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A. Insurance (CIC 22)

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Educational Objectives
  • I.A. Identify the definition of insurance (CIC 22)
  • I.A. Recognize the definition of risk
  • I.A. Differentiate between a pure risk and a speculative risk
  • I.A. Identify a definition of peril
  • I.A. Identify a definition of hazard
  • I.A. Differentiate between moral, morale, and physical hazard
  • I.A. Identify the definition of the law of large numbers
  • II.A.1. Identify examples or definitions of life insurance, and of applicant, policyowner, insured, beneficiary

Insurance is a transfer of risk of loss from an individual or a business entity to an insurance company, which, in turn, spreads the costs of unexpected losses to many individuals. If there were no insurance mechanism, the cost of a loss would have to be borne solely by the individual who suffered the loss.

Know This

Insurance is the transfer of risk of loss. The cost of an insured's loss is transferred over to the insurer and spread among other insureds.

In the law, a person is a legal entity which acts on behalf of itself, accepting legal and civil responsibility for the actions it performs and making contracts in its own name. Persons include individual human beings, associations, organizations, corporations, partnerships, and trusts.

insurance is a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event.

California Insurance Code, Section 22

In broader terms, insurance is the legal agreement, or contract, whereby the two parties involved agree to the limits of the indemnification, the circumstances under which it will occur and what things of value (consideration) will be exchanged by the parties to the contract.

Purchase of Life Insurance
Policyowner
  • Pays premium to insurance company
Insurance Company
  • Issues policy to policyowner
  • Pays benefit to beneficiary
Beneficiary
  • Receives benefit upon insured's death