An insurance company incurs ___________ as soon as an insured incident occurs.

Question

Options

• Aloss credit
• Bloss liability
• Cremediation
• Dreconcile asset

• A
  5% (2)
• B
  71% (29)
• C
  10% (4)
• D
  15% (6)

Explanation

Loss liability is correct because the moment an insured event occurs (a car accident, a fire, a claim-triggering incident), the insurer immediately takes on a legal and financial obligation to pay - this obligation is recorded as a liability on the company's books, even before the claim is filed or paid.

Why the distractors are wrong:

• A (loss credit) - "credit" implies an asset or offset, not an obligation; insurers don't gain something when a loss occurs.
• C (remediation) - this refers to corrective action (e.g., environmental cleanup) and is not a standard insurance accounting term for this concept.
• D (reconcile asset) - reconciliation is an accounting process, and a loss creates a liability, not an asset.

Memory tip: Think of the insurer's perspective - when a loss happens, they owe something. Anything you owe is a liability. "Loss liability" = "we owe for this loss."

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