2 - Terms and Concepts Flashcards
Risk
-uncertainty of a financial loss
speculative risks
- uninsurable
- financial gain or loss
pure risk
- chance of loss
- insurable
Risk Management Methods
- Risk Avoidance
- Risk Assumption
- Risk Transference
- Risk Sharing
- Risk Reduction
Hazard
-any circumstance that increases a possible loss (peril)
3 main Hazards
- Physical
- Moral
- Morale
Exception Hazard for Property
- “ordinance or law”
- would limit any compensation for temporary inability to occupy your home (sinkhole)
Peril
-cause of loss
Economic Loss
-total estimated cost to a person or business resulting from the damage or destruction of property or from a liability risk
Indemnity
- compensation for a loss
- “put-back”
- not designed to place insured in a better financial position than before the loss occurred
Insurable Interest
-expectation of a financial loss that can be covered by insurance
Deductible
-amount paid after a loss by the insured
Direct Loss
-a property loss by an unbroken chain of events from a covered peril
Indirect Loss (Loss of Use)
- a loss that is not a direct result of a covered peril
- ex. loss of business earnings due to property damage
Proximate Cause
-may be used in conjunction with direct or indirect losses
Named Perils
-contracts under which perils covered are specifically listed
Open Perils
- contracts that cover all perils unless specifically excluded
- “All Risk of Perils”
Specific Coverage
- single insurance for only one kind of property at only one location of an insured
- ex. rare antique in a home
Blanket Coverage
-single policy on the insured’s property for more than one type of property
4 methods of property loss valuations
- Actual Cash Value (ACV)
- Replacement Cost
- Functional Replacement Cost
- Salvage Value
Actual Cash Value (ACV)
- cost of replacing damaged/destroyed property with comparable new property minus depreciation
- insurer not required to pay more than ACV on total building losses
If an insured was carrying more coverage than the actual loss on building…
-the insurer is required to refund the overpaid premium with an addition of 6% interest/year
Functional Replacement Cost
-amount needed to put a building back the the functional manner before the loss occurred
Salvage Value
-amount for which an insurance company can sell recovery property after paying damages to the insured
Supplementary Payments
-payments from the insurance companies for costs such as court cost and attorney’s fees
Binder
- temporary insurance contract providing coverage until a Permian policy is issued
- good for a maximum of 60 days from the date of issue
Endorsement
-written agreement attached to a policy to add or subtract insurance coverage
Subrogation
-right granted in an insurance contract allowing an insurance company to take action against a third party that owes monetary damages to the company’s insured
Adhesion
- “take it or leave it basis”
- accepted “as is”
Law of Large Numbers
-statistical concept that is used that states the larger the # of similar risks insured by the company, the greater chance of predicting the possible losses
Spread of Risk
-companies select risks that are fairly uniform in size and sufficiently large in number
adverse selection
-tendency of those in dangerous jobs or high risk lifestyles to purchase life insurance
when the insured yields the right of recovery of damages to his or her insurer because the insurer has made him or her whole
-subrogation
the key element that must be present for a person or entity to be held liable for some action is…
-negligence
A Binder is good for a maximum of how many days in NC?
-60
Which section of an insurance policy would the insured find the amount of coverage for losses?
-declarations
