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21 Cards in this Set
- Front
- Back
Adverse Selection |
broadly defined as selection against the company. It includes the tendency of people with higher risks to seek or continue insurance to a greater extent than those with little or less risk; also includes the tendency of policyowners to take advantage of favorable options in insurance contracts. |
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Hazard |
any factor, condition, or situation that creates an increased possibility that a peril (a cause of a loss) will actually occur |
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Homogeneous Exposure Units |
similar objects of insurance that are exposed to the same group of perils. |
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Indemnity contract |
attempt to return the insured to their original financial position. |
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Law of Large Numbers |
a fundamental principle of insurance that the larger the number of individual risks combined into a group, the more certainty there is in predicting the degree or amount of loss that will be incurred in any given period. |
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Loss |
the unintentional decrease in the value of an asset due to a peril. |
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Loss Exposure |
the risk of a possible loss. |
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Moral Hazard |
a hazard brought on by the effect of personal reputation, character, associates, personal living habits, financial responsibility, and environment, as distinguished from physical health, upon an individual’s general insurability. |
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Morale Hazard |
a hazard arising from indifference to loss because of the existence of insurance; often associated with having a careless attitude. |
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Peril |
the immediate, specific event causing loss and giving rise to risk. |
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Physical Hazard |
physical or tangible conditions existing in a manner that makes a loss more likely to occur. |
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Pure risk |
a type of risk that involves the chance of loss only; there is no opportunity for gain; it is insurable. |
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Reinsurance |
the acceptance by one or more insurers, called reinsurers, of a portion of the risk underwritten by another insurer who has contracted for the entire coverage. |
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Risk |
the uncertainty regarding loss, the probability of a loss occurring for an insured or prospect. |
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Risk Avoidance |
occurs when individuals evade risk entirely. It is the act of not doing something that could possibly cause a loss or the inactivity of participation in an event that may potentially cause a loss situation. |
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Risk Management |
the process of analyzing exposures that create risk and designing programs to handle them is called risk management. |
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Risk Pooling/Loss sharing |
spread risk by sharing the possibility of loss over a large number of people. It transfers risk from an individual to a group. |
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Risk Reduction |
takes place when the chances of a loss are lessened, or the severity of a potential loss is minimized. |
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Risk Retention |
the act of analyzing the loss exposure presented by a risk and determining that the potential loss is acceptable; often associated with self-insurance. |
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Risk Transfer |
the act of shifting the responsibility of risk to another in the form of an insurance contract. |
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Speculative Risk |
a type of risk that involves the chance of both loss and gain; it is not insurable. |