Term
| Explain what is meant by "spread of risk". |
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Definition
| The losses of the few are shared by the many. |
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Term
| What are the five important points contained in the definition of insurance? |
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Definition
1) Means of shifting one's financial responsibility for a loss to another party.
2)Payment made only when a certain risk or peril happens.
3) Payment restricted to amount required to indemnify the insured.
4) Insurance covers losses to which the object of insurance may be exposed.
5) The indemnity can be money or other thing of value. |
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Term
| What is the major function of insurance? |
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Definition
| To achieve a spread of risk. |
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Term
| What are four other functions of insurance? |
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Definition
1) Basis of Credit System
2) Loss prevention and loss reduction
3) Eliminates worry - Encourages Entrepreneurship
4) Source of Employment and Investment Capital |
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Term
| Name three types of property and casualty (general) insurance. |
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Definition
1) Automobile Insurance
2) Property Insurance
3) Liability Insurance |
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Term
| Name two types of insurer organizations. |
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Definition
1) Private Insurers (most commonly Stock and Mutual Companies)
2) Government Insurers |
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Term
| How do stock companies work? |
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Definition
| Owned by the company's shareholders, the money used to fund stock companies may come from private funds or through a public sale of stock. |
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Term
| How do mutual companies work? |
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Definition
| Owned by its policyholders, the main goal is not profit, but to provide policyholders with as low a cost as possible. Money made by company gets refunded to policyholders through dividends or subsequent rate adjustments. |
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Term
| What are the types of insurance in which government insurers are most involved? |
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Definition
Automobile insurance, as it is compulsory in BC, SA, MA, and QC.
Fed and Prov. Gov. also involved in providing medical ins., employment ins. and workers' comp. |
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Term
| Name two methods insurers use to sell their products. |
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Definition
1) Direct Writing System
2) Independent Brokerage System |
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Term
| How does a Direct Writing System work? |
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Definition
Insurers are employees of the insurer and limited to selling products of that insurer.
Remuneration either on a salary basis, a commission basis, or a combination of the two.
Insurer owns all business written and performs all administrative functions. |
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Term
| How does an Independent Brokerage System work? |
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Definition
Brokerage owners =/= insurer employees Usually represent more than one insurance company.
Brokerage paid commission by insurer on all business it writes.
Brokerage owns all business it writes, and is responsible for providing policyholders with a number of client services. |
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