Texas Property and Casualty Insurance.pdf file:///C:/Users/HP/Desktop/New%20folder%20(2)/Texas%20Prope
Texas Property and Casualty Insurance
1. Insurance: The transfer of the possibility of a loss (risk) from an individual or
business to an insurance company, which in turn spreads the costs of unexpected
losses to many individuals
2. Law of Large Numbers: The larger the number of people with a similar exposure to
loss, the more predictable actual losses will be
3. Law of Large Numbers Example: When issuing a policy on a 35 year old male, the
insurance company has no way of knowing or accurately predicting when he will die.
Instead, they will look at a large group of similar risks - 35 year old males of similar
lifestyles/health - and make some conclusions based on statistics of past losses to
create a general idea of the predicted time of death and set premiums accordingly
4. Insurable Interest: When the insured would incur a financial or other type of
benefit loss if the insured object was damaged/lost
5. 3 Elements of Insurable Risk: 1. Financial (monetary interest)
2. Blood (relative)
3. Business (a business partner)
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6. Risk: The uncertainty or chance of a loss occurring
7. Two Types of Risk: 1. Pure risk
2. Speculative risk
8. Pure Risk: Situations that can only result in a loss or no change, there is no
opportunity for financial gain
9. Speculative Risk: Situations that have the opportunity for either loss or gain
10. Which type of risk are insurance companies willing to accept?: Pure risk
situations
11. Peril: The causes of loss insured against in an insurance policy
12. Perils of Life Insurance: The financial loss caused by the premature death of the
insured
13. Perils of Health Insurance: The medical expenses and/or loss of income
caused by the insured's sickness or accidental injury
14. Perils of Property Insurance: The loss of physical property or the loss of its
income-producing abilities
15. Perils of Casualty Insurance: The loss and/or damage of property and result-
ing liabilities
16. Hazard: Conditions or situations that increase the probability of an insured loss
occurring
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17. 3 Classifications of Hazards: 1. Physical hazards
2. Moral hazards
3. Morale hazards
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