Role of Insurance

Insurance transfers an individual's uncertainty of_____ to the insurance company.
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Terms in this set (24)
Insurance transfers an individual's uncertainty of_____ to the insurance company.
loss
Life and Health insurance protects against impairment to a person's greatest asset, their earning power, caused by: _________, __________, ________ or ________.
injury, sickness, retirement or death.
An _________ __________ is a legal agreement made between an insurance company and an individual.
insurance contract
The insurance company, or _________, collects a small amount of money termed premium from the insured individual.
insurer
The insurance company, or insurer, collects a small amount of money termed __________ from the insured individual. This ________ is exchanged for the insurance company's promise to pay benefits in the event of loss.
premium
The promise established by the insurance company is the legal agreement, termed insurance________ or insurance policy, between the insurance company and the individual who is covered by the policy, the insured.
contract
The insurance company legally agrees to pay the insured in the event of a covered loss based on the terms and__________ in the policy.
conditions
A _______ is defined as an unintentional decrease in value of an asset. The insurance company must be notified of the_________.
loss
By notifying the insurance company, the insured is demanding payment of the benefits provided by the policy; this is the definition of a_________.
claim
Nature of Insurance
The three most important principles of insurance are:
1. _________ _______________,
2. The law of______ __________, and
3. _________ __________
1. Risk pooling,
2. The law of large numbers and
3. Insurable interest
_________ is defined as the chance of a loss occurring.risk______ ___________ spreads risk by sharing the possibility of loss over a large number of people. It transfers risk from an individual to a group.risk poolingWhen several individuals contribute small amounts into a disability insurance plan, those amounts are ________ together to form a larger amount in order to provide support in the event that one of those individuals becomes disabled. The pool transfers each member's individual risk to the group and allows a large number of people to be insured for a small amount of money.pooledTo remain financially stable, insurance companies must have a general idea of how many _________ will occur in a given year so that adequate funds can be set aside to cover claims. Instead of attempting to predict who will undergo ________, insurance companies use the law of large numbers to estimate how many _________ will occur in a certain group of people over a certain period of time.lossesInsurance companies employ __________, who are people who collect and analyze risk data.______________ take statistical data and determine the rate people will die, termed mortality, and the rate people will get sick, termed morbidity.actuariesThe law of ________ __________ state that as the group increases in size, it is easier to predict the number of future losses over a certain period of time.large numbersGroups must consist of a large number of similar individuals in order to provide accurate mortality or morbidity rates. Also, it is important to be aware that the law of large numbers provides the best data when groups consist of similiar ________risksA group of 100,000 non-smoking males ages 30-35 provides much better loss predictions than a group of 100,000 males and females, of all ages, where some smoke and others don't. Therefore, larger groups consisting of similar individuals provide more accurate _________ or ____________ projections.mortality/morbidityThe third principle is _________ ___________. A person wishing to buy an insurance policy on another person, the policyowner, is required to have an insurable interest in the other person.insurable interest______ ________ states that an individual must have a valid concern for the continuation of the life or well being of the person insured. The continued livelihood of the insured must have significant value over the insured's illness or death.Insurable interest_______ __________ must exist in order for a policy to pay benefits. ________ _________ in life insurance policies is present in the following: The purchaser is also the person insured under the policy Marriage or blood relationship Business partners Creditor-debtor relationshipinsurable interestInsurable interest must be shown when an individual applies for a life or health insurance policy. When the insured becomes_______, _______ or _______, insurable interest does not need to be shown.sick, injured or diesOnce _______ __________ is established between the purchaser of the policy and the person insured by the policy, the individual who receives the benefits does not need to prove an ________ ___________/insurable interestExamples of __________ __________: Martha is married and has 4 children under the age of 6. She is taking a life insurance policy out on her husband so that if anything happens to him, she and the children would be taken care of. Martha has an insurable interest in her husband. Mike and Matthew are business partners. They have taken out policies on each other to cope with the loss if one of them would die. They also have insurance on their top salesman - protecting the revenue that he brings in. George borrowed money from a finance company. The company has a credit life insurance policy that would cover George's debt if anything happened to him.