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Andy Beverly Blue Book Misc.
Terms in this set (14)
- Means the possibility that a loss might happen.
- If you have a house, it is possible your house will be damaged by fire, wind, vandals, or something else. That's risk.
Define Pure Risk
- Only the possibility of a loss.
- For example, owning something with the possibility that it could be stolen or damaged. Pure risk is the type of risk that is insurable.
- Black or white... going to happen or not going to happen.
Define Speculative Risk
- Possibility of a loss or a gain.
- Betting on horses or investing in public stock examples, because the gambler or investor hopes for a financial gain. Insurance does not deal with speculative risk.
Define the Law of Large Numbers
The more data you have, the more accurate your calculations will be when using that data.
Define Risk Mitigation
Lessening the possibility of a loss.
- Also called risk reduction.
Define Risk Avoidance
Choosing not to own a car could be a way of avoiding property or liability losses
Define Risk Pooling
Collecting risk together
Define Risk Transfer
Using a contract to decide who will take on risk, and thus who will pay for losses.
- For example, buying an insurance policy.
Elements of a Legally Binding Contract
1. Offer and acceptance
3. Legal purpose
4. Competent parties
Describe Offer and Acceptance
The offer to buy insurance is when the applicant submits the application and the premium. The acceptance is when the insurance company approves the application.
Something of value given for a contract.
- In insurance, the value given (premium payment) in exchange for insurance coverage.
Describe Legal Purpose
The contract entered into must be legal.
Describe Competent Parties
Both parties (the insurer and the applicant) must be competent at the time of the application. The applicant is considered competent, with three exceptions:
2. Mentally challenged
3. Under the influence of drugs or alcohol
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