Chapter 2: Risk and Insurance

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Which features must be present for a risk to be insurable?
The following features must be present:
- The event insured against must be fortuitous.
- There must be insurable interest.
- There must be homogenous exposures.
- Insuring the risk must not be against public policy.
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What is insurable interest?
Insurable interest is the legally recognised relationship between the insured and the financial loss which the insured suffers on the happening of an insured event.
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How does public policy affect the availability of insurance?
Insurers will not cover risks which conflict with what a society believes is the right and proper thing to do.
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Which types of risk cannot be insured?
The following types of risk cannot be insured:
- Non financial risks.
- Speculative risks.
- Fundamental risks.
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Identify the three main components of risk?
The main components of risk are:
- Uncertainty.
- Level of risk.
- Peril and hazard.
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Define Peril?
A peril is that which gives rise to a loss.
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Define Hazard?
A hazard is that which influences the operation of the peril.
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What is the primary function of insurance?
The primary function of insurance is to act as a risk transfer mechanism.
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Explain the basic concept of self-insurance?
Self-insurance means that the individual/company carries the risk itself rather than using insurance as a risk transfer mechanism.
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Other cards in this set

Card 2

Front

What is insurable interest?

Back

Insurable interest is the legally recognised relationship between the insured and the financial loss which the insured suffers on the happening of an insured event.

Card 3

Front

How does public policy affect the availability of insurance?

Back

Preview of the front of card 3

Card 4

Front

Which types of risk cannot be insured?

Back

Preview of the front of card 4

Card 5

Front

Identify the three main components of risk?

Back

Preview of the front of card 5
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