Ch. 1 (Insurance Terms and Related Concepts) Flashcards
What is the “Law of Large Numbers?”
The Law of Large Numbers describes how the average of a randomly selected large sample from a population is likely to be close to the average of the whole population; the larger the pool, the more predictable the amount of losses will be in a given period.
Define “Underwriting.”
The process an insurance company uses to decide whether or not to accept an application for a policy.
What do underwriters do?
Insurance underwriters evaluate the risk and exposures of potential policyholders; they decide how much coverage the policyholder should receive and how much they should pay for their premiums.
Define “Peril.”
A cause of property losses.
What are 9 examples of insurance perils?
- Fire
- Lightening
- Explosion
- Windstorm
- Hurricane
- Collapse of a building
- Vandalism
- Accidental discharge
- Theft
What is a hazard?
A situation that poses a level of threat to life, health, property or environment; most hazards are “dormant” or “potential,” with only a theoretical risk of harm. However, once a hazard becomes “active,” it can create an emergency situation.
Define “Direct Loss.”
A direct physical loss to property.
Define “Indirect Loss.”
This is a type of loss that doesn’t result from direct damage of a covered cause loss or peril, but instead is a consequence of the direct damage loss.
For example, if a grocery store burns to the ground due to a fire, that’s a direct loss. However, the income loss due to the store’s inability to operate would be an indirect loss.
Define “Principle of Indemnity.”
This principle states that an Insured may not be compensated by the Insurance Company in an amount exceeding the Insured’s economic loss.
What is “Property Insurance?”
Insurance coverage for real (the house/dwelling) and personal (contents) property against loss or damage from perils insured against.
Define “Insuring Agreement.”
The section within an insurance policy that specifies what the Insurance Company will provide coverage for in exchange for premium payments by the Insured.
What is a “Deductible?”
The amount an Insured must pay in a loss before any payment is due from the Insurance Company; a deductible is applied per occurrence.
How are deductibles different in Texas?
Typically, a homeowner’s deductible is a “percentage deductible,” which means that the percentage is always taken from the Coverage A (structure/dwelling/home) policy limit of liability that is stated on the Declarations Page.
What is cancellation within insurance?
Termination of an insurance policy by the Insurance Company or Insured before the renewal date; either side can cancel the policy and all notices of cancellation must be done in writing.
Define “Limit of Liability.”
The maximum amount that an insurance policy will pay; limits are specified on the Policy Declarations page.
