real estate, or restaurant businesses.

Insurable interest refers to having a financial interest in protecting the property being insured. This ensures that the policyholder has a stake in the protection of the property to prevent fraudulent claims or misuse of insurance. It is a requirement for a valid insurance policy.

An accident is usually unexpected and leads to negative consequences, unlike a planned event or deliberate action causing harm.

The correct answer describes occurrence as a continuous and repeated exposure to conditions resulting in loss or damage, emphasizing the repetitive nature of the event to cause harm or loss.

Risk is defined as the likelihood of loss or chance of loss, highlighting the underlying uncertainty and potential negative outcomes.

Speculative risk refers to situations in which an individual or company can either win or lose based on an uncertain event. Insurance typically covers only pure risks, which involve the possibility of loss but not gain. Speculative risks are usually not insurable because they involve willingly taking a chance on an unknown outcome.

Pure risk refers to a situation where there is only one possible outcome - loss. This type of risk is typically covered by insurance as it involves no possibility of gain. The other incorrect options do not accurately describe pure risk.

Risk can be transferred through mechanisms like insurance or lease agreements, where one party takes on the risk on behalf of another.

In insurance, peril refers to the specific cause of a loss, such as fire, lightning, or internal explosion. It is important for policyholders to understand the different types of perils covered under their insurance policy to ensure adequate protection.

Loss typically refers to a reduction in quality, quantity, or value, as opposed to an increase or maintenance of the same level.

A direct loss refers to the physical destruction of property that can be restored or replaced. It does not involve potential income, emotional distress, or increase in property value.

A hazard is a condition that poses a risk of increasing the frequency or severity of a loss, rather than preventing it or eliminating risk entirely.

Moral Hazard refers to the tendency to take risks because the cost of the risk is not borne by the party taking the risk. This can lead to behaviors like fraud or dishonesty in insurance claims in an attempt to gain financially without consequences.

Morale Hazard refers to an attitude or behavior where an individual displays a lack of concern or care for safety measures, leading to potential risks and accidents. It is often characterized by negligence or carelessness in observing safety protocols.

Icy roads serve as a hazard due to the increased risk of accidents and loss of control when driving on them. This highlights the importance of caution and preparedness when encountering icy road conditions.

Fire is commonly associated with danger and destruction, making it an example of a peril.

When two cars collide in an intersection, it is considered an accident as it involves an unexpected event resulting in damage or injury.

Spreading the risk in business minimizes the impact of potential losses by diversifying exposure across different areas, thereby reducing overall risk.

Risk management involves identifying, assessing, and prioritizing risks, followed by coordinated and economical application of resources to minimize, monitor, and control the probability or impact of unfortunate events.

Sharing risk involves multiple parties coming together to distribute the potential financial burden in case of a loss, which is a common practice in scenarios like co-signing on a loan or pooling resources for protection.

Risk reduction strategies involve actively addressing and mitigating potential risks to minimize their impact.

Insurable risks are those that involve accidental, unexpected, or uncertain losses that can be measured, and that adhere to the Law of Large Numbers. This ensures that the risk can be spread among a large group of policyholders, making it financially viable for insurance companies to provide coverage.

The Named Insured refers to the individuals or entities specifically named in the insurance policy as the primary policyholders. These individuals have the primary rights and responsibilities under the policy.

Indirect Loss/Consequential Loss refers to intangible losses such as loss of use or rental income, not physical damage or direct financial loss.

Retaining risk in insurance refers to the policyholder agreeing to bear all or part of the financial burden of a potential loss by paying a deductible out of pocket. This helps in sharing the risk between the insured and the insurer.

Avoiding risk involves making conscious decisions to not engage in activities that have potential negative outcomes. This can include staying away from high-risk investments, extreme sports, or other situations where the chances of harm outweigh the potential benefits.