Review Questions
1. What is a deductible? How does a deductible affect insurance?
A deductible is the amount of money that the policy holder will pay before the insurance company will pay on an insured loss.
2. What is risk classification?
Risk classification is the assessment and categorization of the characteristics that influence a person's risk of loss.
3. What are riders? How do they affect insurance?
Riders are supplemental insurance for items or situations that are excluded or limited under the regular policy.
4. What are five elements commonly found in contracts?
• The Offer: In a contract, one party is offering something to another party.
• The Acceptance: The acceptance of the offer by the second party is also known as the concurrence of wills or consensus ad idem (meeting of the minds).
• Consideration: With a contract, consideration is something of value offered by one party in exchange for something of value from the second party.
• Time Requirements: Most contracts will involve time specifications that lay out when each party is responsible for their part of the contract. This will differ from contract to contract, but most will specify a particular time frame in which all contract requirements need to take place.
• Terms and Conditions: Often, contracts will have specific terms and conditions placed on one or both of the parties in carrying out the contract. If the terms and conditions are not met or if they are violated in some way, the contract might be void or it might allow one party to exit the contract. For example, if you are renting an apartment and the lease requires that the landlord has to fix any problems within 14 days, you may be able to legally break your lease and move out of the apartment before the end of the lease contract if the landlord doesn't uphold the contract and make repairs within the required time frame.
5. What is a living will? Why is it important to have one?
A living will is a legal document that details the type of medical care that you wish to receive if you become incapacitated due to a physical or mental illness.
Critical Thinking Questions
1. What is the relationship between insurance and successful financial management? Why is insurance important?
Insurance and finance are closely interwoven fields of business, not least because they both involve money. They also often both involve speculation and risk, and often where one goes, the other will follow. Take property investment for example, it involves a large amount of capital out lay, swiftly followed by insurance to protect the capital investment. It would be ridiculous to spend such a vast sum of money on a venture and not protect it against possible damage.