Insurance and Risk Management Flashcards

Which component of a fire insurance premium reflects the unique characteristics of a specific building?

Answer: Schedule rate

Schedule rating adjusts the base class rate up or down based on specific characteristics of the individual building being insured.

What does 'pro rata' cancellation mean in insurance?

Answer: The unearned premium is returned in exact proportion to the unexpired policy period

Pro rata cancellation returns premium exactly proportional to the remaining policy period with no penalty.

An umbrella policy provides coverage that is:

Answer: Excess over the underlying primary limits and may drop down to fill certain gaps

An umbrella policy sits above underlying liability limits and can drop down to cover some gaps not covered by the primary policy.

What is 'moral hazard' in the context of insurance?

Answer: The increased risk arising from an insured's dishonest or fraudulent character

Moral hazard refers to the increased chance of loss caused by an insured's dishonest tendencies or intention to defraud the insurer.

Which insurance concept requires that an insured have a financial interest in the insured property at the time of loss?

Answer: Insurable interest

Insurable interest requires the insured to face actual financial loss if the insured property is damaged or destroyed.

A 'blanket' insurance policy differs from a 'specific' policy in that a blanket policy:

Answer: Covers multiple locations or items under a single limit of insurance

A blanket policy provides a single limit of insurance that applies collectively to multiple locations or property items.

In workers' compensation insurance, the employer's premium is primarily based on:

Answer: Payroll amounts by classification code

Workers' compensation premiums are calculated by multiplying the manual rate for each job classification by the employer's payroll per $100.