Basic Insurance concepts Flashcards
Is a condition where the chance likelihood probability or potential for a loss exist or the uncertainty about loss exist whenever more than one outcome is possible
Risk
Involves chance of loss gain or no change cannot be insured example is gambling
Speculative risk
Involves the chance of loss only; there is no chance for gain. Pure risk is the only type of risk insurance companies are willing to accept
Pure risk
Is a Reduction in the quality, quantity or value of something. Loss is the basis of a claim for damages under the terms of an insurance policy. Example is death Theft collision and disability or actual damages
Loss
Is a potential cause of loss. Examples are fire, lightning, wind, smoke, soft, accidents
Peril
Policy that list specific perils that are covered. If apparel is not needed in the policy no coverage applies. It is a specific risk
Named perils
Policy that ensures all perils except those specifically excluded. Exclusions are usually listed More coverage but with a higher premium
All risk/open perils
Can increase the likelihood, probability or severity of a loss incurring. Hazards typically can be avoided or removed to bring the risk into a safer position to be covered by insurance
Hazards
What are the three types of hazards that can contribute to a loss
Physical, moral, morale
A hazard which is material or structural and are easily seen example a broken step
Physical
A hazard which arise from peoples habits that increase the possibility of loss example; intentionally setting a fire in order to collect insurance money purposely committing fraud
Moral
A hazard which arises from attitudes of carelessness or indifference example failing to lock something containing valuables and not being concerned because the valuables are insured which could be an intentional
Morale
Provision in an insurance contract that states the insured should be restored to the same financial or economic condition that existed prior to the loss example; restore to original value
Indemnity
Any possibility of financial loss due to loss of use, damage or financial claim against you example; financial loss for self
Loss exposure
The tendency to purchase and maintain insurance for risks with higher probability of loss more often than forest that present a lower probability of loss. Examples; flood insurance with the knowledge of it being a possibility
Adverse selection
The insured must incurred a financial hardship if the property was damaged. And insurable interest must exist at the time of the loss. The purpose of insurance is to restore, not let an insured profit from the loss. Example; ownership which must exist at the time of loss.
Insurable interest
Allows an insurer to recover the amount it has paid for a loss from the responsible third-party. Subrogation also prevents the insured from collecting twice for the same loss. Subrogation supports indemnity by allowing the insurance company the right to take over claims against any wrongful third-party for
Compensatory damages
Subrogation
An act or event that is the immediate or actual cause of a loss. It is also known as an interrupt the chain of events. Example; wind blew in from an open window and knocked a candle over which caused a fire what is the cause of loss
Proximate cause
What is the acronyms for risk management
R.R.A.T.S
What do the acronyms for risk management stand for
Reduction, retention, avoidance, transfer, sharing
Reduction
To reduce the probability or severity of loss . Example; sprinkler system
Assuming the risk without transferring it to another party
Retention
Choosing not to engage in a particular activity or on a particular piece of property to totally remove the risk. Example taking public transportation instead of driving to avoid accidents
Avoidance
Shifting the risk to another party. Example; insurance transferring rest to insurance company
Transfer
The premium of the money protecting the losses of the few. Example; Pooling 
Sharing
That portion of a loss to be paid by the insured before recovery may be made. The purpose is to minimize small nuisance claims and keep premiums down and also encourages the insured’s interest in loss prevention
Deductible
What are the key elements for essential elements of insurable risk
Lost must be definite indefinable
Los must be accidental
Insurer should be able to calculate the chance of loss
Law of large numbers should apply
Insurance must be offered at a reasonable price
Loss must not be catastrophic
