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Fundamentals of Insurance - Chapter 1
Self Examination Questions
8
Insurance
Professional
08/01/2014

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Cards

Term
What is meant by "spread of risk"?
Definition
The losses of the few are shared among the many.
Term
Identify 5 important points as they relate to the definition of insurance.
Definition

i.) Provides a means of shifting one's financial responsibility for loss to another party.

ii.) Payment made only in the event of the happening of a certain risk or peril.

iii.) Payment restricted to amount required to indemnify insured.

iv.) Covers losses to which the object of insurance *may* be exposed.

v.) Indemnity can be in the form of money or other thing of value.

Term
Define "Risk".
Definition
The chance of financial loss to which the object of insurance may be exposed.
Term
Define "Peril".
Definition
The cause of loss.
Term
Identify 3 types of insurance included within the broad area of "property and casualty insurance".
Definition

i.) Auto insurance

ii.) Property insurance

iii.) Liability insurance

Term
There are two major types of insurers. Identify them and provide examples of organizational differences.
Definition

 

1.) Private Insurers;

 

i.) Stock companies;

  • operate via private funds or public sale of stock.
  • main goal to generate profit for shareholders (owners).

ii.) Mutual companies;

  • owned by its policy holders
  • main goal to provide insurance to its policy holders at as low a cost as possible, vs turning a profit
  • profits returned to policy via dividends or rate adjustments

2. Government Insurers provide;

  • medical insurance
  • employment insurance
  • worker's compensation
  • mandatory auto insurance (Sask, BC, MB & QC)

 

Term
Identify three methods used by insurers to sell their products & how each system deals with a) Remuneration b) Ownership of client files c) Administrative functions.
Definition

1.) Direct Writing System;

  • salary or commission from employer (insurer)
  • insurer owns all business
  • insurer performs admin functions

2.) Independent Brokerage System;

  • earn commission from insurer
  • brokerage owns all business
  • provides client services for policy holders

3.) Agency System;

  • paid commissions/ bonuses by insurer
  • agents own their business
Term
In Canada, which insurance distribution method is most common?
Definition
Independent Brokerage System
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