Term
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Definition
-Combines loss exposure of an individual into a group
-Uses funds paid by members to pay for losses of other members. |
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Term
| Reason for buying Insurance |
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Definition
-Certainty
-Peace of Mind
-Security |
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Term
| How does insurance mechanism work? |
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Definition
Trade an unknown for a known
-Unknown
-Frequency, severity
-Known
-Premium |
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Term
| Insurance Mechanism Factor 1 (Risk Transfer) |
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Definition
| Risk Transfer from insured to insurer |
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Term
| Insurance Mechanism Factor 2 (Pooling) |
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Definition
| Share losses among a group |
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Term
| Insurance Mechanism Factor 3 |
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Definition
| Decrease total amt of uncertainty in a situation |
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Term
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Definition
| Insurer agrees to indemnify the insured in the event of a loss. |
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Term
| What is fully indemnified |
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Definition
| Place insured in same financial state as before the loss |
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Term
| Forms of indemnification (3) |
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Definition
-Replace or repair asset
-Reimburse or pay dollars
-Provide service- Attorney (liability) |
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Term
III. RISK TRANSFER
Why does insurance companies accept risk transfer? |
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Definition
-Predict future events
-Take Advt of law of large numbers
-Insurer pools many exposes to loss
-Get accurate group predictions over years of offering insurance
-Insurance company invests money until claim is paid
-Individual risk is present for insured |
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