§22: insurance is a contract to indemnify against loss from a contingent or unknown event.

Insured = whose life is covered; policyowner = who controls the policy. They can be different people.

A contingent beneficiary is paid only if the primary beneficiary died first.

Only pure risk is insurable.

Speculative risk = chance of gain or loss (stocks, gambling).

Risk = chance of loss = uncertainty.

Peril = direct cause of loss; hazard = condition that raises the chance of loss.

Moral hazard = dishonesty (fraud); morale hazard = carelessness or indifference.

Physical hazard = a physical condition, such as heart disease.

STARR = Sharing, Transfer, Avoidance, Retention, Reduction.

Buying insurance = transfer; deductibles and self-insurance = retention.

Avoidance = not doing the activity at all.

Catastrophic losses are NOT ideally insurable.

Chance, measurable, predictable, not catastrophic, large similar group, insurer may select.

§250: contingent or unknown events, past or future, may be insured against.

Adverse selection = high-risk people seek insurance more; controlled by underwriting.

Law of large numbers: the bigger the group, the more accurate the loss prediction.

The ceding (primary) insurer transfers risk to a reinsurer.