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Principles of Insurance, Week 5, Chapter 6

by: Naya Rhodes

Principles of Insurance, Week 5, Chapter 6 36081

Marketplace > Kent State University > Finance > 36081 > Principles of Insurance Week 5 Chapter 6
Naya Rhodes
GPA 3.4

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About this Document

These are the first set of notes after the exam.
Principles of Insurance
David Dumpe
Class Notes
PRINCIPLE OF INSURANCE, Insurance, Risk Management, Risk, Risk Management and Insurance, Risk and Return
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This 2 page Class Notes was uploaded by Naya Rhodes on Thursday September 29, 2016. The Class Notes belongs to 36081 at Kent State University taught by David Dumpe in Fall 2016. Since its upload, it has received 8 views. For similar materials see Principles of Insurance in Finance at Kent State University.


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Date Created: 09/29/16
PrinciplesofInsurance Chapter6:FundamentalsofInsurance -Insuranceisafinancialagreementthattransferstheriskofinsuredlossestoariskpooladministeredbyan insurer.Insurersredistributecostsoflossestoallpoolmembers.Theinsureralsoassessesapremiumcharge whichisthepriceoftheinsurancebasedontheexpectedcostofinsuredlosses.Theinsurancecontractiscalleda policy. -Aninsuredlossistheunexpectedreductionineconomicvalue.Theprobabilityofsufferingalossisthechanceof loss.Thecauseofalossisconsideredaperil.Yourhouseburningdownwouldbeconsideredaperil. Specified/namedperilcontractsarepoliciesthatspecifythelistofcoveredperils.Openperilcontractsare alternativepoliciesthatcoverallperilsexceptthosespecificallylisProximatecause isthefirstperilinachain ofeventsthatresultinaloss. -Hazardsareconditionsthatmightincreasethefrequencyorseverityoflosses.Openflameswouldbeconsidered ahazard.Physicalhazardsaretheconditionsrelatedtothephysicalenvironmentinwhichaneventmayresultin losses.Moralhazardsarebehavioralactivitiesthatincreasetheseverityorfrequencyoflosses.Moralehazardsare unconsciousandunintentionalbehaviorsthatincreasethesizeofaninsuredloss.Insurancefraudiswhensomeone exaggeratesorcausesalosstocollectinsurancebenefits. -Socialinsuranceissponsoredbythegovernmentwhileprivateinsuranceisindependentlyowned. -Typesofinsurance:Lifeinsuranceprotectsfromtheperilofdeath.Anannuityisapolicythatprotectsagainstthe perilofoldage(thefearoflivingbeyondyourlifesavings).Healthinsuranceprotectsagainstmedicalexpenses. Disabilityincomeinsuranceprotectsagainsttheperilofdisability.Groupsinsuranceplansprotectmultiple membersinadesignatedgroup.Propertyinsurancepoliciesprotectfromdamagestotypesofproperty.Liability insuranceprotectsagainstlegaljudgments.Personallinesinsuranceservesthepersonalriskneedsoffamiliesand individuals.Autoinsuranceandhomeowners’insurancearethetwolargestpersonallineinsuranceproducts. Commerciallinesinsurancefitstheneedsofcommercialorganizations.Twoofthelargestcommercialproducts arecommercialliabilityinsuranceandworkers’compensation. -Motionpicturecompletionbonds:theinsuredreceivepaymentifthefilmisn’tcompletedontime. -Expenseratio=Totalexpenses/Premiumswritten Insuredlossclaimsarepolicyholders’losses.Loadingexpensesincludeavarietyofoverheadcoststhatinsurers incurinadministeringtheinsurancemechanism.Investmentincomeisincomeearnedbyinsurersfrominvestment securities(needstocovershortfallifany).Fairrateofreturniswhatinsurersearnforbearingtheriskoftheir policyholders. Premiumsearned=Insuredlossclaims+Loadingexpenses–Investmentincome+Fairrateofreturn Lossratio=Insuredlosses/Premiumsearned Combinedratio=Lossratio+Expenseratio -Somecostsofinsurancesystemstosocietyareinsurancepremiums,loadingexpenses,intentionallosses,and fraudulentclaims.Somebenefitswouldbestabilityinfamilies,aidstheplanningprocess,aidscredittransactions, antimonopolydevice,andlowersafirm’scostofcapital.


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