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52 Cards in this Set
- Front
- Back
Risk
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The chance of loss, possibility of loss, uncertainty, or a variation of actual from expected results.
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Pure Risk
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A risk in which the results are either a loss or no loss.
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Speculative Risk
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A risk where a potential for profit as well as loss or no loss exists.
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Dynamic Risk
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A risk that results from changes in society or the economy (e.g., inflation)
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Static Risk
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A risk dependent on factors other than a change in society or the economy (e.g., natural disaster)
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Objective Risk
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The relative variation of an actual loss to an expected loss.
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Particular Risk
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Personal risk that involves a possible loss for an individual or a small group.
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Fundamental Risk
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An impersonal risk that involves a possible loss for a large group.
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Actuary
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An expert in the fields of mathematics, statistics, and probability theory; responsible for predicting losses for various risk pools, calculating required reserves, and producing policy premium rates.
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Law of Large Numbers
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The chance that predicted results will reflect true results increases as the number of exposures increases
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Risk Avoidance
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The avoidance of any chance of loss.
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Risk Reduction
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Taking measures that reduce the frequency or severity of losses.
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Risk Assumption
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Bearing all or part of the financial burden in the event of a loss.
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Active Risk Retention
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One is fully aware of the chance for loss and consciously plans to retain all or part of the risk.
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Passive Risk Retention
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Being unaware of a risk, but taking no steps to manage it properly.
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Risk Transfer
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Shifting the probability of loss to another party, such as an insurance company.
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Contractual Agreements
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Often include guarantees at the time of sale; often known as warranties.
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Hedging
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A means of trying to match profit on one transaction to the expected loss of another.
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Incorporation
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Results in limited liability for business owners.
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Insurance
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A mechanism through which risk is transferred to an insurer, evidenced by a promise to pay, in exchange for an equitable premium.
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Peril
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The proximate, or actual, cause of a loss
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Hazard
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A condition that creates or increases the likelihood of a loss occurring.
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Moral Hazard
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A character flaw or level of dishonesty that causes of increases the chance for loss.
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Morale Hazard
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Indifference to a loss based on the existence of insurance.
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Adverse Selection
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The increased tendency of high-than-average risks purchasing or renewing insurance policies.
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Principle of Indemnity
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A person is entitled to compensation only to the extent that financial loss has been suffered.
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Subrogation Clause
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States that the insured cannot indemnify one-self from both the insurance company and a negligent third party of the same claim.
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Principle of Insurable Interest
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To have an insurable interest, an insured must be subject to emotional or financial hardship resulting from damage, loss, or destruction.
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Principle of Utmost Good Faith
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Requires that the insured and the insurer both be forthcoming with all relevant facts about the insured risk and the coverage provided for that risk.
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Warranty
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Promise made by the insured to the insurer that is part of the insurance contract to which the insurer must adhere.
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Representation
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Statement made by the proposed insured to the insurer in the application process.
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Concealment
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When the insured is silent about a fact that is material to the risk.
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Adhesion
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A characteristic of insurance that means insurance is a take-it-or-leave-it contract. the proposed insured must accept (or adhere to) the contract as written without any bargaining over the terms and conditions.
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Aleatory
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A characteristic of insurance meaning that monetary values exchanged by each party in an insurance agreement are unequal.
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Unilateral
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Only the insurer agrees to a legally enforceable promise.
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Conditional
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Insurer is only obligated to compensate the insured if certain conditions are met.
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Agent
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Legal representative of the insurer that has authority to enter into agreements on its behalf.
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Broker
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Legal representative of the insured who can offer products from many insurers.
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General Agent
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An independent business person who represents only one insurer for a designated territory.
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Independent Agent
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An agent that represents multiple insurers.
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Surplus Lines Agent
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An agent that has the authority to engage in business with out-of-state insurers in order to meet unavailable in-state consumer needs.
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Express Authority
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The actual authority an insurance company gives representatives (agents) via the agent's written contract.
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Implied Authority
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The authority that the public reasonably perceives the agent to possess, even without express authority.
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Apparent Authority
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The insured is led to believe that the agent has authority, either express or implied, where no such authority actually exists.
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Riders (Endorsements)
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Written additions to an insurance contract that modify the original provisions.
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Actual Cash Value
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Calculated as replacement cost minus functional depreciation.
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Deductible
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A stated amount of money the insured is required to pay on a loss before the insurer will make any payments under the policy.
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Co-payments
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In health insurance policies, amounts an insured must pay in addition to the deductible to receive certain covered services.
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Coinsurance
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the percentage of financial responsibility the insured and the insurer must share under the policy.
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Capital Stock Insurance Company
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Operate for-profit and owned by stockholders.
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Mutual Insurance Company
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Owned by policyholders and distributes profit in the form of policy dividends.
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Risk-Based Capital model
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Adjusts and insurer's capital base according to the amount and types of risk to which it is exposed.
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