Insurance and Risk Management Flashcards
7 cards from real PSI practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Insurance and Risk Management flashcards as text
Which of the following is NOT one of the four elements required for a valid insurance contract?
Answer: Subrogation rights
Valid contracts require offer and acceptance, consideration, competent parties, and legal purpose — subrogation is a policy provision, not a contract element.
What is the primary purpose of reinsurance?
Answer: To allow insurers to transfer portions of risk to other insurers
Reinsurance allows a primary insurer (ceding company) to transfer a portion of its risk to another insurer (reinsurer) to manage large exposures.
Under the doctrine of 'reasonable expectations,' courts will interpret policy language in favor of:
Answer: The insured's reasonable understanding of coverage
The reasonable expectations doctrine holds that coverage should align with what an average insured would reasonably expect the policy to provide.
A 'warranty' in an insurance policy is best described as:
Answer: A statement by the insured that is guaranteed to be true, breach of which may void the policy
A warranty is an absolute guarantee by the insured; breach of a warranty — even if unrelated to a loss — may give the insurer grounds to void the policy.
Which of the following describes a 'named perils' property policy?
Answer: Covers only the causes of loss that are specifically listed in the policy
A named perils policy covers only those specific causes of loss (perils) that are explicitly listed in the policy.
What is the function of the 'other insurance' clause in a property or liability policy?
Answer: It determines how the insurer will share payment when multiple policies cover the same loss
The other insurance clause (pro rata, contribution by equal shares, or excess) governs how payment is apportioned when two or more policies cover the same loss.
In risk management, 'risk avoidance' means:
Answer: Eliminating an activity or exposure that creates risk
Risk avoidance involves completely eliminating the source of risk — for example, choosing not to engage in a particular activity.