C11 Principle and Practice of Insurance -Chapter 1 – Part 1
Introduction to Risk and Insurance
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Transcript
Hello Friends
Today we are going to learn about
C11 Principles and Practice of Insurance
Study 1 / Chapter 1

Introduction to Risk and Insurance

So lets start
First we will learn about the Insurance contract.
so what is insurance or insurance contract.
There is one party who wants to take a coverage for his defined subject , suppose for his car, which means, he wants to take a coverage for his car. And will Pay a premium. And an other party Agrees to reimburse the in the case of any loss or damage , liablitiy loss to car . if loss or damaged has happened due to specific peril.
First party who want to take insurance cover is Insured
Second party is insurance company , also known as Insurer
Premium; is also known as consideration in insurance terms.
Peril is a cause of loss. For example , fire flood , theft , accident etc.
So as according to the definition:
A contract in which one party, the insurer, for monetary consideration agrees to reimburse another, the insured, for loss or liability for a loss on a defined subject caused by specified hazards or perils.

I hope you have clear all these terms and insurance definition.

So , lets dive into our first chapter 1
First is Term is Risk
So, Risk is the chance of loss.

There are two types of risk.
1. Pure risk
2. Speculative Risk
Pure risk :
When there is chance of loss, no chance of gain.
That means it is pure risk.
For example: Fire, Flood, earthquake, theft etc.

For Speculative risk:

When there is chance of loss, as well as Chance of gain.
For example : Gambling, Stock market, horse race etc.
Suppose if a person , invest in stock market, there is chance of risk of loss of money, as well as there will be a chance of profit.

Now lets discuss Possible MCQs that we have learned so far.
Try to answer these questions by yourself first then check it that you are right or wrong.
1. In insurance terminology, risk is
A. An insured peril.
B. Speculative in nature.
C. The chance or possibility of loss.
D. Uninsurable.
Ans: C – The chance or possibility of loss

2. In insurance terminology, a peril is
A. A possible event that may give rise to a loss.
B. Pure risk.
C. The equivalent of hazard.
D. The measure of possible severity of a potential loss.
Ans: A possible event that may give rise to a loss.
3. Pure risk:
A. Is the kind of risk that insurers will usually decline.
B. Entails a chance of loss.
C. Is speculative in nature.
D. Is the equivalent of peril.
Ans: - B – Entails a chance of loss

4. Gambling is a good example of
A. Insurable risk.
B. Personal risk.
C. Pure risk.
D. Speculative risk.
Ans: D – Speculative Risk

So these types of question , you can expect in final exams

Now we learn about
Insurable Risk
So Which is the insurable risk for an insurance company.
In order to check that, we will ask these two questions
Is there a chance of loss?
Is there a chance of profit?

If there is only chance of loss then it is pure risk, and insurance company only cover pure risks.

And if there is a chance of profit. then it is speculative risk, which is uninsurable.

Lets talk about Types of Insurable risk.

There are three types.

1. Personal risks
2. Property risks
3. Liability risks

Personal Risks:

Personal risks are those where chance of loss arising from a person’s own bodily injury, loss of life, or loss of income.
Examples of personal risks are :
Death , Physical disability resulting from accident or sickness, Old age,Unemployment

Property Risks Property risks are those where the chance of loss arising from the destruction of or damage to property. In Property risk, Losses are of two types.
1. Direct losses are those involving damage to or destruction of the property insured. And which effect the subject matter.
For example, there is fire in the house, and fire was happed due to smoking , and then house collapsed, in is case the fire is the direct loss , which damaged the house.
2. Indirect losses occur because of direct losses.
For example, there is fire in the house, and fire was happed due to smoking , and then house collapsed, and person was earning income form the rent of the house, if the house has damaged , that person is not earning any income.
in is case the fire is the direct loss , which damaged the house and loss of earning is the indirect losses which has occurred because of the direct loss.

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