CFP India - independent subject foundations flashcards
CFP India - independent subject foundations · Build recall with a focused review session.
30 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Exposure
- A person, asset, activity or financial interest subject to a possible loss, which must be identified before treatment alternatives are compared.
- Loss frequency
- The number or rate of loss events over a defined exposure and period, distinct from the size of each loss.
- Loss severity
- The monetary or other defined magnitude of an event’s consequences, requiring a consistent unit and scope when observations are compared.
- Risk retention
- Keeping specified financial consequences within the organization or household rather than transferring those consequences through an external contract.
- Risk transfer
- Allocation of specified financial consequences to another party under an arrangement, with residual contractual and counterparty risks potentially remaining.
- Deductible
- An amount of covered loss retained by the policyholder under the contract’s stated calculation, which must not be assumed identical across products.
- Policy limit
- A contractual upper boundary on specified payments or coverage, applied using the actual wording, aggregation period and relevant sublimits.
- Exclusion
- Contract wording removing a specified circumstance or cause from coverage, subject to the actual policy and applicable legal interpretation.
- Endorsement
- A contractual amendment that can alter a policy’s terms, so coverage analysis must read it together with the relevant base wording.
- Underwriting
- Evaluation of a proposed exposure and the terms on which protection may be offered, using appropriate information and applicable constraints.
- Premium
- The contractual amount charged for defined insurance protection, distinct from a guaranteed investment return or the amount payable for every loss.
- Claim
- A request for a benefit or payment arising from an alleged insured event, requiring examination of coverage and supporting evidence.
- Indemnity
- A principle relating some insurance payments to a covered financial loss, whose operation and exceptions depend on product and law.
- Subrogation
- A concept concerning an insurer’s pursuit of certain recovery rights after payment, dependent on the actual contract and applicable law.
- Reinsurance
- A separate arrangement transferring specified insurer exposure to another insurer, without automatically releasing the original policyholder obligation.
- Proportional reinsurance
- An arrangement allocating specified premiums and losses in agreed proportions, with the contract defining the exact scope and calculation.
- Excess-of-loss layer
- A specified loss interval above an attachment amount and subject to a limit, rather than automatic cover of every consequence.
- Earned premium
- The premium amount attributed to expired coverage under a specified accounting model, distinct from the entire premium written or cash received.
- Claims reserve
- An estimate of obligations associated with claims under a defined measurement framework, rather than necessarily an equivalent dedicated cash asset.
- Combined ratio
- A measure combining defined loss and expense ratios to analyze underwriting, whose components and denominators must be checked before calculation.
- Absorption costing
- Costing method that assigns both variable and fixed production overheads to units produced, usually through predetermined overhead absorption rates, so inventory includes a share of fixed cost.
- Marginal costing
- Costing method charging only variable costs to units, treating fixed costs as period costs, and using contribution to judge profitability and short-term decisions.
- Contribution per unit
- Selling price less variable cost per unit, the amount each unit contributes towards covering fixed costs and then generating profit; used in break-even and limiting-factor decisions.
- Break-even point
- Level of sales at which total contribution equals fixed costs, so the business makes neither profit nor loss, expressed in units or in revenue.
- Relevant cost
- A future cash flow that differs between the alternatives under consideration, including opportunity costs but excluding already unavoidable sunk expenditure.
- Contribution
- Sales revenue less variable costs within the stated decision model; it first covers fixed costs before producing an operating profit.
- Limiting factor
- A scarce resource that restricts feasible activity, requiring comparison of contribution per unit of that resource when the assumptions justify it.
- Flexible budget
- A budget recalculated for a specified activity level using the applicable cost behavior assumptions, allowing more meaningful performance comparisons.
- Activity-based costing
- An approach assigning resource costs to activities and then to products using drivers reflecting their consumption of those activities.
- Target cost
- The allowable cost derived from a market-based price less the desired profit, used to investigate design and process alternatives.