General Insurance Concepts
Risk and insurance
Insurance transfers pure risk-chance of loss only-from an individual to an insurer. Speculative risk (chance of gain or loss) is generally uninsurable. A peril is the cause of loss (fire, illness, accident); a hazard increases the chance or severity of loss. Physical hazards are tangible, moral hazards involve dishonesty, and morale hazards involve careless behavior. Adverse selection is the tendency of poorer risks to seek coverage; underwriting, exclusions, and waiting periods control it. Indemnity means restoring the insured to approximately the pre-loss financial position, not providing profit. Insurable interest is a legal economic interest; in life insurance it must exist when the policy is applied for, not at death.
Traps
Exams often swap peril and hazard, or label speculative risk as insurable. Reinsurance is insurance for insurers, not a consumer product. Stock insurers are owned by shareholders; mutual insurers are owned by policyholders. Fraternal insurers are member organizations. A producer's field underwriting helps, but the insurer makes the final decision.
Rule of thumb
Ask: Is this a pure risk with a measurable loss and insurable interest? If yes, it may be insurable; if the outcome can produce a gain, treat it as speculative and generally uninsurable.