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GEORGIA LICENSING - GEICO > CH 1 - GENERAL INSURANCE > Flashcards

CH 1 - GENERAL INSURANCE Flashcards

1
Q

What is the Insurance Contract?

A

An exchange of small and definite expense for the risk of loss that if it occurs may be large or small; it manages risk by transferring it from the Policyholder to the Insurance Company.

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2
Q

What is Insurance?

A

The transfer of risk and the sharing of losses.

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3
Q

What is the Principle of Indemnity or what does it mean to Indemnify?

A

The Insured is returned to their pre-loss financial condition before the loss; to make whole and NOT PROFIT; put back to pre-loss financial status.

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4
Q

Who is the InsurED?

A

A person who is covered by an insurance policy but is not necessarily named; can include the policyholder, resident relatives and others.

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5
Q

What are the definition of an Insured?

A

Resident relatives of the Named Insured; the legal representative of the Named Insured; anyone under 21 in the care of an insured (example — a ward or foster child.)

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6
Q

Who is the Insurer?

A

The Insurance Company.

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7
Q

What is Insurable Interest?

A

Having a financial stake/interest in property; it is ALWAYS meansured at the time of the loss.

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8
Q

What do you need in order to be Indemnified following an accident?

A
  1. Have a valid policy in force.
  2. Own/lease the property insured.
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9
Q

What is an Accident?

A

A sudden, unexpected and unforeseen event; results in loss or damage.

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10
Q

What is an Occurrence?

A

An occurrence is an accident but ALSO includes continuous and repeated exposure over time to injurious conditions that result in bodily injury or property damage.

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11
Q

Two vehicles colliding with one another is:

  1. Accident
  2. Occurrence
  3. Both
  4. Neither
A

The answer is 3. Both.

REMEBER!

  • *ALL ACCIDENTS ARE OCCURRENCES,**
  • *NOT ALL OCCURRENCES ARE ACCIDENTS.**
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12
Q

What is Risk?

A

The chance, uncertainty or possibility of a loss; chance of financial loss; being uncertain about a future outcome.

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13
Q

There is a ________ that your house will burn down.

A

Chance (or Risk).

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14
Q

What are the Types of Risk?

A

Speculative and Pure.

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15
Q

What is Speculative Risk?

A

You can win or lose (example: stock investments/gambling).

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16
Q

What is Pure Risk?

A

A chance of loss without a chance of gain; no chance to profit; you can ONLY lose.

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17
Q

Which Type of Risk does Insurance deal with?

A

Pure Risk.

Speculative risks are not insurable.

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18
Q

Selling your home after owning it for 20 years is an example of what Type of Risk?

  1. Risk
  2. Insurable
  3. Pure Risk
  4. Speculative Risk
A

The answer is 4. Speculative Risk.

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19
Q

What are four approaches to Risk Management?

A
  1. Avoidvance
  2. Reduction
  3. Retention
  4. Transfer
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20
Q

What are ways of Avoiding the Risk?

A
  • Taking on no ownership of a risk related exposure.
  • Not participating in a risk related activity.
  • Example: refusing to skydive.
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21
Q

What are ways of Transferring the Risk?

A

This involves shifting payment for a loss to another party. It is most commonly done with insurance.

  • One entity (the insurer) assumes the risk of another (the insured)
  • Purchasing auto or home insurance.
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22
Q

What are ways of Retaining the Risk?

A

This is also called Retention. A party may choose not to insure a certain risk, and accept the possibilty that they may have to pay for a loss themselves. Deductibles on insurance policies are also examples of retaining a portion of a risk.

  1. Paying for all or part of the loss out of pocket (example: being uninsured).
  2. Choosing a deductible on your auto insurance.
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23
Q

What are ways of Reducing the Risk?

A

This does not eliminate the chance of loss but reduces it; mitigating the severity or frequency of risk.

  1. Installing bars on a windows reduce frequency.
  2. Installing a sprinkler system reduces severity.
  3. Installing a car alarm.
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24
Q

MEMORY KEY

AT THE RAIL ROAD

A
  • Avoid
  • Transfer
  • Retain
  • Reduce
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25
Q

What is a Peril?

A

The reason the loss occured.

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26
Q

What are some exmaples of Perils?

A
  • Fire
  • Lightning
  • Theft
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27
Q

What is a Loss?

A

An event that causes an economic or financial harm or hardship; A reuction, decrease, or disappearance in value; the basis of a claim under the terms of the insurance policy.

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28
Q

What is a Direct Loss?

A

A loss caused by a peril to tangible propery; the destruction of property.

  • A home
  • Furniture
  • A car
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29
Q

What are some exmaples of a Direct Loss?

A
  • Fire damage to the roof of a home.
  • Dents in the door of an auto following an accident with a tractor trailer.
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30
Q

What is an Indirect Loss?

A

An exonomic loss caused by a direct loss; the Insured suffers further financial consequences as the result of a direct loss.

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31
Q

In order for the Indirect Loss to be covered the ________ must be covered.

A

Direct loss.

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32
Q

What is another name for Indirect Loss?

A

Consequential Loss.

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33
Q

What are some examples of Loss of Use / Additional Living Expenses?

A
  • A rental car after an auto accident.
  • Living in a hotel or living in a trailer after a tornado destroyed the home.
  • Meals at a restaurant after a kitchen fire.
  • Lost rental income due to a covered loss.
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34
Q

What is a Hazard?

A

A Condition that increases the chance of a loss.

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35
Q

What are some exmaples of a Hazard?

A
  • Icy roads.
  • Wet leaves on a sidewalk.
  • Living in an area with a high deer population.
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36
Q

What is a Mor(AL) Hazard?

A

It is caused by the dishonesty of the insured; may be brought on by the poor financial status of the insured.

Consumers who intentionally cause their own losses are a Mor(AL) Hazard.

37
Q

What are some examples of a Mor(AL) Hazard?

A
  • Arson.
  • Intentional damage.
  • Fraud.
  • Poor financial circumstances.
38
Q

What is a Mor(ALE) Hazard?

A

Carelessness caused by the insured.

39
Q

What are some examples of a Mor(ALE) Hazard?

A
  • Leving your keys in your car.
  • Smoking in bed.
  • Failure to install a security system.
  • Talking on a cell phone while driving.
40
Q

What is a Physical Hazard?

A

A hazard caused by something tangible or things you can touch; a feature that may increase injury.

41
Q

What are some examples of a Physical Hazard?

A
  • Gasoline next to a blowtorch station.
  • A broken step.
  • A dead tree on the property.
42
Q

What are the 4 parts of an Insurance Contract?

A
  1. Declarations
  2. Insuring Agreement
  3. Conditions/Provisions
  4. Exclusions
43
Q

What can you find listed on the Declarations page?

A

This section of the policy outlines the basics such as name, property, policy term, address, price, etc.

  • WHO — The Named Insured(s); legal representatives.
  • WHAT — A specific vehicle; a description of property being insured; other parties having insurable interest.
  • WHEN — The Policy Period.
  • WHERE — The address: where the house is located; where the vehicle is kept.
  • HOW MUCH — The limits; the premium, the deductible.
44
Q

The Named InsurED** retains all of the contractual ________ of the insurance contract because they are the policy owner.**

A

Rights and responsibilites.

45
Q

What are some of the Rights and Responsibilites of the Named InsurED?

A
  • Authorizes changes and submits claims.
  • Has a duty to pay the policy premium.
  • Maintains the right to cancel their policy and is notified in the event of cacellation.
46
Q

What can you find listed in the Insuring Agreement / Insuring Clause?

A

Describes the covered perils, or risks assumed, or nature of coverage. This is where the insurance company makes one or more express promises to indemnify the insured.

47
Q

What is The Insurance Company’s Consideration?

A

Referred to as the Insurance Company’s promise to pay; the promise to pay claims.

48
Q

In property insurance, the policies that cover the damage to the property are broken into two categories called. Through one method or the other, these policies outline what the property is insured against.

They are either:

A

Named Peril or Open Peril policies.

49
Q

What is a Named Peril?

(also called: Stated, Specific or Multi-Peril)

A

Policies that list the covered perils; if the peril is not listed, it is not covered.

50
Q

What is an Open Peril?

(also called: Special, All Risk, Comprehensive)

A

Policies that list what is not covered (excluded) by the policy; if perils aren’t listed as excluded, they are covered.

51
Q

Bodily Injury, Property Damage, Medical Payments and Comprehensive/Collision is an example of what in the Insuring Agreement?

A

The coverage listed on the policy.

52
Q

All duties, obligations and responsibilities of the Insurer and the Named Insured are found in what part of the policy?

A

Conditions/Provisions.

53
Q

According to the Duties after a Loss Clause what must you do in the case of theft?

A

Notify the police.

54
Q

How many days do you have to submit proof of loss to the insurer according to the Duties after a Loss Clause?

A

60 days.

55
Q

What are some of the steps you must follow according to the Duties after a Loss Clause?

A
  • Give prompt notice to the insurer with exactly what happened involving the loss.
  • In case of theft, notify the police.
  • Cooperate with the insurance company.
  • Protect property from further damage (mitigate damages).
  • Prepare an inventory of the damaged property.
  • Allow the insurer to inspect the damaged property, books and records.
  • Submit a proof of loss to the insurer within 60 days.
    • The time of loss; other insurance that may cover the same item; receipts, evidence or affidavits.
56
Q

What is stated in the Assignment Clause?

A

The Insured may not transfer policy ownership without the Insurer’s written consent.

57
Q

What is stated in the Subrogation Clause?

A

The Insured must transfer to the insurance company its right to recover against any party that caused a loss after it accepts payment for the loss from the insurance company.

The insurer assumes the right to sue the at-fault 3rd party after they have reimbursed the insured.

58
Q

What does the Subrogation Clause help and prevent?

A
  • It prevents the Insured from collecting twice.
  • Helps the Insurance Company control expenses.
  • Holds the at-fault 3rd party accountable for the loss.
59
Q

What is an example of the Subrogation Clause?

A

I am rear-ended. My insurer pays to fix my car and assumes my right to sue the other driver for the damages.

60
Q

All Clauses are found where?

A

In The Conditions.

61
Q

What are the 3 Common Categories of Exclusions?

A
  1. Predictable Losses
  2. Catatrophic Losses
  3. Covered Elsewhere/By Another Policy
62
Q

What are Predictable Losses?

A

Intentional Losses; Wear and Tear

63
Q

What are some examples of Predictable Losses?

A

Rust; mechanical failure; balding tires; inherent vice which is the tendency in physical objects to deteriorate because of the fundamental instability of the components of which they are made.

64
Q

What are some examples of Catastrophic Losses?

A
  • War
  • Nuclear Hazard
  • Flood
  • Pollution
  • Earthquakes
65
Q

Your auto not being covered by your home policy and your home not being covered by your auto policy is an example of what kind of Exclusion?

A

Covered Elsewhere/By Another Policy; losses covered on another policy.

66
Q

Some exclusions can be purchased as an __________________

A

Endorsement.

67
Q

What is an Endorsement/Amendment?

A
  • A change/modification/customization to an existing policy — attached to the policy.
  • A policy addition that is not included in the standard parts of the policy.
68
Q

What is stated in the No Benefit to Bailee Clause?

A

The Bailee cannot benefit from the insured’s insurance policy and is liable for any damages that occurs while they have custody (regardless of signs).

69
Q

Who is the Bailee?

A

Someone that has care, custody or control of your property.

70
Q

What is the Bailment?

A

The insured’s property that the bailee has in their care, custody or control.

71
Q

Who is the Bailor?

A

The insured/policy holder.

72
Q

What does the Territorial Clause let you know?

A
73
Q

What is the coverage territory for Homeowner’s insurance?

A

Worldwide.

74
Q

What is the coverage territory for Auto insurance?

A

Standard Territorial Definition — the U.S., U.S. Terriroties & Possessions, and Canada.

75
Q

What country is not covered under the Standard Territorial Definition?

A

Mexico.

76
Q

U.S. Territories and Possessions include:

A
  1. The Commonwealth of Puerto Rico
  2. Guam
  3. The U.S. Virgin Islands
  4. American Samoa
  5. The Commonwealth of the Northern Mariana Islands (CNMI)
  6. The Midway Islands
  7. Wake Island
77
Q

What is a Waiver?

A

The intentional and voluntary relinquishment of a known right caused by actions taken or not taken.

78
Q

What is Estopped?

A

The insurance company is stopped from acting because they waived their right. They are “e-stopped” from reasserting a known right; estoppel follows waiver.

79
Q

What is a Written Premium?

A

Premium paid in full at inception of the policy - does not change with time.

80
Q

What is Earned Premium?

A

The premium the insurance company earns because they have provided coverage.

81
Q

What is Unearned Premium?

A

The premium the insurance company has not earned because they have not provided coverage as of yet.

82
Q

What is Desposit Premium / Premium Deposit?

A

The premium paid as an upfront speculated amount based on the risk assumed that has the ability to be adjusted or changed if the risk assumed changes.

83
Q

What is the Cancellation Clause?

A

The termination of coverage during the policy period.

84
Q

When can The Named Insured cancel their own policy?

A

The Named Insured can cancel their own policy at any time for any reason.

85
Q

When can The Insurer cancel the policy?

A

The Insurer can only cancel the policy if they comply with state guidelines.

86
Q

What is the Non-Renewal Clause?

A

The Insurance Company terminates coverage when the policy ends (aka Expiration Date).

87
Q

What is Pro-Rata?

A

The Insurance Company (the professional) cancels the policy; The Insurance Company keeps only the premium they have earned during the policy; an unearned premium refund.

88
Q

What is Short-Rate?

A

The Named Insured cancels the policy; the Named Insured keeps only the unearned premium minus a penalty.

GEORGIA LICENSING - GEICO (2 decks)

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