Chapter
25
Insurance
insurance company or
insurer
insurable interest
risk management
pure risk
risk assumption
Introduction to Risk Management
risk reduction
policy
risk
premium
indemnification
Probability
property risks
Name______________________
Personal risks
liability risks
speculative risk
Risk avoidance
exclusions
insurable risk
Example: _________________________ is a method of spreading the risk to protect assets and income.
1. A(n) _________________________ is a business that issues policies of insurance.
2. A(n) _________________________ is any interest in life or property that would result in a financial
loss.
3. An organized strategy for protecting assets to help reduce financial loss is called
_________________________.
4. With a(n) _________________________, there is always a chance of loss if certain events (perils)
occur.
5. The concept of _________________________ means that you self-insure or pay for losses personally.
6. With _________________________, you take measures to lessen the frequency or severity of losses
that may occur.
7. A written insurance contract is called an insurance _________________________.
8. The possibility of a loss is called a(n) _________________________.
9. The fee, or _________________________, is paid by the policyholder.
10. Putting the policyholder back in the same financial condition as before a loss is called
_________________________.
11. _________________________ is the mathematics of chance or the likelihood of an event occurring.
12. The possibilities of loss or harm to real property are called _________________________.
13. _________________________ are those potential losses involving income and standard of living.
14. Both income and assets are protected from _________________________ arising out of errors
or negligence.
15. A(n) _________________________ is one in which there may be either a gain or a loss.
16. _________________________ occurs when you avoid situations that involve substantial risk.
17. Specific losses that an insurance policy does not cover are called _________________________.
18. A(n) _________________________ results when a financial loss can be determined.
1. Most people have little need for any type of insurance. T F
2. Insurance companies collect premiums with the expectation that only a few policyholders will
experience financial losses. T F
3. Insurance companies assess premiums based on statistical probability. T F
4. The higher the probability of an event occurring, the lower the premium for insuring against it. T F
5. Exclusions are circumstances or losses not covered by the terms of an insurance policy. T F
6. An unearned premium is not refunded to the policyholder. T F
7. Risk management is a plan for buying insurance for every type of peril that could occur. T F
8. All risks have the same priority because they result in the same financial losses. T F
9. To shift or transfer risk, you buy insurance. T F
10. Increasing deductibles will reduce insurance premiums. T F
1. One who calculates premiums and dividends is a(n)
(a) agent, (b) actuary, (c) beneficiary, (d) policyholder.
2. The person who receives proceeds of a policy is the
(a) agent, (b) actuary, (c) beneficiary, (d) policyholder.
3. A demand for payment for a loss is called
(a) coverage, (b) loss, (c) peril, (d) claim.
4. Defective wiring in a house is an example of a
(a) peril, (b) hazard, (c) loss, (d) risk.
5. The cause of a possible loss is a
(a) peril, (b) hazard, (c) loss, (d) risk.
6. A(n) _______ is a specified amount subtracted from covered losses.
(a) exclusion, (b) premium, (c) deductible, (d) benefit
7. Fire, storm, explosion, and accident are examples of
(a) losses, (b) perils, (c) hazards, (d) exclusions.
8. Potential losses involving your income and standard of living are called
_______ risks.
(a) personal, (b) property, (c) liability, (d) individual
9. A _______ risk may involve a gain or a loss.
(a) pure, (b) speculative, (c) property, (d) liability
10. Risk _______ is taking measures to lessen the frequency or severity of losses.
(a) avoidance, (b) reduction, (c) assumption, (d) insurance
Activity 25.1 Insurance Needs
Directions: Answer the following questions to assess your current and future insurance needs.
1. What kinds of risks do you take daily, weekly, monthly, or at some time during the year (such as
sports, recreation, driving)?
2. If you were injured, how would the costs of taking care of you be paid (e.g., parents, insurance, self)?
3. Do you engage in any activities that could cause injuries to other persons (i.e., could you be
heldresponsible for what happens to someone else)? List such activities.
4. What types of insurance do you or your family currently carry to meet losses you might incur?
For example, do you have life insurance, automobile insurance, health insurance, or any other type of
coverage?
5. What types of risk do you anticipate taking in the next five years for which you will likely purchase
insurance?
Activity 25.2 Insurance Companies
Directions: From your local Yellow Pages telephone book, online resources, or from newspaper ads,
complete the following information.
1. List four insurance companies or agencies that advertise in your area to sell health insurance coverage.
a.
_____________________________________________________________________________________
b.
_____________________________________________________________________________________
c.
_____________________________________________________________________________________
d.
_____________________________________________________________________________________
2. List three insurance companies in your area that sell more than one type of insurance policy
(e.g., automobile and life, property and health, and so on).
a.
_____________________________________________________________________________________
b.
_____________________________________________________________________________________
c.
_____________________________________________________________________________________
3. List three life insurance companies that are national companies served either by independent agents or
through insurance companies (e.g., New York Life Insurance Co.).
a.
_____________________________________________________________________________________
b.
_____________________________________________________________________________________
c.
_____________________________________________________________________________________
4. List five insurance companies or agencies (national or local) that advertise automobile insurance.
a.
_____________________________________________________________________________________
b.
_____________________________________________________________________________________
c.
_____________________________________________________________________________________
d.
_____________________________________________________________________________________
e.
_____________________________________________________________________________________
5. What is the penalty in your state if you are caught driving an automobile without insurance and you are
involved in an accident that is your fault?
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
6. In your state, which of the following items can reduce automobile insurance premiums?
________ good grades
________ drivers’ education courses
________ good driving record
________ more than one car insured
________ good credit rating (FICO score)
7. Are there any other actions that you can take to reduce your premiums?
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
Activity 25.4 Insurance Action Plan
Directions: Assess the types of risks you are facing and expect to encounter in the next few years. Write
a sentence about how each type of risk might affect your life.
1. Loss of income (for you personally):
a. Death
b. Illness
c. Accident
d. Unemployment
2. Loss of income (for a family member):
a. Illness
b. Disability
c. Death
3. Loss of property (real or personal):
a. Fire
b. Theft
c. Damage or vandalism
4. Loss of savings due to personal liability:
a. Causing damages to another person
b. Damaging another person’s property