Ch 2 | Insurance Policy Analysis Flashcards
Six Characteristics of an Ideally Insurable Loss Exposure
Pure risk—involves pure risk, not speculative risk
Fortuitous losses—subject to fortuitous loss from the insured’s standpoint
Definite and measurable—subject to losses that are definite in time, cause, and location and that are measurable
Large number of similar exposure units—one of a large number of similar exposure units
Independent and not catastrophic—not subject to a loss that would simultaneously affect many other similar loss exposures; not catastrophic
Affordable—premiums are economically feasible
contract of indemnity
The purpose of insurance is to restore a party who has had a loss to the same financial position that party held before the loss occurred. This is known as indemnifying the party for its loss.
principle of indemnity
the insured should not profit from a covered loss. Insurance policies contain various provisions to clarify that the insured cannot collect more than the amount of the loss.
contract of utmost good faith
An insurance policy based on the assumption that the insured has voluntarily revealed to the insurer all information pertinent to the risk being insured.
Contract of adhesion
Any contract in which one party is put in a “take-it-or-leave-it” position and must either accept the contract as written by the other party or reject the contract entirely.
Which type of insurance form is most widely used—a preprinted form or a manuscript form?
Most policies are issued on preprinted forms, but insurers also develop specific policies called manuscript forms when needed for particular customers.
A self-employed hairstylist wants to make sure she’s covered in case a client sues her. Would her insurance agent suggest a standard form or a manuscript form?
The hairstylist’s insurance agent would likely suggest a manuscript form.
5 main provisions of insurance policies
Declarations
Definitions
Insuring agreement
Policy conditions
Policy exclusions
Declarations page
An insurance policy information page or pages providing specific details about the insured and the subject of the insurance.
insuring agreement
states the insurer’s promises to the insured. A policy that provides more than one coverage can have more than one insuring agreement. For example, an auto policy has an insuring agreement for physical damage and one for liability. Often, an insuring agreement introduces a coverage section with a summary of what the insurer will do.
why do insurers use policy exclusions?
To eliminate coverage for uninsurable loss exposures
To discourage the insured from intentionally causing a loss
To reduce duplicate coverage
To eliminate unnecessary coverage
To eliminate coverages that need special treatment
