Insurance Chapter 1
Terms
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- What is Insurance ?
- Insurance is the transfer of pure risk from one party to another for a price that spells out the terms, the perils covered, the perils and property excluded and other specific provisions
- Risk
- Defined as the uncertainty of financial law
- Pure Risk
- Involves the chance of loss only
- Speculative Risk
- Involves the chance for loss or gain
- Avoidance
- Abstaining from a particular activity that could turn into a loss
- Transfer
- Purchasing insurance to shift the financial burden of a loss from the insured to the insurance company
- Pooling the risk
- Sharing the risk among many individuals
- Reduction
- Taking action to reduce the possibility of loss
- Exposure
- The actual condition or situation that presents a possibility of loss
- Law of large numbers
- as the number of exposures increase, the more the actual results will approach the results expected for the event
- Perils
- Happenings or events that cause a loss
- Hazard
- A condition that increases the chance of a loss occurring
- Physical Hazard
- Created by the use condition or occupancy of the property itself