Module 10-4 - Notes and Quiz PDF

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Module 10 1. describe the following terms of risk management: speculative risk, pure risk, exposures, perils, loss frequency, loss severity, policy limits, deductibles, and coinsurance, 2. state the recommended action for different levels of frequency and severity for losses, 3. list and explain ways to handle risk, 4. define the large-loss principle and the principle of indemnity, 5. list areas that individuals need to protect and five insurances to address, 6. describe coverage of renter’s and homeowner’s insurance, 7. compare actual cash value and replacement cost coverage, 8. explain the purpose of un-insured and under-insured motorist insurance, 9. define collision and comprehensive coverage and umbrella policies. Define the following: Speculative risk: potential for gain and a loss Pure risk: no potential for gain, only loss Exposures: possessions and activities that can lead to loss Perils: an actual event that causes the loss Explain loss frequency and loss severity.

Describe the following methods of handling risk: Risk avoidance: you don’t do it or own it Risk retention: you pay for any losses Loss control: you try to reduce loss frequency and severity Risk transfer: You give the risk to an insurance company Risk reduction: you give a substantial portion of the risk to an insurance company What is a hazard? Hazard: any condition that increases the probability that a peril will occur

Define the following: Large-loss principle: insure what you can’t afford to replace or pay for Law of large numbers: more people involved in statistics, the more accurate the statistics are Principle of indemnity: no more than actual loss What four areas do people need to cover? Possessions, Income, Health, Finances What the five main insurances to address? Health, Homeowners or Renters, Auto, Life, Disability What does renter’s insurance cover? Contents only, not structure What are the two parts of homeowner’s insurance? Property – covers your possessions and structures Liability – pays if someone gets hurt on your property Explain actual cash value and replacement cost coverage. Actual Cash Value: purchase price minus depreciation Replacement Cost Coverage: replace similar items, must have adequate coverage List losses that are usually not covered under a basic homeowner’s insurance policy. Named Peril Policy: covers only perils named (fire, wind, theft, explosions, etc) All-Risk: covers everything except what is listed Endorsement, Rider, Floater, Scheduled: added protection for contents Premium: what you pay for coverage (part of your mortgage, escrow) Deductible: up-front pay

Not Covered: Flood & Earthquake What is the purpose of un- or under-insured motorist insurance? Someone else causes accident, you’re losses would be covered What is the purpose of an umbrella policy? Some people worry about not being covered enough – lawsuits Will pay over and above homeowners and auto liability Define collision and comprehensive coverage. Collision: losses from a collision with another car or object or from a rollover Comprehensive: property damaged caused by other than a collision

Quiz: 1. Owning a car is an example of a. An exposure 2. Which of the following described the potential magnitude of a loss or losses? a. Loss severity 3. Which of the following would be the recommended action for a loss that has low frequency and high severity? a. Purchase insurance to cover the potentially large losses 4. Which of the following ways to handle risk would it be if you buy insurance with a deductible? a. Risk reduction 5. Which of the following ways to handle risk would it be if you installed heavy-duty locks? a. Loss control 6. The ___ states that insurance will pay no more than the actual financial loss suffered a. Principle of indemnity 7. According to the recording, the four areas that need to be protected are possessions, income, health, and ___ a. Finances 8. Which of the following is true regarding renter’s insurance? a. It covers content 9. When does Homeowner’s Liability Insurance cover losses? a. When someone gets hurt on your property 10. Which of the following will include coverage that is the purchase price minus depreciation? a. Actual cash value 11. ___ coverage covers losses from fire, theft, vandalism, hail, etc a. Comprehensive 12. Which of the following is usually included in a basic homeowner’s insurance policy? a. Fire 13. When another person causes an accident that leaves you with a loss, your insurance may cover those losses through a. Uninsured and underinsured motorist insurance 14. A(n) ___ policy will pay over and above homeowners and auto liability coverage a. Umbrella...