State Farm Auto Exam Questions and Answers
Depreciation
reduction in value, particularly due to wear and tear
Exposure
susceptibility to risk
Implied Warranty
A legal term meaning that a product is suitable for its intended purpose and that it fits an ordinary buyers expectations
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State Farm Auto Exam Questions and
Answers
Depreciation
reduction in value, particularly due to wear and tear
Exposure
susceptibility to risk
Implied Warranty
A legal term meaning that a product is suitable for its intended purpose and that it fits an ordinary
buyers expectations
Insurance Policy
a contract between a policyowner (and/or insured) and an insurance company which agrees to pay
the insured or the beneficiary for loss caused by specific events
Insurer (Principle)
the company who issues an insurance policy
Obsolescence
depreciation in the value of a property due to becoming outdated
Premium
the money paid to the insurance company for the insurance policy
Tort
a wrongful act or the violation of someone's rights that leads to legal liability
True or False
Insurance is a transfer of risk, of loss from an individual or a business entity to an insurance company,
which, in turn, spreads the costs of unexpected losses to many individuals.
True
True or False
Insurance is the transfer of risk of loss. The cost of an insured's loss is transferred over to the insurer
and spread among other insureds.
True
What is law of large numbers?
The law of large numbers states that the larger the number of people with a similar exposure to loss,
the more predictable actual losses will be.
True or False
As the number of people in a risk pool increases future losses become more predictable
True
, Insurable Interest
The insured would incur a financial loss if the insured's property was damaged. It must exist at the
same time as loss
What are the 3 elements of insurable risk?
Financial, Blood, Business
True or False
In property and casualty insurance; insurable interest must exist at the same time as loss
True
What is risk?
Risk is an uncertainty or chance of a loss occurring
What is pure risk?
Pure risk refers to situations that can only result in a loss or no change
What is speculative risk?
Speculative risk involves the opportunity for either loss or gain.
True or False
Pure risk are not insurable
False. Pure risk are the ONLY insurable
What are hazards?
Hazards are conditions or situations that increase the probability of an insured loss occurring.
What are physical hazards?
Physical hazards are those arising from the material, structural, or operational features of the risk,
part from the persons owning or managing it
What are moral hazards?
Moral hazards refer to those applicants that may lie on an application for insurance, or in the past,
have submitted fraudulent claims against insurer.
What are morale hazards?
Morale hazards refer to an increase in the hazard presented by a risk, arising from the insured's
indifference to loss because of the existence of insurance
What are perils?
Perils are the causes of loss insured against an insurance policy
What is life insurance?
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